Mapping logistics costs and flows: a case study within the Höganäs Group 2004

Abstract: With a global market share exceeding 30 per cent, the Höganäs Group currently holds the position as the world's largest producer of iron powder and high-alloyed metal powders. The Höganäs Group is currently present in fourteen countries where local business range from sales companies to fully equipped production facilities. Good economic growth has brought an expansion of the global production capacity which has entailed changes in the logistics structure. As a consequence, the Logistics Department is lacking a holistic overview of the logistics performance. The purpose of this study is to obtain an improved overview regarding costs and flows related to logistics in order to increase the utilization of the global production capacity. Moreover, the aim is also to use this information for internal and external comparison, i.e. benchmarking, through which improvement potentials can be highlighted. Consequently, the objective is to map logistics costs and flows in order to compile a cost model through which the above aims could be realized. The central features of this study comprised the gathering and distribution of cost data. The initial analysis results in a structure containing three cost levels through which the identification of relevant data is systematically approached. Theories suggest that activity based costing provides fair means to allocate costs with respect to how resources are consumed. Logistics costs at each level are identified and categorized with respect to five different activities: Order handling, Planning, Inventory & Dispatch, Transport, and ERP-system. Empirical research provides the continuous analysis with the means to allocate all costs to cost objects, i.e. subsidiaries. The mapping results in a general cost model where the cost of logistics, expressed per ton of iron powder, is accounted for at each subsidiary and its respective market. In order to employ the model for comparison purposes, a benchmarking concept based on theories balanced with the authors obtained insight regarding the Höganäs Group, is provided. It is concluded that the cost model is valid and reliable enough to be used as a basis for decision making regarding the utilization of the Höganäs Group's global production capacity. The cost model specifies the total cost for each logistics activity and for all subsidiaries, and aim to highlight cost variations within the Höganäs Group: information that could be used in order for the Logistics Department to plan the global production with respect to the total cost of logistics. Also, along with the benchmarking concept, the cost model provides an outline regarding how to identify improvement potentials through internal and external benchmarking. The result of this study indicates that the cost of logistics accounts for 9.5 percent of the turnover related to the business area of iron powder in 2004.