The justification and monitoring of advanced manufacturing technology: an empirical study of 21...

Management Accounting Research , 1996 , 7 , 95 – 118

The justification and monitoring of advanced manufacturing technology : an empirical study of 21 installations of flexible manufacturing systems

Bill Lee*

Investment appraisals and cost controls are often blamed when companies either fail to adopt advanced manufacturing technology (AMT) , or deploy computerized work systems for the large batch production of a limited range of parts . This paper illustrates that such arguments attribute too much weight to accounting techniques . It argues that the gains associated with many uses of AMT are mutually exclusive and this is why companies fail to express them when justifying investment in computerized work systems . Furthermore , the important role that engineers play , when both selecting and preparing the initial financial justification of a new system , limits the potential for the values attributed to accounting measures to diverge from the parameters of the systems that are proposed and introduced . An empirical study of 21 installations of flexible manufacturing systems is used to demonstrate that many companies are able to use their configurations of AMT to pursue their desired manufacturing objectives .

Key words : advanced manufacturing technology ; flexible manufacturing systems ; investment appraisals ; monitoring of direct costs .

1 . Introduction

The relationship between management accounting and the adoption of new forms of work organization and advanced manufacturing technology (AMT) , such as flexible manufacturing systems (FMS) , has been the subject of intense debate in recent years . One group of writers argue that accounting restricts the introduction and proper use of new work systems (Jaikumar , 1984 ; 1986 ; Skinner , 1986 ; Hayes and Jaikumar , 1988 ; Primrose , 1991) . As these writers consider accounting to be pervasive , the remedy they of fer for many firms’ failings is the adoption of new accounting practices . (for example , Kaplan , 1985 ; Cooper and Kaplan , 1988 ; Primrose , 1991 ; Cooper et al . , 1992 ; Kaplan , 1992 ; Woods , 1992 ; Meyer , 1994) Other authors argue that accounting provides just one source of information in companies’ decisions of whether to use new work systems in particular ways . They believe that it is not the accounting techniques that are at fault , but the ways in

*Department of Accounting and Management Science , Portsmouth Business School , Locksway Road , Milton , Southsea , Hants , PO4 8JF .

10455 – 5005 / 6 / 010095 1 24 $18 . 00 / 0 ÷ 1996 Academic Press Limited

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which they are sometimes used (Nixon and Lonie , 1992 ; Jones et al ., 1993 ; Jones and Dugdale , 1994 ; Dugdale and Jones , 1995) .

This paper does not deny the prominent part that accounting plays in decisions relating to the introduction and use of AMT . Nor does it deny that there will be instances when accounting has militated against the introduction of microelectronic- controlled work systems . Instead the article seeks to provide an explanation of instances when accounting has been fused with engineering and other knowledge to facilitate the realization of a company’s manufacturing objectives with AMT . The following two arguments that will be made in the first half of this paper are central to this explanation .

First , a company’s choice of manufacturing strategy may preclude the manifestation of some benefits that are often associated with AMT . In these instances , it is the limited gains of the new systems rather than the limitations implicit in accounting criteria that discourages the introduction of new technology . For example , it is often suggested that a greater number of FMS systems may be introduced if companies were to quantify all of the financial benefits that may materialize from the systems’ introduction including improved levels of productivity , the machining of a wider range of products and reductions in inventories (e . g . Klahorst , 1983) . However , this argument overlooks the possibility that companies may deliberately sacrifice levels of productivity in order to develop a system for new uses or to minimize inventory levels by machining parts only when they are demanded by the customer . It is , therefore , important to view the benefits that are expressed in a financial justification of new technology in the context of a company’s intended use of a system .

To anticipate the findings of the empirical research that is reported in the second half of this paper , many of the firms that have introduced FMS have employed accounting criteria in a sensible way , to reflect the specific financial benefits that arise from one of three manufacturing objectives—of improving productivity , machining a wider range of products or reducing levels of inventory—rather than in ways that militate against the realization of notional universal advantages of the new system .

The second argument that will be made in the course of the first half of the paper is that the potential for the values or standards expressed in accounting measures— rather than the format of those measures—to diverge from a company’s intended use of its FMS is limited . This is because the personnel , such as engineers , who propose the introduction of new systems also provide details about the levels of performance that the system will be able to realize . These details are then embodied in accounting criteria .

The author has conducted a study of 19 firms that have introduced a total of 21 installations of FMS . The findings from this research are reported in the second half of the paper . The discussion will concentrate on the impact of investment appraisal techniques and cost-control measures on the introduction and deployment of FMS . The objectives are to assess whether appraisal techniques are restricting the introduction of FMS (Primrose and Leonard , 1986 ; Cooper and Kaplan , 1988) and whether cost monitoring techniques are leading firms to use FMS inappropriately , to their own detriment (Jaikumar , 1984 ; 1986 ; Skinner , 1986 ; Jones and Scott , 1986 ; Jones , 1989 ; Chalos , 1992) . Thus , the report of this research will deliberately avoid the debate around the relationship between overhead analysis and control and

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the deployment of new technology—see , for example , Johnson and Kaplan (1987) , Cooper and Kaplan (1987) , Kaplan (1992) and Woods (1992) .

The paper will be developed in the following way . The methodology adopted for the research is discussed in the next section . Section three of the paper reviews the literature on flexible manufacturing systems , their alleged advantages and the criticisms that have been made of accounting practices for failing to represent accurately the strengths of FMS . Section four will develop the two main arguments that are outlined above . In the following section , the author’s investigation into the justification and deployment of FMS will be reported . The paper concludes by commenting on the debate about the inadequacy of accounting measures .

2 . Methodology

The technical press , informal contacts and Government documents detailing recipients of grants awarded under the 1981 – 1985 FMS scheme 1 were used to identify nineteen companies that had introduced a total of 21 FMS systems . 2

Seventeen of these companies had each introduced one FMS system , and two firms had each introduced two systems . Each company was then visited so that (i) interviews could be held with engineering and accounting personnel and (ii) information could be collected from other sources . The full details of the industrial sector in which each company was employed , the geographical region , the position of each respondent in the respective firms and the principle methods of data collection are available from the author .

It is of value to state here that the companies represent a wide range of engineering industries and cover most geographical regions in the U . K . The characteristics of the firms are varied in other ways . The size of their workforce ranged from less than 100 up to several thousand on the sites where the FMS systems were introduced . Some were small independent firms , others were parts of British based corporations and the remainder were subsidiaries of foreign multina- tional corporations . Some of these companies were experiencing growth while others were in a stable situation or in decline when defined in terms of volume of output and / or numbers employed .

