Role of Integrating ABC and VCA Through The Use of Supply Chain Management in Improving Potable Water Tariff in Iraq

Abstract

This study examines the relationship between cost management tools and pricing policies to improve the price of potable water which helps cover production costs on the one hand and rationalize the consumption of the product on the other. This is done by utilizing the Activity-Based Costing (ABC) and Value Chain Analysis (VCA) to fix cost and price of potable water at Al-Najaf Al-Ashraf Water Directorate based on information collected from documents and reports pertaining to the Directorate, as well as field visits and face-to-face interviews with a number of officials in the departments of water purification projects. The study designs the Activity-Based Costing (ABC) and integrates its output with value chain analysis to improve the tariff of potable water in Al-Najaf Al-Ashraf Water Directorate takes into account the different social and consumption level of citizens on one hand and covering the cost of the institution and reduction of consumption on the other hand. Themes and subthemes are based on definitions of cost management tools and pricing policies in government institutions are adapted and quoted from various scientific sources. The basic findings of the study highlighted that the system used by the Al-Najaf Al-Ashraf Water Directorate to fix potable water price according to the number of rooms does not give an accurate picture of actual consumption and costs for each product, as the Directorate has two products: pure water and (Reverse Osmosis RO). The total cost used to calculating and distributing production costs for both products with equal loading for both products without taking into account the cost of activities consumed in the production of each product separately, while the pricing of pure water using the value chain is consistent with consumer needs and their financial ability as they represent different segments of the society, through pricing to recover part of the costs represented by the value chain links according to segments of society.