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

- Page 2- 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.- Page 3- 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.

- Page 4- The rule 80 20 is no longer applicable anymore according to world banks ex-president James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-in-time 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.

- Page 6- 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-in-time. In some case similar machines are grouped together resulting greater travelling time from one station to another MEL’s example resulting in non-optimal 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.

- Page 10- 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- Page 11- 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.- Page 12- 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!- Page 14- 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.

- Page 15- 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.

- Page 18- 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.pdf