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Managerial Accounting Business Improvement Programs. Concepts of Just in time, Total Quality Management, Business process reengineering, and Theory of constraints.
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(Just in time, Total Quality Management, Business process reengineering and Theory of constraints)
Just In Time (JIT) is a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand. When Companies use Just in Time (JIT) production and inventory control system, they purchase materials and produce units only as needed to meet actual customers demand. In just in time inventories are reduced to the minimum and in some cases are zero. Just in time approach can be used in both manufacturing and merchandising companies.
It has the most profound effects, however, on the operations of manufacturing companies. which maintain three class of inventories-raw material, Work in process, and finished goods.
Traditionally, manufacturing companies have maintained large amounts of all three types of inventories to act as buffers so that operations can proceed smoothly even if there are unanticipated disruptions. Raw materials inventories provide insurance in case suppliers are late with deliveries. Work in process inventories are maintained in case a work station is unable to operate due to a breakdown or other reason. Finished goods inventories are maintained to accommodate unanticipated fluctuations in demand.
While these inventories provide buffers against unforeseen events, they have a cost. In addition to the money tied up in the inventories, expert argue that the presence of inventories encourages inefficient and sloppy work, results in too many defects, and dramatically increase the amount of time required to complete a product.
Under ideal conditions a company operating at just in time system would purchase only enough materials each day to meet that days needs. Moreover, completed during the day would have been shipped immediately to customers. As this sequence suggests, "just in time" means that raw materials are received just in time to go into production, manufacturing parts are completed just in time to be assembled into products, and products are completed just in time to be shipped to customers.
The main benefits of just in time are the following:
As a result of benefits such as those cited above, more companies are embracing just in time (JIT) each year. Most companies find, however, that simply reducing inventories is not enough. To remain competitive in an ever changing and ever competitive business environment, must strive for continuous improvement.
The most popular approach to continuous improvement is known as total quality management (TQM). There are two major characteristics of total quality management (TQM: (1) a focus on serving customers and (2) systemic problem solving teams made up of front line workers. A variety of specific tools are available to aid teams in their problems solving. One of these tools, benchmarking, involves studying organizations that are among the best in the world at performing a particular task.
Perhaps the most important and pervasive total quality management (TQM) problem solving tool is Plan-do-Check-Act (PDCA) Cycle. The plan do check act cycle is a systematic fact based approach to continuous improvement.
The Plan-Do-Check-Act-Cycle (PDCA) cycle applies the scientific method to problem solving. In the plan phase, the problem solving team analyzes data to identify possible causes for the problem and then proposes a solution. In the Do phase, an experiment is conducted. In the check phase, the results of the experiment are analyzed. And in the Act phase, if the results of the experiment are favorable, the plan is implemented. If the results of the experiment are not favorable, the team goes back to the original data and starts allover again.
Perhaps the most important feature of total quality management (TQM is that "it improves productivity by encouraging the use of science in decision making and discouraging counter productive defensive behavior. Thousands of organizations have been involved in total quality management (TQM)) and similar programs.
In sum, total quality management (TQM) provides tools and techniques for continuous improvement based on facts and analysis; and if properly implemented, it avoids counterproductive organizational infighting.
Business Process reengineering is a more radical approach to improvement than total quality management (TQM). Instead of tweaking the existing system in a series of incremental improvements, in business process reengineering a business process is diagramed in detail, questioned, and then completely redesigned to eliminate unnecessary steps, to reduce opportunities for errors, and to reduce costs. A business process is any series of steps that are followed to carry out some task in a business.
Process reengineering focuses on simplification and elimination of wasted efforts. A central idea of process reengineering is that all activities that do not add value to a product or service should be eliminated. Activities that do not add value to a product or service that customers are willing to pay for are known as non value added activities. For example moving large batches of work in process from one work station to another is a non value added activity. To some degree just in time (JIT) involve process reengineering as does total quality management (TQM). These management approaches often overlap.
Employees resistance is a recurrent problem in Process Reengineering. The cause of much of this resistance is the fear that people may lose their jobs. Workers reasons that if Process Reengineering succeeds in eliminating non value added activities, there will be less work to do and management may be tempted to reduce the pay roll. Process Reengineering, if carried out insensitively and without regard to such fears, can undermine morale and will ultimately fail to improve the bottom line (i.e., profit). As with other improvement projects, employees must be convinced that the end result of the improvement will be more secure, rather than less secure, jobs. Real improvement can have this effect if management uses the improvement to generate more business rather than to cut the work force. If by improving process the company is able to produce a better product at lower cost, the company will have competitive strength to prosper. And a prosperous company is much more secure employer than a company that is in trouble.
Theory of constraints (TOC) is a management approach that emphasizes the importance of managing constraints. A constraint is any thing that prevents you from getting more of what you want. Every individual organization faces at least one constraint. So it is not difficult to find examples of constraints. You may not have to study thoroughly for every subject and to go out with your friends on the weekend, so time is your constraint.
Since a constraint prevents you from getting more of what you want, the Theory of Constraints (TOC) maintains that effectively managing the constraint is the key to success. As an example, long waiting surgery are a chronic problem in the National Health Service. For example up to 100 referrals from from general practitioners can be processed in a day.
The constraint, or bottleneck, in the system is determined by the step that has the smallest capacity-in this case surgery. The total number of patients processed through the entire system cannot exceed 15 per day-the maximum number of patients that can be treated in surgery. No matter how hard managers, doctors, and nurses try to improve the processing rate elsewhere in the system, they will never succeed in driving down the wait lists until the capacity in the system is increased. In fact, improvement elsewhere in the system-particularly before the constraint- are likely to result in even longer waiting times and more frustrated patients and health care providers. Thus improvements efforts must be focused on the constraint to be effective. A business process such as the process for serving sugary patients, is like a chain. If you want to increase the strength of a chain, what is the most effective way to do this? Should you concentrate your efforts on strengthening the strongest link, all the links, or the weakest link? Clearly, focusing your effort on the weakest link will bring the biggest benefit.
Continuing with this analogy, the procedure to follow to strengthen the chain is clear. First, identify the weakest link, which is the constraints. Second, don't place a greater strain on the system than the weakest link can handle-if you do, the chain will break. Third concentrate to improve the weakest link. Fourth, if the improvement efforts are successful, eventually the weakest link will improve to the point where it is no longer the weakest link. At this point, the new weakest link must be identified, and improvement efforts must be shifted over to that link. This simple sequential process provides a powerful strategy for continuous improvement. The theory of constraints (TOC) approach is a perfect complement to other improvement tools such as Total Quality Management (TQM) and Process Reengineering-it focuses improvement efforts where they are likely to be most effective
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