The intention of the research has been to view each firm as an individual case , rather than as representative of a wider population . However , only 22 FMS systems existed in Britain in 1985 (FMS Magazine , 1985 : 146) and it is unlikely that FMS

1 The 1981 – 1985 FMS scheme allowed companies to claim grants towards either the development costs and costs of all necessary capital equipment associated with installing a brand new system , or the incremental costs of re-configuring existing equipment (Sims , 1983) . From 1981 , the amount of grant available to each company was 25% of the costs incurred . In 1982 , this was increased to one-third . The Government made a total of £60 million available for the scheme and refused to provide additional funding after that sum had been spent (FMS Magazine , 1985 b ) . 2 The reasons for selecting firms that have already introduced AMT for study is because any problems encountered are most likely to have taken place at those companies where there is clear evidence that new technology has been considered .

It is important to remind the reader that the study was investigating the application of accounting as a set of techniques . However , it may also be argued that accounting is a world view that may be internalized . In which case any biases that are embodied could lead personnel to gravitate towards or dismiss particular systems prior to giving them proper consideration and before the application of accounting practices . This study has not been designed to identify such scenarios and the author makes no claim that the argument made in this paper would be applicable when such a world view has been internalized .

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systems were introduced by many more firms than the 90 – 100 (DTI , private correspondence) that were granted funding under the British Government’s FMS scheme in the 1980s . The systems included in this study thus constitute a large minority of the total population of FMS in the U . K . Consequently the trends reported here may be considered as notable in the context of the total population of FMS .

The most significant merits of the research design adopted , however , rests in the exploitation of the strengths of case studies—see Yin (1984) for a detailed discussion of this type of research . The particular merits of case studies that have been exploited in this project are their potential to be processual , interpretive and comparative .

A processual approach was adopted to investigate how two factors—the respective companies’ intentions for FMS and their subsequent use of accounting practices— influenced the single process of technological change . The stages in the process that were investigated were a company’s rationale and intentions when purchasing a system , the accounting techniques that were used , first , to justify the introduction and then , to measure the performance of FMS , and the actual deployment of the system .

The objectives of the research were to examine : first whether a company’s use of accounting criteria diverged from its intended use of FMS , thus promoting detrimental consequences ; and second , whether the role of engineers in financial decision making at dif ferent firms militated against such outcomes . It was , therefore , important to adopt an interpretive approach in order to identify interviewees’ perceptions of the strengths of FMS and the extent to which the personnel at the dif ferent companies were able to represent those strengths in accounting criteria . In order to gather this information , interviews were held with both engineering and accounting staf f at the respondent firms , wherever possible . 3

It was possible that dif ferent personnel at the same company would perceive the reasons for the introduction and deployment of FMS in dif ferent ways . The aim of the research was to overcome this problem through triangulation . In addition to interviews , data was collected through : observations ; the gathering and analysis of a company’s documentary evidence such as financial appraisals and cost monitoring sheets ; another academic study of many of the same installations (Jones and Scott , 1987) ; and technical journal reports . Thus , if there were conflicts in dif ferent respondents’ interpretation of the same event , corroboration could be sought from other evidence .

Finally , the research used a comparison of the dif ferent companies’ motives and uses of FMS to identify dif ferent trends within the same phenomenon ; namely , the influence of accounting practices on the process of introducing and using FMS at dif ferent firms .

3 . Review of the literature : the financial benefits of FMS and the alleged biases in accounting

Flexible manufacturing systems are generally employed to machine metal into engineering components . They are comprised of : a number of computer numeri- cally controlled (CNC) machines , each performing a dif ferent general function such as milling or turning ; a transport system ; and a host computer . 3 Copies of the interview schedules are available from the author .


The CNC machines in FMS are able to operate along four or five axes . This allows the cutting tools to approach a work piece from dif ferent angles . Thus , raw components may be machined into any one of a variety of shapes . As each machine has its own tool storage facility and individual computer , it is able to carry the cutting tools and the program of instructions to machine batches of dif ferent parts .

The transport system is able to move parts from one machine to any other in any order . Consequently , dif ferent batches of parts may proceed to dif ferent machines according to their individual design specifications . The central computer contains the programs that transmit signals to : (i) the transport system , detailing the routes by which given batches of parts must proceed ; and (ii) the CNC machines , specifying what programs and tooling are necessary to machine a given part . Thus , it is possible to load the raw components for several batches of dif ferent parts onto an FMS after programming the host computer , and not intervene again until those parts are finished items that require unloading .

In many ways , FMS provide a hybrid of the principles in the two systems of manufacturing—mass production and batch production—that have been used throughout this century . In batch production , highly flexible general purpose machine tools are used to machine parts into dif ferent shapes and size . However , high levels of labour have to be employed to re-set the dif ferent machines and to move parts between them . Thus , compared with other systems of manufacture , batch production is inef ficient .

Mass production systems are comprised of a series of single purpose machines , each dedicated to the performance of one operation on identical units of a single type of product . Dif ferent single purpose machines are organized into a sequence that reflects the order of the operations to be performed in the manufacture of a product . The machines are linked by a mechanical belt that moves the units of the product from work station to work station at regular intervals . Mass production systems of fer high levels of productivity because neither the workers’ , nor the machines’ , time is lost changing over to process new batches . However , the high level of dedication in mass production systems means that they are extremely rigid and unable to manufacture dif ferent parts (Shaiken , 1985) .

Many writers argue that FMS systems combination of multi-purpose machine tools and an automated conveyor of fer the advantage of flexibility of batch production systems in addition to the greater ef ficiency of mass production systems . Meegan (1988 : 67) explains this in the following terms :

‘What really distinguishes the latest manufacturing systems is .... the way in which production can be readily shifted from large scale mass production of standardized items to small batches of customized products . . . . With flexible manufacturing systems firms can shift production scale without any significant impact on overall operating costs—enjoying in the process what have come to be called economies of scope . These economies augment the economies of scale (the reduction in cost per unit of output) that the manufacture of standardized products in long production runs of fer . ’

The specific financial benefits associated with FMS include : reduced direct labour costs because many machines are under the control of a host computer ; greater levels of machine utilization as the system continues to function when workers are not there to operate it ; reduced indirect labour because less employees are required to schedule work , supervise departments , etc ; reduced inventories

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because the integrated and flexible nature of machines means that (i) less processes are necessary and (ii) parts are processed at all stages of production more quickly ; and reduced cost of introducing new parts because operators of systems learn about and transfer the synergies that exist between dif ferent parts—see Klahorst (1983) ; Hutchinson (1984) ; Jaikumar (1984) ; Primrose and Leonard (1985 a ; 1986) ; Primrose (1988) for a more detailed discussion of the nature of these and other benefits that may arise following the introduction of FMS . However , critics of accounting techniques argue that investment appraisal and cost monitoring techniques militate against firms recognizing such benefits .

