Werner Bruggeman

Cost modeling in logistics using time‐driven ABC: Experiences from a wholesaler

Purpose - The purpose of this paper is to describe the experiences of a wholesaler with time-driven activity-based costing (TDABC). Three research questions are addressed: How are complex logistics operations modeled by TDABC? Does TDABC provide more accurate cost information than activity-based costing (ABC)? How is TDABC cost information used? Design/methodology/approach - Case study research was performed at a Belgian wholesaler. Interviews were conducted. The cost and activity database was analyzed. Findings - This case study illustrates that there are logistics operations that cannot be modeled using a single cost driver, as is done with ABC. TDABC uses time equations to estimate the time spent on each activity. The results herein show how the time equations can capture the different complexities, by including different terms or interaction terms in the time equations. The database analysis clearly demonstrates that TDABC provided more accurate cost information than ABC at this case company. ABC oversimplified 64 percent of the activities, and misallocated 55 percent of all indirect costs. Research limitations/implications - This study is one of the first, investigating the experiences with TDABC. The results are derived from analyzing all activities, at a single case company. Practical implications - The study illustrates the technique of TDABC and provides a real company example of time equations in logistics. The users declared the TDABC model very useful for profitability reporting and profit management. The time drivers provided insight into the causes of excessive distribution and logistics costs. Originality/value - This paper complements current discussion on cost drivers and subtasks and logistics costing.

Strategic alignment and middle‐level managers' motivation in a balanced scorecard setting

– This paper sets out to develop and illustrate a model of the relationship between strategic alignment, motivation and organizational performance in a balanced scorecard (BSC) context – a comprehensive system of strategically aligned performance measures., – The study develops theoretical arguments to show how the strategic alignment process of a BSC can help companies improve their organizational performance. The study develops a theory of the motivational mechanisms that intervene in the relationship between strategic alignment and organizational performance. The literature on operations management and management control are used to underpin the theoretical propositions. A theory illustration case study is described to provide evidence for the theoretical model., – Effective strategic alignment calls for the active involvement of manufacturing executives in the BSC design and implementation process. Effective strategic alignment empowers and motivates manufacturing executives. A combination of effective strategic alignment and a BSC‐based compensation plan has a positive effect on the extrinsic motivation of manufacturing executives., – The case study offers an interesting setting to illustrate the theoretical predictions. However, it is not possible to generalize the results to the population of manufacturing companies. Future research could formally test the relationship between strategic alignment, motivation and organizational performance by using a survey questionnaire in companies that use BSCs., – This paper studies the cascading process, a systematic approach to the creation of strategic alignment using the BSC.

Cost targets and time pressure during new product development

Investigates the impact of using cost targets during new product development (NPD), in terms of design quality, product cost and development time. An NPD environment with cost targets is compared with an NPD environment where design engineers receive no specific cost targets, but are expected to “minimize” the cost level of future products. The impact of cost targets versus no‐cost targets is investigated in combination with high/low time pressure. The 2 * 2 factorial design was tested in a laboratory experiment that simulated a real design process, with customers asking for the highest design quality. The results demonstrate that cost targets during NPD lead to lower‐cost new products, while not impairing design quality or development time. However, under high time pressure, cost targets lead design engineers to work longer on the design, without a corresponding cost decrease.

Time-driven activity-based costing: exploring the underlying model

The authors propose the new approach to due diligence that employs sophisticated business modeling to identify profit opportunities in advance of an acquisition. They call it Fast-Track Profit Models, which leverages advances in process models and costing. Today, industry process templates can be customized to simulate actual operations of a prospective acquisition. Transaction data from the prospect can be run through this model to provide valuable and accurate insight into business profitability and performance across the enterprise. Specific opportunities and risks can be more rigorously identified. Synergies can also be quantified. The purpose of this article is to add a new tool that focuses on the specific opportunities to boost the profitability of the company. Through the new Fast-Track Profit Models, buyers can enjoy more accurate profitability, cost, and capacity utilization across the enterprise in days instead of months. These models highlight which specific customers, sales representatives, contracts, products, services and vendors are undermining profitability, and which changes can be made to enhance profits. This can be used for valuation, post-merger management, problem identification, exit strategies, and fundraising. In this article, the author will explain how this new tool works, demonstrate its success, and discuss its potential usage for would be acquirers, whether they be industry insiders or financial outsiders.

