Implementing an integrated ABC and TOC approach to enhance decision making in a Lean context : A case study

Abstract

Purpose

The purpose of this paper is to implement an integrated activity-based costing (ABC) and theory of constraints (TOC) approach to enhance decision making in a Lean company.

Design/methodology/approach

Based on the literature, this paper proposes an integrated ABC and TOC approach and applies it to a Lean plastic manufacturing company to improve its product-mix decision.

Findings

The results of the case study show that the current conventional product-mix decision used by the company and the proposed integrated approach can give significantly different results concerning the optimal product-mix and the associated bottlenecks. Moreover, the paper suggests that managers who implement Lean production without utilising a supportive management accounting system may experience disappointing financial results.

Research limitations/implications

The validation of the suggested method is based on a single case study with an action research approach. For future research, the authors suggest the implementation of the approach in different industries.

Practical implications

Overall, the integration of ABC and TOC provides managers with an accurate, timely and reliable tool that can help in making decisions about pricing, production line development, process improvements and product-mix.

Originality/value

This paper contributes to Lean and management accounting literature by demonstrating the value of a method of integrating ABC and TOC. Also a case study is chosen for the empirical aspect of the study as there are no case studies available in the literature that illustrate a real life case of integrating ABC and TOC within Lean companies as an alternative to the current used cost accounting systems.

Citation

Alsmadi, M., Almani, A. and Khan, Z. (2014), "Implementing an integrated ABC and TOC approach to enhance decision making in a Lean context : A case study", International Journal of Quality & Reliability Management, Vol. 31 No. 8, pp. 906-920. https://doi.org/10.1108/IJQRM-04-2013-0063