In general, the need for more sophisticated calculation methods, that model actual operations, increases as the company grows in size and in business complexity. If the business has many different products and customers and the transparency of their profitability has deteriorated, this makes a favorable starting point for activity-based calculations.
The best candidates for TDABC can be found in transaction-intensive industries. These industries typically have high order volumes, they serve a large customers base and carry a broad product selection. Modeling the order-supply chain processes of such a company and tracking the profitability of an individual order throughout the organization and supply chain are at the heart of TDABC calculation. These companies need to know which parts of the supply chain or customer behavior causes higher costs in different processes and which are the most profitable operating models and product categories. Such companies can be found from consumer goods businesses, logistics and wholesale, clinical laboratories and healthcare, made-to-order manufacturing, banking and insurance companies, etc. All of these are united by the transactional nature of their business models.
In certain industries, such as banks and laboratories, operations are very process-oriented and employee-intensive. In particular, such industries benefit from the process modeling to highlight the cost effect of operational variations at the transaction level. This allows processes to be bechmarked and best practices identified, as well as including the measurement of capacity utilization in process development.
All companies benefit from knowing which customers and products are profitable, which are not and for what reason. It is important to make the analysis taking into account the total costs and not to leave the analysis at the gross margin level alone.
Read more about the benefits of TDABC!