Investment appraisal techniques A multiplicity of techniques are available for the assessment of capital projects (Scapens and Sale , 1981 ; Pike et al ., 1989 ; Drury et al ., 1993) . However , the methods that were used by firms in this study—and so are of relevance to this discussion—were payback and DCF . Although there are important dif ferences between these methods , they each entail the adoption of similar parameters when investigating how a proposed new system af fects the performance of a firm . That is to say , each involves an assessment of the value of an investment to a company by calculating whether expenditure is of fset by : (i) the value of the output from the manufacturing capability of the system ; plus (ii) any additional savings or benefits that may arise from the system’s introduction ; over (iii) each year of the useful life of the proposed machinery . The machinery that of fers the quickest return on income to of fset the initial expenditure is the one that is invested in . Because FMS systems are more expensive than the equipment that has been employed previously , they have to generate proportionately greater returns , if they are to be purchased . Critics argue that although it is viable for companies to introduce FMS , firms fail to recognize this because of biases in each of the three factors cited above . The detail of these arguments is as follows .

First , accounting techniques understate the potential capacity of FMS . Invest- ment appraisals assume that a system will maintain a constant manufacturing capability throughout its lifetime (Charlish , 1983) . Dedicated systems are only able to manufacture a single product but are likely to be purchased because they cost less . However , conventional systems cannot change when markets change . By contrast , FMS systems may be redeployed and may , thus , prove cheaper in the long-term . Therefore , investment appraisals that favour the introduction of lower priced dedicated systems fail to put a proper value on the manufacturing capability of FMS (Charlish , op cit ) .

Second , investment appraisals do not recognize the full range of benefits of FMS . Historically , they have focused on advantages such as labour savings that accrue in the department where the new systems are installed (Primrose and Leonard , 1984 a ; 1984 b ; 1985 a ; 1985 b ; 1986 ; Primrose , 1988 ; Kaplan , 1986 ; Skidmore , 1986) . This is an adequate expression of conventional systems , which have often been introduced to increase the level of machine utilization or reduce the level of labour employed on a particular machine . However , investment appraisals fail to recognize those advantages of FMS—for example , reductions in indirect labour , the ability to change production , reductions in inventory—that materialize outside of the department where the system would be introduced .

Third , the concept of lifetime of a system that is built into investment appraisal


techniques discourages investment in FMS . Unlike dedicated systems that may be commissioned and totally operational soon after they are purchased , FMS possess a number of interactive interfaces that must be aligned one with another before full performance is realized . This takes time and makes recovery more dif ficult when either payback periods are short (Primrose and Leonard , 1984 a ; 1984 b ; 1986) or high discounted rates of return are set early in the system’s anticipated life (Kaplan , 1986) .

The alleged consequence of these biases in investment appraisals is that FMS systems are not being introduced as frequently as they should .

Ongoing cost monitoring techniques Many (for example , Jaikumar , 1984 , 1986 ; Jones , 1989) argue that when FMS systems are introduced , they are often employed for the large volume production of a limited range of parts , even though this is both unintended and to the detriment of the users . These writers suggest that it is most beneficial for firms to devote some of the system’s potential manufacturing time to the proliferation of the range of products because there is a price premium to be earned with each addition to range and this outweighs any loss of income that arises as a consequence of the fall in the aggregate units of output of a more limited range of products .

Companies’ failure to recognize this is due to the techniques that they use to monitor the performance of FMS . These measures focus on the number of units of output vis - a - vis the number of inputs consumed in production . Input is measured in simple terms of either the labour hours that are employed (Jones and Scott , 1986 : 7 ; Skinner , 1986 : 57) or the level of machine utilization that is expended (Jaikumar , 1984 : 23 ; 1986 : 71) . Output is measured by the volume of parts that are manufactured . A quotient that gives an indication of the performance of a system is determined by dividing the output by the input . Positive variances from the initial value of the quotient are acceptable , but negative variances are discouraged (Skinner , 1986 : 57) . The consequences of this are that a firm’s staf f will attempt to minimize the input and maximize the number of outputs in order to obtain a positive variance , regardless of whether such a positive variance results in increases to the overall financial value of the output (Jaikumar , 1984 : 26 ; 1986 : 71) . In the absence of the development of flexibility measures (Kaplan , 1983 : 693) systems are directed toward the production of a limited range of goods in large batch sizes , to the detriment of the user firms . 4

4 . The limited financial benefits of given deployments of FMS and the role of engineers in their expression

This section challenges many of the arguments outlined in the preceding section . The discussion falls into two parts . In the first , it will be argued that many of the benefits of FMS are mutually exclusive , and so it is to be expected that their presence will not be captured by accounting criteria . In the second part of the discussion , the relationship between accounting and engineering functions in firms

4 These arguments stand directly counter to those made by Kaplan and others at a subsequent point (e . g . Johnson and Kaplan , 1987) when they argued that cost monitoring and overhead allocation techniques understate the cost of manufacturing in small batches and thus , encourage companies to pursue such ends .

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will be discussed to illustrate how accounting criteria may be being aligned with the manufacturing advantages that are likely to arise from their particular use of FMS .

Three uses of FMS and the tensions between them It is often argued that it is a company’s failure to quantify the full range of potential advantages of FMS that leads to those systems not being introduced (e . g . Primrose , 1991) . Such arguments ignore the possibility that companies have deliberately selected FMS to pursue a specific manufacturing strategy . A manufacturing strategy is defined here as the deliberate use of production facilities to realize those advantages that the company believes will bring the greatest enhancements to its manufacturing performance . It could be that the pursuit of a specific strategy is precluding the realization of many benefits and it is this that explains why firms sometimes fail to assign financial values to those advantages when appraising FMS .

