Logistics Information Management

Justification and implementation of activity based costing in small and medium-sized enterprises
A. Gunasekaran, H.B. Marri, R.J. Grieve,
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Justification and
implementation of
activity based costing
in small and medium-
sized enterprises
A. Gunasekaran
H.B. Marri and
R.J. Grieve
The authors
Downloaded by Universiti Teknologi MARA At 07:25 10 December 2018 (PT)
A. Gunasekaran is a Lecturer in the Department of
Management, University of Massachusetts, North
Dartmouth, Massachusetts, USA.
H.B. Marri and R.J. Grieve are Lecturers in the
Department of Manufacturing and Engineering Systems,
Brunel University, Uxbridge, Middlesex, UK.
Keywords
Small-to medium-sized enterprises, Activity-based costing,
Cost management, Implementation
Abstract
There is a potential to improve the overall performance of
SMEs and hence their competitiveness. Activity based
costing (ABC) is gaining importance in organizations that
are aiming for a major share in business by improving
productivity and quality. However, ABC has received little
attention from SMEs in spite of the fact that it has an
important role to play in improving the competitiveness of
SMEs. First, this paper reviews cost management
practices in SMEs. Second, justification criteria for the
implementation of ABC in SMEs are discussed. Third, a
framework has been developed in this paper for the
implementation of ABC in SMEs. Finally, some future
research directions are presented in the area of ABC in
SMEs.
Electronic access
The current issue and full text archive of this journal is
available at
http://www.emerald-library.com
Logistics Information Management
Volume 12 . Number 5 . 1999 . pp. 386±394
# MCB University Press . ISSN 0957-6053
386
1. Introduction
The ability of a manufacturing company to
compete effectively in the global market is
determined to a large extent by the cost and
quality of its products. The cost of a product
can be reduced by increasing productivity
(the relationship between total output and
total input) or by reducing manufacturing
costs at the production floor. Increasing
recognition of cost competition has forced
companies to develop efficient techniques for
the control of manufacturing facilities and
materials and hence increasing productivity
and quality. For the past few years, con-
siderable emphasis has been placed on the
cost. Manufacturing cost of a product can be
reduced by:
. minimizing the number of components
used in the product;
. designing components for ease of hand-
ling and assembly; and
. selecting the best material/process com-
bination for economic manufacture of the
individual parts (Ong et al., 1993).
Dini and Guerginal (1994) have identified
some important failure-avoiding cum success-
generating elements of small and medium-
sized enterprise's (SME's) strategy. The
primary success factors for the implementa-
tion of activity based costing (ABC) in SMEs
are related to capabilities in creating quality
products and services, and controlling capital
intensity and debt levels. Another important
capability is that of being able to create and
implement an effective policy. Thus, any
organizational process that reduces the cash
outflows for a smaller or medium enterprise is
likely to have positive impact in terms of a
reduction of debt, and the consequential
savings can be made into profits or into
improved market competitiveness through its
investment into the differentiating features of
the business or into the charging of lower
prices. Furthermore, the effective control of
cash flow may reduce long-term capital
requirements and alleviate the common
SMEs problem of under-capitalization.
Drury and Tayles (1993) surveyed man-
agement accounting practices in 260 UK
SMEs and the results supported the impor-
tance of non-financial measures, especially
measures of customer satisfaction, product
quality, delivery and supplier reliability. SMEs
have usually informal and underdeveloped
 Activity based costing in small and medium-sized enterprises
A. Gunasekaran, H.B. Marri and R.J. Grieve
accounting systems, and there is a lack of top
management support in this area. Therefore,
implementation of an integrated system in
SMEs means that the accounting systems
need to be developed rather than to be
changed. Kaplan and Norton (1992) pre-
sented the balanced score-card system (BCS)
and defined it as a set of measures that gives
top management a faster but comprehensive
view of the business. The BCS includes
financial measures that tell the results of
actions already taken. However, it comple-
ments the financial measures with operational
(non-financial) measures on customer satis-
faction, internal processes, and the
organization's innovation and improvement
activities. These measures are the drivers of
future financial performance of the SMEs
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(Laitinen et al., 1997).
