A warehouse activity based costing model: towards a new commercial agreement between Cisco and Kuehne+Nagel

Companies need to reduce the costs and to improve the performance of their supply chains to be competitive. This is not an easy task and it requires managers to have a clear understanding about the supply chain costs and activities being executed. Through this report, we describe the development of an ABC system to increase the costs visibility over a warehouse operation. In particular, we analyze the possibility of using the ABC system to develop a new commercial agreement between Cisco and Kuehne+Nagel. We explain how the cost model is designed through a stepwise procedure and we describe the ABC system in detail. Moreover, after considering real data from the warehouse operation, we identify the main interactions in the ABC system that are useful to support operational and strategic decisions. Finally, the risks and benefits from implementing the ABC system are pointed out. With this regard, although there are some risks involved, it is still recommended that Cisco implements the ABC system because it provides more insights of the warehouse costs and many mechanisms to control the performance of the warehouse operation and to make sure that Kuehne+Nagel keeps working efficiently.