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Cost concepts in transportation are critical in the management of logistics in every company that has to adopt distribution processes in their production. It is identified that the need to increase the profitability of a company as well as the ease with which the company achieves its set profit margins, is highly dependent on the company’s ability to manage their production costs. The need to keep transportation costs low has led to the formulation of a number of management principles that are mainly centered on a number of accounting, economic and social principles. These are identified as the main fields that dictate transportation costs (Coyle, Novack, Gibson & Bardi, 2010). This paper seeks to evaluate the cost concepts in transportation as well as identify ways of mitigating the financial risks associated with them.
The process of accounting in a company allows the strategic managers to identify efficient centers of production as well as inefficient ones. This allows them to review their entire production strategies so as to increase their cost effectiveness and their profits. The use of superior accounting techniques enables companies to identify efficient means of transportation as well as distribution schedules that will not only reduce their total transportation costs, but also ensure that they save valuable time. This is identified to eventually increase customer satisfaction and loyalty (Christopher, 2005).
The need to evaluate the economic position of the company as well as its operating environment is often advised by the need to understand the risks that the company may be exposed to in regard to cost effective production processes. It has been identified that in the last few years, economic forces have had a huge impact on the cost of transportation due to the fluctuating of the global oil prices. The need to understand the economic forces has forced companies to conduct environmental audits so as to identify particular trends in the economy that may lead to increased transportation costs.
The social environment that a company is exposed to poses a number of risks that may increase their total expenditure on transportation. The particular aspect of security is identified as not only a direct cost, but also as a risk to the entire brand. The need to ensure customer satisfaction has forced companies to base their depots in areas where they are sure there is no social disturbance (Coyle, Novack, Gibson & Bardi, 2010). While the cost of transportation may be evaluated from the particular share of the total operating costs that it contributes, it is important to note that the efficient management of the human resource in the logistics department should increase their output per unit. This would then contribute to the total profitability of the company.
It is recommended that any company that is seeking to reduce its transportation costs as well as the risks associated with this aspect of their business, should adopt a number of internal as well as external auditing systems (Coyle, Novack, Gibson & Bardi, 2010). These should ensure that they have an understanding of the inefficiencies that are currently visible as well as those that may occur in the future. Issues such as pilferage of goods, interruption in the supply chain and erratic costs of transportation should be identified through a careful audit of the economic and social environment that the company operates in (Christopher, 2005). The use of comprehensive accounting techniques should also identify inefficiencies that increase transportation cost. Finally, the evaluation of the human resource involved in transportation to ensure their efficiency, should help mitigate losses in the department as well as increase their output.
References
Christopher, M. (2005). Logistics and supply chain management: creating value-added networks. New York: FT Prentice Hall.
Coyle, J., Novack, R., Gibson, B., & Bardi, E. (2010). Transportation: A Supply Chain Perspective. Upper Saddle River: Cengage Learning.
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