Introduction of process compliant marginal cost accounting as a management philosophy

1. Initial situation

This case study is about an Austrian textile company. The market is almost eponymous in terms of the “effects of globalization” and, in addition, the market for these products is a niche that, more than others, depends on the very specific, annually fluctuating purchasing behavior of a few, large customers; Customers like K1, K2, K3, K4, K5 only buy products if this material plays a role in their annual collections.

In many cases, these products can be substituted by other products.

The advanced profit control – apconsulting GmbH was commissioned to advise on the necessary corporate change.

2. Goals

  • Introduction of the cost & performance calculation with lower price limits
  • Product innovation management & product development
  • Development of the brand “New Brand”
  • Development of new distribution channels for the product / market combination

2.1. Problem

  • No cost and performance thinking throughout the operation
  • Only historical accounting data
  • No useful cost and performance data for product costing
  • No joint planning with the employees
  • No adequate leadership structure
  • No systematic analysis on products, customers, markets, trends
  • No observations and analyzes of competitors
  • Intuitive decisions
  • Despite successful generation change at the top, still low acceptance among parts of the workforce

2.2. Strategy

To create space for much-needed creativity and release the necessary resources to conquer new markets, by modernizing and penetrating the company through “analytical planning”,

2.3. Implementation

  • Cost management – reorganization
  • Strengthening management strengths – weaknesses analysis
  • Manager training – cost thinking “Productivity Bonus System”
  • Establishment of a professional distribution system
  • Installation of a product development area
  • Management by Objectives using “oscillating salary management”

2.4. Results

The introduction of process compliant Resource Consumption Accounting enabled management (targeted management) to systematize cost management and pricing.

Precise process analysis (including video-based documentation) has streamlined all company processes, assigned targeted employees within the company, and increased production output by up to 30%. Previously seasonal underproductions could not only be eliminated but, in the same breath, new customers and markets were won with new products.

The understanding of the executives for the strategy development process in the areas of collections, trade fair presentation, sales were completely changed. The development of the brand was possible only this way. This created space for product innovation.

2.5. Sales and earnings increase

The brand’s new product range opened up new sales markets, which accounted for 30% of total sales in a very short time. The trend continues to increase. The value chain was extended into  own retail stores, which resulted in a massive improvement in the earnings situation.

The results improved by 12% already in the first year; and continue to 25 up to 30% in subsequent years. Sales growth in the current financial year is 12%, well above the industry average. In the specific segment “B”, the annual growth is now even around 30%, possible bthanks to the successful internationalization.


3.1. Planned - or realized process improvement

By e.g. even video-supported analysis of all processes we succeeded to make employees of the company more productive transferring them from one area to another.

One production area was reduced from about 11 employees to 6 with a simultaneous increase in productivity by 30%. In this production area, the implemented process improvements reduced production costs by about 54%.

However, process improvements also affect company management, which now uses a functioning management tool through a completely new strategy process and other sub-processes of management.

4. Productivity

4.1. Productivity and efficiency increase

In this area 6 employees provide now 30% more productivity than previously 11 employees. Shifting employees to logistics followed higher demand in this area through increased production volumes and sales volumes. The company is able to deliver more products than before and to meet customer-specific requirements (individual packaging).

5. Organisation

5.1. Organizational improvement

Today, the company has an organizational structure clear and comprehensible for all employees; Employees have clear areas of responsibility and know their position in the internal performance context. With the new organization, the company, which has managed for years without middle management, has changed significantly.

6. Fuse strengthening

6.1. Securing and strengthening the market

A completely new product line, based on the core product, was developed. In an inimitably short time, market opportunities were discovered and the appropriate products were developed.

New distribution channels help address new target groups. In particular, previously only merchant markets were served exclusively and now supplemented by end customers.
The company has built new communication channels and internal processes as part of the positioning of the new brand, which will play a key role in its continued growth. Analytical planning, strict cost planning and performance control are now part of the management culture.

7. Innovation

7.1. Improvement of innovation power

Today the company operates its own creativity team “doni” (day of new ideas) and is no longer dependent only on the creations of the great designers.

The proximity to the served markets is given by sales and management; Short-term feedback from the market, observation of the competition and evaluation of trends is systematized in the company. The own retail ensures customer proximity and direct market echo.

Analytical planning provided the creative management team with an instrument that enables them to evaluate creative ideas in the short term economically (“from art to science”). After all, the lean cost structure and improved earnings position provide the solid basis for innovation.

8. Human resource development

8.1. Qualification of employees or personnel development

The basis of the sustainable corporate change is the in – house “Company Academy”, in which all employees are made familiar with the changed conditions (including internal technical experts as trainers) in order to develop new attitudes. Practice-oriented, implementation-oriented learning is offered to all employees in the company.

The management team has gotten know-how and suggestions – starting with the consultant – from the Controller Akademie. The problem “employees in the wrong workplace” was solved in the form of employee profiles so that practically no employee departures were necessary (change of position: for example from the financial accounting to the sales).

