ABC/ABM – activity‐based costing and activity‐based management : A profitability model for SMEs manufacturing clothing and textiles in the UK

Purpose – There is the potential to improve the competitive performance of small to medium‐sized companies (SMEs) particularly in the UK clothing and textile industry, a sector of the economy that has had little exposure to activity‐based costing and activity‐based management (ABC/ABM). Design/methodology/approach – A review of the current literature relating to ABC/ABM was made, with reference to its poor take up amongst SMEs and those in the clothing and textile manufacturing sector particularly. A case study was undertaken to test the theories and assumptions in the context of SMEs in the clothing and textile industry. Findings – The case study showed that there are opportunities to improve the profitability of SMEs if the findings were transposed to other similar businesses willing to invest the time and effort into setting up an ABC/ABM system. Research limitations/implications – There is the opportunity for further research in other areas of business activity in the fashion industry. Practical implications – This is a practical application of a financial management tool that would be useful to academia, managers in SMEs in the clothing and textile industry, government planners looking for ways to increase profitability for UK firms. Originality/value – The paper takes an existing well‐known financial tool and examines its use in an area of the economy with little or no previous exposure to its benefits.