Strategic Management Accounting & JIT

This assignment delves into the relationship between strategic management accounting and just-in-time (JIT) production systems. It requires you to analyze various academic papers and online resources provided, focusing on the integration of these two concepts. The assignment aims to evaluate your understanding of strategic management accounting principles and their practical application within a JIT environment. You'll need to demonstrate how these concepts contribute to organizational efficiency, waste reduction, and ultimately, improved financial performance.

Strategic Cost Management

Table of Contents
INTRODUCTION...........................................................................................................................1
NATURE OF TOYOTA'S BUSINESS .....................................................................................1
STRATEGIC COST ACCOUNTING TOOLS ADOPTED BY TOYOTA .................................2
PERFORMANCE OF TOYOTA ..................................................................................................3
RECOMMENDATION...................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
One can only think about two ways of increasing profit, increase sale or decrease
expenditure. Strategic cost management Focuses on minimising the total cost, it also concentrate
on strengthening the strategic position of an organisation (Nixon and Burns, 2012). It helps a
company in improving their production and operational activity. If a company adopt right plans
then they can get some extra edge over their competitors. SCM support an enterprise by making
a clear cost structure, it reduces various kind of confusions that can come in the mind of
managers (Netland and Aspelund, 2013). Sometime increasing some cost can be beneficial for a
company, this increased expenditure can help in attaining more profit in less time period. This
report will discuss about profile of the a chosen company. Various strategic cost accounting tools
that is adopted by the firm will also become part of this file. Some comments regarding
performance of the organisation will be included in this report. Both financial and non-financial
areas will be explained at the time of commenting on company's performance. Own
recommendation will be present at the end of this assignment. This report is based on Toyota.
This corporation is considered as one of the most successful corporation in auto-mobile sector
(Karjalainen, 2011).
NATURE OF TOYOTA'S BUSINESS
Toyota Motor corporation is a Japan based multinational company, their revenue is
around 2.32 trillion Yen and almost 365000 people are working in this firm (Chiarini, 2012).
This organisation is manufacturing and selling motor vehicles. This enterprise have many
subsidiary firms like Lexus and they are running their business in different part of this world.
Toyota was the first company who made 10 million vehicles in a year. Auto-mobile industry is
continuously growing and they are earning huge amount of profits. The sector has seen many
changes because of technology and strict environmental rules made by government. When a firm
operates in at such a large level then they face various kind of difficulties in making fast
decisions (Zimina, Ballard and Pasquire, 2012).
This industry saw depression at the time of world wars but besides it has not face any
major setback. Government of Japan made many favourable policies for this sector and this can
be considered as the prime reason that Toyota became leader of this industry for a significant
amount of time. This enterprise has a sound production system which is popular by the name
Toyota Production System (TPS). Its main aim is to produce high quality at a low cost and in
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shortest lead time (Emblemsvåg and Bras, 2012). They are basically using two approaches, first
is Just-in-time and second is Jidoka. The first one focuses on continuous flow, Takt time and Pull
system. Later one concentrate on checking abnormalities, it also deals with bifurcating human
and machine work. This firm believes that profit can only be enhanced by either increasing sales
or reducing total cost. Many organisation are in same industry like Volvo followed their TPS
because they understand that it can reduce their cost of production and at the same time it will
also increase their productivity (Chiarini and Vagnoni, 2015).
STRATEGIC COST ACCOUNTING TOOLS ADOPTED BY TOYOTA
Every organisation want to reduce their production cost but without making a negative
impact on their productivity (Dunk, 2011). Various kind of techniques are present strategic
management costing like activity based costing (ABC), total quality management (TQM) etc.
Below are three methods which Toyota used in their production system:
Target costing – Sometime organisations face loss because they launch their product at a
high prices, they did not get much buyers and it ultimately result in huge loss. In some cases,
companies keep price of their items low and they missed a significant amount of revenue which
they could gain if they keep the price of the product bit high. Target costing is a new concept ,
which is adopted by Toyota, where cost is determined by subtracting price expectation of
customers and margin exception of the organisation (Tayles, 2011). Attaining this target is not an
easy task for mentioned company, their management accountants have to spend lot of time with
designing and engineering division so they can determine this cost.
This approach is basically used for controlling cost. This significant work is done by
setting targets relating to cost reduction by only changing the design. All the other factors which
can minimise the expenditure are excluded in this approach. Toyota firmly believe that if they
will work on the designing of product and production procedure then they can easily bring down
their cost of manufacturing (Santini, 2013). They also think that target costing can assist in
manufacturing more efficient vehicles and increase profitability of the company. This approach
is used at the time of designing of a product.
