C11 - 1 Learning Objectives Power Notes 1.Just-in-Time Principles 2.Applying a Just-in-Time Approach...
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Transcript of C11 - 1 Learning Objectives Power Notes 1.Just-in-Time Principles 2.Applying a Just-in-Time Approach...
C11 - 1
Learning Objectives
Power Notes
1. Just-in-Time Principles
2. Applying a Just-in-Time Approach
3. Accounting for Just-in-Time Operations
4. Accounting for the Costs of Quality
Chapter M11
C11
Cost Management for Just-in-Time Manufacturers Cost Management for Just-in-Time Manufacturers
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Chapter M11
Just-in-Time Processing
Traditional Operations
Just-in-Time Operations
Accounting for the Costs of Quality
Slide # Power Note Topics
Note: To select a topic, type the slide # and press Enter.
Power Notes
3
11
18
26
Cost Management for Just-in-Time Manufacturers Cost Management for Just-in-Time Manufacturers
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Just-in-Time Processing (JIT)Just-in-Time Processing (JIT)
JIT is a business philosophy that focuses on reducing time and cost and eliminating poor quality.
JIT organizes work cells that perform several manufacturing steps.
Workers are cross-trained to perform more than one task. This provides flexibility and worker pride and involvement in the final product.
Because products have limited movement between departments, the nonvalue-added cost of transporting products and parts is reduced.
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Reduces inventory
Reduces lead time
Reduces setup time
Emphasizes product-oriented layout
Just-in-Time ManufacturingJust-in-Time ManufacturingTraditional Manufacturing Traditional Manufacturing
Increases inventory to protect against process problems
Increases lead time to protect against uncertainty
Disregards setup timeas an improvement priority
Emphasizes process-oriented layout
Just-in-Time PrinciplesJust-in-Time Principles
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Emphasizes team-oriented employee involvement
Emphasizes pull manufacturing
Emphasizes zero defects
Emphasizes supplier partnering
Just-in-Time ManufacturingJust-in-Time ManufacturingTraditional Manufacturing Traditional Manufacturing
Emphasizes work of individuals, following manager instructions
Emphasizes push manufacturing
Tolerates defects
Treats suppliers as “arms-length,” independent entities
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Reducing Lead (Throughput) TimesReducing Lead (Throughput) Times
Conversion TimeConversion Time
Value-added
Start of productionfor a single item
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Nonvalue-added
Reducing Lead (Throughput) TimesReducing Lead (Throughput) Times
Conversion TimeConversion Time Wait TimeWait Time
Value-added
Start of productionfor a single item
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Nonvalue-added
Reducing Lead (Throughput) TimesReducing Lead (Throughput) Times
Conversion TimeConversion Time Wait TimeWait Time Move TimeMove Time
Value-added
Start of productionfor a single item
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Nonvalue-added
Reducing Lead (Throughput) TimesReducing Lead (Throughput) Times
Conversion TimeConversion Time Wait TimeWait Time Move TimeMove Time Down TimeDown Time
Value-added
Start of productionfor a single item
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Nonvalue-added
Reducing Lead (Throughput) TimesReducing Lead (Throughput) Times
Conversion TimeConversion Time Wait TimeWait Time Move TimeMove Time Down TimeDown Time
Value-added
Total Lead Time
Start of productionfor a single item
End of productionfor a single item
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Traditional OperationsTraditional Operations
Administrative Offices:Accounting
SalesCustomer Service
Maintenance and Tooling
Technical Offices:Design
SchedulingManufacturing
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Traditional OperationsTraditional Operations
Administrative Offices:Accounting
SalesCustomer Service
Maintenance and Tooling
Technical Offices:Design
SchedulingManufacturing
Receiving and Raw Materials
Inventory
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Stamping