The ABC system has recently attracted
much attention and was considered to pro-
vide better information about cost patterns
and the relationship between overhead costs
and the activities that drive them. The basic
concept behind product costing in an ABC
system is that the cost of a product equals the
cost of the raw materials plus the sum of the
cost of all the activities required to produce it
(Shields and Young, 1989). The ABC system
recognizes that while some of the overhead
resources increase in proportion to the
volume of products produced, the rest of the
overhead resources do not. The development
and promotion of ABC have been stimulated
and largely influenced by the work of Cooper
(1990), Johnson and Kaplan (1987). Despite
the continuing debate on its originality as well
as its relevance to product costing ABC has
been gaining acceptance in an increasing
number of organizations ranging from man-
ufacturing to retailing, from profit oriented
businesses to government institutions. These
organizations adopted ABC because it pro-
vides critical information for decision making,
such as product pricing, investment on
product engineering and improving product
mix for which accurate cost information is
crucial (Zhuang and Burns, 1992). However,
ABC has not received due attention from
SMEs although they have potential to im-
prove the performance.
The organization of the paper is as follows:
the review of the activity based costing is
presented in section 2. The brief introduction
of SMEs is presented in section 3. The
justification criterion for the implementation
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Volume 12 . Number 5 . 1999 . 386±394
of ABC in SMEs is presented in section 4.
Section 5 deals with the framework for the
implementation of ABC in SMEs. Finally,
summary and conclusions are offered in
section 6.
2. Activity based costing
For ABC, activities are viewed as prime
drivers of costs. A firm must focus its
attention on the key activities that have major
impact on the performance of the manufac-
turing company (Jeans and Morrow, 1989).
The ABC approach aims to make a more
realistic allocation of overheads to products.
The key to this is the determination of the
correct drivers for the production process.
The cost driver can be defined as the factor
that generates and controls the cost of an
activity, it is any factor that could change the
cost of the activity (Cooper and Kaplan,
1988).
The goals of ABC can be achieved by
managing the activities and it is a process of
relentless and continuous improvement of all
aspects of business. This involves a continual
search for opportunities to improve which in
turn involves a careful and methodical study
of activities (Kaplan, 1984). The analysis and
cost of activities provide financial and non-
financial information that is the basis for
activity based management (ABM). The
ABM makes this cost and operational infor-
mation useful by providing value analysis,
cost drivers and performance measures to
initiate, drive or support improvement efforts
and hence to improve the decision-making
processes. Cost Accounting Management ±
International (CAM-I) defines activity based
management as ``a discipline that focuses on
the management of activities as the route to
improving the value received by the customer
and the profit achieved by providing this
value''. The discipline includes cost drivers
analysis, activity analysis and performance
measurements. ABM draws on ABC as its
major source of information (Berliner and
Brimson, 1988).
3. Small and medium-sized enterprises
It has been accepted that the SMEs should
not have a workforce exceeding 500, net fixed
assets exceeding not more than a third of its
 Activity based costing in small and medium-sized enterprises
A. Gunasekaran, H.B. Marri and R.J. Grieve
capital held by a large firm. It should not be
forgotten that the importance attached to the
development of SMEs increased over the
1980s, and many countries now regard
satisfactory performance in this sector as a
major aspect of economic growth and ad-
justment. This trend is reflected by a relative
increase in the support given to SMEs in
organization for economic co-operation and
development (OECD) countries (against a
relatively low total expenditure), and also by
the diversity and complexity of the measures
implemented (OECD, 1993). In this context,
programs designed to improve in one way or
another the multiple aspects of scientific and
technological information transfers to SMEs,
are of primary importance. Following are
some of the characteristics of SMEs:
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. In SMEs, shop floor tasks that are closely
related to production have mostly in-
volved a high degree of human decision
making and execution.