To elaborate , FMS may be used to pursue a number of manufacturing strategies including : high volume , large batch production of a limited range of parts ; flexible manufacturing of a wide range of parts in small batch sizes ; or just-in-time machining of parts only when they are demanded by customers . The pursuit of any of these manufacturing strategies is likely to militate against realization of the financial benefits associated with the others . For example , just-in-time manufacture is likely to lead a company to reduce its total volume of output because (i) it will have to sacrifice some of its potential machining time if it is to manufacture parts only when customers demand them and (ii) the absence of buf fer stocks will mean that parts will be machined at the rate permitted by the slowest machine , leading to the fastest machines standing idle for part of the time (Williams et al ., 1988 ; Oliver , 1990 : 24) . Similarly , just-in-time production militates against some of the advantages of flexible manufacturing . The desire to reduce stock levels militates against companies : carrying stocks to experiment with design changes (Production Eng- ineer , 1981 ; Aggarwal , 1985) ; responding easily to changes in demand by customers (Sayer , 1986 ; Tailby and Turnbull , 1987) ; or increasing the duration of set-up times when this is necessary to proliferate the range of parts (Maskell , 1986) . Finally , pursuit of flexible manufacturing is also likely to militate against the realization of high volume production because system utilization and labour productivity will be compromised by a company’s need to use machining time to switch the system over to new uses , and to use labour to write new programs and conduct set-ups .

Given the incompatibility that is described above between some manufacturing strategies and the realization of some advantages of FMS , it is to be anticipated that if firms are conducting realistic and accurate financial appraisals , some financial benefits will be excluded from investment justifications of FMS simply because a company’s manufacturing strategy precludes the realization of those gains . Further- more , capital sanctioning procedures within companies provide the means by which accounting criteria may be aligned with the benefits that companies seek to realize .

Accountants — villains or scapegoats ? The argument that accounting practices incorrectly constrains the introduction of FMS implies that accounting criteria are dominant when engineering decisions are taken . However , it will be argued here that a close examination of the role played


by engineers , accountants and others in the introduction and deployment of new machinery at the companies in this study , suggests that this is not so .

Accountants and engineers tend to form separate groups in an enterprise . Each possess their own body of technical knowledge . In geographical and organizational terms , engineers are located close to the shop floor and are , generally , responsible for identifying the production systems for a company to purchase . In other words , engineers have to use their technical knowledge to propose engineering solutions to manufacturing problems . 5 The general trigger for engineers to do this is the annual capital investment plan . At a given point in each year , the firms in this study had to prepare capital justifications for any new investment that was to take place in the following year . The person who identified a new system for consideration , also prepared the initial financial justification of it . At this point , the proposer would have the opportunity to express , in financial terms , the specific manufacturing advantages of the suggested purchase . Investment appraisals would then progress to accountants—who are situated close to the apex of the enterprise—for verification of whether the income from the proposed investment would generate the levels of returns that the company expected . At this point the accountants would make their recommendations to the directors .

A great number of potential purchases are excluded from consideration before this stage . This is because the engineering resource at firms is scarce—as one accountant in this study expressed it . If the scarce engineering resource is not to be wasted by engineers proposing systems that do not meet a firm’s pre-defined financial criteria , it is important that the engineers receive some indication of the level of financial returns that the company expects . Otherwise the engineers might waste all of their time proposing systems that were likely to be rejected . The consequence of this is that engineers’ responsibility for initial selection of new systems allows them to first identify a new engineering system and then to seek a suitable method of expressing its strengths in appraisal techniques . There was evidence at firms in this study that the engineers exploited this opportunity by attributing financial values to the novel strengths of FMS and—at other times— proposing adoption of alternative accounting techniques when these alternatives made the introduction of a new manufacturing system more likely . 6

After engineers have proposed systems , accountants have limited opportunity to discourage investment in a new system . This is because accountants do not have access to engineering knowledge and they have to accept that the engineers have provided the optimal engineering solution to the manufacturing problems confront- ing the company . One accountant explained :

‘When it comes to us there is one engineering option for evaluation . We highlight areas where the project falls short . Certainly an amount by which it falls short . We may go back and trim it ; we may go back and say : ‘‘Can you save another person here?’’ There is a large amount of that done . But , regrettably we’ve got to rely on others , not to do the accounting for us , but , to give us the simulations on production . ’

5 This part of the engineers’ role was sometimes performed by executives at private companies or at firms where directors thought that a particular investment would enhance the overall performance of their company . 6 Instances were found where the engineers had proposed the change from payback to discounted cash flow methods that were then accepted by their respective companies . These changes had taken place before the companies’ introduction of FMS .

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Subsequently , he added :

‘I’m not sure it’s for the accountants to say : ‘‘Well have you engineered it properly? Could you come up with another way of doing it?’’ It’s an engineering problem . We take the engineering knowledge as given . In fact we always do . ’

Of course , accountants may rule that some benefits are not valid . This may lead them to reject proposals . However , it is important not to lose sight of why proposals are put forward in the first place . The aim of the capital sanctioning procedures is to ensure that a company possesses the plant that will enable it to manufacture its wares at a cost that protects its profitability . If the company requires the additional capacity and the engineers believe their proposals represent the optimal choice of system , accountants rejection of a proposed system would necessitate that the company either forego the additional capacity that it needs , or finds an alternative way of identifying new systems . This is likely to be a costly and time consuming exercise , and one which accountants may not be willing to precipitate .

Engineers may further strengthen their claims for a particular production system by campaigning for support from other important parties within their respective companies . There were instances at firms in this study where engineers had : lobbied key directors about the financial and non-financial merits of FMS ; solicited reports from other departments such as marketing on the impact on sales of the reduced lead times of fered by FMS ; or approached accountants for help in preparing the financial justifications in the best possible way . These tactics allowed the engineers to build a stronger financial case for FMS simultaneous to giving the proposal greater legitimacy by incorporating other parties into the process of championing the selection of the system .

When an engineering system is purchased , it fills a manufacturing void by providing the company with a capability of machining certain types of parts , in particular batch sizes , at specified levels of machine utilization . Constraints , such as the demand from known markets and the technical limits in the design of the system can lead to firms using FMS to machine the range and batch size of parts that they intended when purchasing the system . Cost control techniques are used to ensure that the levels of performance attained are those that were specified in the investment justification .

The general practice of monitoring of FMS at the firms in this study was as follows . FMS systems were set up in separate cost centres . Each centre was allotted suf ficient money to machine the range and volume of parts at the levels of ef ficiency indicated by the investment justification . Flexible budgets were used to ensure that the relationship between expenditure and output remained consistent even when the department was not manufacturing to full capacity . Engineers retained responsibility for scheduling work for particular systems . They directed work to the FMS in accord with the assumptions in the investment appraisal . If , for example , a company specified low levels of system utilization to allow for a large number of changeovers and the machining of a wider range of parts , the flexible budget allowed for this .

