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Management Control Systems

Notes 4. Developing implementation plans: Action plans are programs designed to attain the
goals. Teams are established, tasks are specified and sequenced, resources are applied,
responsibilities assigned, schedules established, and results monitored. The normal project
control process is established for major goals. Benchmarked goals can be implemented
either through the line organization or through specifically organized project teams.
When cross-functional business processes are being benchmarked, cross functional teams
are the most useful organization form.

9.6 Just-in-Time Technique and its Influence on
Management Control Process

Just-in-time, as the name indicates, means at the extreme there are zero inventories, and goods
are produced or ordered only when they are needed. The extreme case is not common but term
is catchy way of stating the direction.
The following are just-in-time techniques used:
1. Reducing buffer inventory at each workstation: Buffer inventory exists partly because
workstations break down and partly because they produce defective products. When
these events occur production in the following workstation stops unless there is inventory
that they can draw. Steps to reduce/minimize machine breakdown and improve quality
will reduce the keeping of buffer inventory. Buffer inventory also results from bottlenecks
i.e., slower work in some workstations. This can be eliminated by balancing the output of
several workstations.

2. Decrease set up costs: With numerically controlled machine tools, set up involves simply
inserting a new computer program in a machine. Thus, after the computer program has
been created, the cost of setting up for the next and all subsequent lots is trivial.
3. Decrease procurement costs: Instead of going through the lengthy process of request bids
from vendors, analyzing bids, placing order with the best vendor, and receiving and
inspecting the incoming goods, some companies have established relationships with one
or two vendors for each time and they want the vendor to deliver quality goods at specific
date.
4. Relation with customers: The other side of the coin is to establish relationship with
customers for automatic ordering.
The following are the implications for management control:
1. WIP inventory becomes so insignificant that it can be disregarded. The only inventories
are for raw materials and finished goods and issue from raw materials inventory are
charged directly to finished goods inventory. In effect, a job-cost system is transformed
into process-cost system. With only one cost centre and the tedious task of calculating
“equivalent production” (which is necessary to find WII amounts when the inventory in a
cost centre consists of partially completed products) is eliminated, resulting in considerable
reduction in record-keeping. Products are carried in inventory as standard costs without
tracing actual costs to individual products/batches of products.
2. It focuses management attention on time in addition to cost. One of the effective ways to
monitor progress is to compute the following ratio by setting targets. Best results can be
obtained by emphasizing continuous improvement in this ratio towards the ideal number
of I, since only processing time adds value to the product.

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