Operating Optimization And Global Optimization

Assuming that the company’s goal is to maximize profits, the current cost system is not an appropriate tool for strategic planning. The ambiguity of the overhead costs per product makes it difficult to accurately analyze the cause and effect relationships of changes and/or improvements to specific product line.

Production practices have had an important role in satisfying the dynamic market. Many approaches have being developed in order to respond effectively to specific business requirements. In fact, some areas of management have focused its study on the overseeing, designing, and controlling the process of production in an effort to find the best methodology that ensures the business success and performance. However, complexities arise in this field because many variables such as costs, inventory, scheduling, suppliers, etc have to be considered in any business. Lean approach and the traditional approach are two points of view that aim to address this complexities, and those will be examined in this essay.

It is stressed in the Goal that there is a massive difference between throughput and efficiency. The novel makes the case that having an efficient operation does not equate to profitability. What does equate to profitability is to increase the throughput of any given operations system. Jonah tells Alex, “Throughput, is the rate in which the system generates money through sales.” (Goldratt, E.M. (2014), The Goal, pg. 60). Jonah goes on to explain to Alex that inventory is all the money that was invested in purchasing things that the system intends to sell. (Id). Furthermore, operational expenses are those costs that are required to turn inventory into throughput. (Id, at pg. 61). The definitions of these three measurements are not standard definitions for an MBA student. It is an interesting perspective on how to view operations.

Throughout the entirety of the book, The Goal: A Process of Ongoing Improvement, author Eliyahu M. Goldratt focuses on demonstrating the importance of the Theory of Constraints and what corporations should do in order to increase profits. A major term used throughout the novel is “throughput,” which according to the text, is “the rate at which the system generates money through sales” (Goldratt 60). Once a bottleneck machine in a production process is identified, there are multiple ways to increase throughput without expanding the physical capacity of the machine.

In today’s operational management arena, there are certain expectations from a managerial aspect that must be met in order to be successful. A comprehensive look at the Space Age Furniture Company will show exactly what the Materials Requirement Planning (MRP) calculations are for this company at present time and then take the information given in order to properly suggest ways to improve the sub-assemblies. In addition, there will be an analysis on the trade-offs between the overtime and inventory costs. A calculation will be made on the new MRP that will improve the base MRP. This paper will also compare and contrast the types of production processing to include the job shop, batch, repetitive, or continuous, and determine which

The North American market is very price-sensitive, and some components, like OE and spares which are in the mature period of their life circle, the traditional cost system seems to be a method for them in this company. Thus, in the situation that price is almost the most important order-winning criterion. Traditional cost system is judged in that it is suitable to manufacture the required product at minimum cost and efficiency.

The lean thinking has been established in a well manner in the competitive world. The countless business industries have proved their effective growth in terms of brand recognition and in terms of the good profit amount with the effective application of the lean production system in their operational activities. Toyota has added their name in the application of the lean thinking in their production process first in the global competitive market. The book “the Gold mine” written by Freedy and Michael Balle is a definite attempt to highlight the challenges that the leaders are facing in the perfect transformation of the lean thinking in their operational activities. This essay has discusses the direct connection between the content the

In order to achieve excellent production capacity and reducing the overall costs the production manager has to find an optimal structure of aggregate planning which will help achieving qualitative and quantitative aspects of the organization.

Eliyahu M Goldratt purpose of writing this book is to introduce individuals to how to manage and measure effectively. Goldratt illustrates how the accounting cost figures and productivity per machine can actually be problematic for it misleads individuals into thinking they’re achieving the goal. Rather all attention should be focused on strategy planning and managing the bottlenecks because they are the true driving metric of production. One major takeaway message from this novel is that there is always room for improvement. This philosophy of ongoing improvement originated in a Toyotas production system and is better know as the Kaizen theory. The Novel, stresses the Kaizen theory, which starts with an indication, then an in-depth analysis, followed by a diagnosis, eventually arrive ate a hypothesis and ending with

Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to

Besides, decreasing the production cost is also important as the firm can then lower the price. So the decisions related to change in plant size, process improvement and the training are also important.

It consists of weighting and combining the weights of the ten factors and to evaluate implementing ABC. The potential benefits of ABC can be analyzed in advance along two separate dimensions. And there are ten mediating factors (Pricing Diversity, Support Diversity, Common Processes, Cost Allocation, Growth of Indirect Costs, Pricing Freedom, Fixed Expense Ratio, Strategic Considerations, Cost Reduction Effort, Analysis Frequency) can guide management in determining the answers. The fist five factors (PD, SD, CP, CA, FG) based on the probability. The second dimension of the model seeks to establish decisions. lY axis potential for ABC due to cost distortion---PD.SD.CP.CA.FG lX axis proclivity to use cost information in decision---PF.FE.SC.CR.AF To start management must analyze and responses to two key questions: 1. For a given organization, is it likely that ABC will produce costs that are significantly different from those that are generated with conventional accounting, and does it seem likely that those costs will be "better"? 2. If information that is considered "better" is generated by the system, will the new information change the dependent decisions made by the management? After finish these questions managers of company can discuses the ten factors that support or reject implementation. Finally, the combined weighted scores are plotted as a point on one of the four quadrants of a graph.Plotting the Answers--- Use Contingency Grid Method The steps in the

Based on the real world functioning of businesses, every organization that deals with the process of manufacturing of certain products operates in accordance with the main principle of maximizing its profits. During the performance of daily activities, many business managers face a series of questions related to planning, control and decision making. In order to give answers to all these questions, an additional analysis needs to be considered. It is very important for managers to plan carefully how they are going to generate sufficient money to pay down costs and, in this way to result with a profit. As managers are interested in having the adequate information about the influence that certain actions might have on the profitability of the business, "Cost Volume and Profit" analysis plays a significant role by being a potential tool in facilitating the process of making the right decisions regarding planning and control in order to add value to the company. (Trifan and Anton, 2011). To further illustrate the essential impact that CVP analysis has on management authorities in making better decisions, I will refer to and analyze the case of the Hampshire Company which follows as below.

The purpose of this paper is to answer a few important questions: Why do companies allocate costs? How do companies allocate costs? And how this cost allocation can affect the decision making of the company. It is important for the companies to find the proper method to allocate the costs. Cost allocation is an important issue in many companies because many of the costs associated with designing, producing and distributing products and services are not easily identified with the products and services that are created. It would have been easier for companies to allocate cost if costs were directly traceable with the products and the cost allocation would have been minor issue for the company. The decision-making

The goal of traditional accounting practices is to achieve the lowest possible cost per unit by maximizing employee and equipment productivity. However, the goal of the plant’s