This system of cost control demonstrates all of the characteristics that have been the subject of criticism . Performance is measured by inputs and outputs that are expected to remain aligned with one another . Also , there is no measurement of changes in a firm’s performance that takes place outside of the department where


the system is introduced . However , because the flexible budget encourages pursuit of the projections in the investment justification of FMS , cost control may serve to promote the realization of the flexibility of systems , rather than distract from it .

Summary As an alternative to simply viewing accounting as a constraint on AMT , this section has suggested that the gains of FMS are limited and companies may be conducting realistic assessments of those limited gains . Furthermore , the proposers of systems have the opportunity to contour accounting criteria to the parameters of FMS , facilitating the introduction of such systems . The extent to which this occurred in practice will be addressed in the next section .

5 . Motivations for , and the justification , monitoring and use of FMS

This section details how accounting was used in the introduction and deployment of FMS at the companies in this study . As outlined above , a processual approach was adopted for this research so that the influence of a company’s intentions for FMS on the eventual use of the system , could be separated from the influence of accounting . In order to examine the extent to which firms did use their respective FMS systems in the ways that they intended , this section will explain in turn the motivations that companies had for introducing FMS , the extent to which they were able to represent that use of FMS when justifying the system’s introduction , the way in which they subsequently used FMS and the firms’ responses to weaknesses in their cost control methods .

Context of Companies ’ preceding production techniques and their motivations for introducing FMS Personnel at the respondent firms were asked why they had purchased their respective FMS system(s) . A number of firms of fered a variety of reasons , ranging from ‘to improve the company’s image’ to ‘shift production from North America to Europe’ . However , many firms of fered only one reason and all companies gave one or another of the following : ‘to improve or maximize machine utilization’ ; ‘to reduce costs by carrying less stocks’ ; or , ‘to respond to demand for an increasing range of goods’ . These correspond with the respective manufacturing strategies of volume production , just-in-time production , and flexible manufacturing .

Dif ferent firms’ perceptions of the manufacturing strengths of FMS corresponded with their respective manufacturing strategies . At the firms that had introduced their system(s) to realize volume production , FMS’s key strength was perceived as ef ficiency when machining . Thus , respondents remarked :

‘the FMS is really built largely on mass production ... where you’ve got a large batch size going through . You can set your machine up . You can use that one control and you can put a lot of components through of the same . Now if you’re doing one- of fs the benefits come a bit limited . You’ve got the speed and you’ve got the sort of reliability but you’ve got to keep changing your work stations and your pallets and your whatever . ’

‘‘If it’s not turning , it’s not earning . ’

‘the spindle is obviously the thing that is going to cut the metal and everything that

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supports the spindle is called flexibility isn’t it? And the more you put in there is going to expand the cost . . . That’s why it’s always easier to justify things on the high volume than it is on the low volume . ’

In contrast , FMS’s ability to process parts speedily both at machining and interim processes to allow low inventories to be carried were seen as the system’s key strength at firms where FMS had been introduced for just-in-time purposes . Dif ferent respondents explained :

‘The benefits of FMS is the reduction of cutting times and the reduction of lead times . ’

‘We have situations where the FMS is not required . We find it more important that when the castings come in , we bring them in a just-in-time policy . We bring them in , they’re machined , they’re to the fitter , he assembles them and they’re out of the door and we try and get the cash as quickly as possible . We’re not too concerned if we walk through there and parts of the FMS aren’t running . We are more concerned in getting the component in as late as possible , through the FMS to the fitter in time for him to assemble them . That is far more important than worrying about we only got 20% utilization . As long as obviously the utilization is only 20% because that’s all we required . ’

Firms that introduced FMS to respond to an increasing range of parts , perceived the new system as having an impact on the whole of the firm . One respondent explained :

‘When we did the FMS , the project started as a manufacturing idea and then we suddenly realized that we’re talking about company profitability . We’re talking not just about direct costs , but indirect costs , on total costs , the lead time of getting a part through the factory , being able to change production and being more competitive in a range of dif ferent ways is very important . ’

Table 1 classifies firms according to their reason for introducing FMS . 7 This classification is used in the remainder of this paper .

Table 1 Categorization of FMS systems introduced by each company ’ s motive for introducing systems

Volume production JIT Flexible manufacturing

13 4 4

7 The motivations expressed by personnel at two of the companies were in some ways hybrids of two of the three manufacturing strategies . One company had introduced FMS to reduce the amount of stocks carried . It had also selected its system because the local trade unions had resisted successfully the introduction of three-shift working . FMS of fered the possibility of operating through part of the night with a skeleton staf f when , hitherto , the factory had been closed . In this sense it allowed the company to increase the productivity of its machinery and to reduce inventory . At another company FMS had been introduced to respond to demand for an increasing range of products . The company also had a general policy of only introducing systems that allowed inventories to be reduced . For the purpose of simplifying the analysis and discussion , these two companies have been categorized in this discussion according to their main reason for introducing FMS . At the first company above , this was to reduce stocks . At the second company , it was to respond to demand for an increasing range of parts .


The content of companies ’ investment appraisals This part of the discussion will consider the extent to which the components of the investment equation , identified above—namely the definition of (i) the system’s manufacturing capability , (ii) the additional benefits brought by the system , and (iii) the period of its lifetime—were varied to reflect the dif ferent companies’ manufacturing strategies .

Companies ’ definition of manufacturing capability . Before it is possible to state whether firms were able to contour their investment appraisals to their manufacturing strategies , it is necessary to provide a definition of FMSs’ manufacturing capability that is applicable to all of the FMS systems in this study . The one that will be used here is the companies’ desired levels of system utilization , batch sizes and range of parts . The reason for adopting this definition is because the firms that pursued the manufacturing strategies of volume production , just-in-time and flexible manufacturing emphasized the respective benefits of the attainment of high levels of system utilization , the ability to machine in the batch size required so as to reduce inventories , and the capability of machining an increasing range of parts as important .

Respondents were asked to detail the levels of each of these dimensions of performance that were used in their justification of FMS . Tables 2 , 3 and 4 (below) report their replies .