. Personnel relationships in SMEs are
highly important.
. SMEs have a higher inherent innovative
potential than large enterprises.
. Ability to react quickly to keep abreast of
fast changing market requirements.
. Lack of bureaucracy. Dynamic, entre-
preneurial managers react quickly to take
advantage of new opportunities and are
willing to accept risk.
. Efficient and informal internal commu-
nication networks. Afford a fast response
to internal problem solving which means
provides ability to reorganize rapidly to
adapt to change in the external environ-
ment.
. A large number of SMEs have some sort
of external linkage which is of importance
to the development of their business.
. Small enterprises tend to concentrate on
traditional industries where entry barriers
are low, minimum production scales are
low, and labour intensity relatively high.
In the last two decades, several factors have
forced global manufacturers to make dramatic
changes in their products, markets, and
manufacturing strategies. The characteristics
of the twenty-first century market are global,
fragmented consumer markets, and rapidly
changing product technologies. To stay in the
market it is necessary for SMEs to adopt ABC
and management for they not only produce
parts at faster rates, but they produce parts
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Volume 12 . Number 5 . 1999 . 386±394
with greater consistency and conformity to
quality specifications. Also, ABC allows the
manufacturers to reduce the time between
customer order and product delivery; this
gives the manufacturer a competitive advan-
tage in improving customer service. The
justification criterion for the implementation
of ABC in SMEs is described in the next
section.
4. Justification criteria for the
implementation of ABC in SMEs
ABM guides efforts to adapt business strate-
gies to meet competitive pressures as well as
to improve business operations. ABM uses
the information obtained by ABC in various
analyses designed to yield continuous im-
provement. ABC information enables ABM
to guide continuous improvement processes.
It helps to direct the resources to activities
that yield the maximum profitability and to
improve the way the work is carried out. ABM
aims at two goals, both common to SMEs.
The first one is to improve the value received
by customers. The second is to improve
profits by providing this value. These goals
can be achieved by focusing on manufactur-
ing activities. Meeting these goals begins with
a simple realization ``that's customers have
very simple wants''. They want products and
services that fit their specific needs. Custo-
mers want quality service at affordable price
and to be delighted, and that has to be right
now. Meeting customer requirements is one
thing, and meeting them profitably is quite
another. It is essential for SMEs to adopt
ABC taking into account the advanced SME's
environment and their competitiveness in the
global market.
Recent manufacturing experience in SMEs
suggests that, the stable product and mass
production are no longer valid for advanced
manufacturing systems (Park and Kim,
1995). Thus, manufacturing companies have
reduced their dependence on the traditional
cost accounting (TCA) systems by imple-
menting ABC systems. Because TCA and
ABC systems have different methods of
handling overhead costs, they have differ-
ences in their estimates of cash flows with cost
accounting data. The characteristics of SMEs
and the justification criteria for the imple-
mentation of ABC in SMEs are presented in
Table I. These justification criteria are
 Activity based costing in small and medium-sized enterprises
A. Gunasekaran, H.B. Marri and R.J. Grieve
Table I Justification criteria for the implementation of ABC in SMEs
Dimensions Characteristics of SMEs
Market forces Quality, flexibility, responsiveness
Strategies TQM, FMS, BPR, JIT, MRP
Technology EDI, CAD/CAM, CAE, Internet,
Multimedia
People Multi-functional workforce,
flexible workforce, knowledge
workers, smaller team, employee
involvement
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Organization Leadership, matrix organization,
teamwork, employee
empowerment
discussed along five dimensions such as
market forces, strategies, technology, people
and organization.
