What is the role of management accounting information in the introduction of Advanced Manufacturing Technologies?
Perhaps, every organization wants to initiate a management system and strategy that could maintain the organization’s capability, strength and competitiveness. The dramatic changes and advances in communications and information technology facilitated the way towards a sustained progress in the international business and finance environment. The low cost and the efficiency as well as the attractiveness of conducting and entering any business venture – local or international in nature were made available by these technological advances which characterize the global marketplace. Today, greater challenges are faced by financial managers and accountants as opportunities for growth as well as possibilities of risks increase in the current and more attractive business world.
This paper aims to discuss the significant role of management accounting information in relation to the introduction of advanced manufacturing technologies. It sought to find relevant applications of information gathered through management accounting. In the end, it suggests some ways to effectively implement the gathered information for the advantage and benefit of the company paying particular attention to MRP or KIT systems.
Management Accounting
Before delving into the specified topic, there is a need to have a brief background on the general subject – management accounting. Management accounting is one of the areas in the field and profession of accountancy. It generates the proper flow of accounting information that are accumulated, analyzed, and presented in the organization. Furthermore, this information are used in making imperative decisions, served as basis for predicting and solving specific problems, and utilized in the daily operations in business management ( 1992). Management accounting is more oriented toward internal decision making and purposively channels relevant and timely information to internal managers. As to its relationship with financial management, both are production processes of different accounting data for different problem-solving situations. Management accounting, however, reflects the use of techniques from different disciplines, including accounting, for internal problem solving. Therefore, management accounting techniques may differ from Generally Accepted Accounting Principles (GAAP) techniques and from one firm to another. They do not conform to any set of prescribed rules, and much may be left to the decision-maker's philosophies.
Cost Accounting
In brief, management accounting should go beyond cost accounting and integrate various materials from organization theory, behavioral sciences, information theory, and so on, in a multidisciplinary approach aimed at facilitating the production of information for internal decision making.
The Management Accounting Needs of the MRP / JIT Systems
Being the two most powerful tool sin the manufacturing industry, the MRP and JIT systems are identified following the company’s established manufacturing and production goals and objectives. These goals range from enhancing the market share of the products, improving the demands in the target markets, to extending the sales at an even rate for one whole day, week, month, or year. Both the MRP and JIT systems are utilized in several ways namely: (1) to increase unit sales production so that resources of the firm; (2) to restrict production, or limit the quantities demanded per unit time; (3) to make the market less attractive to actual or potential competitors; and (4) to attract buyers so that they will buy other items once the transaction has begun.
In general, the management accounting needs for businesses like MNCs in the implementation of either the MRP or the JIT systems is an important, complex, flexible, and complicated task because these decisions have a significant effect on other major functions of the business (2004). The investment and financial decisions that should be made in a particular business organization or firm fall under the responsibility of the financial manager who is expected to have the financial skills and knowledge to manage financial problems and make financial decision-making process result to positive output. Any commercial, entrepreneurial, private as well as public organizations and institutions who has a financial arm to manage the funds of the group, is faced with the objective of maximizing the shareholder wealth and not the profit as was stated in the theory of financial management. It is the primary duty of the financial manager to ensure that the investment and decision-making processes are soundly based and that the outcomes will result in an increase in the long-term value of the firm whether it is a case of long-term or short-term plans and strategies of the organization.
The Role of Management Accounting In the Introduction of Advanced Manufacturing Technologies
Generally, management accounting is responsible in the decision-making process of internal aspects of the organization. By playing this immediate function, it could be considered that the role of management accounting in the introduction of advanced manufacturing technologies is CONTROL (2005,1993).
The business, in order to effectively introduce advanced manufacturing technologies like the MRP or JIT systems, should be able to determine first and identify the resources that are available in the company (Heely and Nersesian 1993, p. 8). Studying and examining the opportunities of the available resources will help in constructing a technology plan which will be profitable. The characteristics of the advanced manufacturing technologies should be clearly laid out and the ideas that will be made available should be thoroughly researched. This will provide relevant information that the general management can utilize so as to be able to allocate the funds of the company in the most effective way. If the company knows the nature of the advanced manufacturing technologies, the further steps in formulating strategic business plan will be easier. This is same as true in relation to pricing decisions done by the managers ( 2003).
After knowing the available resources of the company which it can utilize in order to accomplish the introduction of advanced manufacturing technologies like the MRP or JIT systems, selecting the most promising resource in which the company may invest and take advantage of will be the next priority of the whole business enterprise. The financial manager who has the responsibility to designate the amount of money which will be allocated in every decision or move that the company will take the action needed as well as examine the decision made so that there will be no loopholes in the near future. But still it should be kept in mind that will be issues and problems will still arise even if proper precautions and studies are made.
The allocation of funds will determine the amount of money which will be invested. This part is considered to be the most critical since the company will be letting out money from the company. The money may not necessarily come from the profit already made by the company. The owners or shareholders may also use their own money and not the money they invested in the business itself. There is also a possibility that money will not be invested. The business organization can actually utilize and literally make use of the resources that are already available in the company. This can be applied to the human resources of the company. If they have the people who can make the goals and objectives of the business attainable, they can take advantage of such opportunity by merely compensating on the efforts, knowledge and skills of the staff and employees. It could also be a case in which the company will be investing on its people through workplace training and programs that will be made available to the employees. There are companies who enroll their staff in training courses as well as make them attend conferences from which they can learn new ideas that could be utilized for the benefit of the company. On the same manner, advanced manufacturing technologies like the MRP or JIT systems determine the profit that the company would possibly generate.
