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7 – 9 November 2012, Jeseník, Czech Republic , EU

7 – 9 November 2012, Jeseník, Czech Republic, EU

LOGISTICS COST ACCOUNTING OF POLISH ENTERPRISES IN THEORY AND PRACTICE

Grzegorz LEW

Rzeszow University of Technology, Rzeszów, Poland, EU

Abstract:

Cost accounting is a tool used by financial and management accounting. Problematic cost accounting is meant to improve operating efficiency in selected areas of a company. This paper presents state of knowledge on logistics cost accounting in Polish references and suggests general model of logistics cost accounting the purpose of which is to optimize logistic processes in a company. It has been based on a survey to analyze application of logistics cost accounting in companies operating in south-eastern Poland.

Keywords: logistics cost, cost accounting

1. INTRODUCTION

In recent years Polish companies have been paying more attention to optimizing relationship with their clients. This results in shifting the interests from operations that maximize effects of single transactions towards operations which aim to open up and maintain long - term profitable relationships with the clients [1]. The essence of running a business is to generate financial surplus in a short time, and maximizing company’s value is a strategic goal especially for the owners. Financial surplus in general is the difference between revenues from sales of products and costs of the revenues. Costs reflect resources of a company involved in its operational activity, that is why they should be rationally managed. Positive financial result in companies is treated as the main tool to obtain and maintain sustainable competitive advantage in the short and long run. Management of a company try to create assortment structure of their actions in a way that it optimally meets their clients’ needs. On the other hand, they take actions to optimize manufacturing methods, technical and human, which aim at lowering these costs. All activities connected with company logistics are the areas that can potentially carry possibilities to lower the costs [2, 3, 4, 5, 6]. Definitions of logistics introduced in Polish references derive from definition by Council of Logistics Management: “Logistics is the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements”. Logistics activities may include (although they do not have to be limited to): customer service, demand prediction, information flow, inventory control, arrangement, carrying out orders, repairs, spare parts delivery, locating manufacturing plants and storehouses, supply, packing, returns handling, waste managing, shipping activities and stockpiling” [7] . Obtaining and maintaining relationships with clients requires various client-oriented activities. Logistics actions are the key activities in building relationships with clients. However, these actions generate costs. Efficiency optimization of logistic actions is primarily related to enhancement of their profitability which shall result from decreased costs of these actions. System which allows companies to control logistics cost is called logistics cost accounting.

7 – 9 November 2012, Jeseník, Czech Republic , EU

7 – 9 November 2012, Jeseník, Czech Republic, EU

The purpose of this paper is to analyze the state of knowledge on logistics cost accounting in Polish literature as well as to indicate the range of cost accounting implementation and its utility in Polish companies in practice. To meet the purpose, the following research hypotheses were made:

H1: Logistics cost accounting is a tool which may support management in optimizing logistics in enterprises. H2: Logistics cost accounting is applied in Polish companies. These hypotheses were verified through the study of literature and survey results.

2. STUDY OF LITERATURE THE STATE OF KNOWLEDGE ON LOGISTICS COST ACCOUNTING

Studying logistics cost accounting, Polish authors argue that the key constituents in preparing logistics cost accounting is properly defined range and its content. The subject is not clearly represented in Polish literature and no agreement in defining logistics cost. M. Kufel’s paper is recognized as the first Polish study on logistics cost, in which he relates logistics cost to cost of materials’ flow in a company. According to M. Kufel logistics cost is a particular category of cost which reflects in money the utility of company’s assets induced by planning, implementing and controlling non-technological processes of materials relocation in time and space. In turn, B. Szałek presents logistics costs as [9]:

direct (transportation, storehouses, inventory, connection) and indirect costs,

fixed and variable costs,

supply, production and distribution,

tangibile and intangible costs,

logistic arrangements and projects ordered by logistics,

strictly logistic costs.

