3 main reasons

Traditional measures are no longer relevant or useful to a company moving

towards world-class manufacturing
Customers require higher standards of quality, performance and flexibility
Management techniques used in production plants are changing significantly

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Traditional accounting management has many disadvantages one of them
being the equal division of costs per item. Not being able to weight the
products as they should.
Because of the evolution in manufacturing techniques the accounting based
traditional management is measuring the wrong things in the wrong way.
Traditional management accounting is also setting misplaced targets.
Customer Requirements Increase pressure of quality product arriving on
time.
Greater single source in the shield of JIT has forced many component
manufactures to rethink production philosophes.
As the requirements have changed (grown more demanding) the
measurement of satisfaction should be done in a better way.
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In just in time implemented companies much of the decision taken by middle
management have been pushed down to the shop floor.
World Class Manufacturing
Fundamental changes taking place in industrial enterprises.
World has become a smaller place.
The competition in manufacturing is now more pronounce. From a shift from
the early hegemony of Brits and later Americans, the swing is towards
growing economies such as China and Japan with an impressive GDP growth
rate.
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The rule 80 20 is no longer applicable anymore according to world banks expresident James Wolfensohn
For the company to be competitive now it is important that it adopts the new
practices prevalent in world class manufacturing.
World class manufacturing encapsulates : new approach to quality, just-intime techniques, change in the way workforce is managed and a flexible
approach to the customers requirements.
Focus is on the resolution of the problems by exploring the root cause so that
a quality product with no defects can be manufactured.
Traditionally - This initiates the need of a spate and independent quality
assurance department having trained personnel to carry out the required
tasks instead of the operators.
From studies it has been shown that greater manning leads to greater
defects. Since the operators starts feeling that quality is not their
responsibility rather of the inspector.

The core difference between a traditional manufacturing setup and a WCM is

that where the traditional setup will be satisfied with a certain value of
rejections a WCM setup will aim for no defects.
Secondly, the responsibility of quality is conferred to the shopfloor operator
increasing his ownership and responsibility. But for this to occur smoothly
they must be equip with the required knowledge, skill and authority parallel
to that of a quality inspector i.e to stop a line if and when he deems it
appropriate.
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This idea is complemented by many techniques such a statistical process
control (explain, more quantitative with quantities) or by quality circles so
that the operator has a meaning interpretation of the results of products.
The objective is to build quality into product so that products are easy to
use, maintain and replace. Products that are built on specific standards that
are widely accept so that interchangeability can occur between them.
Just-in-Time
The prime goal of just in time is to eliminate waste be it excessive utilized
inventory or even an activity such as unnecessary movement due to a faulty
layout or non-required checking and faulty predictive maintenance (e.g. of a
light bulb) and even excessive manpower.
Hence waste is any process that increases costs but does not add value to
the product.
It aims to completely remove inventory which is not immediately required by
the production process.
This can be done in 4 main ways: 1. Improvement in shop floor layout 2.
Decreasing the lot size to 1 if possible 3. Synchronization of auxiliary add-ons
such as jigs and fixtures so that they are available when required and not
before 4. Mutually beneficial relations with suppliers.
Shop floor layout Generally there are three main types, fixed position,
process, and continuous layouts none of which are perfectly suited for just-intime. In some case similar machines are grouped together resulting greater
travelling time from one station to another MELs example resulting in nonoptimal product routing.
It should be considered that movement of materials is a waste. Complex
routes leads to complex control procedures which allows managers to keep
track of production quantities.
Just-in-time aim to create a layout which minimizes movement of materials,
people and tooling, where cells to make a specific or similar products are
created where machines are grouped in a way to facilitate the manufacturing
and eliminate unnecessary material movement.
In such cells the rate of production can be easily controlled and maintained
according to the market demands so that excessive inventory may not build
up. Furthermore, the people working in the cell will be trained enough to
move around assuming different responsibilities in the case of absence of a
certain employee this also makes the quality assurance more easier and the
process of control more convenient.
Setup Time

