Change Acceleration Process


1. Leading Change

First and foremost, authentic, committed leadership throughout the duration of the initiative is essential for success.  From a project management perspective, there is a significant risk of failure if the organization perceives a lack of leadership commitment to the initiative.

2. Creating A Shared Need

The need for change must outweigh the resistance – the inertia in the organization to maintain the status quo.  There must be compelling reasons to change, that resonate not just for the leadership team, but that will appeal to all stakeholders.  To paraphrase Peter Senge in his groundbreaking book, The Fifth Discipline, “Although we are all interested in large scale change, we must change one mind at a time.”

3. Shaping a Vision

Leadership must articulate a clear and legitimate vision of the world after the change initiative.  Every journey must have a destination otherwise you are just wandering.  The vision must be widely understood and shared.  The end-state must be described in behavioral terms – i.e., observable, measurable terms.  Not business results, but individual behavior.  This might be the single most critical factor in a successful change initiative.

4. Mobilizing Commitment

Once you have leadership support, compelling logic for change, and a clear vision of the future, you have the necessary ingredients to rollout your initiative.  You now begin to execute an influence strategy to build momentum.  You leverage the “early adopters,” to pilot the project where you face low resistance and can learn from mistakes with a forgiving partner.

5. Making change last

Steps 2-4 are primarily about accelerating adoption of your changes.  Steps 5-7 are about making the changes permanent.  You leverage early wins, taking the knowledge gained in your pilots and transfer learning’s and best practices to your broader rollout.  You plan for integrating with other existing, potentially competing, initiatives.  You assess what is helping and hindering the initiative.

6. Monitoring process

It is important to plan for measuring the progress of your change initiative.  Is it real?  How will you know?  You need to set benchmarks — realize them – and celebrate! Similarly there must be accountability for lack of progress.

7. Changing Systems and Structures

Every business has underlying systems and structures: hiring & staffing, IT systems, training & development, resource allocation, organizational design, SOPs/workflow, etc..) These systems were designed to support the current state of the business.  If they are not changed to support the desired, future state of the business they will always push you back to the old way.  That’s what they are supposed to do.  In order to make change permanent you must systematically identify how these systems influence the behavior you are trying to change, and modify them appropriately.  Failure to address these systems and structures is why so many initiatives become the proverbial “flavor of the month.”


Coaching with GROW Model

Coaching is unlocking people’s potential to maximize their own performance. It is helping them learn and grow, rather than teaching them.” -Sir John Whitmore-

Coaching is a mindset, not simply a skill. Manager coaches to help improve his/her subordinate’s performance, and promote a culture where continuous learning and improving performance is the norm. Therefore, coaching is a forward looking conversation, which is a process of moving forward together by asking rather than telling, listening rather than speaking, empowering rather than directing.

GROW coaching model is process for raising awareness and getting the coachee to take responsibility for finding solution and taking action. It is a proven coaching method designed to create a climate where a coach helps people take responsibility for their work and career. GROW stands for Goal, Reality, Options, Will.

grow coaching model

Goal: To start, the coach helps the coachee determine what he or she would like to accomplish. This is more effective if the goal is broken into two parts, the end goal and performance goal. The End Goal is a compelling purpose that is rarely within a coache’s absolute control; however, it is something that generates passion and power. The Performance Goal provides a means of measuring progress toward the End Goal. When setting goal with coachee, question is like: What do you want to talk about? What would you like to achieve from this session? What is the most important thing

Reality: In the Reality phase, coach and coachee investigate the current situation, needing to discover all relevant facts. As coach, manager may want to advance slowly and carefully during this phase. Manager might find fact that requires coachee to go back and reset goal. In fact, do not be dissapointed if the model looks more like GRGRGRGROW. When in the Reality phase, question is like: What is happening now? How do you feel about it? What are the facts? Sir John Whitmore said, “In the Reality phase, facts are important and as in police investigation, analysis before all the facts are in can lead to theory building and biased data collection thereafter.

Options: In the Options phase, the coachee and coach create a list of alternative courses of action. Be sure that oach and coachee come to a common understanding of the Reality of the situation. Ask questions to help the coachee brainstorm ways to accomplish the goal. When in the Options phase, question is like: What have you already tried? What else might you try? What if you had more time

Will: The will phase converts a discussion into a decision. After all options have been considered, the coachee decides what actions to take. As coach, manager aid this process without imposing your own will. It is the coachee’s commitment to his and her own action plan that generates the highest chance of success. When developing an action plan, question is like: what are you going to do? When are you going to do it? Will this action meet your goal?

