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  • 1. Management Accounting: A Road of Discovery

2. Management Accounting : A Road of Discovery James T. Mackey Michael F. Thomas Presentations by: Roderick S. Barclay Texas A&M University - Commerce James T. Mackey California State University - Sacramento 2000 South-Western College Publishing 3. Chapter 13 Cant we improve them all? Business process reengineering, just-in-time, and the journey to automation 4. Key Learning Objectives 4. Calculate the cost of a product made in a JIT cell. 2. Explain business process reengineering, just-in-time, and why organizations are changing to JIT. 5. Prepare a machine uptime report and a continuous improvement productivity ratio. 3. Describe the role for management accounting information in JIT purchasing. 1. Measure the opportunity costs of unused capacity. 6. Discuss how JIT can improve on-time delivery and complete order filling. 5. Part I The Journey to JIT:The Toyota System 6. The Problem

  • At the end of WWII, Toyota had few assets but wanted to make cars and trucks.
  • Toyota needed to sell in the large U.S. market to raise capital.
  • Toyotas low volumes couldnt compete with the costs of high-volume automobile companies.

Domestic large Domestic small, foreign large Market size Well understood, domestic Poorly understood, foreign Markets Skilled and unionized Skilled, motivated and cheap Labor Inexpensive Expensive Material Plentiful Very little Capital (Money) United States Japan For example: 7. Part II Low Volume Production 8. Low Volume Production

  • Using specialized functional department to lower costs through low cost labor and skills.
  • Review and analyze Exhibit 13-2, p. 471 for an illustration of the different workflows between a traditional system of functional silos and a system comprised of cells.

Note: Move wait setup run quality inspections move wait NVA NVA NVA VANVANVA NVA 9. Part III High Volume Transfer Lines Setups Only Once 10. Illustration

  • Drilling only one set of holes Fords River Rouge complex making Model T Fords you can get any color you want as long as it is black.

11. Problems

  • A production volume of 200,000 to 300,000 units allow specialized equipment to make a narrow product line.
  • Toyotas problem was to make low-volume production, say 10,000 units, as efficient as the high-volume production of U.S. domestic automobile companies.

12. Part IV Continuous Improvement Management Using Just-In-Time Productionand the Journey to Automation 13. JIT Continuous Improvement

  • The objective of JIT continuous improvement is keep flexible production operating with the efficiency of high-volume production.
  • The role of accounting is to provide performance measures and cost information for this environment.
  • Workers are trained and empowered for continuous improvement strategies to eliminate NVA activities.

14. Move

  • Move activities are reduced by Business Process Reengineering (BPR) from functional units into product-line, or component-based cells.
  • Cells bring machines closely together to minimize move time.
  • Workers are cross trained to accomplish many tasks.
  • Review Exhibit 13-3, p. 472, to view an illustration of JIT cells using Kanban Containers.

15. Wait

  • Wait activities are reduced by moving from a push to a pull manufacturing strategy.
    • Traditional manufacturing pushes orders into the factory according to the production schedule. WIP piles up in front of constraints increasing wait time. The more time in the production cycle, the greater the costs.
    • Pull manufacturing only releases orders when the customer demands the product. WIP does not pile up. Wait time is reduced.
  • Performance measures:Decreasing time in the cell, decreasing WIP inventories.

16. Setup

  • Setup activities are reduced by improving the setup efficiency and decreasing the number of setups needed by reducing product variety.
  • Reengineer JIT cells to make a limited range of components or products.
  • Performance measures: decreasing setups, decreasing setup time, decreasing product variety.

17. Quality Control

  • Quality control activities can be eliminated through Total Quality Management (TQM).
  • When using traditional scientific management, extra inventories are needed to insure the correct quantities are produced despite quality failures.
  • The costs of eliminating all defects are not assumed to be justified by the benefits.
  • Quality inspections are necessary to detect these defects.
  • This increases manufacturing time and quality conformance costs.
  • TQM reduces the need for inventories and quality inspections.
  • Performance measures: decreasing quality inspections, defects, nonconformance costs, manufacturing time in the cell. And WIP inventories.

18. Extend

  • Extend the JIT cells throughout the production system and into suppliers with JIT purchasing.
  • Make customers and vendors strategic partners.
  • Due to long-term contracts, vendor efficiencies become our efficiencies.

19. JIT, Management Accounting, and Continuous Improvement - Purchasing 1. Strategic measures during early JIT life cycle development (on time deliver, complete order filling, vendor performance index)2. Problem costing with 2 ndgeneration ABC cost variances 1. Certified vendors 2. Guaranteed material quality 3. Guaranteed material prices 4. Kanban container-sized JIT deliveries to minimize inventories 5. EDI ordering, shipping, and payment Purchasing How management accounting helps How JIT can help Value chain process 20. Computer-Integrate Manufacturing (CIM) Cells

  • Review and understand Exhibit 13-7, p. 480. The exhibit illustrates the makeup of a CIM cell and the components of those cells.

21. Value Chain Process Activities for JIT Purchasing

  • Use only a few certified suppliers.
  • Orders, deliveries, and payments are mde under long-term contracts.
  • Materials arrive JIT and are delivered directly to manufacturing cells.
  • Supplier are paid periodically and automatically.

22. Finally

  • Maximize product value by Quality Function Deployment strategies, customer focused management, concurrent design, target costing, and Kanban management.

23. JITs Strategic Planning Matrix

  • Vision Statement Combine the economies of low-variety, high-volume production with the benefits of diversified product lines.
  • Reengineer for high quality TQM and continuous improvement
  • Reengineer to eliminate nonvalue-added activities Short lead-time, Flexibility, Simplicity
  • Cellular operations Short lead time, Flexibility, Simplicity
  • Eliminate inventories (pull manufacturing) Short lead time, Flexibility, Simplicity
  • Minimize setup time Short lead time, Flexibility, Simplicity
  • Cross-train workers Short lead time Flexibility, TQM and continuous improvement
  • Certified vendors Short lead time, Flexibility, Simplicity

24. Process Characteristics Comparison

  • Traditional systems
  • Functional departments performing a single activity on all products using single-skilled workers.
  • Each department works at its own pace, maximizes output, and pushes it into WIP, creating large inventories to buffer against uncoordinated production.
  • Acceptable levels of scrap, rework, and rejects (another reason for large inventories).
  • JIT systems
  • Cells performing multiple activities on a single product using multi-skilled cross-trained workers.
  • Production is pulled through the cells with kanbans to coordinate cells and minimize WIP.
  • Commitment to TQM, elimination of scrap and rework (nonvalue-added activities), and no rejects.

25. More Process Characteristics Comparison

  • Traditional systems
  • Uncommitted workers, not involved in continuous improvement, with formal worker manager hierarchy.
  • Large inventories and uncoordinated production results in long lead times (too much moving, storage, waiting, and inspection.
  • Infrequent purchases in large lots from many suppliers to minimize purchase price.
  • JIT systems
  • Empowered employees involved and rewarded for continuous improvement and performing many management activities.
  • Cellular manufacturing, short setup times, and nonvalue-added activity elimination to minimize lead time.
  • Frequent (hourly or daily) JIT deliveries from a few certified vendors using long-term contracts.

26. JIT, Management Accounting, and Continuous Improvement - Production 1. Lead time and LTE ratios 2. TQM information (defect rates, setup time, quality cost variances) 3. Kaizen standards for target costing achievement and continuous improvement measurement 4. Machine uptime ratio and CI productivity ratio 1. Reengineer to eliminate nonvalue-added activities through cellular design 2. Reengineer for higher quality by training cell wor