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Emerging Trends in Managerial AccountingGlobal competition has forced many companies to reengineer their production and delivery systems to eliminate waste, reduce errors, and minimize costs. A key ingredient of successful reengineeringBusiness practices companies design to improve competitiveness in world markets by eliminating or minimizing waste, errors, and costs in production and delivery systems. is benchmarking. BenchmarkingIdentifying best practices used by world-class competitors in a given industry. involves identifying the best practicesIdentifiable procedures used by world-class companies. used by world-class competitors. By studying and mimicking these practices, a company uses benchmarking to implement highly effective and efficient operating methods. Best practices employed by world-class companies include total quality management (TQM), activity-based management (ABM), and value-added assessment. Total Quality ManagementTo promote effective and efficient operations, many companies practice total quality management (TQM)Management strategy that focuses on (1) continuous systematic problem-solving by personnel at all levels of the organization to eliminate waste, defects, and nonvalue-added activities; and (2) managing quality costs in a manner that leads to the highest level of customer satisfaction.. TQM is a two-dimensional management philosophy using (1) a systematic problem-solving philosophy that encourages front-line workers to achieve zero defects and (2) an organizational commitment to achieving customer satisfaction. A key component of TQM is continuous improvementAn ongoing process through which employees learn to eliminate waste, reduce response time, minimize defects, and simplify the design and delivery of products and services to customers; a feature of total quality management (TQM)., an ongoing process through which employees strive to eliminate waste, reduce response time, minimize defects, and simplify the design and delivery of products and services to customers. Activity-Based ManagementSimple changes in perspective can have dramatic results. For example, imagine how realizing the world is round instead of flat changed the nature of travel. A recent change in perspective developing in management accounting is the realization that an organization cannot manage costs. Instead, it manages the activities that cause costs to be incurred. ActivitiesMeasures an organization undertakes to accomplish its mission. represent the measures an organization takes to accomplish its goals. The primary goal of all organizations is to provide products (goods and services) their customers value. The sequence of activities used to provide products is called a value chainLinked sequence of activities that create value for the customer.. Activity-based managementManaging organization activities to add the greatest value by developing products that satisfy the needs of the organization’s customers. assesses the value chain to create new or refine existing value-added activitiesAny part of business operations that contributes to a product’s ability to satisfy customer needs. and to eliminate or reduce nonvalue-added activities. A value-added activity is any unit of work that contributes to a product’s ability to satisfy customer needs. For example, cooking is an activity that adds value to food served to a hungry customer. Nonvalue-addedTasks undertaken that do not contribute to a product’s ability to satisfy customer needs. activities are tasks undertaken that do not contribute to a product’s ability to satisfy customer needs. Waiting for the oven to preheat so that food can be cooked does not add value. Most customers value cooked food, but they do not value waiting for it. To illustrate, consider the value-added activities undertaken by a pizza restaurant. Begin with a customer who is hungry for pizza; certain activities must occur to satisfy that hunger. These activities are pictured in Exhibit 1.19. At a minimum, the restaurant must conduct research and development (devise a recipe), obtain raw materials (acquire the ingredients), manufacture the product (combine and bake the ingredients), market the product (advertise its availability), and deliver the product (transfer the pizza to the customer).
Businesses gain competitive advantages by adding activities that satisfy customer needs. For example, Domino’s Pizza grew briskly by recognizing the value customers placed on the convenience of home pizza delivery. Alternatively, Little Caesar’s has been highly successful by satisfying customers who value low prices. Other restaurants capitalize on customer values pertaining to taste, ambience, or location. Businesses can also gain competitive advantages by identifying and eliminating nonvalue-added activities, providing products of comparable quality at lower cost than competitors. Value Chain Analysis Across CompaniesComprehensive value chain analysis extends from obtaining raw materials to the ultimate disposition of finished products. It encompasses the activities performed not only by a particular organization but also by that organization’s suppliers and those who service its finished products. For example, PepsiCo must be concerned with the activities of the company that supplies the containers for its soft drinks as well as the retail companies that sell its products. If cans of Pepsi fail to open properly, the customer is more likely to blame PepsiCo than the supplier of the cans. Comprehensive value chain analysis can lead to identifying and eliminating nonvalue-added activities that occur between companies. For example, container producers could be encouraged to build manufacturing facilities near Pepsi’s bottling factories, eliminating the nonvalue-added activity of transporting empty containers from the manufacturer to the bottling facility. The resulting cost savings benefits customers by reducing costs without affecting quality. | ||||
