With the time-driven approach, Hunt

With the time-driven approach, Hunter’s ABC team of analysts was able to group the three activities into a single departmental process, called inside sales order entry. The team learned that it took about 5 minutes to enter the basic order information, plus 3 minutes for each line item, and an additional 10 minutes if the order had to be expedited. If the customer were new, 15 more minutes would be required to set up the customer in the company’s computer system.

Following the approach described earlier, the previous three-activity model was replaced by a single time equation:

Inside Sales Order Entry Process Time = 5 + (3 × number of line items) + 15 [if new customer] + 10 [if expedited order]

This was straightforward to implement since Hunter’s ERP system already tracked the number of line items for each order and included fields that identified whether it was a rush order and whether the customer was new. The model multiplied the estimated sales process time by the departmental cost per minute to arrive at the cost of processing each order. Hunter could now obtain a more accurate and nuanced estimate of its costs in the unit while simultaneously reducing the complexity of the process for gathering and analyzing the data. Hunter has since rolled out time-driven ABC over all its operations. The results have been dramatic:

Hunter has reduced the number of items tracked from 1,200 activities to 200 department processes.

Managers can add complexity to the model by simply adding new elements to the time equations, which places less strain on Hunter’s accounting system than incorporating new activities would.

Cost estimates are now based on actual order characteristics and direct observations of processing times, not on subjective estimates of where and how people spend their time.

The new model is easier to validate. Hunter can reconcile the total process time—that is, the total absolute time spent on all the activities tracked in a given period—to other measures of resources supplied, such as head count. If the total process time is lower than the time implied by the head count, for example, managers know that some of their unit time estimates are too low or that people are not working to capacity. This validation is difficult with traditional ABC, which is based on estimated proportions of time spent and rarely incorporates idle or unused capacity time.

Hunter’s time-driven ABC model requires only two people working two days per month to load, calculate, validate, and report findings, compared with the ten-person team and three weeks that were necessary to maintain the previous model. Employees now spend time generating profits from the information rather than just updating and maintaining it.

The kind of rollout Hunter conducted is not difficult to achieve. Time-driven ABC models can be easily applied and customized for other plants and companies within an industry because the processes they use are similar. Dave Deinzer, CEO of Denman & Davis and president of the North American Steel Alliance, commented, “For the most part, we are all pretty much the same…cutting, sawing, and finishing metal with the same equipment and the same procedures. You could probably apply the same time-driven ABC model to all of us.” The chief information officer of another steel distributor, TW Metals, noted, “We were able to roll out our time-driven ABC template model to all 36 of our facilities within three months.”

The ability of time-driven ABC to identify and report complex processes in a simple way also provides a powerful negotiation tool when it comes to dealing with customers. Wilson-Mohr, an industrial controls company in Houston worked as a subcontractor to engineering contractors (ECs) on the construction of custom process-control systems for refineries and chemical plants. Its time-driven model revealed, for the first time, the high cost of engineering change orders issued by the ECs to replace parts or reconfigure the design. In the past, Wilson-Mohr charged an EC only for the predicted materials cost changes resulting from the change orders. Now it can also clearly itemize the cost of additional sales, design, engineering, and manufacturing labor time consumed when implementing change orders, which makes it easy to recuperate these costs through price recovery. (For a detailed example of how time-driven ABC helps companies manage customers, see the sidebar “Strategic Change at Kemps LLC.”)
Strategic Change at Kemps LLC

Kemps, headquartered in Minneapolis, is a full-line dairy, that produces milk, yogurt, sour cream, cottage cheese, and ice cream products. Its customers are retailers and distributors as large as SuperValu and Target and as small as convenience stores. Kemps markets its products under its own branded portfolio along with products sold through private label and copacking contracts. Like most dairies, Kemps was experiencing consolidation in its customer base. It decided to shift from its former customer relationship strategy—willing to do whatever the customer asked—to a lower-total-cost strategy. The new approach clearly required an accurate understanding of cost by product and customer that Jim Green, Kemp’s CEO, would use to instill a “low total cost” culture throughout the organization.

As a critical component of the cost-to-serve model, Kemps implemented a time-driven ABC system so it could track the costs of changeovers in producing and packaging all its products and the costs of picking, loading, and delivering products to its diverse customer base. The model captured differences in how the company entered orders from customers (customer phone call, salesperson call, fax, truck-driver entry, EDI, or Internet), how it packaged orders (full stacks of six cases, individual cases, or partial break-pack cases for small orders), how it delivered orders (commercial carriers or its own fleet, including route miles), and time spent by the driver at each customer location. The extra time for changeovers to clean out allergens (such as nuts, eggs, soy, or wheat) used in certain ice cream products could now be accurately assigned to those products. The model also captured the extra packaging costs for special promotions and customer-specific labels and promotions.

