Beruflich Dokumente
Kultur Dokumente
Submitted by:
Md. Ashikur Rahman Chowdhury
ID : 2012-1-10-314
Hasan Md. Zahir
ID : 2012-1-10-005
Sraboni Rahman
ID : 2012-1-10-044
Section No. : 06
Group Assignment
Department of Business Administration
1
18 December, 2013
Dear Sir,
Its our great pleasure to submit you this report on. We have got a great experience while
working on this report.
We would like to leave this assignment to your kind consideration for any unintentional mistake
that may accuser while doing this report. We are always at your service if you want to ask us
anything about this assignment and it will be great pleasure to work with you again in future.
Sincerely yours,
Executive Summary
Management of cost related activities are very important issue to any form of business. In
this Assignment discussed about cost Management Techniques, How they perform and
execute in the business. We also discussed about traditional and modern manufacturing
philosophy, Just in time accounting for pull system-back flush accounting, Theory of
Constraints, throughput Accounting, Kaizen Costing for continuous improvement, Total
quality management, cost of quality and quality reports and Business Process reengineering. All these elements are so crucial to maximize company profit.
Table Of Content
Page no.
Name
Cost Management
Just In Time
Pull system
Theory of Constraints
8
8
10
Kaizen Costing
11
12
Cost of quality
15
17
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Cost Management:
Management of cost related activities achieved by collecting, analyzing, evaluating, and
reporting cost information used for budgeting, estimating, forecasting, and monitoring costs are
called cost management. The process of identifying, measuring, analyzing, interpreting and
communicating information are cost management accounting.
Long production runs decrease the manufacturing cost per unit but inventory holding cost will
increase per unit as a result.
The parts working together as effectively as possible in order to make the whole effective.
Be flexible and provide exactly what customer wants at the time of it is wanted.
Just-in-Time Purchasing
When the concepts of JIT are applied to the purchasing function, all of the elements of attitude
discussed above must be included. Just-in-time (JIT) has the elements of a philosophy as well as
various practice elements. While the JIT philosophy is applicable to any type of organization, the
practice elements apply mainly to repetitive manufacturing operations such as the production and
assembly of automobiles or appliances. In addition, the adoption of JIT purchasing includes the
following characteristics:
1.
2.
3.
4.
5.
Pull System
The pull inventory control system begins with a customer's order. With this strategy, companies
only make enough products to fulfill customer's orders. One advantage to the system is that there
will be no excess of inventory that needs to be stored, thus reducing inventory levels and the cost
of carrying and storing goods. However, one major disadvantage to the pull system is that it is
highly possible to run into ordering dilemmas, such as a supplier not being able to get a shipment
out on time. This leaves the company unable to fulfill the order and contributes to customer
dissatisfaction.
An example of a pull inventory control system is the just-in-time, or JIT system. The goal is to
keep inventory levels to a minimum by only having enough inventories, not more or less, to meet
customer demand. The JIT system eliminates waste by reducing the amount of storage space
needed for inventory and the costs of storing goods.
Theory of Constraints:
The Theory of Constraints is a methodology for identifying the most important limiting factor
(i.e. constraint) that stands in the way of achieving a goal and then systematically improving that
constraint until it is no longer the limiting factor. In manufacturing, the constraint is often
referred to as a bottleneck.
The Theory of Constraints takes a scientific approach to improvement. It hypothesizes that every
complex system, including manufacturing processes, consists of multiple linked activities, one of
which acts as a constraint upon the entire system.
A successful Theory of Constraints implementation will have the following benefits:
The Theory of Constraints provides a powerful set of tools for helping to achieve that goal,
including:
The Five Focusing Steps (a methodology for identifying and eliminating constraints)
The Thinking Processes (tools for analyzing and resolving problems)
Throughput Accounting (a method for measuring performance and guiding management
decisions)
Identify the
constraint
Repeat the
process
Exploit the
constraint
Subordinate
and
synchronize
to the
constarint
Elevate
performanc
e of the
constaint
The Theory of Constraints uses a process known as the Five Focusing Steps
to identify and eliminate constraints (i.e. bottlenecks).
The Five Focusing Steps are further described in the following table.
Step
Identify
Objective
Identify the current constraint (the single part of the process that limits the rate at
which the goal is achieved).
Make quick improvements to the throughput of the constraint using existing
Exploit
resources (i.e. make the most of what you have).
Subordinate Review all other activities in the process to ensure that they are aligned with and
truly support the needs of the constraint.
If the constraint still exists (i.e. it has not moved), consider what further actions
Elevate
can be taken to eliminate it from being the constraint. Normally, actions are
continued at this step until the constraint has been broken (until it has moved
somewhere else). In some cases, capital investment may be required.
The Five Focusing Steps are a continuous improvement cycle. Therefore, once a
Repeat
constraint is resolved the next constraint should immediately be addressed. This
step is a reminder to never become complacent aggressively improve the
current constraintand then immediately move on to the next constraint.
