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processes should be used to support, plan, One advantage of the open-book is that a
measure and assess the activities and their more trusting and harmonious relation ship may
results (Van der Meer-K ooistra and Vosselman, develop (Mouritsen et al., 2001). The negative
2000). counterpart is that buyers may use cost data to
Management accounting infor mation is a press for price reductions which are not
primary informational source for decision necessarily linked to suggestions on how to
making and control. Effective mana gement reduce costs.
accounting techniques can create consider able
value for inter-organ izational supply chains by: Target costing
• providing timely and accurate informa tion Target costing consists of three main proces ses:
about the activities required for their (1)deciding on the features of the product or
success (i.e. to support and facilitate service and estimating its selling price from
decisions throug hout the organizati on); and them;
• providing informa tion about the efficiency (2)establishing the desired profit target and
and quality of tasks perform ed, and about then calculating the target cost; and
the performance of managers and operat ing (3)achieving the previously established target
units (i.e. to ensure that actions are cost.
consistent with plans). The target cost amount must cover all the firm’s
Setting up long-term supply collaborati ons expenses for produ cing/pro curing the product or
usually involves complex negotiat ion processes. service (Ellram, 2002): purch ased-in costs,
costs of production and other operating costs
Moreover, the mechanisms and activities that
such as marketing, sales and research expen ses.
play a part in supply chain relationships must be
When used in a supply chain environme nt, the
somehow controlled. Both issues are related to
target costing process is extended to a
the need for inform ation and for shari ng
multi-firm coordination of the cost
inform ation. Manag ement accounting is viewed
managem ent efforts.
as an appropriate and powerful set of
techniques capable of providing this kind of
Kaizen costing
inform ation. Kaizen costing is similar to target costing in its
cost-reducti on mission, except that it focuses
on reducing costs during the manufactur ing
Management accounting techniques for stage of the total life cycle of a product.
supply chain management According to Cooper and Slagmulder (1999),
kaizen costing is the primary disciplining
A common feature of recent managem ent
technique of inter-org anizational cost
accounting techniques is their strong focus on managem ent during manufa cturing. The
activities or processes and a horizontal view of buyer’s kaizen costing system establishes the
the company, thereby allowing the traditio nal supplier’s selling prices. The suppliers then use
boundar ies of the company to be crossed. their own kaizen costing system to iden tify
Various management accounting techniques where they are going to reduce costs and also to
are briefly outlined below, with reference to transmit the pressure to their suppliers.
their relevance for supply chain managemen t[1].
Activity -based cos ting (AB C)
Open -book account ing ABC improves the allocation of overhead costs
It is said that a willingness to share infor mation to activities, processes, products, services and
is a prereq uisite for effective partners hips. Open customers. Moreover, this costing system
book accounting implies that the supplier allows the causal relation ships between
renders the buyer access to internal account ing expenses to be observed (Kaplan and Coop er,
data (Ellram, 1996). The purpose is to facilitate 1998).
coop eration leading to the identification of Further more, ABC systems can identify the
critical areas and subse quent cost reduc tion. additional services provided by suppliers, such
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Management accounting and supply chain management Supply Chain Management: A n InternationalJournal
Miguel Martinez Ramos
Volume 9 . Number 2 . 2004 . 134-138
as product design and development that add The potential role of management
value to the final product and reduce internal accounting in supply chain management
costs such as inspection and handling.
Axelsson et al. (2002)state that modern
Balanced sco recard (BSC) managem ent account ing could contrib ute
The BSC is composed of key measures which greatly to the design of more sophist icated ways
reflect the specific key factors that are expected of operating purchasing and supply. Following
to drive future perform ance. This mix of the Ellram’s (1996)fra mework, this would be
most valid financial as well as non-fina ncial particularly applicable to the relati onships
measures should cover different and involving the supply of so-called leverage
complemen tary functional areas. product s, strategic products and critical
Kaplan and Norton’s original (1996)BSC product s.
includes four persp ectives: The most notable functions in which
(1)financial; (2)custo mer; managem ent account ing might have a mate rial
(3)in ternal business processes; and role are discussed below.
(4)learning and growth.
Assessm ent of the advisab ility of the
The relation ship with suppliers could be cooperati on
integ rated into the firm’s corporative BSC, or Assessing the advisability of creating a
might constitute an area to be managed by cooperative relationshi p, or of main taining it
means of a specific BSC. (with possible modif ications to its
configuration)over time involve, among other
Value chain analys is (VC A)
things, the ex ante and ex post evaluation of
The core idea of VCA is to break up:
return offered by the partners hip.
the chain of activities that runs from basic raw
Accounting has an importa nt role to play in
materials to end-use customers into strategically
relevant segments in order to understand the negotiations and helps to evaluate the posi tion
behaviour of costs and the sources of of each of the parties and the consequences of
differentiation (Shank and Govindarajan, 1992, the different options under consid eration.
p. 180).
