Cost models of inbound logistics activities: supporting production system design

Abstract

To make good corporate strategy decisions, it is important to have reliable data. When making relocation decisions, it is important to know not only the manufacturing cost but also the production cost, cost model including the cost drivers of the whole production system. This paper presents two cost models of inbound logistics, one to estimate the costs in a current production system in detail and one for rougher estimation of the costs in a new system. The models were developed and tested at two suppliers to the heavy vehicle industry. The models are limited to storage and handling of pallets or different kinds of containers, giving the cost per part by use of a pallet equivalent, a newly developed cost allocation parameter. The results indicate that the share of inbound logistics costs is 11-21% of the manufacturing cost plus the cost of internal material handling, indicating that it is an important cost factor.