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Don't Let Finance Run the Factory (MFG150A)

Presented By : William A. Levinson , P.E.
(*) Single User Price. For multiple users please call 1-800-223-8720
Pre Recorded Webinar
60 minutes
  •  Wed, February 25, 2015
Event Description

Operational Decisions Must Be Based on Engineering Economics

Cost accounting has exactly two legitimate roles in manufacturing:  delivery of reports suitable for (1) tax reporting purposes and (2) income statements and balance sheets to meet the requirements of the Securities and Exchange Commission. Its application to operations management, on the other hand, underscores the warning, 'Be careful what you ask, for you are likely to get it.'

In this webinar by William A. Levinson, you will learn that operational decisions must be based on engineering economics as opposed to accounting and financial metrics. You will understand the difference between cost accounting reports that are suitable for, and required by, the IRS and SEC, and engineering or managerial economic information that is useful for operations management decisions. You will also recognize the difference between an asset's book value and its practical value.

Overview of the presentation:

  • Henry Ford warned explicitly against using financial metrics to run a business. When his successors did exactly that, his company lost the lean manufacturing culture we now call the Toyota Production System.
  • Financial metrics are more dangerous than poor quality because the former is taken for granted.
  • Dysfunctional purchasing metrics that drive large purchases to get low prices increase inventory, and therefore cycle time. They also tie up cash, a practice against which both Henry Ford and Benjamin Franklin warned explicitly. Off-shoring may seem financially attractive for the same reason (lower costs), but container ships are nothing more than floating warehouses for inventory, and also defects.
  • Purportedly variable costs like labor and direct overhead are sunk costs when it comes to determination of an item's marginal cost and marginal profit.
  • Book values are meaningless except to the IRS and SEC. And yes, property is worth only, and exactly, what we can do with it.
  • Henry Ford proved that a factory can measure its performance through exactly four key performance indicators (KPIs) of waste or Muda (the lean term for waste): time of people, time of things (cycle time), materials, and energy.

Your key takeaways of the session:

  • Recognize the clear difference between cost accounting reports that are suitable for, and required by, the IRS and SEC, and engineering or managerial economic information that is useful for operations management decisions.
  • This includes the difference between labor as a variable accounting cost, and labor as a sunk marginal cost for decision purposes. How Ford explained in detail that overhead should be ignored for decision-making purposes.
  • You will be able to explain the difference between an asset's book value and its practical value. As stated by Ford, 'Actually they are worth only what we can do with them.'
  • Be able to explain Ford's KPIs (which encompass the Toyota production system's Seven Wastes) to everybody in the organization. Such as,
  • Any cycle time in which a tool is not in contact with the work is waste, which applies emphatically to inventory and materials in transit. This reinforces the argument against purchasing large quantities, even to get good prices.
  • The KPIs of wasted materials and wasted energy support ISO 14001 and ISO 50001 respectively, along with green manufacturing and zero emission manufacturing.

Who should attend

  • Production managers
  • Plant managers
  • Manufacturing executives
  • Logistics professionals
  • CFOs
About Our Speaker(s)

William A. Levinson, Manufacturing Guidelines ExpertWilliam A. Levinson P.E.
William A. Levinson, P.E., is the principal of Levinson Productivity Systems, P.C. He is an ASQ Fellow, Certified Quality Engineer, Quality Auditor, Quality Manager, Reliability Engineer, and Six Sigma Black Belt. He is also the author of several books on quality, productivity, and management, of which the most recent ... More info

 
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    Subject: You might be interested in this event from AudioSolutionz
    Event Title: Don't Let Finance Run the Factory
    Presenter(s): William A. Levinson , P.E.

 
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