OBA, IOCM and Their Impact on Supplier Relationship Satisfaction: Inter-Organisation Cost Management and Open-Book Accounting Are Two of the Tools Being Employed by Management Accountants to Support Supply Chain Cost Information, as Well as Share and Control Cost Accounting Information
Moller, Klaus, Windolph, Melanie, Financial Management (UK)
Nowadays, supply chain optimisations usually go beyond organisational borders. To gain a competitive advantage, firms are increasingly focusing on core competencies, while outsourcing their non-core functions and activities. Consequently, organisational success has become highly dependent on the efficiency and effectiveness of their supply networks (Cooper and Slagmulder, 1999; Kulrnala et al, 2002). To address the emerging issues in supply chain cost management, management accountants needed to widen the scope of cost and management accounting. Techniques such as inter-organisational cost management (I0CM) and open-book accounting (OBA) have evolved to support the availability and effective use of supply chain (cost) information, as well as the sharing and control of relevant cost accounting information
Both IOCM and OBA are inter-firm cost management techniques that cross the organisational boundary between buyer and supplier to ensure better control of the product and supplier costs. For management accountants, these techniques are important, enabling them to expand their view on optimising costs and move the focus from their own organisation towards a more holistic view of the whole supply chain. By doing so, management accountants may avoid partial-optimal solutions in favour of an overall cost-optimal supply chain design (Cooper and Slagmulder, 1999).
While IOCM refers to firms' joint efforts to reduce costs, OBA involves the exchange and/or disclosure of cost-relevant data to the partner firm. Therefore, the degree and quality of cost-data disclosure differ widely. OBA is frequently used by management accountants, not only for cost-data disclosure, but also for the exchange of cost-relevant information, such as sales forecasts (Mouritsen et al, 2001). Similarly, OBA may refer to the disclosure of relatively unspecific cost data, as well as to the direct, unmodified disclosure of detailed cost data from the internal accounting system (Axelsson et al, 2002). In contrast, IOCM has been specified as "a structured approach to coordinate the activities of firms in a supplier network so that total costs in the network are reduced" (Cooper and Slagmulder, 1999, pp. 145-146). Thus, IOCM involves a widening of the buyer's standard cost management perspective beyond the buyer's cost accounting border.
Using this method of transparent collaboration, management accountants seek to identify and realise mutual cost-saving opportunities by increasing coordinated action between the buyer and the supplier. In many cases, this is only possible if cost data is disclosed (Cooper and Slag-mulder, 1999; Kajueter and Kulmala, 2005). Generally speaking, the more transparent and open the information exchange is between partner firms, the higher the cost-saving opportunities.
IOCM can be put into operation during three supply chain stages: product development, product manufacturing and at the buyer-supplier interface. As original equipment manufacturers (OEMs) increasingly outsource the R&D development processes of main product components, much attention has been focused on product development. Thereby, IOCM offers four techniques to management accountants to better control costs: chained target costing, functionality-price-quality tradeoff, inter-organisational cost investigation, and concurrent cost management (Axelsson et al, 2002; Cooper and Slagmulder, 1999; Cooper and Yoshikawa. 1994):
* Chained target costing (CTC): In a first step, the maximum price that can be demanded from the market must be defined. Thereafter, the potential revenue is divided according to the product component contributions to the various supply chain members. Each member must then find their own way to adapt their development and manufacturing costs to stay below their dedicated target price without interfering in the product design. Compared to the other techniques, CTC does not require an …
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Publication information: Article title: OBA, IOCM and Their Impact on Supplier Relationship Satisfaction: Inter-Organisation Cost Management and Open-Book Accounting Are Two of the Tools Being Employed by Management Accountants to Support Supply Chain Cost Information, as Well as Share and Control Cost Accounting Information. Contributors: Moller, Klaus - Author, Windolph, Melanie - Author. Magazine title: Financial Management (UK). Publication date: October 2012. Page number: 54+. © 2009 Chartered Institute of Management Accountants (CIMA). COPYRIGHT 2012 Gale Group.