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