Management accounting and operation management are two different systems being used in organizations. Each does function in a way differs from other in terms of the tools used, procedures, scope, or nature of the function itself. Organizational performance measurements, cost reductions, responsibility centers and other functions related to managing, controlling numbers and measurements are the major tasks of management accounting that have been performed at distance of or far away from technical, operational functions which is of the operations managements' job. However, they are being used by organizations for the same final objective that is enhancing the firm's profit or value.
The different ways used by the two just mentioned systems has led to a tension or so far clashing between them. Having the nature of management accounting is the control of performance numbers such as costing, pricing, standers and even planning, it is considered as a headache of the operations management that somehow strive to improve quality, continuous developments and other non-financial performance throwing back that standers and limitations which OM sees such MA's functions as restrictions or constraints of operations management's accomplishments. It supports such view point by saying organizations should be competitive that would not come without taking into account nonfinancial performance. This tension has led some to argue that management accounting should undertake its function with no control or watch over operations.
The importance of OM is being strategic and gives organizations ability to compete via manufacturing. Responsiveness and changes to surrounding environment is required So that many instruments have been developed such as total quality management (TQM), Just-in-time (JIT), lean manufacturing and others to better manage the complexities of organizing people technologies and materials along with how production process meet external demands which could be in two types of strategies such as push and pull strategies. Push strategy requires or use full capacity/maximum efficiency whereas the other focuses on flexibility.
Two opposite operations systems have emerged upon different requirements of the environment. Based on hierarchical intervention MRP systems emerged in American organizations and JIT come out in the Japanese organization based on lateral intervention. Each system provide distinct and opposite principles.
MRP system emphasizes on push strategy for corporate planning and maximizing productivity by setting standers and constraints using materials and other components of products in order to minimizing costs and arriving to the optimal mix needed for production. Whereas JIT focuses on pull strategy that stresses adaptation between sequential stations and quality which require small batches, minimum inventory by making delivers at the right time in order to minimizing costs related to storages and ensure quality management. However, both systems provide productive principles for operation management despite the different ways they emphasize.
Another based-on-lateral terms system has been introduced as a best practice is lean manufacturing. It is seen as a value-added activity that integrates a firm's development, manufacturing and distribution activities. In such activity the product is the central not the organization. Technologies and value chain are created around the product in order to eliminate waste materials, times that bring no value to the firm. Quality, speed, dependability, flexibility and cost reduction are major features of Cellular manufacturing as a one tool being used in lean manufacturing. Lean manufacturing is seen as fast, flow oriented, responsive, decentralized and customer oriented that differs from the traditional which is seen as slow, hierarchical, centralized and production oriented.
Despite of the positive responsiveness of lean manufacturing and its ability to resolve the organization's ills, and even though the cost is a common performance measurement in operation management, it is seeing the role of cost accounting as not preferable which create a paradox regarding the tools must be used to visualize that costs.
Management accounting is claimed to be a problem for operations management. Generally, operations management commentators argue that the focal point of management accounting is reducing cost. Hence, management accounting's tools and techniques can be lack to show certain hints as to how reduce this cost. Even modern accounting mechanisms such as activity based costing is a problem. Consequently, Operational data are claimed to be superior because they are clearer and they incorporate a more valid theory of business behaviour, e.g. total quality management.
One of possible solution offered is to redesign management accounting to make it lean -simple accounting- because lean manufacturing needs lean accounting. Namely, making the accounting focus from the scrutiny to providing local accounting information needed by managers. The techniques that can be applied to enable lean accounting to aid lean manufacturing: activity-based costing/management, customer profitability, non-financial performance measurements, value-added analysis, process mapping, target costing, value engineering, life-cycle costing, quality function deployment, and competitive benchmarking. All these techniques could be used as possible bases for ad hoc analyses.
The critique against accounting and the responses can be summarised in the following points:
Firstly, operations management commentators claim that non-financial performance measures became more important because manufacturing strategy has changed from focusing on cost efficiency to focus on flexibility, speed and quality, as well they claim that financial performance measures are irrelevant and too aggregated. Thus, lean manufacturing which adapt self-manage workers needs to clear and understood information for decision making, and non-financial information with its easy concepts can provide these conditions.