Some coaching traps that need to be avoided:

  • Don’t be vague about areas where improvement is required
  • Avoid rambling; cite recent and specific examples
  • Don’t surprise. Deliver timely, consistent messages
  • Don’t attribute the source of the message to someone else
  • Never discuss other employee’s performance or conduct
  • Avoid getting emotional during your discussions
  • Avoid letting coachee’s emotions affect coach’s calm demeanor

Situational Leadership

Leadership has many definitions. One of simple leadership definition is any attempt to influence the behaviour of another persons or group – up, down or accross organization. Leadership style is the pattern of behaviour of leader as perceived by the person or group being influenced. Effective leadership means adapting leadership style to meet performance needs of those being influenced. Thus, leader is someone who, regardless of position, influences others in an organization.

Any attempt of leading should have impact on two dimensions, which are success and engagement. Success is measured by behaviour, results, accomplishment, the “what”, and bottom line. In a simple question, “Did the job get done, or didn’t it?” On the other hand, engagement is measured by attitude, process, needs, the “how” and motivation. Situational leadership strive to make both dimensions equal and at high level. In a simple question, “how people felt about doing the work?”

Situational Leadership Theory tells that there is no single best style of leadership. Effective leadership is task-relevant, and the most successful leaders are those that adapt their leadership style to the performance readiness (“the capacity to set high but attainable goals, willingness and ability to take responsibility for the task, and relevant education and/or experience of an individual or a group for the task”) of the individual or group they are attempting to lead or influence. Effective leadership varies, not only with the person or group that is being influenced, but it also depends on the task, job or function that needs to be accomplished.

Situational Leadership

Situational Leadership model has two axis in the chart, which are task behaviour (or called also directive behaviour) and supportive behaviour (relationship behaviour). Task behaviour is the extent to which a leader engages in defining roles, providing the what, where, how, and who. High task behaviour means that leader needs to direct people in details, while low task behaviour means that leader does not need to direct people for task details. On the other hand, relationship behaviour is the extent to which the leader engages in two-way communication, facilitates interaction, actively listens and provides socioemotional support. High relationship behaviour means that leader needs to open communication and gives greater support for people, while low relationship behaviour means that this socioemotional support is not needed by the people.

The right leadership style will depend on the person or group being led. Situational Leadership Theory identified four levels of Performance Readiness :

  • R1 – They still lack the specific skills required for the job in hand and are unable and unwilling to do or to take responsibility for this job or task
  • R2 – They are unable to take on responsibility for the task being done; however, they are willing to work at the task. They are novice but enthusiastic.
  • R3 – They are experienced and able to do the task but lack the confidence or the willingness to take on responsibility.
  • R4 – They are experienced at the task, and comfortable with their own ability to do it well. They are able and willing to not only do the task, but to take responsibility for the task.

Performance Readiness Levels are also task-specific. A person might be generally skilled, confident and motivated in their job, but would still have a Performance Readiness R1 when asked to perform a task requiring skills they don’t possess.

Situational Leadership Theory characterized leadership style in terms of the amount of Task Behavior and Relationship Behavior that the leader provides to their followers. They categorized all leadership styles into four behaviour types, which named S1 to S4:

  • S1: Telling – is characterized by one-way communication in which the leader defines the roles of the individual or group and provides the what, how, why, when and where to do the task;
  • S2: Selling – while the leader is still providing the direction, he or she is now using two-way communication and providing the socio-emotional support that will allow the individual or group being influenced to buy into the process;
  • S3: Participating – this is how shared decision-making about aspects of how the task is accomplished and the leader is providing less task behaviours while maintaining high relationship behavior;
  • S4: Delegating – the leader is still involved in decisions; however, the process and responsibility has been passed to the individual or group. The leader stays involved to monitor progress.

Below is chart to apply Situational Leadership in daily activity.
Step for Situational Leadership


Babson Entrepreneurship Program

The Babson Entrepreneurship Program is a blended-learning experience. In addition to classroom time, the program features a variety of hands-on experiences that are intensive, group-oriented, and interactive. They may include business simulations, guest speakers, visits to companies, field trips, and other off-campus activities.

