AE27

Lesson 2
(1) an increase in global competition
(2) advances in manufacturing technologies
(3) advances in information technologies, the Internet and e
commerce:
(4) a greater focus on the customer:
(5) new forms of management organization, and
(6) changes in the social, political, and cultural environment of
business.
The change in the business environment in at
least the last two decades where organization
have to transform themselves to become more
competitive, have profound effect in the
practice of management accounting. Of
particular importance are the changes in
business, especially the increase in global
competition and the changes in management
techniques that have created the need for a
new, strategic approach to management and
to cost management. While many of the major
improvement tools used by managers overlap,
they can be classified into major programs or
approaches also referred to as Contemporary
Management Techniques which includes:
 It is the philosophy that
activities are
undertaken only as
needed or demanded.
 JIT is a production
system also known as
pull it-through
approach.
The four characteristics of JIT are
1. Elimination of all activities that do not add value to the
product or service.
2. Commitment to a high level of quality.
3. Commitment to continuous improvement in the efficiency
of an activity.
4. Emphasis on simplifications and increased visibility to
identify activities that do not add value.
The main benefits of JIT are as follows:
1. Working capital position is improved by recovery of funds that were
tied up in inventories.
2. Throughput time is reduced, resulting in greater potential production
and quicker response to customers.
3. Areas previously used to store inventories are released and are made
available for other more productive uses.
4. Lesser waste and more customer satisfaction are achieved because of
reduction in defect rates.
TQM is a technique in
which management
develops policies and
practices to ensure that
the firm's products and
services exceed
customers expectations
There is no perfect way to institute a TQM program, but these
are common key process for companies that uses TQM:

1. Listening to the needs of customers

2. Making products right the first time
3. Reducing defected products that must be reworked; and
4. Encouraging workers to continuously improve their production
process
Two Major Characteristics of TQM
1. Focus on serving customers; and
2. Systematic problem solving using teams made up of front-line
workers.

Total Quality Management (TQM), is a formal effort to improve quality

throughout an organization's value chain.
 Reengineering is a process for creating
competitive advantage in which a firm
reorganizes its operating and management
functions, often with the result that jobs are
modified, combined, or eliminated.
 Reengineering is also defined as the
“fundamental rethinking and radical redesign of
business processes to achieve dramatic
improvements in critical, contemporary
measures of performance, such as cost, quality,
service and speed.”
 Process Reengineering a more radical approach
to improvement than TQM.
Benchmarking is the practice of
comparing business
processes and performance
metrics to industry and best
practices from other companies.
Dimensions typically measured
are quality, time and cost.
Benchmarking is a process by which a
firm:
•Determines its critical success
factors
•Studies the best practices of other
firms
•Then implement improvements into
the firm’s process to match or beat
the performance of those competitors
Mass customization is a
management technique in which
marketing and production
processes are designed to handle
the increased variety that results
from delivering customized
products and services to
customers.

The growth of mass customization

is in effect another indication
increased attention given to
satisfying the customer.
• The name “balanced scorecard” comes
from the idea of looking at strategic
measures in addition to traditional
financial measures to get a more
“balanced” view of performance.

• The BSC suggests that we examine an

organization from four different
perspectives to help develop objectives,
measures (KPIs), targets, and initiatives
relative to those views.
• Financial Perspective: views an organization’s
financial performance and the use of financial
resources.
• Customer/Stakeholder: views organizational
performance from the perspective of the
customer or key stakeholders the organization
is designed to serve
• Internal Process: views the quality and
efficiency of an organization’s performance
related to the product, services, or other key
business processes
• Organizational Capacity (or Learning &
Growth): views human capital, infrastructure,
technology, culture, and other capacities that
are key to breakthrough performance
Activity-based costing • Activity-based management
(ABC) is used to improve (ABM) uses activity analysis to
the accuracy of cost improve operational control
analysis by improving and management control.
the tracing of costs to
products or to individual
customers. • This management approach
aims to improve the value of
a products or services to
customers and increase the
firm’s profit. ( Cabrera )
Life Cycle Costing – is a
management techniques to
identify and monitor costs of a
product throughout its life cycle.
It consists of all steps from
product design and purchase of
raw materials to delivery and
service of the finished products

The Steps Include:

1. Research and Development
2. Product design
3. Manufacturing, inspecting,
packaging and warehousing
4. Marketing
5. Sales and Service
Computer-aided design (CAD) is
the use of computers in product
development, analysis, and
design modification to improve
the quality and performance of
the product.