Traditional OperationsTraditional Operations
Administrative Offices:Accounting
SalesCustomer Service
Maintenance and Tooling
Technical Offices:Design
SchedulingManufacturing
Receiving and Raw Materials
Inventory
Work in Process AreasWork in Process Areas
WIPWIP
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Stamping
Traditional OperationsTraditional Operations
Administrative Offices:Accounting
SalesCustomer Service
Maintenance and Tooling
Technical Offices:Design
SchedulingManufacturing
Receiving and Raw Materials
Inventory
Punching
Work in Process AreasWork in Process Areas
WIPWIP
WIPWIP
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Stamping
Traditional OperationsTraditional Operations
Administrative Offices:Accounting
SalesCustomer Service
Maintenance and Tooling
Technical Offices:Design
SchedulingManufacturing
Receiving and Raw Materials
Inventory
Forming Punching
Work in Process AreasWork in Process Areas
WIPWIP
WIPWIP WIPWIP
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Stamping
Traditional OperationsTraditional Operations
Administrative Offices:Accounting
SalesCustomer Service
Maintenance and Tooling
Technical Offices:Design
SchedulingManufacturing
Receiving and Raw Materials
Inventory
FinishedGoods
Inventory
Forming Punching
Work in Process AreasWork in Process Areas
WIPWIP
WIPWIP WIPWIP
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Stamping
Traditional OperationsTraditional Operations
Administrative Offices:Accounting
SalesCustomer Service
Maintenance and Tooling
Technical Offices:Design
SchedulingManufacturing
Receiving and Raw Materials
Inventory
ShippingDepartment
FinishedGoods
Inventory
Forming Punching
Work in Process AreasWork in Process Areas
WIPWIP
WIPWIP WIPWIP
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Just-in-Time OperationsJust-in-Time Operations
Administrative Offices:Accounting
SalesCustomer Service
Technical Offices:Design
SchedulingManufacturing
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Just-in-Time OperationsJust-in-Time Operations
Administrative Offices:Accounting
SalesCustomer Service
Technical Offices:Design
SchedulingManufacturing
Re
ceiv
ing
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Just-in-Time OperationsJust-in-Time Operations
Administrative Offices:Accounting
SalesCustomer Service
Technical Offices:Design
SchedulingManufacturing
Maintenance and ToolingSmall covers
Maintenance and ToolingMedium covers
Maintenance and ToolingLarge covers
Re
ceiv
ing
Sh
ipp
ing
Stamping
Stamping
Stamping
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Just-in-Time OperationsJust-in-Time Operations
Administrative Offices:Accounting
SalesCustomer Service
Technical Offices:Design
SchedulingManufacturing
Maintenance and ToolingSmall covers
Maintenance and ToolingMedium covers
Maintenance and ToolingLarge covers
Re
ceiv
ing
Sh
ipp
ing
Stamping Punching
Stamping Punching
Stamping Punching
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Just-in-Time OperationsJust-in-Time Operations
Administrative Offices:Accounting
SalesCustomer Service
Technical Offices:Design
SchedulingManufacturing
Maintenance and ToolingSmall covers
Maintenance and ToolingMedium covers
Maintenance and ToolingLarge covers
Re
ceiv
ing
Sh
ipp
ing
Stamping Punching Forming
Stamping Punching Forming
Stamping Punching Forming
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Just-in-Time OperationsJust-in-Time Operations
Administrative Offices:Accounting
SalesCustomer Service
Technical Offices:Design
SchedulingManufacturing
Maintenance and ToolingSmall covers
Maintenance and ToolingMedium covers
Maintenance and ToolingLarge covers
Re
ceiv
ing
Sh
ipp
ing
Stamping Punching Forming
Stamping Punching Forming
Stamping Punching Forming
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Accounting for Just-in-Time OperatonsAccounting for Just-in-Time Operatons
Fewer Transactions. The accounting system is simpler because there are fewer transactions to record.
Combined Accounts. All in-process work is combined with raw materials to form a new account, Raw and In Process (RIP) Inventory.
Nonfinancial Performance Measures. There is a greater emphasis on nonfinancial measures.
Direct Tracing of Overhead. Indirect labor is directly assigned to product production cells.
