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Activity‐based costing: effects of long‐term buyer‐supplier relationships

Activity‐based costing: effects of long‐term buyer‐supplier relationships Purpose – The literature on activity‐based costing (ABC) that deals with the allocation of indirect purchasing costs primarily draws on a transactional approach to purchasing. This presents a problem, since a large share of purchasing takes place within relationships. The purpose of this paper is to point out complexities in applying ABC to indirect purchasing costs, when purchasing takes place within long‐term relationships. The interaction model is used as a framework. Design/methodology/approach – A case study is conducted on a first‐tier supplier in the Swedish automotive industry to illustrate real‐life purchasing practices and to point out subsequent difficulties in applying ABC principles. This firm is selected because efforts have simultaneously been undertaken to employ supplier relationship management (SRM) and to implement costing techniques. About 23 interviews were conducted and approximately 31 hours of interview data were collected. Findings – The case shows that many functions tend to be involved in exchange within long‐term relationships. This generates additional purchasing‐related costs not previously recognized in the costing literature. It also leads to difficulties in allocating these costs. Originality/value – Complexities when implementing ABC are presented, concerning: allocation of costs relating to SRM; allocation of costs pertaining both to transactions and to relationships; less apparent cost drivers due to involvement of many functions in exchanges; and cost allocation over time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Qualitative Research in Accounting & Management Emerald Publishing

Activity‐based costing: effects of long‐term buyer‐supplier relationships

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References (93)

Publisher
Emerald Publishing
Copyright
Copyright © 2007 Emerald Group Publishing Limited. All rights reserved.
ISSN
1176-6093
DOI
10.1108/11766090710826655
Publisher site
See Article on Publisher Site

Abstract

Purpose – The literature on activity‐based costing (ABC) that deals with the allocation of indirect purchasing costs primarily draws on a transactional approach to purchasing. This presents a problem, since a large share of purchasing takes place within relationships. The purpose of this paper is to point out complexities in applying ABC to indirect purchasing costs, when purchasing takes place within long‐term relationships. The interaction model is used as a framework. Design/methodology/approach – A case study is conducted on a first‐tier supplier in the Swedish automotive industry to illustrate real‐life purchasing practices and to point out subsequent difficulties in applying ABC principles. This firm is selected because efforts have simultaneously been undertaken to employ supplier relationship management (SRM) and to implement costing techniques. About 23 interviews were conducted and approximately 31 hours of interview data were collected. Findings – The case shows that many functions tend to be involved in exchange within long‐term relationships. This generates additional purchasing‐related costs not previously recognized in the costing literature. It also leads to difficulties in allocating these costs. Originality/value – Complexities when implementing ABC are presented, concerning: allocation of costs relating to SRM; allocation of costs pertaining both to transactions and to relationships; less apparent cost drivers due to involvement of many functions in exchanges; and cost allocation over time.

Journal

Qualitative Research in Accounting & ManagementEmerald Publishing

Published: Oct 9, 2007

Keywords: Activity‐based costs; Channel relationships; Purchasing

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