Bipolar value-driven joint product costing

There exists a joint-cost allocation problem in the public sector, particularly highlighted by the cost-based national pricing of blood products in England, supposedly derived using volume-driven activity-based costing (ABC): an approach criticised by the implementation criteria propounded for ABC within the academic literature. In contrast, we believe that the contributions of quality-associated operations-based drivers, described within ABC, together with the net realisable value method, usually recommended as the optimal joint-cost allocation method, provide the beginnings of a solution. This paper sets out a methodological development from this platform that links allocation decisions with the issue of value. The bipolar nature of the model is based upon the combination of two types of allocation. One allocates joint costs according to the altered value of source material when competing non-joint alternative products exist. The other allocates joint costs according to product outcome values ascertained separately for the physical specification elements that comprise each of the range of joint products. The overall emphases are on academic context, model generalisation, the facilitation of cost-effective choices between joint products and non-joint alternatives, and possible future trends in the application of the method.     

EXPLAINING PLANT-LEVEL DIFFERENCES IN MANUFACTURING OVERHEAD: STRUCTURAL AND EXECUTIONAL COST DRIVERS IN THE WORLD AUTO INDUSTRY

Using data from 62 automobile assembly plants worldwide, we examine the extent to which various structural cost drivers (plant scale, automation, and product mix complexity) and exe-cutionalcost drivers (product manufacturability, management policies, and production practices) account for plant-level differences in manufacturing overhead. Our analysis of structural drivers finds that overhead hours per vehicle are negatively associated with production volumes, consistent with economies of scale in overhead functions. However, automation appears to have little influence on overhead levels. Product mix complexity's effect on overhead requirements varies with the complexity's form and the plant's manufacturing capabilities. Option and parts complexity (measures of peripheral and intermediate product variety) both exhibit adverse effects on overhead, reflecting the considerable logistical, coordination, and supervisory challenges that accompany an increased number of parts and more complex manufacturing tasks. In contrast, model mix complexity (a measure of fundamental variety) appears to have little impact on direct or overhead labor requirements in auto assembly plants. Our analysis of executional drivers provides empirical support for the claim that advanced manufacturing practices such as the reduction of buffers, multiskilled production workers, and the use of teams can lower overhead costs. We also find preliminary evidence that the lower overhead costs in Japanese auto assembly plants are due primarily to the use of multiskilled work teams and the shifting of traditional overhead activities to production workers. Overall, our results indicate that manufacturing overhead is a function not only of the structural cost drivers that have dominated the academic literature but also of executional cost drivers that are harder to duplicate and therefore potentially more valuable for achieving competitive advantage.     

Why activity-based costing works

With advancing technology and the quest for delineating the true cost of a procedure or diagnostic test, cost accounting techniques are being re-explored in the health care setting. Activity-based costing (ABC), adopted from other businesses, is one such example that has applications in the health industry. The purpose of this paper is to enhance the understanding of health care costs among physician providers, emphasizing a new approach--activity-based costing.     

DYNAMIC INTERACTION OF PRICE AND DESIGN QUALITY FOR PRODUCTS WITH CONVEX PRODUCTION COSTS

Price and design quality define value for customers and are often used by firms to position products in the marketplace. Setting price and quality level on a new product for the first time and making appropriate changes over time to these variables to reflect changing conditions in the market requires careful coordination of design, manufacturing, and marketing variables. We present a control theoretic model to study the complex interaction among price, quality, and cost during the life cycle of a product. Our model considers the major design-manufacturing-marketing tradeoffs and helps determine optimal pricing, design quality, and production strategies in a dynamic environment with convex production costs.     

Quality-related costing: Findings from an industry-based research study

With the support of the Science and Engineering Research Council and the cooperation of several manufacturing organisations the authors have carried out a major study of the collection and use of quality-related costs in manufacturing industry. The paper summarises the main limitations and omissions of the literature on quality costing and provides guidance on the most authoritative reading on the subject. Experience acquired whilst carrying out the investigations at collaborating companies is reviewed and some of the major issues are discussed, including definitions of quality cost categories and elements, collection and reporting of quality cost data and the uses of quality costs. Alternatives are suggested to (or may be used to complement) the usual prevention-appraisal- failure approach to categorisation of quality-related costs which is so firmly entrenched in both management thinking and the literature on the subject.     

