Summary by Ken Wombacher
Master of Accountancy Program
University of South Florida, Fall 2000
The purpose of this paper is to illustrate how linking the Balanced Scorecard to a JIT manufacturing system can increase the effectiveness of both.
The Problem: After defining the balanced scorecard and just in time manufacturing Clinton states the problem as follows: US companies implemented Japanese JIT systems with only mixed success. Radical changes in the manufacturing process were made, but traditional performance measurement systems were maintained . Result: inconsistent performance evaluation and dysfunctional behavior.
The Solution: Integrating the Balanced Scorecard with the JIT system.
Step 1: Identify Manufacturing Control Activities. Management first formulates a strategic plan. Next the business is subdivided into the various activities that support the plan.
Step 2: Map these activities to their related drivers (metrics). Drivers (metrics) are identified which are used to measure and manage the activity.
Step 3: Time sequence each measure in its linkages to other measures. Identify if the activity is short term, intermediate or long-term. This helps to insure a clear purpose for the activity.
Step 4: Link the metrics together so that they are both reinforcing and supportive of strategic objectives. The value of specific activities can be assessed by linking them all the way from their short-term drivers through their intermediate indicators and ultimately to their long-term validation (see figure 1).
Step 5: Establish a Value-Chain linkage to facilitate an overall management assessment of value creation across functional categories. (See figure 2.) Analysis of value chain allows managers to identify the phase where the primary drivers of results occur.
|Figure 1: Time linkages|
|Short-term Drivers||Intermediate Indicators||Long-Term Validator|
|Number of employee complaints||Employee Satisfaction||Employee Turnover|
|Number of customer complaints||Customer Satisfaction||Market Share|
|Percent of activities non-value added||Process Quality||Cash flow ROI|
|Figure 2: Value Chain linkages|
|# of new products||Process reliability||% On time delivery||# of warranty claims|
Activity drivers of the JIT system become metrics in the Balanced scorecard. Big picture analysis can be provided by the Balanced scorecard which takes into account the activity linkages, the time linkages and the value chain phases. More relevant performance measures are available to manage the JIT system. Companies can benefit from a systematic way to analyze and control operations in a timely and relevant manner.
Baggaley, B. and B. Maskell. 2003. Value stream management for lean companies, Part I. Journal of Cost Management (March/April): 23-27. (Summary).
Baggaley, B. and B. Maskell. 2003. Value stream management for lean companies, Part II. Journal of Cost Management (May/June): 24-30. (Summary).
Borthick, A. F., P. L. Bowen, and M. C. Sullivan. 1998. Controlling JIT II: Making the system monitor itself. Journal of Cost Management (July/August): 33-41. (Summary).
Carr, L. P. and C. D. Ittner. 1992. Measuring the cost of ownership. Journal of Cost Management (Fall): 42-51. (Summary).
Castellano, J. F. and R. Burrows. 2011. Relevance lost: The practice/classroom gap. Management Accounting Quarterly (Winter): 41-48. (Summary).
Kaplan, R. S. 1998. Innovation action research: Creating new management theory and practice. Journal of Management Accounting Research (10): 89-118. (Summary).
Kaplan, R. S. and D. P. Norton. 1992. The balanced scorecard - Measures that drive performance. Harvard Business Review (January/February): 71-79. (Summary).
Kaplan, R. S. and D. P. Norton. 1996. The Balanced Scorecard: Translating Strategy into Action Boston: Harvard Business School Press. (Summary).
Kaplan, R. S. and D. P. Norton. 2001. The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press. (Summary).
Ittner, C. D. and D. F. Larcker. 2003. Coming up short on nonfinancial performance measurement. Harvard Business Review (November): 88-95. (Summary).
Lipe, M. and S. Salterio. 2000. The balanced scorecard: Judgmental effects of common and unique performance measures. The Accounting Review (July): 283-298. (Summary).
Lipe, M. G. and S. Salterio. 2002. A note on the judgmental effects of the balanced scorecard's information organization. Accounting, Organizations and Society 27(6): 531-540. (Summary).
Martin, J. R. Not dated. Lean concepts and terms. Management And Accounting Web. http://maaw.info/LeanConceptsandTermsSummary.htm
Martin, J. R. Not dated. Profit Beyond Measure graphics and notes. Management And Accounting Web. http://maaw.info/ArticleSummaries/ArtSumJohnsonBromsGraphicsNotes.htm
Martin, J. R. Not dated. What is lean accounting? Management And Accounting Web. http://maaw.info/LeanAccounting.htm
Norreklit, H. 2003. The balanced scorecard: What is the score? A rhetorical analysis of the balanced scorecard. Accounting, Organizations and Society 28(6): 591-619. (Summary).