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Notify me of new comments via email. Notify me of new posts via email. Menu Skip to content. Home About. Download PDF now! Share this: Twitter Facebook. Like this: Like Loading Leave a Reply Cancel reply Enter your comment here Fill in your details below or click an icon to log in:. Email required Address never made public. Name required. Follow Following. Each is worthy namic competitive environment, it is of extended study, but we will discuss only those aspects of the programs that are essen- doubtful that any competitive advan- tage can be sustained.
Competition tial for understanding managerial accounting. The details of improvement programs are in a world of temporary advantage is best handled in operations management courses.
Just-In-Time JIT Traditionally, manufacturers have forecasted demand for their products into the future and then have attempted to smooth out production to meet that forecasted demand. In a JIT system, inventories are reduced to the minimum and in some cases are zero.
Raw materials are the materials that are used to make a product. Finished goods inventories con- , pp. Raw materials inventories provide insurance in case suppli- Joseph B. Work in process inventories are maintained in case a worksta- Reengineering Gurus Take Steps to tion is unable to operate due to a breakdown or other reason.
The Wall Street Journal, November While these inventories provide buffers against unforeseen events, they have a cost. A1, A In addition to the money tied up in the inventory, experts argue that the presence of in- ventories encourages inefficient and sloppy work, results in too many defects, and dra- matically increases the amount of time required to complete a product.
One of the experts handed Wiedeking a circular saw. While astounded assembly workers watched, he moved down an aisle and chopped the top half off a row of shelves. They cut the time required to develop a new model from seven years to just three years. And a quality-control program has helped reduce the number of defective parts by a factor of Moreover, the company would have no goods still in process at the end of the day, and all goods completed during the day would have been shipped immediately to customers.
Brown, Paula M. Although few companies have been able to reach this ideal, many companies have been able to reduce inventories to only a fraction of their previous levels. The result has been a substantial reduction in ordering and warehousing costs, and much more efficient and effective operations. In JIT, the traditional emphasis on keeping everyone busy is abandoned in favor of producing only what customers actually want—even if that means some workers are idle.
Suggested Reading JIT Consequences Managers who attempted to implement the JIT approach found Rosemary Fullerton and Cheryl that it was necessary to make other major improvements in operations if inventories were McWatters studied a sample of to be significantly reduced. First, production would be held up and a deadline for shipping U. So sup- the relationship between the level of JIT practices implemented and the pliers had to be able to deliver defect-free goods in just the right quantity and just when design of management accounting needed.
All of the drill presses would be in one place, all of the lathes in another place, tions and Society, November , and so on. As a result, work in process had to be moved frequently over long distances— pp. In a JIT system, all of the machines required to make a single product or product line are typically brought to- gether in one location—creating what is called a focused factory or a manufacturing cell.
This improved plant layout allows workers to focus all of their efforts on one product from start to finish—creating a sense of ownership and pride in the product and minimiz- ing handling and moving.
One company was able to reduce the distance traveled by one product from three miles to just feet. An improved plant layout can dramatically in- crease throughput, which is the total volume of production through a facility during a pe- riod, and it can dramatically reduce throughput time also known as cycle time , which is the time required to make a product. Instead, Canon has adopted cell production with small teams of about six workers concentrating on building a sin- gle type of copying machine.
Instead of being bolted to the floor, the production equipment is lighter and more modular, and can be more easily moved into new configurations. For example, one worker rigged a lid that comes down over photosensitive drums she is installing into copiers to prevent dust and light from harming them. Source: William J. Changing over production from one product to another, which involves setups, also creates problems for JIT.
Setups require activities—such as moving materials, changing machine settings, setting up equipment, and running tests—that must be performed when- ever production is switched over to making a different product. Every time the color is changed, the spray paint reservoirs must be completely purged and cleaned.
This may take hours and results in wasted paint. Because of the time and expense involved in such setups, many managers believe setups should be avoided and therefore items should be produced only in large batches. Think of this in terms of scheduling your classes. If you have to com- mute to school and pay for parking, would you rather have two classes back-to-back on the same day or on different days? By scheduling your classes back-to-back on the same day, you will only have to commute and pay for parking once.