Large batches are considered as unnecessary and they increase the level of
inventory. High inventory leads to buffer stocks and greater management
problems.
To implement the essence of just in time the entire process must be studies
with care and an optimal schedule should be developed. For the development
techniques of operations research such as linear programing and simplex
method for solving may be adopted when constraints cannot be solved
humanly.
Setup times can only be reduced by systematic efforts. Techniques such as
SMED, SSED and OTC may be employed if a changeover is present.
Use of motion detection techniques, videotaping and use of the Principle
GILBIRTH may be employed.
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At times it becomes imperative to buy equipment through which JIT is
possible. Their procurement ROI will be surprising.
Synchronized Manufacturing
The concept that each linked operations is synchronized in such a way to
allow 0 idle time with no buffer inventory. This is an ideal state which is very
difficult to achieve but the JIT manager are strive to narrow the gaps
continuously.
Non-sync operations can cause excessive batch size, buffer and
bottlenecking
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Systematic sync can be facilitated with the application of commercial
software but their application is limited and thus have not gained wide scale
acceptance.
Other methods to sync include inventory pull (only when a Kanban card is
issued)
Vendor relationships
Traditionally vendors offering the lowest bids are classified as valuable
ignoring all the intangibles associated with manufacturing such as loss in
time.
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Where as in WCM the vendors are selected based on quality, flexibility and
deliverability.
Better vendor relations were traditionally not given importance as a result
delays and faulty deliverables occurred. Better relations can be developed by
leaning the sourcing. Ideally single sourcing as greater business with vendor
will naturally result in better business ties. Example of Xerox from 5000 to
350
Single sourcing should be done with care or else can have adverse effect.
When done with certification the need of incoming inspection is eliminated
resulting in greater profitability.
Single sourcing has caused problems for small vendors who are coerced into
maintaining high inventory levels to cope with the JIT requirements of big
firms MEL vs MTL. This is against WCM as in WCM vendors and procurers
mutually benefit.

WCM promotes openness thereby reducing the misconceptions due to formal

communication.
In WCM manufactures require, JIT, quality and reliability and the vendors get
in return long-term contracts and prices.
Vendor can get just-in-time payment for just in time deliverable!
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People Management
WCM aims to improve the relations between management and shop floor
workers who are attribute to have the greatest improvement potential. It
seeks to remove mistrust and embody a sense of wellbeing and unity.
WCM propagates mutual trust and honesty as compared to individuals driven
by monthly pay checks.
Transfer of responsibility
Where as in a traditional setup the responsibility of the shopfloor workers is
limited a WCM will take steps to give Greater control of their operations e.g
quality control, maintenance and even scheduling.
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This changes the role of middle managers from prime decision makers to
mentor and coaches guiding their troops on field.
Education and cross training
WCM spend time and resources to educate their workforce. This transforms
the workforce into a multidisciplinary one with the ability to take on different
challenges i.e increase in customer demand of a certain product. This also
eliminates single source hegemony developed by old and experienced
workers who are unwilling to learn new things and transfer the ones they
know.
Page 16
Implementation of quality circles ensures that all tiers of employees are
involved in decision making and problem solving.
As collective wisdom is greater than individual wisdom this philosophy is
bound to yield.
Flexibility
It was once thought that JIT was suited only to repetitive production
processes with highly predictable schedules.
Although the statement is true to an extent the meaning of JIT is evolving.
Japanese firms are aiming to provide a range of products with different costs.
To attain this a company must have production and design flexibility.
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Summary

Organization Tensions to be managed

-

As business becomes larger it gets increasingly more difficult to set common

goals and targets.
To resolve this issue performance measurement and control systems are
used.
Page 4