Market forces
Marketing involves planning and execution of
all aspects and activities of a product so as to
exert optimum influence on the consumer to
result in maximum consumption at the
optimum price and therefore producing the
maximum long-term profit. In a global
market, people want high quality products at
lower cost. To stay in a market place it is
necessary for SMEs to bring the price of their
products at lower cost to compete in a global
market. ABC helps SMEs in this regard,
because it focuses more on non-financial
measures. By implementing ABC in SMEs, it
focuses less on cost but more on non-financial
measures and more intangible measures can
be carried out with the help of quality,
flexibility, and responsiveness.
Strategies
Strategic approach to performance improve-
ment is gaining attention in all areas of
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Volume 12 . Number 5 . 1999 . 386±394
Justification of ABC in SMEs
Less focus on cost, but more focus on non-financial
measures, more intangible measures
Financial, non-financial measures, multiple performance
measures, cost drivers, eliminate non-value adding
activities
Reduction in direct labour component, collect data
based on all activities, increase in overheads,
productivity of knowledge workers, to eliminate
congestion, on-line data collection on activities
Direct labour cost becomes an overhead, continuous
skill development, re-engineering, empowered self-
directed team for product and process developments,
improving productivity of support sources personnel,
collective responsibility and incentive scheme,
elimination of overheads
Focus on long-term strategic decisions based on quality
flexibility and responsiveness, better communications
and team working environment, reduce time/effort
required to perform an activity, remove the functional
barriers, eliminate hand-offs, incentive scheme based
on team productivity rather than individual productivity,
conflict reduction because of knowledge workers and
collective incentive scheme, re-engineering the
suggestions by individual employees to reduce the non-
value adding activities, communication based on
motivation
manufacturing. The reason for this is that it
takes into account the long-term interest of
the company in determining suitable business
and operational policies. In manufacturing
strategy it is necessary for SMEs to avoid non-
financial measures and to minimize non-value
adding activities to reduce the cost of their
products to compete in the market. ABC
system has an ability to reduce non-financial
measures, cost drivers and to eliminate non-
value adding activities. By implementing ABC
system in SMEs it will help to reduce the
financial and non-financial measures and cost
drivers, non-value adding activities can be
eliminated with the help of strategies/methods
like total quality management (TQM), flex-
ible manufacturing systems (FMS), just-in-
time (JIT), manufacturing resources planning
(MRP), and business process re-engineering
(BPR).
Technology
In advanced manufacturing environment,
technology plays a dominant role of integrat-
ing various functional areas. Automation in
advanced manufacturing environment have
 Activity based costing in small and medium-sized enterprises
A. Gunasekaran, H.B. Marri and R.J. Grieve
reduced labour component but at the same
time overheads have increased. In manufac-
turing environment many SMEs face
problems in direct labour components,
knowledge workers and congestion inside the
company. ABC system helps in this regard to
minimize labour components, improve pro-
ductivity of knowledge workers and to
eliminate congestion. By implementing ABC
system in SMEs, it will help to reduce direct
labour component, collect data based on all
activities, increase in overheads, productivity
of knowledge workers, to eliminate conges-
tion, on-line data collection on activities can
be eliminated with the help of technologies
such as electronic data interchange (EDI),
computer aided design/manufacturing (CAD/
CAM, computer aided engineering (CAE)),
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Internet and multimedia.
People
Human factors play a significant role in the
successful development and implementation
of ABC in SMEs. As part of a multidisci-
plinary empowered and self-directed team, a
human factors practitioner can be asked to
assume leadership of the communications
team with the task of developing an informa-
tion infrastructure to support the product
development project structure and the facil-
itation of information flow in a large
geographically dispersed project team. ABC
helps SMEs in continuous skill development,
re-engineering, empowered self-directed team
for product and process developments, im-
proving productivity of support sources
personnel, collective responsibility and in-
centive scheme, elimination of overheads can
be carried out with the help of Multi-
functional workforce, flexible workforce,
knowledge workers, smaller team, and em-
ployee involvement.
