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.

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 much higher than expected. Hence, MFCA aims to avoid losses in the first place instead of just recycling them.

Practical Application of MFCA

Best practice examples: Increasing material efficiency with MFCA

Best practice examples: Increasing material efficiency with MFCA

The Japanese Ministry of Economy, Trade and Industry published a collection of MFCA case examples from manufacturing and non-manufacturing industries and in supply chains. The examples include, among others, cases from Mitsubishi Tanabe Pharma Corporation or the multinational corporation Canon Inc.

The well-known Japanese camera manufacturer Canon caused a change in a precursor they purchased by means of an MFCA analysis. As a result of this measure, the use of raw materials and energy consumption at the supplier of the precursor was reduced by 85%. Through MFCA analysis, Canon itself reduced the use of auxiliary materials in one production step by 50% and sludge as a waste product by 25%.

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Software for Material Flow Cost Accounting

Umberto Efficiency+ is the first software for calculating material flow costs. In addition to classic cost accounting (costs per product), Umberto Efficiency+ shows how much can be saved if the losses would not occur at all.

The MFCA approach allocates costs not only to products but also to material (and, where applicable, energy) losses on a pro rata basis. This makes the "hidden" costs visible, as the costs of losses are often significantly higher than expected.

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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