Effect of stochasticity, capacity and lead time cost drivers on WIP and throughput in a pull production environment

Author: Leitch R.A.

Source: Management Accounting Research, Volume 12, Number 2, June 2001 , pp. 167-196(30)

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Abstract:

Using a simulation approach, the effect of stochasticity, capacity, and lead time on WIP and throughput is examined in a pull production environment. In this dynamic environment production variation, capacity, and lead time are found to be significant cost drivers in terms of their effect on WIP inventory and throughput. The effects of these cost drivers do not necessarily follow from the logic used in earlier push production environment research. There are trade-offs among these cost drivers and their effect on WIP and throughput. Some excess capacity is found to be optimal in a stochastic environment. As a result there are significant strategic cost management implications that may impact the entire value chain. Management may need to model pull production environments to assess the strategic trade-offs between these cost drivers and the actions needed to minimize their effect on WIP and throughput. Copyright 2001 Academic Press

Keywords: cost management; cost drivers; stochastic; variability; capacity; lead time

Language: English

Document Type: Research article

Affiliations: School of Accounting, Darla Moore School of Business, University of South Carolina, SC 29208, Columbia, U.S.A

Publication date: 2001-06-01