9. New markets

9.1. Development of new markets, distribution channels, target groups

New markets were won in the specialist trade, furniture stores, gourmet / organic food stores in particular internationally in Japan, England, France, Italy, Germany, Switzerland, Luxembourg, Finland, Sweden, Norway.

In addition to the sale to processors, the wholesale and retail trade was opened up for the new products. A shop-in-shop concept is on the way and should ensure rapid distribution in the outlets. New is an active sales force in Germany, Austria, Switzerland, Northern Italy. In the other markets the company is represented by representative offices.

10. Creativity

10.1. Creativity of solutions and methods

The approach of apc consulting GmbH for this project:

Learning how to fish and not just selling the fish.

Implemented for ALL employees of the company; in direct contact consultant – employees – executives – owners. “Company Academy” and creativity team “doni” for both structured learning and open exchange. Successful integration of the consultants into the team. “Numbers” are not an obstacle to motivation, but become the engine for change and show how diligent the employees are.

11. Export potential

11.1. Export potential - focus on customer side

The export potential is given by the innovation and the quality of the products. The interesting fact that the Japanese market loves to work with traditional companies that can tell a story.

The ethics of entrepreneurs / managers plays a major role for the customers. We strengthen customer loyalty through very personal invitations to the company. Communication through international trade fairs is an essential part of increasing customer loyalty and brand awareness.

The specially developed workflow process for the creation of innovative collections is supported by trend analyzes and market observations, which we built on KNA criteria structures. Using commodity flow analysis, we can work out target countries we want to work with in the future.

Market development takes place in the countries through representatives, unless customs require otherwise. The export rate is 60% and the trend is rising.

12. Acceptance

12.1. Satisfaction and acceptance internally / externally

Highest acceptance through the use of valuable tools:

  • “Greko” process compliant Resource Consumption Accounting
  • “Business Planner” liquidity planning
  • “KNA” customer benefit analysis
  • Insights discovery – personnel profiles

Thus short-term results for all project participants  Personell profiles for all employees including executives. The consultant has specialized in detail expertise at the product / production level and was therefore able to reduce barriers.

13. Documentation

13.1. Documentation - understandability, use, distribution

Through the “Company Academy” the entire change process was comprehensibly documented and communicated on an ongoing basis.

In the annual planning process (affects all employees), detailed diagrams (such as process planning results) and created tools are used repeatedly and constantly updated. Through monthly target / actual comparison meetings, the new system actually lives.

14. Implementation

14.1. Implementation and process support

The former business leaders (owners) supported the entire consulting process. The consulting team has acted in clear roles and competencies. Additional external support, e.g. management education (Controller Akademie Woerthsee  near Munich).

15. Duration costs

15.1. Duration in man-days or consultancy costs in euros

  • Introduction cost management 8 man-days
  • Process analysis shipping 6 man-days
  • Customer Benefit Analysis 3 man-days
  • Organizational development 4 man-days
  • Strategy development 3 man-days
  • Plan workshops 4 man-days
  • 28 man-days

16. Cost benefits

16.1. Subjective cost / benefit assessment of the client

The consultancy represents an essential investment in our case. Miscalculations – wrong decisions and no monthly efficiency check means: ” driving car from the mountain Glockner, in fog, at 130 km / h.” Our quantitative corporate governance concept is an investment in the future success.

17. Practicability

17.1. Feasibility and speed of implementation

We are not consultants who only create concepts, we are the implementers and go so far as to train the process control together with the employees. We have close contact with the people and see immediately if they are used in the right workplace. The conversion speed depends on the set targets.

18. Sustainability

18.1. Solution-related sustainability for the customer

Sustainability is ensured in that we have built a special figures scale system for the monthly (target / actual comparison) discussions by area of responsibility between senior executives. In case of deviation the internal billing leads to discussions and thus the concept lives. We not only meet for the quarterly results, but hold together the annual strategy and planning workshops.

19. Work places

19.1. Securing and creating work places

For this long-established traditional company, every work place that would be lost would be a problem. On the other hand, in this area you first have to find employees who have experience in the textile sector and can speak English, Italian, French and Spanish to meet customer requirements. We do not get everything on the market – hence the development of the Company Academy!

Exceptional effects were the development of employees within a short time, e.g. from the warehouseman / IT officer to the cost calculator and now to the accountant. This employee will certainly head the accounting department in the next few years.

20. Effects

20.1. Sustainability, social responsibility - long-term effects on economy and society

The question of social responsibility has never been asked in this company, as this is lived every day. The long-term cost effectiveness in the face of extreme competition is the greatest challenge. The basis for the control of economic efficiency has been laid; now it is up to executives and management to recognize the trends and signs and to make the right decisions.

The guarantee for long-term effects is the willingness of a permanent, learning organization to stay flexible. Here, most of the incentives in strategic planning are developed and included in the reporting for controlling the achievement of the goals.

21. Support

21.1. Support (received or submitted)

In this context, none were requested. The entrepreneurs do not give internal documents and certainly no balances outside the company.