What is Material Flow Cost Accounting (MFCA)?

Material Flow Cost Accounting (MFCA) is an instrument used by manufacturing companies to improve their material efficiency. The aim is to save energy and costs by avoiding material losses (waste). To achieve this, MFCA can be used to calculate the actual costs of waste (Hidden Costs). MFCA is an important element of operational resource efficiency for companies and is standardized through ISO 14051.

Improving resource efficiency

The idea of Material Flow Cost Accounting was born in the 1980s. The aim was to develop an instrument to support environmental management and eco-controlling.

The method originated in Germany, but the breakthrough came in Japan. One example is the camera manufacturer Canon, which was able to save more than €30 million in material costs between 2004 and 2012 through Material Flow Cost Accounting.

Inspired by the Japanese best practice examples, more and more companies are  taking a closer look at their material flows and material waste. And it's worth it, because the loss of material means lost added value, because the waste material was also purchased, processed and moved.

Differences in the examination of material losses

In classic cost accounting, the costs for waste are often treated as disposal costs in a very general manner. The waste disposal costs are then assigned directly to the product. This view is useful, for example, to calculate the contribution margin.

Material Flow Cost Accounting, on the other hand, considers all costs that were incurred in the process chain before the material input became a material loss. These are hidden costs such as transport, machine use, energy as well as auxiliary and operating materials.

Even if the loss of material can be sold later as recyclable material, the loss in value will probably be higher than expected. Hence, MFCA aims to avoid losses in the first place instead of just recycling them.

A prime example - Increasing material efficiency through MFCA

How can a textile company increase its turnover by 2.6% and save 61 tons of raw material without investing in new plants or losing the quality of its products?

By using Material Flow Cost Accounting, the experts at ifu Hamburg helped industrial yarn manufacturer SWU Special Yarns to find a surprising answer to this question.

Read case study

Material Efficiency in a Spinning Mill

Software for Material Flow Cost Accounting

Material Flow Cost Accounting is a feature in Umberto Efficiency+, one of the leading software solutions for material flow analyses. With this feature, it is the first software capable of calculating material flow costs.

With the help of the software, costs are not only allocated to the products, but also to the losses of material (and, if applicable, energy) on a pro rata basis. As a result, the "hidden" costs become visible, since the costs of losses are often significantly higher than previously assumed.

In addition to classical cost accounting (costs per product), Umberto Efficiency+ shows how much can be saved if the losses do not occur at all (costs of losses / waste).

More about Umberto Efficiency+

More information on Material Flow Cost Accounting

MFCA drives efficiency

Practical application of MFCA

More and more companies all over the world are beginning to use MFCA to analyze their production processes and increase their efficiency. To dive deeper into the practical use of MFCA, you can find a step-by-step guide in the following article: ► Read the article

Reducing waste saves money

Case study collection from Japan

The Japanese Ministry of Economy, Trade and Industry published a collection of MFCA cases from various industries and supply chains. The examples include, among others, cases from Mitsubishi Tanabe Pharma Corporation and Canon Inc. ► Read best practice examples

ifu Expert News

Monthly whitepaper, best practice examples etc. on sustainable production

Material flow cost accounting

What is material flow cost accounting?

Material flow cost accounting based on ISO14051 is a method of analyzing and economically evaluating material flows within a business. The method is specifically focused on material losses incurred during production. In conventional cost accounting, these losses are budgeted as waste costs or, in a best-case scenario, are allocated a market price if they can be recycled for further use.

In both conventional accounting and Life Cycle Assessment (LCA), the cost for waste disposal is attributed to the product. This makes managerial sense when calculating the profit margin, for example. Material flow cost accounting, though, takes this process one step further by proportionately isolating the energy, material, personnel, and all other overhead costs associated with the wasted material – just as you would calculate these costs for the product itself. By using this method, a true costing of material losses that includes a significantly wider range of factors is achieved. Even if you are able to sell wasted material as a resource, the overall loss in value is probably much higher than you assume.

The most important basis and requirement for material flow cost accounting is a material and energy flow model that transparently displays the production processes with material and energy flows, as well as with the waste and losses. When using material flow cost accounting for a production line or an entire site, the first step is always to set up and validate this model.

The sum of all costs attributable to material loss is equal to the maximum cost savings that can be obtained in a theoretically optimal state in which there are no material losses. Another way to view these potential cost savings is as an investment budget for reducing waste. By calculating the real costs of material loss you therefore dramatically increase the potential for optimization.

Moreover, by avoiding non-essential material and energy flows within your production processes you not only increase energy and resource efficiency but also reap the benefit of cost reduction.

Implementing material efficiency with material flow cost accounting

Umberto Efficiency+ is a software which helps you implement the method of material flow cost accounting. The software, through simulation and visualization of material flow networks, analyzes a business's production processes and all the associated material and energy flows. It then lets you evaluate the results according to both conventional and material flow cost accounting methods.

Further reading on MFCA

  • Asian Productivity Organization: Manual on Material Flow Cost Accounting: ISO 14051 (2014). Available online here
  • Hyršlová, J.; Vágner, M.; Palásek, J. 2011. Material Flow Cost Accounting (MFCA) – tool for the optimization of corporate production processes. Business, Management and Education 9(1): 5–18. doi:10.3846/bme.2011.01   open access article available here
  • ISO 14051:2011 Environmental management - Material flow cost accounting - General framework
  • Kokubu, K; Kos Silveira Campos, M; Furukawa, Y; Tachikawa, H.: Material flow cost accounting with ISO 14051.
  • Kokubu, K; Kitada, H: Material flow cost accounting and existing management perspectives. In: Journal of Cleaner Production, Volume in print (2014)
  • Material Flow Cost Accounting: MFCA Case Examples. Tokyo 2011. Available online here.
  • Schaltegger, S; Zvezdov, D: Expanding material flow cost accounting. Framework, review and potentials. In: Journal of Cleaner Production, Volume in print (2014)
  • Schmidt, A.; Hache, B.; Herold, F.; Götze, U.: Material Flow Cost Accounting with Umberto
  • Schmidt, M.: The interpretation and extension of Material Flow Cost Accounting (MFCA) in the context of environmental material flow analysis. In: Journal of Cleaner Production (2014). dx.doi.org/10.1016/j.jclepro.2014.11.038 
  • Schmidt, M.; Nakajima, M.: Material Flow Cost Accounting as an Approach to Improve Resource Efficiency in Manufacturing Companies. In Resources 2013, 2, pp. 358-369; doi:10.3390/resources2030358. Open access article available online