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Nowadays one of the main issue concerning organization’s activities is their significant impact on natural environment in terms of resource depletion, waste and wastewater generation, air emissions. These environmental burdens are not accounted clearly (or are not accounted at all) in the financial statements of the organizations, because a traditional accounting system does not reveal environmental costs that are then inappropriately hidden in overhead accounts. This leads to inaccurate decision-making based on inaccurate environmental or waste cost information. The success of organizations depends on the quality of their decision-making process through the availability of an integrated data management system that combines separate data management systems of its various divisions. A pilot project based on a Italian small enterprise which is operating in the plastic sector, leader in rubbish bags production, have been carried out. The main aim has been to test the Material Flow Cost Accounting (MFCA) methodology in order to verify and assess the efficiency of the production process. The pilot project began in early 2011 and is intended to have a continuous application over the years. The final aim is to create a new internal database by integrating both economic and physical data, useful for waste decision-making and the optimization of the production process. In the case study, authors have faced several organizational and accounting difficulties in applying the MFCA methodology. Generally, the SMEs have traditional accounting thinking, which accounts only monetary information and a lack of a clear flow chart of the production process in physical unit and/or a lack of independent cost centres emerge. Basing on company financial sheets and on the existing literature, assumptions and estimates have been done. The goal has been to underline the economic value of the physical amounts associated with manufacturing process in order to show the economic value of material losses. In the current economic slowdown, this could allow to reduce these losses and, especially for a small enterprise, to avoid considerable costs, reorganizing and optimizing better the management of the material flow process. The findings highlight that the company has to improve and optimize its manufacturing process primarily for decreasing its material and energy costs. Improving the efficiency of raw material could reduce the related costs and wastes. Results also confirm the powerfulness of the MFCA method in identifying physical and monetary hidden flows for environmentally and economically conscious decision-making.
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Adoption of the Material flow cost accounting (MFCA)
approach to integrate physical and monetary data in
small enterprises for waste-reduction decisions.
Evidence from Italy.
Filippo Alberto TrescaDepartment of Business and Law – University of Bari Aldo Moro – Italy
Tresca&Tresca – Associates Chartered Accountants – Italy
16th EMAN Conference on Material Flow Cost Accounting
Dresden, 20-22 March 2013
The Commodity Science research team has been studying the environmental burdens related to the production and life cycles of commodities since the early
'70s.
Material and energy balance of materials and commodities
Input-Output Analysis
Life Cycle Assessment
Industrial Metabolism and Industrial Ecology
Material Flow Analysis
Environmental Management Systems
The team has also studied the possibility of designing commodities in order to recycle them and no-food uses of biomass.
Department of Business and Law
(Section of Commodity Science and Ecology)
University of Bari Aldo Moro
Index
MFCA at Sfregola Materie Plastiche: our Pilot Project
Overview of the Project
Methodology
Calculations and Results
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Overview of the Project
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Main objectives
To verify the MFCA usefulness to reorganize the management accounting system
AND
To optimize the manufacturing process from a technicaland economic point of view
To build an integrate internal database
Overview of the Project
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
The Company
Sfregola Materie Plastiche (SMP s.a.s.) is a leading companyoperating in the industrial district of Barletta, in Apulia Region(Southern part of Italy), which produce rubbish bags in recycledpolyethylene.
Overview of the Project
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
In 2011 SMP s.a.s. registered:
a turnover of roughly 5 M€
25 employees
more than 3,000 t of production
Overview of the Project
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
The SMP s.a.s. production
is certified ISO 9001:2008
and the ISO 14001:2004 is
in process.
