ACCG 301 "Organisational Planning and Control" Group report Managing Customers and Time. my part is "customer relationship management, cost". and we choose the company is "woolworths". http://www.woolworths.com.au/wps/wcm/connect/website/woolworths need 2 pages answer.

ACCG 301 Organisational Planning and Control Session 1 2014 Assessment Guide Note - this is NOT the Unit Guide The official Unit Guide is available online and is accessed separately through iLearn of this unit. The assessment guide should be read in conjunction with the Unit Guide ACCG301 Assessment Guide Session 1, 2014 1 Department of Accounting and Corporate Governance MACQUARIE UNIVERSITY FACULTY OF BUSINESS AND ECONOMICS ASSESSMENT GUIDE Unit: ACCG301 Organisational Planning and Control Year and Session: 2014 Session 1 Unit Convener: Aleksandra PopVasileva Students in this unit MUST read the online Unit Guide carefully at the start of session and be aware of its contents throughout the session. The Unit Guide contains important information about the unit - if anything in the unit guide is unclear, please consult with the Unit Convener. This Assessment Guide provides significant additional detail regarding assessment and other learning related issues. Some items in the Unit Guide are inevitably restated in this Assessment Guide. It is important that you understand fully that, in the event that there is any difference in the way that this assessment guide states a matter and the way that the Unit Guide expresses the same matter, then the Unit Guide is to be regarded as being the official position of the Department. The most efficient way to contact staff is via email using your student email account. Please use this form of contact in the first instance for general course enquiries. We will only receive emails sent to the subject email account accg301@mq.edu.au ACCG301 Assessment Guide Session 1, 2014 2 MACQUARIE UNIVERSITY FACULTY OF BUSINESS AND ECONOMICS ASSESSMENT GUIDE ASSESSMENT TASK 1: Assessed Coursework (15%) Due date: Each week from week 2 to 13 Weighting: 15% Grading method: Refer to marking criteria for tutorial assessments on page 10 Submission method: In tutorials Estimated student workload: 5 hours per week Feedback type: Marked assignments will be returned to students within two weeks. Consolidated class assessments marks will be posted on the unit web prior to the final examination. The objective of this assessment is to provide students with an opportunity to demonstrate that they are working continuously throughout the session to achieve the learning outcomes of the unit. The tutor will award a mark toward tutorial assignments based on the quality and completeness as well as obvious unique effort of written answers to pre-set tutorial questions. In addition, some of the in-class questions will also be randomly collected as a part of this mark to ensure active participation of students during tutorials. These questions are not a part of student's homework, rather they are to be attempted in class. Late submission will not be accepted for marking, i.e., a mark of ZERO will be assigned accordingly. The tutor will randomly collect 6 written assignments (pre-set tutorial questions provided on page 9). Best 5 of these will count towards the 15% weightings. Each of these assignments will earn the student marks of 3 (i.e. total marks 15). All homework submissions must be typed and include a coversheet (given on page 10); handwritten submissions will not be accepted. The pre-set tutorial questions are designed to provide an interactive environment in the tutorials in which students will be able to discuss key concepts with each other (individually or in groups), and their tutor, in order to improve their understanding of the management and management accounting. Student participation is an essential feature of a successful tutorial. Students are advised to come prepared with the homework questions for class activities to actively participate in tutorial discussions, through the provision of high quality answers and insightful comments that lead to further discussion and problem solving. Students will be randomly selected in the tutorials to answer pre-set tutorial questions and will be provided opportunities to fully engage in tutorial individual as well as group work. ASSESSMENT TASK 2: Case Study/Report: Group Based Research Report (20%) Due date: Week 12 Weighting: 20% Grading method: Refer to marking criteria for tutorial assessments on page 12 Submission method: In tutorials. Late submissions will not be accepted. Estimated student workload: 6 hours Feedback type: Marked assignments will be returned to students in Week 14 Students will undertake a research project on one of the topic listed below. The objective of the project is to provide students an opportunity to further develop their written communication skills in creative ways, express information in a coherent and integrated manner, and to analyse and interpret data about a 'real' organisation. This assessment provides students with an opportunity to gain in-depth knowledge of the concepts underpinning this unit through the quality of their work completed for this ACCG301 Assessment Guide Session 1, 2014 3 research project. Students should be able to make sense of the concepts and re-interpret knowledge to provide well-considered responses to questions. This provides further opportunity for students to develop their critical analysis skills, problem-solving skills and creative thinking skills from the assessment tasks. Students will work in small groups. At the tutor's discretion students will be assigned to a group of 3 to 4 students. Tutors will randomly assign students with topics in the tutorial in Week 3, allowing a maximum of three groups submitting their reports on each topic. It is expected that the report will be presented as a logical argument based on sound analysis of the facts and not on opinion or speculation. Point-form analysis is not acceptable. The report must be comprehensive, that is, 10-11(maximum) typed pages (including tables, figures and appendices; excluding cover page, table of contents and references), and to the point. Excessive verbosity, lack of precision or otherwise poor writing skill will affect the grade. Student must use: (a) 1.5 line spacing, and (b) 2.5cm margins. At the end of Week 7, all groups will be required to submit to their tutors a Group Progress Report consisting of the following information: 1) Completeness status of the group report, 2) Number of meetings held between the group members, 3) Individual contributions of members up to the end of Week 7, 4) your strategies and plans that are to be followed in order to complete the report until the submission date. Submission of this Progress Report is mandatory and will be included in the process of marking group assignments. Submissions will occur in the tutorials in Week 12. All research reports must have a 'Research Report Cover Sheet' (given on page 12) and a title page. The research report cover sheet can be downloaded from the unit website. Late submission will also not be accepted for marking, i.e., a mark of ZERO will be assigned accordingly. Unit Convenor will also ask you (if need be) to submit your research reports to Turnitin to provide assurance of the academic integrity of this assessment task including plagiarism. GROUP MARKS ALLOCATION In all normal circumstances the group marks will be the same for all group members. Please be advised that each student must write the coversheet his/her contribution towards completion of the research report and each group member is required to sign the coversheet. Reports without this information will not be accepted for marking. If, in any group, there are complaints that a group member has not contributed approximately equally then the complaint will need to be reported in writing to the Unit Convenor. Following such a report the whole group will meet with the Unit Convenor to discuss the issue and the Unit Convenor may re-allocate marks appropriately. In the event that any group