Vector Logistics has implemented an activity-based costing (ABC) solution in response to an operational shift in the distribution market from percentage-based fees to activity-based fees.
The software ascertains principal profitability and enables managers and business leaders to understand the costs associated with each segment and activity of the business so they can more accurately assess costs and determine future business strategies.
"We have a great deal of information tied up in our SAP operational systems, and the new ABC solution allows us to extract that and model potential scenarios in a matter of days rather than months," says William Sears, project manager at Vector Logistics. "Supply chain modelling and strategy is about numbers and getting the data in a fashion so that you can detail the strategy and develop it creatively."
Vector Logistics is a specialist third-party logistics service provider for the food and related industries in southern Africa across the retail, wholesale and food service sectors. Its fleet of 170 multi-temperature vehicles at 21 depots can service business across frozen, chilled and ambient temperature zones in a single delivery, exemplifying the company's innovative use of technology as a market differentiator. Its clients include Rainbow Chicken, McCain and I&J, among others, and services a vast spectrum of customers, totalling in excess of 12 000, across the different food channels in the southern African market.
The business also uses its ABC software, based on Applix's TM1 database supplied by Cortell Business Solutions, and using front-end analysis software and analysis cubes designed and developed by Cortell, to cost various behaviours in the business.
"We have efficient and inefficient behaviours in our supply chain, and the software allows us to understand where the costs lie in our inefficient behaviour so that we can rectify that," says Sears. "This allows us to deal with discussions regarding cost and profitability of business in an objective manner."
The business also recently deployed CAST, a strategic supply chain modelling tool that TM1 enhances.
It has integrated:
* SAP R/3 - Vector's ERP system and business software tools;
* Roadshow - daily routing and scheduling tool;
* CAST; and
* TM1.
Together, these allow the business to understand the costs associated with each element of the supply chain and accurately apportion these costs across customers and clients, as well as product ranges.
"There are hundreds of rules governing the equations used to calculate the different costs," says Greg Bogiages, director at Cortell Business Solutions. "We are also in the process of designing a costing template where we calculate a rate per activity per plant so that they can take a fixed/variable cost split per volume and model it. For example, the vehicle and driver costs are fixed, while the load carried and mileage covered is variable."
"Being able to create fixed/variable cost models makes it easier to assess profitability and allows us to investigate and predict the impact that changes in our business make-up would have on the business," says Sears.
"Our business is volume-driven and therefore the impact on enhancing efficiencies is tremendous," adds Sears.
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