ActivityBased Management and Todays Advanced Manufacturing Environment

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• Activity-Based Management and Todays Advanced
  Manufacturing Environment

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Just-in-Time Inventory and Production Management

• No materials are purchased and no products are
  manufactured until they are needed.

The primary goal of a JIT production system is to
reduce or eliminate inventories at every stage of
production.
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Key Features of the JIT Approach
Smooth, uniform production rate
Pull method of production
Purchase is small lot sizes
Quick, inexpensive setups
High quality of materials
Effective preventive maintenance
Teamwork
Multiskilled workers
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JIT Purchasing
Long-term contracts with suppliers.
Only a few suppliers.
Grouped payments to vendor.
Parts delivered in small lots.
Minimal inspection of materials.
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Flexible Manufacturing System
An integrated system of computer-controlled
machines and automated material-handling
equipment, which is capable of producing a
variety of technologically similar products.
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Activity-Based Management
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Activity-Based Management
Activity-based costing establishes
relationshipsbetween overhead costs and
activities so thatwe can better allocate
overhead costs. Activity-based management
focuses on managing activities to reduce costs.
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Two-Dimensional ABC and Activity-Based Management
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Two-Dimensional ABC and Activity-Based Management
Cost Assignment View
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Elimination of Non-Value-Added Costs
Activities
Analysis andClassification
Value-addedActivities
Nonvalue-addedActivities
Reduce orEliminate
Continually Evaluate and Improve
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Using ABM to Eliminate Non-Value-Added Activities
and Costs

• Identify Activities.
• Identify Non-Value-Added Activities.
• Understand Activity Linkages, Root Causes, and
  Triggers.
• Establish Performance Measures.
• Report Non-Value-Added Costs.

Specify parts
Select vendor
Receive parts
Produce goods
Inspect finished goods
Rework defective products
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Customer Profitability Analysis
Customer profitability analysis
uses activity-based costing to determine the
activities, costs, and profit associated with
serving particular customers.
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Customer Profitability Analysis
Requiredspecialpackaging.
Orderssmallquantities.
Demandfastservice.
Ordersfrequently.
Oftenchangesorders.
A costly customer
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Customer Profitability Analysis
A company may used theses customerrelated costs
to help determine theprofitability of each
customer.
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Customer Profitability Analysis
75 of actual operating income
50 of actual operating income
25 of actual operating income
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Achieving Cost Reduction
Activity Reduction
Activity Selection
Reduce Non-Value-Added Costs
Activity Elimination
Activity Sharing
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Target Costing

• Design a product, and the manufacturing process,
  so that the product can be manufactured at a cost
  that will enable the firm to make a profit when
  the product is sold at an estimated market-driven
  price.

Target Price
Target Cost
Target Profit
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Kaizen Costing

• The process of cost reduction during the
  manufacturing phase of an existing product.

Product cost
.
Current year cost base.
.
Cost base for next year.
3/31/98
3/31/99
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Kaizen Costing

• The process of cost reduction during the
  manufacturing phase of an existing product.

Product cost
.
Kaizen goal cost-reduction amount.

.
3/31/98
3/31/99
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Benchmarking

• The continual search for the most effective
  method of accomplishing a task, by comparing
  existing methods and performance levels with
  those of other organizations.

Here are the best practices in our industry. . .
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Re-engineering

• The complete redesign of a process, with an
  emphasis on finding creative new ways to
  accomplish an objective.

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Theory of Constraints

• A management approach seeking to maximize
  long-run profit through proper management of
  organizational bottlenecks or constrained
  resources.

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Keys to Successfully Implementing ABC and ABM
1. Organizational Culture.
2. Top-Management Commitment.
3. Change Champion.
4. Change Process.
5. Continuing Education.
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Other Cost Management Issues in the New
Manufacturing Environment
Product Life-Cycle Costs
Justifying Investments in Advanced Manufacturing S
ystems
Performance Measurement
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End of Chapter 6
Now this is anactivity that Ican manage!