Quality Management, in Which Manufacturers Strive To Create An Environment That Will Enable

12 Chapter 1 Introduction to Managerial Accounting
Continuous improvement is fundamental for establishing excellence. A philosophy of total

quality management, in which manufacturers strive to create an environment that will enable
workers to manufacture perfect (zero-defect) products, has replaced the “acceptable quality”
attitudes of the past. This emphasis on quality has also created a demand for a managerial ac-
counting system that provides information about quality, including quality cost measurement
and reporting for both manufacturing and service industries. For example, in response to in-
creasing customer complaints regarding its laptop computer repair process, Toshiba formed an
alliance with UPS in which UPS picks up the broken laptop, Toshiba fixes it, and UPS returns
the repaired laptop to the customer. In order for this alliance to work effectively, both Toshiba
and UPS require relevant managerial accounting information regarding the cost of existing poor
quality and efforts to improve future quality.7
Increasingly, companies such as Chrysler are using techniques like Six Sigma and Design
for Six Sigma (DFSS), together with various types of cost information, to achieve improved
quality performance. Chrysler’s goal is “to meet customer requirements and improve vehicle and
system reliability while reducing development costs and cultivating innovation.” On a related
note, many companies attempt to increase organizational value by eliminating wasteful activi-
ties that exist throughout the value chain. In eliminating such waste, companies usually find that
their accounting must also change. This change in accounting, referred to as lean accounting,
organizes costs according to the value chain and collects both financial and nonfinancial infor-
mation. The objective is to provide information to managers that supports their waste reduction
efforts and to provide financial statements that better reflect overall performance, using both
financial and nonfinancial information.
Finally, one of the more recent charges of managerial accountants is to help carry out the
company’s approach to enterprise risk management (ERM) and/or corporate sustainability
reporting (CSR). ERM is a formal way for managerial accountants to identify and respond
to the most important threats and business opportunities facing the organization. ERM is
becoming increasingly important for long-term success. For example, it is well recognized
that Walmart’s expert crisis management processes and teams repeatedly responded to the
aftermath of Hurricane Katrina throughout Louisiana and Mississippi better and faster than
did either local or federal government agencies (e.g., FEMA).8 CSR represents the ways in
which organizations choose to communicate the results of their various business sustainability
practices to key internal and external stakeholders. The results of many public accounting firm
surveys, as well as the Institute of Management Accountants, highlight the growing importance
that organizations place on conducting effective risk management and corporate sustainabil-
ity reporting practices.9, 10
Time as a Competitive Element

Time is a crucial element in all phases of the value chain. World-class firms reduce time to market
by compressing design, implementation, and production cycles. These firms deliver products or
services quickly by eliminating nonvalue-added time, which is time of no value to the customer
(e.g., the time a product spends on the loading dock). Interestingly, decreasing nonvalue-added
time appears to go hand in hand with increasing quality.
What about the relationship between time and product life cycles? The rate of technologi-
cal innovation has increased for many industries, and the life of a particular product can be quite
short. Managers must be able to respond quickly and decisively to changing market conditions
7 T. Friedman, The World Is Flat: A Brief History of the Twenty-First Century (New York: Farrar, Straus and Giroux, 2005).
8 A. Zimmerman and V. Bauerlein, “At Walmart, Emergency Plan Has Big Payoff,” The Wall Street Journal
(September 12, 2005): B1.
9 Enterprise Risk Management: Tools and Techniques for Effective Implementation (Montvale, NJ: Institute of Management
Accountants, 2007), 1–31.
10 Ernst & Young and Boston College Center for Corporate Citizenship, “Value of Sustainability Reporting,” 2013. EYGM
Limited.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203

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12 Chapter 1 Introduction to Managerial Accounting

Continuous improvement is fundamental for establishing excellence. A philosophy of total

Time as a Competitive Element

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