The modern business environment

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The modern business environment

  1. 1. CIMA – Management Level Performance Management “The Modern Business Environment” ADS Corpconsultants Private Limited
  2. 2. Characteristics of MBE – Global Environment (No border restriction) – Flexibility (Competitive) – Employee Environment (Empowering employees) – Just in Time (JIT) – World Class Manufacturing (under Total Quality Management) ADS Corpconsultants Private Limited
  3. 3. JIT • JIT : - is a ‘pull system’ which responds to demand unlike to a ‘push system’ where Inventory acts as a buffer. The Objective is to produce/procure products or components as they are required by Customer rather than for Inventory. It is a Zero Inventory Model at all stages of prodn incld. Finished Goods (FG). Pull System Push System Aims of JIT are to produce: - the required Item - at required Quality - in required Quantity - at required precise Time PRODUCTIONSupplier Customer PRODUCTIONCustomer Supplier ADS Corpconsultants Private Limited
  4. 4. JIT • Requirements of JIT: i. Versatile Labour ii. Grouped by Product Line iii. Strong Information System iv. Zero Defects & Get it Right First Time v. Strong Supplier Relationships JIT Production: - a production system driven by demand for FG where each component on a Production Line is produced ONLY when needed for the Next Stage. JIT Purchase: - a purchasing system where Material purchase is contracted in such a way that Receipt & Usage of material, to max. extent possible, COINCIDE. ADS Corpconsultants Private Limited
  5. 5. TQM • TQM : - seeks to ensure that goods produced & services supplied are of Highest Quality and is based on 2 basic principles: i. Get it Right, First Time – Zero rejects & 100% Quality ii. Continuous Improvement – Dissatisfaction with status quo Continuous Improvement Approaches i. Kaizen Costing ii. Target Costing ADS Corpconsultants Private Limited
  6. 6. COST OF QUALITY NON-COMPLIANCE COST COMPLIANCE COST Appraisal Cost - Incoming inspection - Set-up Inspections - Process Control Prevention Cost - Training - Routine Repair - Quality in Design - Correct Engineering Internal Failure Cost - Scrap Cost - Reworking Cost - Process Failure Cost Internal Failure Cost - Marketing Cost of failed product - Loss of Goodwill - Manufacturing/Process Engineering cost of failed product -Liability Claims - Travelling Cost - Repair Cost - - Compensation/ Replacement of returned product ADS Corpconsultants Private Limited
  7. 7. Kaizen Costing & Target Costing • Continuous Improvement or “Kaizen” is an integral part of JIT philosophy. “Kaizen” is a Japanese term meaning “improving processes through small, incremental amount rather than through large innovations”. • Improvements – sought all the time • Improvements – small & numerous rather occasional & far reaching • Cost reduction targets – set & applied on a more frequent basis • Kaizen Costing is a planning method used during the manufacturing cycle that emphasizes reducing Variable Costs of a period below the cost level in the base period. • Target Costing is a form of life cycle costing and derived by deducting Target Profit from predetermined Selling Price. (Detailed discussion in next lecture) TC = SP - TP ADS Corpconsultants Private Limited
  8. 8. Standard Costing Concepts Vs. Kaizen Costing Concepts S. No. Standard Costing Concepts Kaizen Costing Concepts i) Cost Control Concept Cost Reduction Concept ii) Assume current manufacturing Conditions Assume continuous improvement in manufacturing iii) Meet Cost performance standards Achieve cost reduction targets S. No. Standard Cost Techniques Kaizen Cost Techniques i) Standard set annually or semi-annually Monthly cost reduction targets are set & applied ii) Cost Variance Analysis (CVA) using Standard and Actual Cost CVA using Target Kaizen & Actual Cost reduction amount ADS Corpconsultants Private Limited
  9. 9. Value Analysis/Value Engineering/BPR • Value Analysis (VA) – for Existing Products – is systematic examination of factors affecting cost of product/service in order to achieve specified purpose most economically at the required standard of quality & reliability. – to identify unnecessary cost elements within component of goods & services, i.e., any cost that don’t add value should be eliminated. – often leads to reduction of component used, use of alternatives, cheaper components & standardization of parts across several product line • Value Engineering (VE) – for Products to be produced – Is redesign of an activity, product/service so that value to customer is enhanced while costs are reduced or at least increased by less than resulting price increase. • Types of Value • Cost Value – cost of product • Exchange Value – Price that customer is willing to pay • Esteem value – Status/regard associated with ownership of a product ADS Corpconsultants Private Limited
  10. 10. Value Analysis/Value Engineering/BPR • Business Process Re-engineering (BPR) – involves examining business processes and radically redesigning these processes to achieve cost reduction, improved quality & customer satisfaction. – is all about major changes to how business processes operate. – is concerned with making far reaching One-off changes to improve operations or processes • The objective of all the above activities VA/VE/BPR are zeroed to achieve – Cost Reduction – Improved Quality – Customer Satisfaction in the product/service offered to the customer • Porter suggests ONE of the following Two strategies by organizations to take competitive advantage:- i. Low Cost Strategy – through Economies of Scales & Tight Cost Control ii. Differentiation Strategy – creating something that customer perceives as unique via brand loyalty, superior customer service, product design & features. ADS Corpconsultants Private Limited
  11. 11. Value Chain • Value Chain – was designed by Prof. Michael Porter of Harvard Business School in 1985 – is a linked set of value creating activities starting from basic Raw Material sources or Component Suppliers through ultimate end-use product or service delivered to the customer. – creates conditions to improve customer satisfaction; particularly in terms of “Cost efficiency, Quality & Delivery” identify unnecessary cost elements Value Chain Activities Primary Activities Support Activities - Inbound Logistics - Operations - Outbound Logistics - Marketing & Sales - Service - Procurement - Technology development - HR Management - Firm Infrastructure ADS Corpconsultants Private Limited
  12. 12. Supply Chain Management • A supply chain is a network of customers & suppliers that a business deals with. • SCM can be broken into – Purchasing – Stock/Inventory – Customer Ordering – Delivery & logistics – Outsourcing S. No. Insourcing Outsourcing i) High degree of Control over INPUT Low/ No Control ii) Increase Visibility over process Loss of Visibility iii) High Investment No Investment iv) Requires high volume No v) Dedicated equipment limited flexibility Not required vi) Not a core competence Can concentrate on core competence vii) Cash Outflow Improved cash flow Purchasing Stock Order Del. & Logistic Outsourcing ADS Corpconsultants Private Limited
  13. 13. Gain Sharing Arrangement • GSA – is an approach to review & adjust an existing contract or series of contract where adjustment provides benefits to both parties. – is attractive to companies because they can provide insulation from the cut- throat price competition. – is popular where there exists potential to achieve mutual benefit among parties concerned. The gain/benefit could be fin./no-fin. in nature. • Companies typically guarantee their customer that they will achieve a certain amount of cost savings or top-line improvement. If targets are not met, Co commits to make up difference in cash. However, if targets are exceeded, supplier may also receive a pre-specified %age of gain. • Components of GSA – Mutual Interdependence & Trust – Common Goal – Agreed procedure of Decision making & Problem solving – Continuous Improvement commitment – Team Work – Predetermined Gain/Pain sharing arrangement – Open book accounting – Targets that provide continuous measurable improvements on programe ADS Corpconsultants Private Limited
  14. 14. Atul Kumar ACA, Adv Dip in MA atul@adscorpconsultants.com +91-9004614321 ADS Corpconsultants Private Limited

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