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Article Excerpt
In early 2003, Marco Antonio de Modesti was named the cost accounting manager for America Latina Logistica (ALL), a logistics operator with warehouses, rail, and trucking cargo transportation in southern Brazil and Argentina. As cost accounting manager, Marco oversaw the costing side of the controllership function, and his primary objective was to improve the current cost measurement system. Years of significant changes in the structure of the company had made the system increasingly deficient in providing adequate information regarding the profitability of services, products, and customers, hindering the ability of ALL managers to make accurate, informed business decisions.
As a young company, ALL sought to reinforce and execute its strategy of growth through acquisitions, strict cost control, optimum asset utilization, and a focus on its distinct competitive advantage in the rail sector. By 2004, ALL had 3,000 employees, revenues approximating R$1 billion Brazilian Reais (US$450 million), the consequence of a compounded annual growth rate of 28% from 1997 to 2004. (1) A compounded annual growth rate of 68% in the same period resulted in EBITDA (earnings before interest, taxes, depreciation, and amortization) of R$380 million (US$170 million). This rapid growth was attributable to an increase in transportation volume as well as the acquisition of other rail companies (FERROBAN in the Sao Paulo countryside in 1998 and BAP and MESO in Argentina in 1999) and a trucking company, Delara Trucking Transportation, in 2001.
The new acquisitions created a high level of change in both personnel and systems. By 2003, ALL had spent more than a year struggling with integrating the trucking operation into its business and faced the new challenge of improving the cost accounting system to provide better-quality information and facilitate faster decision making. (2)
This article describes the redesign and implementation of an improved cost accounting system for ALL. The project involved streamlining and improving the SAP ERP application and incorporating cost objects from the SAP-SD (Sales and Distribution) module. The allocation process for indirect costs was improved, and specific issues were addressed, including redefining cost pools, identifying new allocation bases, and evaluating actual vs. normal allocation rates, which ultimately resulted in the adoption of a hybrid rate. The successful implementation of the new system in 2004 produced enormous commercial and operational benefits for the company. It was instrumental in changing the culture of the commercial units. The improved metrics allowed units to make sound decisions about underperforming contracts and routes. The new system also became the backbone of a cost-based pricing model and enabled the identification of underperforming transportation routes, which were either eliminated or renegotiated to improve profitability--the end result of which was an overall increase in gross margin of 2%.
COMPANY BACKGROUND
ALL's core business is rail cargo transportation, representing 85% of total revenues. Rail transportation in Brazil was state-owned until 1997, when the service was privatized and ALL won the bid for the southern region. A new management team implemented many aggressive changes, ranging from HR policies to the cost measurement system. As part of these changes, the management team decided to implement a new SAP ERP system in 1999 to provide higher integration with the operations in other countries. After implementation, however, several factors combined to keep the SAP ERP system from being utilized efficiently, including the continued use of many old systems dating from the time of the state-owned company, such as those related to operations.
Although the SAP-CO (Controlling) module was one of the modules implemented in 1999, its use was restricted to the calculation of gross profit for each of the company's six business units at the time: North Grains, Center West Grains, South Grains, Liquid, Industrial...
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