United Parcel Service (UPS) was founded in 1907 as a messenger company. It has grown into a multi-billion dollar corporation. Today UPS is a global company and one of the most admired and recognized brands in the world. UPS has become the largest delivery package company and leading provider of specialized transportation and logistics services in the world.
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx, 2009). The key to cost allocation under ABC is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities (Gapenski, 2012). This is a marked departure from the practice of sharing overheads costs equally or overheads becoming part of the overall profit-loss estimate instead of component product pricing (Nayab, 2011).
The pros of using ABC is the capacity to estimate the cost of services and individual products. By transferring overhead costs to individual units of products or services, ABC helps identify inefficient or non-profitable products or activities that eat into the profitability of efficient processes or highly profitable products (Nayab, 2011). This will help the company to determine whether to implement processes for improvement or outsource those processes. ABC highlights non-remunerative distribution channels allowing the management to adopt alternative marketing strategies or close down the channel for a more pro...
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...y activities of packages and track movements. Being able to track movements allows UPS to expand its ability to properly measure the cost of products. Product cost can be measured via work measurement and package movement.
Activity and customer analysis allow UPS to determine the most efficient way to minimize cost for the business and for their customers. ABC system is also used to measure invested capital. UPS includes capital requirements into pricing and growth strategies to ensure positive Economic Profit (ups.com). Invested capital is assigned to products, the results reflect different degrees of capital intensity across ground and air operations. ABC system allows UPS to perform current applications- performance measurement, planning & forecasting, cost reduction efforts, pricing, incentive administration system and customer performance measurement.
If done right, I believe that all of the costs can be allocated to each of the three products through both direct and overhead costs. The only direct costs that are being included currently are labor and manufacturing costs. I broke up overhead into overhead based off direct labor and overhead based on units sold.
Real Threat of Substitute Products or Services: High customer satisfaction earned through conscientious drivers, high reliability, and Internet-based tools has kept UPS at the top. UPS has created an economic advantage by assembling a dense integrated global shipping network that is unlikely to be matched by any but a few global players.
The United Parcel Service known also as the “Brown Giant” is the powerhouse in the air delivery, freight and parcel service industry. The United Parcel Service is based in Atlanta and is the world’s largest package-delivery firm. UPS delivers more than 3 billion parcels and documents per year. United Parcel Service operates 150,000 vehicles and 575 airplanes and is the dominating force in the United States ground delivery market. UPS is announcing that it’s ever expanding company with new acquisitions in the Asia/Pacific region, Latin America, and Europe. With its bureaucratic approach to the company’s management system with tight rules and regulations, and a well-defined division of labor in each plant from top to bottom is key in there success. The company has daily worksheet to specify goals and the work output. The daily employee quotas and achievements are reported on a weekly and monthly basis. I have experienced this bureaucratic approach to management first hand as an employee at UPS. From my experience there, I have seen how the company works from the inside out. I hope to relate valuable information that I gained there in my assignment to develop and analyze the management aspects of the United Parcel Service. I will cover key issues in the basic management structure of UPS including the external factors that shape the organization of the company, recent challenges to UPS.
UPS is performing better than FedEx in financial performances. From 1997-1999, UPS reported average net profit margins of 6.5% while FedEx¡¦s was 2.8% and ROE of 25.2% for UPS and 10.6% for FedEx. Although UPS¡¦s net income in 1999 dropped significantly, it was result of a tax dispute, which should not affect the sustainability of the UPS financial performance. One of the factors driving this performance is the growth in the international delivery business. International operations in 1999 has accounted for 13% of the UPS¡¦s revenues and 5% of the operating profits. International package revenue grew 50% since 1994 and international...
