Theory of Constraints Handbook - James Cox Iii [765]
47The seven FASB Concepts Statements may be found at the following Web site: http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156317989, (accessed March 20, 2010.)
48See Chapter 14 in reference to dysfunctional behavior caused by local measures.
1Note: Recent events in the world economy have made companies hypersensitive to cash. Cash and cash flow are necessary conditions of doing business and should not be treated as objectives in and of themselves. In a good TOC system, however, decisions tend to be filtered by their total cash implications since the metric system assigns product cost based on the direct cost method instead of a standard product cost basis that would include both fixed and variable overhead.
2Chapter 15 provides a simple numerical example illustrating these points.
3Johnson and Kaplan (1987) provide a history of managerial accounting and describe many of the problems created by its use.
4The APICS Dictionary (Blackstone, 2008, 14) defines a break-even chart as “(a) graphical tool showing the total variable cost and fixed cost curve along with the total revenue curve. The point of intersection is defined as the break-even point (i.e., the point at which total revenues exactly equal total costs)” (© APICS 2008, used by permission, all rights reserved.) This definition uses the traditional view of fixed and variable costs. This difference between TOC and traditional accounting creates vast differences in decision making in most situations. TOC falls in line with fundamental economics, therefore giving the correct answer.
5The TOCICO Dictionary (Sullivan et al., 2007, 40) defines protective capacity—“Resource capacity needed to protect the throughput of the system by ensuring that some capacity above the capacity required to exploit the constraint is available to catch up when disruptions inevitably occur. Non-constraint resources need protective capacity to rebuild the bank in front of the constraint or capacity constrained resource (CCR) and/or on the shipping dock before throughput is lost.” (© TOCICO 2007, used by permission, all rights reserved.)
6For an in-depth explanation and case study on pricing indifference modeling, we refer you to Chapter 9 of The Measurement Nightmare, How the Theory of Constraints Can Resolve Conflicting Strategies, Policies, and Measures, by Debra Smith, St. Lucie Press, 2000.
7The TOCICO Dictionary (Sullivan et al., 2007, 40) defines time buffer—“Protection against uncertainty that takes the form of time.” (© TOCICO 2007, used by permission, all rights reserved.)
8The TOCICO Dictionary (Sullivan et al., 2007, 43) defines stock buffer—“A quantity of physical inventory held in the system to protect the system’s throughput.” (© TOCICO 2007, used by permission, all rights reserved.)
9Capacity buffer is the sprint or protective capacity placed at non-constraint resources to protect against Murphy.
10The TOCICO Dictionary (Sullivan et al., 2007, 41–42) defines roadrunner work ethic as “(t)he work rules in the drum-buffer-rope or critical chain project management (CCPM) systems. The rules are: if there is work available start it immediately; if there is more than one work-order/task in queue choose the one with the highest system-priority; work at full speed without stopping until the work is completed; produce zero defects and pass the work on immediately; if there is no work available stay idle.” (© TOCICO 2007, used by permission, all rights reserved.)
11See Chapter 13.
12Whether the environment is CCPM, DBR, Replenishment, or ASR, the specifics and the supporting tools of reporting and measurement, direct the necessary change but the five questions remain the same.
13The TOCICO Dictionary (Sullivan et al., 2007, 48) defines time buffer—“Protection against uncertainty that takes the form of time. See: assembly buffer, buffer, drum-buffer-rope, drum buffer, capacity buffer, feeding buffer, project buffer, shipping buffer.” (© TOCICO 2007, used by permission, all rights