1 Modern Business Concepts Flashcards
Standard Costing
control technique that reports variances by comparing actual costs to pre-set standards so facilitating action through management by exception
Variance
the difference between a planned, budgeted, or standard cost and the actual cost incurred. The same comparisons may be made for revenues
Variance Analysis
evaluation of performance by means of variances, whose timely reporting should maximise the opportunity for managerial action
Product Life Cycle
Period which begins with the initial product specification and ends with the withdrawal from the market of both the product and its support. It is characterised by defined stages including research, development, introduction, maturity, decline and abandonment
Key Success Factors
Cost efficiency - Not wasting money
Quality - Focusing on total quality management (TQM)
Time - Providing a speedier response to customer requests, ensuring 100% on-time delivery and reducing the time taken to develop and bring new products to market
Innovation - Developing a steady stream of innovative new products and having the flexibility to respond to customer requirements
Continuous Improvement
A facet of TQM being a continuous search to reduce costs, eliminate waste and improve the quality and performance of activities that increase customer satisfaction or value
Employee Empowerment
Providing employees with the information to enable them to make continuous improvements without authorisation from superiors
Total Value Chain Analysis
Ensuring that all the factors that add value to an organisation’s products – the value chain of research and development, design, production, marketing, distribution and customer service – are co-ordinated within the overall organisational framework
Jobbing Industries
Industries in which items are produced individually, often for a specific customer order, as a ‘job’. Such a business requires versatile equipment and highly skilled workers to give it the flexibility to turn its hand to a variety of jobs. The jobbing factory is typically laid out on a functional basis with, say, a milling department, a cutting department, finishing, assembly and so on.
Factory is typically laid out on a functional basis
Batch Processing
Involves the manufacture of standard goods in batches. ‘Batch production is often carried out using functional layouts but with a greater number of more specialised machines. With a functional layout batches move by different and complex routes through various specialised departments travelling over much of the factory floor before they are completed.’
Uses functional layout but with a high number of specialised machines
Mass / Flow Production
Involves the continuous production of standard items from a sequence of continuous or repetitive operations. This sort of production often uses a product- based layout whereby product A moves from a milling machine to a cutting machine to a paint-spraying machine, and product B moves from a sawing machine to a milling machine to an oven and then to finishing and so on.
The point is that there is no separate ‘milling department’ or ‘assembly department’ to which all products must be sent to await their turn on the machines: each product has its own dedicated machine.
Uses a product-based layout
Just-in-time (JIT)
system which makes products or components as they are required, rather than for stock. It is a pull system (responds to demand) in contrast to traditional push systems (anticipating demand). Because it impacts all areas of activity, it is more of a philisophy (search for excellence, cont. improvement) than technique.
Key elements of JIT
- JIT purchasing - small, frequent deliveries coinciding with usage (little material inventory),
- Close supplier relationships - deep understanding of client’s needs, focus on quality, long-term commitment enabling frequent deliveries at prices of bulk purchasing, geographical proximity, reduction in no. of suppliers,
- Uniform loading - production speed matching rate of demand by final customer, shorter production runs, reduction in storage costs,
- Set-up time reduction - reduction in time and cost to allow for smaller batches,
- Machine cells - grouping by component instead of type of work, minimalisation of non-value added activities and component movements, shorter lead times and WIP,
- Quality - cont. improvement to reduce costs and delays,
- Pull system / Kanban - signalling system to ensure only needed products are made, without inventory buildup,
- Preventative maintenance - machinery is kept fully maintained to keep production reliable and prompt,
- Employee involvement - workers are multi-skilled and able to perform maintenance, relationship of trust and empowerment with supervisors, empowerment to suggest and introduce improvements,
- Value-added approach - value is created only when product is actually being processed, elimination of anything that does not deteriorate quality, performance or function of end product.
Problems with JIT
- Demand varies and pull system / demand prediction can fail,
- Greater vulnerability to supply chain disruptions,
- Suited for close proximity of suppliers - geographical spread adds to the challenge —> backup solutions and modes of transport necessary,
- JIT is not suitable for all applications, sometimes traditional economic order quantity approach more adequate.
JIT vs. standard costing
traditional variance analysis is less helpful and may be misleading, as JIT is focused on quality, not quantity. Idle time may be allowed (don’t produce for inventory); material price variance may be eliminated due to long-term contracts etc.
