Activity Based Management Essay

This essay examines the implementation and use of Activity Based Management (ABM) in various business contexts, including performance evaluation, supply chain management, and quality management. It explores the benefits of ABM, such as cost reduction, improved efficiency, and enhanced stakeholder satisfaction. The essay also discusses the challenges of implementing ABM and provides real-world examples to illustrate its application.

Implementation of and/or use of
Activity Based Management in the
context of performance evaluation,
supply chain management, quality
management etc.

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Activity based management is an approach which is undertaken to determine the
profitability of the business through consideration of each and every aspect. It includes the
costing methods which help the business to determine the cost incurred on the basis of various
activities (Cannavacciuolo and et.al., 2015). Value chain analysis can be considered as a tool
which has been undertaken improve strategies and decision in the business. This implementation
of value chain will be helpful to a business in increasing productivity as well as profitability of
business. Red Rooster has been chosen for this report, It is an Australia based fast food
restaurant chain which founded in 1972 . The product line up for this company includes whole
roasts, wraps, burger, fish related product, desserts and beverages.
This report focuses on various aspect such as implementation or use of activity based
management in context of supply chain, quality management, evaluation of performance,
environmental stability which satisfy the organisational stakeholders. In addition, this report
focuses on long term viability or sustainability of the organisation.
MAIN BODY
Activity based management (ABM) also known as activity based costing method under
which classification of organisational activities is carried out and are further assigned with each
unit costs so that it leads to effective decision making. This approach helps the business in
building various strategies in respect to achieving business goals & targets. This model assists in
analysing direct or indirect cost as they examine optimum consumption of resources which
further enhances organisational performance (Connelly and et. al., 2013).
Activity based management helps an organisation in evaluating their current performance
which help the organisation to achieve their goals & objectives. It provides various strategies
which is beneficial for the company in undertaking effective decision in respect to business
operations. There are three activity based management steps which are followed by the manager
of Red Rooster company to improve efficiency or profitability of the operations. Firstly,
manager need to identify those activities which are considered essential for business operations.
ABM allows the organisation to conduct a detail analysis regarding their operational functions
which helps in estimation of cost and other related overheads cost not required at the time of
using activity based management. It can create issue if manger not measuring the performance of
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production or outcomes of manufacturing as it will not be convenient for a person responsible to
employ activity based costing within organisational practices.
After the analysis of all activities, next step is to identify and measure activities that are
valuable in context of the organisation and activities which needs to be eliminated for the Red
Rooster company. If they are valuable, then company must pursue for the further activities and if
not, then they try to eliminate that step or process. Valuable activities are those which help the
organisation to enhance their performance or improve their product’s quality. Non- valuable
activities are those which do not help the company to enhance their product quality or
performance and can be considered as unnecessary expenditure of the organisation in terms of
the profitability (Evertson and Weinstein eds., 2013). Last step for the evaluation of performance
through implementation of activity based management is that the manager of the company need
to improve their valuable activities and try to minimise or eliminate the non valuable activities.
For example: Red Rooster manager need to analyse all operational related activities and
then use high quality material for the quality product or purchase machinery for the more
productivity and it will come under valuable activity which is required to improve. Non valuable
activities include the stored material which increase the cost, so manager of the Red Rooster
company need to adopt inventory management system for the effective use for inventory. This
system helps the organisation to minimise their carrying cost because they order the material
according to the requirement. Manager regular track the inventory level for the smooth
functioning of the operational functions. With the help of Activity based management, company
evaluate the performance of the organisation.
Supply chain management is the flow of goods & services which include the process of
raw material into finished goods. Along with this, it includes the supply side activities which
maximize the customer value or experience as well as increase the competitive advantage. In this
operation, manager identify the activities related to the supply chain and it will be improved
through activity based management. ABM, use various methodology which help to identify the
area and then assign each activity cost according to the requirement of consumption. By using
this method, manager of Red Rooster assigns indirect cost such as overheads into direct cost in
comparison to the conventional costing (Goetsch and Davis, 2014).
