Marc Wouters

The role of existing measures in developing and implementing performance measurement systems

Purpose – The purpose of this study is to investigate the role of existing, local performance measures in the process of developing and implementing an integrated performance measurement system. Performance measurement has received much attention since the 1980s, based on the notion that performance measurement systems should be adapted to modern manufacturing systems. However, relatively few empirical studies have investigated implementation processes of such systems.Design/methodology/approach – The paper describes a case study of the development of a performance measurement system in a medium‐sized company.Findings – It was found that the process was strongly guided by the need to identify existing reports and metrics at different levels within the organization, which informed the development and implementation of the new performance measurement system. This is a more significant role than has usually been proposed in the literature – one side of the gap between existing measures and an ideal system th...

Using Prototypes to Induce Experimentation and Knowledge Integration in the Development of Enabling Accounting Information

We investigate enabling performance measurement systems (PMS) in operations, i.e., systems that are perceived by employees as assisting with their daily work. We contrast enabling PMS with those that are primarily a control device by senior management. Previous research in accounting suggests that the development of enabling PMS requires room for experimentation by users, as well as cross-functional knowledge integration. How this can be done has received less attention. Building on the new product development literature, we investigate how prototypes can support experimentation and knowledge integration in the context of accounting. The empirical results are based on a longitudinal case study, using action research. We study the process of developing a performance measurement system for transportation costs. In this process, employees from various functions and departments had to cooperate as no single employee possessed sufficient knowledge about operations, accounting and information systems by oneself. The process consisted of several cycles of experimentation in which prototypes of the new accounting system were used as integrating devices. The prototypes were based on traditional accounting tools, such as variance analysis, and on information provided by the employees during the discussions. This process gave the employees many new insights and led to a new accounting system that was accepted by all of them. We identify several characteristics of effective experimentation and knowledge integration in accounting.

Management Accounting in the Manufacturing Sector: Managing Costs at the Design and Production Stages

This chapter analyzes the empirical research literature on management accounting in the manufacturing sector including the development as well and manufacturing phases of the product lifecycle. As managing product development has gained terrain in companies over the last 15 years, management accounting research has contributed to the advancement of this field of knowledge. Changes in the manufacturing environment, such as significant upfront investments and ongoing overhead costs, demanding performance criteria besides efficiency, or critical linkages across the value chain have contributed to a fruitful research in management accounting in manufacturing. The chapter identifies significant advances in this knowledge base and highlights future research opportunities.

An empirical test of inventory, service and cost benefits from a postponement strategy

Postponement of the point of product differentiation is a potentially powerful strategy to improve supply chain management. The literature offers theoretical arguments supporting the relationship between postponement and improved inventory turns and customer service quality, as well as lower operational costs. This study empirically examines these proposed benefits. Data from a disk drive manufacturer that applied postponement to simplify its supply chain are used to test the benefits of this strategy. During the time of the case study, the company implemented an initiative to create a generic product that needed less customization; what configuration remained could be delayed until the product was integrated at the customers’ sites, instead of at the companys distribution centres. Regression analysis is used to investigate whether higher levels of postponement are associated with better service, lower inventory, and lower cost. Our results indicate that higher levels of postponement—measured as the percentage of generic products shipped—are associated with better on-time delivery and lower variable costs. Our results also indicated the importance of redesigning products and processes and working together with customers.

RECONSTRUCTING THE SALES AND FULFILLMENT CYCLE TO CREATE SUPPLY CHAIN DIFFERENTIATION

Redesigns of supply chains have been largely limited to the differentiation of delivery processes to offer customers different delivery lead‐times on different products. In the future, differentiation will go much deeper, back into the supply chains within and across companies. Companies, together with partner companies in a supply chain, will increasingly have to design business processes that meet many different kinds of customer needs. This article describes how differentiated service will be realized through the reconstruction of the traditional sales and fulfillment cycle, whereby the traditional process is broken down and reconstructed in a manner that maximizes the overall efficiency of the chain. The article is based on the results of a year‐long study to develop supply chain improvements within two sectors ‐ electrical installations and pharmaceuticals. Distinctive aspects of this study were that it looked at supply chains that connected three echelons of independent companies in a project environment. The major players in the industries were involved in the project. The article describes three elements for reconstructing the sales and fulfillment cycle: i) reallocating activities to most efficient players; ii) reallocating inventory to reduce duplication; and, iii) using knowledge of end‐user demand to streamline (parts of) the supply chain. The article also examines two barriers to implementation and how to deal with these: the need for openness between supply chain partners; and the fact that current systems cannot handle the degree of differentiation and cooperation required.

