Applying activity‐based costing approach for construction logistics cost analysis

Purpose Construction materials take up a significant proportion of the total construction cost. Without careful planning and controlling on the flow of construction materials, it is possible that the cost of materials may increase unnecessarily. In view of that, this paper aims to examine whether the development of logistics cost analysis can help determine suitable logistics strategies for a project which involves the use of bulky components like precast concrete units. Design/methodology/approach The cost elements incurred during the logistics process of precast components from the supplier's yard to the construction site are first identified through the activity‐based costing (ABC) approach. Under each element, the resources necessary to fulfil the specific element are analysed. By representing those cost components through the cost functions, simulations can be carried out to determine the logistics cost under different logistic scenarios. Findings Through the ABC approach, the resources consumed can be traced back to the consuming activity and subsequently to a particular cost element. More importantly, the results indicate that the simulation model can identify a logistics option which would result in the lowest logistics cost without affecting the construction schedule. Originality/value This paper should help increase understanding of managers and planners on construction logistics activities and their related costs so as to increase their bid competitiveness and/or improve the chance of success at the construction stage by minimising the construction logistics cost.