Purpose: To determine the cause of the paradigm shift to a "new overall management philosophy" in the late 1980’s.

• 2^nd industrial revolution occurred…3 new major movements (TQM, JIT, TOC).
• A "renaissance" of industrial management thought.

• Main Aspects of an Organization:
• Goals - the goal is still to make money (TQM & JIT emphasize serving the client).
• Measurements - TQM adds non-financial measurements; JIT-considers cost measurements a problem; TOC – crusades against cost measurements.

» Conclusion: All 3 movements clash with traditional methods and measurements!

• Challenges to Traditional Methods:
• Inventory – TOC allowed for no "value added" by the system; TQM unaware of need for new definition; JIT was aware and saw inventory as a liability; on Balance Sheet still reported it as an asset.
• Sales – Should be registered when transaction takes place with end consumer; TQM-too much inventory in pipeline not good; JIT & TOC silent on this aspect.

• Background: Debates Around Cost Accounting:
• Inherent flaw - allocations are based on direct labor hours.
• Arbitrary allocation bases (machine time), still there were distortions.
• Logical bases (ABC) using cost drivers were time consuming, data intensive & complex; separate systems went against "one goal…one company…one system" belief.

• Conflict occurs when you try to evaluate bottom line (T-OE=NP).
• Throughput product based Operating expenses entities based.
• Solution - change OE to products based, ABC tries but ends up with too many levels.
• Purpose of Cost Accounting – to make business decisions (e.g., launch new product?).
• If all resources available in excess-no analysis required.
• Analysis and decision needed only if any resource is limited…a constraint in the system.
• Accounting should be constraints based, not product based.

• Relationships of Measurements to One Another.

• Conventional scale - (product based).

1. Operating expense - tangible to management, can be quantified by cost accounting.
2. Throughput - intangible (can’t assign numerical value), ignored by cost accounting.
3. Investment - traditionally least important.

• New scale (constraints based).

1. Throughput - not inherently limited.
2. Investment - directly impacts ROI and indirectly impacts OE and future T.
3. Operating expense – close third.

• All three movements relate to a company’s actions through the new scale.

• TQM – improving product quality is a means to improving the quality of the organization.
• JIT – stresses that inventory reduction is more important than cost savings.
• TOC – stresses increasing throughput by managing constraints.

• Conclusion: Only one philosophy based on the importance of throughput rather than cost.

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