Supply chain management: monitoring strategic partnering contracts with activity-based measures: second-generation ABC systems may be the wave of the future, not just for TQM but now also in supply chain management. In a creative tale of a fictitious small-town business, the authors illustrate why

Management Accounting Quarterly, Fall, 2006 by Michael F. Thomas, James Mackey

BY MICHAEL F. THOMAS, PH.D., AND JAMES MACKEY, PH.D., CMA, CPA

Michael F. Thomas, Ph.D., is an accounting professor at Humboldt State University, specializing in second-generation ABC systems, transfer pricing, and sustainability reporting. He can be reached at mft5@humboldt.edu.

James Mackey, Ph.D., CMA, CPA, is an accounting professor at Sacramento State University, specializing in cost and management accounting systems. He can be reached at mackey@csus.edu.

Table 1: Vendor Performance
Index (VPI)

VPI is a measure of the "real" costs of using a supplier.
Purchases from Woodsman Lumber were $10,000 last week.
Bad quality, early or late deliveries, and incomplete shipments
caused $4,000 in nonvalue-adding activity costs.
Woodsman Lumber's VPI = 1.4, as shown below:

VPI = Purchases   Nonvalue-added costs/Purchases

VPI = $10,000   $4,000/$10,000

VPI = 1.4

Figure 1: On-Time Deliveries and Complete Order-Filling Ratios

                  On-time delivery ratio   Complete order-filling ratio

Woodsman Lumber             20%                      40%
Sharp Blades                75%                      50%
Lyons Hardware              50%                      33%