Int. J.

Production Economics 127 (2010) 238248

Contents lists available at ScienceDirect

Int. J. Production Economics

journal homepage: www.elsevier.com/locate/ijpe

Supply chain management, activity-based costing and

organisational factors
Davood Askarany a,, Hassan Yazdifar b, Saeed Askary c
a
b
c

Business School, Department of Accounting and Finance, The University of Auckland, Private Bag: 92019, New Zealand
Shefeld University, UK
Abu Dhabi University, UAE

a r t i c l e i n f o

abstract

Article history:
Received 26 January 2009
Accepted 12 August 2009
Available online 18 August 2009

In todays intense global competition, supply chain management (SCM) is as a vital tool
for helping managers to improve productivity, protability and the performance of their
organisations. In doing so, SCM requires more accurate cost data regarding all activities
and processes within the organisations. Given the above, activity-based costing (ABC)
can signicantly contribute to global supply chain management as it is suggested to
full the above requirements by providing more accurate, detailed and up-to-date
information on all activities and processes in organisations.
Contributing to the SCM and ABC literature, current study rst identies different
types of improvements which ABC can offer to SCM and the performance of the
organisations, then it examines the extent of association between business size as well
as business industry (as organisational factors) affecting the adoption of ABC in New
Zealand (NZ) through using a survey questionnaire and targeting NZ qualied CIMA
members. To improve SCM and organisations performance by increasing the adoption
of ABC in organisations, one of the main implications of the ndings is that the adoption
of ABC in smaller rms needs more attention compared with the larger rms regardless
of their industries (manufacturing versus non-manufacturing rms). However, when the
decision is made to implement ABC, non-manufacturing rms (rather than manufacturing rms) need more attention to proceed with a higher level of adoption of ABC.
& 2009 Elsevier B.V. All rights reserved.

Keywords:
Supply chain management
Organisational factors
Activity-based costing

1. Introduction
Supply chain management (SCM) can be considered as
a key component of competitive strategy to enhance
organisational productivity, performance and protability
(Gunasekaran et al., 2004). Given the above, according to
Gunasekaran et al. (2004), managers in many industries
are trying to make better use of SCM by implementing a
variety of different techniques such as just-in-time (JIT),
total quality management (TQM), lean production (LP),

 Corresponding author. Tel.: +64 9 9235785; fax: +64 9 3737406,

+64 9 3737444, +64 9 3737019.
E-mail address: d.askarany@auckland.ac.nz (D. Askarany).

0925-5273/$ - see front matter & 2009 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2009.08.004

computer generated enterprise resource planning

schedule (ERP), Kaizen and activity-based costing (ABC).
Among recently developed techniques (such as above),
ABC can be considered as one the most talked about
techniques for improving SCM and performance in
organisations (Baykasoglu and Kaplanoglu, 2008;
Ben-Arieh and Qian, 2003; Gunasekaran and Sarhadi,
1998; Kee, 2008; Qian and Ben-Arieh, 2008; Singer and
Donoso, 2008; Tornberg et al., 2002; Tsai et al., 2008).
Integrating ABC and SCM, Lin et al. (2001) describe ABC as
a complex costing system that assists managers in making
important strategic business decisions. They emphasise that
every aspect of decision making process in SCM requires cost
data. This highlights the signicance of the relationship
between ABC and SCM. Given the current intense global

D. Askarany et al. / Int. J. Production Economics 127 (2010) 238248

competition, they also believe that the extent of the

importance of cost data in SCM led as well as the integration
between ABC and SCM will increase in the near future.
Highlighting the extent of the integration between ABC
and SCM, an accumulated body of literature have specied
a variety of contributions which ABC is providing to SCM
in organisations such as: cost reduction, cost estimation,
performance measurement, etc. (Baykasoglu and
Kaplanoglu, 2008; Charles and Hansen, 2008a, b; Homburg, 2005; Qian and Ben-Arieh, 2008; Satoglu et al., 2006;
Thyssen et al., 2006). However, despite the vital role of ABC
in improving the organisations performance and their
SCM, the adoption of ABC is not highly prevalent after
almost 25 years since its introduction (Al-Omiri and Drury,
2007b; Askarany and Smith, 2008; Askarany and Yazdifar,
2007). Adopting the diffusion of innovation theory, a
number of studies have investigated the relationships
between the adoption of ABC and a variety of contextual
factors. However, very few studies examined the adoption
of ABC as a process (e.g. a set of different adoption levels)
and paid adequate attention into the detailed adoption
steps of ABC (Brierley et al., 2006). Indeed, the adoption of
ABC include performing a number of different activities
(such as activity analysis, allocation of costs to cost pools,
and allocation of cost pools to products/services), while
most of the literature on SCM and ABC have looked at the
ABC adoption as one stage process (e.g. adoption versus
not adoption) and made no distinction between different
adoption levels. So, it is not clear if any particular stage/
level of adoption of ABC need more attention (in order to
facilitate its diffusion in organisations).
Furthermore, though very few studies have dealt with
the relationship between adoption stages/levels of ABC
and organisational factors (such as size and organisational
industry), their ndings have been mixed and inconsistent
(Al-Omiri and Drury, 2007b; Baird, 2007; Brown et al.,
2004; Cohen et al., 2005; Innes and Mitchell, 1995; Libby
and Waterhouse, 1996).
Considering the contribution of ABC to SCM in
organisations, examining the extent of the relationship
between adoption stages/levels of ABC and organisational
factors (such as organisational size organisational industry) could lead to the recognition of factors facilitating or
hindering different adoption stages/levels of ABC and
therefore could result in improved organisational productivity, performance and protability. In doing so, current
study examines the extent of the association between
business size as well as business industry and the
diffusion of ABC (stages/levels) in New Zealand through
using a survey questionnaire and targeting more or
less similar respondents (qualied CIMA members).
The remaining of this paper is organised as follows:
Section 2 provides a background to the research questions.
Section 3 discusses research method, Section 4 presents
our empirical results and Section 5 concludes the study.

