PHILADELPHIA -- Activity-based costing, the basis of Spartan Stores' Cost Plus program, has helped the wholesaler cut average store delivery times by more than 20 minutes, as well as improve delivery scheduling.
Work in activity-based costing, the process of identifying the true costs of business practices, has been under way at Spartan Stores, Grand Rapids, Mich., for the last two years. The Cost Plus program, which charges retailers based on actual costs and services used, was rolled out last year.
Spartan's goal is to use detailed activity-based costing information to make decisions that will reduce expenses in its business practices, a process known as activity-based management, said Dick Lampen, director of budget and ABM at Spartan.
Lampen spoke at the "Activity-Based Costing Strategies for Distributors" session at the Productivity Convention & Exposition, held here Oct. 26 to 29. The meeting was sponsored by Food Distributors International, Falls Church, Va., and the Grocery Manufacturers of America, Washington, as well as 12 other industry associations.
Spartan tracks 109 major activities with ABC, including warehousing, purchasing, advertising, merchandising and sales. To recover its costs, Spartan classifies all business processes as a product, service or transportation.
Spartan tracks six commodity categories: grocery, general merchandise, frozen food, dairy, meat and produce. Each commodity has a different Cost Plus markup percentage.
The wholesaler can now track costs by item code and can look at these costs by category, buyer, vendor, commodity and customer, said Lampen.
ABC/ABM work at Spartan has offered strong potential for savings in transportation as well as other operating areas of the company, he added.
"We've taken a lot of cost out of the system in transportation," Lampen said, adding that ABC has helped "create efficiencies on the part of the retailer in terms of receiving product."
But Spartan Stores had its fair share of challenges to get to this point, according to Pete Lima, transportation manager at Spartan.
Prior to Spartan's implementation of Cost Plus, transportation costs were not charged as specific fees but instead were included as part of the product cost.
"When we broke transportation out as a service, retailers were then seeing the full transportation charge and, quite honestly, some of the retailers didn't know transportation was that expensive," Lima said.
After their initial reaction, however, "A lot of retailers began to look at [delivery] time at the store," he added. "Our average time at the store dropped by more than 20 minutes. Our retailers accepted the new costing system, seeing there was not only a benefit to us but to them as well."
Breaking out costs also helped Spartan make its delivery scheduling more efficient. Like many distributors, Spartan's slowest delivery days were traditionally Tuesday and Wednesday.
To address this problem, "we built an incentive for the Tuesday-Wednesday situation," said Lima. "Some of our retailers dropped deliveries, and some got off the prime days and moved to Tuesday, which helped our delivery schedule."