Managing Cash Flow

158 Cost Reduction Analysis Procedures
The cost of noncompliance measures the dollars associated with not doing
what is expected.
Failure to Meet Established Standards
• Time (setups, processing, turnaround)
• Cost (i.e., per purchase order, data entry, raw materials)
Time Delays
• Vendor deliveries
• Customer deliveries
• Work-in-process moves (to production schedule)
Production/Service Delivery Deficiencies
• Time commitments
• Quality
• Quantity
Administrative Performance Shortcomings
• Goals, objectives, and detail plans
• Sales forecasts/real customer orders
• Budget versus actual versus what it should be
Schedule Misses
• Selling requirements (when to sell)
• Development (i.e., product engineering)
• Production schedule
• Production control
• Shipping/delivery schedules
• Billing schedules
Exhibit 5.13
Cost of Noncompliance Elements
Traditional cost accounting practices have resulted in confusing decision making
and difficulty in identifying true cost elements. With their emphasis on financial
measurement, traditional cost techniques have resulted in:
• Short-term thinking
• Ineffective problem identification and improvement
• Deemphasis on effective cost reduction
• Organization-wide versus product/service cost concepts
• Emphasis on external versus internal results
• Bottom line versus operational thinking
• Lack of identification of areas for improvement
• Quick fixes for cost cutting (labor and material)
• Ignoring internal areas of waste