Presentation on Strategic Enterprise Management Systems using SAP Business Warehouse 7.0

Team Members

Executive Team

Mayur Raicar: Financial Perspective

Ambika Sujir: Customer Perspective

Saurabh Sarkar: Internal Business Perspective

Prasad Patankar: Innovation & Learning Perspective

Operation Team:

Sagrie Venayagamoorthy

Shruti Kumar

Outline

Company Overview

Balanced Scorecard Design

Overall Company Performance Assessment from Q2 to Q6

Financial Perspective

Customer Perspective

Internal Business Perspective

Innovation and Learning Perspective

Conclusions and recommendations to be taken for next quarter

Lessons learned from the project

Muesli Express - Company Overview

Muesli Express is a new startup company and producer of a popular breakfast dish, Muesli

Muesli Express is rapidly growing and is ranked second in the market

It is a make-to-stock manufacturer

The products manufactured adhere to the MMA (Muesli Manufacturing Association) label regulation

The company manufactures 4 products:

Mixed Fruit Muesli (0.5 kg)

Nut Muesli (0.5 kg)

Raising Muesli (1.0 kg)

Original Muesli (1.0 kg)

The products are sold through 3 distribution channels:

Hyper Market

Grocery Chains

Independent Grocers

Muesli Express has strategic goals such as

Revenue Growth

Productivity Growth

Strategic decisions involved

Setting price of products

Allocating expenditure on advertising

Appropriate composition of products (BOM’s)

In order to achieve these strategic goals, and measure the performance evaluation, the executive team has implemented the Balanced Score Card

Balanced Scorecard Design

Productivity Growth Strategy Financial Prospective Revenue Growth Strategy Customer Perspective Internal Business Perspective Innovation & learning perspective

Quality improvement program expenses

Achieve superior product efficiency

Creation of value added products

Economic Value Added

Debt/Equity Ratio

Gross Margin

Increase Shareholder Value Customer Retention

Premium price vs Avg market price

Sales volume growth

Promote organization to create a brand

Advertising expense to sales ratio

Advertising expense to sales ratio

in different regions

Increase market reach

Performance in diff. markets

Performance in diff. regions

Total number of products sold

Improve Product Efficiency

Production costs

Number of defects

Improve production planning

Forecast Accuracy

Average Production Lead Time

Improvisation of existing strategies

Maintain short term financial health

Maintain ranking among competitors

Quality Improvement

Customer Quality Complaints

Returns

Maximizing Profit Margin

Profit Margin

Return on Equity

Return on Assets

Operating Income

Actual Investment in development

of new markets

Employee evaluation

Improve Culture

Net Sales

Quarterly Net Income

Ranking

Total Inventory

Becoming more profitable among competitors

Achieve superior product efficiency

Creation of value added products Comprehending Specific Customer Requirements

Cost saving in lieu of excess inventory

New product development time

Overall Company Performance Assessment from Q2 to Q6

Quarter 2:

Company did not sell enough products due to improper forecasting and no investment in advertising

Quarter 3:

Improvement in net income since we could manipulate prices but profit margin reduced drastically due to high inventory and assets

Quarter 4:

Steady net income for quarter 4 due to improved pricing and investment in pricing

Quarter 5:

Company did not perform well due to late investment in advertising and improper pricing

Quarter 6:

Introduction of new product and initial advertising investment gave a heads start in the quarter along with premium pricing strategy

Financial Perspective by Mayur Raicar

Strategy: Revenue Growth Strategy

Objective: Maximizing Profit Margin

Operating Income

Profit Margin

Return On Assets

Return on Equity

Objective: Increase Shareholder Value

Debt/Equity Ratio

Economic Value Added

Gross Margin

Strategy: Productivity Growth Strategy

Objective: Becoming More Profitable Among Competitors

Net Sales

Quarterly Net Income

Ranking

Total Inventory

Financial Perspective Measure: Operating Income

It measures the amount of profit realized from the company’s own operations, but excluding expenses such as cost of goods sold and other operating expenses.

Formula: Operating Income = Sales – Cost of Goods Sold – Operating Expenses

Financial Perspective Measure: Profit Margin

It measures how much out of every dollar of sales our company will actually keep in earnings.

Formula: Profit Margin = Net Income/ Sales

Financial Perspective Measure: Return On Assets

It will measure how profitable our company is relative to its total assets. It will indicate how well the management has used the assets to generate earnings.