The tables show that the expectations of the systems’ performance expressed at the investment justification stage tends to reflect accurately the dif ferent companies’ manufacturing strategies . Companies that pursued volume production justified FMS against the machining of a limited range of parts in large batches at high volumes of system utilization . In contrast , the companies that purchased FMS to realize flexible manufacturing objectives , justified their systems against the machining of a wide range of parts in small batches , at a comparatively lower level of system utilization . Finally , firms that introduced FMS to reduce inventories justified their systems against projections of machining a limited , albeit higher value , range of parts in batch sizes of one , even though this resulted in a less clear definition of levels of system utilization . For example , one system had been justified against the machining of 800 units per annum rather than against a constant level of machine utilization . Another firm that installed FMS to machine the casings for their own

Table 2 Levels of system utilisation desired

Volume production

JIT Flexible manufacturing

95% 1 1 90 – 94% 6 85 – 89% 1 2 1 80 – 84% 4 2 75 – 79% 1 1 70 – 74% Others 2

JIT , just-in-time production .

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Table 3 Batch size of parts intended for FMS systems

Volume production


1 (1) 4 3 2 – 5 6 – 10

11 – 20 21 – 30 31 – 40 41 – 50 6 1 51 – 100 5

101 – 200 1 Above 1

Parenthesis used to indicate company’s willingness to only machine in small batch sizes when part was for own range of products . JIT , just-in-time production .

range of machine tools , simply wanted to be able to machine parts when there was the demand for them , regardless of the impact of this on the levels of utilization that were attained .

The findings reported describe companies’ ability to express the manufacturing capability of FMS in investment appraisals when the companies knew how they were going to use their systems . It will be recalled that Charlish (1983) argued that the definition of the manufacturing capability of a new system is fixed in an investment appraisal whereas the manufacturing capability of FMS is not . Charlish argues that this discriminates against the introduction of FMS . It is of value to address this issue directly here . In assessing these claims there are three points that must be made . First , any system of fers only finite machining time . Second , any new use of FMS incurs additional costs that are also generally excluded from an investment appraisal . Third , the opportunity costs of using FMS for new purposes

Table 4 Range of parts intended for FMS systems

Volume production


2 – 10 1 11 – 20 5 1 21 – 30 4 1 31 – 40 1 41 – 50 2 51 – 75 1

76 – 100 1 101 – 200 1 200 1 3



are af fected by the constancy of markets . The significance of the first factor , and its relationship with the second factor , was put succinctly by one of the engineering respondents :

‘There is a limit to how many things you could make at the end of the day . It might be desirable to make 150 dif ferent items but it’s impossible if you’ve used your 120 hours per week . You make one thing at the expense of another then . In fact , it’s even less well because you’re only going to be making something now and then , having spent £20 , 000 on tooling for it , you know . So you will reach a saturation point from a production capacity point of view as well . ’

It may be argued that Charlish’s claims would receive some substantiation if markets were constantly changing and orders were lost . Then there would be no opportunity cost regarding system time , because the alternative to finding new uses would be to leave the system standing idle . However , this should not be overstated as additional tooling , fixturing and programming costs would be incurred .

Benefits of FMS . This paper has argued that the types of advantages that accrue to a company that introduces FMS are related to the firm’s intended usage of that system . These assertions are , in the main , borne out by an examination of the gains that companies built into their appraisals . Respondents were asked to provide details of the savings or advantages that they quantified when preparing their investment appraisal of FMS . The main types of advantages in terms of their frequency of occurrence and the value of the categories are summarized in Table 5 . 8

Firms that introduced FMS to realize volume production were most likely to quantify reductions in labour and increased output arising from reducing machining time and changeovers . At the firms that installed FMS to reduce inventories , savings in work-in-progress featured most prominently in financial justifications . The companies that had introduced their system to pursue a strategy of flexible manufacturing included reductions in sub-contracting costs and increased output in their investment appraisals . It should be emphasized that both of these factors simply reflected these companies’ intentions to machine a wider range of parts in-house for known markets .

These gains do not express an ability to machine an undefined range of parts—a

Table 5 Main categories of savings included in investment appraisal of FMS


Labour Work-in-progress Sub-cont . costs

Reduced machining or set-up times / increased output

New output

Replacement machinery Work-in-progress


8 Grants awarded under the FMS scheme , European Social Fund and the Regional Development scheme all featured prominently in the justifications of all groups of companies .

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capability which is alleged to be one of the major advantages of FMS . Although it is not reported in the summary above , one firm did include a category of intangibles in their justification of FMS . This category included a financial value for a percentage of an order that might have been lost if the company had not been able to adapt its existing manufacturing facilities to machine a new part when required . However , the engineer of fered no clear formulae for how these values were calculated . In reply to a question of whether there had been any objections to the ‘intangibles’ being included in the appraisal , he said :

‘Well , obviously there were people who didn’t agree . At the end of the day it was our manufacturing executive , chief executive and marketing director who agreed on these figures , and so any other member , he sort have had to really argue . There was no strong enough argument against it , because it’s really a matter of if someone said it was £10 , 000 , somebody else might have said it was £50 , 000 . We may have struck a point in the middle . But we had about eight items [including company image and the ability to respond to changes in demand] and that totalled to about £200 , 000 . That was the intangible benefits . ’

It may be argued that this involved some double counting . The company had already attributed values to one use of FMS and then expected an additional advantage to arise . However , the ability to respond more quickly to change is an additional advantage . This company saw this as important and put a financial value on it , albeit in an unsystematic way . Other companies failure to quantify the advantage of flexibility could be due to them introducing FMS to succeed conventional batch production systems which are also flexible . Thus , the companies were not gaining flexibility ( cf , Jaikumar , 1984 ; Cooper and Kaplan , 1988) .

Useful life of systems . 9 If companies are shaping accounting criteria to reflect the manufacturing systems that they intend to introduce , they are unlikely to expect recovery of their investment to start until FMS is operational . This will not be immediately after the system’s hardware is installed because of the time that it takes to develop and operationalize appropriate software .

Almost half of the companies had purchased dif ferent parts of their system from dif ferent suppliers . These firms had allowed an initial period for the development and debugging of software , when recovery of the investment was not expected to take place . Eleven other FMS systems were introduced as turnkey packages . That is to say that one supplier was responsible for installing a whole system . In these instances , the vendor sells to the customer the promise of a system complete with levels of performance , if that system is deployed for the purposes for which it was purchased . Payments for systems and potential financial penalties on the vendor are related to actual performance . 1 0 Thus , there was no evidence of the failure investment appraisals to express a gestation period , preventing the introduction of FMS .

It is also worth reporting that a number of companies extended the normal period over which they amortized their investment , or reduced the rate of return which they expected , in order to facilitate the introduction of FMS .