Program focus areas are customizable and may include some or all of the following:

  • New Venture Creation
  • Idea Generation and Innovation
  • Building Entrepreneurial Teams
  • Market Tests and Business Models
  • Entrepreneurial Finance
  • Leadership
  • Entrepreneurial Marketing
  • Managing a Growing Business
  • Corporate Entrepreneurship
  • Family Enterprising
  • Social Entrepreneurship
  • Business Acumen

Toyota Manufacturing Karawang Plant Visit Report


The subject of this Operation Management report is the Toyota Manufacturing Plant in Karawang, a plant owned by PT. Toyota Motor Manufacturing Indonesia (TMMIN). The analysis of Toyota Manufacturing Plant in Karawang is used to understand Toyota Production System (TPS), especially Lean Manufacturing System and Built in Quality Management. These factors are why Toyota has highest market share and becoming market dominant in Indonesian automobile market. Finally, in accordance with TPS policy of constant improvement (Kaizen), there is an outline of what the company’s current and potential problems in operation are perceived to be and recommendations of how TMMIN can overcome them.



Organization Profile

Toyota Motor Corporation (TMC) is a multinational corporation headquartered in Japan. It is the world’s largest automotive manufacturer by sales and production (Marr, 2009). In 2009, TMC employed 71,116 people worldwide (Toyota Motor Corporation 2010a). TMC is headquartered in Toyota City, Aichi and in Tokyo. Its revenues in 2010 (March) globally reached 18.9 trillion Yen (Toyota Motor Corporation, 2010b).

TMC started its business in Indonesia by doing joint venture with Astra by establishing PT. Toyota-Astra Motor (TAM) in 1971. The role of TAM was originally only as an importer of Toyota vehicles, but a year later was working as a distributor. On December 31st, 1989, TAM did merger with three companies among others, which are PT. Astra Multi, PT. Toyota Mobilindo, PT. Toyota Engine Indonesia and still hold the same name as TAM. The merger was done to unify measures and efficiency in increasing quality and facing competition in the automotive industry (Toyota Astra Motor, 2007a).

TAM restructured into two companies in 2003 became PT. Toyota Motor Manufacturing Indonesia (TMMIN) and PT. Toyota-Astra Motor (TAM). TMMIN fabricates and exports Toyota vehicles and spare parts. The composition of stock ownership in TMMIN is Astra International was 5% and 95% TMC. TAM operates as sales agent, importer, and distributor of Toyota products in Indonesia. The composition of stock ownership in TAM is Astra International is 51% while 49% TMC (Toyota Astra Motor, 2007a).

TAM has five primary dealer to support its sales and after sales service for all over Indonesia. These primary dealers are divided according to geographical region. Auto2000 is the Toyota Main Dealer in the Jakarta, West Java, East Java, East Nusa Tenggara, Bali, Kalimantan and partly Sumatra. PT. New Ratna Toyota Motor is a Primary Dealer in the region Central Java and Yogyakarta. NV Hadji Kalla Trd Co. is a Toyota Main Dealer in the region South Sulawesi and Southeast Sulawesi. PT. Hasjrat Abadi is a Toyota Main Dealer in the region North Sulawesi, Central Sulawesi, Gorontalo, Moluccas, Ternate and Papua. PT Agung Automall is a Toyota Main Dealer in the region Bali, Riau, Jambi, Bengkulu, and Batam (Toyota Astra Motor, 2007a).

TMMIN has two production plants, which are Sunter Plant and Karawang Plant. Sunter Plant was built in April 1973, located in Sunter, North Jakarta. It is the first automobile factory owned by TMMIN, which has a concept of combining modern technology and human resources expertise. The plant produces part component and machine for domestic and export market. Sunter Plant has facilities consist of Casting Plant, Stamping Plant, Engine Plant, Packing & Vanning Plant, and Waste Water Treatment (Toyota Astra Motor, 2007b).


Karawang Plant is newest of the automobile factory owned by TMMIN. It is located in Karawang International Industrial City (KIIC), Teluk Jambe, West Java. Karawang Plant was built in 1996 and began operating in 1998. It has facilities consist of Stamping Shop, Welding Shop, Painting Shop, Assembling Shop, Test Course, Common Yard, and Environment Management System. Nowadays, Karawang Plant has production capacity of 100,000 units of cars per year (Toyota Astra Motor, 2007c).

