Strategic Decision Making for a Footwear Industry Using Activity Based Costing and Value Chain Models

Majority of the enterprises in modern day world are facing speedy transformation in their business dynamics. Organizational challenges have been deepened by the deregulation, in tandem with the escalating worldwide competition and diminution in product life cycles resulting from scientific modernization. Hence, with a view to be competitive under these vibrant conditions, it is important to comprehend how a business functions, how costs are incurred and how they can be efficiently managed. Activity based costing (ABC) model is a new cost accounting approach developed to overcome limitations of the traditional volume-based cost accounting methods and enhance its usefulness in strategic decision making. This paper presents the development and application of an ABC model to cost the entire range of products of an Indian footwear manufacturing industry in order to enhance its competitiveness. Although, there is sufficient published research papers associated with implementation of ABC model in manufacturing sector, none of them has adopted ABC technique in the context of footwear manufacturing. Furthermore, a combined approach employing ABC and value chain models is proposed for the first time for the said footwear industry to demonstrate how it can be implemented in a complementary way to formulate a superior strategy.