GEMBA XII – Theme 3B
The General Manager as Integrator
5–9 November 2015, Shanghai Jiao Tong University, Shanghai
Professors Mark Young (Management Accounting) and Jonathan Yormark (Operations Management)
All assigned readings and cases for all the week's sessions need to be read and studied before the first session at SJTU. Focus on reading and being prepared to discuss.
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Thursday, 5 November
07:30 Breakfast
08:15 Introduction to Theme 3B – Professors Yormark and Young
08:30 Management Accounting Session 1 – Professor Young
Topic: Management Accounting Concepts and Terminology
Discussion: Essential Management Accounting Concepts (class handout)
Required Readings:
· Textbooks:
§ AKMY, Chapter 1 – “How Management Accounting Information Supports Decision Making.” and Chapter 2 – “The Balanced Scorecard and Strategy Map.”
§ P. Drucker, “Be Data Literate, Know What to Know,” RIMA 1.1
§ A. Mersereau, “Pushing the Art of Management Accounting,” RIMA 1.3
09:45 Break
10:00 Management Accounting Session 2 – Professor Young
Topic: Introduction to Traditional Product Costing and Overhead Allocation
Discussion: Traditional Overhead Allocation
Required Readings:
· Textbooks:
§ AKMY, Chapter 3 – “Using Costs in Decision Making.” and Chapter 4 “Accumulating and Assigning Costs to Products,” (pp. 121-139)
§ R. Cooper, “Does Your Company Need a New Cost Management System, “RIMA 3.2.
Optional Reading:
· Textbook: S.M. Young, J. Gong and W. Van der Stede, “The Business of Making Movies. “RIMA 3.5.
11:15 Break
11:30 Management Accounting Session 3 – Professor Young
Topic: Cost Distortion with Traditional Product Costing and Overhead Allocation
Required Reading:
· Case: Bridgeton Industries, HBS #9-190-085
Case Discussion Questions:
1. The overhead allocation rate used in the 1987 model year strategy study at the ACF was 435% of direct labor cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers?
2. Calculate the overhead allocation rate for each of the model years, 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred?
3. Consider two products in the same product line:
Product 1Product 2
a. Selling Price $62 $54
b. Standard material cost $16 $27
c. Standard labor cost $ 6 $ 3
Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price and material and labor cost do not change from standard.
4. Are the product costs reported by the cost system appropriate for use in the strategic analysis?
12:45 Lunch
13:45 Operations Management Session 1 – Professor Yormark
Topic: Process View of the Firm
In this session, we will explore the key building blocks of operations management: processes, measures and controls. We will introduce several measures (throughput time, throughput rate, work-in-process, inventory turns and other measures) that enable us to evaluate the performance of processes.
Required Reading:
· A Note On Bottlenecks And Process Analysis
15:00 Break
15:15 Operations Management Session 2 – Professor Yormark
Topic: Process Analysis
In this session, we will continue our earlier discussion, and delve deeper into the analysis of processes. We will review the rudiments of process and capacity analysis: determining the capacity and bottlenecks of a process, utilization of various resources, and such. Also, we will explore the impact of variety, variability, and flexibility on operations, especially in complex processes with multiple stages.
Friday, 6 November
07:30 Breakfast
08:30 Operations Management Session 3 – Professor Yormark
Topic: Process Analysis and Real Options: Cleveland Cliffs case
This case provides for an exploration of basic concepts in capacity, output and costs in a heavy industrial manufacturing scenario. We will apply some of the concepts we learned in the previous session to this specific setting. It also illustrates how understanding processes well is critical to making sound investment and operational analysis decisions. It also introduces some concepts in decision making under uncertainty.
Required Reading:
· Case: Pumping Iron at Cleveland Cliffs
Case Discussion Questions:
1. As a member of, or a consultant to, the board of Cleveland Cliffs, what would you recommend concerning the future of the Circored plant? Qualitatively outline and discuss the alternatives and reflect what this would mean for Cleveland Cliffs’ long-term valuation.
2. At the time of the case, the market price of DRI is around $90 per ton. What is your assessment of the plant’s current production cost, measured in cost-per-ton of output? (Use the cost information given in the case.) Determine the capacity or maximum output of the system assuming that the FB reactor is the bottleneck. Ignore the statements in the case referring to a 500,000 ton design capacity. Assume the plant operates 24 hours/day, 365 days per year.
3. What is your assessment of the two improvement projects suggested by the plant? Would you invest in them? When evaluating the yield improvement project, assume that the project reduces yield losses to 1% at the flash heater and 1% at the briquetting machine.
09:45 Break
10:00 Operations Management Session 4 – Professor Yormark
Topic: The Impact of Variability on Operations
In this session, we will continue our discussions of processes and explore the impact of variability (in both supply and demand) on operations.
