Remaining competitive in the rapidly changing environment of business


"The past 15 years have seen a series of new developments within Management Accounting to meet the ever changing needs of the organisation in the light of rapidly changing technologies".


Nowadays, business leaders and managers face a similar quandary. According to intense competition in a rapidly changing world, they have been forced to seek ways to become more competitive. Implementation of new development approaches could change the needs of the organization. Hence become more customer-driven and make customer satisfaction an overriding priority. Companies improve their cost system in order to achieve, cost efficiency, quality, time and innovation are all as the key success factors. Deal with rapidly changing technologies, business around the world tend to adopting new development such as Total Quality management (TQM), Activity Based Costing (ABC) and Just In Time (JIT) they are some of the management accounting solutions.

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Into the twenty-first century, business technology should be used to improve the activities of product, service, system and process. Through repair, refine, renovate and reinvent to create such enterprises to improve business performance. No matter the internal or external customer needs to be reached, it is important to get every staffs attention involved making the production process and product quality assurance within the organization also to do a systematic response to customer feedback, lead products to achieve the perfect position. Quality improvement increases profitability. The pursuit of quality excellence does not come at the expense of financial excellence. Rather, financial results are measuring the effectiveness of the system. The difference is the goal of the new model is not profits; it is customer satisfaction of quality improves. These methods applied in Japanese manufacturing that have produced significant cost and quality improvements through the use of quality teams and statistical quality control.

In 1985, U.S. Department of Defense Naval Air System Command first presented the term of " Total quality management (TQM)", and in 1992 defines: "TQM is a customer oriented management approach that emphasizes the efficient use of human resources and quantitative methods, in the continuous improvement process, to provide the best quality products and services. "International Standards Organization (ISO) also states: "TQM is a quality-centered management approach to long-term success is based on full participation, as customer satisfaction, making the total of their organization and society benefit." TQM originated in the 1950s and has progressively become more popular since the 1980s. Deming and Juran were also proposed 14 points and quality of trilogy, making the concept and practice of TQM more clear, wide for enterprises and be acceptable. Garvin (1988) has classified evolution of TQM as the outcome of four major areas of development describing it to be (I) strategic in nature (II) with continuous improvement as the driving force and achieved through (III) quality planning and (IV) employee involvement. TQM as a strategic component affects the levels of profitability by reducing the costs and increasing the market share. It is a philosophy of management that based on participation of all employees and aimed at long term success through customer satisfaction and benefits to everyone of the organization and to society, consequently reducing losses by wasteful practices. And this method is the application of statistical methods and human resources to promote the present and future improvements, provide the organization's materials and services therefore all the processes within the organization could meet customer needs.

Furthermore, Crosby (1986) expressed that "an organization's success or lack of it is directly due to the effectiveness of the leader. The initiation of change requires a positive leadership attitude as demonstrated by leader's vision, commitment, and attitude." Crosby and Deming also stated "regardless of what concepts are put in place or what systems are established, the attitude of citizens and employees toward quality is the clear result of what they see in the attitude of their leaders and executive management."

Today's business environment is against static historical standards are no longer appropriate, the traditional system only focus on product orientation but not customer oriented. It emphasizes capacity and forgets the quality. Employees compete for promotions, however staffs working groups and cooperation in the new system, Such that managers must plan strategically to maintain a hold on market share, let alone increase it. Consumers place a higher value on quality than on loyalty to home-based producers, and price is no longer the major determining factor in consumer choice. Price has been replaced by quality, and this is true in industrial, service and many other markets.

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For example, a farmer of gourmet potatoes estimates that 20% of the 50000kg of potatoes picked that do not meet customer's satisfaction. After being picked the potatoes are placed on a conveyer belt for inspection and packaging. The inspection team identifies and removes 75% of the defective potatoes. To calculate how many defective potatoes reach the customer?

25% of the defective potatoes are not defected

80% potatoes meet customer's satisfaction

Therefore, (0.25 x 0.8) =20% reach the customer

So that (0.2 x 50000kg) = 10000kg reach the customer

According to this example shows that first of all needs to be considering the prevention costs, to eliminate defective units before they are produced. Secondly, appraisal costs, to eliminate defective units before they are shipped. Thirdly, external failure costs, when a customer receives a defective product. Finally, internal failure costs, when a defect is discovered before being sent to the customer. Carry out zero defects strategies.


