Operation Cost Analysis

Case Study –Forensic Cost Analysis

Description

A global pharmaceutical manufacturing company used a set of wholesalers to do some distribution functions.  In preparation for negotiations that would change the compensation for the wholesalers to a fee for service basis, the client desired an estimate of the wholesaler cost and profit for the major elements of the services provided.  The wholesalers bought and shipped product to customers and also stored product based on an agreed formula.

Project Scope

The objective of the study was to quantify and separate the cost and income of the distribution functions that the wholesaler performed from the order processing and financial aspects of the transactions.

Research, identify, and document activity volume of the wholesalers based:

  1. Publicly available financial data
  2. Shipment volume to the wholesaler
  3. Labor and space requirements
  4. Non-proprietary data collected in our work with similar wholesalers

Estimate the financial impact on the wholesaler of:

  1. Storage cost
  2. Customer order processing cost
  3. Order assembly cost
  4. Delivery cost
  5. Management cost
  6. Inventory carrying cost
  7. Purchase versus billing cash flow income

Results

The client used the information to negotiate with the wholesalers