Page 349 - Accounting Information Systems

320 PART II Transaction Cycles and Business Processes

World-Class Companies and Lean Manufacturing

The traditional conversion cycle described in the previous section represents how many manufacturing
firms operate today. Over the past three decades, however, rapid swings in consumer demands, shorter
product life cycles, and global competition have radically changed the rules of the marketplace. In an
attempt to cope with these changes, manufacturers have begun to conduct business in a dramatically dif-
ferent way. The term world-class defines this modern era of business. The pursuit of world-class status is
a journey without destination because it requires continuous innovation and continuous improvement. A
recent survey of corporate executives revealed that 80 percent claim to be pursuing principles that will
lead their companies to world-class status. Skeptics argue, however, that as few as 10 or 20 percent of
these firms are truly on the right path.

WHAT IS A WORLD-CLASS COMPANY?
The following features characterize the world-class company:
World-class companies must maintain strategic agility and be able to turn on a dime. Top management
must be intimately aware of customer needs and not become rigid and resistant to paradigm change.
World-class companies motivate and treat employees like appreciating assets. To activate the talents of
everyone, decisions are pushed to the lowest level in the organization. The result is a flat and respon-
sive organizational structure.
A world-class company profitably meets the needs of its customers. Its goal is not simply to satisfy
customers, but to positively delight them. This is not something that can be done once and then forgot-
ten. With competitors aggressively seeking new ways to increase market share, a world-class firm must
continue to delight its customers.
The philosophy of customer satisfaction permeates the world-class firm. All of its activities, from the
acquisition of raw materials to selling the finished product, form a chain of customers. Each activity is
dedicated to serving its customer, which is the next activity in the process. The final paying customer
is the last in the chain.
Finally, manufacturing firms that achieve world-class status do so by following a philosophy of lean
manufacturing. This involves doing more with less, eliminating waste, and reducing production cycle
time.
The following section reviews the principles of lean manufacturing. The remainder of the chapter
examines the techniques, technologies, accounting procedures, and information systems that enable it.

PRINCIPLES OF LEAN MANUFACTURING
Lean manufacturing evolved from the Toyota Production System (TPS), which is based on the just-in-
time (JIT) production model. This manufacturing approach is in direct opposition to traditional manufac-
turing, which is typified by high inventory levels, large production lot sizes, process inefficiencies, and
waste. The goal of lean production is improved efficiency and effectiveness in every area, including prod-
uct design, supplier interaction, factory operations, employee management, and customer relations. Lean
involves getting the right products to the right place, at the right time, in the right quantity while minimiz-
ing waste and remaining flexible. Success depends, in great part, on employees understanding and
embracing lean manufacturing principles. Indeed, the cultural aspects of this philosophy are as important
as the machines and methodologies it employs. The following principles characterize lean manufacturing.

PULL PROCESSING. As the name implies, pull processing involves pulling products from the con-
sumer end (demand), rather than pushing them from the production end (supply). Under the lean
approach, inventories arrive in small quantities from vendors several times per day, just in time to go
into production. They are pulled into production as capacity downstream becomes available. Unlike the
traditional push process, this approach avoids the creation of batches of semifinished inventories at
bottlenecks.