member does not attend such a meeting then the necessary re-allocation decision will be made by the Unit Convenor on the basis of discussions with those who do attend. ACCG301 Assessment Guide Session 1, 2014 4 The topics for the Research Report are as follows: Topic and requirements Managing Customers and Time Based on the organisation that you have selected, identify and describe their customers. Using one of Porters' competitive forces, namely \"Bargaining Power of Customers\ACCG301: Organisational Planning and Control Unit Convenor & Lecturer Aleksandra Pop-Vasileva Department of Accounting and Corporate Governance Telephone: 9850 4854, E4A 330 Other Lecturer Dr. Rahat Munir Telephone: 9850 4765 Teaching Assistant Kim Lu Telephone: 9850 4821 Unit email: accg301@mq.edu.au Prescribed Text Management Accounting: Information for Creating and Managing Value By Kim Langfield-Smith, Helen Thorne, Ronald W. Hilton 6th Edition 2012, McGraw-Hill Additional reading material: Uploaded on iLearn Unit Web, Lectures and Assessments iLearn: https://ilearn.mq.edu.au Unit email: accg301.mq.edu.au Important Information: Unit Guide and Assessment Guide Lectures/Tutorials/iLectures Lecture topics & schedule Tutorial assignments Student consultation Assessments Assessment Item Weighting Type Tutorial assignments 15% Individual Research Report 20% Group Class Tests 15% Individual Final Examination 50% Individual TOTAL 100% ACCG301: Organisational Planning and Control LECTURE 1 Management Accounting: an overview Chapter 1 (Langfield-smith et al., 2012) Chapter 1 (Garrison et al., 2012) Aleksandra Pop-Vasileva Department of Accounting and Corporate Governance accg301@mq.edu.au After this lecture you should be able to: 1. Explain the way in which cost accounting supports management accounting and financial accounting 2. Explain differences between management accounting and accounting 3. Explain planning and control and management accountants' role in implementing in these two management elements 4. Describe the set of business functions in the value chain 5. Explain the theories applied in management accounting systems design 6. Describe some important considerations in the design of management accounting systems 7. Apply professional ethics to management accountants' decisions. What is Management Accounting? ... the processes and techniques that focus on the effective and efficient use of organisational resources to support managers in their tasks of enhancing both customer value and shareholder value The Institute of Management Accountants has defined management accounting as: - A value-adding continuous improvement process of planning, designing, measuring and operating both nonfinancial information systems and financial information systems that guides management action, motivates behavior, and supports and creates the cultural values necessary to achieve an organization's strategic, tactical and operating objectives http://www.youtube.com/watch?v=T3sFmeKks4k http://www.youtube.com/watch?v=o_ShGlIvy7U http://www.youtube.com/watch?v=PHpIqxUVChY What is Management Accounting? The definitions identifies: - Management accounting provides both financial and nonfinancial information - The management information supports planning (strategic) and control (performance evaluation) functions Management accounting information is pervasive and purposeful - It is intended to meet specific decision-making needs at all levels in the organisation What is Management Accounting? Examples of management accounting information include: - The reported expense of an operating department, such as the assembly department of an automobile plant or an electronics company - The costs of producing a product - The cost of delivering a service - The cost of performing an activity or business process - such as creating a customer invoice - The costs of serving a customer What is Management Accounting? Management accounting also produces measures of performance of decentralized operating units, such as: - Business units - Departments - Divisions These measures help managers assess the performance of the company's decentralized units Effective management accounting systems can create considerable value to today's organisations by providing timely and accurate information about the activities required for their success Comparing Management and Financial Accounting Differences How Management Accounting Affect Strategic Decisions? Business Events Product Costs Customer Costs Budgets Performance Reports Special Reports Collecting Measuring Analysing Reporting Managing Processes Inputs Developing strategy Building resources and capabilities Implementing strategy Outputs Users Management Accounting and Strategy 1. Developing Strategy Management accountants contribute to an organisation's formulation of strategy (vision, mission, long-term strategy, objectives) 2. Implementing Strategy - Planning and managing the implementation of strategy - Performance management and control (comparison of budget targets and results) Management Accounting and Strategy Corporate strategy - Choices about the types of businesses to operate in, which businesses to acquire and divest and how best to structure and finance the organisation - In publicly listed companies, the choice of corporate strategy is influenced by the expectations of major shareholders and securities market Business (or competitive) strategy - The way a business competes within its chosen market - Distinct business strategies for each business unit (cont.) Management Accounting and Strategy Competitive advantage - Advantage(s) that a business may have over another that are difficult to imitate, achieved through Cost leadership - Economies of production, superior process technologies, tight cost control Product differentiation - Superior quality, customer service, delivery performance, product features Planning and Control Management Accounting System Planning Budgets Control Accounting System Performance Evaluation Performance Reports Feedback Management Decision Planning and Control What is planning? Setting goals Predicting results Deciding how to attain goals Planning and Control What is control? Comparing and taking corrective actions Deciding on performance evaluation and feedback Association between Strategy, Planning and Control Changing Business Environment: Management Accounting Response Efforts to develop a new management accounting systems, ABC, BSC..... Sophistication of Management Accounting with changing organisational context Effort to improve the managerial usefulness of cost systems Changes to costing methods for internal/external reporting Most of the product-costing and cost accounting procedures were developed 1900 Time period Management Accounting Systems Design: Contingency and Institutional Theories Contingency theory - The design of a management accounting system is influenced by specific aspects of the organisational context - External environment, technology, organisational structure, size, national and organisational culture, and strategy Institutional theory - The design is influenced by institutional forces, which explain similarities The need to achieve legitimacy within and beyond their organisation The tendency for firms to imitate 'good practice' of other firms Organisational Context Organisation Management Accounting Systems Management Accounting Systems Design: important considerations - Cost/Benefit Analysis There are costs and benefits of generating and providing management accounting information Costs include - Salary of accounting personnel - Purchasing and operating computers - Gathering, storing and processing data - Managers' time to read, understand and use the information Benefits include - Improved management decisions - More effective planning - Improved operational efficiency at lower cost - Better control - Improved customer and shareholder value Value Chain Analysis Management accounting helps managers to administer each of these business functions Research and Development Product, Service Process Design Production Marketing Distribution Management Accounting Customer Service Management Accountants and Professional Ethics In Australia, management accountants may join - CPA Australia - Institute of Chartered Accountants in Australia - Institute of Public Accountants (formerly NIA) - Chartered Institute of Management Accountants (CIMA) Code of Ethics for Professional Accountants Fundamental principles of ethics - Integrity - Objectivity & Professional behaviour - Competence and Due care - Confidentiality DO YOUR HOMEWORK!!! Aleksandra Pop-Vasileva Department of Accounting and Corporate Governance Location: E4A 330 Phone Ext. #4854 accg301@mq.edu.au Next Lecture: Strategy ACCG 301: Organisational Planning and Control LECTURE 2 Strategy and Strategic Management Chapter 4 'Management Now' by Ghillyer 2012 (Provided on iLearn) Aleksandra Pop-Vasileva Department of Accounting and Corporate Governance accg301@mq.edu.au 1 Learning Outcomes 1. Discuss the nature of strategy, its components, types of strategic alternative, the distinctions between strategy formulation and strategy implementation, and the importance of strategic management process. 