If the customer has ordered units, most managers would rather produce all of them in one big batch and incur the setup costs once rather than in two batches of units each, which incurs the setup costs twice. Indeed, because of setup costs, most companies have rules about the min- imum batch size that can be run.
If the customer orders just 25 units, managers will still run the order in a batch of units and keep the other units in inventory in case someone orders the item later. The problem with this line of reasoning is that big batches result in large amounts of inventory—the exact opposite of what JIT attempts to accomplish. In JIT, this problem is attacked directly by reducing setup time so that it becomes insignificant. Simple techniques, such as doing as much setup work as possible in advance off-line rather than waiting until production is shut down, are often very effective in reducing setup time and costs.
Reduced setup times make smaller batches more economical, which in turn makes it easier to respond quickly to the market with exactly the items that customers want. Defective units create big problems in a JIT environment. If a completed order contains a defective unit, the company must ship the order with less than the promised quantity or it must restart the whole production process to make just one unit.
At minimum, this creates a delay in shipping the order and may generate a ripple effect that delays other orders. For this and other reasons, defects cannot be tolerated in a JIT system. Companies that are deeply in- volved in JIT tend to become zealously committed to a goal of zero defects.
Even though it may be next to impossible to attain the zero defect goal, companies have found that they can come very close. For example, Motorola, Allied Signal, and many other companies now measure defects in terms of the number of defects per million units of product.
Funds that were tied up in inventories can be used elsewhere. Evidence on the Extent and Origins 2. Accounting Review, January , pp. Throughput time is reduced, resulting in greater potential output and quicker re- sponse to customers. Defect rates are reduced, resulting in less waste and greater customer satisfaction.
As a result of benefits such as those cited above, more companies are embracing JIT each year. Most companies find, however, that simply reducing inventories is not enough. To remain competitive in an ever changing and increasingly competitive business envi- ronment, companies must strive for continuous improvement. A production line can quickly come to a halt if essential parts are unavailable. Toyota, the developer of JIT, found this out the hard way.
By Tuesday, Toyota had to close down all of its Japanese assembly lines. A variety of specific tools are available to aid teams in their problem solving. One of these tools, benchmarking, involves studying organiza- tions that are among the best in the world at performing a particular task. For example, General Mills studied NASCAR pit crews in action to figure out how to cut the time to change a production line from one product to another from 4.
Kent Bowen couraging the use of science in decision-making and discouraging counter-productive de- explain how Toyota uses the scien- fensive behavior. As this list il- lustrates, TQM is international in scope and is not confined to manufacturing. Instead of tweaking the existing system in a series of incremental improvements, in Process Reengineering a business process is diagrammed in detail, questioned, and then com- pletely redesigned to eliminate unnecessary steps, to reduce opportunities for errors, and to reduce costs.
A business process is any series of steps that are followed to carry out Suggested Reading some task in a business. The steps followed by reengineering in a Harvard your bank when you deposit a check are a business process. While Process Reengineer- Business Review article.
His more ing is similar in some respects to TQM, its proponents view it as a more sweeping ap- recent thinking with respect to proach to change. Business Review, November , Process Reengineering focuses on simplification and elimination of wasted effort.
Activities that do not add value to a product or ser- Business Review, September , vice that customers are not willing to pay for are known as non-value-added activities.
For example, moving large batches of work in process from one workstation to another is a non-value-added activity. Rotab Khan provides a good TQM. These management approaches often overlap. There are only two ways to increase profits—decrease costs or Process Reengineering of an Air increase sales. However, employees quickly get the message that process improvements lead to job losses and they will understandably re- sist further improvement efforts.
If improvement is to be ongoing, employees must be convinced that the end result of improvement will be more secure rather than less secure jobs. This can only happen if management uses business process improvements to gener- ate more business rather than to cut the workforce.
Every in- dividual and every organization faces at least one constraint, so it is not difficult to find examples of constraints.