Karawang Plant has a concept of world class automotive manufacturer which combines high technology, human resources expertise, and concern for employees and environment. It is built on 1.000.000 m2 of land with building area of 300,000 m2. Karawang Plant focuses on manufacturing of Innova, Avanza G Black, and Fortuner for domestic and international markets. Its products are exported to Middle Eastern countries (Saudi Arabia, United Arab Emirates, Kuwait, Bahrain, Qatar, Oman, Jordan, Syria, and Lebanon), Pacific Island countries (Fiji and Solomon), and the Asian countries (Malaysia, Philippines, Brunei Darussalam, Thailand, and Vietnam) (Toyota Astra Motor, 2007c).


General Flow Process

According to Jacob, Chase, and Aquilano (2009), process is any part of an organization that takes inputs and transforms them into outputs that are of greater value to the organization than the original input. Karawang plant’s processes are done in some in-house production facilities, which are stamping shop, welding shop, painting shop, and assembling shop.


Car production is started at stamping shop. It is where the body parts of vehicle are stamped or pressed out of the steel plates. Stamping shop has two lines, which are A line with capacity of 2400 tons and 450 strokes/hour and C line with capacity of 700 tons with 620 strokes/hour. The input for stamping process is steel plates. The process starts at one row of press where steel sheet are cut from coil and fed into the first press. After that, it is routed to the next presses where the press may create the curved shape. From there, it is passed to a press that punches holes until finally the finished part rolls off the press line. The process in stamp shop uses robotic system to move pressed parts between machines. The output of stamping shop are the frame, fuel tank, and some components, such as cabin, deck, and frame chassis (Toyota Astra Motor, 2007d).

Welding shop does joining/welding of subgroups or smaller car body units into one part intact. The input for welding process is pressed body parts from stamping shop. The process unifies all the pressed parts. The end result of this process is a completed body shell. To ensure the level of precision and high accuracy, welding shop is equipped with Welding Main Body Line, Coordinate Measuring Machine, and Shell Body Line with Slat Conveyor. Welding shop is also supported with 34 welding robots and global body line (Toyota Astra Motor, 2007e).

Paint shop takes car bodies from the welding shop and applies color to the vehicle. The shop consists of multiple paint booths that are use robots to spray-paint the body shell coming from the welding shop. The body sell are dipped in a electro deeping coating that cover the body with anti rust coating. Then they are organized by color and sent to one of the paint booths. Some colors will require multiple coats which will result in the vehicles getting out of the plan line-off sequence. Painting shop has a painting facility which is Primer and Top Coat process with robotic systems to obtain results of high-quality paint. It also uses twenty robots to provide security guarantees and environmentally friendly process (Toyota Astra Motor, 2007f).

Assembling shop is a place of assembly of the whole vehicle body into a complete vehicle ready for the road. Assembly process is to install all components of the vehicle into vehicle body coming from paint shop. The assembly shop is the most labor intensive shop. Most of the components are installed by hand by team members working in small team. Each team is responsible for the work perform during one process cycle at one work station. The vehicles thus move from one station to the next at the takt time interval. Takt is a German word for rhythm or meter which means the rate of customer demand (Iyer, Seshadri, and Vasher, 2009). The assembling shop has Main Line Assembly facilities with door less system assembly which guarantees quality and increases productivity. It is also equipped with Final Test Facility, which check each vehicle to ensure quality (Toyota Astra Motor, 2007g).


Potential Problems and Recommendation

TMMIN has implemented Toyota Production System (TPS) in Karawang plant. TPS is an integrated system developed by Toyota that comprises its management philosophy and practices. The main objectives of TPS are to design out overburden (muri) and inconsistency (mura), and to eliminate waste (muda). There are then two outer pillars in TPS, which are Just-in-time and Jidoka.

Just-in-Time means making only what is needed, when it is needed, and in the amount needed. Supplying Just-in-Time according to production plan can eliminate waste, inconsistencies, and unreasonable requirements, resulting in improved productivity. Just-in-Time tries to constantly improve manufacturing processes to require fewer inventories. Just-in-Time process relies on Kanban between different processes. This will instruct production when to make the next part. Kanban can be simple visual signals such as tickets or just the signal of presence or absence of a part on a shelf (Toyota Motor Corporation, 2010c).