Kaizen Costing – This method focuses on the saying ''slow and steady wins the race''.
This technique of strategic cost accounting is used at the time of manufacturing process in
Toyota. According to this concept, an organisation should try to minimise their cost gradually.
Small betterment are the main idea behind this approaches (Yang, Yeh and Yang, 2012). This
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tool do not concentrate on factors like innovation and huge investment in modern technology for
reducing cost (Himme, 2012). Toyota used this technique at the time of planning manufacturing
cycle. They try to bring down the various expenditure by comparing it from a base period. Most
of the organisations do not think about this method for reducing cost because it take time but
they should they should think about its effectiveness (Schulze, Seuring and Ewering, 2012).
Toyota do not promote a fresh graduate at next level until he/she get the mastery is picking up
right pair of nut and bolt from a box. When one of their production plant reaches optimum level
of the efficiency like 95%, they reduce the number of employees from this plant in order to bring
down the efficiency ratio. At this point, Kaizen costing is introduced in the manufacturing unit.
This approach is used for increasing the efficiency ratio (Yalcin, 2012). Toyota use this tool
because they think that it can help them in attaining their goals without enhancing total cost of
business. Development of workers can be considered as the another reason behind this utilisation
of this technique.
Just-in-time – This approach is considered as one of the most significant part of TPS. It
do not focus on manufacturing or designing (Rothaermel, 2015). It mainly concentrate on
reducing cost by managing stock in an effective way. The cost of production can be minimised if
the holding cost of raw material and finished good goes down. This concept promote the idea of
maintaining a very low level of inventory, it focuses on the idea of high dependence on the
suppliers. The cost in JIT approach is reduced by lowering down the storage cost of raw material
and finished products (Teichgräber and de Bucourt, 2012). Toyota is using this tool in many
nations but in countries like India this system does not work because various reasons like
transportation system is not reliable, the connection with suppliers are not strong, high distance
between factory and source of supply etc. (Just-in-Time — Philosophy of complete elimination of
waste. 2017). This strategic management accounting technique help Toyota in getting some extra
edge over their competitors, other players of the industry are spend huge sum on managing their
investing but this firm has is using JIT approach which is helping them in lowering down the
total cost of the business.
PERFORMANCE OF TOYOTA
Toyota is considered one of the most successful company in auto-mobile sector. One
cannot ignore the role of TPS in their continuous success (Watts and McNair-Connolly, 2012).
This company is using various costing tools since 1975 and their impact can seen in past 3
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decades. In year 2003, net revenue of Toyota was 15,501,553 Yen. and in 2004 it reached to
17,294,760 Yen. The main reason behind earning high profit for a long period of time is
reduction in the total cost of production per unit. This company expand their business in North
America because they knew that it will not cost them much (Henri, Boiral and Roy, 2016).
Normally local companies has various advantages in domestic market but Toyota used different
costing tools in TPS which helped them in earning competitive advantage on their rivals. Cited
firm is a Japanese company but in current scenario, 32% sale of their vehicles happen in North
America (Yang and Yang, 2013). Business of every big corporation suffer huge loss after the
financial crises of 2009. The profit of Toyota was 20,529,570 in 2009 and it went down to
18,950,973 in 2010. But the most important point is that their losses does not get enhanced by
significant amount in next year (net profit was 18,993,688), all the other major companies of
auto-mobile sector fail to attain this kind of results. They achieved this success because of proper
utilisation of costing tools. Normally people think that using various costing tools only make a
positive impact on financial performance implementation of TPS had many advantages. It helped
Toyota in increasing efficiency on their workers (Kumar, 2011). In present scenario, they have
highly training workforce just because of the TPS. When mentioned organisation saved lot of
money by using costing tools, they got a chance to invest these fund in providing better
customers satisfaction to the buyers. When the employees know that they are learning new
techniques that can be used in production system then the the problem of job satisfaction not
arise in the enterprise (Cardoni, 2012).
Customers are the centre of every business. Normally the costing tools try to reduce the
cost of business but the system developed by Toyota also focuses on safety of customers and
employers also. It concentrates on reducing the various types of risks that are present at
workplace. TPS helped mentioned firm in increasing their goodwill (Šoljaková, 2012). This
image of cited company is assisting them in attracting talented personnel who want to work in a
successful multinational corporation.