2. Background
Contributing to the SCM and ABC literature, this
section rst highlights different types of improvements

239

which ABC can offer to SCM and the performance of the

organisations. Following the signicance of the integrations between SCM and ABC, the current section demonstrates the controversy on the extent of association
between business size as well as business industry (as
organisational factors) and the adoption of ABC. Given the
above, then it suggests relevant propositions which their
examinations could lead to the recognition of factors
inuencing the adoption of ABC and therefore could result
in improved organisational productivity, performance and
protability by contributing to the higher levels of the
adoption of ABC.
An accumulated body of the literature suggest that ABC
can contribute to SCM and organisational performance
from many different perspectives (Baykasoglu and
Kaplanoglu, 2008; Charles and Hansen, 2008a, b;
Homburg, 2005; Qian and Ben-Arieh, 2008; Satoglu
et al., 2006; Thyssen et al., 2006). For example, Baykasoglu
and Kaplanoglu (2008) suggest that ABC can improve
organisational performance as follows: helping organisations to become more efcient and more effective;
providing organisations with a clear picture of where
resources are being spent, customer value is being created,
and money is being made or lost; offering organisations a
better alternative to volume-based product costing;
identifying value-added activities and eliminating or
reducing non-value added activities.
Supporting the above suggestions, Tsai et al. (2008)
explain that ABC provides organisations with an understanding of cause and effect relationship between costs
and the demands for activities within a process leading to
better organisational performance. They further emphasise that traditional cost accounting can distort product
costs in advanced manufacturing environments especially
when overhead costs are a signicant portion of total
costs of products or services. According to Tsai et al.
(2008), ABC can improve the accuracy of processes and
products cost data and obtain the highest long-term
prot by exercising complete control over overhead
resources in organisations.
Kee (2008) suggests ABC can be used as a tool for
decision making especially for product mix costing and
pricing decisions. Further to the above advantages, Qian
and Ben-Arieh (2008) consider ABC as a more accurate
cost-estimation method. They argue that ABC can help
managers to become aware of original parameters that
create demands on indirect and support resources and
therefore can identify and remove non-value-adding
activities. According to Ben-Arieh and Qian (2003) and
Qian and Ben-Arieh (2008), the ABC approach has
demonstrated to be more accurate than the traditional
cost estimation. Testing the validity of ABC cost estimation, Singer and Donoso (2008) examined the accuracy of
ABC in terms of real indirect cost versus its forecast with
ABC and concluded that the accuracy of estimation of
costs made by ABC was valid.
With regards to the current competitive environment
and product diversity, there should be no doubt that
accurate product-cost information is critical for decision
makers in organisations. In line with the above argument,
Charles and Hansen (2008b) recommend ABC as true

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D. Askarany et al. / Int. J. Production Economics 127 (2010) 238248

product-cost assignments approach. Their ndings show

that ABC is a more accurate product-costing system than
traditional volume-based costing systems especially when
organisations are facing higher product diversity. Highlighting the importance and the contribution of ABC to
supply chain management, Comelli et al. (2008) support
the argument that ABC is the best costing model
especially for diverse and complex manufacturing systems
because of its connections with supply chain management.
Supporting the above argument, the supply chain
management literature provides an accumulated body of
evidence regarding the integration between ABC and SCM
and the types of contributions which ABC is able to offer
to organisations performance, processes, productivity,
protability, etc. According to the SCM literature, ABC
can improve organisational performance, productivity,
and protability in organisations as follows: improving
organisation process by providing decision support for
conversion to the decentralised mini-storages (Satoglu
et al., 2006); costing services of the land transportation
company (Baykasoglu and Kaplanoglu, 2008); facilitating
optimal joint product mix decisions (Tsai et al., 2008);
pricing, product mix, and capacity expansion decisions
(Kee, 2008); offering cost-estimation model (Kingsman
zbayrak et al., 2004; Qian and
and de Souza, 1997; O
Ben-Arieh, 2008); providing more accurate product-cost
information and improving decision quality (Charles and
Hansen, 2008b); offering more accurate costing of holding
inventory (Berling, 2008); estimating cash ow created by
supply chain tactical production planning (Comelli et al.,
2008); improving efciency by identifying and eliminating areas of non-value added activity in supply chain
processes (Whicker et al., 2006); offering supporting
decision-making concerning product modularity method
for assessing the cost consequences of modularisation
(Thyssen et al., 2006); designing and development of
activities for production (Ben-Arieh and Qian, 2003;
Tornberg et al., 2002); Protability modelling, enterprise
modelling and business process reengineering (Tatsiopoulos
and Panayiotou, 2000); offering cost reduction
(Andrade et al., 1999); improving simulation models
(Spedding and Sun, 1999); identifying area of waste and
non-value- added activities, improving productivity,
quality and effectiveness in manufacturing and performance measurement systems, improving competitive
position of organisations, reducing costs and production
time (Gunasekaran and Sarhadi, 1998); contributing to the
decision support for designers, production managers and
manufacturers (Senechal and Tahon, 1998); planning
(Boons, 1998; Schneeweiss, 1998); improving performance
measurement system (Kim et al., 1997); improving
the quality of the products protability information
(Pirttila and Sandstrom, 1996); and predicting the economic consequences of production and processes actions
(Salafatinos, 1996).
However, despite the critical role of ABC in terms of
improving the organisations performance and their SCM,
the adoption of ABC is still relatively low (Al-Omiri and
Drury, 2007b; Askarany and Smith, 2008; Askarany and
Yazdifar, 2007). For example, survey evidence suggests

