Kemps Case
1. Assess the implementation of the time-driven ABC system at Kemps. What do you like about it? What are you less happy with, and would have done differently?
One of the best aspects of the way the time-driven ABC system was put into place at Kemps was how efficiently and accurately management determined the main issues with the current cost system and responded with appropriate and relevant solutions. For example, one of the greatest problems the company was facing was that many of its operating costs were spread out equally over a customer base that was growing more diverse and demanding more personalized and varied service, effectively cutting or potentially eliminating entirely Kemps’ profit margins for a product. Therefore, the CEO set out to properly distribute costs such as storing, picking and delivery of products over their wide variety of customer orders through the use of time equations. These equations helped management to determine the specific costs associated with the various orders they encountered, and to pass these on to the customer. The executives also made great effort to ensure that any changes made would not negatively impact either productivity or customer relationships. Many updates to the firm’s operations were made as a result of the information acquired from the models, and therein lay the potential downfalls inherent in Kemps’ system. As management soon discovered, important decisions regarding the company could not be made by relying on the data alone. For instance, a model could not be created that would correctly determine which products should be discontinued; instead, these assessments needed to be made on a case by case basis. Similarly, the long-term effects of such decisions can never be known for certain and the potential always exists that what the data seems to show as an obvious choice could actually be harmful. Therefore, it is important to always view the information as just that and for management to
One of the best aspects of the way the time-driven ABC system was put into place at Kemps was how efficiently and accurately management determined the main issues with the current cost system and responded with appropriate and relevant solutions. For example, one of the greatest problems the company was facing was that many of its operating costs were spread out equally over a customer base that was growing more diverse and demanding more personalized and varied service, effectively cutting or potentially eliminating entirely Kemps’ profit margins for a product. Therefore, the CEO set out to properly distribute costs such as storing, picking and delivery of products over their wide variety of customer orders through the use of time equations. These equations helped management to determine the specific costs associated with the various orders they encountered, and to pass these on to the customer. The executives also made great effort to ensure that any changes made would not negatively impact either productivity or customer relationships. Many updates to the firm’s operations were made as a result of the information acquired from the models, and therein lay the potential downfalls inherent in Kemps’ system. As management soon discovered, important decisions regarding the company could not be made by relying on the data alone. For instance, a model could not be created that would correctly determine which products should be discontinued; instead, these assessments needed to be made on a case by case basis. Similarly, the long-term effects of such decisions can never be known for certain and the potential always exists that what the data seems to show as an obvious choice could actually be harmful. Therefore, it is important to always view the information as just that and for management to