11:15 Break
11:30 Operations Management Session 5 – Professor Yormark
Topic: Leading and Lean: Basics of the Toyota Management System
In this session we will learn about the basic principles of the Toyota Management System and its generalization into lean operations and lean thinking. Lean organizations are learning organizations and place great importance on developing their people and their talent, requiring a different type of leadership style that generates tremendous value for the firm. Done properly, lean thinking produces a highly focused and self-directed organization that is highly robust and flexible, able to quickly adapt and evolve in a rapidly changing world that often pushes even smart firms into periodic bouts of crisis management and disruptive change.
Required Readings:
The first 11 videos on overview, basics, and leadership are required and should be viewed a little at a time, since some are long. The remaining clips should be watched only if you are interested.
· Video:
Overview: https://www.youtube.com/watch?v=8KJaEOiHxNw
Overview: https://www.youtube.com/watch?v=kce2L23yLcw
Overview: https://www.youtube.com/watch?v=Vjdil2nBCf0
Basics: https://www.youtube.com/watch?v=wUpbbK104Zg
Basics: https://www.youtube.com/watch?v=M2lp1QDbXWE
Basics: https://www.youtube.com/watch?v=kEcdliWZH30
Basics: https://www.youtube.com/watch?v=e5al1o1sI2U
Leadership: https://www.youtube.com/watch?v=Spxk71oyxOU
Leadership: https://www.youtube.com/watch?v=MZK_WTT2JpY
Leadership: https://www.youtube.com/watch?v=96EasliJuuA
Leadership: https://www.youtube.com/watch?v=Yxg5_BI8--4
Demo: https://www.youtube.com/watch?v=Bi9R1Hqr8dI
Demo: https://www.youtube.com/watch?v=jW-pl4HBxWM
SMED: https://www.youtube.com/watch?v=cO_ju5UUpZ0
Lean Healthcare: https://www.youtube.com/watch?v=VOJSoK_0dv4
Lean Healthcare: https://www.youtube.com/watch?v=GSHmam_6kfU
Lean Healthcare: https://www.youtube.com/watch?v=TvpweB9cigA
Lean Construction: https://www.youtube.com/watch?v=x0-9nlg-FDY
Just for Fun
https://www.youtube.com/watch?v=9dwqu7pRqGg
https://www.youtube.com/watch?v=R46x6k2wieU
https://www.youtube.com/watch?v=wWfnN7mmSJw
https://www.youtube.com/watch?v=U0_ktNqbQyU&feature=related
12:45 Lunch
13:45 Management Accounting Session 4 – Professor Young
Topic: Multiple Cost Pools
Required Readings:
· Textbook: L. Gordon and M. Loeb, “Distinguishing Between Direct and Indirect Costs is Crucial for Internet Companies.” RIMA 3.3
· Case: Seligram, Inc.: Electronic Testing Operations, HBS# 9-189-084
Case Discussion Questions:
1. What caused the existing system at ETO to fail?
2. Calculate the costs of the five components described as reported by
· The existing system
· The system proposed by the accounting manager
· The system proposed by the consultant
3. Which system do you believe is best? Why?
4. Would you recommend any changes to the system you prefer? Why?
15:00 Break
15:15 Management Accounting Session 5 – Professor Young
Topic: Activity Based Cost Management Systems
Required Readings:
· Textbooks:
§ AKMY, Chapter 5 – “Activity Based Cost Systems,” (pp. 165-178).
§ R.J. Lewis, “Activity Based Costs for Marketing,” RIMA 5.3
· Case: Destin Brass Products Co., HBS#9-190-089
Case Discussion Questions:
1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing costs to estimate product costs for valves, pumps, and flow controllers.
2. Compare the estimated costs you calculate to existing standard unit costs (Exhibit 3) and the revised unit costs (Exhibit 4). What causes the different product costing methods to produce such different results?
3. What are the strategic implications of your analysis? What actions would you recommend to the managers at Destin Brass?
4. Assume that interest in a new basis for cost accounting at Destin Brass remains high. In the following month, quantities produced and sold, activities, and costs were all at standard. How much higher or lower would the net income reported under the activity-transaction based system be than the net income that will be reported under the present, more traditional system? Why?
5. What were the lessons learned from the case and how can they best be utilized in your organization?
Saturday, 7 November
07:30 Breakfast
08:30 Management Accounting Session 6 – Professor Young
Topic: Activity Based Cost Management Systems – Implementation Issues
Required Reading:
· Textbook: S. M. Young, “Implementing Management Innovations Successfully: Principles for Lasting Change,” RIMA 9.7
09:45 Break
10:00 Management Accounting Session 7 – Professor Young
Topic: Group Assignment – Using ABC in YOUR COMPANIES
Assignment: In your assigned groups, you will be asked to apply the principles of ABC to a real problem in one of your organizations. You will elect a spokesperson who will have 10 minutes to present your project to the class. More details will be provided in class. Note these presentations will be graded and are worth 30% of your final grade.