that the adoption rate for ABC by UK organisations is still

fairly low, being approximately 15% (Al-Omiri and Drury,
2007a). The adoption of ABC in New Zealand is not much
higher than the UK and follows a similar pattern (William
et al., 2003). Conducting a comparative analysis, Cotton
et al. (William et al., 2003) report an average of 20.3%
adoption rate for ABC users (both in manufacturing and
non-manufacturing sectors) in New Zealand compared
with a 17.5% adoption rate for the UK companies.
However, they suggest that further adoption of ABC in
the future would receive less consideration in NZ than in
the UK. Except a few (Baird et al., 2004; Chenhall and
Langeld-Smith, 1998; Langeld-Smith, 1997), most studies have reported relatively low adoption rates for ABC in
Australia such as 10% (Warwick and Reeve, 1997), 12%
(Booth and Giacobbe, 1997) and 28% (Askarany et al.,
2007a).
Given the above, any investigation into the impact of
suggested inuencing factors in the literature (such as
organisational size and organisational industry) on the
adoption of ABC, would contributes to SCM as well as to
the performance of the organisations. That is why many
studies have investigated the extent of the relationships
between the adoption of ABC and a variety of contextual
factors. However, very few studies examined the adoption
of ABC as a continuing process (e.g. a set of different
stages) and paid adequate attention into the adoption
stages of ABC (Al-Omiri and Drury, 2007a; Askarany,
2006; Askarany et al., 2007b; Brierley et al., 2006). Indeed,
the adoption of ABC includes performing a number of
different activities (such as activity analysis, allocation of
costs to cost pools, and allocation of cost pools to
products/services), while most of the literature on SCM
and ABC have looked at the ABC adoption as one stage
process (e.g. adopted versus not adopted). Furthermore,
very few studies deal with the relationship between
adoption stages of ABC and organisational size and
organisational industry. Moreover, the ndings of such
studies have been inconsistent and mixed (Al-Omiri and
Drury, 2007b; Baird, 2007; Brown et al., 2004; Cohen
et al., 2005; Innes and Mitchell, 1995; Libby and Waterhouse, 1996).
For example, while some studies suggest the larger the
sizes of the rms the higher is the level of adoption of ABC
(Al-Omiri and Drury, 2007b; Bjornenak, 1997; Innes and
Mitchell, 1995; Krumwiede, 1998), other studies suggest
no relationship between business size and the extent of
adoption of ABC (Cohen et al., 2005; Gosselin, 1997; Libby
and Waterhouse, 1996). As with the business size, the
literature also shows some controversy regarding the
relationship between organisational industry (manufacturing versus non-manufacturing) and the extent of the
adoption of ABC (Innes et al., 2000; Pierce, 2004). For
example, while some studies report a higher adoption rate
for ABC users in non-manufacturing than in manufacturing organisations (Innes et al., 2000), other studies
suggest the opposite (Pierce, 2004).
Among the majority of contextual factors addressed in
the diffusion literature, size is one of the most controversial inuencing factor with suggested inconsistent
impact. For example, some authors argue that larger rms