Economic Production Lot Sizing with Periodic Costs and Overtime*

Traditional approaches for modeling economic production lot‐sizing problems assume that a single, fixed equipment setup cost is incurred each time a product is run, regardless of the quantity manufactured. This permits multiple days of production from one production setup. In this paper, we extend the model to consider additional fixed charges, such as cleanup or inspection costs, that are associated with each time period's production. This manufacturing cost structure is common in the food, chemical, and pharmaceutical industries, where process equipment must be sanitized between item changeovers and at the end of each day's production. We propose two mathematical problem formulations and optimization algorithms. The models' unique features include regular time production constraints, a fixed charge for each time period's production, and the availability of overtime production capacity. Experimental results indicate the conditions under which our algorithms' performance is superior to traditional approaches. We also test the procedures on a set of lot‐sizing problems facing a national food processor and document their potential economic benefit.     

Multi-objective machine-component grouping in cellular manufacturing: A genetic algorithm

The cellular manufacturing system (CMS) is an important group technology (GT) application. The first step of CMS design is cell formation, generally known as machinecell formation (MCF) or machine-component (MCG). A genetic algorithm (GA) is a robust adaptive optimization method based on principles of natural evolution and is appropriate for the MCG problem, which is an NP complete complex problem. In this study, we propose a GA-based procedure to solve the MCG problem. More specifically, this study aims to minimize (1) total cost, which includes intercell and intracell part transportation costs and machines investment cots; (2) intracell machine loading imbalance; and (3) intercell machine loading imbalance under many realistic considerations. An illustrative example and comparisons demonstrate the effectiveness of this procedure. The proposed procedure is extremely adaptive, flexible, efficient and can be used to solve real MCG problems in factories by providing robust manufacturing cell formation in a short execution time.     

Linear programming and financial cost models for industrial enterprises

Linear programming models of complex interrelated manufacturing enterprises have improved production planning decisions. With a linear programming formulation, the planning engineer concerned with specifying levels of production activity need not be concerned with cost accounting formulations of product costs to make his production decisions. He is only concerned with examining alternative production activities in terms of the added production costs the activity incurs, and the amount of product that is fed or consumed. The financial analyst, however, is concerned with development of budgetted average product costs. He must roll the costs of feed and intermediate products down to the final stage products. This paper bridges these two interests by demonstrating a methodology for the direct translation of the solution of the linear programming model to the development of rolled product standard costs.     

Design for the Environment: Life‐Cycle Approach Using a Newsvendor Model

Introducing environmental innovations in product and process design can affect the product's cost and demand, as well as the environmental impact in different stages of its life cycle (such as manufacturing and use stages). In this article, we advance understanding on where such design changes can be most effective economically to the firm and examine their corresponding environmental consequences. We consider a profit maximizing firm (newsvendor) deciding on the production quantity as well as its environmentally focused design efforts. We focus our results along the two dimensions of demand characteristics and life‐cycle environmental impact levels, specifically functional vs. innovative products, and higher manufacturing stage environmental impact vs. higher use stage environmental impact. We also discuss the environmental impact of overproduction and how it relates to the different types of products and their salvage options. We find that although the environmental impact per unit always improves when firms use eco‐efficient or demand‐enhancing innovations, the total environmental impact can either increase or decrease due to increased production quantities. We identify the conditions for such cases by looking at the environmentally focused design efforts needed to compensate for the increase in production. We also show that the environmental impact of overproduction plays an important role in the overall environmental impact of the firm. We conclude by applying our model to different product categories.     

Simultaneous Determination of Joint Product Cost Allocations and Cost-Plus Prices*

Use of the net realizable value approach for joint manufacturing cost allocations requires knowledge of selling prices of joint products. However, joint product selling prices themselves are functions of the allocated costs under a cost-plus pricing policy. In this case, it is necessary to determine joint cost allocations and joint product prices simultaneously. This paper applies a nonlinear programming (NLP) approach to simultaneously determine the optimal joint production decision, joint product cost-plus prices, and joint cost allocations using the net realizable value method. The NLP solution provides not only the optimal joint production and pricing decisions, but also the necessary conditions for such optimal decisions.     