9 Dif ferent companies did use payback and DCF calculated over dif ferent lengths of time . This issue is not explored in any detail here because the main point of interest is whether or not companies were able to adapt whatever method they used to FMS’s inability to realise full performance from the outset . 1 0 Interviews with purchasing companies and with a supplier of FMS .


Cost monitoring and the deployment of FMS While critics (Jaikumar , 1986 ; Jones , 1989) have argued that cost control encourages companies to sacrifice the flexibility of FMS and pursue productivity , this paper has emphasized the importance of viewing the use of both FMS and accounting techniques in the context of a company’s intended use of its system(s) . The relative validity of these dif ferent arguments will be examined by first considering (i) the extent to which companies machined the range of parts in batch sizes and at the levels of system utilization that they intended when purchasing FMS , and (ii) the reasons for any variation . The discussion will then consider companies’ responses to the failure of budgets to monitor indirect savings . The example of inventory reductions will be used for that part of the discussion .

System utilization , range of parts and batch sizes attained by the companies that deployed FMS . Companies that introduced FMS to realize volume production objectives , justified their investment against a higher level of utilization than did firms that introduced their systems for other reasons . Those that introduced FMS for just-in-time reasons wanted to be able to machine in small batch sizes , to preclude the need of holding stocks . Firms that introduced FMS to realize flexible manufacturing objectives justified their systems against the machining of a wider range of parts . Tables 6 , 7 and 8 report the extent of success that the dif ferent companies enjoyed in meeting their desired levels of performance .

Table 6 lists the levels of system utilization that companies desired and attained . Most companies that introduced FMS to pursue either just-in-time or flexible manufacturing strategies , realized levels of performance similar to those that they had sought . One major exception to this was a firm that pursued flexible manufacturing objectives . The reason for this failure appeared to be a combination of an overly optimistic statement of the levels of utilization that could be realized with their FMS , coupled with an absence of in-house expertise to develop and adapt software for the company’s manufacturing objectives . However , it is important to emphasize that the company was not seeking levels of performance in flexibility and productivity that were universally unattainable . Other companies did machine a

Table 6 : Levels of system utilisation expected and attained from FMS

Systems introduced for


Levels of utilization

Desired Actual Desired Actual Desired Actual

95% 1 1 90% 1 6 2 85% 1 1 2 2 1 1 80% 1 4 1 2 3 75% 1 1 1 1 70% 1 4 Other 4 2 2 1


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Table 7 Range of parts intended for and actually machined on FMS

Systems introduced for


Range of parts

Desired Actual Desired Actual Desired Actual

2 – 10 2 1 11 – 20 5 3 1 1 21 – 30 4 4 1 2 31 – 40 1 1 1 41 – 50 2 1 51 – 75 1 2 76 – 100 1 1

101 – 200 1 200 1 3 3


wider range of parts in small batches and realized higher levels of machine utilization than did this company .

Two companies that had introduced FMS to pursue just-in-time production had justified their system against the number of parts to be manufactured over a longer period , rather than against consistent levels of machine utilization . One of these companies exceeded their desired level of output by using some of their free capacity to introduce a new part . Another company in this group suf fered a slight fall in levels of machine utilization because of the drop in demand for one of the products that they had initially intended for FMS .

The largest variation between the levels of machine utilization sought and

Table 8 Size of batches of parts designated for FMS and subsequently machined on them

FMS systems introduced for


Batch size Desired Actual Desired Actual Desired Actual

1 (1) (2) 4 3 3 3 2 – 5 1 6 – 10 11 – 20 21 – 30 2 31 – 40 2 41 – 50 6 3 1 1 51 – 100 5 4

101 – 200 1 2 Above 1

Parenthesis used to indicate company’s willingness to only machine in small batch sizes when part was for own range of products .


attained was at the companies where FMS had been introduced to realize volume production . Although a number of companies did realize their desired high levels of machine utilization , the majority did not . In one instance , this was because the system had not yet been fully commissioned . At the other companies it was because of one of two reasons . First , the markets that the companies catered for changed between the times when the systems were initially proposed and subsequently introduced . As a consequence , these companies had to adapt their systems to machine dif ferent types of work . This was either not demanded in the same quantities as the work that the company had originally intended for the FMS , or the new work was less suited to the technical capabilities of the system than the old work . Second , the companies experienced some problems either with the raw components that they were seeking to machine , or in the design of the system .

Although the companies that pursued volume production strategies generally continued to machine a more limited range of products in larger batch sizes than did companies that pursued other manufacturing strategies , the former tended to machine a dif ferent range of parts to that which they had initially intended . Some companies increased their range whereas other firms reduced the variety of parts that were machined on FMS . As a general rule , companies that lost markets increased their range by filling their systems with new work of a greater variety , whereas companies that experienced technical problems often failed to realize their anticipated levels of system utilization and responded by limiting the range of parts that they machined . At two other companies , the range of parts machined on FMS had been reduced as a consequence of the increased demand for part of that range filling the system time . These instances do give limited support to critics who argue that cost control encourages companies to exploit the productivity , rather than the flexibility in FMS .

The company that introduced their system for flexible manufacturing purposes and were then unable to realize their desired levels of machine utilization also reduced their range in response to the fall in the aggregate units of parts that they could machine . All other companies in this group machined the range of parts that they had specified in their investment evaluation .

Two firms that had introduced their systems to reduce their levels of inventories , expanded their range of parts . This was a consequence of them possessing excess capacity . One company that had experienced a reduction in demand for the quantities of the products that it had initially intended to machine , added others to its range by machining sub-contracted work . Elsewhere , another company’s financial justification of FMS had only required the system to be employed for a limited part of each week . The company used this surplus capacity to develop a variant of their major product .

At the firms that introduced FMS to pursue volume production strategies , changes in range of parts machined af fected batch sizes . Where market changes had led companies to make a wider range of parts , these parts were generally demanded in smaller sized batches . Where companies machined a more limited range of parts than they had intended because of increased demand or technical problems , they generally did so in the same or larger sized batches . All of the companies that had introduced their systems to realize flexible manufacturing objectives machined their current range of parts in the batch sizes that they had specified in their investment appraisals .

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One company that had introduced FMS to realize just-in-time objectives , machined parts in batches of two rather than the one that they had initially intended because it was more viable to do so . It may be argued that because they were examining the viability of FMS through cost control measures , this of fers evidence that companies are being detracted from their initial objectives by cost control measures . However , this company is the same firm that increased its range as a consequence of possessing extra capacity . Thus , there has been an increase in flexibility simultaneous to increases in productivity . Such a development is contrary to the claims of the critics of cost control .