D. Askarany et al. / Int. J. Production Economics 127 (2010) 238248

have higher advantages over smaller rms specially in

terms of the ability to afford more resources to facilitate
the adoption of a new technique (Baird, 2007; Bjornenak,
1997; Brown et al., 2004; Innes and Mitchell, 1995), while
others argue that the adoption of a new technique in
smaller rms is quicker than in larger rms (Acs and
Auderetsch, 1988; Julien, 1993; Lefebvre and Lefebvre,
1993; Riding, 1993) and list a number of advantages for
smaller rms as follows: less bureaucracy, greater motivation, better survey of the entirety of the project, and
greater proximity to the market (Nooteboom, 1994).
Supporting this argument, Julien (1993) argues that the
key factor in the continued existence of small rms lies in
their behaviours as being entrepreneurs and innovative
and also in their desires to be the leading adopters of new
techniques in the market. Such behaviours would help
smaller rms to compete with larger rms, otherwise
larger rms may capture the markets and this could be an
important threat to the survival of small rms. Supporting
the above view, Shields and Young (1994) state that small
rms are increasingly gaining competitive advantage
through innovative activity such as being the leading
adopters of new techniques. As smaller rms are expected
to compete with larger rms in the market, they would
probably need to be more adoptive to new techniques
than their larger rivals (in order to improve their products
and services) otherwise they could fail.
However, the controversy regarding the impact of
business size on the adoption of new techniques such as
ABC has been further complicated by the mixed results of
the studies investigating the association between size and
the adoption of ABC in organisations (Al-Omiri and Drury,
2007b; Baird, 2007; Baird et al., 2004; Booth and
Giacobbe, 1998; Brown et al., 2004; Damanpour, 1992;
Gosselin, 1997; Krumwiede, 1998; Libby and Waterhouse,
1996; Pierce, 2004). For instance, Libby and Waterhouse
(1996) nd no statistically signicant association between
size and the adoption of ABC. Similarly, Gosselins (1997)
and Cohen et al.s (2005) ndings suggest no statistically
signicant association between size and the adoption of
ABC. As with the above ndings, Baird (2007) also nds no
association between business size and the adoption of
ABC.
Despite the above, other studies suggest that lager
rms are more likely to adopt ABC than smaller rms
(Al-Omiri and Drury, 2007b; Bjornenak, 1997; Innes and
Mitchell, 1995; Krumwiede, 1998; Malmi, 1999; Pierce,
2004). For example, Al-Omiri and Drury (2007b) nd a
signicant association between business size and the
adoption of ABC in UK organisations. Innes et al. (2000)
nd that the adoption of ABC is signicantly higher
(26.3%) in larger organisations than in smaller organisations (15.8%). Pierces (2004) ndings also conrm that
the adoption of ABC is signicantly higher among larger
organisations than smaller rms. Similarly, Brown et al.
(2004) nd a signicant positive association (po0.05
level) between organisational size and the adoption of
ABC.
Addressing the above controversy, Baird et al. (2004)
nd that organisational size is associated with the rst
and the second levels (activity analysisAA and activity

241

cost analysisACA) of ABC adoption but not with the

third level (cost allocation) of ABC. The ndings of Baird
et al. (2004) may suggest that some of the reported
variations (mixed results regarding the degree of association between business size and the adoption of ABC) in
the literature could be related to the application of
different adoption processes (e.g. the levels of adoption
in some studies and the stages of adoption in other
studies). To further clarify the distinction between the
stages and the levels of adoption of ABC, it is important
to note that some studies refer to ABC as one whole
process (Al-Omiri and Drury, 2007a; Anderson, 1995;
Pierce, 2004), while others (Baird et al., 2004; David et al.,
2004; Gosselin, 1997; Krumwiede, 1998) have used it to
refer to different levels of ABC adoption.
However, much of the studies which have looked at
ABC as one whole process made some distinction between
different steps/levels of adoption process of ABC. When
looking at ABC as one whole process, the most common
stages used to examine the adoption of ABC are as follows:
no consideration/decision is given to the introduction,
decided not to adopt or decided to reject, some
consideration is given to the introduction of ABC in the
future, implemented on a trial basis and nally,
implemented and accepted (Al-Omiri and Drury, 2007a;
Askarany et al., 2007a; Pierce, 2004). Some other studies
have extended these stages up to 10 stages (Brown et al.,
2004; Krumwiede, 1998).
Looking at ABC as a set of different processes, other
studies have categorised the adoption of ABC into
different levels as follows: activity analysis (AA) which
is the rst stage for identifying the activities and
procedures performed to make the nal products/
services; activity cost Analysis (ACA) which is the second
stage for identifying the costs of each activity and cost
drivers and nally, activity-based costing (ABC) which is
the third stage for tracing costs of activities to products/
services (Baird, 2007; Baird et al., 2004; Gosselin, 1997).
Studies which have investigated the association between
organisational size and the adoption of ABC either used
the stages of adoption process or the levels of adoption
process. However, no study has been reported to consider
both the steps/stages and the levels of adoption of ABC
at the same time. This study is trying to overcome the
above issue by using both the stages and the levels of
adoption of ABC at the same time. Comparing the
adoption of ABC in New Zealand and the UK, Cotton
et al. (2003a) nd that the adoption of ABC received less
consideration in NZ than in the UK and at the same time
they nd that NZ rms tend to be signicantly smaller
than UK rms. Given the above, they suggest that an
investigation into the association between size and the
adoption of ABC is likely to be fruitful area for future
research. This suggestion further motivates the conduct of
the current study.
Addressing the above controversy (in terms of positive,
negative and neutral relationship between organisational
size and the adoption of ABC), it could provide us with
some clues to make a better proposition if we take into
consideration the factors addressed by the diffusion of
innovation theory (Rogers, 1995). The ABC literature