2. Describe how to use SWOT analysis and Michael Porter's Five Competitive Forces in formulating strategy. 3. Identify and describe alternative approaches to corporatelevel strategy. 4. Describe how corporate-level strategies are formulated and implemented. 5. Identify and describe alternative approaches to business-level strategy formulation. 6. Describe how business-level strategies are formulated and implemented. 2 Strategy A strategy outlines the basic steps that management plans to take to reach a long-term objective or a set of objectives A strategy is a comprehensive master plan stating HOW the corporation will achieve its mission and objectives. There are three types: Corporate - a corporation's overall direction and the management of its businesses. Business - emphasizes improving the competitive position of a corporation's products or services in a specific industry or market segment. Functional - concerned with developing a distinctive competence to provide a company or business unit with a competitive advantage. 3 Hierarchy of Strategy Corporate Headquarters Strategic Business Unit Manufacturing Finance Corporate Strategy Strategic Business Unit Marketing Research and Development Business (Division Level) Strategy Strategic Business Unit Human Resources Functional Strategy 4 Components of Strategy A well planned strategy ADDRESSES 3 AREAS: 1. Distinctive competence: The basis on which an organisation achieves strategic advantage through its corporate knowledge, skills, activities, etc 2. Scope: Range of markets in which the organisation will compete 3. Resource deployment: How the organisation will distribute its resources across areas 5 Strategic Management The set of managerial decisions and actions that determines the long-run performance of a corporation. It includes: - - - - Environmental scanning (internal & external) Strategy formulation Strategy implementation Evaluation and control It focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and computer information systems to achieve organisational success. 6 Strategic Management Process Environmental Scanning External Societal Environment General Forces Task Environment Industry Analysis Internal Structure Chain of Command Culture Beliefs, Expectations, Values Strategy Formulation Strategy Implementation Evaluation and Control Mission Reason for existence Objectives What results to accomplish by when Strategies Plan to achieve the mission & objectives Policies Broad guidelines for decision making Programs Activities needed to accomplish a plan Resources Assets, Skills Competencies, Knowledge Process to monitor performance and take corrective action Budgets Cost of the programs Procedures Sequence of steps needed to do the job Feedback Performance 7 Strategy Formulation Mission statement - Defines the basic purpose of the organisation for existing. To refresh the world... To inspire moments of optimism and happiness... To create value and make a difference. Vision - The desired future state or aspiration of an organisation - Used by senior managers to focus the attention and energies of staff People: Be a great place to work where people are inspired to be the best they can be. Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people's desires and needs. Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value. Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities. Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities. Productivity: Be a highly effective, lean and fast-moving organization. 8 Environmental Scanning - SWOT Analysis Monitoring, evaluating and disseminating information from the environment to key people within the corporation. Scan via SWOT analysis: Look for opportunities / threats in the external environment Look for strengths / weaknesses in the internal environment 9 Strengths (internal perspective) Skills or capabilities that enable an organisation to conceive and implement strategies Resources and capabilities that can be used for developing a competitive advantage Common strengths are those capabilities possessed by a large number of competing businesses Distinctive competencies Strenght possessed by only a small number of competing organisations. Exploitation can result in above average performance. Innovation vs. Imitation competencies 10 Weaknesses (internal perspective) Skills and capabilities that do not enable an organisation to choose and implement strategies that support its mission The absence of certain strengths may be viewed as a weakness Address by: Making investments to obtain needed strengths Modifying mission so that it can be met by existing skills 11 Opportunities & Threats (external perspective) Organisational opportunities Areas in the environment that, if exploited, may generate high performance External environmental analysis may reveal certain new opportunities for profit and growth Organisational threats Areas in the environment that increase the difficulty of an organisation achieving high performance Changes in the external environmental that may present threats to the firm 12 SWOT - General examples Resources and capabilities that can be used as a basis for developing a competetive advantage. For example The absence of certain strengths may be viewed as a weakness. Examples: Patents Strong brand names Superior reputation Cost advantages Favorable access to distribution networks Lack of patent protection Weak brand names Poor reputation High cost structure Obsolete technologies Inadequate Research & Development Strengths Weaknesses Opportunities Threats The external environmental analysis may reveal certain new opportunities for profit and growth. For example Possible new markets Emerging technologies Reduction of regulations Decreasing international trade barriers Changes in the external environmental also may present threats to the firm. For example Shifts in consumer tastes Emergence of substitute products New regulations New/increased trade barriers Political turmoil 13 SWOT - General examples Resources and capabilities that can 1.Cost leadership strategy be used as a basis for developing a 2.Efficient advantage. For example distribution competetive 3.Information technology Patents 4.Fast delivery of new products Strong brand names ,and trends Superior reputation Cost advantages Favorable access to distribution networks The absence distribution system 1.Centralizedof certain strengths may be viewed as 2.Doesn't a weakness. Examples: spend much money on Lack of advertising patent protection Weak brand names 3.Zara only has one manufacturing Poor reputation and High cost structure in the world distribution centre Obsolete technologies Inadequate Research & Development Strengths Weaknesses Opportunities Threats The external environmental analysis 1.Global market penetration may reveal certain new opportunities for profit 2.Online market and growth. 