基于作业的多产品生产决策的数学规划模型

随着企业制造环境发生的重大变化,作业成本计算(Activity-Based Costing——ABC)及作业成本管理(ABM)应运而生。本文基于ABC,对在先进生产模式下多种产品生产决策的数学规划模型进行了全面、深入的研究。构造了线性模型及对偶形式,并对对偶模型的管理上含义的涵义进行了探讨。     

Product universality and design for supply chain management

We describe our experience of developing models in which the principles of design for supply chain management (DFCM) have been implemented for new product development at Hewlett-Packard Company (HP). This experience arises from the development of a new product that is scheduled to be released in 1995. A key design decision faced by the product development team was whether to use a universal module or regionally dedicated modules to satisfy global market requirements. We describe a wide range of factors—including manufacturing and logistics costs—that could be used to support the design decision; these factors associated with product and process design contribute to tolal supply chain costs. We review the analytical model used to evaluate the cost and service implications of the two design alternatives. Finally, we discuss qualitative considerations that might influence the eventual decisions as well as the lessons learned from this real world experience.     

PRODUCT STRUCTURE COMPLEXITY AND MULTILEVEL LOT SIZING USING ALTERNATIVE COSTING POLICIES*

This research evaluates the effect of product structure complexity on the performance of several lot-sizing procedures in a multilevel manufacturing environment. The experiment compares two different costing policies, full value added (FVA) and marginal value added (MVA), for calculating inventory holding cost. The major finding of the research is that product structure complexity has very little effect on the performance of various lot-sizing procedures. A second finding is that when product structures with varying components per parent and stocking points for a particular end item are present, the MVA costing policy emerges as the policy of choice because it favors slightly the Silver-Meal (SM)/least-total-cost (LTC) procedures over the Wagner-Whitin (WW)/LTC procedures.     

Obtaining Informationally Consistent Decisions When Computing Costs with Limited Information

We demonstrate the need to view in a dynamic context any decision based on limited information. We focus on the use of product costs in selecting the product portfolio. We show how ex post data regarding the actual costs from implementing the decision leads to updating of product cost estimates and potentially trigger a revision of the initial decision. We model this updating process as a discrete dynamical system (DDS). We define a decision as informationally consistent if it is a fixed‐point solution to the DDS. We employ numerical analysis to characterize the existence and properties of such solutions. We find that fixed points are rare, but that simple heuristics find them often and quickly. We demonstrate the usefulness and robustness of our methodology by examining the interaction of limited information with multiple decision rules (heuristics) and problem features (size of product portfolio, profitability of product markets). We discuss implications for research on cost systems.     

Cost Allocation in Manufacturing–Remanufacturing Operations

For firms remanufacturing their products, the total life‐cycle costs and revenues from new and remanufactured products determine their profitability. In many firms, manufacturing/sales and remanufacturing/remarketing operations are carried out in different divisions. Each division is responsible for only part of the product's life cycle. Practices regarding transfer pricing across divisions vary significantly among companies, affecting the life‐cycle profit performance of the product. In this research, we identify characteristics of transfer prices that achieve the firm‐wide optimal solution. To this end, we consider a manufacturer who also undertakes remanufacturing operations and we focus on price (quantity) decisions. We determine that a cost allocation mechanism that allocates a portion of the initial production cost to each of the two stages of the product life cycle should be used. We also conclude that cost allocation should be implemented as a fixed cost allocation, where charges to the remanufacturing division should be determined independently of the actual quantity of units remanufactured.     

Optimal Production and Admission Policies in Make‐to‐Stock/Make‐to‐Order Manufacturing Systems

In this article, we study optimal production and admission control policies in manufacturing systems that produce two types of products: one type consists of identical items that are produced to stock, while the other has varying features and is produced to order. The model is motivated by applications from various industries, in particular, the automobile industry, where a part supplier receives orders from both an original equipment manufacturer and the aftermarket. The product for the original equipment manufacturer is produced to stock, it has higher priority, and its demands are fully accepted. The aftermarket product is produced to order, and its demands can be either accepted or rejected. We characterize the optimal production and admission policies with a partial‐linear structure, and using computational analysis, we provide insights into the benefits of the new policies. We also investigate the impact of production capacity, cost structure, and demand structure on system performance.     