242

D. Askarany et al. / Int. J. Production Economics 127 (2010) 238248

suggests that the major factors hindering or constraining

the diffusion of ABC in organisations are related to the lack
of resources (Clarke et al., 1999; Gunasekaran et al., 1999),
high costs, technical and complexity of ABC (Al-Omiri and
Drury, 2007a; Cohen et al., 2005) which larger rms are
more capable in overcoming such barriers. So, given the
above we may suggest the following proposition: Larger
rms are more likely to adopt ABC than smaller rms.
Referring to size as a variable in this study, we should
note that different proxies such as total sales, annual
turnover, and number of employees could be used to
measure organisational size. For example, Krumwiede
(1998) and Al-Omiri and Drury (2007b) use the level of
sales revenue to measure the size of organisations, while
other studies use the number of employees for such
purpose (Baird, 2007; Baird et al., 2004; Gosselin, 1997).
However, using the number of employees as a proxy for
organisational size is the most popular method used in
the literature (Gosselin, 1997). Given the above, we use the
number of employees as a proxy for organisational size in
this study.
As with organisational size, the ABC literature also
shows some controversy on the level of association
between organisational industry and the adoption of
ABC. For example, investigating the adoption of ABC,
Innes et al. (Innes and Mitchell, 1995) nd a higher (22%)
adoption rate for non-manufacturing and a lower (15.5%)
adoption rate for manufacturing organisations in the UK.
In another study (ve years later) Innes et al. (2000)
similarly nd a higher adoption rate for ABC users in nonmanufacturing than in manufacturing organisations in the
UK. As with the above Al-Omiri and Drury (2007b) nd a
signicant association (po0.05) between non-manufacturing rms (e.g. nancial sectors and service sectors) and
the adoption of ABC in the UK. These ndings support
Kaplan and Coopers (1998) suggestion that service rms
are more suitable than manufacturing rms for the
adoption of ABC as most of their costs are xed. However,
despite the above ndings, there is some evidence which
suggests that the adoption of ABC is higher in manufacturing organisations than in non-manufacturing organisations (Pierce, 2004). As with the above controversy,
the ABC literature also support further studies into the
relationship between organisational industry and the
adoption of ABC (Cotton et al., 2003b).
Looking at the main benets/advantages of ABC
addressed in the literature could provide us with some
clues to make a better proposition in terms of the
expected relationship between the adoption of ABC and
organisational industry. According to the ABC literature,
the main benet/advantage of ABC over traditional cost
accounting techniques is related to its ability in providing
more accurate cost information especially in terms of cost
allocation for products which consume different amount
of overhead costs at different levels of cost hierarchies
such as unit level, batch level, product level and facility
level (Drury, 2004; Kaplan and Anderson, 2007; Kaplan,
1986). The implementation of these cost hierarchies are
more in line with complex manufacturing products rather
than service industry. So, given the above we may suggest
the following proposition: Manufacturing organisations

are more likely to adopt ABC than non-manufacturing

organisations.
So, given the above and adopting the diffusion of
innovation theory, this study is aiming to examine the
levels of associations between organisational size as well
as organisational industry and the adoption of ABC (both
in terms of the stages and the levels of adoption) in New
Zealand by using a consistent proxy (number of employees) and targeting similar respondents (qualied CIMA
members who are working in a managerial accounting
position in organisations) in the same period (2007).
Considering the scope of the integration between ABC and
SCM (demonstrated earlier in this section), examining the
extent of the relationship between the adoption of ABC
and organisational factors (both the organisational size
and the organisational industry) could lead to a higher
level of adoption of ABC and therefore may result in
improved organisational productivity, performance and
protability.

3. Method
A survey questionnaire was mailed to almost all (366)
members of Chartered Institute of Management accountants (CIMA) in New Zealand. CIMA is a professional
management accounting body with over 155,000 members and students in 158 countries. Given the levels of
requirements for becoming a CIMA qualied, it can be
argued that CIMA professionals are equipped with
necessary skills and knowledge to make better strategic
decisions for organisations. This makes each CIMA
member a suitable candidate for current study which
focuses on the adoption of management accounting
techniques in organisations.
Hard copies of the questionnaires were sent to all
targeted populations followed by a general announcement
on CIMA website (in three weeks time) encouraging those
CIMA members who had received the hard copies of the
questionnaires but did not complete them to ll up an
online version of the questionnaire.
Examining the stages (adoption versus non-adoption)
of adoption of ABC as one whole process (Al-Omiri and
Drury, 2007a; Anderson, 1995; Pierce, 2004), respondents
were asked to indicate their organisations attitudes
towards ABC adoption by using a 5-point Likert-type
scale (Abdel-Kader and Luther, 2006; Innes et al., 2000) as
follows: with anchors of (1) discussions have not taken
place regarding the introduction of ABC; (2) a decision has
been taken not to introduce ABC; (3) some consideration
is being given to the introduction of ABC in the future; (4)
ABC has been introduced on a trial basis; and (5) ABC has
been implemented and accepted.
In order to measure the levels of adoption of ABC
(after ABC is implemented), Gosselins levels of ABC
adoption (1997) which was also implemented by Baird et
al. (2004) and Baird (2007) was used and the adopters of
ABC were asked to identify the level of adoption of ABC in
their organisations as follows: activity analysisAA
(identication of activities and procedures performed in
their organisations to make the nal products/services);

D. Askarany et al. / Int. J. Production Economics 127 (2010) 238248

243

these responses, suggesting that non-response bias would

not inuence the outcomes.

