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Flexible Organizational Technologies And Abc Notes

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Lecture 3: Flexible Organizational Technologies and ABC 18 October 2010


* Flexible Organisational Technologies (FOT)

* FOT adoption and the "new" management accounting

* Activity Based Costing


* 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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