1 / 58

Chapter 16 Innovative Inventory and Production Management Techniques

Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney. Chapter 16 Innovative Inventory and Production Management Techniques. Learning Objectives (1 of 4).

dreama
Download Presentation

Chapter 16 Innovative Inventory and Production Management Techniques

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney Chapter 16 Innovative Inventory and Production Management Techniques

  2. Learning Objectives (1 of 4) • List the most important relationships in the value chain and describe how these relationships can be managed to benefit the company • Explain why inventory management and productivity is so significant • Contrast the push and pull systems of production • Define purchasing and carrying costs and explain why they are important

  3. Learning Objectives (2 of 4) • Explain how product life cycles affect product costing and profitability • Identify how target costing influences production cost management • Describe the just-in-time philosophy and explain how it affects production • Explain how the traditional cost accounting system changes when a JIT inventory system is adopted

  4. Learning Objectives (3 of 4) • Explain how design for manufacturability assist in development of new products • Describe flexible manufacturing systems and explain how they relate to computer-integrated manufacturing • Explain how the theory of constraints helps in determining production flow

  5. Learning Objectives (4 of 4) • (Appendix) Illustrate how the economic order quantity and reorder point are used • (Appendix) Explain why companies carry safety stock; calculate the safety stock level

  6. Grocers Pharmacists Auto Dealership Computer Store Inventory Items

  7. Manage and Minimize Inventory • Just-in-time • Flexible manufacturing systems • Computer-integrated manufacturing • Economic order quantity • Economic production run • Order point • Safety stock • Pareto inventory analysis

  8. Upstream Downstream Customer Supplier Customer Supplier Customer Supplier Customer Supplier Value Chain The Company

  9. Value Chain Improvements • Improved communication of requirements and specifications • Greater clarity in requests for products or services • Improved feedback regarding unsatisfactory products or services • Improvements in planning, controlling, and problem solving • Shared managerial and technical expertise, supervision, and training

  10. Value Chain Customers and Suppliers may be internal or external

  11. Types Raw material Work in process Finished goods Indirect materials (supplies) Merchandise inventory Costs Purchasing/production Ordering/setup Carrying/not carrying Inventory

  12. $$$ Purchasing and Production Costs PURCHASING PRODUCTION Quoted price Shipping charges Discounts allowed Direct material Direct labor Traceable overhead Allocated overhead

  13. Production Systems • Push Systems • Produce in anticipation of customer orders • Store raw material, work in process, and finished goods inventory • Pull • Produce as needed • Minimal storage

  14. WIP Storage Purchases FG Storage Work Center Work Center Work Center Materials Storage WIP Storage Sales Push System

  15. Purchases Work Center Work Center Work Center Sales Physical Flow Information Flow Pull System

  16. Information Technology • Bar Codes • Vendor-Managed Inventory • Electronic Data Interchange (EDI) • E-Commerce • Procurement Cards

  17. Purchase/Production Terms • Ordering costs (purchasing) • costs to prepare, receive, pay for an order • Setup costs (production) • direct and indirect costs of preparing equipment for a new production run

  18. Inventory Terms • Inventory carrying costs • storage, handling, insurance, property taxes, losses from obsolescence or damage • Stockout • inventory is not available for internal or external customers

  19. Product Life Cycles S A L E S T I M E Development Stage

  20. Target Costing • Decisions made during the development stage represent 80 to 90 percent of product’s total life-cycle costs • Value Engineering • lower production costs • higher quality • greater flexibility

  21. Before and During Product Design Target Costing Target Cost Approach 1st Set Sales Price 2nd Set Profit 3rd Compute Target Cost 4th Design Product Traditional Approach 1st Design Product 2nd Compute Cost 3rd Set Sales Price 4th Profit or Loss After Product Design

  22. Kaizen Costing • Continuous Improvement • reduce product costs • increase product quality • improve production process • Stabilize profit margin as price is reduced over the produce life cycle

  23. S A L E S T I M E Introduction Stage • Substantial costs including engineering changes, market research, advertising, and promotion • Sales low • Sales price matches similar or substitute goods Introduction Stage

  24. Engineering Changes • Engineering changes during production are expensive • production documents must be revised/reprinted • workers must relearn tasks • machine setups must be changed • parts may be made obsolete

  25. S A L E S T I M E Growth Stage • Increased sales • Quality may improve • Prices stable Growth Stage

  26. S A L E S T I M E Maturity Stage • Sales stabilize or decline slowly • Firms compete on selling price • Costs at lowest level Maturity Stage

  27. S A L E S T I M E Decline Stage • Waning sales • Dramatic price cuts • Cost per unit increases Decline Stage

  28. Life Cycle Costing • Profitability viewed over product life • Costs are accumulated over entire life cycle • Useful for industries that face rapid technological or style changes

