Tuesday, May 6, 2008

A Process Of On-Going Improvement (POOGI) - Part 11

Conventional cost accounting assumes that incremental and isolated cost improvements are productive and in support of an organization’s goals, and that global improvement equals the sum of local improvements.

Since a conventional cost accounting system relies on transaction data—each transaction is a separate event—it is incapable of a holistic or systems thinking perspective except when closing the books. In addition, conventional cost accounting is not capable of giving good information because it assumes that all the company’s resources are equally important.

So, how would cost accounting block you from implementing the Drum-Buffer-Rope scheduling methodology? In at least two ways:

  • because of the way inventory is valued, and
  • because of the impact on efficiency measurements.

Remember from the discussion of Drum-Buffer-Rope last month that we expected a reduction in Work-in-Process inventory to about half of its initial level. What is the effect on the monthly Profit and Loss statement from this?

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

About the authors:
Brad Stillahn is a business owner that has successfully implemented Goldratt's Theory of Constraints (TOC) methods in his own business and is now helping other business owners do the same. His consulting company, TOC Professionals engages in long-term relationships with companies implementing TOC. His business and personal partner is Dr. Lisa Lang. Brad can be reached at Brad@ScienceofBusiness.com or 303-886-9939.

“Dr. Lisa” Lang is President of the Science of Business. Her speech “Maximizing Profitability” is popular with Vistage groups and as a keynote speech. Recently Dr. Goldratt’s Global Marketing Director, she offers the “Mafia Offer Boot Camp” for companies wanting to develop and implement a Mafia Offer. She can be reached at DrLisa@ScienceofBusiness.com or 303-909-3343.

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