The company soon learned it was losing money with one of its customers, a chain of specialty high-end shops, because of the low volume and high variety of products ordered and the small just-in-time deliveries the chain requested. Kemp’s vice president of sales called on the customer, explained the situation, and offered three options: accept a price increase and a minimum order size; eliminate its private-label ice cream, replacing it with Kemp’s standard branded product that was already being produced in efficient, high volumes; or find another ice cream supplier. When the customer inquired why Kemps was making the change, the VP responded that after 25 years, Kemps only now understood its true manufacturing costs and the impact of specialty production on its margins. The customer accepted a price increase of 13%, agreed to the elimination of two low-volume products, and agreed to accept full rather than partial truckload orders, thereby eliminating internal storage charges for Kemps. The changes produced immediate benefits of $150,000 per year, transforming this unprofitable customer into a profitable one.

Kemps also used its time-driven ABC model proactively to become the leading dairy supplier to a national customer. Kemps demonstrated that it could identify the specific manufacturing, distribution, and order handling costs associated with serving this customer on the basis of actual order characteristics: DSD (direct store delivery) or shipments to distribution centers, gallon versus pint deliveries, and volume and mix of products. The time-driven ABC model facilitated an open, trusting relationship between supplier and customer that differentiated Kemps from its competitors.

Kemps also became aware that some of its smaller convenience store customers had been overordering and returning product when the date code expired. To avoid the high cost of these rebates and returns, Kemps offered these retailers a 2% discount if they would manage their own inventories without the return option. In this way, Kemps eliminated 95% of out-of-code returns, generating a net saving of $120,000 per year.

Read more
The Bottom Line

Over the past seven years, we and our colleagues at Acorn Systems have successfully helped more than 100 clients introduce time-driven ABC into their processes. Most have reported substantial improvements in profitability that they attribute to the information generated by the new approach. Take the case of Banta Foods, a Midwest food distributor with revenues of $155 million from 17,000 SKUs and 5,000 customers. It operated on a razor-thin net margin of about 1%. Historically, its profit drivers were increasing the number of orders taken per day, increasing aggregate revenues, and controlling aggregate expenses.

Banta’s time-driven ABC system, which was fully implemented within 16 weeks, revealed much more granularity in its expense structure by tying costs to products, orders, customers, and territories. Managers learned that a $1,000 order, previously considered the smallest size to break even, could either be quite profitable or a loss depending on the distance to the customer, the location of the product in the warehouse, the size of the order, the frequency of delivery, the type of service, and the credit rating of the customer—all of which were incorporated in the algorithms in its new time-driven ABC system.

Based on the data in its ABC model, Banta instituted a nonnegotiable minimum order size, reduced the inventory of unprofitable products, promoted sales of high-profit products, negotiated with customers either to reduce

النتائج (العربية) 1:

