A mathematical programming approach for supplier selection using Activity Based Costing.

Vendor selection is an important problem in today's competitive environment . Decisions involve the selection of vendors and the determination of order quantities to be placed with the selected vendors. In this research we develop a mathematical programming model for this purpose using an Activity Based Costing approach. The system computes the total cost of ownership, thereby increasing the objectivity in the selection process and giving the opportunity for different kinds of sensitivity analysis. Moreover, it allow the analyst to objectively evaluate alternative purchasing policies due to the underlying analytic and rigorous decision model.Activity based costing; Mathematical programming; Selection;

Cost drivers in transport and logistics

Improving costing methods is a current issue and at the same time a real challenge in transport and logistics business. Due to financial problems more and more companies in these sectors decide to adopt developed costing techniques like activity-based costing (ABC). This calculation methodology, however, needs to identify applicable performance measures as cost drivers. Cost drivers are key factors in ABC as they are the basis of cost allocations. This paper aims to establish a sound theoretical framework of cost driver analysis in the field of transport and logistics. After defining the scope of cost drivers in general the relevance of such measures in transport/logistics costing is examined. Methods for driver selection are described and validated by empirical results. The main conclusion of the study is that cost driver analysis plays an important role in transport and logistics management and shall be supported by using mathematical methods as far as possible. Correlation/regression counting and analytic hierarchy process (AHP) have been identified as possible methods for making cost driver selections more reliable

Cost modelling to support optimised selection of the end of life options for automotive components.

In automotive sector, the End-of-Life components, especially the uni-material components e.g. steel, plastics etc., traditionally normally go to material recycling. However, this conventional disposing approach has nowadays moved towards the secondary utilization approach which closes the loop in the material flow process, i.e. reuse via remanufacturing, reconditioning, and repairing etc. However, the economic benefit of different End-of-Life options for automotive components remain unclear, there is a need to quantitatively evaluate the economic benefit of different End-of-Life options. This project aims to develop a cost estimation model to assess the cost- effectiveness between recovery alternatives for End-of-Life automotive components. Firstly, the remanufacturing process for automotive components has been modelled consisting different stages and activities involved. Thereafter, the cost elements in each stage and the cost drivers for each cost element have been identified; cost breakdown structure has been established. Next, cost estimation relationships between cost elements and cost drivers have been established. A cost estimation model has been developed, validated and implemented in MS Excel@ platform. Finally, two case studies about comparison of different End-of-Life options for crankshaft and composite oil pan has been performed, it has been shown that the developed cost model can inform which End-of-Life option is more cost effective

Improving the efficiency of the purchasing process using total cost of ownership information : The case of heating electrodes at Cockerill Sambre S.A.

Improving the efficiency of the purchasing process provides important opportunities to increase a firm's profitability. In this paper we introduce a mathematical programming model that uses total cost of ownership information to simultaneously select suppliers and determine order quantities over a multi-period time horizon. The total cost of ownership quantifies all costs associated with the purchasing process and is based on the activities and cost drivers determined by an activity based costing system. Our approach is motivated by the purchasing problem of heating electrodes at Cockerill Sambre S.A. a Belgian multinational steel producer. In this case quality issues account for more than 70 % of the total cost of ownership making the quality of a supplier a critical success factor in the vendor selection process.Efficiency; Heating; Processes; Purchasing;

An evaluation of vendor selection models from a Total Cost of Ownership perspective.

Many different vendor selection models have been published in the purchasing literature. However there has been no systematic approach to compare the relative efficiency of the systems. In this paper we propose to use the concept of Total Cost of Ownership as a basis for comparing vendor selection models. We illustrate the comparison with real life data set of the purchasing problem of ball bearings at Cockerill Sambre, a Belgian multinational company in the steel industry. Mathematical programming models outperform rating models and multiple item models generate better results than single item models from a Total Cost of Ownership perspective for this specific case study.Evaluation; Models; Selection;

Grabbing the Air Force by the Tail: Applying Strategic Cost Analytics to Understand and Manage Indirect Cost Behavior

Recent and projected reductions in defense spending are forcing the military services to develop systematic approaches to identify cost reduction opportunities and better manage financial resources. In response, the Air Force along with her sister services are developing strategic approaches to reduce front-line mission resources, commonly referred to as the Tooth . However, an underemphasized contributing source of costs are mission support activities, commonly referred to as the Tail . With the tail historically representing a sizable portion of the annual Air Force budget, strategically managing cost behavior of these indirect activities has the opportunity to generate significant cost reductions. However, very little applied or academic research have focused on advancing the knowledge behind the economics of, or the analytic techniques applied to, these activities for cost management purposes. To address this concern, this dissertation investigates i) how organizations use analytic methodologies and data sources to understand and manage cost behavior, ii) how to identify underlying cost curves of concern across tail activities, iii) how to distinguish historical relationships between the tooth and tail, iv) how to improve the performance assessment of tail activities for improved resource allocation, and v) how to provide a decision support tool for tooth-to-tail policy impact analysis

