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Operational Efficiency and Business process Performance
Just in Time Systems (J I T)
Reductions in inventory level, reduction in storage, lower inventory
taxes, pilferage and obsolescence risks.
The focus of quality control under JIT shifts from the discovery of
defective parts to the prevention of quality problems, so zero machine
break down zero defects are ultimate goals.
JIT is a pool system, items are Pulled Through production by current
demand not Push Through by anticipated demand.
JIT is the total system of purchasing, production and inventory control.
KANBAN is one of the many elements in the JIT system.
Kanban means ticket, Tickets (also described as cards or markers)
control the flow of production or parts so that they are produced or
obtained in the needed amounts at the needed times.
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Operational Efficiency and Business process Performance
Material Requirement Planning
Push system. Material requirement planning system enables a company
to efficiently fulfill the requirements of the MPS (Master production
schedule) by coordinating both the manufacture of component parts
for finished goods and arrival of raw materials .
Manufacturing Resource Planning
Outsourcing
Business Process Outsourcing
Insourcing, Cosourcing.

Theory of Constraints
Identify the Constraint
Determine the most profitable product mix given the constant
Maximize the flow through the constraint
Increase capacity at the constraint
Redesign the manufacturing process for greater flexibility and speed.




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Operational Efficiency and Business process Performance
TOC has a short term focus, based
on cost of materials and product
mix
ABC has along term focus, which
considers all products costs and is
concerned, with strategic pricing
and profit planning.
TOC analysis addresses the issues
of resource constraints and
operational capacity
TOC ignores cost drivers focusing
mainly on process time
ABC requires defining cost drivers
in every part of the organization
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Operational Efficiency and Business process Performance
Throughput Costing sometimes called super variable costing,
recognizes only direct material costs as being truly variable and thus
relevant to the calculation of throughput margin. All other
manufacturing costs are ignored because they are considered fixed
in short run.
Throughput Margin= Sales Direct Material






Product Assembly Testing
Airborne Radar 3 4
Seagoing 8 10
Ground Radar 5 5
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Operational Efficiency and Business process Performance
Company has 150 hours available every month for testing Under
current set up testing phase is constraint.





Throughput Margin
Per Hour
Airborne
Radar
Seagoing
Radar
Ground Radar
Price $ 200,000 $ 600,000 $ 300,000
Less: Material Cost (100,000) (400,000) (250,000)
Throughput Margin $ 100,000 $ 200,000 $ 50,000
Constraint Time 4 10 5
Throughput Margin
Per Hour
$ 25,000 # 20,000 $ 10,000
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Operational Efficiency and Business process Performance..
The crucial factor in determining the optimal product mix
is not which product is the most profitable product in
terms of absolute throughput margin (the seagoing sonar)
but which one generates the highest margin per time
spent in the bottleneck operation.
Porters Model for capacity expansion
Must identify the options in relation to their size, type
degree of vertical integration and possible response by
competitors.
Forecast demand, input costs and technology
developments.
Analysis of competitors
Prediction of Total Industry capacity and firms market
share., predict price and market share.
Final step, testing for inconsistencies.
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Operational Efficiency and Business process Performance..
Value Chain analysis:
To remain in the market product must provide value to the customer and profit to the seller.
Cost---Price---Value
A value chain is model for depicting the way in which every function is a company adds value to
the final product.





Support Services Primary Activities Product
Human Resources
Information Technology
Contract Management
Inventory Management
Plant Maintenance
Research & Development
Product Design
Manufacturing Marketing &
Distribution Customer
Service
PRODUCT
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Operational Efficiency and Business process Performance..
Value Chain analysis is a strategic analysis tool that allows a firm to focus
on those activities that are consistent with its overall strategy.
1st step is to identify the firms value creating activities.
2ns step is to determine how each value creating activity can produce
a competitive advantage for the firm.

Value chain analysis is a tem effort. Management accountants needs to
collaborate with engineering, production, marketing, distribution, and
customer service professionals to focus on the strengths, weaknesses,
opportunities, and threats identified in the value chain analysis.
Value chain analysis offers an excellent opportunity to integrate strategic
planning and management accounting to guide the firm to survival
and growth.

In inventory management, by sharing information among all the parties,
demand uncertainty is reduced at each level with consequent
decreases of inventory at each level, minimization of stock outs and
avoidance of over production and rush orders. Such cooperation an
counteracts has been called backlash effect
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Operational Efficiency and Business process Performance..
Critical success factors
Value chain and supply chain analysis should be used to meet customer
requirements for better performance regarding
Cost Reduction
Efficiency
Continuous improvement of quality to meet customers needs and wants
Minimization or elimination of defects
Faster product development and customer response times and
Constant innovation

Value engineering is a means of reaching targeted cost levels. It
is systematic approach to assessing all aspects of the value chain
cost buildup for a product. The purpose is to minimize costs without
sacrificing customer satisfaction.

The linkage of product costing and continuous improvement of
processes is activity based management.
KAIZEN is the Japanese word for the continuous pursuit of
improvement in every aspect of organizational operations.
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Operational Efficiency and Business process Performance..
Benchmarking
Benchmarking involves continuously evaluating the practices of best-in-class
organizations and adapting company processes to incorporate the best of
these practices.
Select and prioritize benchmarking projects
Benchmarking Teams
Investigate and document internal processes
Researching and identifying best-in-class performance
Data analysis phase
Implementation phase.
Balanced Scorecard
The trend in managerial performance evaluation is the balanced scorecard
approach.
A typical scorecard includes measures in four categories
1. Financial
2. Customer
3. Learning, growth and innovation
4. Internal business processes
Costs of quality: Prevention, Appraisal, Internal Failure and External failure