In his paper, Cz. Skowronek argues that logistics cost should be recognized as reflected in money use of human labor, resources and the subject of labor, and also as financial expenses and other adverse effects of extraordinary events caused by material goods transfer, e.g. raw materials, resources, finished goods, merchandise in an enterprise and between enterprises, as well as stock maintenance [10]. M. Nowicka Skowron states that logistics cost definition is determined by the sources of their origin at stages of company operation and in particular at the stage of [11]:

acquisition of materials, semi-finished products and other goods from suppliers,

external and in-house transportation,

production planning that determines intensity of material flow in production stage,

storage of semi-finished products, goods, materials and technological waste,

delivery of finished goods to the customers. Other authors define logistics cost by its complexity. J. Twaróg [12] classifies logistics cost as:

transportation costs to the company’s storehouse and to a client,

maintenance of storehouses and storage departments,

cost of data transfer concerning materials and goods, transportation and controlling,

costs of goods disposal, transportation and exploitation,

costs of capital immobilization in fixed and current assets.

Complexity of the term logistics cost influences the form of logistics cost accounting. Logistics cost accounting is

determined by sections of logistics cost register. The following are the most frequently proposed logistics cost sections [13]:

by type, flow,

stages and places of origin,

7 – 9 November 2012, Jeseník, Czech Republic , EU

7 – 9 November 2012, Jeseník, Czech Republic, EU

concerning basic logistics processes,

fixed and variable.

Consequently, logistics cost accounting shall to be treated as an integral element of an enterprise accounting. The account is designed to optimize logistics cost. There are few papers in Polish literature on the issue of logistics cost accounting. As a result, cost accounting definitions, despite being differently phrased, have similar substantial content. M. Biernacki and R. Kowalak consider logistics cost accounting as cost accounting subsystem, the purpose of which is to cumulate, classify, appraise, calculate and analyze costs connected with logistics area. In Polish literature, there is another definition by B. Świlczyński, in which he defines logistics cost accounting as a process determining costs resulting from logistics processes and use of resources for logistics services concerning

produced goods, services provided and from varied functions in economic activity [15]. On the grounds of presented definitions, a general model of logistics cost accounting may be proposed. This accounting should include:

logistics cost identification and registration system,

system of logistics cost calculation and settlement by cost drivers (resources and/or processes),

system of logistics cost analysis and evaluation,

reporting system.

System of logistics cost identification and registration should provide managers with correct information about logistics cost. In companies this system may be integrated with financial accounting system or may be run off the books. Logistics cost accounting integrated with financial accounting indicates necessity to register logistics cost in control or analytical accounts. In practice such registry is not easy to implement as many logistic costs are complex and made in many different operations performed in a company. The purpose of financial accounting

system is mainly reporting, that is why its integration with logistics cost accounting may not be profitable in practice. It seems that out of the books reporting of logistics cost accounting is a more effective solution in managerial accounting. Keeping logistics cost accounting as part of managerial accounting enables easy construction of the account and in a way that it is fully adjusted to manager’s need of information. To settle logistics cost distribution keys may be used, which settle logistics cost by cost drivers. To calculate logistics cost, specific cost of a given cost driver is determined, to which the costs are assigned. Logistics cost analysis and assessment allows to appraise logistics cost value and structure. Using operating rates it is possible to define logistics cost dynamics of changes and their contribution in relation to other variables. Logistics cost reporting provides necessary information about logistics cost to the persons responsible for their management. This information is then used for making both strategic and operational decisions on logistics.