Overview of the Project
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
This pilot project was carried out within the FY 2011through:
Direct visits to the Company: 24
Interviews with production workers: 72
Interviews with administrative staff: 48
Interviews with external environmental consultant: 8
Interviews with external tax consultant: 16
Index
MFCA at Sfregola Materie Plastiche: our Pilot Project
Overview of the Project
Methodology
Calculations and Results
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Methodology
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
The steps of our analysis were the following:
Material flow analysis of the main production process
Individuation of Quantity Centres
Calculation of main cost items (MC, SC, EC, WMC)
Summary of results through the MFCA Cost Matrix
MethodologyMaterial flow analysis of the main production process
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
The main raw and ancillary materials in the SMP s.a.s. production process
LDPE pellets(1-5 mm of diameter)
Masterbatch
Drying, dyes, fragrances and other
additives
9 %
84 %
7 %
MethodologyMaterial flow analysis of the main production process
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
material flow waste flow process flow
Dry mixing andExtrusion
Cutting andWelding
PackagingInspection and
verification
Raw materials(1,000 t)
Semifinished (975 t)
Semifinished(975 t)
CardboardPE films
Exterior labels
Waste (25 t)
Semifinished(950 t)
Wastes, Non conforming product and Packaging material waste(120 t)
FINISHED PRODUCT (855 t)
Energy (2,002 GJ)
Energy (299 GJ)
Semifinished(950 t)
Q. CENTER #1QUANTITY CENTER #2
OUTPUT
INPUT
All the data have been standardized referring to 1,000 t of raw materials
MethodologyMaterial flow analysis of the main production process
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
MethodologyIndividuation of Quantity Centres
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Quantity Centre #1
Quantity Centre #2
Dry mixing – Extrusion
Cutting – Welding – Packaging
Quantity Centres = Cost Centres
MethodologyCalculation of main cost items
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Material Cost
System Cost
Energy Cost
Waste Mgmt Cost
Machinery depreciation and maintenance
pu × q
Ce (kWh) × pu
ql × pw
Labour cost
=
=
=
MethodologySummary of results – The MFCA flow cost chart
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
MethodologySummary of results – The MFCA Cost Matrix
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
(Data are standardized referring to 1,000 tons of raw materials)
MethodologySummary of results
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
After allocating the costs into positive and negative products, we found:
- Almost 13 % of total negative product costs (130,525 €) are represented by:
- roughly 11% of MC (109,864 €)
- more than 1% of EC (11,980 €)
- almost 1% of SC (8,681 €)
- Waste management costs amounts to nearly 4% (43,500 €) of Total Costs
- More than 80% of Total Costs are related to the input material
(Data are standardized referring to 1,000 tons of raw materials)
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Conclusion
Usefulness of MFA analysis;
Significance of using MFCA analysis;
Necessity to create an integrate data system between physical and monetary data to create a more sustainable management control(e.g. Environmental Balance Scorecard)
MethodologyMaterial flow analysis of the main production process
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
material flow waste flow process flow
Dry mixing andExtrusion
Cutting andWelding
PackagingInspection and
verification
Raw materials(1,000 t)
Semifinished (975 t)
Semifinished(975 t)
CardboardPE films
Exterior labels
Waste (25 t)
Semifinished(950 t)
Wastes, Non conforming product and Packaging material waste(120 t)
FINISHED PRODUCT (855 t)
Energy (2,002 GJ)
Energy (299 GJ)
Semifinished(950 t)
Q. CENTER #1QUANTITY CENTER #2
OUTPUT
INPUT
All the data have been standardized referring to 1,000 t of raw materials
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Work in progress…
Thanks to PricewaterhouseCoopers consulting firm, we are collaborating with
(a SABMiller Company) (Dyckerhoff in Germany)
to test the MFCA analysis on their production processes.
So…. suggestions and advices are very welcome!
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Acknowledgment
The Authors would like to thank
the SMP s.a.s. to support this
research project economically .
Filippo A.Tresca, M.Sc. - University of Bari Aldo Moro - Department of Business and Law
Contacts
Filippo A. Tresca, Department of Business and LawUniversity of Bari Aldo Moro.Tresca&TrescaAssociates Chartered AccountantsVia R.Girondi, 13I-76121 BARLETTAE-mail: [email protected]
Sfregola Materie Plastiche – SMP s.a.s.Via Foggia, 45-47I-76121 BARLETTA, ItalyWeb site: www.smpsas.itE-mail: [email protected]
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