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Throughput Accounting
Throughput Accounting is an alternative accounting methodology that attempts to eliminate
harmful distortions introduced from traditional accounting practices distortions that promote
behaviors contrary to the goal of increasing profit in the long term.
In traditional accounting, inventory is an asset (in theory, it can be converted to cash by selling
it). This often drives undesirable behavior at companies manufacturing items that are not truly
needed. Accumulating inventory inflates assets and generates a paper profit based on inventory
that may or may not ever be sold (e.g. due to obsolescence) and that incurs cost as it sits in
storage. The Theory of Constraints, on the other hand, considers inventory to be a liability
inventory ties up cash that could be used more productively elsewhere.
Equation:
Throughput = sales revenue direct variable costs
Throughput accounting Ratio = (Return per factory hour)/ Cost per factory hour
Throughput accountings primary concern is the rate at which is business can generate profits. In
order to monitor this if focuses on the return on the throughput through the bottleneck resource.
Return per time period = (Sales revenue Material cost) / Time period
In traditional accounting, there is also a very strong emphasis on cutting expenses. The Theory of
Constraints, on the other hand, considers cutting expenses to be of much less importance than
increasing throughput. Cutting expenses is limited by reaching zero expenses, whereas
increasing throughput has no such limitations.
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Throughput Accounting has four key derived measures: Net Profit, Return on Investment,
Productivity, and Investment Turns.
Derived Measures
Definition
Net Profit
Return on Investment
Productivity
Investment Turns
Throughput / Investment
In general, management decisions are guided by their effect on achieving the following
improvements (in order of priority):
The strongest emphasis (by far) is on increasing Throughput. In essence, TOC is saying to focus
less on cutting expenses (Investment and Operating Expenses) and focus more on building sales
(Throughput).
Last of all we can say, throughput has only been considered in relation to manufacturing
organization but it has been used very successfully in service industries as well.
Kaizen costing
Kaizen costing is a cost-reduction system that is applied to a product in production. It comes
from the combination of the Japanese characters kai and zen which mean change and
good, respectively. The word Kaizen translates to continuous improvement or change for
the better and aims to improve productivity by making gradual changes to the entire
manufacturing process. Some of the cost-reduction strategies employed involve producing
cheaper re-designs, eliminating waste and reducing process costs. Ensuring quality control, using
more efficient equipment, utilizing new technological advances and standardizing work are
additional elements.
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To understand Kaizen costing, one first needs to grasp standard costing methodology. The
typical standard costing approach works by designing a product first, and computing costs by
taking into account material, labor and overhead. The resulting figure is set as the product cost.
The standard cost is set and revised on a yearly basis. Cost deviation analysis involves checking
to see whether the projected cost estimates tally with the final figures. Manufacturing procedures
are assumed to be static.
In contrast, Kaizen costing is based around improving the manufacturing process on a continual
basis, with changes being implemented throughout the year. Cost-reduction targets are set on a
monthly basis. The goal here is to reduce the difference between profit estimates and target
profits. The cost deviation analysis done in Kaizen costing examines the difference between the
target Kaizen costs and the actual cost reduction achieved. The basic idea here is to make tiny
incremental cost reductions on a continual basis in a product's life cycle.
Since the goal is to reduce costs on a monthly basis, every department in the company makes an
effort to introduce operational changes on a daily basis. The Kaizen approach calls for analyzing
every part of the process and generating ideas on how they can be further improved. Kaizen
costing takes into account aspects such as time-saving strategies, employee efficiency and
wastage reduction while incorporating better equipment and materials.
The fundamental basis of the Kaizen approach centers on recognizing that employees who work
on a particular job are aware of how that particular task can be greatly improved. They are then
empowered to do so in the Kaizen costing system. Employees are treated as valuable sources of
viable solutions, an approach that differs greatly from the standard cost system that views
employees as laborers with variable performance levels.
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Origins of TQM
Total quality management has evolved from the quality assurance methods that were first
developed around the time of the First World War. The war effort led to large scale
manufacturing efforts that often produced poor quality. To help correct this, quality inspectors
were introduced on the production line to ensure that the level of failures due to quality was
minimized.
After the First World War, quality inspection became more commonplace in manufacturing
environments and this led to the introduction of Statistical Quality Control (SQC), a theory
developed by Dr. W. Edwards Deming. This quality method provided a statistical method of
quality based on sampling. Where it was not possible to inspect every item, a sample was tested
for quality. The theory of SQC was based on the notion that a variation in the production process
leads to variation in the end product. If the variation in the process could be removed this would
lead to a higher level of quality in the end product.
After World War Two, the industrial manufacturers in Japan produced poor quality items. In a
response to this, the Japanese Union of Scientists and Engineers invited Dr. Deming to train
engineers in quality processes. By the 1950s quality control was an integral part of Japanese
manufacturing and was adopted by all levels of workers within an organization.
