The German Critique



Narrow rather than comprehensive



Uses wrong cost drivers



Unwillingness to rely on statistical cost measures and estimates



Poor averaging, especially temporal averaging



Failure to distinguish between needs of financial reporting and management control

The Japanese Critique I



Importance of inventories and overheads, insignificance of labor hours



Quality

– Solution: manage process through product

design and process value management so as to minimize the discrepancy between Process time and Cycle time [inefficiency = 1 – (PT/CT)]

Process value analysis (PVA)

• Chart the flow of activities needed to design, create, and

deliver a service

• For each activity and step within the activity determine its

associated cost and its cause

• Determine how the step adds value or, if it is non-value

adding, identify ways to eliminate it and its associated cost;

• Determine the cycle time of each activity and calculate its

cycle efficiency (value-added time/total time); and

• Seek ways to improve cycle efficiency and reduce

associated costs due to delays, excesses, and unevenness in activities.

Business Process Reengineering

Jobs should be designed around an objective or outcome instead of a single function; Functional specialization and sequential execution are inherently inimical to expeditious processing; Those who use the output of activity should perform the activity and the people who produce information should process it, since they have the greatest need for information and the greatest interest in its accuracy; Information should be captured once and at the source; Parallel activities should be coordinated during their performance, not after they are completed; The people who do the work should be responsible for decision making and control built into job designs

Reflects Assumptions of Flexible Production

 Nobody but the front-line worker adds value,  Front-line workers can perform most functions better than specialists (lean manufacturing),  Every step of the service delivery process should be done perfectly (TQM)  This reduces the need for buffer stocks (JIT) and produces a higher quality end-product.

Modern IT: reduced economies of scale and scope

– Multidisciplinary teams, members work together from start of job to completion – push exercise of judgment down to teams that do an organization's work – more equal distribution of knowledge, authority, and responsibility – average firm size falling for the last twenty years