Formula: Return on Assets = Net Income/ Total Assets

Financial Perspective Measure: Return On Equity

It will measure how much profit it generates with the money shareholders have invested.

Formula: Return on Equity = Net Income/ Shareholder’s Equity

Financial Perspective Measure: Debt/Equity Ratio

This will be used to measure what proportion of equity and debt the company is using to finance its assets. If the ratio is high, it means that the company is in a risky position - especially if interest rates are on the rise.

Formula: Debt/ Equity Ratio = Total Liabilities/ Shareholder’s Equity

Financial Perspective Measure: Economic Value Added

This will measure the true economic profit of a corporation. An increase in EVA will mean an increase in the market value of the company and hence increase in shareholders wealth.

Formula: Economic Value Added = Net Sales – Operating Expenses

Financial Perspective Measure: Gross Margin

The gross margin will measure the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold.

Formula: Gross Margin = (Revenue – Cost of Goods Sold)/ Revenue

Financial Perspective Measure: Net Sales

This will measure the amount of sales generated by the company.

Financial Perspective Measure: Quarterly Net Income

This is a very important measure since the ranking of our company among our competitors ultimately depends on the net income. This measure will tell how profitable the company is over a period of time.

Financial Perspective Measure: Ranking

This would give the ranking of our company at the end of every quarter.

Financial Perspective Measure: Total Inventory

This will measure the total inventory we have at the end of the quarter.

Financial Perspective Quarter 2 Analysis

Considering that everything was automated during simulation our company did pretty well because

Net Sales was more than the target net sales

Net Income was very low because of incorrect pricing compared to the competitors

Total inventory was very less because we forecasted for just 1,50,000 of each product

This quarter would have gone well but because of some erroneous forecasting we had some major issues

Total inventory at the end of the quarter was too high

Drop in profit margin because of high expenses in procuring materials

Since we could manipulate price, increase in quarterly net income and net sales

This quarter was pretty steady because

We had raw materials already procured from the previous quarter so waiting time was reduced considerably

Increase in profit margin because of high net income and lesser expenses

Total inventory reduced considerably from previous quarter

This was a very bad quarter for the Muesli Express Company because our prices were not adjusted properly and we invested into advertising very late which resulted in

Very low net income due to low sales and bad pricing

Operating Income and Gross Margin reduced because of high cost of goods sold

This was the best quarter for the Muesli Express company because

We had invested into advertising before the beginning of the quarter

We had introduced a new product in the market

Set premium prices for our products

Which resulted in

Increased net income and net sales thus increasing profit margin, shareholder’s value and profitability among competitors

Financial Perspective Conclusion and Recommendations

The Muesli Express company should invest into advertisement earlier into the quarter

Should maintain right premium price and product cost in order to achieve high net income besides just increasing net sales

Keep a check on forecasting and the production time has to be taken into consideration

Procure just enough inventory that would be needed by the company

Customer Perspective by Ambika Sujir

Objective: Customer Retention

Sales Volume Growth

Premium Price vs. market Average Price

Objective: Increase Market Reach

Performance in different markets

Performance in different regions

Total quantity of products sold

Strategy: Productivity Growth Strategy

Objective: Promote Organization to create a brand

Advertising Expense to Sales Ratio

Advertising Expense to Sales Ratio by Region

Customer Perspective Measure: Sales Volume Growth

This measure indicates the growth or decline of the sales over the previous quarters

Formula:

Customer Perspective Measure: Premium Price vs. Average Market Price

This measure is an indicator of how the products have been priced when compared to the market average.

<1: The company price is greater than the market average

=1: The company price is the same as the market average

>1: The company price is lesser than the market average

Formula:

Customer Perspective Measure: Premium Price vs. Average Market Price

Customer Perspective Measure: Performance in Different Markets

This measure gives the total quantity of products sold through different distribution channels.

Formula:

Customer Perspective Measure: Performance in Different Regions

This measure gives the total quantity of products sold in different regions.

Formula:

Customer Perspective Measure: Total Number of Products Sold

This measure gives the total quantity of products sold

Formula:

Customer Perspective Measure: Advertising Expense to Sales Ratio

This measure indicates how effective advertising is when compared to sales.

A significant rise in this ratio indicates that advertising is less effective than planned to be.

