Chapter 12: Demand Flow

Overview

Making the financial and management reporting systems consistent with the responsive Demand Flow business strategy is a prerequisite to evolving beyond a departmental financial-costing system. With flexible processes and production employees, tracking direct labor is not a priority. Also, direct labor plays no part in the application of overhead costs. Demand Flow's focus is on material and overhead costs, not direct labor. It is very confusing to implement Demand Flow manufacturing without a corresponding change to the financial system. Labor-based costing techniques can create an illusion of negative growth as the highly productive flow process shrinks the labor basis.

Financial control and management in a Demand Flow manufacturing environment are just as important as they are in traditional manufacturing but also significantly different. Traditionally, companies have used the old "three-bucket" approach:

• Raw material in the storeroom (RAW)

• Work in process (WIP)

• Finished-goods inventory (FGI)

In schedulized manufacturing, the company schedules individual work orders and issues material to build a specific quantity of a specific assembly or fabricated part. Each unique work order is carefully tracked in detail to collect the costs related to issued material, production labor, and corresponding overhead. No reporting of WIP variances occurs until the production work order closes. Physical inventories have proved that the actual WIP inventory seldom matches the book WIP inventory. Traditionally, it takes weeks to complete the production assigned to a work order and for the product to go through the process and to report the corresponding results.

Accuracy, Availability, Adaptability

The finance...