Effective controls can be easily set up for small businesses as the can be
monitored under direct supervision which is not the case with large scale
geographically dispersed businesses.
Tensions are between innovation vs control, profitability vs growth and your
goals vs your employees goals and opportunities vs time and attention.
Definition Formal, information-based routines and procedures managers use
to maintain or alter patterns in organizational activities. Robert Simons,
Levers of Control
4 aspects
Purpose: Convey information by the collection of appropriate data.
They include: formal routines and procedures like SOPs. This information can
be distributed electronically or manually depending upon the need.
Page 5
They are designed to be used by managers. For instance profit reports. Clear
distinction that Information received by shipping clerks to allow them to pick
merchandise from inventory for specific customers is not
Managers uses performance measurement and control systems to maintain
or alter patterns in organizational activities.
Example of controls in a car and a fancy car. Performance measurement
(speedometer) Controls (Brakes) are very important to get maximum output.
Profit Planning Systems
The prime objective of any business is to make profit which is done by
earning more by the output via a series of value adding processes to a raw
input.
Accounting systems collect information about the flow of capital in and out
and record them into balance sheets and cashflow statements.
Internal control systems Reveals about what information is to be recorded
and by whom and when to provide safeguard to the assets present. Internal
audit of machines.
Profit plan is a summary of future financial inflows and outflows for a
specified accounting period.
Page 6
Managers then plan to determine the resources (manpower, machinery, and
investment) required to attain the future projections.
Profit planning involves the use of cause and effect in the light of sound
assumptions and predictions.
Profit plans are supported by planning systems.
Planning systems provide useful information to make profit plans more
accurte. Planning systems generally refer to political, economic, social,
technological, legal and environmental factors.
http://en.wikipedia.org/wiki/Enterprise_planning_system
Performance Measurement Systems
Profit is made by beating the competition. The competition is based on the
strategies and goals that are developed by the management and in their
successful implementation.
Business strategy Refers to how a company creates value for customers
and differentiates itself from the competition. Example of Nike vs Adidas in
football shoes durability vs looks or cost vs fashion etc.

Page 7
Business goals are measurable description of what company desires to
achieve for instance market share or more profit on a certain item.
Performance management system involves the implementation and
monitoring of business strategies.
Business goals they form an important part of the planning process it is
through them the managers express what they want to achieve in different
forms. E.g an increase in market share or great revenues.
Performance measurement systems help track the extent to which the
plans are executed in the real time situation. It also includes goals setting
which may be short or long term. The main goal is to match the real output
with the set objectives to find discrepancies so that appropriate action may
be taken.
While building up lucrative performance measurement systems two factors
must be considered. It Design features: Which dictate what the type of data
along with its frequency and mode of acquisition should be considered.
Secondly the issue of who should get that data and what they should do with
it.

Balancing organizational tensions

-

As the size of the organization grows it faces conflicting tensions between

factors which all are in favor of organizational growth but can be achieved at
the expense of another. This yields organizational tensions. There are 5 major
types.
Balancing Profit, Growth and Control
Profits are the major concern of any organization they are achieved through
expansion, ingenuity and creativity. In the process of growing there might
come a situation where the decision of the innovator goes too far and
presents more risk to the business than the eventual benefit.
On the other hand control is an essential component of management.
Without it the business would plunge into chaos in no time. Even very huge
profitable businesses can fall prey to this.
Therefore it is important to maintain the right balance between profit and
control and this can be achieved by the diligent implementation of
management systems in the right way.
The example of AOL
In the midst of expanding their empire without proper control they faced a lot
of problems such as server breakdowns. Later having experienced failure
they learned and inclined their efforts to make more profits.
2, Balancing short term results against long-term capabilities and growth
opportunities.

6. Explains what are the new performance demands introduced by World class manufacturing, and
why Traditional management accounting based performance control systems are seen inadequate in
such a demanding manufacturing setting.
7. Define and explain what is meant by Performance measurement and control systems and briefly
discuss the main features of such a system.

8. Briefly explain the principal tensions within a business that can be managed by use of an effective
performance measurement and control system.
http://influentialleadership.com/people-oriented-leadership/
http://www.triplepundit.com/2012/05/mit-study-sustainability-profitabilit/
http://green.hotelscombined.com/Gyh-References.php
https://www.financialexecutives.org/eweb/upload/FEI/170systemsFraudWhitepaper.
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