Cost models of inbound logistics activities: supporting production system design

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.