Manufacture of Car Braking Systems – Range of Valves – Accounting Assignment Help

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Assignment Task :

Coursework Brief: 

John Harrison is the newly appointed management Accountant at Graison Auto, a parts manufacture that services the motor industry, Graison manufacture a range of valves that are used in the manufacture of car braking systems. 

Graison use a number of different suppliers for their components as the board believe it gives them more power over their suppliers if Graison can threaten to stop using them. Graison keep large stocks of supplies as a buffer stock in case of unexpected shortages (although this has not been a problem in the company’s history so far.) 

Graison Auto sells its components to several major car manufacturers who have to order in advance, recently some customers have complained that Graison does not fit with their own supply chain requirements and Graison have lost two major customers because of this. 

It is difficult to manufacture a perfectly serviceable valve every time because the manufacturing process is complicated and involves several steps. After each step has been completed the company runs a series of quality checks and valves that fail are discarded before they go on to the next stage or are accepted into inventory. The rejection rates vary from step to step but can be as high as 5% in some stages of the production process. Overall, Graison Auto budgets for a 20% rejection rate when estimating the size of production runs. As a result, Graison also keep relatively high stocks of finished goods so they can be confident of meeting demand. 

There are substantial costs associated with quality checks and rejections. Approximately 20% of staff time is devoted to quality control. The rejected components have no scrap value and so Graison Auto has to pay to dispose of them in an environmentally acceptable manner. 

Staff morale appears to have a role in the determination of quality. Failure rates are higher on Friday afternoons and Monday mornings when employees are distracted by looking forward to 

the weekend or demotivated by the start of the working week. Also major televised events broadcast late at night such as sports events and award ceremonies can lead to deterioration in the quality of the following day’s output because staff have stayed up to watch the event. 

The failure rate depends largely upon the care with which the manufacturing machinery has been set up and calibrated before a batch of parts is processed, although that is not the only factor. For example, a defective part may have passed through earlier quality checks unnoticed and could cause a failure at a later stage. 

The manufacturing machinery has been in use for a number of years and maintenance was reduced several years ago in an attempt to cut costs. As a result, the machines do not hold their calibration for as long as they used to and therefore need recalibrating on a regular basis throughout the process. Whilst the machinery is at a point where it should be replaced the production manager of that department is reluctant to do so since it will reduce his bonus under the Return on Investment measure Graison currently use to appraise senior staff. 

John Harrison was amazed that the company accepted these failure rates in production and asked if the board had considered looking into the more modern manufacturing processes such as Total Quality Management (TQM) and (Just in Time). 

Harrison was informed that the board had attempted a pilot for TQM a couple of years ago but had not committed to its implementation. As an initial step the board had asked production supervisors to come into work an hour early once a week for a quality circle meeting. The board had intended to devote more time and effort to TQM if this initial step had proved successful, but the directors have been disappointed by the initial feedback, which can be summarised as follows: 

The supervisors proposed that the working week be reorganised so that staff can leave early on a Friday afternoon and have longer breaks on a Monday. This proposal was supported by a revised schedule that would make up for this time by having staff work longer hours in the middle of the week. Graison’s board rejected this proposal because there would be some additional administrative costs associated with the proposed new working arrangements. 

The supervisors also suggested reallocating some of the present quality control staff to production so that more staff time would be available to permit production processes to be properly set up. The supervisors believed that production staff have to work at close to 100% of their capacity and that such effort is not consistent with producing high quality work. Reducing the pressure would lead to a dramatic reduction in failed parts and so the company would need fewer quality inspectors. 

Graison’s board has rejected this proposal because it believes that staff should be encouraged to work harder and not to slow down. Also, the board would expect any reduction in the quality control staff to offer the opportunity to reduce staffing and save costs. 

Harrison then asked about Just in Time and was met with a blank stare. He suggested that it might be time for Graison Auto to move into the 20th century, when it was pointed out that we are actually in the 21st  century Harrison muttered something about “one step at a time”

The Chief Executive is concerned that he is coming under pressure from the shareholders following the loss of the two major customers and has asked John Harrison to prepare a report for submission to the board on TQM and JIT and how to implement the two systems. 

 

Requirements:

Required

(a) Write a report to the board that: 

Explains TQM and JIT and the benefits that Graison Auto should gain as a result of its successful implementation. Your report should include an explanation of what Kaizen costing is and how it can be used as a part of TQM.  

Advises Graison Auto’s board on the shortcomings of the approach that it has taken to TQM.  

(b) Evaluate the suggestion of reducing the number of quality control staff in the factory.

 

 

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