Whilst the number of companies today who are openly practicing major programmes under the banner of Total Quality Management has declined from the late 80's and early 90's, it's philosophy and management tools it utilises are just as evident. To many companies, it has become the way they manage and not "an external programme" which was one of the objectives and measure of it's success. Likewise, companies recognising the need to improve their business performance are customising Total Quality Management principles and practices to suit their own particular needs and circumstances and building their own internal programmes. This has avoided the potential dangers of the "grand programme" and jargon that can alienate the employees. Alongside this is the success of 6 Sigma programmes which bear close similarity in terms of their objectives, people involvement and the tools and techniques used. In fact, some believe 6 Sigma to be a form of Total Quality Management.

The principles of Total Quality Management are as relevant to work process management today as they have ever been, particularly when considered alongside learning's from other techniques such as lean manufacturing. It is essential that programmes are structured to meet the needs and situations of individual companies. Whilst some may benefit from a fully integrated programme, others have realised that there are significant payoffs to be gained from a more modest or tailored approach designed to solve specific problems or achieve defined, targeted improvements. The scope and scale are up to the client company to choose. 

Just in Time (JIT) is a programmed directed towards ensuing that the right quantities are purchased or produced at the right time. Aims to reduce the cost and seeks to minimize the throughput time by carefully coordinating the receipt of raw materials and the delivery of product with the manufacturing processes. The goal is reduce the waste of maintaining large levels of raw materials, work-in-process or unfinished product. It emphasizes providing products on demand. Drive raw materials to finished products with lead times to processing times to zero because these are non-value-added activities. This management concept was originated in the late 1950s and well developed in many Japanese manufacturing organizations in 1970s; Taiichi Ohno of Toyota was first used the technique to eliminate risk to his business production. The greater motivation of Japanese workers and processes were arranged for maximum output and work efficiency made JIT a success and strengthens the business's competitiveness.

To be considered the traditional inventory management system this is core of continuous production, only issue orders and expediting, or using economic order quantities (EOQ) method determined by the best batch each time. Economic batch method is to use a formula to calculate the assuming constant usage, average stock levels are derived by dividing the potential order quantities. The traditional system does not take into account the links between varieties of materials that are independent of each other. But in the actual production, the quantity of the material to be a reasonable configuration, in order to create the assembly into products. The traditional method for inventory ordering a single part, on the order of the material independently, and thus inevitably in the production assembly occurs when the amount of material does not match the situation. Traditional inventory management model assumes that the demand for relatively stable material, so the demand for each material is less than the order total. In the traditional mode of production, business-plan, generally will not produce a large number of fluctuations, and thus to the demand for materials is uniform. In modern manufacturing, market-oriented enterprises, the demand for the material is uneven, unstable, intermittent demand for inventory occurred. In fact, using the traditional method of ordering inventory management system is often assigned the time of earlier orders, which result in material backlog, both lead to a large number of invalid capital to occupy, but also caused the increase in inventory costs. On the other hand, and because production and demand are not balanced, will result in inventory shortages, which caused serious damage to production. In the traditional inventory management, inventory once or consume less than the reorder point, it immediately issued orders to ensure that a certain stock. The demand for the practice of non-compliance is not necessary, it is very unreasonable, under the conditions of intermittent demand, will inevitably lead to a lot of inventory, cash flow cycle is long.

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Adopting JIT, purchasing techniques is also an important feature, it is the development of long-term relationship with a few suppliers rather than short term ones with many consequently co-producers in networks of trust providing dependable quality and delivery of goods and services.

For example, ZZ CARS is adopting a JIT system. The current throughput time is 15 days. With a JIT system the throughput time should fall to 9days. Therefore this will reduce it cost of holding work-in-process inventory. The average value of work-in-process inventory is 800,000 and the capital cost of holding inventory is 10% per year. To calculate what is the impact on holding costs if the JIT throughput time is anticipated:

Annual cost of holding inventory 800,000 x 0.1=80000

Holding cost under JIT 800000 x 0.1 x 0.6=48000

The annual cost decreases by 80000-48000=32000


Accurate cost information provides a competitive advantage. It helps a company or organisation to develop and to execute its strategy by providing accurate information about the cost of its product and services, the cost of serving its customers, the cost of dealing with its suppliers, and the cost of supporting business processes within the company.

Activity Based Costing is a method of determining accurate costs, a relatively recent innovation in cost accounting and most appropriate where overhead is a relatively important cost element. It is rapidly being adopted by companies across many industries and within government and not-for-profit organization. Since the mid-1980s, there have been signs of the emergence of an alternative approach aimed at overcoming the problems of traditional overhead costing. Robin Copper and Robert Kaplan proved that to be a popular approach, quickly gathering great interest from practitioners. In 1991 Innes and Mitchell found that almost half of the respondents to a UK CIMA member survey worked for organizations which were considering the implementation of ABC.