You may not have enough time to study thoroughly for every subject and to go out with your friends on the weekend, so time is your constraint. Mabin and Steven J. Vail Resorts has only a limited amount of land to develop Balderstone analyze quantitative as homesites and commercial lots at its ski areas, so its constraint is land.
As an example, long waiting periods for surgery are a mance of the Theory of Constraints chronic problem in the National Health Service NHS , the government-funded provider Methodology: Analysis and Discus- of health care in the United Kingdom.
The number of patients who can be processed through each step in a day is indi- Production Management 23, no. For example, appointments for outpatient visits can be made for up , pp. Their results to referrals from general practitioners in a day. The total number of patients processed through result of applying the TOC.
No matter how hard managers, doctors, and nurses try to improve Suggested Reading the processing rate elsewhere in the system, they will never succeed in driving down wait To compare JIT production methods lists until the capacity of surgery is increased. In fact, improvements elsewhere in the with the TOC approach to produc- system—particularly before the constraint—are likely to result in even longer waiting tion scheduling, see Patricia Huff, times and more frustrated patients and health care providers.
If you want to increase the strength of a chain, Quarterly, Winter , pp. Should you concentrate your efforts on strengthening the strongest link, all the links, or the weakest link? Explain to students that the theory of Continuing with this analogy, the procedure to follow to strengthen the chain is clear. Ask students whether they would be on the system than the weakest link can handle—if you do, the chain will break.
In the case better off spending their available of the NHS, waiting lists become unacceptably long. Third, concentrate improvement ef- time studying for a course in which forts on strengthening the weakest link. Find ways to increase the number of surgeries that they have an A average or one in can be performed in a day. Fourth, if the improvement efforts are successful, eventually the which they have a C average.
At that point, the new weakest link i. This simple sequential process provides a powerful strat- egy for continuous improvement. The TOC approach is a perfect complement to other im- provement tools such as TQM and process reengineering—it focuses improvement efforts where they are likely to be most effective. It turned out, after investigation, that the constraint was not the emergency room itself; it was the housekeeping staff.
To cut costs, managers at the hospital had laid off housekeeping workers. This created a bot- tleneck in the emergency room because rooms were not being cleaned as quickly as the emergency room staff could process new patients. Thus, laying off some of the lowest paid workers at the hos- pital had the effect of forcing the hospital to idle some of its most highly paid staff and most ex- pensive equipment!
Manage- ment of the plant is acutely aware of the necessity to actively manage its constraints. For example, when materials are a constraint, management may go to a secondary vendor and purchase materi- als at a higher cost than normal.
When a machine is the constraint, a weekend shift is often added on the machine. If a particular machine is chronically the constraint and management has exhausted the possibilities of using it more effectively, then additional capacity is purchased. For example, when the constraint was the plastic extruding machines, a new extruding machine was ordered.
However, even before the machine arrived, management had determined that the constraint would shift to the blenders once the new extruding capacity was added. Therefore, a new blender was al- ready being planned.
International Competition Over the last several decades, competition has become worldwide in many industries. This has been caused by reductions in tariffs, quotas, and other barriers to free trade; im- provements in global transportation systems; and increasing sophistication in interna- tional markets.
These factors work together to reduce the costs of conducting international trade and make it possible for foreign companies to compete on a more equal footing with local companies. Reductions in trade barriers have made it easier for agile and aggressive companies to expand outside of their home markets. As a result, very few companies can afford to be complacent.
A company may be very successful today in its local market relative to its lo- cal competitors, but tomorrow the competition may come from halfway around the globe. As a matter of survival, even companies that are presently doing very well in their home markets must become world-class competitors. On the bright side, the freer international movement of goods and services presents tremendous export opportunities for those com- panies that can transform themselves into world-class competitors.
And, from the stand- point of consumers, heightened competition promises an even greater variety of goods, at higher quality and lower prices. It would be very difficult for a company to become world-class if it plans, directs, and controls its operations and makes decisions using a second-class management accounting system.