时间窗口约束下基于改进蚁群算法的协同制造调度研究

与传统调度模式不同，协同制造模式下企业之间的调度模式极其复杂。协同企业间的加工工序路线并不固定，且不同类型产品具有不同的加工路线网络。为此本文针对平衡型、瓶颈型、跳跃型、混合型四类具有典型特点的协同制造网络G_p进行分析和设计；考虑制造企业同类产品合并加工策略，构建基于连续加工量的分段生产成本函数；通过设计合理的订单最早交货时间和最晚交货时间，对订单交货进行时间窗口约束，并在此基础上构建了由制造商生产成本W_c^m、订单等待W_s^k（Q_k， T'_k）和提前完工库存成本W_s^k（Q_k， T″_k）、延期惩罚成本构成W_l^k（Q_k， T'″_k）的目标函数。为求解该模型，创新性将蒙特卡洛思想引入蚁群算法，提高蚂蚁选择合理性，避免局部最优；同时，采用移动窗口[min， max]奖励机制，并且对信息素奖励乘以平衡系数k（N）提高奖励可信度，加快搜索速度并提高求解性能。仿真结果表明，本文构建调度模型合理，可以获得优化的调度结果；同时，本文提出的蚁群改进寻优算法具有良好的求解速度和收敛性，算法具有较好的稳定性。     

Market Entry Costs,Producer Heterogeneity,and Export Dynamics

As the exchange rate, foreign demand, and production costs evolve, domestic producers are continually faced with two choices: whether to be an exporter and, if so, how much to export. We develop a dynamic structural model of export supply that characterizes these two decisions. The model embodies plant‐level heterogeneity in export profits, uncertainty about the determinants of future profits, and market entry costs for new exporters. Using a Bayesian Monte Carlo Markov chain estimator, we fit this model to plant‐level panel data on three Colombian manufacturing industries. We obtain profit function and sunk entry cost coefficients, and use them to simulate export responses to shifts in the exchange‐rate process and several types of export subsidies. In each case, the aggregate export response depends on entry costs, expectations about the exchange rate process, prior exporting experience, and producer heterogeneity. Export revenue subsidies are far more effective at stimulating exports than policies that subsidize entry costs.     

An Empirical Investigation of Costs in Batching Decisions*

This paper examines the use of costs and cost functions to model lot‐sizing decisions in batch manufacturing. The cost functions used to model a wide variety of manufacturing systems are typically derived from average cost models of unconstrained inventory problems. The use of setups and average inventories as the basis for modeling the economics of a typical batch manufacturing cell is shown to be inadequate. An alternative physical model that focuses on lead times provides a model that more closely represents the underlying value of such a cell.     

Lowest Cost May Not Lower Total Cost: Using “Spackling” to Smooth Mass‐Customized Production

Consider a manufacturer who mass customizes variants of a product in make‐to‐order fashion, and also produces standard variants as make‐to‐stock. A traditional manufacturing strategy would be to employ two separate manufacturing facilities: a flexible plant for mass‐customized items and an efficient plant for standard items. We contrast this traditional focus strategy with an alternative that better utilizes capacity by combining production of mass‐customized and standard items in one of two alternate spackling strategies: (1) a pure‐spackling strategy, where the manufacturer produces everything in a (single) flexible plant, first manufacturing custom products as demanded each period, and then filling in the production schedule with make‐to‐stock output of standard products; or (2) a layered‐spackling strategy, which uses an efficient plant to make a portion of its standard items and a separate flexible plant where it spackles. We identify the optimal production strategy considering the tradeoff between the cost premium for flexible (versus efficient) production capacity and the opportunity costs of idle capacity. Spackling amortizes fixed costs of capacity more effectively and thus can increase profits from mass customization vis‐à‐vis a focus strategy, even with higher cost production for the standard goods. We illustrate our framework with data from a messenger bag manufacturer.