ifu - The Hamburg Institute for Environmental IT

We enable Sustainable Production. This is our passion.

Decoupling economic growth from resource use

Why Material Flow Cost Accounting is a good start
for Small and Medium Sized Enterprises in taking a
Life Cycle Perspective

Martina Prox
m.prox@ifu.com ifu-Software:
 Overview

Introduction to Material Flow Cost Accounting (MFCA)

MFCA Examples of SMEs

Current developments in MFCA standardisation

Sharing MFCA information within a supply chain

MFCA tool enabling to take a life cycle perspective

Page 2
 Introduction: Material Flow Cost Accounting (MFCA)
The idea started in the 90s in Germany

Quite popular in Japan, promoted by Ministry of

Economy, Trade and Industry (METI)

Since 2011: ISO 14051 standard for MFCA implemented

The general idea

Allocate costs not only to products, but

also to the non-product outputs of the
production system (e.g.material losses, wastes,
defective goods )

Exposing hidden costs the costs accounted for

when using conventional costing may only be the tip of the iceberg!
Page 3
Introduction: What is the question we want to answer with MFCA?
What is the true monetary value of a systems losses?

Image modified from: http://www.mt-pharma.co.jp/e/company/csr-report/2008/images/25_im04.gif (Access: 05/09/14)

Page 4
 Intro: MFCA basic concept
Step 1: Analyzing the physical flows

Identified
material losses:
45,66 kg

Figure: Section of a material flow model created with the software Umberto NXT MFCA
Page 5
 Step 2: Evaluate the monetary flows according to
standard costing accounting

Loss according
to standard
costing: 22,82

Figure: Section of a material flow model created with the software Umberto NXT MFCA
Page 6
 Step 3: Evaluate the monetary flows according to
MFCA type costing

Loss according to
Material flow cost
accounting:
296,43

Figure: Section of a material flow model created with the software Umberto NXT MFCA
Page 7
 Step 4: Link with Life Cycle Perspective e.g. CO2
equivalents (Carbon Footprint)

Carbon footprint
of material losses:
0,91 CO2-eq.

Figure: Section of a material flow model created with the software Umberto NXT MFCA
Page 8
 Case: Coffee Supply Chain (Vietnam)

Source: Tobias Viere, Christian Herzig, Stefan Schaltegger, Roger Burrit

Environmental Management Accounting: Case Studies of South-East Asian Companies

Page 9
Coffee Market and Vietnamese Environment

Vietnam is the second biggest coffee producer of the world after

Brasil and a mass market producer of low price robusta coffee
The market for sustainable, organic, and fair trade coffees is still
small (< 2% world market share) and mainly related to arabica
coffees
Particular environmental concerns of coffee production in
Vietnam:
soil erosion, loss of biodiversity, land use due to the industrys rapid
growth and expansion of farm land intensive use of fertilisers,
herbicides and pesticides
water consumption and highly polluted waste water in wet
processing of arabica coffees
energy use and energy-efficiency, especially in coffee drying
Organisational Profile Neumann Coffee

Medium-sized coffee export company in Ho Chi Minh City

(about 100 employees)
The company purchases green coffee beans from farmers
and middlemen, refines the beans, and exports to Europe
The companys direct exposure to environmental concerns is
low, while the supply chains exposure is rather high
Motivation to use MFCA: To identify if and how costs related
to environmental aspects are relevant for the business
success
 Material Flow Model & Material Losses

Physical inputs/outputs show very low consumption of electric

energy and water per tonne of green beans (energy and water demands of
coffee cultivation and processing are more than 100 times higher).
Solid wastes account for only 1% of total output.
The environmental relevance of the exporters operations is rather
low
 Findings through MFCA - Application

Water and electricity costs are below 1% of total costs.

Solid waste mainly consists of the purchased valuable raw
materials
non-wanted products like green beans grade D and beans for
local market are not making any profit
 MFCA application (internal focus)

MFCA Approach for grade B coffee shows that its profitability per
tonne of final product could be increased by almost 40% if solid
waste and non-wanted products are reduced to zero.

Reduction to zero is not realistic, but the potential rise in profits

shows that incentives and premiums for the suppliers to deliver
higher qualities of coffee should be considered.

Material-related environmental issues (wastes,

non-wanted products) are financially relevant.
The reduction of waste and non-wanted pro-
ducts is likely to increase profitability.
.
Potential Savings identified with the MFCA Approach

Cooperative arrangements are the most

promising option for the coffee exporter.
For instance, the company can offer its
suppliers training and support on
implementing eco-efficiency measures.
MFCA Approach (supply chain focus)

To realise eco-efficiency improvements in the supply chain,

the exporter could initiate trainings to teach farmers on the
efficient use of fertilisers.

But who guarantees that the exporter and not competitors

benefit from the savings? Typical question for
environmental supply chain management.

One option to overcome this problem is

to co-operate with competitors and
coffee associations to jointly set up
trainings which are beneficial for the
whole Vietnamese coffee industry.
 Success factors for MFCA in the Supply Chain

1. create trust in the willingness of all collaborating

organizations to share the realized benefits
2. overcome hurdles for information sharing among the
supply chain partners

address planned type of information sharing and the

intention of sharing benefits mutually at the
beginning of the MFCA project
restrict the access to information relevant for the
MFCA project to the team members in the partnering
organizations
Source: ISO CD 14052
Page 17
 Type of information shared may change

$

Monetary
CO2eq information
eco-
points
Environmental
impact related
information
kWh m2
kg Physical
information

Page 18
 Take home messages

1. If supply chain partners manage to overcome the

fear driven no information sharing attitude and
instead take a collaborative approach with a
commitment to share the benefit of the outcomes of
an MFCA project, the potential for reducing costs
and environmental impacts by eliminating wastage
from production systems is substantial.
2. Once MFCA has helped to create an internal system
understanding, understanding the causes of wastage
and monetary as well as environmental impacts
along the life cycle is a smaller step

Page 19
 MFCA promoted for the use in SMEs in Asia

August 2015: 23 participants from 13 countries to exchange

experiences in promoting and implementing MFCA in SMEs in their
countries, 40% already with MFCA experience and local cases
Page 20
 Whats next for you?
Do you plan an MFCA project?

includes Carbon Footprinting!

Page 21