3.Distribution centre in USA For example Possible new markets Emerging technologies Reduction of regulations Decreasing international trade barriers 1.Local competitors Changes in the external environmental also may present threats to the firm. 2.Global competitors For example 3.Zara based in Spain and has a huge noin of stores in Europe will Shifts consumer tastes Emergence of substitute products dent in revenues. New regulations New/increased trade barriers Political turmoil 14 SWOT 15 Michael Porter's Five Competitive Forces Potential entrants Threat of new entrants Bargaining power Industry competitors Bargaining power of suppliers of buyers Suppliers Buyers Rivalry among existing firms Threat of substitutes Substitute products 16 17 Formulating Corporate-level Strategies 18 Strategy Formulation The set of processes involved in determining the strategies of the organisation (establishes what the strategy is) Deliberate vs. Emergent strategy Formulation of Strategies Implementation of Strategies 19 Types of Corporate-Level Strategies 1. Growth i. Concentration; ii. Diversification & Vertical Integration 2. Stability or Pause i. Continuous improvement or status quo 3. Defensive or Retrenchment i. Turnaround: downsizing existing company or division ii. Divesture: selling off existing division or subdivision iii. Liquidation: selling company's assets, in parts, for their tangible worth 4. Combination i. Use of multiple strategies 20 Growth: Concentration Concentrating on existing specialization 1. Market penetration - aggressively targeting current markets with existing product specialties 2. Market development/geographic expansion - expanding into new markets 3. Market segmentation - dividing existing markets 4. Product development - modify existing products, or develop new but related products 21 Growth: Diversification & Integration The most important strategic issue at corporate level concerns the extent and nature of diversification Diversification: The number of different businesses in which an organisation is engaged and the extent to which these are related to each other 3 types of diversification strategies i. Single-product strategy ii. Related diversification iii. Unrelated diversification 22 Diversification types Single product strategy: A strategy by which an organisation manufactures just one product or service, and may sell it in a single geographic market Major strength: By concentrating all effort on one product and one market, the organisation is likely to be successful Major weakness: If the product is not accepted or is replaced the organisation will suffer 23 Diversification types Related diversification: An organisation operates in several linked businesses Bases of relatedness vary but may include technology, common distribution/market skills, brand name, reputation, customers. Advantages: Reduces reliance on a single product Economies of scale (spread costs over several businesses) Exploits strengths in more than one business, synergies Understanding the business and of knowing what the industry opportunities and threats are 24 Diversification types Unrelated diversification: An organisation operates multiple businesses that are not logically associated with one another - no direct fit between business Advantages (in theory): This strategy should produce stable performance over time (portfolio of assets minimises risks) Effective planning processes should mean that resources can be distributed annually so as to maximise overall organisational performance 25 Diversification Types Vertical Integration: A strategy that allows an organisation to create value by producing its own inputs or distributing its own outputs 26 Other Corporate-Level Strategies Stability or Pause i. Applied when the organisation is satisfied with its existing strategies ii. Slow but continuous improvement or status quo iii. Selected by default rather than a conscious plan Defensive or Retrenchment i. Turnaround: downsizing existing company or division ii. Divesture: selling off existing division or subdivision iii. Liquidation: selling company's assets, in parts, for their tangible worth Combination i. Use of multiple strategies 27 Implementing Corporate-level Strategies Formulation of Strategies Implementation of Strategies 28 Strategy Implementation The means by which strategies are executed within the organisation (focus on how the strategy is achieved) - Programs - statements /activities /steps needed to accomplish a single-use plan. - Budgets - statements of a corporation's programs in dollar terms. - Procedures - systems of sequential steps or techniques that describe in detail how to perform particular tasks or jobs. 29 Managing Diversification Organisational structure - Strategic Business Units (SBUs) Portfolio management techniques Used to make decisions about what business to engage in and how to manage these multiple businesses to maximise corporate performance 1. Boston Consulting Group Matrix (BCG Matrix) 2. General Electric (GE) Business Screen 30 BCG Matrix Market Share High Stars Low Question Marks High ? Market Growth Rate Cash Cows ? ? ? Dogs Low 31 BCG Matrix - Strategy formulation high Stars Question Marks Dominant position in a growing industry Poor competitive position in a growing industry Market growth rate Strategy: GROWTH / INVEST Strategy: Add resources and build the business further based on market projections GROWTH or RETRENCHMENT Apply resources to accomplish positive turnaround or pull back if outlook poor Cash Cows Dogs Dominant position in low-growth industry Poor competitive position in low-growth industry Strategy: low Strategy: STABILITY or MODEST GROWTH Maintain benefits of strong Cash Flow while keeping resource investments minimum Generate profits which should be used to support stars & question marks RETRENCHMENT / SELL high Divest, sell, liquidate the business to eliminate resource drain low Relative market share 32 General Electric Business Screen A method of evaluating businesses along two dimensions 1. Industry attractiveness Market growth, market size, capital requirements, competitive intensity 2. Competitive position Market share, technological know-how, product quality, service network, price competitiveness, operating cost More sophisticated approach than BCG Matrix, which has been criticised for limited focus on market growth and market share. Moreover, industry attractiveness and and competitive position are divided into three categories: high, medium, low 33 Industry Attractiveness General Electric Business Screen High Invest heavily for Growth Invest selectively and build Question Mark Grow? Develop for income? Medium Invest selectively and build Average business Maintain? Loser Sell Low Profit producer Maintain Loser Sell Loser Sell High Medium Low Business Strength/ Competitive Position The more attractive the industry and the more competitive the position, the more an organisation should invest Adapted from Campling et. al (2008), Management 3rd Asia-Pacific Edition, p. 230 34 Formulating Business Strategies 35 Formulating Business-level Strategies A number of frameworks have been developed to identify and classify strategic alternatives 1. Porter's generic strategis 2. Miles and Snow typology 3. Product Life Cycle 36 Porter's Generic Strategies One of the most widely accepted typologies to discuss, categorize and select strategies Differentiation strategy Overall cost leadership strategy Focus Focused differentiation strategy Focused low cost strategy Each strategy demands a different allocation of resources, structure and skills 37 Porter's Generic Strategies 38 Question? Using Porter's generic strategies, how would you describe the strategies of Coles, David Jones, Target and Kmart? Do any of these companies also use cooperative strategies? Stuck in the Middle strategy 39 Miles and Snow Typology 1. Prospector strategy: Innovative, encourages creativity and flexibility, and is often decentralised. (eBay, Microsoft) 2. Defender strategy: Focuses on lowering costs and improving the performance of current products. (Jet star, Virgin Blue) 3. Analyser strategy: Attempts to maintain its current businesses