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6. Chapter Six. Activity-Based Management and Today’s Advanced Manufacturing Environment . 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

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Activity based management and today s advanced manufacturing environment l.jpg

6

Chapter Six

Activity-Based Management and Today’s Advanced Manufacturing Environment


Just in time inventory and production management l.jpg

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.


Key features of the jit approach l.jpg

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


Jit purchasing l.jpg

JIT Purchasing

Long-term

contracts with

suppliers.

Only a few

suppliers.

Grouped

payments to

vendor.

Minimal

inspection of

materials.

Parts delivered

in small lots.


Flexible manufacturing system l.jpg

Computer-

numerically-

controlled

machines.

Computer-aided

design system.

Automated

material-handling

system.

Computer-aided

manufacturing

system.

Automated

material-handling

system.

Computed-

integrated

manufacturing

system.

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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The use ofactivity analysisto helpmanagementmake decisions

Activity-Based Management


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Activity-Based Management

Activity-based costingestablishes relationshipsbetween overhead costs and activities so thatwe can better allocate overhead costs.

Activity-based managementfocuses on managing activities to reduce costs.


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Cost Assignment View

Resource costs

Process View

Activity Analysis

Activity Evaluation

Performance

Measures

Root

Causes

Activity

Triggers

Activities

Cost Objects

Two-Dimensional ABC and Activity-Based Management


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Assign resource

costs to activity

cost pools.

Resource costs

Performance

Measures

Root

Causes

Activity

Triggers

Activities

Assign activity

costs to cost

objects using

cost drivers.

Cost Objects

Two-Dimensional ABC and Activity-Based Management

Cost Assignment View


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Elimination of Non-Value-Added Costs

Activities

Analysis andClassification

Nonvalue-addedActivities

Value-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.

Oftenchangesorders.

Ordersfrequently.

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

Sharing

Activity

Elimination


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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.

3/31/0x

3/31/0x


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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.

}

.

3/31/0x

3/31/0x


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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

Systems

Performance

Measurement


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End of Chapter 6

Now this is anactivity that Ican manage!


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