Reason #1: Caterpillar success with ABC () and ABM (Activity Based Management)

During the recession most companies focus on cost reduction and cutting those operations that are not core functionality for their businesses. At the same time Caterpillar focused on the long term success by streamlining its business operations by using ABC and ABM. This led into operational optimization and increased productivity while reducing the operating costs company wide. What makes ABC effective is the method of comparing the costs of products, parts and activities at various locations. This simple exercise has enormous impact on identifying ways to improve productivity.
Reason #2: UPS and ABC

UPS created and implemented its ABC and ABM systems to link operational activities to customer segments and product categories. The benefits are developing better pricing strategies and higher profitability for the organization. The company describes ABC as cross-functional strategy that helps management better understand the key activities. The simple steps can help any business: recognizing critical activities and processes, measuring cost for each activity and assigning those costs to customers, processes and products based on activity utilization.
Reason #3: Small Company Example

Many people think ABC is a strategy used by large organizations. However fact is that numerous small businesses have benefited from implementation of ABC. It is even easier and faster to start and implement ABC and ABM in small companies. For example, a small machine business developed ABM system which led to improved “make or buy” decisions in their daily operations. First, the theoretical model was developed and then it was used to improve the business performance of their daily activities. Once the company identified the variables that drive their costs (cost drivers), they focused on identifying the value-add vs non-value-add activities which led to numerous operational productivity improvements and cost reduction and optimization at the same time.
How simple or complicated the ABC/ABM implementation can be for your business?

There are numerous examples and case studies of both – simple (cost effective) as well as complex (large investments) implementation. However always keep in mind the reason for implementing ABC is to create a better ABM system so you can improve your existing management practices. Starting at small scale and keeping ABC simple is the way to go. Once you have the system in place it is a matter of deciding if and how much you should scale it.
Is your company a good candidate for Activity Based Management?

Many people doubt that their industry is a good fit for ABC. Most business owners and executives unless they are in manufacturing sector believe somehow they business is different! However fact is that while in the 1980’s, ABC was used only in manufacturing sectors to improve their inefficient costing systems, today ABC is successfully used in each industry like services, e-commerce, distribution, healthcare and retail to name a few.
Are you ready to start right now and take advantage of ABC in your business?

If not, the good news is that there are so many opportunities and ways to improve your current operations and activities by simply starting with your ABC and ABM implementation.

ABC for Excel
Activity Based Costing in Excel