Improvement of the Follow-up of Neglected Transportation Cost of Procured Components at VILPE Oy

Abstract

The main focus of this thesis is on inbound transportation cost and its effect on profitability of the company as depending on type of the company and sector of its operations, logistics expenses might account for up to 20% of product pricing. This study focuses on cost control and the right follow-up instead of cost reduction. The aim of the thesis is to investigate if the transportation cost which is not considered as part of BOM, neither it is inserted as part of stock value, has effect on profitability of the company.

The thesis utilized action research methodology and stared with the analysis of the current situation based on the root cause analysis, the fishbone diagram, 5 Why´s and Pareto chart. The results identified the reasons for neglected transportation cost. The most significant reasons were the limited functionality of ERP and the lack of knowledge on functionalities of ERP. Based on Michael Porter´s value chain, margins of the company can be improved when any of the specified company’s activities are improved. Overall, there were nine such activities identified, including technology development and inbound logistics which affect each other. Consequently, the limited functionality of the company’s ERP was suggested to be reduced through the process re-engineering and the right selection of inventory valuation method. Also, the lack of knowledge on functionalities of ERP was suggested to be solved through the work system framework.

The thesis conformed that the transportation cost has effect on profitability of the company depending on what delivery terms were used and if the manufacturing overhead cost is utilized in calculation of cost of the products. Suggested solutions should bring the company monetary savings via cost control and the right follow-up.