and to be somewhat innovative in new businesses. (Hewlett-Packard) 4. Reactor strategy: Has no consistent approach to strategy. (IBM - laptop business) 40 Product Life Cycle A product's life cycle can be divided into several stages characterized by the sales volume generated by the product - each stage different strategy Sales Development Introduction Growth Maturity Prospector Analyser Defender Saturation Reactor Decline Time 41 Implementing Business Strategies 42 Implementing Porter's Generic Strategies Differentiation Strategy Promote the valued difference Allocate funds focused on meeting customer needs not control of expenditure Customise to meet customer wants Keep adequate inventory to supply customer needs Nurture a creative and customer-focused culture. Overall cost leadership Advertise value for money Reduce and control costs Manufacturing must be simple and efficient, emphasising volume Support a culture focusing on improving efficiency 43 Implementing Miles and Snow's Strategies Prospector Focus on innovation and creativity, focus on new markets, new products & services Motivation and ability to scan external environment, focus on research and communication with the market Emphasize flexibility, often through a decentralised structure - quick response to changing conditions Defender Focus on operating efficiency - Cost control & reduction Tight control often through a formalised, bureaucratic structure Relatively stable set of services, less market research 44 Implementing Miles and Snow's Strategies Analyser Emphasize formal planning Balance cost containment and efficiency with risk taking, innovation and creativity Maintain relatively stable base of products and services but also moves into selected new areas that demonstrate potential Intermediate type between prospectors and defenders Reactor Lacks consistent strategy 45 Summary - Strategic Management Process 3(b) 3(a) Scan and Assess External Environment: Societal Task 1(a) Evaluate Current Performance Results 1(b) Examine and Evaluate the Current: Mission Objectives Strategies Policies 2 Analyze External Factors: Opportunities Threats 5(a) Select Strategic Factors (SWOT) in Light of Current Situation Review Corporate Governance: Board of Directors Top Management 4(a) 5(b) Review and Revise as Necessary: Mission Objectives 6(a) Generate and Evaluate Strategic Alternatives 6(b) Select and Recommend Best Alternative 7 8 Implement Strategies: Programs Budgets Procedures Evaluate and Control 4(b) Scan and Assess Internal Environment: Structure Culture Resources Analyze Internal Factors: Strengths Weaknesses Strategy Formulation: Steps 1 - 6 Evaluation Strategy and Implementation Control: Step 7 Step 8 46 ACCG301: Organisational Planning and Control LECTURE 3 Managing Cost and Quality Chapter 16 (Langfield-Smith et al., 2012; pp.736-751, pp.754-760) Chapter 9 (Stevenson, 2012; pp.370-407) Aleksandra Pop-Vasileva Department of Accounting and Corporate Governance accg301@mq.edu.au After this lecture you should be able to: 1. Explain the way in which cost management tools approaches support management decision making 2. Apply activity-based management (ABM), business process re-engineering (BPR),life cycle costing (LCC) and target costing (TC) 3. Describe quality and the process of quality management 4. Describe total quality management (TQM) and ISO 9000 certification Cost Management Cost Management Contemporary cost management systems include a range of tools and techniques that provide information for managing and controlling cost (see slide 7) Cost management Improvement of an organisation's cost effectiveness through understanding and managing the real causes of cost Main focus is on cost reduction, but also on improving other aspects of performance such as quality and delivery How does conventional cost management systems differ from contemporary cost management systems? Conventional vs. Contemporary Approaches Conventional Approach 1) Drivers of Cost Contemporary Approach 1) Drivers of Cost Managers control costs by bringing them into line with some predetermined goal (overall) Reduce costs by identifying waste and eliminating it through identifying the real cost drivers (each activity) 2) Strategic perspective 2) Strategic perspective Control costs within the organisation (internal) Cost management also concerned with achieving value for the customer (internal and external) Conventional vs. Contemporary Approaches Conventional Approach 3) Process perspective Control costs by reporting results for responsibility centres (individual functional areas) Contemporary Approach 3) Process perspective Recognise that customers' needs are met by processes which flow across the business (value & supply chain) Approaches to Managing Costs Contemporary Cost Management Approaches include Activitybased Management (ABM) Business Process Reengineering (BPR) Life Cycle Costing (LCC) Throughput Accounting Target Costing (TC) Contemporary Cost Management Approaches Activity-based Management (ABM) Activity-based Management (ABM) Process of using information from activity-based costing to analyse activities, cost drivers and performance so that customer value (price & quality) and shareholder value (profitability) are improved Customer value The value a customer places on particular features of a product Product cost Product quality Activity-based management (ABM) The units of work performed Source: adapted from p. 96 of Common Cents: The ABC Performance Breakthrough by Dr Peter B.B. Turney, President and CEO of Cost Technology Inc., a management consulting firm specialising in ABC/ABM implementations. Cost Technology Inc., 1991. Reprinted by permission of the publisher. All rights reserved. Using ABM to reduce costs Step 1 Identify the major opportunities for cost reduction Step 2 Determine the real causes of these costs Step 3 Develop a program to eliminate the causes (and therefore, the costs) Step 4 Introduce performance measures to monitor the effectiveness of cost reduction efforts Step 1: Identifying the major opportunities for cost reduction Undertake value analysis - Classification of activities Value-added activities Provide essential value to the customer, or are essential to the functioning of the business (production and administrative activities) Non-value-added activities Do not add value to a product or service from the customers' perspective or for the business and, therefore, can be eliminated Activities - the units of work performed Step 1: Identifying the major opportunities for cost reduction - Examples Undertake value analysis - Classification of activities Value-added activities Non-value-added activities Basic production activities Scheduling Operating machines Labour supervision Essential administrative activities Managing business Preparing annual accounts Processing invoices Payroll Moving materials Waiting/expediting Inspecting Storage Breakdown repairs Removing or welding defects Resolving queries (supplier/debtor) Step 1: Value Analysis - Activity Analysis What percentage should be targeted for elimination? Activity Cost Centre and Activity Cost Value-added Non-value added Corporate Management Managing Business $ 471,000 $ 471,000 $ 92,000 $ 92,000 Program production $ 262,000 $ 262,000 Expedite orders $220,000 Manage plant $ 200,000 $ 200,000 Make job moulds $ 480,000 $ 480,000 Move material $ 420,000 Prepare Annual Accounts Factory Management $ 220,000 Moulding $ 420,000 Finishing Operate Heat Treat Furnace Welding defects $ 1,080,000 $ 1,080,000 $ 377,000 $ 377,000 Quality Control Inspect castings $ 300,000 Preventative maintenance $ 552,000 $ 552,000 $ 4,454,000 $ 3,137,000 Total Costs $ 300,000 $ 1,317,000 $ 4,454,000 = $ 1,317,000 29.57% Step 2: Determining the real causes of non-value-added costs 1) Building activities into processes Need to understand processes (using value engineering): A series of activities that are linked together to achieve a specific objective Eliminating non-value-added activities requires a clear understanding of the way work is done in an organisation Processes