Activity Cost Analysis-ACA (identication of cost drivers

and allocation of costs to cost pools; and Activity-Based
CostingABC (allocation of costs of activities to products/
services).
In order to measure the sizes of organisations,
respondents were asked to record the number of employees in their organisations. Although there are a variety of
factors such as annual sales, total assets, total revenue, net
worth of rms and number of employees which could be
used to dene rm size, the number of employees is
considered to be the most frequently used proxy for
measuring the size of organisations (Gosselin, 1997). As
changes in factors such as annual sales, total revenue, total
assets, and net worth of rms occur more frequently than
changes in the number of employees each year, measuring
rms sizes based on such volatile factors may result in
changing the classication of rms sizes every year.
Therefore, this paper uses the number of employees to
measure the sizes of organisations.

4.1. Business size and the stage of adoption of ABC

With regards to the suggested classications (in terms
of number of employees) for measuring business size in
the literature (Berryman, 1993; McMahon et al., 1993;
Nooteboom, 1994; Watson and Everett, 1993), this study
categorises organisations into following six groups as
follows: (1) up to 25 employees; (2) from 26 up to 50
employees; (3) from 51 up to 100; (4) from 101 up to 200
employees; (5) from 201 up to 500 employees; and (6)
more than 500 employees.
According to Vincent (2005), chi-square is one the best
statistics for the analysis of categorical (ordinal) and
nominal data. Given the nature of data in this study
(categorised in terms of the levels and the stages of
adoption, we would consider our data as categorical
rather than interval and ratio data.
Table 1 presents the detailed relationship between
business size and the stages of adoption of ABC in New
Zealand. According to the performed statistical tests, there
is a signicant association between business size and the
stages (adoption versus non-adoption) of adoption of
ABC in New Zealand (signicant at 0.000 level based on
Pearson chi-square). The ndings suggest that the adoption of ABC in larger rms is higher than smaller rms in
New Zealand. So, we may argue that the ndings are
supporting the discussion that the larger the size of the
rms the higher is the level of adoption of ABC (Al-Omiri
and Drury, 2007b; Bjornenak, 1997; Innes and Mitchell,
1995; Krumwiede, 1998). The ndings are in line with the
stated proposition in this paper and imply that the
adoption of ABC in smaller rms need more attention if
we want to improve the SCM and the performance of the
organisations through higher levels of adoption of ABC.

4. Results and discussion

The nal number of useable responses (both hard
copies and online replies) was 142 completed questionnaires plus 10 not-completed or not delivered. The nal
completed questionnaires have provided the authors with
a satisfactory response rate of 39.5%. According to
Krumwiede (1998), the normal response rates for these
kind of surveys is approximately 20% though there are
many published surveys with lower response rates such as
12.5% (Brown et al., 2004) or 19.6% (Al-Omiri and Drury,
2007a).
Non-response bias was examined both by using the
aggregated data provided by CIMA (such as total number
of CIMA members working in manufacturing and nonmanufacturing organisations, the average length of experiences of CIMA members and their average ages as
qualied CIMA members) and comparing them with
similar information gathered by the surveys, and through
a comparison between early and late responses. The
former showed responses to be representative, the latter
showed that there was no perceived difference between

4.2. Business size and the levels of adoption of ABC

As with the stages of adoption (looking at ABC as one
whole process), this study examines the relationship

Table 1
Relationship between business size the stages of adoption of ABC in New Zealand.
Number of employees

Discussions
have not taken
place regarding
the introduction
of ABC

A decision has
been taken not
to introduce
this practice

Some
consideration is
being given to
the introduction
of this practice

This practice
has been
introduced on a
trial basis

This practice
has been
implemented
and accepted

Total

r25 Employees
26 Up to 50 employees
51 Up to 100 employees
101 Up to 200 employees
201 Up to 500 employees
More than 500 employees
Total

24
6
6
8
6
8
58

8
0
4
2
0
6
20

0
0
0
0
6
10
16

0
0
0
2
0
4
6

6
4
0
4
2
10
26

38
10
10
16
14
38
126

Value

df

Sig. (2-sided)

55.134

20

0.000

Pearson chi-square

244

D. Askarany et al. / Int. J. Production Economics 127 (2010) 238248

industry and the stages as well as the levels of adoption

of ABC. Contributing to the literature, the ndings are
expected to clarify whether the extent of adoption of ABC
is higher among manufacturing rms (Pierce, 2004) or
among non-manufacturing rms (Al-Omiri and Drury,
2007b; Innes et al., 2000).
According to Table 3, out of 142 useable responses
(responses to organisational industry and adoption of ABC
questions) there are 22 manufacturing and 120 nonmanufacturing rms in New Zealand. However, the
ndings show that the level of association between
organisational industry and the stages of adoptions of
ABC in New Zealand is not statistically signicant. Despite
the signicant inuence of business size on the adoption
of ABC in New Zealand, the ndings suggest that
there is no signicant difference between manufacturing
and non-manufacturing organisations in New Zealand in
terms of the adoption of ABC (adoption versus nonadoption), suggesting that organisational industry is not a
determining factor for the adoption of ABC in New
Zealand.

between business size and the levels of adoption of ABC.