Mapping customer needs to engineering characteristics: an aerospace perspective for conceptual design

Designing complex engineering systems, such as an aircraft or an aero-engine, is immensely challenging. Formal Systems Engineering (SE) practices are widely used in the aerospace industry throughout the overall design process to minimise the overall design effort, corrective re-work, and ultimately overall development and manufacturing costs. Incorporating the needs and requirements from customers and other stakeholders into the conceptual and early design process is vital for the success and viability of any development programme. This paper presents a formal methodology, the Value-Driven Design (VDD) methodology that has been developed for collaborative and iterative use in the Extended Enterprise (EE) within the aerospace industry, and that has been applied using the Concept Design Analysis (CODA) method to map captured Customer Needs (CNs) into Engineering Characteristics (ECs) and to model an overall ‘design merit’ metric to be used in design assessments, sensitivity analyses, and engineering design optimisation studies. Two different case studies with increasing complexity are presented to elucidate the application areas of the CODA method in the context of the VDD methodology for the EE within the aerospace secto

A simulation based supply partner selection decision support tool for service provision in Dell.

Partner selection is an important aspect of all outsourcing processes. Traditional partner selection, typically involves steps to determine the criteria for outsourcing, followed by a qualification of potential suppliers and concluding with a final selection of partner(s). Reverse auctions (RAs) have widely been used for partner selection in recent times. However, RAs, although proven successful in initial price reduction strategies for product and service provision, can suffer from reduced effectiveness as the number of executions increases. This paper illustrates Dell’s experience of such diminishing returns for its outsourced after sales product repair service and presents the development, of a new partner selection methodology which incorporates a new process improvement stage to be executed in combination with the final selection phase. This new methodology is underpinned by the development of a computer based simulation supply partner selection decision support tool for service provision. The paper highlights the significant additional cost saving benefits achievable and improvement in service through the use of advanced simulation based decision supports

Development of a life cycle cost estimating framework for oil refineries

This study is concerned with the understanding of some vital features of various life cycle costing methodologies and tools. Integrating these features with the refinery technical processes would assist in the development of a life cycle costing framework for oil refineries. The aim of this research is to develop a comprehensive life cycle cost estimating framework for the evaluation of not only the total cost and system effectiveness of new refineries but also the revamping, and maintenance of the existing refineries. Several conceptual life cycle costing models relating to various life cycle stages were reviewed, and their attachment to specific life cycle activities assessed. Furthermore, the literature review and the industry survey identified that a vital requirement for the development of a life cycle costing framework is the establishment of a structured conceptual life cycle costing model and a cost breakdown structure that will depict major cost categories and cost elements in the LCC framework. Consequently, a standard conceptual life cycle costing model and its cost breakdown structure were developed and integrated into a proposed LCC framework for oil refineries. A combination of the literature review findings and industry survey were also used to ascertain the current life cycle costing practice. It was identified that there is a lack of a practical framework to compare two or more options of refinery schemes for system effectiveness. This led to the development of a novel life cycle cost estimating framework that could be used in the evaluation of the total cost and system effectiveness of a new refinery when there is no performance data. Finally, the framework’s applicability and effectiveness was demonstrated through its application on a case study. The validation of the proposed framework and the cost estimates development within the case study was successfully carried out by experts from the industry and academia. Consequent upon the research findings, key areas for future work were identified. The implementation of the findings of this research within the industry could provide the much needed long-term benefit that comes with the formalisation of life cycle costing practice

Supplier's total cost of ownership evaluation: a data envelopment analysis approach

Supplier Total Cost of Ownership (TCO) is a widely-known approach for determining the overall cost generated by a supplier relationship, but its adoption is still limited. The complex calculations involved - and in particular the activity-based costing procedure for computing the cost of managing the relationship - pose a major obstacle to widespread TCO implementation. The purpose of this work is to formulate a Data Envelopment Analysis application (denoted 'TCO-based DEA') that can act as a proxy for TCO, and to test its ability to approximate the results of TCO with less effort. The study is based on the analysis of two categories of suppliers (74 in total) of a medium-sized Italian mechanical engineering company. The results show that TCO-based DEA is able to significantly approximate the outcomes of TCO, for both the efficiency indexes and rankings of suppliers, whilst requiring substantially less effort to perform the analysis. To our knowledge, this is the first study to develop a DEA-based tool for approximating TCO and to test it in a real-world setting. The research shows significant potential within the supply chain management field. In particular, TCO-based DEA can be used for analysing suppliers' performance, rationalising and reducing the supplier base, assisting the negotiation process