11:15 Break
11:30 Management Accounting Session 8 – Professor Young
Topic: Group Presentations– Using ABC in YOUR COMPANIES
Assignment: Each group leader will have 10 minutes to present the group’s project in class. Details to follow. Note: these presentations will be graded.
12:45 Lunch
13:45 Operations Management Session 6 – Professor Yormark
Topic: Inventory and Operations
In this session we start our formal discussion of supply chains. Supply Chain Management (SCM) is the process of planning, implementing, and controlling the operations of all agents that are involved in the supply chain. This includes purchasing raw material, producing components, assembling goods, storing components and finished goods, and delivering product to the customer. SCM is concerned with flows of material, information, and funds. The purpose is to satisfy customer requirements as efficiently as possible. SCM is also concerned with the integration of several areas, among the most important: inventory management, distribution management, production location, marketing and finance.
Inventory management is an important part of managing the supply chain. Inventory has associated costs (opportunity cost, storage cost, insurance cost and obsolescence cost). It is also clear that inventory has some important benefits. We will study some of the most popular methods to balance the benefits and costs of inventory.
We start by introducing the basic inventory model to determine the best production (ordering) quantity when demand is relatively well known. We will see how economies of scale play an important rule. We will show how we can precisely establish the appropriate safety stock to support this model so we can better control the probability of running out of inventory. We will then use our basic models to discuss some more realistic approaches that can incorporate many of the elements of real life systems.
Required Reading:
· Textbook: Chase and Jacob, Chapter 20 – Inventory Management
15:00 Break
15:15 Operations Management Session 7 – Professor Yormark
Topic: Matching Supply with Uncertain Demand
Now we introduce a more inclusive inventory model, the “Newsvendor” model, to determine the best production (ordering) quantity when demand is uncertain.
Required Reading:
· Textbook: Chase and Jacob, Chapter 20 – Inventory Management
Sunday, 8 November
07:30 Breakfast
08:30 Operations Management Session 8 – Professor Yormark
Topic: Matching Supply with Demand – Examples
In this session we will expand our discussion of the Newsvendor model and look at some interesting examples to improve our understanding of the concepts.
09:45 Break
10:00 Operations Management Session 9 – Professor Yormark
Topic: Revenue Management
In this session we introduce the topic of revenue management, also often called yield management. Revenue management deals with the issue of how to maximize revenues in environments where capacity is limited and cannot easily be increased in the short run, and where no inventories can be held to satisfy fluctuations in demand. Sophisticated tools have been developed for revenue management, and are heavily used in industries such as airlines, hotels, car rental, and cruise lines.
Required Reading:
· Note on Yield Management
Discussion Questions:
1. What are the benefits of revenue management?
2. In what industries is revenue management applicable?
3. What are the challenges in applying revenue management?
11:15 Break
11:30 Management Accounting Session 9 – Professor Young
Topic: Customer Profitability Analysis
Required Readings:
· Textbooks:
§ AKMY, Chapter 6 – “Measuring and Managing Customer Relationships.
§ R. S. Kaplan and V. G. Narayanan, “Measuring and Managing Customer Profitability,” RIMA 6.4
· Case: Allied Stationery Products
Case Discussion Questions:
1. Using the information in the text and in Exhibit 3, calculate “ABC” based services costs for the various services offered by TFC business.
2. Using the new costing system, calculate distribution services costs for “Customer A” and “Customer B.”
3. What inference do you draw about the profitability of these two customers?
12:45 Lunch
13:45 Management Accounting Session 10 – Professor Young
Topic: Introduction to the Balanced Scorecard
Lecture: The Balanced Scorecard
Required Readings:
· Textbook: AKMY, review Chapter 2, “The Balanced Scorecard and Strategy Map,” and read Chapter 9, “Behavioral and Organizational Issues in Management Accounting and Control Systems”.
Video: The Balanced Scorecard featuring Robert Kaplan and David Norton
15:00 Break
15:15 Executive Talk, Panel and Reception
Monday, 9 November
07:30 Breakfast
08:30 Operations Management Session 10 – Professor Yormark
Topic: Operations Strategy in Service Industries
In this session we explore operations strategy in service operations, as well as the value of process innovation and creative product development in service businesses. Here we have a highly innovative insurance company that is unusual in the insurance industry in that it regularly makes a profit providing insurance. Most others lose money on the insurance side, which is then offset by investing the premiums. Progressive’s strength in IT, data analysis, and analytics has allowed it to price risk more accurately and take business away from its competitors. Progressive has developed an innovative pay-as-you-go insurance product, called Autograph, and now must decide how to manage a national rollout. But this is just another in a long string of innovative products and services that illustrate a clear strategy for excellence.
Required Reading:
· Case: Innovation at Progressive (A): Pay-As-You-Go Insurance
Discussion Questions:
1. Compare Progressive’s performance with that of other insurance companies using the data in Exhibits 5 through 8. Base this comparison on loss and expense ratios and premiums earned. What insights can you draw from these numbers?