Brad: So, the problem is that by using more time than estimated, there is less time left in the month to produce and ship the margin on subsequent jobs. Sometimes, what margin is shipped in total is less than the fixed costs for the month, and then there is a loss for...
Cost accounting is alive and well in American business (and around the world really), even though it is an invalid, old technology. The continued—and unquestioned—use of cost accounting has led directly to the loss of competitiveness and long-term decline of American...
Are you externally constrained? Yes or no? Your company is externally constrained if your company (usually) has the capacity to sell more than it does. We call it externally constrained instead of market constrained because there a many other factors external to the...
If we can compute the impact of any action using T, I, and OE, which are global measures (and part of Throughput Accounting), then we can compute the bottom line financial impact quite easily: · Throughput minus Operating Expense equals Net Profit (T-OE=NP). ·...
To make managing a complex organization easier, we break organizations into pieces. Many of the current measurements have the purpose of measuring local performance, under the erroneous assumption that the overall performance of the organization will be maximized if...
We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.} Dr. Goldratt proposed that there are just two categories of things that can go wrong. One he calls unreliability and...
Up to this point, we have discussed how Drum-Buffer-Rope scheduling has the potential to double your capacity with little or no investment or expense. And Throughput Accounting has provided you visibility on the rate at which you make money. Both of these...
You can also perform a sensitivity analysis to determine the breakeven level of T/CU. In this example, it would be the Operating Expense level of $615,000 divided by 2,912 which is $211.20. Pricing with Throughput Accounting is much easier and potentially much more...
We are continuing our series based on The Goal by Eliyahu M Goldratt. Let’s apply this to your business. In order to do so, you’ll need to make some calculations. First, write down your annual sales. Second, subtract the Truly Variable Costs (these include raw...
Dr. Goldratt says it this way: “If a process of ongoing improvement is what we are after, which of the three avenues of Throughput, Inventory, or Operating Expense is more promising? If we just think for a minute the answer becomes crystal clear. Both Inventory and...
