1. Strategic Focus of ABM
Activity-Based Management (ABM) takes the cost data calculated by ABC and uses it to drive continuous process improvements, streamline operations, and increase corporate profitability.
2. Value-Added (VA) vs. Non-Value-Added (NVA) Activities
ABM evaluates activities to determine if they add genuine value to the final customer:
  • Value-Added (VA) Activities: Steps that physically transform or improve a product to meet customer expectations.
    • Examples: Product engineering, structural welding, software coding.

  • Non-Value-Added (NVA) Activities: Steps that consume time and resources without adding value for the customer. Customers are generally unwilling to pay for these tasks.
    • Examples: Storage waiting times, moving materials between warehouses, quality re-inspections after mistakes, and moving broken parts.

3. Process Re-Engineering and Waste Elimination
ABM provides detailed data that helps management restructure operations by targeting inefficiencies:
  [ Identify NVA Cost Drivers ] ---> [ Root-Cause Analysis ] ---> [ Process Innovation ] ---> [ Cost Reductions ]

  • Example: If ABC reveals that material handling costs are exceptionally high, managers can redesign the factory floor layout to bring machines closer together, eliminating material movement waste.
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