Product Complexity Defination

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.

Optimization of machinery so that production setups are not required for small customizations which can be managed manually.

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.

A supply chain is a net work of firms. Thus, each firm in the chain should build its own supply chains to support the competitive priorities of its services or products. Two distinct designs used to competitive advantage are efficient supply chains and responsive supply chains. Efficient supply chains work best in environments where demand is highly predictable. The focus of the supply chain is on efficient flows of services and materials keeping inventories to a minimum. The firm’s competitive priorities are low-cost operations, consistent quality, and on-time delivery. Responsive supply chains designed to react quickly in order to hedge against uncertainties in demand. Work best when firms offer a great variety of services or products and demand predictability is low. Typical competitive priorities are development speed, fast delivery times, customization, variety, volume flexibility, and top quality. Tables below show the environments and design features that best suit each design.

However, as a new member with a new product, electronic product in North American market, the reputation is also an important attribute. Especially, quick delivery time is a key attribute for this company, due to the demand of quick delivery in all markets. Moreover, the manufacturing process of the new product, electronic product, on which our company will definitely focus, has a lot demands. Such as, technology, innovation and quick delivery time even the ability to make the product be the first one appearing in the market (other company, which is developing the same product, may become our competitive opponents). Especially, technology is predicted to play the most important role in the manufacturing process. On the other hand, the traditional cost system has a lot of limitations. Traditional costing system focuses on the cost reduction and the efficiency, particular the products with relatively few standardized components; Clifton, however, produces a wide range of airplane components. In addition, nonfinancial aspects of

It was considered to be overly structured and complicated, especially in the opinion of the CEO. He felt that lean management system enabled people’s involvement in the designing and improvement of processes more than that within the IT system. With the failure of initial IT implementation, CEO was of the opinion that “one size fits all” is not a feasible approach in Lean and IT amalgamation. Due to this, there were discrepancies of opinions among the executives as some believed IT systems could prove to be beneficial in the long run. Mr. Cremin believed that Lean manufacturing pushes the decisions down to people directly engaged in producing products. Incremented changes are key to innovation and continued improvement and an overly structured and complex IT system could interfere with the process innovation.

The fourth chapter is titled “Standardize Work.” The theme is “to identify how the work is well defined and how the effective team effort is exerted on the maintenance of the same repetitive work in sequence”. Thus, the standardization and the effort towards lean production is important (Ballé and Ballé).

Boeing made use of lean techniques in their production system and increased its production by 50% and also reduced its floor space by 40%. Assembling a Boeing 737 is a typical job. Workers should take 367,000 parts, an same number of bolts, rivets, other equipment and 36 miles (58 kilometres) of electrical wire and then keep them all combined to make an airplane [2]. Engineers to machinists were involved in lean (reducing waste) in the factory. By creating an assembly line, aircraft will pass through the workers were they going to concentrate on assembling. Allocating all employees in the factory building and organising special teams helped a lot to solve the errors in the assembly line [2]. In the assembly line, there are eight beacon lights which reflect the production status. If everything is good it shows green colour. If an error occurs, the worker will press a button and the green light will changes to yellow and the panel board will shows the category of the problem(which category it is related to). The worker will pass on to a computer and writes about the problem in a brief manner and the problem should be assigned to special team to solve it within 30 minutes if not, the light turns to purple and the assembly line will shuts down. This moving assembly is the icon of factory’s lean strategies.

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

Lean is defines the manufacturing philosophy that reduces the time between the shipping and customer demand, which based on the systematic method by eliminating waste, that means giving the customer what they want when they want it, and don 't waste whatever. Rahmana, Sharif and Esa (2013) suggested lean production is mentioned to improve the company 's performance from the philosophy in reducing waste in order. That means, lean system destination is the decrease cost by removing the non-value activities, which they are applying a category of tools and techniques for checking and eliminating defective in the production process. In the Evenort Company should emulate the five overriding principles of lean thinking in terms of implementing lean that there is guarantee the company has been driving correctly in the lean manufacturing (Cardiff 2015) as can show in table 1.

Assigning the overhead costs to the products shows how profitable the products are after deducting all cost. However, it is important to find the appropriate method of overhead cost allocation. In Sippican’s case the traditional accounting method is used, which does not reflect the real resource usage of the different product lines. The correct method in this case would be to apply the time-driven ABC approach for cost allocation. Such method apart from showing the actual profitability after all cost deductions also depicts the differences in resource usage rates between the products and, thus, allows for identification of cost drivers. A contribution margin

Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.

Dean Hammond can implement JIT techniques that seek to eliminate the significant amount of waste that exists in his current operational processes. Basically, there are seven wastes to be considered as obstacles in the lean system. It consists of over production, wasting time, transportation, process, inventory, motion, and defectives. As a result of implementing this concept, it will arrange a better-valued chain and create a solid base of production.

Even when the demand for an operations products can be reasonably well forecast, the inherent uncertainty in all estimates of future demand may inhibit the business from investing capital to meet the most likely level of demand. Contrastingly, this principle can be linked to the concept of economies of scale. For BCF the addition of one unit of capacity i.e. from the extra capacity provided by the conventional technology option, the total fixed costs per unit of potential production output will decrease. For the new technology option, the addition of one unit of capacity will increase unit costs – a diseconomy of scale. Initially, this claim is based on the capital cost of implementing the new technology option, as well as diseconomies of over using capacity having the effect of increasing unit costs above a certain level of output. As a result, more operations activities

During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.