Two parameters replace a clipboard full of guesses.
Allocating logistics overhead by revenue or by tonnage is a guess. Time-driven costing needs only two things: a capacity cost rate per resource, and time equations that describe how warehouse and delivery work actually consumes time. The equations carry every real-world variable, heterogeneous pallets, cash payment, returns, a liftgate, so cost follows cause.
Cost and Profitability Consulting · 150+ engagements since 2010 · TDABC
TDABC for logistics uses a capacity cost rate per resource and time equations that model warehouse and delivery activity. Receiving a homogeneous pallet might take 1 minute to verify; a heterogeneous one, 15. A delivery with cash payment adds 20 minutes. These variables drive cost, so the equation captures them directly rather than averaging them away. A European distributor built this across hundreds of thousands of line items, thousands of products and thousands of customers to find its true cost to serve, with no surveys.
A rate per resource, a time per activity.
The capacity cost rate is the cost of supplying a resource divided by its practical capacity, taken at 80 to 85 percent of theoretical, so idle warehouse and fleet time does not hide inside the rate. The time equation is the minutes each activity consumes, with conditional terms for the things that actually vary. Two inputs, and they scale to the whole operation: receiving, putaway, picking, loading, delivery.
A DROP IS NOT A DROP · TIME EQUATION
Illustrative. The base drop is fixed; the conditional terms switch on per delivery. A cash payment alone quadruples the time of a simple stop, and the equation prices it exactly.
Receiving and delivery, written down.
Two illustrative equations show the shape. Each line is a minute count tied to a real driver, and the conditional lines are where two superficially similar tasks diverge in cost.
Receiving = 1 min dock + voucher (1 min + 10 sec per line) + 2.5 min per pallet unload + verification (1 min homogeneous / 15 min mixed) Drop = 5 min base + 10 min first delivery + 5 min returns + 20 min if cash payment
Illustrative. Verification swings 15-fold on one variable; the average would charge every pallet the same.
Hundreds of thousands of lines, no surveys.
Because the model is two parameters and a set of equations, it does not collapse under volume. A European distributor applied it across hundreds of thousands of line items, thousands of products and thousands of customers, the scale that proves TDABC works in distribution without a clipboard. The same equations then feed customer profitability and network decisions, one cost engine under the whole commercial picture.
Frequently asked questions
- What is TDABC for logistics?
- Time-driven activity-based costing uses two inputs: a capacity cost rate per resource, and time equations that model how warehouse and delivery work actually consumes time. Receiving a homogeneous pallet might take 1 minute to verify; a heterogeneous one, 15. A delivery with cash payment adds 20 minutes. These variables drive cost, so the equation captures them rather than averaging them away.
- Does TDABC need time studies or surveys?
- No. That is the difference from traditional ABC. TDABC estimates the time equations from observation and operational knowledge, then updates them as operations change. A European distributor built this across hundreds of thousands of line items, thousands of products and thousands of customers without running surveys.
- What is a capacity cost rate?
- The cost of supplying a resource for a period divided by its practical capacity, taken at 80 to 85 percent of theoretical rather than 100 percent. Costing against practical capacity keeps idle time out of the rate, so unused warehouse or fleet capacity shows up as its own cost instead of inflating every order.
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Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
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Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
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- 1Time-driven activity-based costing: ABC made simple and scalable
- 2Whale Curve: Definition, How to Build One, Live Simulator
- 3Cost-to-Serve Analysis
- 4Cost-Volume-Profit (CVP) and Break-Even Analysis
- 5How to calculate cost to serve, step by step
- 6TDABC vs ABC: same goal, very different effort
- 7Make-or-Buy and Relevant Costs
- 8Pocket Price Waterfall and Price Realization
- 9Transfer Pricing for Internal Profitability
- 10How to Build a TDABC Model