Lean manufacturing and the firm performance - Myassignmenthelp.Com

Question: Discuss about Lean manufacturing and the firm performance. Answer: Introduction: The report focuses on assessing the appropriateness of Time-Driven Activity-Based Costing System (TDABC) from the viewpoint of a graduate consultant employed in a management consultancy firm. It has been assumed that a major client of the consultancy firm is Boral Limited, which is one of the leading manufacturing firms of the nation. The first section of the report would lay stress on explaining the business activities of Boral Limited. The second segment deals with in-depth evaluation of the concept and characteristics of TDABC. The third portion concentrates on dissecting the dissimilarities among ABC, TDABC and conventional costing systems. Finally, the report sheds light on assessing whether TDABC is appropriate to be implemented in Boral Limited. Description of Boral Limited: Boral Limited is a multinational firm, which is involved in supplying and manufacturing construct ion and building materials. It has been established in Australia; however, it has extensive operations in USA and Asia as well. In 2017, the sales of the organisation has been 4.39 billion AUD and the employee base of the organisation has been 16,000 working across 700 operating sites approximately (Boral.com.au 2018). There are three operating divisions in Boral, which include Boral Australia, USG Boral and Boral North America. For this particular report, Boral Australia has been selected, in which the management is planning to implement TDABC within the organisation. The main products of the organisation include concrete, quarry, asphalt. Cement, concrete placing, bricks, roofing, masonry, softwood and hardwood timber. This division of the organisation is a main supplier of materials and products to the commercial and residential construction along with roads and engineering markets. Concept of Time-Driven Activity-Based Costing (TDABC) and its features: It has been found out that activity-based costing system has a number of issues. For overcoming these deficiencies, TDABC has been formulated, as it simpler, cheaper and highly powerful in contrast to the conventional ABC system. In this context, Balakrishnan, Labro and Soderstrom (2014) cited that TDABC system enables in simplifying the costing process by eliminating the need for interviewing and surveying workers for apportioning resource costs to the activities before driving them down to cost objects. Such cost objects might be in the form of orders, products and customers. TDABC model helps in apportioning the costs of resources to the cost objects. This is conducted with the help of well-designed framework requiring two groups of estimates and these could be achieved without facing many complexities (Chen et al. 2015). Thus, the main characteristics of TDABC include the following: TDABC is involved in calculating the cost associated with the supply of resource capacity. For instance, a department of Boral Australia could be taken into account, which is involved in handling customer orders. In this step, the TDABC system calculates the cost pertaining to resource personnel, supervision, occupancy, equipment and technology supplied to the department or process. It segregates the total cost by the capacity of time available from the workers conducting the departmental work to arrive at the cost capacity rate. TDABC system is associated with utilising the capacity cost rate to drive the costs of resources of the department to cost objects by projecting the resource capacity demand, which is necessary for all the cost objects. Taking into account the above-depicted department, TDABC requires a projection of the time necessary to process a particular order of the customer (Cooper 2017). However, it is not necessary for TDABC system to match each customer order. Instead, it allows the time estimate to vary depending on specific demands by particular orders. These orders could be manual or automated orders, expedited orders, global orders, orders for fragile products and orders of the new customers not having any existing credit record. Hence, this system simulates the actual procedures utilised in carrying out work across the organisation. Moreover, it could confine higher complexities and variations compared to conventional ABC system without creating exploding demand in relation to data est imates and storage or processing capacities (Emmett and Crocker 2016).Therefore, through TDABC, it would be easier for Boral to embrace complexities rather than compelled to use wrong and simplified ABC system for its budgeting system. Differences among TDABC, ABC and traditional costing systems: TDABC and ABC system have been introduced in 1980 and Robert Kaplan is the founder of both these systems. It has been assessed that the conventional costing system has not been able to distribute overhead in an effective fashion and it fails to identify the profitable customers. This is the main reason behind the introduction of the above two models (Fullerton, Kennedy and Widener 2014). Moreover, measuring an activity cost is an important function in the context of a firm. However, both ABC and TDABC systems have the capability of calculating the overall customer profitability. This would enable in benefitting the firms by collecting reliable and rightful information through realisation of the cost drivers. Some of the cost drivers constitute of the following: The quantity drivers, however, these drivers might not be fully accurate despite lower expenses The duration drivers with medium accuracy and expenditures The intensity driver with greater accuracy and maximum expenditures Thus, the main points of differences between conventional costing, ABC and TDABC systems are discussed briefly as follows: Traditional costing system: There are many manufacturing firms in the current era using the conventional costing system in order to allocate manufacturing overhead to the units produced. The users of this specific system assume that the metric of volume is the main driver of cost associated with manufacturing overhead. In this system, the accountants allocate the costs of manufacturing only to the products. The traditional accounting system does not apportion non-manufacturing expenses, which are associated with the production of an item such as administrative expenses. The firms use this costing system mainly in external financial reports, since value is provided for the overall cost of goods sold. Moreover, conventional costing system is an obsolete system of costing, as such manufacturing organisations are engaged now in using machines and computers for maximum production (Hines 2014). The computers and machines outdate the