Effects of Providing Total Cost of Ownership Information on Attribute Weights in Purchasing Decisions

In this paper we investigate how the provision of total cost of ownership (TCO) information affects attribute weights in sourcing decisions, and how this effect is moderated by decision complexity. TCO quantifies the costs of each decision alternative for purchasing decisions, from the perspective of the buying organization. We consider incomplete TCO information, in that some non-financial attributes are not included in the TCO calculation, and we investigate unintended (and potentially disadvantageous) effects of providing decision makers with such information. Experiments with 817 participants were conducted, both students and managers. We found moderate support for the hypothesis, that when complexity was low, participants gave a higher weight to the attribute that was excluded from the TCO information. We found support for the hypothesis that when complexity was high, decision makers gave less weight to this attribute, but this result was only found for the most experienced subgroup of managers. Experience did, however, not necessarily have a positive effect. Results suggest that, due to the provision of TCO information, experienced decision makers were more likely to follow an evaluation process in which less attention was paid to attributes that were not part of the TCO calculation. This suggests that experienced decision makers could be less mindful of the incompleteness of TCO information.

Economic evaluation of leadtime reduction

Abstract Many companies have systematically worked on controlling and reducing leadtimes and have achieved impressive improvements. Further reduction of leadtime by such companies can only be achieved by relatively expensive projects. In this paper the economic evaluation of such projects is discussed. Two important requirements for an economic evaluation of a project proposal for leadtime reduction are presented. The first requirement is to carefully analyse the consequences of leadtime reduction. A team that analyses the consequences should represent a variety of business functions, e.g. marketing, production, logistics and engineering. The second requirement is to use the right kind of economic criterion. This criterion should be based on future cash flows caused by the leadtime reduction. It will be demonstrated that product costs are inappropriate to evaluate the economic consequences of leadtime reduction. This suggests that a decision about leadtime reduction should be made at the organisational level where managers are responsible for profits, not just for product costs.

The Order of Teaching Accounting Topics-Why Do Most Textbooks End with the Beginning?

This paper discuss the structure of teaching broad introductory courses in accounting and finance. I propose making cash flows the central theme in such a course: take investment appraisal as the starting point, which demonstrates the need for financing, which creates the need to report regarding separate periods (thereby creating the need for non-cash flow elements such as revenues, capitalization, depreciation, and provisions) and subsequently zooming-in on the sources of profit and loss. The sequence of topics in accounting textbooks is investigated, as a proxy for how introductory courses are taught. Results show that the proposed order would be very unusual, because investment appraisal is typically one of the final chapters.

Decision orientation of activity-based costing

Activity-based costing (ABC) is given much attention in the literature. Most authors seem to agree that improved cost allocations are useful to indicate the long-term profitability of products. However, a controversy starts when the relevance of ABC for short-term decision-making is discussed. This topic is addressed here and some of the arguments found in the literature are reviewed. The first objective is to contribute to discussions on the usefulness of ABC for decision-making. In this paper it is suggested that ABC can be relevant for short-term decisions. It is suggested here that particular costs and revenues become controllable by making a particular decision, even if these costs and revenues appear to be uncontrollable a priori. This concept should be considered as a hypothesis which still needs to be tested. The second objective is to contribute to the literature on why managers use cost allocations for decision-making instead of only controllable costs and revenues. It is discussed that uncertainty about controllable costs and revenues will stimulate a manager to use cost allocations for decision-making. Allocated costs provide a reference point which helps a manager to resolve how much risk he or she is willing to take. This has been confirmed in an experiment, reported in Wouters (1993).

Managing Uncertainty During R&D Projects: A Case Study

OVERVIEW: Firms make significant investments in R&D projects, yet the economic return is often difficult to predict because of significant technological and commercial uncertainty. We present an innovative and practical method for managing R&D projects, and we discuss its application to a large R&D investment by Philips Lighting. The method, which we call the project portfolio option-value (PPO) method, provides an innovative way to represent, discuss, and value uncertainty in R&D projects. The PPO method is not about “perfect” or “complete” valuation models, but rather about providing a comprehensive but not-too-detailed view of major challenges and key criteria for success. The method is designed for a complex setting in which many uncertainties exist about technology and the market; in which the order in which uncertainties are resolved and decisions will be made cannot be specified in advance; in which interdependencies exist among R&D projects; and where transparency is vital.