  29. Just-in-Time • Eliminate any process or operation that does not add value • Continuous improvement in production/performance efficiency • Reduction in total cost of production/performance while increasing quality

  30. Traditional Manufacturing • Smooth operating activity • steady use of workforce • continuous machine utilization • Spread overhead over a maximum number of products • Inventory levels high enough to cover up inefficiencies in acquisition and/or production

  31. JIT and Purchasing • Cost includes quoted cost plus the failure costs of poor quality • Long-term contracts • Reliable delivery • “ready for use” or modular • bar coded • Vendor located to minimize shipping costs and delivery time

  32. Vendor Certification • Limited number who can provide quality and reliability • Consider • supplier’s operating philosophy • costs • product quality • service

  33. Product Design • Fewest number of parts • Standardized parts • Quality designed into product • Minimal engineering changes • Recyclability of the product

  34. Product Processing • Reduce machine setup time • Perform setup while machine is running • Eliminate all unnecessary movements by workers and/or materials • Use setup teams • Continuous quality • Ensure vendor quality at point of purchase • Monitor worker and machine quality

  35. Product Processing • Standardizing work • standard procedures • without variation • on time • every time It is nearly impossible to improve an unstable process. Dr. W. Edwards Deming

  36. M F i n i s h e d a t e r i a l s G o o d s WIP WIP WIP WIP WIP WIP WIP WIP WIP WIP WIP WIP Traditional Plant Layout Lots of WIP

  37. M F i n i s h e d a t e r i a l s G o o d s Almost no WIP JIT Plant Layout

  38. JIT Plants • Reduce storage • Increase throughput • Develop multiskilled workers • Use autonomation

  39. JIT Support Systems • Six-sigma method • Internet business model • Supply-chain management • Business-to-business e-commerce • Transactional • Information sharing • Collaborative

  40. Logistical Support • Open buying on the Internet • Just-in-time training • Focused factory arrangements • Third-party logistics

  41. JIT and Variances • Variance reporting and analysis minimal • Workers monitor quality and prevent defects • Variances first appear in physical not financial measures • Long-term price agreements minimize direct material price variances • Vendor quality agreements minimize direct material usage variances

  42. JIT and Variances • Automated JIT systems minimize labor variances • Direct labor and overhead combined into conversion costs • Engineering changes may cause material, labor, overhead, and/or conversion variances

  43. RIP Inventory AP Conversion Costs Various Accounts RIP Inventory Conversion Costs Finished Goods RIP Inventory Cost of Goods Sold Finished Goods AR Sales Conversion Costs Various Accounts RIP Inventory Finished Goods AP Conversion Costs Cost of Good Sold Finished Goods AR Sales Method 1 Short Production Time Traditional Costing Methods 1 1 2 2 3 3 4 5

  44. Method 2 Shipped When Completed Traditional Costing Methods RIP Inventory AP Conversion Costs Various Accounts RIP Inventory Conversion Costs Finished Goods RIP Inventory Cost of Goods Sold Finished Goods AR Sales RIP Inventory AP Conversion Costs Various Accounts Finished Goods Cost of Goods Sold RIP Inventory Conversion Costs AR Sales 1 1 2 2 3 3 4 4 5

  45. Method 3 Ultimate JIT Traditional Costing Methods RIP Inventory AP Conversion Costs Various Accounts RIP Inventory Conversion Costs Finished Goods RIP Inventory Cost of Goods Sold Finished Goods AR Sales Conversion Costs Various Accounts RIP Inventory (minimal) Finished Goods (minimal) Cost of Goods Sold AP Conversion Costs AR Sales 1 1 2 2 3 4 3 5

  46. Method 4 Backflush Traditional Costing Methods RIP Inventory AP Conversion Costs Various Accounts RIP Inventory Conversion Costs Finished Goods RIP Inventory Cost of Goods Sold Finished Goods AR Sales 1 Conversion Costs Various Accounts Cost of Goods Sold AP Conversion Costs RIP Inventory Finished Goods Costs of Goods Sold AR Sales 1 2 2 3 3 4 5 4

  47. Nonmanufacturing JIT • Purchasing and delivery • Attitude of management • Worker empowerment • Question established routines • Good human resource management • Continuous improvement • Benchmarking

  48. Design for Manufacturability • Optimize • customer satisfaction • cost of owning and using the product over its life • cost, time, effort, and ease of producing and delivering the product

  49. Flexible Manufacturing System (FMS) network of robots and material conveyance devices monitored and controlled by computers modular factories customization quick, inexpensive production changes Computer-Integrated Manufacturing (CIM) two or more FMSs connected via host computer and information system Manufacturing Methods

  50. Theory of Constraints (TOC) Flow of goods through a production process cannot be at a faster rate than the slowest bottleneck in the process. Eliyahu Goldratt

More Related