Importance of Activity Based Management

This assignment discusses the importance of Activity Based Management (ABM) in companies. ABM is a crucial task that helps evaluate performance, manage supply chain, and ensure environmental sustainability. However, several issues undermine its implementation, particularly in planning and analyzing stages. The assignment also suggests using performance evaluation and supply chain management alongside ABM to achieve proper quality management and environmental sustainability.

ESSAY

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Activity Based Management (ABM) refers to a system adopted by organisations in
relation to identifying profitability in each and every prospect of business. The agenda of using
this sort of management is for companies to effectively enhance one's strengths along with
reduction of possible elimination of their weaknesses (DRURY, 2013). Furthermore, it assists a
company in accomplishing several aspects, such as enhancing profitability of new products and
services companies have to offer, along with several other functions within an organisations like
performance evaluation. The essay below is based several key issues in relation to
implementation and use of Activity Based Management in performance evaluation, supply chain
management, quality management along with environmental sustainability, whilst satisfying
organisation's stakeholders as well as ensuring long-term viability and sustainability of the
organisation.
MAIN BODY
Activity Based Management is effective system within an organisation which could be
well utilised by a company in context with several appropriate functions performed within the
firm. Moreover, there are several advantages which could be experienced by an organisation
such as adding value to its products and processes. Through Activity Based Management, this
could be achieved through reduction in waste, improvisation in quality, reduction in lead times as
well as faster introduction of new products. In addition to this, these tasks could also be assessed
by an organisation on basis of cost-benefit analysis.
However, there are several issues which could be experienced while implementing
Activity Based Management in several of these areas mentioned above. The first and foremost
area is performance evaluation. Within an organisation, performance evaluation is a necessary
exercise which determines the effectiveness and efficiency in operations performed by each
employee, equipment, procedure and system (Goetsch and Davis, 2014). Furthermore, it is also
necessary in relation to enhance productivity of all these aspects. As an example, Coles
Supermarket is one of the biggest supermarket chains in Australia. With such immense
operations and huge workforce, it is absolutely necessary for the company to effectively monitor,
manage and enhance the performance of their organisation. Activity Based Management could
be used by this company alongside several performance evaluation strategies like Six Sigma and
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Total Quality Management for the same (Oseifuah, 2013). This management could support all
these methodologies in several aspects. As an example, it could be used by Coles Supermarket to
identify those processes which need improvement, provide cost justifications and monitor its
benefits. It helps the organisation in finding out those activities in which it spends most on, as
well as those upon which financial savings could be performed. For instance, the company is
using machineries which are obsolete and spending much on its servicing and maintenance.
Activity Based Management could help the firm in identifying such activities which are
unnecessarily adding up to cost and affecting their profitability. Another example of performance
evaluation could be regarding employees. As a crucial element of the company, activities related
to their performance could be laid out using ABM and could be used effectively in finding out
those tasks which might hinder the performance. For instance, longer and ineffective appraisal
methods could cause inappropriateness and ineffectiveness in performance of employees.
However, there are several issues underlying the use of Activity Based Management in
relation to performance evaluation. For instance, sometimes senior management could not
effectively ensure their commitment of adopting new management activity for evaluation of their
performance. Another issue which could affect implementation of Activity Based Management
for performance evaluation within Coles Supermarket is that, it requires to state several activities
for acquiring relevant information of their performance and costing. This could seem quite
overwhelming and unnecessary task for the organisation, which might reduce its effectiveness or
completely eradicate its implementation within the organisation.
Another activity which could use implementation of Activity Based Management is
supply chain management. This activity refers to management of the flow of services and goods,
which involves storage and movement of raw materials, inventory, as well as movement of
finished commodities from the point of origin to consumption. However, ABM could be
implemented within such scenario through Activity Based Costing (ABC), which is an essential
element of Activity Based Management. In such costing, instead of using traditional costing
methods, ABC underlies costings based on several activities. Within supply chain management,
companies could used the same to enhance profitability. As a brief example, it is evident that
Coles Supermarket has been working towards improving its supply chain. To enhance
profitability, the organisation has worked in respect of cutting up the cost incurred to buy goods
from farmers as well as food suppliers, which proved to be quite ineffective lately (The big
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losers in Coles’ billion-dollar gamble, 2019). Implementation of Activity Based Management
could help the firm in reviewing its internal processes too and could work towards reducing
unnecessary additions in cost. One such example is that companies like Coles have been
subjected to criticism for being too focused on themselves. As far as inventory management is
concerned, it is known that the company has had a very slow pacing flow of inventory lately,
which added up to costs and reduced its profitability (Christopher, 2016).
