Summary by Chris Kelso
Master of Accountancy Program
University of South Florida, Fall 2001
The objective of this article is to discuss the “post modern” factory. Drucker discusses the new age of manufacturing and describes a conceptual model of a factory using four principles that were developed separately. The principles are:
1. The use of Statistical Quality Control to change the social organization of a factory,
2. The new concept of manufacturing accounting that allows people to make production decisions as business decisions,
3. The use of “flotilla,” or module, organizations, and finally,
4. The use of the systems approach to emphasize the economic process of business.
Statistical Quality Control (SQC)
Statistical Quality Control is a concept that was developed in the 1930’s and revised into its present form during World War II by W. Edwards Deming and Joseph Juran. Statistical quality control is a scientific method of identifying the quality and productivity that can be expected from a given production process. It can be used to quickly identify and locate malfunctions. It is also used to evaluate any positive or negative impact on performance related to changes made to the system. Finally, SQC is used in the continuous improvement process to identify where and how the process can be improved.
One of the aspects of SQC is that it causes an increase in the number of machine operators. However, to make SQC work the machine operators are given more empowerment. This causes a reduction in the number of supervisory positions and leads to another benefit. The SQC process was able to combine the two basic approaches of manufacturing, the engineering approach and human relations approach. The engineering approach called for zero defects without the involvement of supervisors with the use of built-in process control. The human relations approach viewed the knowledge and effort of the line workers as the best resource for controlling and improving quality and productivity SQC combined its methodology with that of the engineering method. In doing so, it was able to effectively implement a more efficient form of built-in process control. Empowerment, important to the human relations approach, was also provided by SQC. SQC’s contributions to the human relations approach and engineering method helped combine the two manufacturing approaches.
Using manufacturing accounting to make production decisions as business decisions
One of the new concepts of manufacturing is the integration of manufacturing with business strategy. Drucker described manufacturing accounting as being the third leg of a manufacturing stool along with scientific management and the assembly line. The old cost accounting system ignored non-production activities, such as quality control. The group that initiated the change in manufacturing accounting was actually machine makers. The old system of manufacturing put too much emphasis on metrics such a labor costs. Managers ignored other important things such as machine set up time. The equipment users wanted more efficient machinery, but were ignored. With pressure from the machine makers and other various organizations, the manufacturing field founded a completely new manufacturing system. The measurement unit of this new accounting system is time. With time as the main metric, the cost accountants can make better strategic decisions.
“Flotilla,” or module, organization
Drucker compares the new conceptual model and traditional model of a factory by using a flotilla (small group of ships) and battleship. The conceptual model being the flotilla, consists of modules centered either on a stage in the production process or around a number of closely related operations. To add to this metaphor, each ship in the flotilla will be flexible in regard to the entire manufacturing process and to the other modules. However, the traditional factory is like a battleship, i.e., a large, inflexible structure designed for one task. The flotilla model allows for changes in the production process in order to respond to surges in market demand.
Use of the systems approach to emphasize the economic process of business
The systems approach is a concept that views manufacturing as an integrated process that converts goods into “economic satisfactions.” This concept does not just consider the actual production of the product in factories. The systems approach follows the product through its shipping process and evaluates the impact of suppliers on the production process. Drucker explains that the system design approach “ . . . sees the plant as little more that a wide place in the manufacturing stream.” The manufacturing process does not end until the customer receives his/her product.
Peter Drucker concluded that if the manufacturing industry simultaneously implemented these four principles of the post modern factory (the use of Statistical Quality Control to change the social organization of a factory, the new concept of manufacturing accounting allows people to make production decisions as business decisions, the use of “flotilla,” or module, organizations, and finally, the use of the systems approach to emphasize the economic process of business) they would eliminate existing conflicts and would create a factory that would be much more efficient than any current working factories.
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