Kendra Reynolds has just become a manager at a manufacturing company. The performance in her unit has declined recently, and she needs to fix it. When she arrives, she finds unused capacity and that excess inventory is backing up. She begins trying to understand the problem, but the answer is not obvious. A colleague mentions that throughput accounting may help her analyze the situation and develop an effective solution.
Managers often find themselves facing problems where the solution is not obvious. A tool designed for analyzing these complex questions is throughput accounting (TA), as Corbett describes in the article "Three-Questions Accounting." TA requires you to determine how a decision will impact throughput, operating expense, and investment. The relationship among these factors can help you determine if a decision will improve profitability.
Think of how TA could affect your organization or one with which you are familiar. Think of a decision at the organization you chose and the effect the decision has had on the organization's throughput and operating expenses. Also consider the decision's effect on the amount of money invested in operations, such as people, processes, software, infrastructure, and current projects.
If you are not familiar with an organization in this situation or if you are restricted by confidentiality requirements, select a different organization. You can research organizations in the business press.
Answer the following:
- A brief description of the organization you selected and the decision this organization made
- A description of the impact that the decision had on investments in operations, such as people, processes, software, infrastructure, and current projects
- Your determination of whether the organization made the correct decision, based on your application of the principles of throughout accounting (Justify your response.)