This requires the company to adopt Activity Based Management, which would help the
firm in laying a detailed framework regarding all its activities that are causing inefficiencies
(Namazi, 2016). However, there are still several issues which might cause hindrances in
implementation of ABM with respect to Supply Chain Management in Coles Supermarket. One
issue is that the number of logistics and supply activities are quite high, thus, it is highly likely
that several supporting activities related to supply chain management remain unidentified which
adds to the cost, such as technology to manage supply chain. This is a major issue which could
be faced by the company due to which, Activity Based Management might remain hindered and
ineffectively implemented. Another issue in implementation of ABM as faced is that application
of Activity Based Costing is very complex in nature. This might cause internal resistance in
Coles Supermarket which might be a challenge for the senior management of implementing
Activity Based Management within the firm.
Further, the issues mentioned above in its implementation further affect two major areas
of operations within an organisation. These areas are quality management and environmental
sustainability. Further, these areas experience a direct impact due the issues in its implementation
on areas like performance evaluation and supply chain management. Both of these factors could
be used appropriately in order to ensure quality management and environmental sustainability
(Schutzer, Arthur and Anscher, 2016). For instance, Coles Supermarket could use performance
evaluation to measure the working of each resource and operation in their company. For
example, in order to ensure quality management, the firm could apply Activity Based
Management in segregating each activity effectively based on performance. Such
implementation would help the managers of the company work on areas and functions that are in
requirement of improvement. As an example, distribution operations could be segregating and
evaluated within the company. This could be done by separating each activity such as
transportation used, skills of workers handling this operation, technology used for loading and
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stocking, routes undertaken for distribution etc. Through Activity Based Management,
performance of each activity could be evaluated which would help the company in quality
management.
In addition to this, it could also be assisting the company in maintaining environmental
sustainability (Kaplan and Atkinson, 2015). For example, activities like choice of transport, their
quality and routes, with application of ABM, along with Activity Based Costing, could be
modified on the basis of their costing as well as environmental sustainability these activities
would be providing. Thus, both these factors could be achieved through implementation of
Activity Based Management along with performance evaluation. However, as per the issues are
concerned, the issues mentioned above in relation to planning the implementation of this
management such as failing to get support of senior management. This could result in either
hindrances in its implementation or a complete eradication in its possibilities. Thus, there are
several issues which could arise from the ones above as a result of causality. For example, if it is
not implemented within Coles Supermarket, this would cause mismanagement of their
distribution activities and unnecessarily cost additions would be experienced by the company.
Thus, this would cause further complexities in quality management as there might be difficulties
in setting up firm criteria for evaluation of activities. Another impact which would be
experienced by the company would be ineffective environmental sustainability within the firm.
This is because, transportation related activities might not be appropriately evaluated, which also
include quality, quantity and performance in transportation system implemented within Coles
Supermarket. Thus, the firm might use additional and unnecessary transportation modes and
longer and inappropriate routes which might cause negative effects on the environment. Thus,
the issues related to performance evaluation would be having an adverse effect on both quality
management as well as environmental sustainability.
Another aspect which could be used by organisations like Coles Supermarket in relation
to ensuring quality management and environmental sustainability along with Activity Based
Management is supply chain management. Within each organisation, especially supermarkets, it
is deemed necessary that effective supply chain management activities be performed. Two main
reasons for the same are to manage the overall quality of the company, as well as, for achieving
environmental sustainability (Arnaboldi, Lapsley and Steccolini, 2015). As for quality
management, Activity Based Management alongside Supply Chain Management could be well
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utilised to ensure quality management. Through Activity Based costing, every activity could be
evaluated on the basis of quality, i.e., such as quality of raw material bought, quality of inventory
management, quality of technologies used for the same and so forth. Within this, standards could
be set regarding the desired quality and further analysis, through Activity Based Management
and Supply chain management, could be undertaken to find out any sort of deviations. Thus, this
would help the company in managing the overall quality of its logistics and supply chain.