may cross the boundaries of responsibility centres, such as functional departments Step 2: Determining the real causes of non-value-added costs 2) Cost Driver Analysis Identification of root cause cost drivers for the major non-valueadded activities Analysis of root cause cost drivers of value-added activities may also lead to more efficient use of resources Non-value added Activity Possible root cause cost driver Grinding casting Complexity of the casting Defects in mould Metal impurities Weld defects Complexity of the casting Defects in mould Metal impurities Move material Plant layout Supplier delivery arrangements Step 3: Developing a program for reducing costs Involve managers across the organisation Tackle individual activities Restructuring of process may be introduced Non-value added Activity Possible root cause cost driver Grinding casting Complexity of the casting Defects in mould Metal impurities Weld defects Complexity of the casting Defects in mould Metal impurities Move material Plant layout Supplier delivery arrangements Purchase Manager Step 4: Measuring performance in cost reduction Activity-based performance measures can be used to monitor the effectiveness of cost reduction efforts Performance measures may reflect both costs and cost drivers Targets may be set Corrective actions taken when targets not achieved Performance monitored over time Activities Cost Driver Quality Delivery Grind casting No. of defects in moulds No. of defects during metal pouring No. of spots reground No. of defects during grinding Cycle time Weld defects No. of defects in moulds No. of defects during metal pouring No. of cavities re-welded No. of defects during welding Cycle time Contemporary Cost Management Approaches Business Process Re-engineering (BPR) Business Process Re-engineering (BPR) The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical areas of performance such as cost, quality and delivery Focus is on strategic processes - Processes that focus on achieving a company's business objectives and strategies Reorganise the way in which work is done by identifying and eliminating non-value-added activities Means examining processes to identify - and then eliminate, reduce, or replace - functions & processes that add little customer value to products or services Ford Accounts Payable Process Purchasing Vendor Purchase order Receiving Goods Copy of purchase order Accounts Payable Receiving document Invoice ? ?Invoice PO = Receiving Doc. = Payment *Source: Adapted from Hammer and Champy, 1993 Ford Accounts Payable Process Purchasing Vendor Purchase order Receiving Goods Purchase order Goods received Data base Accounts Payable Payment Business Process Re-engineering (BPR) Step 1 Prepare a business process map A flowchart of activities Establish goals Step 2 Step 3 Based on customer value Quality, cost, delivery performance Reorganise work flow To enable goals to be achieved Implement the program Step 4 Involves substantial change so careful implementation is required to minimise resistance to change and business disruption Is BPR the same as ABM? 1. ABM focuses on incremental, continuous improvement of processes 2. Business process re-engineering involves fundamental changes to the way processes are structured 3. Both use activity analysis to identify processes and activities Contemporary Cost Management Approaches Life Cycle Costing (LCC) Life Cycle Costing (LCC) Accumulate and manage costs over the life cycle of the product Four stages of the product life cycle (production view) Stage 1 Product planning and initial concept design Stage 2 Product design and development Stage 3 Production Stage 4 Distribution and customer support Life Cycle Budgeting Involves estimating the expected costs and revenues for each year of the expected life of a product Comparison between budgeted cost and revenue with actual costs and revenues Considers all relevant costs over the value chain Upstream Costs Downstream Costs Managing costs through a life cycle perspective Concepts of life cycle costing not widely used Why? Because... There is a lack of awareness, or uncertainty about how to calculate life cycle costs Not easy for products with longer lives as it is more difficult to assess Changes in consumer tastes Impact of competitors' actions Effects of inflation Contemporary Cost Management Approaches Target Costing (TC) Target Costing (TC) A system of profit planning and cost management that determines the cost at which a proposed product must be produced to generate the desired level of profit It is cost management technique, not a costing technique The cost target for a product is driven by the need to sell the product at a certain market price and to achieve a target profit margin Target Costing (TC) Process Estimate the target selling price based on market considerations, customer needs and expectations and competitor behaviour Determine target profit margin and the target cost Target cost = Target selling price - Target profit margin Identify the cost reduction objective - difference between the current product cost and target cost How to achieve target cost - Reduce cost and enhance customer value Value engineering to eliminate non-value adding elements in product design Value analysis of manufacturing processes Work with suppliers to reduce component/material costs Target Costing (TC) Allowable cost Attempt 16.23 (page 766) Activities VA/NVA Design A 1 Helmet VA NVA Store material NVA Move raw materials to production NVA Set up extruding machine Possible root-cause cost drivers No JIT system; suppliers unable to deliver at short notice; unable to predict production requirements accurately. Factory layout, inadequate material movement equipment; lack of JIT system Production scheduling, lack of training, equipment that is difficult to set up. VA Operate extruding machine NVA Move product to assembly area Factory design VA Assembly helmet VA Label helmet NVA Inspect and test helmet Poor quality control in production area, poor quality materials, lack of employee training VA Package helmet NVA Move finished helmet to shipping VA Advertise A 1 helmet Factory layout, inadequate material movement equipment Managing Quality Managing Quality Quality is the ability of a product or service to consistently meet or exceed customer expectations Managing Quality: A clear understanding of customer value is needed to provide customers with a high-quality product Quality of Design Degree to which a product's design specifications meet customers' expectations Quality of Conformance Degree to which a product meets formal design specifications Costs of Quality Cost of Poor Quality 1) Internal Failure Costs Costs incurred to fix problems that are detected before the product/service is delivered to the customer 2) External Failure Costs All costs incurred to fix problems that are detected after the product/service is delivered to the customer Cost of Achieving Good Quality 3) Appraisal Costs Costs of activities designed to ensure quality or uncover defects 4) Prevention Costs Incurred to prevent internal or external failures & to minimise appraisal activities Costs of Quality - Examples 1) Internal Failure Costs Redesign Downtime Defective products, scrap Corrective action costs Rework Lost contribution from scrapped products 2) External Failure Costs Legal fees Warranty claims Processing Customer Complaints Defective products recalled Service after sale Lost contribution margin (current & future) 3) Appraisal Costs Inspecting materials Finished product inspection Production specification conformance analysis Supplier surveillance Packaging inspection Monitoring 4) Prevention Costs Quality Engineering Training of employees Quality Planning Quality Reporting Preventative maintenance 16.32 (with different figures) Current month's cost Percentage of total $2400 1300 11.05 06.00 3700 17.05 5000 1000 2000 23.04 04.61 09.22 8000 36.87 4000 2500 18.43 11.52 6500 29.95 Cost of quality training program for machine operators Laboratory testing for safety 3000 500 13.83 02.30 Total Prevention Costs 3500 16.13 