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Over the past thirty years there
have been several external factors that have impacted management accounting
techniques. This report will be outlining and identifying the external factors
and describing their effect on two different management accounting techniques. Amara,
T alludes to management accounting as one of “the descending generations” of
accounting. The external factors that will be described and explained will be;
global competition, growth in the service industry, advances in manufacturing
technologies, changing product lifestyles, environmental issues and customer
satisfaction. The management accounting techniques that will be used will be;
Kaizen costing and just in time. The aim is to critically analyse the selected
management accounting techniques and attribute how the external factors may
have impacted their use over the last thirty years.


This report will be focusing on Kaizen
costing and Just in time. Kaizen costing is a long-term system that seeks to
achieve small, incremental changes in order to improve quality and efficiency (Rouse,
M). Kaizen costing focuses on how important constant improving is focusing
heavily on cooperation and commitment. Kaizen costing can be extremely useful
and encourage the development of work place attributes such as teamwork and
independent groups.

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Advantages of Kaizen costing
include but aren’t limited to; Kaizen costing is process centred making it easy
to spot where things are going wrong, the scope for error is lesser so there is
reduced need for inspection and customer requirements are placed at the front
of company efforts meaning all products and services are tailored to the needs
of clients. Within Kaizen costing though there is of course disadvantages; to
enable effective Kaizen costing companies need to employ an open style of
communication to put this management technique into working order, Kaizen
costing can also lead to diminishing returns if not implemented correctly.  


Just in Time production is a
strategy to increase efficiency and decrease waste by receiving goods when they
are needed in the production process this is to reduce inventory costs. What
Just in Time intends to avoid is inventory exceeding demand. This in turn
eliminates large amounts of investment in inventory, hence reducing working
capital needs of a business. Just in Time has many advantages; With inventory
levels being low there is extremely little risk of having surplus of
inventory.  A good Just in time system
will shorten the process of manufacturing products. Just in Time can help lower
scrap costs as there is so little inventory at any given time it is easy to
identify and fix any sub-standard inventory. The main problem with just in time
is that with low levels of inventory, the possibility of shortages arises. Some
companies may employ expensive mitigations such as overnight delivery services.


The external factors that have
impacted accounting techniques can be attributed to 7 categories; Global
Competition, growth in the service industry, advances in manufacturing
technologies, the impact of information technology, changing product life
cycles, environmental issues and customer satisfaction.


Global competition can be described
as ‘competing organisations that serve international clients’. Global
competition over the past thirty years has changed in a few aspects, improved
transportation and communication systems have enabled ease of access for
importing and exporting products. This coupled with the reduction on import and
export tariffs and duties. Overseas companies, for example in China offering
top quality products at extremely competitive prices which became prevalent
during the 1990s. Global competition can lower costs and prices for goods and
services, ensure better quality products are produced and help to give
consumers more choice and variety (Stucke, M 2013).


The next external factor to be
described will be the growth in the service industry. According to the World
Bank the demand for the service industry is very high (Linton, I). It was
recorded in 2016 that the service industry grew at the fastest pace over
seventeen months for a year. Over 2016 the service industry outshone its
counterparts in both the manufacturing and construction industries (Allen, K
2017). The chart below illustrates that this is not just a one off, in fact the
service industry has been rapidly growing since 1920.  Whilst the agricultural sector once reigned
dominant the service industry is now well ahead and makes up a ginormous 78% of
the overall labour force in this country.


in manufacturing technologies have been needed over the past thirty years to
enable constant improvement of the quality of products at lower cost. Apple are
brilliant at turning over high profit on low production price. The bill for the
complete production of an Apple iPhone 8 is £220 (Kharpal, A 2017) Apple then
go on to sell that mobile phone for £899 (Apple, 2017) that’s just over a 4
times increase on the build price. Advances in manufacturing have allowed this
to be possible and all though the price of sale seems high it is nothing
compared to the first mobile phone. 21st September 1983 Motorola
released what is called the DynaTAC it cost consumers a huge £3,500 at time of
sale (Fox news, 2013). Using a calculation of inflation, the Motorola DynaTAC
would cost around £11,000 if produced today (See bibliography). This mobile had
the capability of receiving a call and dialling a call, which isn’t a scratch
on what the latest iPhone can do. This shows how far manufacturing technologies
have come in the last 30 years and how effective that journey has been for the
manufacturing industry.


technology has also had a massive impact on Business in the last two decades.
It has enabled the management of resources to become a much easier job (Schek,
S 2016). Products like Microsoft Excel have made the input of data such as inventory
and pay roll details much easier to manage. For example, before information
technology existed employers will have kept files on employees that they would
have needed to spend many wasted working hours searching through if anything
needed updating, it is now as easy as a few clicks to identify, select and
change any necessary information in just a few minutes. Information technology
also plays a key role in other external factors, it has helped increase the
ease of entry into globally competitive markets.