However, as mentioned above, there are several issues undermining the implementation of
Activity Based Management, such as complexity of operations. With such high number of
activities and resources, there might be issues related to cooperation of staff and internal
resistance. Thus, this might hinder quality management in supply chain of the company. This is
because, with standard and simpler procedures, the company might continue their standard
pattern which would result in reduced quality management in their supply chain management.
As for environmental sustainability, Activity Based Management along with supply chain
management implemented within Coles Supermarket could also have allowed the company in
ensure effective sustainability. For instance, inventory management is a crucial part of supply
chain management. Through proper inventory management Coles, environmental sustainability
could be achieved and established as an integral part of its supply chain management. As an
example, the supermarket accommodates thousands of products, which includes food items that
could be perished quickly, hence, require even proper management. To reduce wastage within
this system, Activity Based Management alongside supply chain management could ensure
working of this system which provides most effective inventory planning as well as
management. For instance, ABM could help list all the activities and procedures that would
determine which task is causing a barrier in environmental sustainability. With the help of this
factor, all those activities could be removed that might cause extensive wastage and reduce
environmental sustainability. Furthermore, through implementation of supply chain
management, various methods such as Just-In-Time inventory management could ensure
effective waste reduction.
There are several issues which restrict its implementation such as supporting activities
causing ineffectiveness in its implementation (Zhu and et. al., 2015). For instance, the company's
inventory management, particularly in terms of waste, might be handled through certain waste
management database, which is secondary to other activities. Thus, Activity Based Management
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might only focus on primary activities of waste management which might hinder the possibilities
of the company to identify the loopholes in their inventory management. This would further
impact Coles Supermarket in ensuring environmental sustainability, because, with its ineffective
implementation, the organisation might fail to ensure proper reduction in wastage of food items
and other environmental related resources.
All these aspects reflect several issues in relation to implementation of Activity Based
Management within Coles Supermarket, which would result in inappropriate performance
evaluation, supply chain management, quality management as well as environmental
sustainability. However, it is very necessary that companies like the same, appropriately use this
management which would assist it reap the benefits and ensure access of each opportunities
available in the marketplace, related to the activities mentioned above (Hu and et. al., 2016).
CONCLUSION
Thus, it is concluded, that Activity Based Management is a crucial task which must be
adopted by companies in relation to evaluate performance of the company effectively, manage
supply chain, manage quality of operations within the organisation as well as ensure
environmental sustainability. However, there are several issues undermining implementation of
this management within the company which are mostly reflected in its planning and analysing
stages. These issues are very important in context with effectively analysing all those aspects
which reduce the possibility of its effective implementation. Lastly, along with Activity Based
Management, performance evaluation and supply chain management could be used within
companies to effectively achieve proper and timely quality management within the organisation,
as well as appropriate environmental sustainability which helps these companies in contributing
to benefits provided to environment.
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REFERENCES
Books and Journals
Arnaboldi, M., Lapsley, I. and Steccolini, I., 2015. Performance management in the public
sector: The ultimate challenge. Financial Accountability & Management. 31(1). pp.1-
22.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. Upper
Saddle River, NJ: pearson.
Hu, X., and et. al., 2016. Incorporation of activity sensitivity measures into buffer management
to manage project schedule risk. European Journal of Operational Research. 249(2).
pp.717-727.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Namazi, M., 2016. Time Driven Activity Based Costing: Theory, Applications and Limitations.
Iranian Journal of Management Studies. 9(3). pp.457-482.
Oseifuah, E.K., 2013. Activity based costing approach to financial management in the public
sector: the South Africa experience. European Scientific Journal, ESJ. 9(1).
Schutzer, M.E., Arthur, D.W. and Anscher, M.S., 2016. Time-driven activity-based costing: a
comparative cost analysis of whole-breast radiotherapy versus balloon-based
brachytherapy in the management of early-stage breast cancer. Journal of oncology
practice. 12(5). pp.e584-e593.
Zhu, T., and et. al., 2015. Accrual-based and real activity earnings management at the back door:
Evidence from Chinese reverse mergers. Pacific-Basin Finance Journal. 35. pp.317-
339.
Online
The big losers in Coles’ billion-dollar gamble. 2019. [Online] Available Through:
<https://www.news.com.au/finance/business/retail/the-big-losers-in-coles-billiondollar-
gamble/news-story/1b91d6a13860e9b4ba1babe0c7b662fc>
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