The indication from this discussion is that in the vast majority of instances , it is not cost control that is responsible when companies veer from their original manufacturing objectives with FMS . When the use of FMS diverges from a company’s initial intentions , it is because of changes in markets and technical limitations of systems . Of course , cost control measures do have other weaknesses . They fail to monitor savings that accrue outside of the department where the FMS is introduced . Let us consider the example of inventory savings to investigate how companies deal with this weakness .

Monitoring of inventory savings . Potential conflicts between accounting staf f and engineers over novel benefits had arisen most frequently at the time of the investment appraisal . Financial staf f had been wary of including inventory savings in the justification of FMS because of the risk that reductions in inventories would only be brought about by simultaneous , additional investment in other areas of the factory . Thus , there was the danger of a single inventory saving being counted in the justification of both the FMS and the additional investment . At one company , the Financial Director reported :

‘this particular system (the FMS) has been justified on its own merits and the sort of savings that could mainly come out of it is back to inventory again . But , this is the old , old problem . You know you could find that with inventory savings of £2 million here on this project and £1 million there on that project , a total of £3 million . You could soon find out that you end up with negative inventory if you’re not careful . ’

In contrast to this , the engineers’ concern was that inventory reductions would not be recognized . The Production Engineer at another company said :

‘when you look at a machine component purely looking at cutting times , you don’t get the full benefit of an FMS . The benefit of an FMS is the reduction of lead times which when it’s fitted into a costing exercise in the pure sense it does not come out . So sometimes you have got to keep your accountants of f those types of calculations . ’

There was , however , some evidence that there were also some conflicts between the perceptions of engineers and accountants at the post-installation cost monitoring stage . One production engineer complained :

‘I’m speaking as a production engineer , and I have to say that I’d criticize the way that our FMS is monitored . They’re monitoring the costs of the output say on a monthly bases , X number of units per month . They’re monitoring the costs and they compare these costs against what they’d take to produce these on a conventional machine , and that’s all they monitor . So the bottom line sums do not take into account the savings in manning , or the savings in inventory . I’d have thought that you’d start from where you had spent X amount of money and you’d get credited for the value of what you’re saving in work-in-progress and you’d get credited with the savings that you had made in manning , and then the remainder . Then , whatever


you’re producing you should be getting it based on that bottom-line figure rather than the top-line figure . ’

Despite his grievances over the costing system the respondent did report that these misrepresentations had not af fected the allocation of work to the FMS . The flexible manufacturing system simply appeared inef ficient vis - a - vis other systems when a cursory glance was taken , and this was to his detriment .

The inclusion of inventory savings in the investment appraisal indicates that accountants are willing to accept engineers’ claims that FMS would facilitate reductions in inventory . There appeared to be two types of response to the subsequent inability of cost control to trace those savings directly to particular investments . The first was the introduction of new techniques of monitoring so that the company could identify the extent of any reductions in stocks . One financial director reported that his company was in the process of installing Manufacturing Resource Planning , a new inventory control system that would enable the firm to assess how FMS and any future purchase helped in the reduction of inventories . The accountant at another company was also considering changes to the techniques of monitoring the impact of FMS on inventories .

The second response to the inability of cost control to monitor the realization of inventory savings was to assume that the savings had been achieved and to suggest tentative evidence as proof of this . The following comment of an engineer provides an example of this approach .

‘Really , the way that we’re working out the work-in-progress is the lead time for a component is 1 . 4 weeks times the number of operations . So in the past we might have six or seven , up to 12 operations on any component . And the volume of work-in-progress would be the number of operations times 1 . 4 times the components as they moved right through the shop and into assembly . Now because the FMS can reduce the operations down to one or two you’re reducing your work-in-progress by the ratio of operations we’re taking out . ’

Overview This section has reported the findings about the process of introducing and using new work systems and the role of accounting in that . By viewing change as a process it has been possible to compare firms’ uses of systems with their initial intentions . This has made it possible to explore the extent to which accounting either facilitated particular deployments of FMS or discouraged them . The overwhelming indication of this evidence is that the most important influence on the pattern of deployment of FMS is each company’s intentions when purchasing their respective systems . These intentions are the manifestation of one or other of the three manufacturing strategies of volume production , just-in-time production or flexible manufacturing . Account- ing practices generally help firms to realize their stated objectives . Factors other than accounting are most likely to militate against a company realizing their stated objectives with FMS .

6 . Conclusion

Arguments about the impact of accounting on AMT prompted this research . Some writers argued that accounting embodied assumptions that discouraged the introduction and certain types of use of AMT . Others downgraded the significance of accounting , seeing other factors as far more important .

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In the study of 21 installations of FMS that has been reported above , it was found that companies introduced their systems to realize the manufacturing objectives of volume production , just-in-time production or flexible manufacturing . In all of these instances , the companies were able to adapt their investment appraisals to reflect their proposed use of FMS . However , this may be partly because they did not anticipate volatile markets and partly because they had previously deployed systems that were equally as flexible as FMS , namely conventional batch production . Thus , the companies did not have to define the capacity of FMS in flexible terms in the investment appraisal . In other situations , the inability to define the flexibility in FMS may have proved problematic . This would give some support to writers who claim accounting practices are restrictive . Similarly , the few instances of companies using FMS in ways that exploited the productivity of the system at the expense of its flexibility , coupled with cost control’s failure to measure the benefits of FMS that materialize outside of the department where the system is installed , also gives weight to criticisms of accounting practices . However , as reported above , most companies deployment of FMS for purposes other than those that had been initially intended is due to factors other than cost control . Also companies are more likely to respond to weaknesses in accounting by introducing new accounting measures than by changing the way in which they deploy FMS .

The findings reported in this study are thus generally more supportive of the arguments of the second set of writers . However , it should be emphasized that this research supports the author’s argument that the organization of the managerial division of labour leads to accounting being assimilated into other information rather than being separated from it . Thus , when the key decisions are taken in an enterprise , accounting is considered in conjunction with other criteria , rather than in preference or as riders to other information .

Acknowledgements : The author is grateful to SERC for providing the funding for this research . He also owes his thanks to Bryn Jones , Colwyn Jones , Michael Page , Bruce Bowhill and the Editors of Management Accounting Research for their helpful comments on an earlier draft of this work . Any remaining shortcomings are the responsibility of the author .

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