Chapter 16
Managing quality
“Quality in a product or service is not what the supplier puts in. It s what the customer gets out and is willing to pay for. A product is not quality because it is hard to make and costs a lot of money, as manufacturers typically believe” (Peter Drucker, 1909-2005)

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e

9-1

A review of where we have come from
• Planning and control
– Budgeting
– Transfer Pricing
– Performance evaluation and reward systems
 Financial performance measures (Variances,
ROI, RI & EVA®)
 Non-financial measures (e.g. balanced scorecard)* – Capital expenditure (long term decisions)

* = contemporary topic
2

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e

2

9-2

And, the road we are taking…
Contemporary (strategic MA) approaches
•Total Quality Management (TQM)
– Linkages with Managing Suppliers & JIT, ABM & BPR; Target Costing, Theory of Constraints
•Managing Suppliers and JIT
– Linkages with ABM, Target Costing & TQM
•Customer profitability analysis (CPA) & Customer relationship management*
– Linkages with ABM & BPR

inkages with ABM & BPR

– Customer profitability analysis (CPA) & Customer relationship management (CRM)
• linkages with ABM & BPR
– Activity based management (ABM) & Business process reengineering (BPR)
• linkages with managing suppliers, CPA

3

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e

3

9-3

And, the road we are taking (cont.)…
Contemporary (strategic MA) approaches
•Activity based management (ABM) & Business process reengineering (BPR)
– Linkages with managing suppliers, CPA
•Target costing and pricing*
– Linkages with managing suppliers, TQM
•Theory of constraints
– Linkages with JIT, TC, & TQM
4

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e

4

9-4

Conventional versus contemporary approaches • Drivers of cost
– Conventional approach: managers control costs by bringing them into line with some predetermined goal
– Contemporary approach: reduce costs by identifying wasted resources and eliminating this through identifying factors that drive costs
• Strategic perspective
– Conventional approach: control costs within the organisation – Contemporary approach: cost management also concerned with achieving value for the customer
– What does the customer value most and are prepared to pay for?
(cont.)
Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e

16-5
9-5

Conventional versus contemporary approaches (cont.)
• Process perspective
– Conventional approach: control costs by reporting results for functional areas of the business
– Contemporary approach: recognise that customers’ needs are met by processes which flow across the business • Contemporary approaches include
– Activity-based management
 Value added and non-value added activities
– Business process re-engineering
– Life cycle costing
– Target costing
– Throughput accounting
Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e

16-6
9-6

Total Quality Management - Overview
• A review of importance of quality
• Introduction
• Two aspects of quality
• Four approaches to TQM

– Juran (Cost of quality (COQ), Demming,
Crosby and Japanese approach

• Accounting impediments to TQM
• Non financial measures
• Non-financial vs. financial measures
• Other approaches
Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e

9-7

Introduction
• The cost of poor quality:
• TQM Definition
– “a holistic management philosophy that strives for continuous improvement in all functions of
an