system, as it is engaged in utilising direct labour hours in order to calculate cost. This leads to inaccurate allocation of cost, as the direct labour hours are not a suitable driver of cost to be used. The reason is that the conventional costing system negates the other drivers of cost that might be constituted in the overall product cost. Furthermore, if the organisations use this particular system, it might lead to ineffective management decisions, since it fails to take into account few non-manufacturing costs. ABC system: As commented by Kaplan (2014), ABC system enables in giving a rightful overview of the cost of product; however, the companies utilise it typically as a supplemental system of costing. The bases of apportionment used in this system are different from the bases used in the conventional system of accounting. In addition, ABC system determines each activity associated with the production of an item coupled with distribution of activity cost. The cost allocated to each activity is allocated further to the products necessary for the overall production activity. The main advantage of this system could be viewed in terms of greater costing accuracy. The companies allocate cost to the products only, which is required for the activity of production. This system eliminates the allocation of product costs, which are not relevant. The other benefits of the ABC system take into account the interpretation of cost for internal management, capability to enable benchmarking and greater understanding of the costs associated with overhead. The initiation of ABC system within the firm requires extensive resources. However, this could be a drawback for the firms having lower amount of funds (Kaplan et al. 2014). Finally, there might be few users, who could misinterpret information by using this particular system. Time-Driven Activity-Based Costing (TDABC) system: TDABC system is an important development over the conventional ABC system. This is because TDABC system covers certain benefits, which ABC system could not provide and such benefits are described as follows: TDABC system could work in conjunction with the system of customer relationship management and enterprise resource planning (ker and Ad?gzel 2016). The system could handle higher amount of transactions with faster time of processing by utilising the ERP system. This system provides notification to the workers about the unused resources to allow the management to act accordingly (Tyagi et al. 2015). Along with this, the system utilises simple time projections in order to eliminate the need of creating subjective interview and survey process for explaining the drivers of cost. TDABC model provides an accurate overview of the capacity in relation to units of time. Finally, TDABC system could be developed without the initiation of an appropriate ERP system in order to analyse costs. Suitability of TDABC to Boral Limited: According to the above assessment of TDABC system and contrast with the other two models, it could be found that TDABC model is appropriate highly for Boral Australia. The reason is that the system provides higher visibility to capacity efficiencies and usage along with the capability to estimate future resource demands (Edmonds et al. 2016). Boral is experiencing enhanced rivalry in Australia with Adelaide Brighton Cement and abroad as well and thus, it needs to cut down its cost of production. TDABC system enables Boral to enjoy competitive supremacy by allocating indirect or support cost in a way that the resulting information of cost reflects a rightful overview of resource consumption and resource needs on the part of customers and services of the firm. Boral could manage resources effectively by reducing its costs, which would enable in maintaining competitive pricing structure (Paolucci and Sacile 2016). The project per unit transaction costs and customer inquires might lead to efforts to reduce such costs without sacrificing quality and changes in pricing based on these costs. In addition, it is important to take into account the process that TDABC has provided on online services compared to those provided through traditional channels affecting management decisions. For online services, the management of Boral would have cost-related data likely including higher indirect costs such as website designing and operations, research and development from being a traditional provider with higher amount of labour (Rosemann 2014). However, the per unit costs would be lower significantly in case of online services due to greater market reach that an online service provider could reach. The geographic and physical locations would have lower number of limitations on the same. The management of Boral could use lower per unit service cost in order to provide rightful and competitive costing of online lime and cement products. In addition, TDABC model would help the organisation in developing the cost of providing online service compared to the cost of providing the same through traditional channels. It would enable the management in determining the services to be provided traditionally and those to be provided online (Teece 2014). Moreover, this system provides the management with an effective overview of the overhead costs, as it gives detailed information regarding activities related to providing online services and traditionally offered services. Thus, Boral would be able in making decisions to increase the customer base, minimise costs and enhance services. This system is a platform giving reasonable and meaningful information to the managers quickly and inexpensively. Irrespective of the type of business, the model provides rightful and cost-effective information related to cost and thus, it could be considered superior over the ABC model (Thomas and Gilbert 2014). Hence, the initiation of TDABC in Boral would help in reducing the cost of production, enhancing revenue base and increasing competitive supremacy in the market Conclusion: From the above evaluation, it could be stated that TDABC is a modern budgeting system that enables in simplifying the costing process by eliminating the need for interviewing and surveying workers for apportioning resource costs to the activities before driving them down to cost objects. In addition, TDABC system could work in conjunction with the system of customer relationship management and enterprise resource planning. Finally, it has been evaluated that TDABC model is appropriate highly for Boral Australia. The reason is that the system provides higher visibility to capacity efficiencies and usage along with the capability to estimate future resource demands. References: Balakrishnan, R., Labro, E. and Soderstrom, N.S., 2014. 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