Integrating Between Material Flow Cost Accounting and Balanced Scorecard

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Table of Contents

Introduction
Relationship between Material Flow Cost Accounting and Balance Score Card
Integrating MFCA and BSC to Achieve Sustainability
Making Integration Between MFCA and BSC To Achieve Sustainability
How The Approaches Can Integrate and Their Benefits
Conclusion
References

Introduction

Material Flow Cost Accounting (MFCA) is a tool used in management to help organizations effectively understand the possible financial and environmental effects of their material activities. The tool also allows organizations to make necessary adjustments to improve company performance by mitigating unnecessary financial losses (Arise & Shewell, 2021). Through a well-designed MFCA, businesses can improve their material efficiency because the strategy focuses on the material losses usually incurred during production (Arise & Shewell, 2021). Whereas, Balanced Scorecard (BSC) is also a strategic management tool for evaluating performance metrics. A Balanced Scorecard measures and provides feedback to the organizations on the weaknesses that a company or business needs improvement. The metrics are used to identify and improve various intrinsic operations of a business and their results.

Relationship between Material Flow Cost Accounting and Balance Score Card

MFCA and BSC have a close relationship based on their roles and help the organization attain excellence. Most manufacturers and businesses are under tremendous pressure to achieve high productivity with minimal environmental impacts. For this to be achieved, MFCA is one of the important organizational environmental management accounting tools put forwards in meeting the organizational needs of higher production value with minimal environmental damage (Turshan & Karim, 2019). A balanced scorecard ensures that the company’s internal problems that prevent it from meeting its performance expectations are identified, improved, and controlled (Arise & Shewell, 2021). Moreover, just like material flow cost accounting, which measures financial and environmental factors, a balanced scorecard also measures finance, business process, learning, and company growth. By using a balanced scorecard, companies can pool information on one report and work on the areas requiring adjustments as a whole.

Integrating MFCA and BSC to Achieve Sustainability

Achieving sustainability in any organization needs an effective and proper performance measurement tool that integrates material flow cost accounting and a balanced scorecard. Therefore, developing a framework model that brings together the two-performance evaluation tool, a model has to be crafted that entails the following components: perspective, strategic target, and performance indicators evaluated weekly for one month. The evaluation may continue up to the second and third months so long as the performance goal of the company is achieved.

The strategic perspective targets financial, customer, operational, and intellectual capital. The financial target will focus on revenues and profitability growth, effective receivable management, effective cost management, and decreased inventory (Dekamin & Barmaki, 2019). They will be checked alongside sales, value stream profit, value stream ROS, material cost, and conversation cost (Dwivedi et al., 2021). The strategic perspective will mainly focus on minimizing wastage on the customers, increasing the company’s market share, boosting the acquisition of new customers, and increasing the satisfaction of the newly acquired and existing customers (Ferber et al., 2021). The strategic targets are then evaluated based on the percentage market share of the company, customer satisfaction (based on their rating forms), and the number of clients complaining about the quality of the products (Dekamin & Barmaki, 2019). The operational cost will mainly target reducing wastage, increasing organizational productivity, and leading to operational perfection. The operational and strategic targets shall be evaluated based on the productive and non-productive capacity, cycle time, and true first-time rate. An example of such a model for a manufacturing company that combines the integrative approach of MFCA and BSC is shown in Table 1.

Table 1. MFCA and BSC Framework Model

Perspective	Strategic Target	Performance	Week 1	Week 2	Week 3	Week 4	Month Targets	Month Results
Financial	Increase revenue while maintaining the level of production costs; keep at the level or increase the current ratio.	Revenue Cost of Goods Sold Gross Profit Net Income EBITDA Assets/Liabilities Ratio
Operational	Eliminate waste, increase the number of manufactured products, reduce or save production time and eliminate the possibility of a defect.	Cycle Time Products per Employee Percentage of Defects First Time True rate Percentage of Waste
Customer	Increase CLV by decreasing CAC. Effectively retain and seek new customers by carefully addressing the causes of complaints and returns.	Market Share Customer lifetime value Customer acquisition cost Percentage of Complaints Percentage of Returns
Intellectual Capital	Focus on innovation, increased costs for employee training and R&D with positive dynamics of sales of new products and the pace of their development.	Employee satisfaction Employee engagement Employee training Number of new products New product sales R&D expansion costs

Making Integration Between MFCA and BSC To Achieve Sustainability

Sustainable development indicators are inexhaustible. Nonetheless, there is a pressing need to have framework models that can consistently organize the development indicators and put them together as management tools for integrating and enforcing policies within an organization (Ferber et al., 2021). BSC is a recently developed strategic management instrument that has been very significant in the internal performance evaluation for companies and businesses. Its unflinching potential in earthing internal problems such as finance and companies’ growth makes it more acceptable. On the other hand, MFCA assists the company in realizing the financial and environmental consequences of its activities (Mayndarto & Agustine, 2021). Therefore, integrating MFCA and BSC would mean a combined workforce strategic management tool for a company. To achieve the integration, they should be merged as a single policy integration tool for enforcing compliance in an organization.

How The Approaches Can Integrate and Their Benefits

MFCA and BSC can be integrated as a single policy enforcement document for a company. They should be integrated as one strategic management tool because of their close relationship with their objective and roles in organizational performance evaluation (Ferber et al., 2021). Combining the two approaches will ensure that performance evaluation goes beyond corporate or system indicators. It supports strategy development and consistent and continuous integration of various measures within the organization. Moreover, MFCA and BSC approaches will collectively provide rules for the systematic organization of the key indicators for evaluating progress towards sustainability.

Conclusion

Integrating MFCA and BSC as a single policy evaluation document will help the company minimize materials and finance. Moreover, MFCA and BSC will encourage higher transparency practices in material use by creating a material flow model and stock of material within the organization in monetary units. BSC provides information to the managers on four perspectives: from the customers’ perspectives, internal perspectives, financial perspectives, and the innovation perspective. Based on the four dimensions, integrating BSC with MFCA will reduce information overload by limiting the company’s measures. When a company has few measures, they can add useful suggestions from consultants to help business growth.

References

Arise, O. A., & Shewell, P. M. (2021). Material flow cost accounting (MFCA). Handbook of Research on Climate Change and the Sustainable Financial Sector, 286-303.

Dekamin, M., & Barmaki, M. (2019). Implementation of material flow cost accounting (MFCA) in soybean production.Journal of Cleaner Production, 210, 459-465.

Dwivedi, R., Prasad, K., Mandal, N., Singh, S., Vardhan, M., & Pamucar, D. (2021). Performance evaluation of an insurance company using an integrated balanced scorecard (BSC) and best-worst method (BWM). Decision Making: Applications in Management and Engineering, 4(1), 33-50.

Eko Cahyo Mayndarto, & Yvonne Agustine. (2021). The Efffect of environmental management accounting, environmental strategy on environmental performance and financial performance moderated by managerial commitment. International Journal of Science, Technology & Management, 2(1), 112-119.

Ferber Pineyrua, D. G., Redondo, A., Pascual, J. A., & Gento, Á. M. (2021). Knowledge management and sustainable balanced scorecard: Practical application to a service SME. Sustainability, 13(13), 7118.

Turshan, M. N., & Karim, N. A. (2019). The effect of adopting balanced scorecard (BSC) as strategic planning tool on financial performance of banks operating in Palestine. Asian Social Science, 16(1), 95.

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