The main purpose of this section is to investigate the
impact of business size on the levels of adoption of ABC
after ABC is implemented.
Despite the stages of adoption, Table 2 presents no
signicant association between business size and the
levels of adoptions of ABC in New Zealand. Given that
the levels of adopting only applies to ABC adopters, the
nding suggest that there is no signicant difference
between small and large rms in terms of the levels of
adoption of ABC in New Zealand after ABC is implemented. In other words, the decision to proceed from one level
of adoption (e.g. AA or ACA) to a higher level (e.g. ABC) in
New Zealand is not signicantly associated with business
size.
To summarise the above statistical tests, the ndings of
current study support our stated proposition that larger
rms are more likely to adopt ABC than smaller rms.
However, when the adoption decision was made, there is
no signicant difference between larger rms and smaller
rms in terms of proceeding towards a higher level of
adoption of ABC (e.g. from activity analysis level to
allocation of costs to products level).

4.4. Organisational industry and the levels of adoption of

ABC

4.3. Organisational industry and the stage of adoption of

ABC

As with the stages of adoption, this paper examines

the relationship between organisational industry and
the levels of adoption of ABC. The main purpose of
this section is to investigate how manufacturing and

As with organisational size, this paper also examines

the level of the association between organisational

Table 2
Relationship between business size the levels of adoption of ABC in New Zealand.
Number of employees

Activity analysis
(AA)

Allocation of costs to cost

pools (ACA)

Allocation of cost
pools to products/
services (ABC)

Total

r25 Employees
26 Up to 50 employees
101 Up to 200 employees
201 Up to 500 employees
More than 500 employees
Total

2
0
0
0
4
6

0
2
2
4
8
16

4
2
4
4
10
24

6
4
6
8
22
46

Value

df

Sig. (2-sided)

8.277

0.407

Pearson chi-square

Table 3
Relationship between organisational industry and the stages of adoption of ABC in New Zealand.
Number of employees

Discussions
have not taken
place regarding
the introduction
of ABC

A decision has
been taken not
to introduce
this practice

Some
consideration is
being given to
the introduction
of this practice

This practice
has been
introduced on a
trial basis

This practice
has been
implemented
and accepted

Total

Manufacturing organisations
Service organisations
Total

12
52
64

4
18
22

2
16
18

0
6
6

4
28
32

22
120
142

Value

df

Sig. (2-sided)

2.223

0.695

Pearson chi-square

D. Askarany et al. / Int. J. Production Economics 127 (2010) 238248

245

Table 4
Relationship between organisational industry and the levels of adoption of ABC in New Zealand.
Number of employees

Activity analysis
(AA)

Allocation of costs to cost

pools (ACA)

Allocation of cost
pools to products/
services (ABC)

Total

Manufacturing organisations
Service organisations
Total

0
6
6

0
24
24

6
18
24

6
48
54

Value

df

Sig. (2-sided)

8.438

0.015

Pearson chi-square

non-manufacturing organisations proceed with the higher

levels of adoption of ABC after they decide to implement
the technique. In other words, this section aims to
examine whether there is (or not) any signicant
differences in terms of the levels of adoption of ABC
between manufacturing or non-manufacturing organisations after they decided to adopt the technique.
According to Table 4, the ndings indicate that the
extent of association between organisational industry and
the levels of adoption of ABC in New Zealand is
statistically signicant (signicant at 0.015 based on
Pearson chi-square). Manufacturing rms are more likely
to proceed with a higher level of adoption of ABC than
non-manufacturing rms. So, we may suggest that being a
manufacturing or non-manufacturing organisation in New
Zealand is an important factor which could inuence the
levels of adoption of ABC in organisations after ABC is
implemented. This also implies that non-manufacturing
(compared with manufacturing) organisations are more
likely to use ABC for managing their activities rather than
for costing purposes.
As with the relationship between business size and the
adoption of ABC, we need to take into consideration that
the ndings are referring to the extent of the relationship
between business industry and two different factors: (a)
the decision to adopt ABC (adoption versus not adoption)
which are referred to as the stages of adoption of ABC in
this study and (b) the levels of adoption of ABC (after ABC
is implemented) which are referred to as the levels of
adoption of ABC in this study. In terms of the rst factor
(adoption versus non-adoption), the ndings of current
study support neither the suggestions of advocators
of a higher adoption rate of ABC for non-manufacturing
(e.g. Al-Omiri and Drury, 2007b; Innes and Mitchell, 1995;
Kaplan and Cooper, 1998) nor the suggestions of advocators of a higher adoption rate of ABC for manufacturing
organisations (Pierce, 2004). Rejecting our second
stated proposition, the ndings of current study suggests
that the decision to adopt (or not adopt) ABC is
equally important for both manufacturing and nonmanufacturing organisations. However, in terms of
the second factor (the levels of adoption of ABC), the
ndings of current study suggest that after the ABC is
implemented, manufacturing (compared with non-manufacturing) organisations are more likely to proceed with
a higher level of adoption of ABC (e.g. from activity
analysis level to allocation of costs to products level)
(Table 4).

