Professional Documents
Culture Documents
13-2
The Product Life Cycle
13-4
The Cost Life Cycle (continued)
Marketing
Customer
R&D
R&D Design Manufacturing and
Service
Distribution
13-5
The Product Life Cycle (cont)
All methods are for cost planning but target
costing, theory of constraint and life-cycle
costing (exc strategic pricing) all based on
product/service cost life cycle.
For e.g target costing considers role of product design
(upstream actvt) in reducing costs in the manuf and
reducing cost in downstream phases of the life cycle.
Theory of constraints can be used in manuf phase to
reduce manuf costs and to speed up delivery downstream.
Life cycle costing provides comprehensive evaluation of
the profitability of the diff products, including costs
throughout the product life cycle.
However, strategic pricing used both cost life cycle
and sales life cycle concepts in pricing decisions
13-6
The Sales Life Cycle
13-7
The Sales Life Cycle
Important
cost
s
Sale
managemen
Growth Maturity
t issues arise
Decline in each
Introducti
on
stage of the
life cycle.
Tim
e
13-8
The Sales Life Cycle
Some
products
s
Sale
Maturity have an
Growth
accelerated
Introducti
Decline life cycle
on
Tim
e
13-9
Target Costing
13-11
Steps implementing Target Costing
Determine the market price
Determine the desired profit such as
Profit per unit (if products price falls and target
costs fall by same RM, then profits remain the
same)
Profit as a % of sales or cost
Calculate the target cost as market price
less desired profit
Use value engineering to reduce cost
Use kaizen costing and operational control
to further reduce costs
13-12
Value Engineering
13-13
Value Engineering (continued)
Type of VE depends on products functionality
For firms that can add and delete features easily, functional
analysis (i.e. a process of examining the performance and cost of
each major function or feature of the product) can be used
*first group
13-14
Value Engineering (continued)
*second group
13-15
Value Engineering (continued)
13-16
Value Engineering (continued)
13-17
Value Engineering (continued)
13-19
Value Engineering (continued)
13-20
Kaizen
Kaizen (step five): using continuous improvement &
operational control to reduce costs in the
manufacturing stage of the product life cycle
The role of cost reduction at this phase is to develop
new manuf methods (e.g. flexible manuf system)
and to use new mgmt techniques (e.g. TQM, TOC)
Continuous improvement is ongoing search for new
ways to reduce costs in the manuf process of a
product with a given design and functionality. e.g.
Toyota uses kaizen to reduce manuf costs on its
hybrid vehicles
13-21
Kaizen
Continuous improvement can be
Achieved through:
Streamlining the supply chain
Lean manufacturing
Improving manufacturing methods and productivity programs
Employing new management techniques
13-26
QFD Example: Step 1
e,.g. Table saw product (refer page 528)
13-27
QFD Example: Step 2
13-28
QFD Example: Step 3
13-29
QFD Example: Step 4
13-30
QFD Example: Conclusion
13-31
QFD Example: Conclusion
13-34
Measuring and Improving Speed
Diff firms defined measures differently- depend
on nature of firms operations
13-35
Measuring and Improving Speed
(continued)
Another useful measure - Manufacturing cycle
efficiency (MCE) is defined as processing time divided
by total cycle time
MCE separates total cycle time into:
Processing time
Inspection time
Materials handling time
Waiting time, and so on
Most firms would like to see MCE close to one as it reflects
less time wasted on moving, waiting, inpecting and other
non-value adding actvts
Thus, TOC was developed
Constraints are activities that slow a products total
cycle time
13-36
The Theory of Constraints (TOC)
Earlier managers often put efforts to improve
efficiency and speed throughout the manuf process
instead of focus on those actvts that were constraints
13-38
TOC Example Step 1: Identify the
Constraint
Develop a flow diagram, which shows the
sequence and time of each process
Electronic
Electronic Computer
Computer Electronic
Electronic
Components
Components Chip
Chip Components
Components
Price
Price == $300
$300 Price
Price == $450
$450 Price
Price == $300
$300
Assemble
Assemble Test
Test and
and Assemble
Assemble
Earpiece
Earpiece Program
Program Earpiece
Earpiece
110
110 min.
min. 30
30 min.
min. 130
130 min.
min.
Install
Install Other
Other Install
Install Other
Other
Electronics
Electronics Electronics
Electronics
40
40 min.
min. 40
40 min.
min.