مع اقتراب الوقت يحركها، تمكنت الصياد ABC فريق من المحللين من مجموعة الأنشطة الثلاثة في عملية الإدارة واحدة، تسمى داخل إدخال أمر التوريد. وعلم الفريق أن استغرق حوالي 5 دقائق لإدخال معلومات النظام الأساسي، بالإضافة إلى 3 دقائق لكل بند من البنود، وإضافي 10 دقائق إذا كان الترتيب التعجيل. إذا كان العميل الجديد، سيلزم 15 دقيقة أكثر لإعداد العميل في نظام الكمبيوتر الخاص بالشركة.تبعاً للنهج الذي تم وصفه سابقا، حلت محلها طراز النشاط الثلاثة السابقة معادلة بوقت واحد:داخل "وقت عملية إدخال ترتيب المبيعات" = 5 + (3 × عدد عناصر السطر) + 15 [إذا كان عميل جديد] + 10] إذا كان التعجيل بالترتيب]وكان هذا مباشرة لتنفيذ نظام تخطيط موارد المؤسسات الصياد بالفعل تعقب العدد الأصناف لكل أمر وتضمين الحقول التي تحدد ما إذا كان أمر الذروة، وما إذا كان العميل الجديد. النموذج مضروبة الوقت عملية المبيعات المقدرة تكلفة الإدارة الدقيقة للوصول على حساب معالجة كل أمر. صياد يمكن الآن الحصول على تقدير أكثر دقة وأكثر دقة من تكاليفه في الوحدة مع الحد في الوقت نفسه الطابع المعقد لعملية جمع وتحليل البيانات. قد توالت صياد منذ ذلك الحين يحركها وقت ABC على جميع عملياتها. وكانت النتائج مأساوية:هنتر خفضت عدد العناصر التي تتبع من أنشطة 1,200 إلى 200 إدارة العمليات.Managers can add complexity to the model by simply adding new elements to the time equations, which places less strain on Hunter’s accounting system than incorporating new activities would.Cost estimates are now based on actual order characteristics and direct observations of processing times, not on subjective estimates of where and how people spend their time.The new model is easier to validate. Hunter can reconcile the total process time—that is, the total absolute time spent on all the activities tracked in a given period—to other measures of resources supplied, such as head count. If the total process time is lower than the time implied by the head count, for example, managers know that some of their unit time estimates are too low or that people are not working to capacity. This validation is difficult with traditional ABC, which is based on estimated proportions of time spent and rarely incorporates idle or unused capacity time.Hunter’s time-driven ABC model requires only two people working two days per month to load, calculate, validate, and report findings, compared with the ten-person team and three weeks that were necessary to maintain the previous model. Employees now spend time generating profits from the information rather than just updating and maintaining it.The kind of rollout Hunter conducted is not difficult to achieve. Time-driven ABC models can be easily applied and customized for other plants and companies within an industry because the processes they use are similar. Dave Deinzer, CEO of Denman & Davis and president of the North American Steel Alliance, commented, “For the most part, we are all pretty much the same…cutting, sawing, and finishing metal with the same equipment and the same procedures. You could probably apply the same time-driven ABC model to all of us.” The chief information officer of another steel distributor, TW Metals, noted, “We were able to roll out our time-driven ABC template model to all 36 of our facilities within three months.”قدرة ABC يحركها الوقت لتحديد وتقرير العمليات المعقدة بطريقة بسيطة كما يوفر أداة قوية تفاوض عندما يتعلق الأمر بالتعامل مع الزبائن. Wilson-مور، عملت شركة ضوابط صناعية في هيوستن كمقاول من الباطن لمقاولين الهندسية (ECs) على بناء نظم لمراقبة عملية مخصصة لمصافي النفط والمصانع الكيميائية. وكشفت نموذجها يحركها وقت، للمرة الأولى، التكلفة العالية لأوامر التغيير الهندسية تصدرها ECs استبدال الأجزاء أو إعادة التصميم. في الماضي، اتهم مور Wilson المفوضية الأوروبية فقط للمواد التي توقع تكلفة التغييرات الناجمة عن أوامر التغيير. الآن أيضا بوضوح أنه يمكن تفصيل تكلفة تصميم المبيعات، إضافية، وقت العمل الهندسي، والصناعة التحويلية المستهلكة عند تنفيذ أوامر التغيير، مما يجعل من السهل فترة نقاهة هذه التكاليف من خلال انتعاش الأسعار. (للحصول على مثال تفصيلية كيفية ABC يحركها وقت تساعد الشركات إدارة العملاء، انظر الشريط الجانبي "تغيير استراتيجي في شركة كيمبس".)تغيير استراتيجي في شركة كيمبسكيمبس، التي يوجد مقرها في مينيابوليس، هو منتجات ألبان سطر كامل، التي تنتج منتجات الحليب واللبن الزبادي والقشدة، الجبن والآيس كريم. عملائه من تجار التجزئة والموزعين ككبير SuperValu والهدف وصغيرة كالمتاجر. كيمبس أسواق منتجاتها تحت حافظته وصفت جنبا إلى جنب مع منتجات تباع عن طريق تسمية خاصة وكوباكينج العقود. مثل معظم الألبان، تشهد كيمبس التوحيد في قاعدة عملائها. قررت التحول من استراتيجيتها علاقة العميل السابق – مستعدة للقيام بكل ما طلب العميل — لاستراتيجية أقل-إجمالي تكلفة. النهج الجديد يتطلب وضوح فهم دقيق لتكلفة المنتج والعميل الذي سوف تستخدم جيم الخضراء، الرئيس التنفيذي لشركة كيمب، لغرس ثقافة "منخفضة تكلفة إجمالية" في جميع أنحاء المنظمة.As a critical component of the cost-to-serve model, Kemps implemented a time-driven ABC system so it could track the costs of changeovers in producing and packaging all its products and the costs of picking, loading, and delivering products to its diverse customer base. The model captured differences in how the company entered orders from customers (customer phone call, salesperson call, fax, truck-driver entry, EDI, or Internet), how it packaged orders (full stacks of six cases, individual cases, or partial break-pack cases for small orders), how it delivered orders (commercial carriers or its own fleet, including route miles), and time spent by the driver at each customer location. The extra time for changeovers to clean out allergens (such as nuts, eggs, soy, or wheat) used in certain ice cream products could now be accurately assigned to those products. The model also captured the extra packaging costs for special promotions and customer-specific labels and promotions.The company soon learned it was losing money with one of its customers, a chain of specialty high-end shops, because of the low volume and high variety of products ordered and the small just-in-time deliveries the chain requested. Kemp’s vice president of sales called on the customer, explained the situation, and offered three options: accept a price increase and a minimum order size; eliminate its private-label ice cream, replacing it with Kemp’s standard branded product that was already being produced in efficient, high volumes; or find another ice cream supplier. When the customer inquired why Kemps was making the change, the VP responded that after 25 years, Kemps only now understood its true manufacturing costs and the impact of specialty production on its margins. The customer accepted a price increase of 13%, agreed to the elimination of two low-volume products, and agreed to accept full rather than partial truckload orders, thereby eliminating internal storage charges for Kemps. The changes produced immediate benefits of $150,000 per year, transforming this unprofitable customer into a profitable one.Kemps also used its time-driven ABC model proactively to become the leading dairy supplier to a national customer. Kemps demonstrated that it could identify the specific manufacturing, distribution, and order handling costs associated with serving this customer on the basis of actual order characteristics: DSD (direct store delivery) or shipments to distribution centers, gallon versus pint deliveries, and volume and mix of products. The time-driven ABC model facilitated an open, trusting relationship between supplier and customer that differentiated Kemps from its competitors.Kemps also became aware that some of its smaller convenience store customers had been overordering and returning product when the date code expired. To avoid the high cost of these rebates and returns, Kemps offered these retailers a 2% discount if they would manage their own inventories without the return option. In this way, Kemps eliminated 95% of out-of-code returns, generating a net saving of $120,000 per year.Read moreThe Bottom LineOver the past seven years, we and our colleagues at Acorn Systems have successfully helped more than 100 clients introduce time-driven ABC into their processes. Most have reported substantial improvements in profitability that they attribute to the information generated by the new approach. Take the case of Banta Foods, a Midwest food distributor with revenues of $155 million from 17,000 SKUs and 5,000 customers. It operated on a razor-thin net margin of about 1%. Historically, its profit drivers were increasing the number of orders taken per day, increasing aggregate revenues, and controlling aggregate expenses.Banta’s time-driven ABC system, which was fully implemented within 16 weeks, revealed much more granularity in its expense structure by tying costs to products, orders, customers, and territories. Managers learned that a $1,000 order, previously considered the smallest size to break even, could either be quite profitable or a loss depending on the distance to the customer, the location of the product in the warehouse, the size of the order, the frequency of delivery, the type of service, and the credit rating of the customer—all of which were incorporated in the algorithms in its new time-driven ABC system.Based on the data in its ABC model, Banta instituted a nonnegotiable minimum order size, reduced the inventory of unprofitable products, promoted sales of high-profit products, negotiated with customers either to reduce