Organization
SMEs may find it worthwhile to set up a
specialist team to play a consultancy role in
the organization in planning and implemen-
tation of ABC projects. This can be valuable
for SMEs located on different sites where the
specialist team can be useful in technology
transfer. Organizational structure can be seen
as the assignment of people with different
tasks and responsibilities. In SMEs there is
not much bureaucracy because of the number
of levels in the organization. So all the
employees work there as a team. It will be
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Logistics Information Management
Volume 12 . Number 5 . 1999 . 386±394
easy to implement ABC in SMEs because
ABC focuses on long-term strategic decisions
based on quality, flexibility and responsive-
ness. It also helps SMEs in better
communications and team working environ-
ment, reduce time/effort required to perform
an activity, eliminate hand-offs, incentive
scheme based on team productivity rather
than individual productivity, conflict reduc-
tion because of knowledge workers and
collective incentive scheme, re-engineering
the suggestions by individual employees to
reduce the non-value adding activities, com-
munication based on motivation can be
carried out with the help of organizational
leadership, matrix organization, teamwork,
and employee empowerment.
The present era of global competition is
leading all SMEs towards a renewed com-
mitment to excellence in manufacturing. The
traditional costing systems do not provide
non-financial information about SMEs. The
traditional cost systems provide little infor-
mation about what matters to the customers
(which is the main requirement of any world
class company). Factors such as quality and
service are out of their domain. They report
only financial information. Non-financial in-
formation such as defect rates and throughput
rates in each activity are beyond the scope of
the traditional costing system. In recent years,
SMEs have reduced their dependency on
traditional costing systems by developing
ABC systems. Initially, managers viewed the
ABC approach as a more accurate way of
calculating product costs. However, ABC has
emerged as a tremendously useful guide to
management action that can translate directly
into higher profits (Cooper and Kaplan,
1991). Realizing the importance of ABC in
SMEs to stay competitive, an attempt has
been made in this paper to develop a frame-
work for the implementation of ABC in SMEs
which is present in the next section.
5. A framework for the implementation
of ABC in SMEs
In order to present a framework for the
implementation of ABC in SMEs, a concep-
tual model has been developed as shown in
Figure 1. The issues of implementation of
ABC in SMEs are discussed under eight
perspectives such as top management com-
mitment, organization for ABC program,
 Activity based costing in small and medium-sized enterprises
A. Gunasekaran, H.B. Marri and R.J. Grieve
Figure 1 Implementation of ABC in SMEs
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seminar on ABC, incentive to motivate
participation, education and training on
ABC, analysis of the critical activities, identify
value adding and non-value adding activities,
and monitor the implementation. The char-
acteristics of SMEs are highlighted in the
conceptual model such as high degree of
human decision making and execution,
personnel relationships are of high impor-
tance, high inherent innovative potential,
ability to meet changing market requirements,
capital intensive environment and efficient
internal network. Multiple performance
measures, to compare activities with those
benchmarked and reduce throughput time in
SMEs can only be achieved by introducing
ABC system. The implementation issues of
ABC in SMEs are discussed as under.
5.1 Top management commitment
The full understanding, commitment and
leadership of an organization's top manage-
ment emerge as a crucial factor in almost all
the studies of ABC implementation. If the
organization's senior managers do not un-
derstand and show commitment to the
program then it is only understandable that
the rest of the organization will ask why they
should do so. Top management commitment
usually means that senior personnel must put
in a lot more effort at an operational level.
The implementation of ABC program in
SMEs is the responsibility of all levels of
management. However, it should be delivered
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Logistics Information Management
Volume 12 . Number 5 . 1999 . 386±394
from the top management responsible for
overall productivity improvement of the
company. Top management should focus on
long-term strategic decisions based on qual-
ity, flexibility and responsiveness.
Productivity of the employees can only be
improved by providing them collective re-
sponsibility and incentive schemes.
5.2 Organization for ABC program
The organization for implementing ABC in
SMEs should be as small as possible to reduce
the overall expenditure of the company. The
team should comprise of a manager and an
assistant. The organization team should
meet regularly in order to advise the
management on the strategic, and technolo-
gical business problems and sometimes
also in day-to-day management problems.