3. SURVEY NECESSITY AND PRACTICE OF LOGISTICS COST ACCOUNTING IN ENTERPRISES

Lack of legal regulations imposing obligatory practice of problematic cost accounting in companies leads to a statement, that decision about implementation of such cost accounting stems from rational considerations. Implementation of new cost accounting in a company depends on efficiency of such action. To evaluate efficiency of a given system it is necessary to compare results of its application with costs of implementation and maintenance in a company which operates in its specific conditions. The empirical study concentrated on evaluation of the need to apply logistics cost accounting and the extend it is used in Polish enterprises. Empirical data was collected in an anonymous survey. The survey was carried out among employees from enterprises operating in south-eastern Poland involved in logistics processes. Returned surveys amounted 100 % owing to the fact that forms were distributed to the employees of companies during

7 – 9 November 2012, Jeseník, Czech Republic , EU

7 – 9 November 2012, Jeseník, Czech Republic, EU

arranged activities. The survey was carried out among 67 employees of different companies. The survey included 8 substantive questions and was constructed to meet the purpose of the research . Here only part of the survey results will be discussed by significance. Replying to question 3 from the survey, respondents answered if logistics cost substantially affected company’s financial result. Chart 1 shows their responses.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Yes Rather yes Rather
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes
Rather yes
Rather no
No
No opinion

Chart 1: Responses to the question: Do logistics costs substantially affect financial result of a company? Source: Own study.

The chart shows that according to respondents’ opinion logistics cost is a significant constituent affecting global financial result of the company. The question correlates with the next one in which the respondents had to answer if optimization of logistics cost might potentially bring the company substantial profits. Responses to this question (86% - yes, 11% - rather yes, 3% - no opinion) prove the possibilities of cost reductions in logistics area of a company. Question no. 6 from the survey concerned possibilities of logistics cost registration, responses are represented on chart 2.

60% 50% 40% 30% 20% 10% 0% Yes Rather yes Rather no No No opinion
60%
50%
40%
30%
20%
10%
0%
Yes
Rather yes
Rather no
No
No opinion

Chart 2. Responses to the question: Can logistics cost be registered separately? Source: Own study.

In the opinion of employees surveyed information systems of enterprises have possibilities of recording logistics cost. At a present time information systems, practically, give unlimited possibilities to process and represent data in various sections, as well as in logistics cost section. In relation to this question next one in a questionnaire concerned necessity of logistics cost recording. The answers are represented on chart 3.

7 – 9 November 2012, Jeseník, Czech Republic , EU

7 – 9 November 2012, Jeseník, Czech Republic, EU

80% 70% 60% 50% 40% 30% 20% 10% 0% Yes Rather yes Rather no No
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes
Rather yes
Rather no
No
No opinion

Chart 3. Responses to the question: Is it worth for management purposes to register logistics cost? Source: Own study.

Responses of studied employees (represented on chart no.2 and no. 3) practically strictly indicate possibilities and the need for logistics cost registration. In the context of responses to previous questions it can be stated that employees want to have knowledge of logistics cost for cost management purposes and consequently to reduce cost and to increase financial result of a company. Last question concerned the application by a company, in which a given logistics cost accounting employee works. The answers are represented on chart 4.

80% 70% 60% 50% 40% 30% 20% 10% 0% Yes Rather yes Rather no No
80%
70%
60%
50%
40%
30%
20%
10%
0%
Yes
Rather yes
Rather no
No
No opinion

Chart 4. Responses to the question: Does Your company use separate logistics cost accounting? Source: Own study

Responses indicate that logistics cost accounting is not used in companies of south-eastern Poland. This situation appears to be surprising in the light of all former responses.

4. DISCUSSION

Conducted studies does not allow its Author to draw a general conclusion. It is caused by imperfection of performed studies. Literature studies were limited to items in Polish language and this may affect general test result. References to significant items from academic world achievements concerning logistics areas may be found in Polish literature and for this reason it can be assumed that level of Polish elaborations does not differ from average world level. For this reason it may be presumed that studies based on statements of Polish scientists are sufficient, yet these studies are limited. The survey was carried out among 67 workers hired in companies operating in the south-eastern Poland, which also limits the possibilities to formulate generalizing statements. Undoubtedly, diversity of positions held by employees in researched entities influenced conducted empirical studies. Most of the employees (72%) deal with implementation of logistics procedures on the average management level in companies. Rest of them are

7 – 9 November 2012, Jeseník, Czech Republic , EU

7 – 9 November 2012, Jeseník, Czech Republic, EU

ordinary (serial) workers and financial department employees who handle logistics procedures. This diversity of employees could affect the knowledge of logistics cost management tools applied by a company. While on the other hand proper implementation of these tools engage completely all employees in obtaining information offered by the tools and their further implementation.