(1994) introduced the most common mistakes that are encountered in managing the finance of a business organization while introducing advanced manufacturing technologies. These include the failure to research and conduct studies regarding the goals prior or after the planning period, not using an automatic saving plan, being too conservative with long-term investments, the problem of succession, putting off the start of the investment, not getting professional advice, and not setting aside at least three to six months worth of savings in an interest-bearing account.
However, all these procedures aim to achieve the goals and objectives of the business organization. That is why it is highly important that the firm knows the direction it intends to take. The people, especially the finance manager should have the expertise, experience and skills to analyze the financial situation of the business to be able to make sound decisions that will either take the business failure establishment to the peak of its success or to the lowest grounds. Introducing advanced manufacturing technologies like the MRP or JIT systems and taking a stand to support the possibility of exploring the strength and advantages of a particular resource of the company will be handy if the organization has financial personnel who is decisive and practical enough with a daring character to challenge and the social and economic conditions in the business enterprise to take the company to achievement (2001). All the plans will be put to waste if the company has no effective system of financial control that will monitor the investment that the company made regarding the introduction of advanced manufacturing technologies like the MRP or JIT systems. There should be constant and regular reports regarding the progress of the decision made. If outputs are expected, there should be immediate application of the advantages that the company gained. The results of the investment whether it is profit or performance-related advantages should be duly reported for evaluation and assessment. This will provide the black and white transparency which the company can take hold of as guide in the future investment and business plans and strategies that its people will employ. The introduced advanced manufacturing technologies like the MRP or JIT systems will be likewise assessed and evaluated as well as the capacity and the ability of the people who made the project and the attainment of the plans possible.
In monitoring the introduced advanced manufacturing technologies like the MRP or JIT systems, it should be taken into account the factor or variable of time (1996). Since the business organization has the options of investing, planning and strategizing long-term and a short-term projects, the nature of the introduced advanced manufacturing technologies in relation to the needed time for the initial execution should be given great consideration, there are just times when the business firm is not in the position to control the flow as well as the circumstances of the investment made. Sometimes the best thing to do is to wait. When the time comes that is but right to take further action, the company may do so.
In summary, management accounting controls the business plan especially the introduction of advanced manufacturing technologies like the MRP or JIT systems. It determines the limits and the potential pitfalls that the company might encounter in its future operations (2005). Regardless of the predefined effects of the introduction of advanced manufacturing technologies like the MRP or JIT systems, management accounting information is the foundation and primary principle that brings success and failure to the strategies of the company.
Conclusion
In introducing advanced manufacturing technologies like the MRP or JIT systems, proper research and studies should be made in order to define and maneuver the direction of the whole business plan. Setting up the ideas and presenting them to the figures of authority for a rich exchange of views will be helpful in generating plans that will be best for the business establishment. The company should be conscious and cautious in terms of the savings and the transparency of the expenditures. The people involved should also have the guts and the character to make the long-term plans a success by initiating efforts that will make such conjured ideas possible and tangible in the future. Specifying the date and time frame of executing the introduction of advanced manufacturing technologies like the MRP or JIT systems that will make its attainment possible will push and business to start right on and take the challenge. As much as possible, hesitations should not be acknowledge unless there are enough reasons to postpone the initial execution of the plans that will be more risky than the imagined drawbacks of the project. They should be sensitive in making delays and lagging off from the defined plan and tactics as well as in the changes and differences of the actual application and that of the plan.
It would also be advisable to get help and consult from a professional finance consultant, certified accountants, and other corporate professional with sufficient know-how in management accounting especially with respect to pricing decision-making. The rationale behind this is that they can provide information and views that were not pointed out and brought up during the planning period. They can also plan and foresee circumstances that serve as a financial back up for the emergencies and difficulties that were not foreseen while coming up with the plans.
In managing the introduction of advanced manufacturing technologies like the MRP or JIT systems in the company with respect to the principle of management accounting, it is of primary importance that the resources and the welfare of the company are identified. From these resources, the people in the general management especially the manager to be selective in choosing the price and other financial resources that the company will invest in. The nature of the advanced manufacturing technologies should be studied so that the opportunities that it offers can be fully exhausted by the company.
Strategic planning could be only successful if the circumstances of the investment that will be made are well examined and researched (1992). This will prepare the whole business in the problems and issues that the company may confront during the introduction of advanced manufacturing technologies like the MRP or JIT systems. However, this does not assure that there will be no problems that will exist and confront the business venture. The management accounting process cannot be put in isolation from the whole organization. The price, budget and all the investment, and profit growth possibilities that the company can venture in all depend on its overall capacity which will make the operations of the business possible. Coordination between and among the department within the organization as well as among all the staff and employees should be fostered in the workplace for the immediate success of the business endeavor.
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