21700 100 Costs of Quality - Report Internal Failure Costs: Cost of faulty goods scrapped Re-welding faulty parts discovered during manufacturing Total Internal Failure Costs External Failure Costs: Repairs of faulty products returned by customers Costs of recalling product Legal fees Total External Failure Costs Appraisal Costs: Operating a machine to detect faulty parts Product inspection into warehouse Total Appraisal Costs Prevention Costs: Total quality costs Question16.32 Comment on quality costs incurred by Hills Metals Ltd. The failure costs appear too high. The company needs to spend more on prevention and appraisal. Increased appraisal should bring down external failure costs, as more failures will be detected internally. Increased prevention costs should help to bring down both the internal and external failure costs and, in the longer term, reduce the need for appraisal. Using cost of quality information Helps managers reduce cost and improve quality Places a dollar figure on the costs of poor quality Helps prioritise quality improvement programs Helps managers monitor the effects of the 'quality effort' Helps identify the optimal level of quality for the firm Approaches to Managing Quality Contemporary Quality Management Approaches include Total Quality management (TQM) International Quality Standards 9000 (ISO 9000) Total Quality Management (TQM) A philosophy that involves everyone in an organisation in a continual effort to improve quality and achieve customer satisfaction. TQM is: 1. 2. 3. 4. 5. 6. Organisation-wide Customer-driven Involves employee empowerment/team approach Competitive benchmarking Suppliers Involves continuous improvement (Kaizen) ISO 9000 Quality Certification Organisations achieve quality certification by meeting set of international standards on quality management and quality assurance Systems, quality documentation, process controls and delivery methods that an organisation has in place to deliver quality goods and services Provide assurance to customers that an organisation has high levels of quality - facilitates international trade Expensive to implement & maintain - involves lengthy process of documenting quality procedures and on-site assessment (12-18 months) Summary Contemporary cost management approaches focus on identifying and managing the causes of costs and eliminating waste, while managing customer value Approaches include ABM, BPR, LCC and TC The management of quality contributes to customer value TQM and ISO 9000 quality certification provide ways of developing and reinforcing a quality culture and meeting customer expectations ACCG301: Organisational Planning and Control LECTURE 4 Capacity Management (including Theory of Constraints) Chapter 16 (Langfield-Smith et al., 2012; pp751-753) Chapter 7 (Paton et al., 2011; pp207-230) Aleksandra Pop-Vasileva Department of Accounting and Corporate Governance accg301@mq.edu.au After this lecture you should be able to: 1. Define capacity, and understand the factors that influence it 2. Evaluate strategies for managing capacity in the short, medium and long term and matching it with market demand 3. Describe theory of constraints and throughput accounting 4. Analyse the impact of constraints/bottlenecks on a product or service process, and consider the theory of constraints 5. Apply different approaches to manage constraints 6. Critically analyse effects of the constraints. What is Capacity? Capacity is the upper limit or ceiling of an operating unit can produce - is the maximum output rate of a facility - the ability to deliver goods and services - can (as opposed to does) Capacity could include: - Equipment - Space - Employee skills - Financial Measuring Capacity There is no one best way to measure capacity - Output measures like barrels per day are easier to understand - With multiple products, inputs measures work better Which situation is better? Why? Under-utilization Over-utilization Capacity too high - too low Why Plan Capacity? Capacity Planning ...... is the process of establishing the output rate that can be achieved at a facility: Strategic issues: how much and when to spend capital for additional facility & equipment Leading: build capacity in anticipation of future demand increases Following: build capacity when demand exceeds current capacity Tracking: similar to the following strategy, but adds capacity in relatively small increments to keep pace with increasing demand Tactical issues: workforce & inventory levels, & day-to-day use of equipment Forecasting Demand - Anticipating Changes Insert Figure 7.3 here The key point is . . . it is essential to try to understand demand patterns, and their predictability. Management should then be aware of all the potential impacts on demand for its products or services, in turn on capacity Capacity Planning - Best Capacity Level The best capacity level is the output that results in the lowest average unit cost - Economies of Scale: Where the cost per unit of output drops as output increases Spread the fixed costs over multiple units, allow bulk purchasing & handling of material - Diseconomies of Scale: Where the cost per unit rises as output increases Often caused by congestion (overwhelming the process with too much work-in-process) and scheduling complexity 1. 2. 3. 4. 5. Capacity Planning - Economies & Diseconomies of Scale 1. Poor Communication Cost Effective Bulk Buying Advances Technology Efficient Management Vertical Integration Average unit cost of output Economies of Scale 2. 3. 4. 5. Coordination Problem Management Inefficiency Low Motivation Principal-agent problem Diseconomies of Scale Best Operating Level Volume Capacity Planning - Economies & Diseconomies of Scale Economies of Scale working Average unit cost of output 100-unit plant 200-unit plant 300-unit plant 400-unit plant Diseconomies of Scale start working Volume Calculating Capacity- General rule Capacity = Time available Time needed for task Example: A doctor that works 8 hours per day in a medical centre that spends on average 15 minutes per patient can assist 32 patients/day Daily capacity = (8*60min)/15min = 480 / 15 = 32/day Types of Capacity Maximum (or design) capacity - Maximum output rate or service capacity an operation, process or facility is designed for. Optimum (or effective) capacity - Design capacity minus allowances such as personal time, maintenance and scrap - cannot exceed maximum capacity. Actual (or output) capacity - Rate of output actually achieved - cannot exceed effective capacity. Is Capacity same as Efficiency and Utilization? Actual (or output) capacity Efficiency = Optimum (or effective) capacity Actual (or output) capacity Utilization = Maximum (or design) capacity Example - Efficiency Vs Utilization Maximum capacity = 50 trucks/day Optimum capacity = 40 trucks/day Actual output = 36 units/day Actual capacity Efficiency = 36 units/day = Optimum capacity 40 units/ day Actual capacity Utilization = = 90% 36 units/day = Maximum capacity = 72% 50 units/day Example A computer firm has a group of 50 computer consultants. These individuals either visit firms in the area on pre-arranged visits, or are called in for emergency repairs. A call-out fee is charged that covers the first hour of their visit. Beyond the first hour they charge in minimum blocks of 30 minutes. The average call-out is 2 hours long. The working day is usually 8 hours long, but allows two breaks of 15 minutes each and a half-hour lunch break, leaving a 7-hour day. If holidays and illness are accounted for at 25%, the 7 hours per day is actually a 5.25 hour day. Required: If actual work is only 500 hours in the week, then: (a) What is the capacity utilization of the team? (b) What is their efficiency? Example - Solution 50 workers x 5.25 hrs per day Optimum capacity = x 5 days of a working week 2 hrs per customer call out = 656 hours p/w 50 workers x 7 hrs per day Maximum capacity = x 5 days of a working week 2 hrs per customer call out Actual capacity Efficiency = = 875 hours p/w 500 units/day = Optimum capacity 656 units/ day Actual capacity Utilization = = 76% 500 units/day = Maximum capacity = 57% 875 units/day Example - Capacity Planning A manufacturer produces two lines of ketchup, Fancy Fine and Generic line. Each is sold in small and family-size plastic bottles. The following table shows forecast demand for the next four years. Year: FancyFine Small (000s) Family (000s) Generic Small (000s) Family (000s) 1 2 3 4 50 35 60 50 80 70 100 90 100 80 110 90 120 100 140 110 Equipment and Labour Requirements Three 100,000 units-per-year machines are available for small-bottle production. Two operators required per machine. Two 120,000 units-per-year machines are available for family-sized-bottle production. Three operators required per machine. Question: Identify the Year 1 values for capacity, machine, and labour? (3*100,000) (2*120,000) 150,000/300,000=50% At 1 machine for 100,000, it takes 1.5 machines for 150,000 At 2 operators for 100,000, it takes 3 operators for 150,000 (2*1.5) (3*100,000) (2*120,000) 56.67% 1.70 3.40 58.33% 1.17 3.50 66.67% 2.00 4.00 80.00% 2.40 4.80 70.83% 1.42 4.25 83.33% 1.67 5.00 Capacity Planning - Balance Unbalanced use of capacity at different stages Units per month Stage 1 6,000 Stage 2 Stage 3 7,000 5,000 Maintaining System Balance: Output of one stage is the exact input requirements for the next stage Balanced use of capacity at different stages Units per month Stage 1 6,000 Stage 2 6,000 Stage 3 6,000 Why the balance use of capacity is difficult at different stages of a process? Constraint/Bottleneck Constraint is a restriction/bottleneck on the running of an operation with respect to available resources (of any kind) Capacity is always constrained by the slowest or smallest capacity task in a process Constraint is a limiting factor What is a Constraint/Bottleneck? Inputs 1 2 3 200/hr 50/hr 200/hr (a) Operation 2 is a constraint To customers What is a Constraint/Bottleneck? Inputs 1 2 3 200/hr 200/hr 200/hr (b) All operations constraints To customers Types of Constraints Physical Constraints (capacity, material and logistic) Physical, tangible; easy to recognise as constraint. Machine capacity, space availability, lack of people, material availability, material movement, etc. Market Constraints (demographic and socio-economic factors) Demand for company's products and services is less than capacity of organisation, or not in desired proportion. Policy Constraints (managerial) Not physical in nature. Includes entire system of measures and methods and even mindset that governs the strategic and tactical decisions of the organisation. Theory of Constraints (TOC) The theory of constraints (TOC) is management philosophy about focusing attention on the constraints (bottlenecks) that limit organisational achievements (such as maximization of profits) so that throughput can be maximized. In profit-oriented organization, throughput is the rate at which a company generates cash from selling products and services to customers. Throughput Accounting - Measures effects of constraints/bottlenecks and other operational decisions using measures of throughput, inventory and operating expenses Measures of Throughput Accounting Theory of constraints uses a unique set of performance measures. Throughput (T: increasing) Money generated by sales (or the rate of output) Throughput contribution = Revenues - Direct material costs Variable overhead Inventory (I: decreasing) Equals the sum of material costs in direct materials inventory, work in process inventory, finished goods inventory, and costs of keeping inventory. Operating Expenses (OE: decreasing) Equal to all operating costs (other than direct materials and variable overhead) incurred to earn throughput contribution. Identify a Constraint? A 1% sales commission: 2 products: Holden Statesman: $40,000 1% x $40,000 = $400 Holden Commodore: $20,000 1% x $20,000 = $200 Which product will the sales person push? Holden Statesman Suppose the profit margins are Holden Statesman: $1,500 Holden Commodore: $2,500 Holden Which product will the CEO want you to push? Commodore Conflicting goals (Individual Vs. Organisational) Example ABC Company produces a single product in a straightforward production process involving machines A, B and C each run by a separate department. The process begins at machine A, where raw material is converted into a single component. The component passes through machine B where it is converted into the finished product. The completed product passes to machine C where it is tested and packaged. It is then shipped to the customer. The demand for this product is unlimited. Aware of the potential market, the manager of Department B has just begun an efficiency drive to increase the rate of output of his department by 50%. Questions Assess the effectiveness of the Department B manager's proposal for each of the following situation. In each case, identify the current rate of output for the company, and the effect of the proposed efficiency drive on this rate, where appropriate suggest an alternative approach to increase the rate of output. 1. Machine A completes 60 units per hour, machine B completes 35 units per hour, machine C completes 55 units per hour. A 60 B 35 C 55 Current throughput 35 units. Throughput after efficiency drive in department B, 52.5 units (35 units plus 50% improvement [35 + (35x50%)]. Support proposal. 2. Machine A completes 60 units per hour, machine B completes 70 units per hour, machine C completes 65 units per hour. 60 A B 70 C 65 Current throughput 60 units. Throughput after efficiency drive is still 60 units. Efficiency drive in department B is pointless. It would be better to increase efficiency in departments A and C. 3. Machine A completes 60 units per hour, machine B completes 70 units per hour, machine C completes 50 units per hour. A 60 B 70 C 50 Current throughput 50 units. Throughput after efficiency drive is still 50 units. Efficiency drive in department B is pointless. It would be better to increase efficiency in department C. Effects of the Constraints 1. The constraint is \"starved\" In this condition, there is no inventory from the preceding processes available for work by the constraint. The process is capable of production, but cannot produce without material to work on. 2. The constraint is \"blocked\" In this condition, the process is available and there is material available on which to work, but there is no physical space in which to place the material or completed units. 3. The constraint is \"broken\" Since no excess capacity exists on a process, the loss of capacity will directly result in a loss of throughput for the entire business. Example Mick and Donald run a fast food outlet on the road between Hay and Narrandera in NSW. This road is one of the main transport corridors between Adelaide and Sydney. For most of the day, Mick and Donald are able to keep up with demand and serve customers quickly. However, from 4pm to 8pm the shop is inundated with truck drivers, most of whom want one of Mick's famous \"Hamburgers with the lot\". Queue builds, tummies rumble and truck drivers grumble. Mick decided to solve this problem by setting up a hamburger production line from 4pm to 8pm each day. His wife Minnie would take over sales counter. He would cut, toast and butter the bread rolls (he can complete 20 per hour). Donald would cook the meat patties, eggs, bacon and onion (he can complete 40 serves per hour). Donald's wife, Daisy would chop the lettuce and tomato and place it in a toasted bread roll along with the meat patty, egg, bacon, onion, and, of course sauce (she can complete 25 hamburgers per hour). The new system was put in place, and the next day, an average of 30 customers per hour ordered a hamburger with the lot between 4pm and 8pm. 1. Draw a diagram to identify the number of customers per hour who received their orders. Preparing Rolls (Mick) The constraint is \"starved\" TROUGHPUT 20 units per hour Cut salad and assemble burgers (Daisy) TROUGHPUT 25 units per hour TROUGHPUT 40 units per hour The constraint is \"broken\" 10 customers per hour 20 units per hour 15 units per hour Cookin