Cost mana gement
A VCA can be performed by one firm BBtaking
To overcome the intra-firm scope of traditio nal
an external perspective’’ (Shank and
cost accounting, inter-org anization al cost
Govin daraja n, 1992), or jointly, by buyers and
systems should be developed, as they can
suppliers in the supply chain (Dekker, 2003).
contribute to:
For this purpose, the cooperating firms need to • creating channels for the transmission of
share cost and performa nce informa tion. the competitive pressures facing the
different parties involved in the supply
Total cost of ownersh ip (TC O)
chain;
TCO analysis is a structured approach for • providing support for inter-firm teams in
under standing the total cost associated with the
R&D projects (e.g. designing the products
acquis ition and use of a given item or service
jointly and thus searching for one global
(Ellram, 1994). TCO is used to support
minimum cost, see Cooper and Yoshikawa,
acquis ition and planning decisions for a wide 1994);
range of assets that bring significant • allowing the negotiation of modificati ons to
maintenance or operating costs across a usable the specifications of products tran smitted
life of several years. This may be comp ared with along the supply chain, so as to reach the
similar analyses from other suppliers, pricing, planned cost objectives; and
make-buy analysis, outsourc ing and other • identifying ways of making the relation
relevant decision s. more efficient and helping members to
reduce their production costs.
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Management accounting and supply chain management Supply Chain Management: A n InternationalJournal
Miguel Martinez Ramos
Volume 9 . Number 2 . 2004 . 134-138
Ma intaining lmana ging the relations hip • The adapt ation of existing tools in each of
When the relation enters a stage of matur ity, the firms involved in order to deal with new
mana gement accounting can make an processes and supra-organ izational
importa nt contribution through inform ation relation s. This modificat ion of the
which will help in partnership mana gement and account ing systems usually stems from the
in main taining trust between the parties need for the accounting systems of the
involved. A few of these are as follows:
collab orating firms to be in tune with each
• Detailed evaluations of the joint
other.
competitive posi tion. • The appear ance of new infor mation needs
• Detailed evaluations of the investments
that derive from new objectives which
under taken.
• Planning and moni toring the shared risks require the implementati on of new
and benef its. mana gement accounting tools. The tools
• Reports on the goals reached in the based on activities (ABC, VCA), target
objectives set out concerning investment costing and the BSC are particu larly
profitability, cost reduction, quality, and so suitable in these circumsta nces.
on. • A shift in the role of mana gement
• Reports on expanding the relations to new accounta nts, towards a more managerial
businesses, markets or technol ogies. role working in cross-fu nctional teams and
contrib uting to the strategic management of
the supply chain.
Impact of supply chain management on
management accounting
Final comments
Setting up close relation ships between suppliers
and buyers requires additional reporting on While the general purpose of any managem ent
supply chain issues and the inclusion of more accounting technique can be consider ed to
and wider organizat ional and external data. support decision taking and to facilitate the
Some of the characteristi cs of the new situati on optimization and coordination of activities
are: along the supply chain, resulting in impr oved
• Increasing complexity, as there is a need to
supply chain performa nce, other effects and
integrate accounting with logistics driven
influences can be observed (see Dekker, 2003):
manufactur ing. • The objectiveness of the cost and
• The need to work across and outside the
performa nce informa tion eases
organisation al boundar ies with suppliers
commu nication, decision making and
and to link technical issues to managerial
negotiat ions along the supply chai n.
roles and probl ems.
• The system that controls the management
• Increasing intera ction between the parties,
of the supply activities must be accepted by leading to stronger social bond s.
everyone and, still more difficult, fed with To summ arize, supply partn erships are new
infor mation that comes from tools based on domains for mana gement accounting and
distinct criteria (i.e. each memb er’s control. Some new managem ent account ing
management control systems). practices are proven to be suitable for supply
Thus, the consequenc es of integration for chain managem ent, although they were not
mana gement accounting systems may give rise specifically developed for this purpose.
to the following situat ions: However, more effort must be made to promo te
• The creation of new accounting and spread the use of these and other
infor mation systems that are specifically managem ent account ing innovations and to
concerned with the shared processes and research its mutual impact when applied in an
activities. inter-firm setting.
137
Management accounting and supply chain management Supply Chain Management: A n InternationalJournal
Miguel Martinez Ramos
Volume 9 . Number 2 . 2004 . 134-138