Once the organization is formed for ABC,
the next stage is to work out the plan for
the performance improvement program.
Performance issues relating to organization
form depend much on the performance
and inter working of technology, infrastruc-
ture, and working practice. ABC approach
as practiced at heavy engineering SMEs
involves daily meetings and noticeboards to
plan, monitor and control collaborative
working across virtual autonomous business
units in both office and shopfloor environ-
ments.
In SMEs there is not much bureaucracy
because of the number of levels in the
 Activity based costing in small and medium-sized enterprises
A. Gunasekaran, H.B. Marri and R.J. Grieve
organization. Therefore, there is a potential
for employees to work in teams. This will
facilitate an easy to implement action of ABC
in SMEs. Matrix organizational environment
of SMEs helps to eliminate many hand-offs
and hence to reduce time/effort required to
perform an activity.
5.3 Seminar on ABC
Seminars on ABC are essential for the
successful implementation of ABC in SMEs.
It is necessary for the SMEs to take active
participation in the seminars/workshops or-
ganized by universities, private and state
institutions. For example, in UK the depart-
ment of trade and industry (DTI) supports
universities to help SMEs by providing
necessary financial support to work on their
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productivity and quality problems and hence
their competitiveness. SMEs have higher
inherent innovative potential and ability to
meet changing market requirements. Pro-
ductivity of knowledge workers can be
improved by arranging seminars on the
performance of ABC both inside and outside
the company.
Training should be given to the SMEs in
selecting the vendors, market research, sales
promotional efforts and advertising based on
quality and delivery criteria. The services of
SMEs association and seminars organized by
the state department should be utilized to
learn more about modern marketing princi-
ples of SMEs. The extent of information
technology should be used to develop a
network of SMEs to exchange information
about markets and technologies on-line as
well as for electronic commerce. With a large
highly qualified workforce, it should not be a
problem to develop an electronic network of
SMEs to facilitate the purchasing-supplier
relationship as well as marketing.
5.4 Incentive to motivate participation
The incentive policy to motivate participants
plays an important role in adopting and
implementing ABC in their companies. The
government must play an important role by
offering special incentives to the company
owners in adopting ABC. SMEs have efficient
internal networks and higher external linkage
to adopt ABC. Legislation by government to
implement ABC and loan rebate to SMEs will
certainly help the implementation process by
minimizing the risk of loss in investment,
production and business as a whole. Also,
customers select those SMEs who have
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Volume 12 . Number 5 . 1999 . 386±394
implemented ABC. The owners of SMEs are
giving less importance to their employees in
offering them suitable incentives and rewards
such as contributions towards insurance, sick
pay, vacation, medical care, pension, bo-
nuses, and employee empowerment. When
the employees receive their benefits in the
form of incentives and rewards from their
employers, then they will be more motivated
to work hard to increase the productivity of
the products.
5.5 Education and training on ABC
For the successful implementation of ABC in
SMEs, the employees must have a clear
understanding of its principles, capabilities,
goals and objectives. This understanding will
make it possible for the expectation of ABC in
SMEs to be communicated appropriately to
all the employees. Sage and Fox (1989)
suggested that firms should implement ac-
tion-oriented operation strategies that stress
integration of human values, taking into
account the critical success factors such as
worker's pride and positive attitudes which
contribute to any successful operations strat-
egy. ABC requires consultation at all levels
and systematic training and education efforts.
Moreover, such training and education need
to be carried out mainly by the companies
themselves in co-operation with system sup-
pliers. When the employees are well trained
and educated, they can easily reduce time/
effort required to perform an activity, reduce
throughput time, on-time delivery, and mini-
mize conflict reduction inside the company
because of knowledge workers. Also, em-
ployees are provided with in-house and
outside of the company training facilities to
gain latest knowledge and to maintain com-
pany's standard in the global market.
