Invasion of the through-putters
Roger Trapp looks at a new method of accounting that has emerged to deal with dramatic changes in manufacturing
Wednesday 17 July 1996
The concept - still in development - is the latest attempt to grapple with the changes that have resulted from the transformation of manufacturing in recent years.
The success of Japanese manufacturers led management thinkers and their consultants and clients to focus on such concepts as Just in Time, Total Quality Management and World Class Manufacturing. The combination of this trend, with advances in manufacturing technology and growing competition, created something of a crisis among not just general managers but also the financial specialists working alongside them.
There is no doubt that the stock of management accountants is on the rise. Their professional body, the Chartered Institute of Management Accountants, may have failed in its attempt to merge with the Institute of Chartered Accountants. But survey after survey finds increasing support for their qualification, while the rise to prominence of the likes of J Sainsbury 's finance director, Rosemary Thorne, is raising the institute's profile.
However, there is some dispute among their ranks about how best they can carry out their role, and so resolve the problems caused by the huge changes going on in industry.
Activity-Based Costing was one response to the growing feeling that existing accounting systems were inadequate, particularly in the areas of costing and control systems. Another was to rethink management's reliance on accounting as its central source of information - a reaction that put across the view that such behaviour was "like driving a car, looking in the rear- view mirror".
It called for a "balanced scorecard" approach, with non-financial performance measures being taken into account.
The arrival of "throughput" as a possible solution is down to the belief of a third group (working outside accountancy) that accounting is too important to be left to accountants.
It derives from Eli Goldratt's Theory of Constraints, in which the maximisation of throughput is seen as the most important factor in increasing profitability.
Under this approach, cost accounting - far from being the key to performance on the grounds that it identifies where the profit comes from - is seen as "enemy number one of productivity". This is because, according to the throughput proponents, local performance measures obscure the goal of the organisation.
This thinking is starting to gain a hold in business and in the Chartered Institute of Management Accountants, which has made throughput accounting a part of the syllabus.
Although it began about 20 years ago with Mr Goldratt's analysis of the management of production bottlenecks and the development of production scheduling software called Optimised Production Technology, it has been taken up in Britain by the management accountants David Galloway and David Waldron.
They call for a new language for manufacturing that would replace traditional concepts such as direct/indirect cost allocation, economic batch size and treating inventory as an asset. Instead, they say accounting should be concerned with such matters as the rate at which businesses make money and highlight return per bottleneck hour.
However, research recently published by Cima suggests that the consultants - lacking accountancy backgrounds - had become confused. At one point they even withdrew their approach in favour of "enemy number one" - activity- based costing.
But the research booklet, Accounting for Throughput, by David Dugdale and T Colwyn Jones of the University of the West of England, goes on to examine the introduction of the concept at one company - and comes to the conclusion that it can be effective. Throughput thinking, as developed as part of the Theory of Constraints - which aims to remove traditional information systems in favour of greater simplicity and variable or marginal accounting approaches - "appears to have considerable potential for transforming the management of manufacturing, especially over the short term," they write.
There are certain similarities with JIT and TQM philosophies that many British companies claim to have adopted, they say, though the throughput concept has a more specific and sequential approach.
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Pension firms must ask consumers more questions, says City Watchdog
How to start your own internet business
Bank-beating exchange rates on your international payments
- 1 King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
- 2 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 3 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 4 Presidential optical illusion offers clues to how brain processes faces
- 5 Grumpy Roald Dahl letter warning student to 'eschew beastly adjectives' rediscovered after 35 years
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village