Manufacturing Today - Spring 2011 - (Page 20)

FEATURE BY DALE JOHNSON Manufacturing Mythologies the last accounting myth in manufacturing ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// M F G TOMORROW Even when business is good, accounting departments tend to focus on costing each step in the manufacturing process in order to reduce costs. But costing each step can actually shrink the businesses instead of growing it. Additionally, it often fails to realize any real cost benefits. Because of statistical fluctuations and the way that averages work in a real manufacturing system, these cost figures are an absolute myth. B USINESS VALUE S U STA I N A B I L I T Y M F G TOMORROW N EWS P RODUCTIVITY I MPROVEMENT S U STA I N A B I L I T Y A CCOUNTING C ONTENTS D IALOGUE P RODUCTIVITY B USINESS VALUE I MPROVEMENT A CCOUNTING C ONTENTS D IALOGUE A better way to understand operational efficiency is to look at filling capacity in the manufacturing process – a methodology that focuses on growth and maximizing a company’s throughput. N EWS Traditional Cost Accounting Traditional cost accounting focuses on identifying and reducing the costs of various activity centers in the company. It assigns a cost to each step in the manufacturing process. Cost accounting is based on the realities present during the industrial revolution, when large-scale factory manufacturing first came into being. However, many of the assumptions behind traditional cost accounting are as outdated as 19th-century manufacturing processes. For example, labor costs are an important measurement in cost accounting, reflecting a time when the number of units produced was largely determined by the number of employees working. But in today’s manufacturing environment, machine uptime, capacity and speed are much more important than labor costs, which tend to remain constant. Cost accounting tends to produce information for decision makers that is unreliable. That’s because it is often based on averages and doesn’t provide insight into the reason for cost increases or how they may affect the larger company. 20 SPRING 2011

Table of Contents for the Digital Edition of Manufacturing Today - Spring 2011

Manufacturing Today - Spring 2011
Business Value
Supply Chain
Patriot Forge Co.
Reading Bakery Systems
The South African Mint Co.
GCX Corp.
Jay Industries Inc.
Johnson Electric Coil Co.
Certified Transmission
Olhausen Billiards
Pace Industrues
RTI Claro
The Testor Corp.
Restonic Matresses
Advanced Automation
Anadigics Inc.
Hermes Cones & Snack Manufacturers
JR Automation Technologies LLC
Prodomax Automation Inc.
Stafford Manufacturing Corp.
New England Ropes
Berger Paints Trinidad Ltd.
Air Tractor
Artisans Inc.
Bermingham Foundation Solutions
Bowers Manufacturing Co.
Ferti Technologies
Industrial Acoustics
Morton Industries
Presstek Inc.
Ranco Fertiservice Inc.
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Manufacturing Today - Spring 2011