The potential benefits of abc/abm are generally higher for companies that have significant indirect costs (such as in the manufacturing sector). It is also a good idea to have high levels of business buy-in to ensure that ABC will be successful.
ABM is a cost analysis system that helps organizations identify and remove unnecessary costs and non-value-added activities. The aim is to improve the efficiency of an organisation by reducing waste and increasing productivity.
It is a technique used by manufacturers, service providers and non-profit organisations to assess the performance of their operations. It is particularly useful for identifying areas of improvement and putting these into action to improve the performance of a company.
The term ABM has become more popular since the early 1990s and is derived from the acronym Activity-Based Management, which was coined by the Consortium for Advanced Manufacturing International (CAM-1).
Operational ABM aims to reduce costs and increase efficiency by enhancing value-added activities. This can involve reducing the number of non-value-added activities and increasing the efficiency of activities that do generate a high degree of value, such as running sewing machines.
Strategic ABM aims to increase profits by assessing the profitability of different products and customers. This involves determining which customers should be supplied with the most profitable product and focusing on customer relationships that are likely to produce long-term profit.
ABM requires a lot of time and effort to implement. However, it has been proven that ABM has been effective at boosting the bottom line of many companies.