Advanced decision support tool by integrating activity-based costing and management to system dynamics

In today´s global and competitive business environment cost control and cost management have become a decisive variable in the firm´s financial success. This requires reliable tools and techniques to estimate business expenses and enhance the understanding about business operation costs. The ultimate reason for firms to adopt activity-based costing and management (ABC/M) is to manage and control its costs, to reduce them, and thus to improve their financial performance. Several studies have proven the capability of ABC/M in generating valuable cost information in supply chain management and production problems. The ABC/M advantages can be utilized as well in developing system monitoring, controlling, and analyzing tools. A prevailing decision support and monitoring system should analyze and project the effect of each change in the business operation environment. System dynamics (SD) is an approach to investigate the dynamic behavior in which the system status alterations correspond to the system variable changes. This paper is pioneer in introducing a general approach of integrating ABC/M information with SD simulation modeling technique which results in a more reliable and responsible decision support system. This new tool will enhance cost monitoring and cost control in supply chain management and production process.