ECR REPORT EXPLAINS ACTIVITY-BASED COSTING

DENISE ZIMMERMAN

WASHINGTON -- The Joint Industry Project on Efficient Consumer Response's new report on activity-based costing, an analysis tool used to identify and measure precise operating costs, was released late last month.

The report on ABC, titled "Activity-Based Costing for Food Wholesalers and Retailers," was prepared by Ernst & Young, Chicago, and serves as a "primer" for measuring true costs of moving products through the grocery distribution channel.

Designed for both executives and project managers, the report explores several areas of ABC, including:

Definition of ABC: The analysis tool is explained and distinguished from direct product profit, a somewhat similar accounting system. However, unlike DPP, ABC incorporates overhead and administrative expenses for a more accurate, global view of expenses.

Project Selection: With a suggestion to "start small" with a self-contained business unit, the report identifies potential areas -- such as a single-store site -- product categories or stockkeeping units in which to initiate ABC.

Project Team Setup: Skills and responsibilities for each team member are outlined for the best implementation of an ABC project.

Like all ECR best practices, activity-based costing is intended to streamline business processes. With ABC, companies can identify precise costs of a task, which can be used to develop more efficient methods of completing that task.

Seven additional reports, ranging from direct store delivery to continuous replenishment, are due out later this year. A dozen more ECR reports are set for release by March 1995.

A one-day seminar titled, "Activity-Based Costing: The Cost Management Tool of the Future," will be held Dec. 8 at the Sheraton Gateway Hotel, Chicago.