Supply chain management involve various activities which builds value for the
organisation through supplying right quantity of material for the production of goods for the
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customers at the right price. With the help of this method, organisation need to analyse the
customer services at the lower cost where they satisfy the most. Manager of Red Rooster
company need to identify the logistic activities which organisation currently used and then it's
cost which occur at the time of performing their operational functions. In the logistic part,
company required optimum resources for the implementation of activity based costing. It help to
increase performance of an individual as well as for the whole operations.
Cost of the manufacturing goods depends upon the operations and other relevant
activities. It helps in determining of costs which has been paid by the company pay for the
completion of manufacturing process and logistic activities. Cost analysis and recording system
help the Red Rooster company to ensure best method is employed to define economic advantage
for the organisation. Activity based management help the company to reduce their logistic cost
and provide high level customer services through optimum utilization of resources.
Implementation of ABM in context of supply chain management will be categorise in various
phase. It includes the process where manager identify or classify the main logistic process and
then divined into various activities. After identifying the each activities consumption then
manager need to determine cost through resource driver (Hu and et.al., 2016). After completing
all the phase, manager assign each activity cost according to its objectives and then evaluate the
total cost. Implementation of Activity based management help the supply chain or logistic to
reduce their cost of each activity. Initially this costing method is costly which automatically
increase the cost of product which is bear by the every company. That's why it create issue at
time of implementing this method for the future cost benefits.
Every organisation need to maintain their quality in respect of product which is being
served to end consumers. So, with the help of activity based management an organisation can
improve the quality of their product so that profitability could be enhanced. It will further help
the business to achieve their organisational goals & objectives. At the time of implementing this
strategy they make sure to analyse policies regarding quality, planning and build strategies
regarding quality control or improvement.
With the help of activity based costing, company will be able to identify their direct or
indirect cost which drive the operational activities. ABM analyse indirect cost using various
methods and then measure the cost of each activity which required for the production. Manager
analyse that whether it is beneficial or not for the organisation. Next step is to identify direct cost
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and which activities related to it. After analysis of all aspect related to the operational activities,
manager of Red Rooster has to negotiate with supplier and build various strategies in respect of
handling complains, purchasing order, negotiation on price of raw material etc.
Organisation develop strategies in order to fulfil the requirement of product quality
(Joseph and et. al., 2014). Implementation of the policy and planning help to improve quality of
the offerings which is further helpful in satisfying the demand of customer. For example:
company deals in food items, so it is important to take care quality of product because it is
related to the customer's health. Company huge quality product and follow the health & safety
measurements at the time of producing goods for the effective quality. By using activity based
costing (ABC) method, Red Rooster improve their product quality which increase the demand
among the customers and it will directly increase the productivity as well as profitability. With
the help of this methods, business achieve their goals & objectives for the competitive
advantage. For the quality management, manager categories the cost under direct or indirect cost
where manager determine that which part of the organisation is sufficient for the effective
performance and which one is not. So, implementation of the activity based management help
the organisation to maintain or improve their quality for the successful results. For the
implementation, company required skilled people who can build strategy and identify the place
where they have to implement this concepts. Lack of expertise or knowledge will create issue.
Implementation of activity based management in the organisation provides the relevant
information to their stakeholders who are interested in operations of the business. The top
management in the organisation can be mentioned as the most concerned out of all the
stakeholder. They are known to evaluate financial and operational information information for
the preparation of future plans & strategies. For example: Red Rooster adopt Activity based
costing which provide the various way to improve their business efficiency or effectiveness. It
will further help the organisation to achieve their goals & objectives and to satisfy their
stakeholder is one of the objective of company. They are the important part of the business and it
includes customer, employee, supplier, owner, investors etc. When company implement activity
based costing, firstly they categorise the activities into direct and indirect form. After this,
analyse the actual cost occur for this activity or not because it will help the manager of Red
Rooster company to build their strategy according to the required consumption (Lin, 2012).
