Activity Analysis in Business Management

Study Notes

Activity analysis is the process of studying activities performed in fulfillment of business functions.
An activity is a repetitive action performed to achieve business objectives.
Activities can be classified into two categories: Value-Added (VA) and Non-Value-Added (NVA).

VA activities increase the value of products or services to customers.
Examples of VA activities:
- Necessary or required to meet customer requirements or expectations.
- Enhance purchased materials of a product.
- Critical steps that cannot be eliminated in a business process.
- Resolve or eliminate quality problems.

NVA activities consume time, resources, or space, but add little value to customer needs.
Examples of NVA activities:
- Can be eliminated without affecting the form, fit, or function of the product/service.
- Begin with prefix "re" (e.g., rework or returned goods).
- Result in waste and add little or no value to the product/service.
- Performed due to unhappy or dissatisfied customers.
- Prefer to do less of if given the option.

ABM helps managers understand the relationship between a firm's strategy and the activities and resources needed to implement it.
ABM is critical for cost leadership business strategy.
ABM focuses on accountability for activities rather than costs and emphasizes system-wide performance improvement.
Both financial and non-financial measures of performance are important in ABM.

MPS specifies what is to be made and when, in accordance with a production plan.
MRP ensures that the right materials are available in the right quantities and at the right time.
MRP determines the feasibility of a schedule within capacity constraints.

TQM involves all business functions in continuous quality improvement.
Goals of TQM: customer satisfaction, minimize costs, and maximize quality.
TQM focuses on continuous improvement and customer satisfaction.
Key success factors of TQM: cost, quality, innovation, customer satisfaction, employee empowerment, and continuous improvement.

Four types of quality costs:
1. Prevention costs: avoid poor quality goods or services (e.g., employee training, improved materials, preventive maintenance).
2. Appraisal costs: detect poor quality goods or services (e.g., inspection, product testing).
3. Internal failure costs: avoid poor quality goods or services before delivery to customers (e.g., production loss, rejected product units).
4. External failure costs: incurred after defective product is delivered (e.g., lost profits, warranty costs, service costs at customer sites).