Flexible Organizational Technologies And Abc Notes

Lecture 3: Flexible Organizational Technologies and ABC 18 October 2010 Topics * Flexible Organisational Technologies (FOT) * FOT adoption and the "new" management accounting * Activity Based Costing Reading * Required Reading: * Bhimani (2008) - Chapter 3 (pp. 76-102) and 4 * Further Reading: * BHDF Chapters 11 and 21 * HNS Chapters 3 and 8 Key Points * Just-in-time systems * "Pull" philosophy * Backflush accounting * EOQ model assumptions (4) * JIT vs. EOQ models Flexible Organisational Technologies * Enterprise Resource Planning (ERP) Just-in-Time systems * JIT Purchasing vs. JIT Production * JIT = Materials arrive exactly as needed, and products are produced driven by demand * Cobb (1993) offers a detailed discussion of JIT in relation to management accounting * Many ways to implement the demand-pull feature of JIT: * Most simple is the Kanban system * Kanban = Japanese for visual record or card ? A card is used to signal what is required to be produced much like an internal order form * Dodd 1998 discusses examples of information management accountants may use to design performance measures to evaluate and control JIT production ? They emphasise personal observation and non-financial rather than financial performance measures Major features of JIT * Production is organised into manufacturing cells * Manufacturing cells are designed around products rather than functions ? Reduces handling costs ? No need to transport materials around sites * Workers are trained to be multiskilled * Heightened awareness of problems and their causes * TQM is aggressively pursued to eliminate defects * Quality testing is the responsibility of the workers and not just the quality management department * Creates and urgency to fix quality issues because issues cause the entire system to shutdown * Strong emphasis of reducing setup times and manufacturing lead times * Suppliers are carefully selected for their quality and timeliness * Just in time purchasing Goals of JIT: * Stocks * Lead times * Defects * Flexible workforce * Continuous quality control * The "Pull" philosophy: JIT and ERP Systems * Success of JIT depends on the speed of information flows from customers to manufacturers to suppliers * ERP gives low level managers, workers, customers and suppliers access to operating information * ERP rapidly shifts manufacturing and distribution plans in response to changes in supply and demand * Companies believe ERP is essential to support JIT * Because the effect it has on lead times ? e.g. Autodesk 2 weeks to 1 day and Fujitsu from 18 days to 1.5 days * Also helps in demand forecasting and materials requirements planning * However, ERP can make the system large and unwieldy * Suppliers of ERP systems include: * SAP, Sage, Microsoft Dynamics and Oracle * They provide standard packages but can customize for considerable cost ? The customization is essential for building a strategic advantage Backflush accounting: * Advantages of backflush accounting: Simpler Course Notes Page 7 * Features of FOT adoption affecting new MA * Cost patterns with FOT implementation * Costs vs. Accounting focuses * Traditional features of organizations * Why ABC might be useful * Issues with ABC implementation * Challenges with ABC * Activity Based Management (ABM) * Stages of cost systems Definitions * Activity Based Management = Focusing on the management of activities as the route to continuously improve both the value received by customers and the profit earned by providing this value 

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