An empirical study of capital budgeting practices for strategic investments in CIM technologies

Abstract In recent years, an increasing number of companies have been struggling to justify strategic technology investments using traditional capital budgeting systems. The existing accounting-based decision models (such as discounted cashflow) are said to be no longer adequate to help evaluate investments in technological innovation, mainly because of the strategic, intangible nature of the benefits involved. As a result, traditional capital budgeting methods have been heavily criticized of discouraging the adoption of advanced manufacturing technologies and thus undermining the competitiveness of western firms. Some authors would argue that the only alternative is to exempt these strategic investments from the control of accounting systems. Others have developed sophisticated methods for performing an integrated strategic and financial investment analysis. At this point, however, it is still unclear which approach is prevalent in practice and which factors contribute to effective investment decisions. This empirical study attempts to shed some light on the problem by examining the capital budgeting practices of firms with regard to strategic investments in Computer-Integrated Manufacturing (CIM) technologies. Questionnaire data are used to provide a better insight into the ways in which manufacturing firms go about controlling major investments in new process technologies. In addition, tentative findings are presented about hypothesized relationships between characteristics of the investment decision making process and the perceived ex post financial performance of CIM investments.

Investment Justification of Flexible Manufacturing Technologies: Inferences from Field Research

The literature offers a variety of different views on the investment decision process for flexible manufacturing technologies, but there seems to be no consensus about what are really the key characteristics of the decision‐making process which guarantee successful advanced manufacturing technology projects. Describes and analyses the investment decision process for a set of investment projects, based on field research conducted in six manufacturing companies, and reveals some of these critical determinants.

Justification of Strategic Investments in Flexible Manufacturing Technology

Over the last years traditional accounting methods of investment appraisal (such as pay‐back period and discounted cash‐flow analysis) have been abundantly criticized for not being appropriate to evaluate strategic investments, in advanced production technology. It has been argued that strategic arguments should be used as the only sound basis for investment justification. However, opinions continue to be divided about which evaluation criterion (strategic and/or financial) should prevail in the evaluation of flexible manufacturing technology (FMT) investments if the firm is to end up with a successful project. Studies the investment decision‐making process which precedes a major investment in FMT. It is hypothesized that different ways of investment justification can lead to high financial performance of investment projects in FMT, but each way may not be equally effective in every situation. Based on field research in six manufacturing companies, some of the key characteristics of the decision process o...

BARRIERS TO SUCCESSFUL IMPLEMENTATION OF ABC FOR CONTINUOUS IMPROVEMENT - A CASE-STUDY.

Abstract Continuous improvement is the process of gradually working toward the achievement and sustainment of competitive advantage. Activity based costing has been suggested as an appropriate tool for guiding and directing the process of improvement through the use of activity based management. Several case studies have been described demonstrating the use of ABC and ABM in this process of continuous improvement. Not much has been said, however, about unsuccessful implementations of ABC and ABM. We believe we can learn a lot by analyzing cases in which the use of ABC failed or turned out to be ineffective. Therefore, we present this case study: it is a description of a company in which the ABC information could not be used in a way to yield continuous improvement. It is the objective of this paper to analyze the barriers to a succesful implementation of ABC for continuous improvement in this company

Evaluating Flexible Manufacturing Technologies: A research agenda for investment decision theory

This paper investigates the relationship between the characteristics of the investment decision process and the ex post performance of investments in flexible manufacturing technologies. Based on a sample of nine projects we formulate hypothesis about the impact of the quality the strategic analysis, the quality of the implementation planning, and the degree of detail of the financial justification on the success of the project.

Easy-to-use inventory management systems for small companies

Abstract Many small companies are running their businesses with strongly unbalanced inventories. Since micro-computers have become cheaper these companies now have the opportunity to manage their inventories more efficiently. This paper discusses the various functions of easy-to-use inventory management software for micro-computers. From our experience in implementing these systems in wholesale companies, retail companies and spare-part warehouses we will report on • the link between the inventory management system and the accounting system; • how operations research and inventory models can be applied; • when statistical forecasting is useful and when it is not useful; • the behaviour and the reaction of the software user. We also describe a simple approach to assess the potential ordering, stockholding and stockout cost savings and the service improvement due to scientific inventory control.