Activity-Based Costing (ABC) at United Parcel Services (UPS)

Activity-Based Costing (ABC) At United Parcel Services (UPS)
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Abstract
The report discusses the costing technique United Parcel Services (UPS) used, its associated issues, factors contributing to those issues, and the solutions. UPS relies on an Activity-based costing process where cost is allocated for every activity. It helps managers understand what drives expenses and profitability in their business. That means they can see how changes in practices might affect costs and profits, allowing them to make adjustments before significantly impacting operations. However, the company faces challenges like finding the right cost driver, identifying which orders to include, and changing cost drivers over time. The theories used for the situation analysis are expectancy theory and complexity theory. The three recommendations are integrating logistics solutions, modifying distribution networks to reduce cost, and data mining techniques.
Table of Contents TOC \o "1-3" \h \z \u Abstract PAGEREF _Toc87604272 \h 21.Introduction to United Parcel Services (UPS) PAGEREF _Toc87604273 \h 42.Activity-based Costing in UPS PAGEREF _Toc87604274 \h 53.Problem Identification PAGEREF _Toc87604275 \h 64.Factors Contributing to Problem in ABC at UPS PAGEREF _Toc87604276 \h 65.Economies Theories, Tools and Methodologies to Analyze the Situation PAGEREF _Toc87604277 \h 75.1Theories Applicable PAGEREF _Toc87604278 \h 75.2Tools Analysis in the Problematic Situation PAGEREF _Toc87604279 \h 85.3Methodologies to Analyze the Situation PAGEREF _Toc87604280 \h 86.Solutions to the Problem PAGEREF _Toc87604281 \h 97.Conclusion PAGEREF _Toc87604282 \h 10References PAGEREF _Toc87604283 \h 11
Activity-Based Costing (ABC) at United Parcel Services (UPS)
Introduction to United Parcel Services (UPS)
UPS is a global package delivery services company. UPS has more than 220,000 employees and delivers about 15 million packages a day. The founder of UPS, James E. Casey, was not happy with the slow progress of trains and motorized wagons to deliver goods after the Great Chicago Fire in 1871. He proposed a new mule-powered delivery system to replace trains or horse-driven wagons for deliveries between cities (United States Postal Services, 2021). This new system would deliver packages faster and more efficiently than the trains and wagons at a cost that was less than either of these modes. James E. Casey built the first UPS headquarters in Cleveland, Ohio, in 1907. UPS has gone through many changes since it was founded. In 1906 UPS billed itself as “The World’s Largest Shipping Line.” Today UPS is a global logistics company with worldwide operations. UPS has the world’s largest fleet of roughly 275,000 tractors, 190,000 trailers, and 175,000 drivers that deliver packages in over 220 countries. UPS has launched its delivery service available in over 100 countries (Kujacic et al., 2015).
The United Parcel Service (UPS) is based out of Louisville, Kentucky. The company operates three primary business segments: Domestic Ground, International Ground, and International Air. They also have a Logistics segment that focuses on providing supply chain solutions to customer...