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When organisation produce quality product with low cost then it will be able to
maximize the productivity as well profit margin of the company. Which directly beneficial for
the stakeholder, who required that company being profitable so they also get the benefits from it.
It is a trend in the market that when customers are offered with decent product at low prices, they
are more inclined to buy the same after a comparison to other brands. In case of the employees,
if company performs well then they will be able to provide a better infrastructure to their
employees in the workplace who is a part of stakeholder. By using activity based costing
method, company bale to enhance their performance and profitability which attract the potential
investors. Investors take their decision on the basis of available financial information. For
example: if Red Rooster get the profit from last few years then investors defiantly wanted to
show their interstate to invest for the better returns. So basically, after successful implementation
of activity based costing method, stakeholders will be satisfied and beneficial for the same
(Mortaji and et.al., 2013).
It is essential for a business to operate profitability so that operations in the long run
could be assured. Viability of the company can be measured through its long term survival in the
market with sustainable profit for the specific period of time. ABC model include the activities
where they initially categorise activities according to their nature. It includes the cost driven,
objectives, resources and performance measurement.
Through implementing activity based costing methods, company reduce cost incurred to
produce each product which will definitely result in enhancing profit margin relating to sale of
per unit. When customer satisfy with the product quality then demand in the market also
increases which is profitable for the organisation and make them capable to survive for the
longer period. So basically, it is important for the organisation to build strategies which help
them to retail retain for the long term viable. For example: manager of the Red Rooster company
implement ABC method in their organisation. So the food quality is good and it is available at
lower price which increase the demand of food and automatically it increase the sale as well as
profit of the company (Özkan and Karaibrahimoğlu, 2013). Continuous profitability provides the
growth in the market among the consumer which help the organisation for long term viability.
For the long term viability, company need to build effective or efficient strategies which help the
business to increase their productivity or profitability. Application of activity based costing
method in the organisation provide the long term sustainability in the market.
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Environment stability is all about taking decision through consideration of all the
influential environment factors. With the help of activity based costing method, company can
basically make efforts to reduce their wastage in production activities so that higher sales and
profitability could be achieved. ABC method reduce the waste of the business through
classifying each activity and then measure the cost as well as try to reduce cost of product. This
method helps the organisation to became aware about external factors which negatively affect
the business. Through maintaining their waste, they follow the international norm regarding
environmental safety (Sarokolaei and et.al., 2013).
It will help the organisation to build various strategies according to the forces prevailing
in the market which can influence the business operations in negative and positive manner. The
undertaking of Activity based costing helps in building strategies according to the consumption
of resources which required at the time of production to reduce their waste and minimise the cost
for the increase in productivity as well profitability (Schutzer, Arthur and Anscher, 2016). For
the environmental stability, it is important to develop effective strategy through activity based
costing for the stability. On the basis of various analysis, it is concluded that organisational
capability, culture, decision making process or other external factors affect the most. So manager
of the company need to develop planning and then work according to it. Through effective
implementation of Activity Based Costing (ABC) in the organisation will provide the
environmental stability which help them to grow for the global market as well as increase their
reach to make them globalized.
Sustainability of a business in the market the provides economic or cultural benefits
which directly affect the organisation. Internal functions plays a crucial role in enhancing
sustainability of business in the operating market. Basically, with the help of Activity based
costing method, company classify each activity and then analyse the required consumption of
each activity. Because when more activities classifies then manager can effectively manage and
provide the sustainability in the organisation. ABC method divide the cost into direct or indirect
where they analyse the resources which provide value to the organisation or not.
