Improving financial and environmental performance through MFCA: A SME case study

Abstract

SMEs around the globe are often challenged by the issues related to productivity enhancement, material usage, waste management and sustainability. Material flow cost accounting (MFCA) is considered as a green productivity tool that can be utilised by SMEs to overcome these challenges. Despite the benefits, its adoption among SMEs, especially in developing countries, remains low. The purpose of this research is to examine how MFCA can be suitably implemented in an SME set-up to improve the financial and environmental performance of the enterprise. This study utilises case based research methodology to exemplify the application of MFCA tool in an Indian steel pipes and tubes manufacturing SME. As a part of MFCA analysis, material cost, system cost and energy cost at each quantity center was calculated to identify inefficiencies in the production process of the SME. Thereafter, several solutions were implemented to address these inefficiencies. The result of the MFCA implementation showed an overall annual savings of 21,028,452 INR (USD 302,350) through an investment of 495,400 INR (USD 7123). The present study reveals that the application of MFCA tool leads to higher productivity, better energy efficiency and improved environmental performance. The SME’s performance was also monitored for five years to study the long-term benefits of MFCA implementation. The findings suggest that, post MFCA implementation, the return on invested capital of the SME increased by 29.37% and the material usage cost reduced by 26.58%. This research would be beneficial to managers, practitioners, and policymakers for effectively implementing MFCA in SMEs.