Jidoka can be defined as automation with a human touch. It refers to the practice of stopping a manual line or process when something goes wrong (Toyota Motor Corporation, 2010d). Jidoka can also be defined as the decision to stop and fix problems as they occur as opposed to pushing them down the line to be resolved later. Therefore, purpose of Jidoka is to have immediate identification and correction of mistakes that occur in a process (Liker, 2004). Jidoka makes labor no longer be needed to always have attention whether the process is normal or not. The labor are needed when there is a problem alerted by the machine. Therefore, the quality control has already built in the process. Further, by practicing Jidoka, operator could be put in charge of numerous tasks but still maintaining quality, and therefore resulting in improvement in productivity.


TPS has successfully brought Toyota to have highest market share and to become market dominant in Indonesian automobile market. In accordance with TPS policy of constant improvement (Kaizen), we identify some potential problems could happened in implementing TPS. We categorize these potential problem based on function in the company such as Purchasing, Production, and Marketing.



In purchasing process, Toyota has its strong reputation in building good relationship with its suppliers. Toyota involves its suppliers in the early stages of the design making. It also share its planned production data to its suppliers, so the suppliers can estimate their own targeted production, the amount of investment they are needed to achieved their targeted production. As the second biggest automobile manufacturer, no doubt that the huge amount cars order mean also a big order of parts too to its suppliers. Toyota also commits to pay the entire bill to its vendor on time, so the supplier will always be having good liquidity ratios. Annually, Toyota held awards for its supplier for those who has superior achievement in quality, delivery and ability to perform Kaizen.

These good reputations of commitment lead to trust on its suppliers. Getting continuous order, good partnership from planning to production, commitment on payment and support in continuous improvement inside the supplier’s manufactures, and also lesson learn of just-in-time in the first and second tier supplier will be a magnitude for the suppliers to make business with Toyota.

With many suppliers around the world, and few demand from automobile makers including Toyota, makes Toyota has stronger bargaining position on its suppliers. But those good things can become potential problems. If Toyota able to maintain good reputation of managing supplier, good commitments to their stake holders, and also can keep their position as one of the biggest car manufacturer in the world, it means that all the tier suppliers that support Toyota will still receive big amount of orders, and other stakeholders who get benefit will support the TPS. But in case of changes such as unpopular rules and policies can make the stakeholders uncomforted and begin not supporting TPS (as an example, payment method changed rules will make supplier late to receive their payment, unpopular employee rules, can make a strike). This potential problem can affect to the production. To anticipate this, Toyota has to analyze all the condition that might happen because of this changing before launching a new policies or rules.



In the production, there are some potential problems that can occur. Parts coming from supplier are directly used for production without quality control in Toyota plant. Toyota reduces production time by remove internal quality control at the process and put the material directly to production line. There is a potential problem in this process as if there is some defect in the material; it will only be detected in the final quality control process in the end of assembly shop. This will require a rework to the products which has defect material. If material quality control from supplier is done when material comes to Toyota, we can eliminate the defect material earlier and complain this to supplier to get replacement soon. To anticipate this, Toyota has to train its labor practical quality control internally to do visual inspection on material from the very beginning of the process.

Also in the production, about 70% of the process in assembly shop is done by human. Therefore, labor is a crucial factor to determine successful process. If labor does not have enough knowledge and skill, it would be a problem on the production line. Operators mostly graduated from senior high school, and those operators should have intensive training before they work in the production line. Intensive training are very highly cost and time consuming. There is also wide variety of knowledge and skill level among new recruits in Indonesia. This will be a potential problem if some trainees do not fulfill the minimum standard requirement even after the intensive training. To anticipate this, Toyota has to choose high school graduates from school which has good reputation. Further, Toyota can start its own high school to get standardized curriculum for its new recruits.

Infrastructure in Indonesia is not reliable. Problems such as electricity down, water problem, traffic jam will affect just-in-time process. On the other hand, machinery or robotic down, information system error, and mismatch sequential could be happened in any points of just-in-time production. The other potential problem is that the Toyota production line has only one line which related to every activity. If a process in a station delayed, it will cause delay to other station. To anticipate this, backup system should be considered to prevent production stop.



Automotive industry in Indonesia is very dynamic. The market is often fluctuating, responding market trends. The amino in Indonesian market for Toyota cars is many times unpredictable. Some Toyota cars get suddenly high demand. For example, market demand for Avanza product was unpredictably high because sudden demand of low cost family car. Some customers should wait indent for one whole year to get his/her new Avanza. When this situation happened, production line cannot respond quickly because of limited capacity and minimum inventory. To expand capacity quickly means to extend the production line, labor overtime and sudden extra material order to suppliers. This unplanned sudden capacity expansion will put inefficient cost. To anticipate this, market intelligence in Toyota Production System should have a really precise market research to evaluate and determine the trend in the longer period of future time compared to other system.

