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Introducing TQM will reduce the importance of variance analysis in a manufacturing organisation. Is this statement right? By using TQM, will it make the variance analysis from a standard costing system redundant? I would appreciate if someone could clarify this for me.
TQM is based with Kaizen Costing which emphasizes on gradual and continuous improvements. With traditional standard costing you set up a standard in advance and evaluate against it.
However with TQM and Kaizen approach you don’t have a pre set standard, Once you’ve incurred a year’s cost/input you basically look forward to improve gradually there on.
Like in Standard Costing you may set a pre set standard of 2000kg Material, However With TQM and Kaizan Approach you take up production without a set standard and let’s say you’ve incurred 2200kg, You’ll look forward to reduce 5%-10% target of that gradually each year as you build upon systems, culture and approach for cost reduction.
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