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Activity Based Management

Activity Based Management

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Activity Based Management

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  1. Activity Based Management

  2. Attention Schwartz Business Students! Join your Faculty and Schwartz Business Society Executive for a Free Ice Cream Social! Schwartz Faculty LoungeWednesday, October 9th12:45 – 2:00 Seriously…it’s free.
  3. Class Announcements Business Society Ice Cream Bar, Faculty Lounge, Wednesday October 9th 12:45pm- 2:00pm Assignment #4 due October 10th Midterm in-class Thursday October 24th Trudy Eagan Women in Business Speakers’ Series and Awards Presentation (in lieu of class) Location SCHW Auditorium (SCHW 110) 2:15pm Thursday October 10, 2012 Guest Speaker: Mary Lou O’Reilly, IBC Sign in at door *Need volunteers to assist with sign-in
  4. Class Objectives Extending ABC to ABM Identifying and eliminating non value added activities Understandings the context in which ABM is successful
  5. Activity-Based Management “Activity Based Management (ABM) is a method of management decision making that uses activity based costing information to improve customer satisfaction and profitability.” A method of management that uses ABC as an integral part in critical decision-making situations, including: Pricing and product-mix decisions Cost reduction and process improvement decisions Design decisions Planning and managing activities
  6. Activity Based Management Activity based costing focuses on: 1) understanding the way resources are used in current processes 2) accurately measuring product costs using those processes. Activity based management is used by management to evaluate the costs and values of process activities to identify opportunities for improved efficiency.
  7. ABC vs. ABM ABC ABM adds: An improved under-standing of the way resources are used in the current processes. Measures product costs more accurately by analyzing costs associated with identified activities in the processes. Identifies value- added and non-value- added activities. ? Identifies the customer- perceived value of each activity. Identifies opportunities to enhance value-added activities and reduce or eliminate non-value-added activities
  8. Activity Based Management ABM takes ABC a step further to include these activities: 1. Identify activities as value added or non-value added 2. Score each activity as high or low value added as perceived by the customer 3. Identify opportunities to enhance value-added activities and to reduce or eliminate non-value-added activities. Oct. 1st, 2013 “WalmartAnnounces New Large-Scale Centers Dedicated to Filling Online Orders”
  9. Would an external customer encourage the organization to do more of the activity? Would the organization be more likely to reach its goal by performing that activity? YES NO YES NO Value-Added Activities: Identification The test for value added activities If the answer is “no”, it is non-value-added. If the answer is “yes” to both it is value-added.
  10. Non-Value-Added Activities: Elimination Elimination of non-value added : Competitors are constantly striving to create more value for customers at lower cost. Competition can appear quickly. The organization can apply the freed-up resources to value-added activities or distribute them to the owners and employees of the organization.
  11. Non-Value-Added Activities: Sources Producing defective products Producing to build up inventory Time and effort to move products from place to place Waiting time for processing Transporting workers to work sites
  12. ABM Implementation: Success 1. Scope of ABC/ABM Project. Pilot project 2. Resources Necessary Management commitment Technology Personnel and time 3. Resistance to Change Preventing resistance Effects of culture 4. Information Gathering 5. Responsibility
  13. Shortcomings of Activity-Based Management It pays primary attention to the cost (in dollar values) of an organization’s personal and physical resources. Activity analyses often assume that those costs can be treated as if they were all variable. It assumes uniformity among the human and physical resources involved in performing activities. It is still primarily concerned not with operational effectiveness, but with measuring the cost of products (as is financial accounting).
  14. Egg Production: Industry Canada has approximately 1,100 registered egg farms. The average egg farm has 10,000 to 20,000 hens, although Canadian egg farms can range from a few hundred to more than 400,000 hens. In Canada, a total of 25 million hens (including unregistered hens) produce about 500 million dozen eggs per year – that's 6 billion eggs! The egg industry contributes about $500 million to the Canadian economy.
  15. Nova Scotia Egg Producers The Nova Scotia Egg Producers (NSEP) is incorporated under the Natural Products Act for Nova Scotia. The act provides the NSEP the authority to carry out its mandate of effective promotion, control and regulation of eggs and pullets in Nova Scotia. The NSEP is governed by an eight person Board of Directors consisting of seven members who represent egg producers in geographic zones throughout the province and one who represents the pullet sector. NSEP uses a supply management system to provide a stable supply of eggs to consumers at fair prices and a fair return to producers.