Introduction
SMEs must realise that improving environmental performance can also improve a company’s bottom line. Material flow cost accounting (MFCA) is the tool that can help SMEs optimise resource consumption thus enhancing the company’s cash flow and improve both its environmental and economic performances. Essentially, MFCA helps trace a company’s waste, material, energy losses and emissions by looking at its processes and activities. MFCA can be used to analyse either a single isolated process, the whole factory production line or a product’s full supply-chain. The tool will enable the organization to identify the largest inefficiencies across its activities and focus on those it can make the greatest savings.
Implementing MFCA
The discussion here focuses on an SME supplying parts (Alpha), to a major car manufacturing company (Beta). There are various steps in its implementation.
1. Material Loss
To emphasize on the importance of costing wasted materials, Alpha’s manager was asked to determine the waste costs and Alpha gave us the waste disposal costs. We then pointed all the “hidden” costs attached to the waste. When they included the storage cost of material loss, the cost of wasted materials, the wages of the people engaged to take charge of the waste and utilities, the waste cost was actually 5 times the original costs initially estimated.