Since TPS has only one production line, all variant should put together in the line. This will limit Toyota flexibility to produce various or customized product. Modification in the production line is difficult because it changes many processes. These changes will need consideration, how long takt time will be raised because of additional process. Modification will also cost massive training to all labor operated in the line to put more tasks on one worker. The changes will also depend on the flexibility of some limited suppliers which has already adopted TPS system. If these suppliers cannot change their process, Toyota cannot change its process as well. To anticipate longer takt time because of variants addition, Toyota should consider extra line for some new variant, especially if the variant is very different with other variants. To anticipate costly massive training, Toyota should have efficient training center to maintain cost. Further, Toyota should put curriculum for wide variation process if it starts its own dedicated high school. To anticipate Toyota production limited flexibility, Toyota should add more suppliers which implement TPS to anticipate market fluctuation.



· Toyota Production System (TPS) has been implemented in TMMIN Karawang plant by implementing Just-in-time and Jidoka.

· By implementing TPS, TMMIN has several advantages: less waste, inconsistencies, and unreasonable requirements, resulting in improved productivity, and built in quality.

· However, several features of TPS limit TMMIN itself, such as requirement to be in stronger bargaining position and tight payment schedule to suppliers. Also, TMMIN must depend on supplier performance to guarantee its own production objectives.

· Internally, TMMIN needs high standard to labor knowledge and skill. Furthermore, Toyota should start its own dedicated high school to get higher labor knowledge and skill.

· Unreliable infrastructures in Indonesia makes TMMIN should have more back-up system compared to any other plants in other countries.

· To anticipate market fluctuation, TMMIN market intelligence should have precise research to evaluate the trend.

· To anticipate wider variants, TMMIN should invest extra production lines and moreover efficient training center to maintain training costs. To anticipate production limited flexibility, Toyota should add more suppliers which implement TPS.



Iyer, A., Seshadri, S., Vasher, R., 2009. Toyota Supply Chain Management: A Strategic Approach to Toyota’s Renowned System. New York: McGraw-Hill

Jacobs, F.R., Chase, R.B., and Aquilano, N.J., 2009. Operation and Supply Management. 12th. ed. New York: McGraw-Hill/Irwin

Liker, J., 2004. The Toyota Way. New York: McGraw-Hill

Marr, K., 2009. Toyota Passes General Motors As World’s Largest Carmaker, [online] Available at: <; [Accessed 18 November 2010]

Toyota Motor Corporation, 2010a. Toyota in The World 2010. [online] Available at: <; [Accessed 18 November 2010]

Toyota Motor Corporation, 2010b. Financial Summary FY2010: Toyota Motor Company, [online] Available at: <; [Accessed 18 November 2010].

Toyota Motor Corporation, 2010c. Toyota Production System: Just in Time, [online] Available at: <; [Accessed 18 November 2010].

Toyota Motor Corporation, 2010d. Toyota Production System: Jidoka, [online] Available at: <; [Accessed 18 November 2010].

Toyota Astra Motor, 2007a. Toyota di Indonesia – Profil, [online] Available at: < > [Accessed 18 November 2010].

Toyota Astra Motor, 2007b. Toyota di Indonesia – Manufaktur: Sunter Plant, [online] Available at: <; [Accessed 18 November 2010].

Toyota Astra Motor, 2007c. Toyota di Indonesia – Manufaktur: Karawang Plant, [online] Available at: <; [Accessed 18 November 2010].

Toyota Astra Motor, 2007d. Toyota di Indonesia – Manufaktur: Stamping Shop, [online] Available at: <; [Accessed 18 November 2010].

Toyota Astra Motor, 2007e. Toyota di Indonesia – Manufaktur: Welding Shop, [online] Available at: <; [Accessed 18 November 2010].

Toyota Astra Motor, 2007f. Toyota di Indonesia – Manufaktur: Painting Shop, [online] Available at: <; [Accessed 18 November 2010].

Toyota Astra Motor, 2007g. Toyota di Indonesia – Manufaktur: Assembly Shop, [online] Available at: <; [Accessed 18 November 2010].

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Cost Management Basic Theory

Process of management involves formulating strategy, planning, control, decision making, and directing operational activities. Manager can perform these functions efectively with managerial accounting information. One of the most important information focuses on  cost incurred by an organization.

