Costs and Account Management

What was the Kanthal president, Ridderstrale, attempting to accomplish with the Account Management System? Are these sensible goals? Why or why not? The motivation for Carl-Erik Ridderstrale, president of Kanthal, to develop an Account Management System was to find a process of determining the profitability of individual customer orders. An accurate account measurement system was needed in order to achieve a strategy for increasing growth and profitability without adding a significant amount of sales and administrative resources to handle anticipated increased sales. In order to carry out this strategy, a system was needed to allocate overhead expenses to the different categories of customers as well as products. Ridderstrale 's motivation for the new system is a sensible goal to achieve in order to determine if the company is actually making money with their customers. With future growth imminent due to the success of their products, it was important that effort was taken to ensure that variable selling, general, and administrative (SG & A) costs did not increase faster than sales revenue. As Kanthal expanded operations and increased their market share, they captured business by meeting their customers ' expectations for increased service. Increased demands were placed on their production and order-handling processes due to the JIT approach adopted by two of Kanthal 's top customers in terms of total sales volume. It was also determined that one of these customers was actually using Kanthal as a supplier for small special orders of a low-profit item when their main supplier could not deliver. (Bruns, 1998) While this type of service created value for specific customers, it came at a high cost. In order to remain profitable, the company had to find a way to raise profit margins for customers they identified as requiring special services or transition to a low cost strategy. Ridderstrale 's strategy was to redirect their efforts to customers they identified with

Cited: Bruns, William J., Accounting for Managers: Text and Cases. (2nd Ed.) Southwestern., 1998 Internet, , www.managersart.com/chap.11to20/chap11.htm Kaplan, R. S., & Narayanan, V.G. Customer Profitability Measurement and Management. Harvard Business Press., 2001 Kaplan, Robert S., The ABCs of Accounting for Value Creation. Planning Review. Chicago. July/Aug 1990 Vol. 18 Iss 4 Marshall, David H. & McManus, Wayne W. Accounting: What the Numbers Mean, (4th Ed.) Irwin/McGraw-Hill., 1999