3. Chapter 14 summarizes the concepts
developed in the previous chapters and applies
them to recent internal accounting system
innovations.
Every chapter mentions the trade-offs between
decision management (decision making) and
decision control.
Internal accounting systems continue to evolve
in response to changing needs and
environments.
14-3
6. Total Quality Management (TQM) – to improve customer
satisfaction. (p.617 Saia)
Just in Time Production (JIT) – production doesn’t start till
order is placed. RM & supplies delivered JIT! (p.623 Harley)
Six Sigma – Like TQM, but focus is on reducing defects to
improve quality. (p.624 – Caterpillar)
Lean Production – Like JIT, but eliminates all non-value
activities from value chain (R&D, design & engineering,
distribution, customer service)
Balanced Scorecard – Strategy based (operational
excellence, customer intimacy, product leadership)– links
it to performance drivers. (p.628 Philips & p.630)
14-6
7. A firmwide process
◦ communicate up, down, and laterally
Quality is defined by customer
◦ specialized knowledge of customer needs
Requires organizational changes
◦ push decision rights down to operating and
marketing
Designed into the product
◦ Reduce defects by redesigning production
14-7
8. Issued by International Standards Organization,
a European community body that sets quality
standards.
Requires written policies, procedures, and
quality methods.
Certifies that policies exist that allow quality
products to be manufactured.
14-8
9. Just-in-time (JIT) production:
Production does not start until order is received.
JIT aims to minimize throughput time.
Throughput time = Processing time + Non-value-
added time
Non-value-added time = Waiting + Transit +
Inspection
Manufacturing cycle efficiency (MCE) (not mentioned
in textbook)
MCE = (Processing time) = (Throughput time)
14-9
10. Increase quality of material and processes
Reduce setup times
Balance flow rates across manufacturing cells
Coordinate deliveries from suppliers
Improve factory layout to reduce transit time
Change performance measurement and reward
system to focus on reducing throughput time
of entire production process rather than
individual departments
14-10
11. Advantages:
◦ Simpler because no work-in-process accounting
◦ Focus attention on throughput time
Disadvantages:
◦ Become dependent on suppliers for on-time
delivery
◦ Still need periodic physical count of materials
inventory
◦ Reorganizing production can be expensive.
14-11
12. Translates the strategy into a plan of action
Identifies specific objectives and performance
drivers (key performance indicators)
Helps determine if the organization is
moving in the right direction
Attempts to achieve a balance between:
◦ short and long-term objectives
◦ outcome and performance measures for cause
and effect objectives
◦ financial and non-financial performance
measures
◦ all of the stakeholders of the organization
14-12
13. For each objective there are:
◦ Driver performance indicators
Measure input activities to achieve the objective
◦ Outcome performance indicators
Measure if the objective has been realized
◦ Driver and outcome performance indicators reflect
the cause and effect nature of the balanced
scorecard.
14-13
15. Example 1: Philips Electronics (a success)
Example 2: The U. S. retail banking operations of a
leading international financial services provider
(a failure)
Summarize what is needed to achieve success and
avoid failure.
14-15
16. Continual evolution (Economic Darwinism)
◦ No single ideal management accounting system
◦ Respond to changes in technology and markets
Trade-offs
◦ Decision making vs. Decision control
◦ Opportunity cost vs. Historical cost
◦ Simplicity vs. Comprehensiveness
◦ Internal users vs. External users
◦ Financial measures vs. Nonfinancial measures
14-16