Activity Based Systems
When we think of a Just In Time scenario, we usually relate it to some sense of urgency like being on time for a wedding ceremony, accessing front-row viewing to a much-awaited concert or arriving at the bus stop in time for that critical ride to work. This is also applicable in the business scene, with a systematic approach to doing it.
Just in Time Manufacturing is a philosophy that focuses on timing, efficiency and quality in making commitments (Louderback III & Holmen, 2003). Companies that have adopted it consider the importance of cost reduction in all aspects of their business. Emphases are placed on reduction of production inventory, time and space. Customer satisfaction, quality and teamwork fuel the inspiration to find ways to improve the system until at least JIT can be nearly totally achieved. Even those that employ full JIT in their process can attest that they are still striving to achieve continuous innovation. There is always room for improvement, even for the advanced tools or marketable quality products that successful businesses offer.
Activity Based Systems Essay Example
Most articles would often connote JIT as “zero inventory production” which is a very ideal concept; however, said ideal has already worked wonders in the business world. Example could be hailed from companies that allow delivery trucks to enter the factory and drop the needed materials to workstations, while the same trucks also carry finished products out for delivery to clients in order to eliminate inventory storage in the factory. This saves on space, which may be used for income-generating activities as per management discretion. This also cuts on cycle time, and enables the company to use time saved for other productive pursuits.
The concept of JIT is first discussed in the 1930s by the author Henry Ford, but was only “perfected” by the Japanese in the 1950s in their automobile industry (Carter & Usry, 2002). From then on, it was experimented upon and induced at some point in the system of some large businesses around the world.
It is regarded as a “pull” system which means that finished goods are only manufactured when necessary, and the stream goes way back to the materials and accessories purchased only when needed for production. Bottlenecks have no room in this setup as total quality control is implemented throughout the process. This means that when a work team finds a defect in a certain stage in production, they notify the others to halt and deal with the problem right away before continuing with the process. Traffic within some stage in production due to undetected problems that cause disruption, is not tolerated.
A case study highlighting Toyota’s success story can be set as example. “Taiichi Ohno, [said to be the father of JIT], and Toyota/Thinking Production System’s creator”, clearly defined the working formula that made Just-In-Time a popular sensation.
Their Georgetown Plant in Kentucky employed JIT, focusing on their most valuable assets: multi-skilled workers. The managers injected JIT to develop the human function of critical thinking for decision-making while gaining wisdom in the process. Toyota considers its business and people as interrelated. The corporation believes that everything in the production process can be achieved when employees are developed to think of it as their business to produce high quality products. Teruyuki Minoura, Toyota’s Managing Director of global purchasing at that time said, “Perhaps the greatest strength of Toyota Production System is the way it develops people”.
Quality Control throughout the process is therefore observed since team members know that they are responsible and involved as producers, assemblers, designers and inspectors in coming up with a product that meet standards and satisfy customers.
Due to computer-aided designs, employees are able to modify or improve on the cars’ designs visually through a monitor. They are able to picture the outcome of their designs before it’s brought to actual production. The use of CAD is also a tool used by design engineers in General Motors, another car manufacturer.
Although JIT implementation is still a new approach to doing business, some companies are already trying to embrace the concept and adopting it in some parts of their system. It may still seem unachievable especially for start up or growing businesses but when considering the success stories of those that employed it, such as Toyota, it may be a great strategy towards improving their business structure and become successful as well.
The ABC Approach for Activity-Based Management
Another concept under Activity-Based Systems is Activity-Based Costing. Businesses employ it chiefly for planning and decision-making purposes in different areas such as whether to drop or retain a line or segment that is profitable or unprofitable given the result using ABC. Surprisingly, a survey reveals that it is being used more by the service and retail-based industries than manufacturing industries [as is the norm] (Carter & Usry, 2002). Reasons vary depending on the concerns of businesses. However, the main goals are the reduction of costs, proper cost allocation, especially of indirect costs, and increased profitability.
Activity cost pools usually are calculated for estimating what portion of the efforts of each cost center, team or employee is devoted to each significant activity (Louderback III & Holmen, 2003).
Four levels of activities are classified to identify the appropriate variable costs that match each level along the line. Unit-Level activities relate directly to units so that assembly and materials are examples of costs that relate to it. Batch-Level activities, on the other hand, are applicable to homogenous units produced by set. Direct labor Hours or Packaging can be appropriate costs allocable to this level. Advertising and Research and Development are examples of costs that are directly-related to Product Level activities, since the concern is not on the units produced or service rendered but on the value of the product or service. Plant-Level costs cover the entire factory or office where business is done so that rent of the factory and taxes are some examples of related costs.
In Walmart’s diverse retail line, to cite, cost objects can be their products divided into apparel, household appliances & furniture, and groceries, or their system of selling in-store or online. They can use ABC to determine which product is most profitable or which system is more effective in reaching out to customers. Same goes through with 7/11’s kiosks that are open 24 hours in various locations. They can determine which geographic location’s earning more for the business, and what strategies are cost-efficient that can benefit the business.
ABC is a very useful approach for businesses that offer a variety of services or products such as those mentioned above, or those that have only one product but with variations to the product.
By mastering the ABC Approach, management can make better decisions. This is where Activity-Based Management was coined. It describes management decisions that use activity-based costing information to satisfy customers and improve profitability (Horngren, Datar & Foster, 2003). It helps management know the next step upon discovering that Product A is more profitable than B, or that the Special Events Division in a 3-star hotel can be dropped or merged with the Maintenance Division since the latter department’s role extends to serving on such occasions anyway. By learning the process, management can see through portions that can help them become more effective in implementing rules for the business to become successful.
Business is all about continuous learning, improvement and adaptation. With the right strategy, tools or philosophy towards achieving goals, a business can thrive in the corporate jungle. Besides, it’s what business is all about.
Carter, W. K., & Usry, M. F. (2002). Cost Accounting: Just In Time & Backflushing, and Activity Accounting: Activity-Based Costing and Activity-Based Management. Australia:Dame Publishing.
Datar, S. M., Foster, G., & Horngren, C. T. (2002). Cost Accounting – A Managerial Emphasis: Activity-Based Costing & Activity-Based Management. Singapore: Pearson Education Asia Pte. Ltd.
Holmen, J. S., & Louderback III, J. G. (2003). Managerial Accounting: Just-In-Time Manufacturing, and Activity-Based Costing & Management. Singapore: South-Western.
Public Affairs Division Report, Toyota Motor Corporation (October 8, 2003). The Toyota Production System. Retrieved January 31, 2008, from http://www.toyotageorgetown.com/tps.asp.