The German Critique

1
The German Critique

• Narrow rather than comprehensive
• Uses wrong cost drivers
• Unwillingness to rely on statistical cost
  measures and estimates
• Poor averaging, especially temporal averaging
• Failure to distinguish between needs of financial
  reporting and management control

2
The Japanese Critique I

• Importance of inventories and overheads,
  insignificance of labor hours
• Quality
• Solution manage process through product design
  and process value management so as to minimize
  the discrepancy between Process time and Cycle
  time inefficiency 1 (PT/CT)

3
Process value analysis (PVA)

• Chart the flow of activities needed to design,
  create, and deliver a service
• For each activity and step within the activity
  determine its associated cost and its cause
• Determine how the step adds value or, if it is
  non-value adding, identify ways to eliminate it
  and its associated cost
• Determine the cycle time of each activity and
  calculate its cycle efficiency (value-added
  time/total time) and
• Seek ways to improve cycle efficiency and reduce
  associated costs due to delays, excesses, and
  unevenness in activities.

4
Business Process Reengineering

• Jobs should be designed around an objective or
  outcome instead of a single function
• Functional specialization and sequential
  execution are inherently inimical to expeditious
  processing
• Those who use the output of activity should
  perform the activity and the people who produce
  information should process it, since they have
  the greatest need for information and the
  greatest interest in its accuracy
• Information should be captured once and at the
  source
• Parallel activities should be coordinated during
  their performance, not after they are completed
• The people who do the work should be responsible
  for decision making and control built into job
  designs

5
Reflects Assumptions of Flexible Production

• Nobody but the front-line worker adds value,
• Front-line workers can perform most functions
  better than specialists (lean manufacturing),
• Every step of the service delivery process should
  be done perfectly (TQM)
• This reduces the need for buffer stocks (JIT) and
  produces a higher quality end-product.

6
Modern IT reduced economies of scale and scope

• Multidisciplinary teams, members work together
  from start of job to completion
• push exercise of judgment down to teams that do
  an organization's work
• more equal distribution of knowledge, authority,
  and responsibility
• average firm size falling for the last twenty
  years