5.6 Analysis of the critical activities
Number of activities in a business range from
10-200. It is not possible to analyze all of
them at once due to limited time and
resources. The key then is to focus on
significant activities, the ones important to
customers or operating the business. More-
over, these are the activities that provide the
greatest opportunities for improvement. The
Pareto analysis should be used to determine
the critical activities. This analysis should be
carried out separately for both the value
added and non-value added activities. A
successful business deploys resources to those
activities that yield the highest strategic
 Activity based costing in small and medium-sized enterprises
A. Gunasekaran, H.B. Marri and R.J. Grieve
benefit. An ABC system can eliminate non-
value adding activities with the help of
strategies/methods such as TQM, FMS, and
BPR. Also, the SME has a high degree of
human decision making and execution to
analysis of the critical activities.
5.7 Identify value adding and non-value
adding activities
Once activities are specified and the cost of
each activity is calculated, the next step is to
identify value adding and non-value adding
activities such as machine set-up, rework,
inspection, stock holding, etc. A non-value
added activity is often defined as ``an activity
that can be eliminated with no deterioration
of product attributes (e.g. performance,
functionality, quality, perceived value)''
Downloaded by Universiti Teknologi MARA At 07:25 10 December 2018 (PT)
(Miller, 1992). Some think that non-value
added activity means waste and to some
others it might mean the cost of quality and to
others it might mean everything other than
the labour. ABC should focus on the activity,
not on the people who perform activities.
Activities can be identifie as value added or
non-value added only to compare activities to
the best practices. An activity should bear
comparison to a similar activity in another
company or another part of the organization.
Comparing an activity to a benchmark of
good practice helps determine the scope for
improvement. SMEs can benchmark the
performance of their activities by being a
member of a network firms. Activities are
rated on such factors as quality, lead time,
flexibility, cost, and customer satisfaction.
Clarity and understanding between value
added and non-value added activities is
achieved when people understand and accept
the reasons why an activity is classified as
non-value added or value added (Miller,
1996).
5.8 Monitor the implementation
It is normal for owners, directors and man-
agement of an organization to be more
concerned and interested in the day-to-day
functions and controls which are designed to
maximize the profitability of the SMEs, and
efficiency in the usage of resources, by
ensuring the implementation of management
policies. As the details of the ABC system
become known the implementation of the
system becomes important. According to
Cooper (1990) a large number of factors must
be considered during the implementation of
ABC in the SMEs and have to measure the
393
Logistics Information Management
Volume 12 . Number 5 . 1999 . 386±394
performance of implementation process over
times. This includes starting with the initial
decisions, dealing with employee training and
then on to the process of designing the
system, gathering the required data and then
the final progress, results and interpretation
meetings.
The user should understand what informa-
tion is available from the ABC system and
how that information should be used in
decision making. SMEs have a high degree of
human decision making and execution to
monitor ABC. The primary aim of the new
system is not to create an elegant and
technically robust solution, but it is to provide
a solution that will change behavior of
management to improve the performance of
businesses.
6. Conclusions
In this paper, an attempt has been made to
present the background of ABC in SMEs.
The literature available on ABC/SMEs has
been surveyed to develop a framework for the
implementation of ABC in SMEs. Justifica-
tion criteria to implement an ABC system in
SMEs have also been analysed in this paper
taking into account their business and orga-
nizational characteristics. Finally, a
framework has been developed for the justi-
fication and implementation of ABC in
SMEs. Further research is required:
. To identify suitable performance mea-
sures at strategic, tactical and operational
levels in SMEs.
. To develop a framework for the design of
ABC in SMEs. The model proposed in
this paper can be used as a basis for
further development.
. Data collection and analysis are a time
consuming process. Therefore, appropri-
ate criteria should be identified for the
collection of the most relevant data for
ABC in SMEs taking into account the
business goals.
. To establish a suitable incentive scheme
to promote the application of ABC.
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