Value-chain explanations of variances [AQ13] Japanese companies have begun helping their suppliers reduce costs, so they can pass along those savings. For example, Toyota requires its suppliers to reduce the prices they charge Toyota for component parts. In turn, Toyota may send their own engineers and other production experts to help the supplier reduce costs by streamlining their production process. Companies develop benchmarks and calculate variances on items that are important in their lines of business. Because materials constitute a large proportion of Parker–Hannifin’s manufacturing costs, they prepare detailed information on supplier-related costs. In contrast, McDonald’s calculates average order time, window time and queuing time for their drive-in restaurants. In addition to these non-accounting standards and variances, however, they also calculate hourly sales and labour variances, and they calculate raw material and finished goods waste per shift. Investigating variances entails activities ranging from phone calls to engineering analyses of the production process, and can be expensive. Investigation is warranted only when the expected benefits (e.g. reduced costs, better decisions due to more accurate data) exceed the investigation’s expected costs. If a production line is malfunctioning, the supervisor cannot wait for an accounting report with variances denominated in euros. The supervisor controls the process by physical observation and timely physical measurements. For example, a Nissan plant compiles data such as percentage defects, production schedule attainment and broadcasts them in a ticker-tape fashion on screens throughout the plant.
