The Impact of Financial Requriements Imposed by the IKCO on the Profitability of Automotive Component Manufacturers

اقتصاد پولی مالی

Article 10, Volume 22, Issue 9, January 2016, Pages 230-248   

Document Type: پژوهشی

DOI: 10.22067/pm.v22i9.52812

Authors

mahmoud lari^{* 1}; Mahdi Salehi¹; Alireza Shafiebeyk Mohammadi²

¹Ferdowsi University of Mashhad

²Azad University

Abstract

Abstract
Purpose – Economic survival in current interntational and even domestic markets is heavily dependent on competition with fierce competitiors. Consistent with this view, business enteties can not survive as a going concern unless they consider profitability and wealth creation as key and premier organizational factors and accordingly hold themselves accountable for meeting their clients’ demands and expectations. In this regard, the establishment of a system comprised of operational dos and don’ts within different organizational functions, particularly financial department, should do the trick. The aforementioned operational requirements are currently being imposed by large firms for supply chain firms. Therefore, the present paper aims to investigate the effect of financial requirements of supply chain firms imposed by Iran Khodro Industerial Group (also known as IKCO) on the profitability of automotive component suppliers.
Design/Methodology/approach – The authors examine their hypotheses by performing KS test and using t statistic on a sample of 24 observations druing 2008-2009. The time frame is chosen based on the fact that the IKCO implemented its financial requirements from the 2008 onwards. Indeed, the paper utilizes the profitability information of automotive component suppliers both pre and post implementation periods.
Findings – After analyzing the IKCO financial requirements (e.g. financial unit obligation to participate in investement feasibility studies, financial unit obligation to design and implement quality costing system and logistic costing system; management and employees obligation to propose alternative approaches to meet target costing objectives, financial unit obligation to participate in cost management activities in line with target costing, financial unit obligataion to prepare and monitor financial ratio reports and also take necessary follow-up actions; the automotive component manufacturers obligation to establish and control cost budgeting system and also prepare cost deviation reports on a periodic basis, the automotive component manufacturers obligation to establish automated integral financial system calculating cost of goods sold (CGS) and prepare necessary reports in order to enhance the CGS), our findings indicate that the IKCO financial requirements not only meet the qualitative needs of the IKCO, but also increase the profitability of automotive component manufacturers.
Research limitations/implications – The present study is subject to following limitations. First, the obstinate refusal of automotive component manufacturers to provide detailed information about projects on the improvement of operational and supporting processes. Second, the unwillingness of automotive component manufactures to contribute to studies concerning the financial affairs of business entities.
Originality/value – The authors’ research contributes to current accounting literature by providing empirical evidence regarding a positive relationship between financial requirements and the profitability of supply chain firms.

Keywords

Financial Requirements; Automotive Component Manufacturers; Quality Costing; Logistic Costing; Target Costing

References

[1] Atkinson H., Hamburg J. and Ittner Ch. (1994). Linking Quality to Profits: Quality-Based Cost Management, Milwaukee, WiAsq Quality Press, USA.

[2] Christopher Anthony Jacobs (2003). Financial engineering in factory, unpublished master thesis, Stanford University.

[3] Cooper D. W., Morgan G. R., Alonzo R., Margart S. (2001). Capital budgeting models: theory vs. practice, MC Graw Hill publication.

[4] Donovan Susanne (2006). Using Cost of Quality to Improve Business Results, available at: https://cours.etsmtl.ca/gpa776/Documents/2011/Cours/S%C3%A9ance%202/COQ-case-study-ASQ.pdf

[5] IKCO−Deputy quality, supplier affairs, & the evaluation and resource promotion unit. (2009). Specific requirments of SAPCO-the engineering designer and supplier of automotive components for IKCO. Second Edition.

[6] IKCO−Deputy quality, supplier affairs, & the evaluation and resource promotion unit. (2006). Specific requirments of SAPCO-the engineering designer and supplier of automotive components for IKCO. First Edition.

[7] IKCO−Deputy quality, supplier affairs, & the evaluation and resource promotion unit. (2006). Implementation guidance for specific requirments of SAPCO-the engineering designer and supplier of automotive components for IKCO.

[8] Peacock., E. (2005). Cost Management by Customer Choice. Management Accounting Quarterly, 6(3), 58-69.

[9] Service delivery platform corporation company (2010), annual report, available at: http://www.businesswire.com/news/home/20110727006400/en/Research-Markets-Global-Service-Delivery-Platform-Market

[10] Swenson D., Ansari S., Bell J., and Kim W. (2003). Best practices in target costing. Management Accounting Quarterly, 4(2): 12-17.

[11] The MEDRAD packaging company. (2009). it’s a Matter of Time: Ship Servicers Use Quick Kaizen to Shorten Long Turnaround. Unpublished Report, USA.