Through implementing ABC method, organisation will be able to reduce the unnecessary
cost and at the same time improve the quality of product which increase the demand among the
customer. Manager of the company is responsible to build various strategy which help then
business to perform well in order to achieve their goals & objectives through maximising
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profitability or productivity of the business. By using activity based method, company achieve
their growth on economic grounds and also increase the competitive advantage as well as
protect the environmental or social aspect which provide the suitability (Xing, Haugen and
Schlumberger, 2013). ABC is effective method for the business because with the help of this
company can successfully achieve their requirements through classifying each activity. And then
build strategies regarding minimise the waste which increase the profit margin and create
demand in the market. It will provide the sustainability to the organisation in order to achieve
their business goals and objectives and further it helps in increasing productivity or profitability
of the company.
Their are various issues which occur in the organization at the time of implementing
Activity based costing. First one is that, it is not easy method to implement because it requires
professional knowledge and expert for successful implementation. So, if organization wants to
implement the same than they have to acquire enough skills and knowledge. Another issue is
about resources, company requires huge amount of resources at the time of implementing
activity based costing in the business. Alton with this, it required additional implementation of a
big commitment from their staff members which is not possible all the time that's why it create
issue at the time of implementation. For the successful results, manager required regular
measurement of productivity and outputs throughout the process manufacturing.
Most of the organization does not review their operational and production activity which
may create issue in the long run. The management is not inclined to spend time and resources to
implement activity based costing method which may turn out to be very effective for the work.
Assign attributes for opportunity then it will generate a issue related to the sale of marketing. It
affect the logistic, quality of products or stakeholders. At the time implementing plan, it is
difficult to follow the marketing program according to the standard. These issues occur and
affect the environmental stability, organisation suitability and change the stakeholders
viewpoint. In addition, it will create confusion while evaluating employees performance.
CONCLUSION
From the above discussion it has been concluded that, organisation need to adopt
Activity Based Costing (ABC) method which help an organisation in evaluating their cost on the
basis of activities performed in the organisation. Implementation of ABC method improve the
product quality and reduce the product cost as it enhances the emphasis on activities which are
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beneficial for the business. In addition, with the help of this methods, company evaluate their
performances, maintain their logistic, improve their product quality, provide environmental
stability with the intention of satisfying crucial stakeholders with the organisation. Along with
this, manager build effective strategies which help the business to sustain for the longer period in
the market and provide overall sustainability to the organisation.
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REFERENCES
Books & Journals
Cannavacciuolo, L., and et.al., 2015. An activity-based costing approach for detecting
inefficiencies of healthcare processes. Business Process Management Journal. 21(1).
pp.55-79.
Connelly, J.,and et.al., 2013. The use of technology to promote physical activity in Type 2
diabetes management: a systematic review. Diabetic Medicine. 30(12). pp.1420-1432.
Evertson, C. M. and Weinstein, C. S. eds., 2013. Handbook of classroom management:
Research, practice, and contemporary issues. Routledge.
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.
Joseph, R. P., and et.al., 2014. Internet-based physical activity interventions. American journal of
lifestyle medicine. 8(1), pp.42-67.
Lin, W. C., 2012. Financial performance and customer service: An examination using activity-
based costing of 38 international airlines. Journal of Air Transport Management. 19.
pp.13-15.
Mortaji, S. T. H., and et.al., 2013. Fuzzy time-driven activity-based costing. Engineering
Management Journal. 25(3). pp.63-73.
Özkan, S. and Karaibrahimoğlu, Y.Z., 2013. Activity-based costing approach in the
measurement of cost of quality in SMEs: a case study. Total Quality Management &
Business Excellence. 24(3-4). pp.420-431.
Sarokolaei, anl et.al., 2013. Time Driven Activity based Costing by Using Fuzzy
Logics. Procedia-Social and Behavioral Sciences. 75. pp.338-345.
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.
Xing, M., Haugen, B. R. and Schlumberger, M., 2013. Progress in molecular-based management
of differentiated thyroid cancer. The Lancet. 381(9871). pp.1058-1069.
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