Activity-Based Management and Today’s Advanced Manufacturing Environment

1. 6 Chapter Six Activity-Based Management and Today’s Advanced Manufacturing Environment

2. 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.

3. 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

4. JIT Purchasing Long-term contracts with suppliers. Only a few suppliers. Grouped payments to vendor. Minimal inspection of materials. Parts delivered in small lots.

5. 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.

6. The use ofactivity analysisto helpmanagementmake decisions Activity-Based Management

7. 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.

8. 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

9. 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

10. Elimination of Non-Value-Added Costs Activities Analysis andClassification Nonvalue-addedActivities Value-addedActivities Reduce orEliminate Continually Evaluate and Improve

11. 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

12. Customer Profitability Analysis Customer profitability analysis uses activity-based costing to determine the activities, costs, and profit associated with serving particular customers.

13. Customer Profitability Analysis Requiredspecialpackaging. Orderssmallquantities. Demandfastservice. Oftenchangesorders. Ordersfrequently. A costly customer

14. Customer Profitability Analysis A company may used theses customerrelated costs to help determine theprofitability of each customer.

15. Customer Profitability Analysis 75% of actual operating income 50% of actual operating income 25% of actual operating income

16. Achieving Cost Reduction Activity Reduction Activity Selection Reduce Non-Value-Added Costs Activity Sharing Activity Elimination

17. 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

18. 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

19. 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

20. 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. . .

21. Re-engineering The complete redesign of a process, with an emphasis on finding creative new ways to accomplish an objective.

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

23. Keys to Successfully Implementing ABC and ABM 1. Organizational Culture. 2. Top-Management Commitment. 3. Change Champion. 4. Change Process. 5. Continuing Education.

24. Other Cost Management Issues in the New Manufacturing Environment Product Life-Cycle Costs Justifying Investments in Advanced Manufacturing Systems Performance Measurement

25. End of Chapter 6 Now this is anactivity that Ican manage!