Post by EdI can't find many criticisms of throughput accounting (based on
Goldratt's TOC). Is it really that great? Would you discourage me from
looking into it further, and why/why not?
Thanks for your input.
Welcome to the hornet's nest! You will not find many supporters of the
concept because it simply does not fit traditional accounting which is
designed for tax purposes and not decision-making. Throughput accounting
lets you know how much cash you have left over after paying all labor and
material costs for almost any given time period. As factory manager for
Corsair Marine and later Elpac Mexicana I developed a VisiCalc matrix for
weekly reports to management. This allowed us to make corrections on the fly
without waiting for the traditional three month report.
My argument is that using cost accounting for management decionmaking is
questionable. Let me try to put it into reality, from an actual
on-the-shop-floor example:
I was being interviewed by the ceo of a speaker manufacturer and the job in
question was to be his VP Operations. As we walked the assembly line of 80
people assembling speakers at the TAK rate of 12 seconds, I observed at the
end of the line an occasional speaker being taken from the line and put onto
a special pallet. I asked, and Jeff told me they were rejects and would be
tossed into the garbage because once sealed, they would cost more to repair
than to make new ones. I suggested that for every bad speaker, tossed into
the garbage, his loss was the loss of the sales price. He argued traditional
tax based accounting. That there is no way the sales price could be
considered a loss. So I asked how much overtime would be required to make up
for the scrapped pieces in order to fulfill his contract with Radio Shack.
He said overtime in Mexico is nothing and shrugged his shoulders.
Remember... he had in his mind a $1.50 loss figure and knew that disrupting
the line to fix the problem would probably be costly and not worth the time.
He was willing to continue absorbing the loss due to this quality problem.
He never admitted this and the problem would have continued forever. But I
was able to identify the problem and fix it even as we stood by the line. As
days went by, I saw him with a smile on his face and he showed me the latest
cost/revenue analysis on this particular speaker and said how happy he was
with my whipping the crew into shape to make more, better, for less. The
result of this happy smile was that I had eliminated the losses and allowed
those few speakers per hour go into invoicing which produced cash flow above
what had happened just a week before.
Call it what you want. I was lucky that I could take action to solve the
problem. In most cases you have to hit the ceo over the head with a two by
four to get their attention and one way to do it is to show them the actual
cost of lost business as a negative to their cash flow... no matter what the
cost accounting department says.
Wayne