What is ABC?
Activity-based costing (ABC) is a methodology that identifies activities in an organization and determines the cost associated with a specific commodity for each of those activities. This is done by identifying the actual related consumption costs, rather than applying an arbitrary fee based on the value of the commodity. The ABC model assigns indirect costs (overhead) combined with direct costs to ascertain the true cost of receiving, storing and transporting products per each specific category. These costs are then normalized per the actual volume of product handled, stored and shipped. This per unit cost is then expressed as a percentage of the total cost of goods and the resulting margin is thus calculated. Though ABC is traditionally a private-sector approach to measure costs, country governments and donors are shifting to ABC to determine the real costs of warehousing and distribution activities.
ABC is more than just a costing strategy, however. It is designed to be woven into critical management systems as a framework for continual improvement of an organization’s products, services, and processes.
Explore the resources below for more information on the details and usage of ABC:
- Fact Sheet: Activity-Based Costing Overview
- Activity-Based Costing Handbook
- Implementing Activity-Based Costing in Public Health Commodities Supply Chains
- Implementing Activity-Based Costing (ABC) and Activity-Based Management (ABM) in Warehousing and Distribution
- Support for the Africa Resource Center’s Out-Sourcing Toolkit
Read about the introduction of the ABC method in these countries:
- From Warehouses to Distribution Centers: Adopting Activity-Based Costing and Management in Uganda
- Case Study: Activity-Based Costing (ABC): Understanding True Costs in Lesotho
- Lesotho’s Drive for Excellence is Guiding Regional Reform
- Photo Essay: The ABCs of Net Distribution in Ghana
- The ABCs of Net Distribution in Ghana
Additional resources:
- Through the warehousing excellence guide Winning the Logistics Game, GHSC-PSM experts share best practices and lessons learned—including ABC—to help public health logisticians apply Center of Excellence (COE) principles and operationalize its tenets.