RECOMMENDATION
One can easily agree with the two main cost accounting tools used by Toyota i.e. target
costing and Kaizen costing but if someone is disagreeing with Just-in-time approach then it
would not be a shock. Target costing helped this company is getting competitive advantage on
other players of the industry but if the relation between management accountants and engineers
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of the company is not good then this method of cost reduction may get fail to give desired
results. Kaizen is an effective tool but company should not push their employees up to a limit
otherwise they may leave the organisation due to heavy workload. Just-in-time method is not
effective in countries like India because most of the industrial areas do not have good roads and
suppliers are still unorganized. This approach should not be used in market likes India because it
may result in uneven supply of finished products.
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REFERENCES
Books and Journals
Balakrishnan, N., 2015. Toyota Production System. In Dependability in Medicine and
Neurology (pp. 239-260). Springer International Publishing.
Cardoni, A., 2012. Business planning and management accounting in strategic networks:
theoretical development and empirical evidence from enterprises’ network"
agreement". Management Control.
Chiarini, A. and Vagnoni, E., 2015. World-class manufacturing by Fiat. Comparison with
Toyota production system from a strategic management, management accounting,
operations management and performance measurement dimension. International
Journal of Production Research. 53(2). pp.590-606.
Chiarini, A., 2012. Lean organization: from the tools of the Toyota production system to lean
office (Vol. 3). Springer Science & Business Media.
Dunk, A.S., 2011. Product innovation, budgetary control, and the financial performance of
firms. The British Accounting Review. 43(2). pp.102-111.
Emblemsvåg, J. and Bras, B., 2012. Activity-based cost and environmental management: a
different approach to ISO 14000 compliance. Springer Science & Business Media.
H. Netland, T. and Aspelund, A., 2013. Company-specific production systems and competitive
advantage: a resource-based view on the Volvo Production System. International
Journal of Operations & Production Management. 33(11/12). pp.1511-1531.
Henri, J.F., Boiral, O. and Roy, M.J., 2016. Strategic cost management and performance: The
case of environmental costs. The British Accounting Review. 48(2). pp.269-282.
Himme, A., 2012. Critical success factors of strategic cost reduction. Journal of Management
Control. 23(3). pp.183-210.
Karjalainen, K., 2011. Estimating the cost effects of purchasing centralization—Empirical
evidence from framework agreements in the public sector. Journal of Purchasing and
supply Management. 17(2). pp.87-97.
Kumar, A., 2011. Strategic cost management-suggested framework for 21st Century. Journal of
Business and Retail Management Research. 5(2).
Monden, Y., 2011. Toyota production system: an integrated approach to just-in-time. CRC
Press.
Nixon, B. and Burns, J., 2012. The paradox of strategic management accounting. Management
Accounting Research. 23(4). pp.229-244.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Santini, F., 2013. Strategic Management Accounting and financial performance in the small and
medium sized Italian manufacturing enterprises. Management Control.
Schulze, M., Seuring, S. and Ewering, C., 2012. Applying activity-based costing in a supply
chain environment. International Journal of Production Economics. 135(2). pp.716-
725.
Šoljaková, L., 2012. Strategic management accounting development during last 30
years. European Financial and Accounting Journal. 7(2). pp.24-35.
Tayles, M., 2011. Strategic management accounting. In Review of Management Accounting
Research (pp. 22-52). Palgrave Macmillan UK.
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Teichgräber, U.K. and de Bucourt, M., 2012. Applying value stream mapping techniques to
eliminate non-value-added waste for the procurement of endovascular stents. European
journal of radiology. 81(1). pp.e47-e52.
Watts, T. and McNair-Connolly, C.J., 2012. New performance measurement and management
control systems. Journal of Applied Accounting Research. 13(3). pp.226-241.
Yalcin, S., 2012. Adoption and benefits of management accounting practices: an inter-country
comparison. Accounting in Europe. 9(1). pp.95-110.
Yang, C.C. and Yang, K.J., 2013. An integrated model of the Toyota production system with
total quality management and people factors. Human Factors and Ergonomics in
Manufacturing & Service Industries. 23(5). pp.450-461.
Yang, C.C., Yeh, T.M. and Yang, K.J., 2012. The implementation of technical practices and
human factors of the Toyota production system in different industries. Human Factors
and Ergonomics in Manufacturing & Service Industries 22(6). pp.541-555.
Zimina, D., Ballard, G. and Pasquire, C., 2012. Target value design: using collaboration and a
lean approach to reduce construction cost. Construction Management and Economics.
30(5). pp.383-398.
Online
Just-in-Time — Philosophy of complete elimination of waste. 2017. Available through:
<http://www.toyota-global.com/company/vision_philosophy/toyota_production_system
/just-in-time.html>. [Accessed on 9th November 2017].
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