Management accounting researchers have shown that financial performance measures are often used at the shop floor and also argued that activity-based cost calculations are useful for operational decisions . Further, cost information is important to understand the economic consequences of flexibility, quality and speed; as well management accounting creates incentives according to the goals of lean manufacturing systems.
It is not obvious that non-financial data are as clear and real as Operations management writers claim. They can be represented in different measures of the same concept. They mean different things. Namely, both financial and non financial information have misrepresentation. Hence, non-financial data may be no easier to understand than financial data.
The second critique, operations management writers argue that management accounting should be replaced by mechanisms of mutual adjustment because management accounting, as a hierarchical planning tool based on standards, forecasts and variance analysis, is produced planning errors and dysfunctional consequences in complex manufacturing systems whereas new operational settings are presumed to be better adapted by lateral to ensure quality, flexibility, innovation and productivity.
Many accounting researchers argue that cost accounting and performance measurement have a significant role to offer incentives, make organizational goals clear and report performance results to facilitate cross-functional coordination and enable the lateral orientation. In addition, accounting is prior to operations management. Namely, accounting calculations are used to justify a manufacturing system that is lean or modern rather than based on a hierarchical view of the factory. Here, management accounting calculations help managers to develop a programme of advanced management. This takes shape prior to manufacturing and influences the form of the manufacturing system, which may then be governable more by non-financial means.
The third argument, operations management commentators claim that accounting is not useful for lean organizations because it prevent learning and continuous improvement by its standards. Standards do not allow workers to improve production process in order to achieve productivity and quality.
Standards are not a real problem. Recently, the standards can be easily adjusted and updated to serve in lean or class manufacturing world, even improvements can be included in modern standards. A standard can have different properties and it's important to differ between motivational and planning purposes. this problem has been examined either through discussions on how standard setting represents a trade-off between planning and motivation, or how accounting systems should incorporate multiple standards - some for planning and others for motivation. Lean management has a tendency to ignore such concerns and assumes that obtained standards are the relevant ones. Moreover, standard setting and lateral relations do not necessarily have to conflict. This has consequences for the extent to which individual or group is oriented towards their own or others' performance and incentives for integration and lateral thinking.
The last claims is management accounting promotes centralization rather empowerment which means employees are controlled by accounting rather to manage himself that lean manufacturing purposes.
Management accounting research reintroduced justifications, representing, a replacement of clan rather than bureaucratic when there is high certainty. This supposes employees to enteritis norms and values consistent with behavior enhancing organizational value. So that management accounting can measure the team - as a new entity- rather than the individual performance in order to create team norms and rules that is collectively accountable.
They stress that self management can bring stronger hierarchical system. They suppose workers cannot control how numbers are used for supervision by others, those local operational data are only useful locally, it can become a part of wider systems of accountability. In addition, they confirm that responsibility center in demand but with different scope. JIT numbers and shape of cost centers change to ward corresponding change in operations. Also pseudo profit center are promoted as relevant in changing operations management practices. They provide incentives for continuing improvement even when employee work teams are not organize as real profit center. Those hierarchical systems of accountability still play a significant role in manufacturing settings as their scope changes.
In conclusion, there is conflict between operation management and management accounting that resulted from the nature of their operation. Operation management stresses on lateral relation whereas management accounting focuses on hierarchical ones. This conflict leads operational management researchers to argue that management accounting is considered as enemy of quality, flexibility, and even cost reduction. They confirm that management accounting's non-financial information makes no sense because of their irrelevance with operations.
Management accounting researchers upon those claims have stressed the relevancy of non-financial information for decision making by flattening organization structure and motivating continuous improvement. However, this conflict have been emerged because of many challenges facing modern management accounting in the operations environment which raised the calls of new suggestions consistent with the interest of the business.
The suggestion is that-operation management is in a need of management accounting since financial language and cost standard cost system are used for improving processes. Therefore, non-financial are incomplete without those financial measures. The lateral relations may be affected by hierarchy that provide incentives objectives and else to facilitate lateral relations. Standards don not constitute a problem for operation management so long as they are updated to be more relevant for motivation purposes. Responsibility centers have also changed to go a line with employment which means management accounting does account for team processes and value chain performance.
For these reasons, management accounting and management operations can learn from each other. Continuous must be done with taking into consideration the constrains and opportunities for the organization and develop each other.
