Throughput Accounting (2) Flashcards
How to avoid the build-up of work in progress?
Production must be limited to the capacity of the bottleneck resource but this capacioty must be fully utilised as focus should be to maximise throughput
Why should output through the binding constraint never be delayed or held up?
Sales will be lost
How to avoid the binding constanint never being delayed or held up?
A small buffer inventory should be built up immediately prior to the bottleneck constraint
Why should operations in the production line prior to binding constraint should oeprate at same speed as binding constraint?
Otherwise excess and unwanted work in progress will be built up
Is inventory desirable in theory of constraints?
No, as inventory costs money in terms of storage space and interest costs
What inventory should the business only hold in theory of constraints?
Buffer inventory
What does the theory of constraints primarily state?
That aim should be to maximise total throughput
What is the only way to increase throguhput?
Increase the capacity of the bottleneck constraint
If the capacity of a bottleneck resource is elevanted sufficiently?
It will eventually cease to be a bottleneck resource. Another resource in the system becomes the bottleneck
What is throughput accounting?
An approach to production management which aims to maximise throughput contribution, while also reducing inventory and operational expenses
How to calculate throughput contribution?
Sales - direct material costs
What is most appropriate to use in throughput accounting?
A JIT environment because of the emphasis on throughput and inventory minimisation
What does throughput accounting emphasis?
Throughput, inventory minimisation and cost control
Variable and fixed costs in throughput?
Only variable cost is materials
All other factory costs in the short run and labour is fixed
Is producing solely for inventory a bad thing?
Yes in a JIT environment.
