Case study: Costing and profitability model
“Thanks to the excellent team effort, all of the challenges were overcome successfully. The project included the integration of the MyABCM software with the already existing integrated corporate systems. The Qualtia Operations Committee approved the model and demonstrated enormous satisfaction with the results achieved with this tool, using the MyABCM tool as its main pillar for making company decisions. Currently the profitability model is the most important tool for making informed reliable decisions, and is fundamental to most of the company’s projects.”
Victor Hugo Rodriguez Morgado
Strategic Planning and Financial Management
Qualtia Alimentos, Mexico
Qualtia Alimentos was founded in 1972 and acquired by the Xignux group in 1976. It’s a company dedicated to the making and commercialization of meat and cheese related products. The Mexican group Xignux has more than 30 thousand employees and is a leader due to its great growth in international markets; its products are present in over 40 countries and the company has a broad participation in the market divided among the electric, automotive and food sectors.
Qualtia used a profitability system that had been implemented five years before. Besides not being an ABC costing model, it had lost precision and accuracy during this period because it had not been maintained. The previous ABC software supplier hadn’t been able to provide the level of service that Qualtia needed to restructure its profitability model and adapt it to existing information as well as reduce the previous system’s processing time.
The profitability figures were calculated using a standard process. However, the confidence in the resulting information was very low. The company chose to find a software supplier that could provide support for the calculation of profitability and that had a deep understanding of Qualtia’s model.
The supplier of the previous software didn’t have a good enough knowledge of Qualtia’s model and needed to send a team of foreign consultants to map the model. The confidence in the information generated became lower and lower and analyses were performed ignoring input from the profitability model using global allocations instead. The company was losing money and didn’t have enough relevant information about which segments were most being affected.
The MyABCM team was chosen to redesign the costing and profitability model together with installing the MyABCM software, which was much more user-friendly than the previous production control system used by Qualtia. The MyABCM team was completely involved throughout the entire implementation.
In MyABCM, Qualtia found the solution to its 2 main problems: the need to find a team capable of redesigning its costing model to analyze different dimensions (clients, products, channels and zones) and the need for user-friendly software that could improve the processing time for the generation of the necessary information.
The original goal of new costing model design was to update the costing drivers and to implement a new software that would be capable of calculating the company’s profitability much faster than the previous system had done. These goals were achieved successfully and the Qualtia costing model went from a simple model that assigned costs to cost objects to becoming a powerful ABC model.
The entire consulting project and the implementation of the profitability model by MyABCM was performed during the period stipulated by Qualtia and substantially reduced the time spent on calculating profitability from the 12 to 18 hours of the previous system to 6 hours for the new system. With the new design of the costing/profitability model, the company regained confidence in its information, enabling it to make relevant decisions to resolve problems that it hadn’t known how to tackle before. Currently most of the organization’s projects revolve around information generated by MyABCM’s production control program.