Final
Final Assembly
Assembly Final
Final Assembly
Assembly
and
and Test
Test and
and Test
Test
30
30 min.
min. 60 min.
60 min.
Pack
Pack and
and Pack
Pack and
and
Ship
Ship Ship
Ship
25
25 min.
min. 25
25 min.
min.
HPI-2
HPI-2 HPI-3
HPI-3
13-39
TOC Example Step 1: Identify the
Constraint
Use the flow diagram and
additional operational data to
identify the constraint for HPI
(refer exhibit 13.8, pg.533)
There is difficulty maintaining adequate
staffing in all process (due to specialized
skills needed) areas except process 5
Analysis of the process flow, staffing
levels, and process time reveals the
constraint occurs in process 4, perform
final assembly and test; the other four 13-40
TOC Example Step 2: Determine the most
profitable product mix given the constraint
The most profitable mix provides the
maximum total profits for both products
First, use throughput margin to determine the
most profitable product given the constraint
Throughput margin = selling price less materials
cost (includes costs of all materials used,
purchased components and material handling
costs; other costs are excluded assuming they are
fixed)
13-41
Step 2: (continued)
HPI-3 has a higher throughput margin per unit, but
with the time constraint in process 4, HPI-2 is the
more profitable product per constraint time minute.
13-42
Step 2: (continued)
HPI will produce all 3,000 units (total demand) for
HPI-2 since it is the more profitable, and the
remaining capacity will be used to produce HPI-3.
HPI-2 will use 1,500 (3,000 units 0.5 hour per
unit) hours of the 2,400-hour capacity. The 900
hours remaining allow for production of 900 units of
HPI-3.
13-43
TOC Example Step 3: Maximize the
flow through the constraint
Look for ways to speed the flow by
simplifying the process, improving product
design, reducing setup, and reducing other
delays due to unscheduled and non-value-
added actvts (e.g. inspections or machine
breakdowns etc)
13-44
Step 3: (continued)
Common method to use is Takt time (total
time available to meet expected customer
demand)
13-46
The Five Steps in Strategic Decision Making:
Importance of Speed in the Fashion Industry:
The Burberry Group PLC
Determine the Strategic Issues Surrounding the Problem:
Burberry competes on design and innovation in the fashion
industry
Identify the Alternative Actions: focus on design or
operations?
Obtain Information and Conduct Analyses of the
Alternatives: using an enterprise system, SAP, Burberry
carefully determines product and process costs
Based on Strategy and Analysis, Choose and Implement
the Desired Alternative: Burberrys CEO decides to simply
the product line to one brandone image, and to focus on
more efficient and less costly operations
Provide an On-going Evaluation of the Effectiveness of
implementation in Step 4. The changes made the co more
competitive, more profitable and better able to meet customer
expectations
13-47
TOC Report
Is used for performance evaluation
measure
Is useful for identifying most profitable
product and monitoring success in achieving
the critical success factor
With few different types of product styles
(e.g. window style), refer to the highest
throughput margin based on the constraint
(e.g. binding constraint hours of
furnace/heat time).
13-48
TOC vs. ABC
TOC ABC
Main Short-term focus: throughput Long-term focus; analysis
Objective margin analysis based on of all product costs
materials and materials-related
costs
13-50
Committed vs. Incurred Costs
(refer page 538)
Committed
Percent of
total
costs Incurred
0
Time
13-51
The importance of design
13-52
Business process re-engineering
(BPR)
Another approach to managing costs and improving
customer value is BPR
It is the fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in
critical areas of performance
The focus is on strategic processes that are important to
achieve cos buss obj and strategies
Common processes include developing new products,
manuf products, acq cust orders, fulfilling orders ect.
(each process cut across diff deprt e.g. filiing cust
orders involve manf dept and sales and admin dept)
The aim of BPR is to reorganise the way in which work is
done by identifying and eliminating non-value-added
activities across processes (cont.)
Business process re-engineering (BPR)
(cont.)
Once a process has been identified for re-
engineering, the following four steps are taken:
13-58
Chapter Summary
13-59
Chapter Summary (continued)
The theory of constraints (TOC) focuses on
improving speed at the constraints, which causes
a decrease in overall cycle time
13-60
Chapter Summary (continued)
13-61