By the 1970s the notion of total quality was being discussed. This was seen as company-wide
quality control that involves all employees from top management to the workers, in quality
control. In the next decade more non-Japanese companies were introducing quality management
procedures that based on the results seen in Japan. The new wave of quality control became
known as Total Quality Management, which was used to describe the many quality-focused
strategies and techniques that became the center of focus for the quality movement.
TQM Tools
The primary TQM tool for continuous improvement is the PDCA Cycle:
Plan In this phase, the quality team defines the problem, gathers and analyzes data, sets
measurements and formulates solutions to improve quality.
Do - The team implements the new process and tests the results against the desired results.
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Plan
Act
Total Quality
Management
Do
Check
Check- The team measures effectiveness and makes adjustments to refine the new quality
process until the desired results are achieved.
Act - The new improved process is implemented, all parties are notified and trained on the new
process and metrics are set in place to monitor the quality process effectiveness.
Principles of TQM
TQM can be defined as the management of initiatives and procedures that are aimed at achieving
the delivery of quality products and services. A number of key principles can be identified in
defining TQM, including:
Executive Management Top management should act as the main driver for TQM and
create an environment that ensures its success.
Training Employees should receive regular training on the methods and concepts of
quality.
Strategic and systematic approach- A critical part of the management of quality is the
strategic and systematic approach to achieving an organizations vision, mission, and
goals. This process, called strategic planning or strategic management, includes the
formulation of a strategic plan that integrates quality as a core component.
Customer Focus Improvements in quality should improve customer satisfaction. The
customer ultimately determines the level of quality. No matter what an organization does
to foster quality improvementtraining employees, integrating quality into the design
process, upgrading computers or software, or buying new measuring toolsthe customer
determines whether the efforts were worthwhile.
Decision Making Quality decisions should be made based on measurements.
14
Methodology and Tools Use of appropriate methodology and tools ensures that nonconformance incidents are identified, measured and responded to consistently.
Continuous Improvement Companies should continuously work towards improving
manufacturing and quality procedures. A major thrust of TQM is continual process
improvement. Continual improvement drives an organization to be both analytical and
creative in finding ways to become more competitive and more effective at meeting
stakeholder expectations.
Company Culture The culture of the company should aim at developing employees
ability to work together to improve quality.
Company Culture The culture of the company should aim at developing employees
ability to work together to improve quality.
Total employee Involvement Employees should be encouraged to be pro-active in
identifying and addressing quality related problems. All employees participate in working
toward common goals. Total employee commitment can only be obtained after fear has
been driven from the workplace, when empowerment has occurred, and management has
provided the proper environment. High-performance work systems integrate continuous
improvement efforts with normal business operations. Self-managed work teams are one
form of empowerment.
Process centered: A fundamental part of TQM is a focus on process thinking. A process
is a series of steps that take inputs from suppliers (internal or external) and transforms
them into outputs that are delivered to customers (again, either internal or external). The
steps required to carry out the process are defined, and performance measures are
continuously monitored in order to detect unexpected variation.
Communication: During times of organizational change, as well as part of day-to-day
operation, effective communications plays a large part in maintaining morale and in
motivating employees at all levels. Communications involve strategies, method, and
timeliness.
Cost of Quality:
Cost of quality (COQ) represents costs incurred by an entity to prevent poor quality and costs
incurred as the result of poor quality.
In other words, cost of quality is the cost of poor quality (that may or does exist). Poor quality
could result in the loss of sales. Reducing or eliminating poor quality, on the other hand, could
increase sales and profits.
To reduce or eliminate poor quality, a company can prevent or improve poor quality. Prevention
costs are good costs because they are incurred before defects occur. Costs incurred after a
failure occurs are bad costs because they arise as the result of a defect that could have been
prevented.
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Examples
Preventive maintenance
Product design reviews
Materials inspection
Production reviews
Engineering analysis
Specification reviews
Employee training
Vendor planning (e.g., supplier
evaluation, training)
Products inspection
Process control
Quality testing
Quality audits
Vendor surveillance
Even though the loss of current and potential customers as well as the loss of reputation and
goodwill are cost of quality (i.e., external failure costs), they might not be reported as such
because it is difficult to measure them.
As the company improves its product quality, the bad quality costs should decrease while the
good costs (i.e., prevention costs) might increase. Prevention costs, however, might be reduced
if an entity does not adopt a quality program: the value of the prevention costs might not be
16
readily visible (or measurable) in the short run, and the entity might cut them first. Prevention
costs are an example of discretionary costs.
2007
Amount
Percent
Percent
Prevention Cost
2,000,000
3%
650,000
1.30%
Appraisal Costs
2,500,000
4%
1,200,000
2.40%
Internal Failure
Costs
3,000,000
6.50%
2,000,000
4.00%
2,000,000
5%
--------18.50%
=====
6,150,000
---------10,000,000
======
10.30%
--------18.00%
=====
External Failure
Costs
Total Quality Cost
----------9,500,000
======
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