product lifecycles, products lifecycles are shorter due to global competition
and technological innovation. Companies have had to increase the rate that new
products are introduced to the market. Management accountants must ensure there
is more accurate data at the design stage as many of the costs are already
committed. There are four key stages to a product life cycle; introduction,
growth, maturity and decline. Manufacturing advances as well as technological
advances have resulted in declining product lifecycles. Mobile phones are
brought out every year with contract companies introducing upgrades after 6
month’s (Vodafone) and 12 month’s (EE) to allow consumers to get the latest
mobile phones. Phones are released to keep up with technological advances;
wireless charging, Ion-X screen, Face scanner, improved camera mega pixels to
name a few (Mudrakola, S 2016). The results of these technological advances
mean that to keep up with demand and maintain a higher market share, companies
must keep making advances year on year to ‘wow’ consumers. The demand for older
phones goes down drastically as a new phone is released meaning the product has
reached its ‘maturity’ stage in a twelve-month period.


issues can affect management accounting in a number of ways. Customers want to
see that companies are complying with legal requirements, there is a lot of
pressure groups that lobby to ensure this happens; Plane Stupid, Green Peace,
WWF. These pressure groups bring to attention companies environmental failings.
Plane Stupid protested at Stansted airport in 2008 around air pollution from
Aeroplanes (Vidal, J 2008). The media will cover these stunts extensively and
they shine a light on companies. This is bad for consumer perception of a brand
and increase interest in the cause which is bad for business. It is therefore
in a company’s best interests to ensure they are complying with environmental
regulation. The Deepwater Horizon oil spill is another example of bad publicity
for companies in the media. BP had to pay a fine of $18.7 Billion after that
event which was catastrophic to the Mexican gulf (Rushe, D 2015). This is an
example of environmental costs with which BP received the largest fine in
environmental history due to non-compliance.


satisfaction is an external factor that plays a big role on organisations and
has become a top priority. Success factors include; cost efficiency, quality,
time and innovation. Cost efficiency involves keeping costs at a point where
consumers will be happy to buy as well as still making a product profitable.
Quality is producing high quality goods as well as low production costs.
Maintaining systems that enable quick delivery time, quicker response to any
customer queries and speeding up the time it takes to bring a new product to
the market will help ‘time’ with regards to customer satisfaction. Innovation
will be good if a company is consistently introducing new and exciting products
into the market.


Research by Lockwood, D explains
how over the past decade, due to globalisation, has had to focus more heavily
on reducing the cost, improving quality and reducing cycle time of a product.
In the beginning of the 2000’s Dell adopted a just in time strategy which
helped turn the company into a market leader. Dell viewed inventory as a
liability, and instead used computer modelling programmes to forecast sales to
ensure they had just the right amount of stock for sales. The software helped
to analyse specific supply and demand in the market and keep up to date with
any predicted changes. This reduced supply chain cost by 60%, inventory by 23%
and increased productivity by 20%. ‘With just in time the voice of the customer
is always present’, decreased production time and costs help companies to get
products to customers faster and also for a decreased price (Kelchner, L).
Toyota were one of the first companies to incorporate advanced manufacturing
with just in time systems. Research by Kiger, D explains how with Toyota ‘raw
materials are not brought to the production floor until the order is received
by a client’ the effect this then has on Toyota is that the amount of inventory
held is kept to a minimum, due to the machines cars can then be built much more
quickly. Customer satisfaction is at an all-time high with Toyota this is show
as there latest NPS (Net Promoter Score) is currently 76 out of 100 a total of
41 points higher than their closest competitor (Nissan NPS 35).


Toyota also implement Kaizen
costing, McBride D goes onto say ‘everyone within the Toyota organisation is
challenged to use their initiative and creativity to experiment, learn and
improve’ this is shown by a report on Toyota explaining how each and every
single year employees come up with one million process improvement ideas. 90% of
those ideas are used. Processes within Toyota are changed month on month and it
is up to the employees to adapt to such changes. Toyota claim the way they make
Kaizen costing successful is by team building and problem solving and they
allow line managers to decide how the training is done under the condition that
the line managers stick to the same goal. This continuous improvement leads to
a quicker and more productive workplace which in turn eventually leads to reducing
cost of products. 


Global competition has also helped
Toyota, 170 countries sell their cars worldwide, with every factory operating
under just-in-time.


Whilst kaizen costing and
just-in-time do have their downsides, if utilised correctly they are extremely
efficient management accounting techniques. As explained in this report Toyota
are extremely efficient with both systems and are very successful due to these
systems. These management accounting techniques have had to adapt to external
factors, with reference to Toyota the external factors which have impacted most
have been customer satisfaction and Global competition. Whilst external factors
will continue to affect management accounting techniques, those same techniques
if used correctly, will find a way to respond to ensure efficiency and