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Activity-Based Management
McGraw-Hill/Irwin
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. . . To identify opportunities to improve efficiency. Process Improvements, Customer Value, & Reduced Costs
ActivityActivity-Based Costing
ValuedValued-Added Analysis
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Activity-Based Management
ABM adds:
4 Basic Steps
Identify & classify the activities related to the companys products or services. Estimate the costs associated with each activity. Calculate a cost-driver rate for each activity. Assign activity costs to products using the costdriver rate.
Identification of value-added and non-value-added activities Identifies the customer perceived value of each activity Identifies opportunities to enhance value-added activities and reduce or eliminate non-value-added activities
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Activities
Create outcomes and consume resources
VALUE-ADDED ACTIVITIES enhance the value of products and services in the eyes of the customer while meeting the goals of the organization
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Competitors are constantly striving to create more value for customers at lower cost
The organization can apply the freed- up resources to valueadded activities or distribute them to the employees of the organization.
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YES NO
If the answer If the answer is no to is yes to both or either both it is it is nonvalue-added. value-added.
YES NO
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Rate on a scale of 1 to 5
1
NONVALUEADDED
Necessary Activities Neither value-added nor non-value-added Technological Requirements Policy Requirements Regulatory Requirements
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Sub-Activity Trim excess plastic Recycle trimmings Put piece in box Log out completed order Move order to warehouse Register order in inventory Total elapsed time
Why do employees need to trim excess plastic from molded 0 min. products?
0 min. Why#1: Appearance and product function requires removal of the excess 25 high-injection pressure, plastic Why#2: Undermin. leaks from the edges of the mold Why#3: High pressure is required to mold the 15.1 min. products properly Why#4: The design of the molds permits leakage 30 min. Why#5: The molds are based on old designs
SOLUTION: Rework or replace old molds with improved molds to eliminate 82.2 min. the need for trimming and recycling.
12.1 min.
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Sub-Activity Trim excess plastic Recycle trimmings Put piece in box Log out completed order Move order to warehouse Register order in inventory Total elapsed time
SOLUTION: Install a bar-coding system to mark and track all 15.1 min. orders electronically A bar-coding system creates a unique bar 12.1 min. code for each order and allows the company to mark and min. 82.2 track all orders electronically
30 min.
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Sub-Activity Trim excess plastic Recycle trimmings Put piece in box Log out completed order Move order to warehouse Register order in inventory Total elapsed time
After process improvements, total elapsed time has been reduced to 82.2 minutes. If we assume a cost of $10 per hour, what is the cost savings?
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Sub-Activity Trim excess plastic Recycle trimmings Put piece in box Log out completed order Move order to warehouse Register order in inventory Total elapsed time
Time Saved: 286 min. - 82.2 min. 203.8 min. 60 min/hr 3.397 hrs. Cost Savings: 3.397 hrs. $10/hr. $33.97
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Consider cost-benefits
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Observation
Survey
Interview
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END