An excellent management accounting system will not by itself guarantee success, but a poor management accounting system can stymie the best efforts of people in an organization to make the company truly competitive. It is noteworthy that ele- ments of well-designed management accounting systems have originated in many countries. More and more, managerial accounting has become a worldwide discipline. For example, Spain, Italy, and Greece have relied on less formal management accounting systems than other European countries.
According to Professor Norman B. Spain also followed this pattern and relied more on personal relationships and oral inquisitions than on hard data for control.
In the case of France, these were codified in law. In England, management accounting practice was influenced by economists, who emphasized the use of accounting data in decision making. The Nordic countries tended to import management accounting ideas from both Germany and England. A number of factors have been acting in recent years to make management accounting prac- tices more similar within Europe and around the world.
These forces include: intensified global com- petition, which makes it more difficult to continue sloppy practices; standardized information system software sold throughout the world by vendors such as SAP, PeopleSoft, Oracle, and Baan; the in- creasing significance and authority of multinational corporations; the global consultancy industry; the diffusion of information throughout academia; and the global use of market-leading textbooks.
E-Commerce Suggested Reading Widespread use of the Internet is a fairly new phenomenon, and the impact it will even- While the internet is reshaping how tually have on business is far from settled. For a few brief months, it looked like dot. But, of course, the bubble burst and few of the startups are now in busi- For example, D. Keith Denton dis- ness. With the benefit of hindsight, it is now clear that the managers of the dot.
And , pp. At the time of this writing, it is still not clear if a successful business model will emerge for Internet-based companies. It is generally believed that Amazon. The Internet has important advan- Review, March , pp. The financial institution does not have to tie up staff filling out forms—that can be done directly by the consumer over the Internet.
However, it is unlikely that a successful blockbuster business will ever be built around the concept of selling low-value, low-margin, and bulky items like groceries over the Internet. The managers and companies involved in these scandals have suffered mightily—from huge fines to jail terms and financial collapse. And the recognition that ethical behavior is absolutely es- Reinforcing Problems sential for the functioning of our economy has led to numerous regulatory changes and Learning Objective 4 calls for new legislation.
But why is ethical behavior so important? This is not a matter Exercise 1—3 Basic 15 min. Problem 1—5 Basic 20 min. Without that lubricant, the economy would operate much less efficiently—less would be Problem 1—7 Medium 20 min. As James Problem 1—8 Medium 30 min. Surowiecki writes: Suggested Reading [F]lourishing economies require a healthy level of trust in the reliability and fairness For a brief discussion of how large of everyday transactions.
If you assumed every potential deal was a rip-off or that the frauds and bankruptcies, such as products you were buying were probably going to be lemons, then very little business WorldCom, affect other stakehold- ers, see Joseph Bower and Stuart would get done. For an Review, December , pp. Suppose that unethical farmers, distributors, and grocers knowingly tried to sell wormy apples as good apples and that grocers refused to take back wormy apples.
What would you do? Go to another grocer? But what if all grocers acted in this way? What would you do then? You would probably either stop buying apples or you would spend a lot of time inspecting apples before buying them. So would everyone else. Now notice what has happened. Because farmers, distributors, and grocers cannot be trusted, sales of apples would plummet and those who did buy apples would waste a lot of time meticulously inspecting them.
Everyone loses. Farmers, distributors, and gro- ceries make less money, consumers enjoy fewer apples, and consumers waste time look- ing for worms. One commentator argues that integrity is particularly critical in companies whose as- sets are largely intangible: [U]ntil quite recently, most corporate assets were tangible.
In the new, digital, trust-based economy, the stakes are extraordinarily high. Experience shows that this asset is built slowly and painfully but can be lost in an eye blink, and in losing it, you lose everything. But the firm also had legitimate businesses and actual assets.
There is no room for fudging on this because the consequences of not having the electricity when consumers switch on their lights are dire. This means that the firms with whom Enron was trading electricity. And trust Enron they did, to the tune of billions of dollars of trades every year.
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