Logistics Costs at Engines Industrial Center

Abstract

Logistics Costs at Engines Industrial Center is a case that presents a real situation of how interorganizational costs play in daily operations. It aims at providing students the opportunity to understand how logistic costs are calculated and how, due to their interorganizational nature, they can influence the profit and loss account of two companies. Logistics costs represent a small fraction of total costs in manufacturing companies, but if left unattended or without a person responsible for managing and controlling them, they can erode the slim margins that manufacturing companies have. Students are presented with data of a three year project that is experiencing a small but sustained increase in variable costs that is eroding its profit margin. It is argued that the problem is rooted in the domestic logistics costs, but it is not clear until the contract is studied and the cost structure of the supplier is analyzed. An aggravating situation is that nobody in the company, EIC, takes ownership of managing logistics costs. The contribution of the students when solving this case should benefit both the provider of logistic services (the Carrier) and the consumer of those services (EIC). This case is very well suited for a management accounting course at the master’s level or advanced accounting courses at the undergraduate level. It has been used in the introductory course to management accounting in a master of business administration and in a PhD seminar being well received by students who indicated that it improved their understanding of logistic costs, their nature, behavior and possible containment strategies.