Two plants with identical spending and identical output can report different operating income. The difference is the capacity level each chose as the denominator of its fixed overhead rate.
Supply chain management (SCM) is the coordination of material, information, and cash flows from supplier's supplier to customer's customer. The accounting question is always the same: which configuration lowers total cost across the chain, not just cost inside one department.
Push systems build to forecast; pull systems build to actual demand. Material requirements planning is the classic push engine. Just-in-time is the classic pull engine.
Lean resource management removes activities the customer would not pay for. The waste categories are overproduction, waiting, transportation, over-processing, excess inventory, unnecessary motion, and defects. Tools include cellular manufacturing, standardized work, kaizen (continuous improvement), and total quality management.
The operational benefits of implementing lean resource management techniques are concrete: shorter manufacturing cycle time, less floor space, fewer setups, lower defect rates, higher throughput per labor hour, and faster response to demand shifts.
Common mistakes
- Including unavoidable fixed cost in the make column. The $120,000 that continues after outsourcing is not avoidable, so it never favors making.
- Ignoring opportunity cost of freed capacity. A tie at $1,260,000 flips decisively once $150,000 of alternative contribution is counted.
- Treating unused capacity cost as inventoriable. Under practical capacity the $1,200,000 idle charge is a period expense, not a cost of goods produced.
Bottom line
- SCM coordinates material, information, and cash across the chain; MRP is push (forecast driven), JIT is pull (demand driven)
- Lean targets seven wastes and delivers shorter cycle time, less space, fewer defects, and lower inventory
- MRP inputs: master production schedule, bill of materials, inventory status file; MRP II adds capacity and finance
- JIT benefits: lower carrying and obsolescence cost, fast defect exposure, shorter lead times, backflush costing; the risk is supply disruption
Exam shortcut
Rank denominators from largest to smallest as theoretical, practical, normal, master budget; the rate moves inversely, so the question "which reports the highest inventory value" always answers master-budget capacity. In make-versus-buy, strike every fixed cost the problem does not label avoidable, then add freed-capacity contribution to the buy side before comparing.
The full lesson (about 1,748 words, 12 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- 1D4
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