Just In Time (JIT) is a widely used production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand. The use of this inventory system is a strategy to increase efficiency and decrease waste by receiving goods only as they are needed in the production process and therefore reducing inventory costs. Just In Time works as an inventory management system with the objectives of having inventory rapidly available to meet demand, but not to a point of excess where you must stockpile extra products. Companies with large amounts of inventory like UPS, try to avoid and minimizes stocking costs and those activities related to the flow of inventory through the facilities of the
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By implementing an ABC system UPS was able to separate and identify for the same service all the factors such as time of pickup and delivery, location of pickup and delivery, transport and sort, size of the package, and information services regarding customer ID. The pickup/delivery location was one of the main aspects in which UPS allocated the cost related to the specific activity, for instance, not only distance, but also the number of facilities or cost centers for which each package will go through would determine the total cost assigned to the shipment. Moreover, transportation and sort cost assigned to an specific shipment is determined by the type of transport used in the complete process of pickup/delivery of a package. The shipments via Air or Ground transportation were assigned different levels of differentiation based on the time, for instance, air freed costs are based on the type of the aircraft, the distance flown, and the number of flights segments required. New programs implemented by UPS like, UPS Smart Pickup and Daily On-Route Pickup permitted the company to minimize the cost associated with individual shipments by taking advantage of combining pickup and delivery activities. Through the use of ABC system, UPS realized that from a costing point of view products were not a significant driver of cost, it was the customer …show more content…
Unprofitable routes were outsourced to the United States Postal Service (USPS), which also benefited from the arrangement. Since the USPS already delivered mail on every route, it generated additional revenue for marginal extra costs. In addition, the ABC system helped to uncover the non-value-added time and cost of shipments between several of UPS customers. For example, a supplier might send raw materials to UPS to hold in a warehouse. UPS would then deliver the raw material to a producer, which, after manufacturing a product, might use UPS to ship it to a distributor. The distributor might then use UPS to deliver a product to an end user. Every time UPS picked up a package in this chain of activity, it entered information about the package into its systems, consuming both stocking and labor cost (Kohli, 2007).By allowing the supplier to input the shipment data directly into UPS’s systems, UPS reduced ground shipping time by one day, which is a significant advantage and cost reduction factor compared to its competitors (Brooks,
By implementing an ABC system UPS was able to separate and identify for the same service all the factors such as time of pickup and delivery, location of pickup and delivery, transport and sort, size of the package, and information services regarding customer ID. The pickup/delivery location was one of the main aspects in which UPS allocated the cost related to the specific activity, for instance, not only distance, but also the number of facilities or cost centers for which each package will go through would determine the total cost assigned to the shipment. Moreover, transportation and sort cost assigned to an specific shipment is determined by the type of transport used in the complete process of pickup/delivery of a package. The shipments via Air or Ground transportation were assigned different levels of differentiation based on the time, for instance, air freed costs are based on the type of the aircraft, the distance flown, and the number of flights segments required. New programs implemented by UPS like, UPS Smart Pickup and Daily On-Route Pickup permitted the company to minimize the cost associated with individual shipments by taking advantage of combining pickup and delivery activities. Through the use of ABC system, UPS realized that from a costing point of view products were not a significant driver of cost, it was the customer …show more content…
Unprofitable routes were outsourced to the United States Postal Service (USPS), which also benefited from the arrangement. Since the USPS already delivered mail on every route, it generated additional revenue for marginal extra costs. In addition, the ABC system helped to uncover the non-value-added time and cost of shipments between several of UPS customers. For example, a supplier might send raw materials to UPS to hold in a warehouse. UPS would then deliver the raw material to a producer, which, after manufacturing a product, might use UPS to ship it to a distributor. The distributor might then use UPS to deliver a product to an end user. Every time UPS picked up a package in this chain of activity, it entered information about the package into its systems, consuming both stocking and labor cost (Kohli, 2007).By allowing the supplier to input the shipment data directly into UPS’s systems, UPS reduced ground shipping time by one day, which is a significant advantage and cost reduction factor compared to its competitors (Brooks,