If your harvesting and transport activities involve producing and transporting many different assortments of timber, are you sure that you are allocating your logistics costs correctly?

Customers are increasingly demanding timber that is precisely suited to their processing needs and meeting higher quality requirements. This has resulted in increased log assortments coming from the forest. Tuomo Nurminen, Heikki Korpunen and Jori Uusitalo of Metla (The Finnish Forest Research Institute) have published an article in Silva Fennica (2009: 43(5) – 847-870) titled “Applying the Activity-Based Costing to Cut-to-Length Timber Harvesting and Trucking”.

These increased log assortments have resulted in reduced lot sizes and more time spent in sorting the logs. The reduced lot sizes also result in the forwarder and truck transport activities having to spend more time loading logs at different points. In trying to produce more and better products for the customers, additional costs are incurred. Conventional costing methods used are not able to provide sufficiently accurate information on what each assortment is actually costing to harvest and transport. It could be that the gains made by the mills in receiving better products or the higher prices paid by the mills for these assortments are not sufficient to cover the increased logistical costs.

The research set out to check whether activity-based costing (ABC) could be used to determine the actual costs of an individual activity or the entire value chain for a specific assortment. The idea of an ABC is to assign a cost to a product according to the actual resources, both material and service, used to make it. Therefore, in theory the price of the specific assortment should accurately reflect its production and transport cost.

The research proved that ABC could, and should, be used to accurately determine individual assortment value chain costs for Cut-to-Length (CTL) timber harvesting and transport. This applies at both the individual activity (e.g. forwarding) and whole logistics chain level.

Please access Silva Fennica for a detailed and more complete account of the research.
Source: http://www.metla.fi/silvafennica/full/sf43/sf435847.pdf