Basically, cost is defined as the sacrifice made to achieve a particular purpose. It is measured by the resource given up to reach the purpose. The definition may grow depend on the context in which it is used.

Cost data that recorded in one particular way for one purpose may be inappropriate for another use. Therefore, different cost concepts and classification are used for different purposes. By understanding this concepts and classification, we can use managerial accounting to provide appropriate cost data to the stakeholder who need it.

An important issue in managerial and financial accounting is the timing which costs of acquiring asset or services are recognized as expenses. Expense is defined as the cost inccured when an asset is used up or sold for purpose of generating revenue.

Terms of product cost and period cost are used to describe the timing with which various expenses are recognized. Product cost is a cost assigned to goods that were purchased or manufactured for resale. Product cost is used to value inventory of manufactured goods or merchandise until the goods are sold. In period of sales, product costs are recognized as an expense called cost of goods sold.

All costs that are not product cost are called period costs. These cost are identified with period of time in which they are inccured rather than with units of purchased and produced goods. Period cost are recognized as expenses during time period in which they are inccured. Some examples are research and development, selling, and administrative costs are treated as period costs.

In services industry, there is no inventoried product costs. Therefore, services industry generally reffer to the costs of producing services as operating expenses. Operating expenses are treated as period costs.

To assist managers in planning, decision making, and cost management, managerial accountants classify costs by the functional area of organization to which cost relate. Some of them are manufacturing, marketing, administration, and R&D.

Manufacturing costs are futher classified : direct material, direct labor and manufacturing overhead. Direct material is raw material that is consumed by manufacturing process. The cost of salaries, wages, fringe benefits for personal costs who work directly on the manufactured products is lassified as direct-labor cost. All of other costs of manufacturing are classified as manufacturing overhead, which includes three type : indirect material, indirect labor, and other manufacturing costs.

Other functional area of organization will also have other classification. Marketing, administration, and R&D cost classification will be disscussed further in next articles.


What is Managerial Accounting?

Managerial accounting (management accounting) is the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization’s goals. It is an integral part of the of the management process. Managerial accountants are important strategic partners in an organization’s management team.

Role of managerial accounting was previously operated in a strictly staff capacity, usually physically separated from managers for whom they provided reports and information. Nowadays, managerial accountants serve as internal business consultants, working side-by-side in cross-functional teams with managers from all areas of organization.

An organization’s management team, on which managerial accountants play an integral role, seeks to create value for the organization by managing resources, activities, and people to achieve the organization’s goals effectively. The work of management team comprises four activities, which are decision making, planning, directing operational activities, and controlling. Managerial accountants will support all these activities with particular information needed.

Managerial accountants add values to an organization by pursuing five major objectives. First objective is providing information for decision making and planning, and proactively participating as part of the management team in the decision-making and planning process. Second objective is assisting managers in directing and controlling operational activities. Third objective is motivating managers and other employees toward organization’s goal. Fourth objective is measuring performance of activities, subunits, managers, and other employees toward the organization’s goal. Last objective is assessing organization’s competitive position and working with other to ensure long-run competitive in its industry.

There are some differences between managerial accounting and financial accounting. From user of information perspective, financial accounting is the use of accounting information for report parties outside the organization, including current and prospective share holders, lenders, investment analyst, and government agencies. Managerial accounting is the use of accounting information for members within the organization. Therefore, financial accounting is required to obey the regulation, such as GAAP (Generally Accepted Accounting Principles) while managerial accounting is not required to do this since it is intended only for managers.

Financial accounting draws almost exclusively data sources from organization basic accounting system which accumulates financial information. Managerial accounting draws broader data beside organization basic accounting system, such as rates of defective product manufactured, physical quantities of materal and labor used in production, or maybe average delays in particular airline. Financial accounting focuses on the global perspective of enterprise entirely, while managerial accounting reports more detail within organization, such as per departments, per divisions.

Managerial accounting continually evolves and adapts as the business environment changes. The growth of international competition and dramatic changes in technologhy are placing ever-greater moved away from a historical costaccounting perspective and toward a proacrive const management perpective. Under this approach, the managerial accountant is part of a cross-functional management team that seeks to create value for the organization by managing resources, activities, and people to achieve the organization’s goals.


Source : Hilton, R., 2010,  “Managerial Accounting, 8th Edition”. McGraw-Hill.