النتائج (العربية) 3:

مع الوقت التوجه، هنتر سي وفريق من المحللين كان قادرا على مجموعة الأنشطة الثلاثة في عملية الإدارة، واحدة تسمى داخل المبيعات دخول النظام.علم الفريق أن الأمر استغرق حوالي 5 دقائق على دخول نظام المعلومات الأساسية، بالإضافة إلى 3 دقائق لكل بند إضافي 10 دقائق حتى لو لم تكون سريعة.إذا كان العميل جديد15 دقيقة إضافية ستكون مطلوبة لوضع العميل في الشركة نظام الكمبيوتر

باتباع النهج السابق ذكرها ثلاثة نموذج نشاط محله مرة واحدة المعادلة:

داخل ترتيب المبيعات دخول وقت العملية = 5 (3 × عدد من بنود (15) [إذا كان عميل جديد] 10 [إذا أمر مستعجل]

هذه كانت واضحة المعالم لتنفيذ نظام تخطيط موارد المؤسسات منذ هنتر بالفعل تتبع عدد بنود لكل أمر و تشمل المجالات التي حددت ما إذا كان أمر مستعجل وما إذا كان العميل جديد.نموذج تضاعفت المبيعات المقدرة وقت العملية من الإدارات تكلفة الدقيقة الواحدة للوصول الى تكلفة تجهيز كل أمر.