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Can TOC and ABC coexist? [semiconductor manufacturing]

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1 Author(s)
Dedera, C.R. ; Semicond. Sector, Harris Corp., Mountaintop, PA, USA

Arguably over the last 10 years Activity Based Costing (ABC) and the Theory of Constraints (TOC) have become two of the hottest trends in manufacturing. Companies are spending millions of dollars to start up state of the art ABC systems. Spurred on by TOC, manufacturing organizations are reevaluating how they run the factory and think of capacity. The conflict between TOC and ABC stems from the writings of Dr. E.M. Goldratt, the author of The Goal (1992). Clearly, Goldratt portrays cost accounting (ABC based or otherwise) as the villain preventing companies from obtaining their 'goal' to make more money. This paper addresses how Harris Semiconductor (HSS) is reconciling the apparent conflicts between ABC and TOC. HSS has had a state of the art ABC system for three years, but in the last year the manufacturing organization has begun using the concepts of TOC. The question HSS has had to answer is, can and should ABC and TOC coexist. HSS is redefining ABC's role within the context of its TOC manufacturing environment and believes they can coexist. TOC's focus is clear by emphasizing Throughput (T) and Inventory (I) while de-emphasizing Operating Expense (OE). Upper management struggles with TOC's de-emphasis on OE and its lack of a cost control alternative. To address this concern, operations management is turning to ABC as a tool to effectively control OE. HSS's perspective is unique in the TOC environment, which questions the value of ABC in manufacturing.

Published in:

Advanced Semiconductor Manufacturing Conference and Workshop, 1995. ASMC 95 Proceedings. IEEE/SEMI 1995

Date of Conference:

13-15 Nov 1995

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