Activity Based Management

3 concentrates of Performance Management?

- Efficiency - Time - Quality

What are four ways to achieve cost reduction ?

- activity elimination - activity selection - activity reduction - activity sharing

What are external failures?

- after defective product reaches customer - most significant

What does Efficiency ?

- looks at the relationship between inputs and outputs - aimed to improving number of outputs (goods or services) at a lower cost

External failures result in

- lost sales - product returns and allowances - warranty costs - repair costs - product liability - customer dissatisfaction - decrease in market share - increase in customer complaints

Value Added Activities

- necessary activities - must be performed with perfect efficiency - should be optimized

Non-value Added Activities

- unnecessary activities - a value added activity performed without perfect efficiency - should be eliminated - elimination of non-value added activities reduces costs

Appraisal Activities Examples

-inspecting and testing raw materials -packaging inspection -supervising appraisal activities -product acceptance -measurement equipment -outside endorsements

What are internal failures?

-products or services are not in compliance with specifications or customer needs -happens before defective product reaches customer -detected by appraisal activities

Prevention Activities Examples

-quality engineering -quality training programs -quality planning -quality reporting -quality audits -quality circles -supplier evaluation and selection -field trails -design reviews

Examples of internal failures

-scrap -rework -downtime -re-inspection -retesting -design changes

Examples of Non-value Activities

-waiting -inspecting -storing -scheduling -moving -rework

What are two types of added values?

1) Mandated - by law or regulations 2) Discretionary - the activity produces a change of state - the change of state was not achievable by preceding activities - the activity enables other activities to be preformed

Cycle time formula

Cycle Time = hours/units *answer should be labeled hours *to convert to minutes multiply by 60

What are 3 components of Process Value Analysis?

Driver Analysis Activity Analysis Activity Performance Management

What are two types of failure activities?

Internal and External

Velocity formula

Velocity= units/hours *answer should be labeled in units

Appraisal Activities

checks on services or products to determine if they meet specifications or customer needs

Driver Analysis

concerned with the root causes of activities -looking at activity inputs (resources) -looking at activity outputs (products or services)

Activity Analysis

concerned with waste elimination, reduction of costs through waste elimination.

Cycle time

how long it takes to produce one unit from start (raw materials) to (finished goods)

Velocity

how many units can be made within a period of time

Activity Sharing

looking for economies of scale in order to reduce unit cost for value added activities

What are two control activities?

prevention and appraisal activities

Quality

quality activities are broken down into control activities and failure activities

Activity Reduction

reduction of time and resources for value added activities will reduce costs

Activity Selection

selecting one alternative or strategy from an existing set of strategies for value added activities

Prevention Activities

to prevent poor quality in services or products

Activity Elimination

work to eliminate non-value added activities