DD and WD costs : The development of a model for cutting costs in Dep. X

Abstract: This paper is an exploratory case study of a logistics cost problem at Dep. X, and the normative purpose is to develop a model for Dep. X to aid in solving the problem of large damage costs. Dep. X is the logistic department of a warehouse located in a midsized Swedish city. The warehouse is part of an international furniture chain that operates in more than 40 countries worldwide and has an annual turnover of 211 billion Swedish SEK. This company has a clear cost focus and therefore, it is very important for the different departments to keep costs at a minimum. The problem that Dep. X is facing is related to damaged products, which can be further divided into Delivery Damages [DDs] (damages that are inflicted on products before the freight reaches the department) and Warehouse Damages [WDs] (damages that occur at the department). The warehouse has tried to solve the problem by forming a unit called ‘Cost hunters’. This group has some suspicions but has not yet found out the underlying reasons for the damaged goods. The thing that they know is that this is an unproportionally large cost for the warehouse, compared to other warehouses. In order for the researchers to investigate the cost issue, an abductive research strategy was used. The authors found out in an early stage of the research process that the problem was related to WDs and after a pre-study hypothesized four different problem areas to investigate:

Flaws in Communicating Knowledge Flaws in Working Environment Flaws in Motivation Flaws Concerning Customers In order to establish whether or not these hypotheses were correct, a benchmarking study was conducted with a department under the same company, which was of basically the same size. Apart from the pre-study, a total of nine interviews were conducted; five at Dep. X and four at Dep. Y. The researchers also sent out surveys to both departments, conducted a damage levels study and had a meeting with a group manager at the distribution central in order to collect the needed information. After data collection, the data were processed and analyzed, and the researchers came to the conclusion that the problem with high WDs at Dep. X was related to, firstly, flaws in communicating knowledge and flaws in the working environment. The two other problem areas, flaws in motivation and flaws concerning customers, were also to some extent related to WDs, but this impact was not considered enough to be a major cause. The authors finish the thesis by illustrating with a model how the problems seem to have arisen and by suggesting improvement areas to deal with in order to eliminate the cost issue.