5. Conclusion

After literature and empirical studies, first hypothesis represented in the introduction can be verified favorably. Indeed, scientific papers and attitude of employees of enterprises allows to formulate thesis that logistics cost accounting has potential in logistics cost optimization (and particularly in reduction). After empirical studies response to the second hypothesis is negative. Despite the fact that researchers indicate cost accounting solutions and that there is high awareness of employees about significance of logistics cost in decisions making and about their influence on financial result of companies, this solution is not currently commonly used by Polish enterprises in practice. Managers, employees and scientists accordingly indicate great opportunities of cost reduction in logistics area. The basic tool that could be used for this purpose is logistics cost accounting appropriate implementation. It is a tool which implication is not cost intensive and its benefits relatively great. Logistics cost accounting studies will be continued, particularly to diagnose a reason why logistics cost accounting is not implemented by enterprises, even though managers, company employees and also scientists can recognize benefits due to practical implementation of this accounting.

LITERATURE:

[1]

Zarządzanie wartością klienta. Pomiar i strategie, red. DOBIEGAŁA-KORONA B., DOLIGALSKI T., Poltext, Warsaw

2010.

(„Costumer value management. Measurements and strategies.”).

[2]

ABT S., Logistyka w teorii i praktyce, Univeristy of Econimics, Poznań 2001. (“Logistics in theory and practice”).

[3]

BLAIK P., MATWIEJCZUK R., Logistyczny łańcuch tworzenia wartości, Publisher University of Opole, Opole 2008.

[4]

(„Logistics chain of value creating”). KRAWCZYK S., Zarządzanie procesami logistycznymi, PWE, Warsaw 2001. („Management of logistics processes”).

[5]

NOWAK E., PIECHOTA R., WIERZBIŃSKI M., Rachunek kosztów w zarządzaniu przedsiębiorstwem, PWE, Warsaw

[6]

2004. („Cost accounting in company management”). Podstawy logistyki, red. FERTSCH M., Logist Library, Poznań 2008. (“Basics of logistics”).

[7]

BEIER F. J. , RUTKOWSKI K., Logistyka, School of Economics, Warsaw 2004, s. 16. (“Logistics”).

[8]

KUFEL M., Koszty przepływu materiałów w przedsiębiorstwach przemysłowych. Problemy budżetowania, ewidencji i

[9]

kontroli. Univercity of Economics, Wrocław 1990. (Cost of material flow in industrial enterprises. Problems of budgeting, recording and controlling”). SZAŁEK B., Logistyka. Wstęp do problematyki, University of Szczecin, Szczecin 1994, p. 46. (Logistics. Introduction

[10]

to the problem). SKOWRONEK C., SARJUSZ-WOLSKI Z., Logistyka w przedsiębiorstwie, PWE, Warsaw 2003,. p. 336. („Logistics in

[11]

the enterprise”). NOWACKA SKOWRON M., Efektywność systemów logistycznych, PWE, Warsaw 2000. („Efficiency of logistics

[12]

systems”). TWARÓG J., Koszty logistyki przedsiębiorstw, Logist Library, Poznań 2003, p. 53. (“Logistics cost in the companies”)

[13]

BLAIK P., Logistyka, PWE, Warsaw 2001, p. 300. („Logistics”).

[14]

Koszty w zarządzaniu małym i średnim przedsiębiorstwem handlowym, red. KOWALAK R., University of Economics,

[15]

Wrocław 2007, p. 96. („The costs in managing small and medium-sized trading company”). ŚLIWCZYŃSKI B., Controlling w zarządzaniu logistyką, School of Logistics, Poznań 2007, p. 223. („Controlling in logistics management”).