A graphical representation of the sales/consumption volume of products vs. demand variability. High volume low demand variability products are treated differently than low volume high demand variability. This technique is more informative than ABC or P-Q.
Source: Blair R. Williams, Manufacturing for survival: the how to guide for practitioners and managers (Reading Massachusetts: Addison-Wesley), 1996, pp 281 – 286.
Demand Variation is measure of the volatility of sales in the market place. Can be expressed as either:
- Standard deviation of the demand over time divided by the mean (Coefficient of Variation Cv), or
- the ratio of: the peak to base demand divided by the average demand , or
- the ratio of: the average demand to 6 sigma
Traditional standard costing systems track costs as products pass from raw materials, to work in progress, to finished goods, and finally to sales. Such systems are called ‘sequential tracking systems’ because the accounting system entries occur in the same order as purchases and production. Sequential tracking is common where management desires to track direct material and labor time to individual operations and products.
The implementation of a just-in-time philosophy necessitates changes. Backflush is a single step inventory process that typically occurs and the end of a production line. To trigger the transactions a Work Order or Kanban card with a bar code or RFID tag are used. When a product is packaged into a box or carton the operator wands the bar code. This triggers several events:
- A Carton Label is Printed
- Open Quantity on the Work Order is reduced
- Materials on the bill of material are deducted from Raw Material Inventory
- Finished goods inventory is increased by the carton quantity and standard cost
- Cost of the Finished Goods is based on Standard Cost of materials, labor and overhead
Backflushing simplifies costing and inventory transactions since it ignores both labor variances and work-in-progress. While in a true just-in-time environment there would be no work-in-progress at all, there will, in practice, be a small amount of work-in-progress at any point in time. It is important that standard costs are close to actual costs to keep inventory costing reasonable accurate. Backflush accounting is ideally suited to a just-in-time philosophy and is employed where the overall cycle time is relatively short and inventory levels are low.
- Material Variances are calculated regularly through physical counts and the resulting inventory adjustments.
- Labor Variances are calculated monthly by comparing the labor absorbed at standard cost to the actual payroll expenditures listed in the GL accounts.
Richard Beckhard’s formula for change proposes that the force of the dissatisfaction with the status quo combined with the forces of a compelling vision, first steps, and believability, all have to be greater than the resistance to change.
Compelling Vision and Dissatisfaction with Status Quo: The first two variables combine to provide the primary forcing function for change. The dissatisfaction pushes the individuals to change but does not provide a direction. They know they are not happy but don’t know how to make it better. The vision pulls the individuals to change and provides a direction for change. Why don’t we like the current system/situation? What will the new system/situation do for us? Beckhard calls this the “desirability of the end state.”
First Steps: It is seldom that we know all the required steps to accomplish a transformation but it is important to have a good idea what the first steps will be. A high level project plan with the major activities, deliverables, and benefits can help increase the motivation to change. Beckhard calls this the “practicality of the change.”
Believability: The first three variables must form a believable package that is supported by credible leadership – words and deeds. A vision and a plan without resources is just a fantasy. The product of these first four variables must combine and be greater than the resistance to change.
Resistance to Change: Few people like change, but we like change that is imposed on us the least. At the same time that organizations work on increasing the variables on left side of the equation they also work on reducing the variable on the right. This is often accomplished by involving the people in designing the change. Beckhard calls this the “cost of change.”
If you are dealing with a change initiative that has stalled – chances are one or more of the variables in this formula is the problem.
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Japanese term for a "Lamp" or signal. In ancient Japan paper lanterns were used as flashlights or a signaling devices. In modern factories Andon lights are used to indicate that some aspect of the process needs attention. They can reflect potential quality problems identified by an operator or the need for materials replenishment. Often the different color lights are associated with a particular sound. Common color codes are:
Green – normal operations
Yellow – planned changeover or scheduled down time
Red – abnormal condition, machine down
The term Andon has also been associated with the use of Andon information boards. These boards notify the production team of current production data such as units completed and number of defects.