5. Conclusions
Contributing to the SCM and ABC literature, the current
study highlights the integration between SCM and ABC in
terms of addressing a variety of different improvements
which the adoption of ABC can offer to SCM and
organisational performance, processes, productivity, and
protability as follows: helping organisations to become
more efcient and more effective; providing organisations
with a clear picture of where resources are being spent,
customer value is being created, and money is being made
or lost; offering organisations a better alternative to
volume-based product costing; identifying value-added
activities and eliminating or reducing non-value added
activities; providing organisations with an understanding
of cause and effect relationship between costs and the
demands for activities within a process leading to better
organisational performance; improving the accuracy of
processes and products cost data and obtaining the
highest long-term prot by exercising complete control
over overhead resources in organisations; improving
organisation process by providing decision support for
conversion to the decentralised mini-storages; costing
services of the land transportation company; facilitating
optimal joint product mix decisions; pricing product mix
and capacity expansion decisions; offering cost-estimation model; providing more accurate product-cost information and improving decision quality; offering more
accurate costing of holding inventory; estimating cash
ow created by supply chain tactical production planning;
improving efciency by identifying and eliminating areas
of non-value added activity in supply chain processes;
offering supporting decision-making concerning product
modularity method for assessing the cost consequences of
modularisation; designing and development of activities
for production; Protability modelling, Enterprise modelling and Business Process Reengineering; offering cost
reduction; improving simulation models; identifying area
of waste and non-value- added activities, improving
productivity, quality and effectiveness in manufacturing
and performance measurement systems, improving competitive position of organisations, reducing costs and
production time; contributing to the decision support
for designers, production managers and manufacturers;
planning; improving performance measurement system;
improving the quality of the products protability
information; predicting the economic consequences of
production and processes actions.

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D. Askarany et al. / Int. J. Production Economics 127 (2010) 238248

Given the above (demonstrating the vital role of ABC in

improving the organisations performance and their SCM),
examining the relationship between the adoption of ABC
and organisational factors (both the organisational size
and the organisational industry) can be considered as
another contribution of the current study. Because such an
examination could improve the adoption of ABC by
shedding some light on the impact of organisational size
and the organisational industry on the adoption of ABC
and therefore may result in improved organisational
productivity, performance and protability.
In line with the above consideration, the ndings of
current study support our rst stated proposition that
larger rms are more likely to adopt ABC than smaller
rms. However, when the adoption decision was made,
there is no signicant difference between larger rms and
smaller rms in terms of proceeding towards a higher
level of adoption of ABC (e.g. from activity analysis level to
allocation of costs to products level). To improve SCM and
organisations performance through the higher levels of
adoption of ABC in organisations, one of the main
implications of the ndings is that the adoption of ABC
in smaller rms needs more attention than larger rms
regardless of their industries (manufacturing versus nonmanufacturing rms). However, when the decision is
made to implement ABC, non-manufacturing rms (rather
than manufacturing rms) need more attention to
proceed with a higher level of adoption of ABC.
In line with the contribution towards the examining of
the extent of the relationship between the adoption of
ABC and organisational industry, the ndings of current
study reject our second stated proposition and suggest
that the decision to adopt (or not adopt) ABC is equally
important for both manufacturing and non-manufacturing organisations. However, in terms of the the levels of
the adoption of ABC, the ndings of current study suggest
that after the ABC is implemented, manufacturing (compared with non-manufacturing) organisations are more
likely to proceed with a higher level of adoption of ABC
(e.g. from activity analysis level to allocation of costs to
products level). This also implies that non-manufacturing
(compared with manufacturing) organisations are more
likely to use ABC for managing their activities rather than
for costing purposes. Further research is recommended to
investigate the extent of relationship between the adoption stages and levels of ABC and other contextual factors
such as complexity of the system, relative advantage of
the technique, organisational culture, organisational
structure, etc.
Given the selected approach in the current study
(targeting similar respondents and examining the extent
of adoption of ABC both in terms of the stages of
adoption and the levels of adoption), it could be claimed
that the ndings of current study benets from having
less limitations compared with previous studies. However,
normal limitations surrounding survey studies could
apply to the ndings of this study though the authors
have had the opportunity to further clarify any ambiguity
on provided information through follow-up interviews
and have practiced this option when deemed necessary.
Furthermore, although statistical tests were performed to

look for evidence of non-response bias, there is no way to

directly test whether the non-respondents are systematically different than the respondents. It should also be
noted that as all respondents are members of the CIMA,
they may have a bias toward reporting ABC adoption or
implementation. Thus, generalising the results of this
study should be done with caution.

Acknowledgements
The authors are grateful to the University of Auckland,
Research Foundation of the Chartered Institute of Management Accountants (CIMA) of the UK and the University of
Shefeld for funding and facilitating the research on
which this paper is based.
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