Chapter 6: Activity Based Management and the New Manufacturing Environment

1. Chapter 6:Activity Based Management and the New Manufacturing Environment • Identify the true costs of resources consumed in performing the organization’s significant activities. • Identify and eliminate non-value added activities. • Measure efficiency of people, products, and activities performed in the facility. • Identify and evaluate new activities that can improve future performance of the organization. Note: Products do not consume resources. They consume activities, which in turn consume resources.

2. JIT Manufacturing Control System • Just-in-Time (JIT) inventory and production management system: a comprehensive inventory and manufacturing control system that does not purchase or manufacture a part or product until it is needed. • Key Features of JIT: • Smooth, uniform production rate. • “Pulls” product through the production process. • Purchase and manufacture products in small lot sizes. • Quick and inexpensive production machine setup. • Effective preventative maintenance of equipment. • Cultivates atmosphere of teamwork in the production shop. • Necessitates multiskilled workers and flexible facilities.

3. Cost Management is Critical in the Current Manufacturing Environment Manufacturing Excellence New Products Changing Work Force Demanding Customers Global Competition New Competitors New Technologies All Contribute to Decreased Margins

4. The Target Costing Management System Target Costing Extended to Improvement Market Research Target Costing as a Technical Exercise Product Planning Product Extension Product Concept and Development Strategic Planning Continuous Improvement Profit Planning Cost Planning Component Research Product Logistics & Support Be sure to include the Standard Cost Accounting vs. Activity Based Costing Handout from the Course Packet, Value Change Management

5. Cost Management is Critical in the Current Service Industry Environment Service Excellence New Services Changing Work Force Demanding Customers New Competitors Global Competition and Consolidation New Technologies All Contribute to Decreased Margins

6. Increase Volume If the variable costs of production are less than 50% of sales revenue, then push the Sales and Marketing Departments to sell more products. Decrease Costs If the variable costs of production are greater than 50% of sales revenue, then push the Production and Marketing Departments to cut costs. Cost Management - Managerial Implications A manager must evaluate the effects of cost on the final product: Focus your efforts on what will give you the most BANG for your BUCK. Vs. Bala’s 4Ms M1 - Measure both revenue and cost correctly (using ABC) M2 - Monitor movement of both revenue and costs (benchmarking) M3 - Manage towards identifying areas which will have the greatest effect M4 - Maximize profitability