In a just-in-time operating environment, the accounting system will have the following characteristics:
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Nonfinancial Performance MeasurementNonfinancial Performance Measurement
1. Measures of product quality
2. Customer complaints and warranty experience
3. Customer satisfaction and retention rates
4. Product availability and on-time performance
5. New product time to market and market share
Nonfinancial performance measures combined with conventional financial measures provide a balanced performance perspective.
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Prevention costs are the costs of activities that prevent defects from occurring during the design and delivery of products or services.
Appraisal costs are the costs of activities that detect, measure, evaluate, and audit products and processes to ensure that they conform to customer requirements and performance standards.
Costs of Controlling QualityCosts of Controlling Quality
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Internal failure costs are the costs associated with defects discovered by a business before the product or service is delivered to the consumer.
External failure costs are the costs incurred after defective units or services have been delivered to consumers. Although difficult to measure, it may be the largest cost in the quality equation.
Costs of Failing to Control QualityCosts of Failing to Control Quality
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Rework $ 380,000 Internal failureWarranty work 225,000 External failureDisposing of scrap 195,000 Internal failureDisposal of rejected materials 160,000 Internal failureProcessing returned materials 150,000 External failureFinished goods inspection 140,000 AppraisalPreventive maintenance 80,000 PreventionMaterials inspection 70,000 AppraisalDesign engineering 55,000 PreventionAssessing vendor quality 45,000 Prevention
Total activity cost $1,500,000
Quality Control Activity AnalysisQuality Control Activity Analysis
Quality Control Activities Activity Cost Classification
Internal failureExternal failureInternal failureInternal failureExternal failureAppraisalPreventionAppraisalPreventionPrevention
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Value-Added / Nonvalue-Added Activity AnalysisValue-Added / Nonvalue-Added Activity Analysis
Quality Control Activities Activity Cost
Rework $ 380,000 Warranty work 225,000 Disposing of scrap 195,000 Disposal of rejected materials 160,000 Processing returned materials 150,000 Finished goods inspection 140,000 Preventive maintenance 80,000 Materials inspection 70,000 Design engineering 55,000 Assessing vendor quality 45,000
Total activity cost $1,500,000
Which activities are value-added and which are nonvalue- added?
Which activities are value-added and which are nonvalue- added?
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Value-Added / Nonvalue-Added Activity AnalysisValue-Added / Nonvalue-Added Activity Analysis
Quality Control Activities Activity Cost
Nonvalue-added$1,110,000
74%
Rework $ 380,000 Warranty work 225,000 Disposing of scrap 195,000 Disposal of rejected materials 160,000 Processing returned materials 150,000 Finished goods inspection 140,000 Preventive maintenance 80,000 Materials inspection 70,000 Design engineering 55,000 Assessing vendor quality 45,000
Total activity cost $1,500,000
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Value-Added / Nonvalue-Added Activity AnalysisValue-Added / Nonvalue-Added Activity Analysis
Quality Control Activities Activity Cost
Nonvalue-added$1,110,000
74%
Rework $ 380,000 Warranty work 225,000 Disposing of scrap 195,000 Disposal of rejected materials 160,000 Processing returned materials 150,000 Finished goods inspection 140,000 Preventive maintenance 80,000 Materials inspection 70,000 Design engineering 55,000 Assessing vendor quality 45,000
Total activity cost $1,500,000
Value-added$390,000
26%
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
Rework
Warranty work
Disposing of scrap
Disposal of rejected materials
Processing returned materials
Finished goods inspection
Preventive maintenance
Materials inspection
Design engineering
Assessing vendor quality
Quality Control Activities
Activity Categories
Costs
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Rework
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Warranty work
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Disposing of scrap
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Disposal of rejected materials
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Processing returned materials
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Finished goods inspection
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Preventive maintenance
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Materials inspection
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Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Design engineering
C11 - 42
Pareto Chart of Quality CostsPareto Chart of Quality Costs
$400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0Activity Categories
Costs
Assessing vendor quality