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Agile Manufacturing: Forging New Frontiers

Main Home >Paul T Kidd > Paul T Kidd's Books - Non-Fiction > Agile Manufacturing Forging New Frontiers Home > Chapter 4

Agile Manufacturing: Forging New Frontiers

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Agile Manufacturing

Paul T Kidd

ISBN 0-201-63163-6 (Hardbound)

Publisher: Addison Wesley

Price: See buy on-line link

Publication Date: June 1994


Agile Manufacturing: Forging New Frontiers

Chapter 4 Introduction

The management accounting methods that we have traditionally used in manufacturing industry, were mostly developed during the age of labour intensive mass production. The business environment of this era was largely based on home consumption, secure export markets, stable demand and limited competition.

This environment is now changing. Much of manufacturing is no longer labour intensive, and high volume, low variety production has given way to high variety, low volume production. Markets have also become more global and dynamic, and the business environment is much more competitive. Moreover, manufacturing technology has become more sophisticated, and the benefits are no longer confined to the place of implementation and use. The technology can now bring company wide benefits, which are not only concerned with cost savings, but also with the potential for revenue generation (for example, as a result of increased customer responsiveness).

Against this background of change, one aspect of manufacturing has remained largely unchanged. The management accounting and investment appraisal methods that we use in today's manufacturing environment, are much the same as those used fifty years ago (Johnson and Kaplan 1987, Kaplan 1989). In fact, many of the basic ideas of management accounting can be traced back to the scientific management movement started by Frederick Taylor, in the United States, in the late part of the 19th century (Kaplan 1984, 1989).

There is now increasing criticism of these outdated methods in the accounting and management literature. A notable milestone in this critique was the publication in 1987 of Professors Johnson and Kaplan's book, Relevance Lost: the Rise and Fall of Management Accounting (Johnson and Kaplan 1987). In the late 1980s and early 1990s activity based costing (ABC) emerged as an important alternative management accounting method (Brimson 1991, Turney 1992). We will return to ABC in Chapter 9.

In this chapter we wish to examine the criticisms of our traditional management accounting methods and to consider some of the problems associated with the financial appraisal of advanced manufacturing technologies (AMT) such as flexible manufacturing systems (FMS) and computer integrated manufacturing (CIM) systems.

The reason why we wish to focus our attention on the management accounting paradigm is because management accounting forms a central part of any manufacturing business. Management accounting systems provide us with the financial information that helps us to make business decisions. In this Chapter we shall try to demonstrate that our traditional management accounting systems also provide the framework that supports and keeps alive many of our outdated manufacturing practices and beliefs. Our hypothesis is quite simple: if we want to change our traditional practices and beliefs, one of the first places to start is with our management accounting systems.

Management accounting is primarily concerned with three issues: product costing; performance measurement and control systems; and investment appraisal. We shall, therefore, briefly examine the basics of each of these areas. At each step, we will consider why our well established techniques are inappropriate to Agile Manufacturing environments. We will start with investment appraisal.

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