Academic journal article Academy of Accounting and Financial Studies Journal

The Context-Specific Benefit of Use of Activity-Based Costing with Supply Chain Management and Technology Integration

Academic journal article Academy of Accounting and Financial Studies Journal

The Context-Specific Benefit of Use of Activity-Based Costing with Supply Chain Management and Technology Integration

Article excerpt

ABSTRACT

This paper examines whether a context-specific benefit is obtained from the use of Activity-based Costing (ABC) with the business initiatives Supply Chain Management (SCM), Technology Integration (TI) Context-specific benefit is operationalized by a composite measure of financial performance, Return on Assets (ROA) Top executives of 305 firms operating in the motor carrier industry furnished information regarding use of the initiatives. Dependent variable information is obtained from financial statement data filed with the U.S. government. Multiple regression analysis is used to identify the improvement in ROA associated with 1) use of each initiative and 2) concurrent use of two initiatives.

A direct effect for use of SCM and TI is confirmed. Context-specific benefits obtained from concurrent use of ABC with SCM and TI are identified. It is likely that ABC functions as an enabler of other improvement initiatives, providing the information necessary to optimize the effectiveness of SCM and TI. The positive findings regarding ABC are of particular interest to practicing and academic accountants because they are often the primary proponents and administrators of ABC and most previous evidence of ABC efficacy has been theoretical or anecdotal.

INTRODUCTION

The focus on cost, quality and time has generated many management changes with significant accounting implications (Smith, 1998). These changes increasingly include the implementation of strategic business initiatives such as Supply Chain Management (SCM), Technology Integration (TI), and Activity-Based Costing (ABC). (1) Profit-maximizing firms would not implement strategic business initiatives if they did not expect a net financial benefit from their use. However, there has been little empirical evidence that demonstrates that SCM, TI, or ABC improves financial performance in any industry.

In addition, researchers have often suggested that ABC and other strategic business initiatives complement and enhance each other, rather than being individually necessary and sufficient conditions for improvement (e. g. Cagwin and Bouwman, 2002; Shields et. al,. 2000; Anderson, 1995; Swenson, 1998). There has been little empirical investigation of context-specific benefits obtained from using ABC to enhance the benefits of other initiatives or of a context-specific benefit obtained from concurrent use of SCM and TI.

The purpose of this study is to investigate the improvement in financial performance associated with the single and concurrent use of the strategic business initiatives SCM, TI, and ABC. Data is obtained through a cross-sectional mail survey of 305 motor carrier industry top executives and from a database containing financial statement information reported to the U.S. government. Multiple regression analysis is used to investigate the association between use of initiatives and improvement in financial performance (proxied by ROA) and to identify positive context-specific effects from the use of SCM with TI and of ABC with SCM and also with TI.

This research adds to the limited body of empirical strategic business initiative research in four ways. The first contribution is to provide empirical evidence that the benefits claimed by initiative advocates are net benefits. Second, the existence of context-specific benefit from concurrent use of ABC with SCM and with TI is confirmed. Third, the study focuses on the motor carrier industry, an important member of the service sector, which has become the dominant sector of the economy. Researchers have often postulated, but not tested, the efficacy of initiatives in a service setting. Finally, limitations of previous research (i.e., the lack of control for simultaneous use of multiple initiatives and prior level of performance) are addressed.

The remainder of the paper is organized as follows: Section II defines and describes strategic business initiatives, situates this study in the context of past research and provides hypothesis development. …

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