Computer-aided manufacturing
(CAM) is the use of computers to
plan, implement, and control
production
 Flexible manufacturing system
• A flexible manufacturing
system (FMS) is a production
method that is designed to
easily adapt to changes in the
type and quantity of the
product being manufactured.
Machines and computerized
systems can be configured to
manufacture a variety of parts
and handle changing levels of
production.
Computer – integrated
Manufacturing
• Computer-integrated
manufacturing (CIM) is
the manufacturing approach of
using computers to control entire
production process. This
integration allows individual
processes to exchange information
with each part. Manufacturing can
be faster and less error-prone by
the integration of computers.
A number of internet-based companies have emerged and teen
proven successful in last decade. This ECommerce business
model adopted by Amazon.com and eBay has also attracted many
investors to pursue the use of Internet in conducting business.
Another example, Alibaba Group Holding Limited, Lazada,
Shopee, Zalora and etc.

It is a business model that lets firms and individuals buy and sell
things over the internet.
A value chain is a business model that describes the full range
of activities needed to create a product or service. For
companies that produce goods, a value chain comprises the
steps that involve bringing a product from conception to
distribution, and everything in between—such as procuring
raw materials, manufacturing functions, and marketing
activities.
The design of a management accounting system should be
guided by the challenges facing managers. There are at least
four themes common to many companies, namely:
(1) customer focus theme,
(2) value-chain and supply chain analysis,
(3) key success factors (i.e., cost and efficiency, quality, time and
innovation), and
(4) continuous improvement and benchmarking
 To succeed in this era, customer value is a key focus that
businesses of all types must be concerned with.

 The value of product or service to the customer is affected

by such diverse attributes as product price, quality,
functionality, user-friendliness, customer vice, warranty and
maintenance cost.

Two General Strategies:

1. Cost Leadership
2. Superior product through differentation
 Value chain refers to the sequence of business functions in
which usefulness is added to the products or services of a
company. The term value refers to the increase in the
usefulness of the product or service and as a result its value to
the customer.
 Internal value chain is the set of activities required to design,
develop, produce, market and deliver products or services to
customers. If customer values are emphasized, managers are
forced to determine which activities in the value chain are
important to customers. A management accounting system
should track information about a wide variety of activities that
span the internal value chain.
2. Value Chain and Supply Chain
Analysis
Cross Functional Teams

A cross-functional approach to management is crucial in

managing the time to market. Cross-functional managerial
teams bring together production and operations managers,
marketing managers, purchasing and material handling
specialists, design engineers, quality management personnel,
and managerial accountants to focus their varied expertise and
experience on virtually all management issues. If products are to
be designed and manufactured with the Customers' needs in
mind, a cross-functional approach is crucial.
Computer-Integrated Manufacturing

Manufacturing processes over a long period of time has evolved from labor
intensive methods to more automated processes, in which most of the work is
accomplished by machines. This trend continues today, as computer-integrated
manufacturing (or CIM) systems become more common. A CIM process Tuy
automated, with computers controlling the entire production process. in CiM
systems, the types of posts incurred by the manufacturer are quite different
from those in traditional manufacturing environments. Using computers to
control equipment, including robots, generally increases the flexibility and
accuracy of the production process. However, the use of state-of-the-art
equipment and computer control systems may help firms meet the challenge of
global competition, but they also have a significant effect on the composition of
product costs.