Linking Value Chain Costs To Products And Customers: Survey And Evaluation Of Large U.S. Manufacturing Firms’ Current Practices

Abstract

Success in a competitive environment requires effectively selecting an optimal mix of value chain activities. Despite the fact that corporate executives need to understand the costs and benefits of supporting particular products and customers, little empirical evidence is available on how, and how well, companies are linking their value chain costs to these two cost objects. The results of this study, based on responses to a survey of 120 large U.S. manufacturing companies, indicate that firms tend to link their value chain costs to products/product lines more than to customers/customer classes. For both cost objects, most of the cost allocation bases used is volume-based. These findings suggest that while there is attention to the value chain costs, there is room for increasing the proportion of costs traced to products and customers and for expanding the use of non-volume allocation bases.