IT management also prepared UPS for BCP-DR to avoid downtime. UPS’s IT infrastructure allowed customisations to incorporate unique functional requirements of customers. UPS also reduced its application development time by reducing rework. It created reusable modular applications. UPS has been very receptive towards the opportunities created by the IT to boost its core business. Even after this UPS was not able to keep up its pace with every valuable system development request. By 2000, UPS had a major share in domestic integrated package delivery services, but had an insignificant share in international, though the international market was growing at a double-digit rate. Therefore, the UPS management decided to allocate IT resources to the most strategic opportunities and preserve as appropriate via infrastructure
FedEx’s strengths as a company include its company culture and workforce (Ferrell & Hartline, 2011). The corporation has always chosen to be innovative in providing the most timely distribution services (Ferrell & Hartline, 2011). For example, their focus on technology that can be installed in at a customers business to create their own shipping labels through Ship Manager (Ferrell & Hartline, 2011).
Besides, an organisation can adopt a technique of activity-based costing (ABC) as an approach to support its sustainability objectives. ABC system is a technique of assigning overhead costs to products and services by identifying the cost drivers. ABC technique will first identify each activity cost that is involved in the process of production, then assign the cost to each product and service on the basis of each activity consumption in the production of each product and service (Drury, 2012, p. 253). ABC system is an effective method to account for costs of products and services. This is because ABC system allocates indirect costs based on a cause-and-effect relationship (Drury, 2012, p. 269). ABC system allocates overhead costs to cost
UPS is a global parcel transportation company, if we look at the numbers we could say that UPS is the third biggest parcel delivery company in the world.
Customer value is analyzed by market segments and product line using tools and the collected data produces product line strategies (Cargill Corn Milling, 2008). On the other hand, Nestle Purina has several supporting processes, critical to their goal for achieving customer value and sustained financial success (Nestle Purina, 2010). For example, Nestle Purina Organizational Questionnaire (OCQ) process of taking the voice of the customer and deploying it to employees and their behavior has been refined and improved numerous times over the last several years (Nestle Purina, 2010). This and various other processes go through multiply cycles of improvement prior to the process is agreed upon by management and leadership. Lockheed Martin, has adopted 7 to 20 Lean Six Sigma (LSS) program teams to develop innovative solutions for customer value and cost control (Lockheed Martin, 2012). They also monitor and control program and product cost through Program Performance Measurement Process (PPMP) which consist of five key areas of program management to provide reporting data. This process is reviewed by various levels of management, customers and suppliers at least monthly to identify any potential issues that could impact their ability to meet cost projections (Lockheed
Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability. In a company, there are many products on sale, if one product is sold at a high price with low product margin and a product with high product margin at a low price, it may result in a loss. In addition, due to the reason that cost drivers and enterprises business may change, activity-based costing analysis also needs to be revised periodically. This amendment should be prompted to change pricing, product, customer focus and market share strategy to improve corporate profitability.
1.What is the ABC cross model? Define what is meant by the product costing, process costing, and the “what-if” cost-modeling perspectives of ABC.
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
Activity-Based Costing ( ABC ) Summary The business environment in the 1990s is markedly different from that of the past when conventional cost accounting procedures were established. Activity-based costing (ABC), pioneered in the late 1980s, offered a new costing approach consistent with the changed environment. However, ABC did not diffuse rapidly into the business community.
In 1907, Jim Casey and Claude Ryan founded American Messenger Company, a delivery and errand service, from a small-spaced basement office. As their service grew, the Seattle teens began making small package deliveries for local stores. The company’s name changed to Merchants Parcel Delivery, and the founders later changed their name to United Parcel Service (UPS) after acquiring Motor Parcel Delivery in Oakland, California. Today, UPS is the world’s largest package delivery corporation with about 18.3 million packages and documents transported per business day throughout 220-plus countries. The company’s operations include 400,000 employees, 110,000 motor vehicles, 650 aircrafts, and more than 2,300 facilities. UPS’s total revenue derives from domestic and international operations, 78% and 22% respectively. Additional income is created
Technology and UPS To begin with, UPS has a wide range of information technology infrastructures, as well as advanced measures to help keep up with the growing information world that is in present time. Moreover, UPS uses its information technology to track and forecast the movement of products to ensure customers can check each step of the journey. In addition to its unparallel information support features, UPS's technology leadership also gives customers tools to plan and supervise their supply chains to maximize productivity. On the other hand, UPS, together with its global technological infrastructure, uses the largest private database and largest private wireless network in the world today.