Formula:

Customer Perspective Quarter 6 Analysis

Customer Perspective: Conclusions & Recommendations

The Muesli Express company should focus on improving its sales volume consistently

It should invest in advertising only when it is absolutely required

It should provide the products at prices lower than that of the competitors and thereby focus on retaining the existing customers

Internal Business Perspective by Saurabh Sarkar

Objective : Improve Process Efficiency

Production Costs

Number of defects

Objective: Quality Improvement

Customer Quality Complaints

Returns

Strategy : Productivity Growth Strategy

Objective: Production Planning

Forecast accuracy

Average Production Lead Time

Objective: Comprehending specific customer requirements

Cost savings in lieu of excess inventory

New Product Development Time

Internal Business Perspective Measure: Production Costs Formula: Total Costs involved in Production = Raw material costs + Labor cost + machine / equipment costs The total production costs involve the total labor expenses , raw material costs and the machine or equipment costs.

Internal Business Perspective Measure: Number of Defects Formula: number of defects in current quarter = number of defects / 10000 * 100 The number of defects measures the number of finished products that are produced which fall short of the standards set by the company, either composition of raw materials may be wrong, weight of the finished products may be wrong, packaging may be faulty,etc. It is usually measured or expressed as percentage i.e. it measures the number of defects out of every 10,000 finished products say , and the resultant fraction is expressed as percentage.

Internal Business Perspective Measure: Customer Quality Complaints Formula Number of Customer quality complaints Customer quality complaints can refer to written or verbal communication wherein the customer expresses dissatisfaction at the quality or standard of the product. This could be because of substandard quality of product, incorrect product labeling or faulty packaging of material.

Internal Business Perspective Measure: Returns Formula: Number of unacceptable / defective products returned by customer which are acknowledged by supplier Customer returns consist of products that are returned by customers as they were in an unacceptable condition either because they were defective or not up to standards. More importantly these returns have to be acknowledged by the supplier so that the customer can be credited accordingly.

Internal Business Perspective Measure: Forecast Accuracy Formula: Forecast Error = [Actual - Forecast] / Forecast * 100 Forecast accuracy can be measured in terms of Forecast error which is the deviation of the actual fulfilled demand quantity from the quantity forecasted and it is expressed as a percentage.

Internal Business Perspective Measure: Average Production Lead Time Formula: [Setup Time + Production Time + Breakdown Time + Wait Time] / Number of orders Average Production Lead Time is the time it takes for an order to be fulfilled by production through the shop floor. This involves the time from when the order is received to the time when the order is shipped , delivered and invoice is sent to customers.

Internal Business Perspective Measure: New Product Development Time Formula: Time taken to respond to customer & market trends and develop a new product New Product development Time refers to the time taken to respond to customer and market trends and come up with or develop a new product which satisfies the current need or demand of customers.

Internal Business Perspective Measure: Cost Savings in lieu of excess inventory Formula: Total savings for a product which could be excess in inventory due to poor forecast This is again linked to forecast accuracy or forecast error, so that there is always optimum inventory of product to fulfill orders Cost Savings here refers to the total cost savings for a product which could be excess in inventory due to poor forecasting of product required to fulfill the demand. This is related to the forecast accuracy or forecast error . There should be optimal level of inventory of product to fulfill orders , and the cost savings refer to the excess inventory that can get stocked up due to poor forecasting.

Internal Business Perspective Quarter 2 analysis

Internal Business Perspective quarter 3 analysis

Internal Business Perspective Conclusions and Recommendations

The Muesli Express should improve forecasting for the next quarter and thus improve forecast accuracy

It should try and improve the Average Production Lead Time for the next quarter thus ensuring orders are fulfilled on time

It should try and improve process efficiency by reducing production costs

Quality Improvement – Reduce number of defects and returns

Innovation and Learning Perspective by Prasad Patankar

Innovation and Learning Perspective

Gaps between the financial, customer and internal business process

objectives and the organization's existing capabilities to achieve these

objectives lead to the need to invest in the three categories of the learning

and growth scorecard.

Objectives

Maintain short-term financial health

Actual investment in development of new markets

Employee Evaluation Index

Maintain short-term financial health

Working Capital represents the operating liquidity available to a business.

Highest working capital in Q3 of $17,324,463.1

Maintaining Rank 2 for Q2,Q4 and Q6

Maintaining short term financial health with Working Capital

Achieve Superior Product Efficiency

Production improvement expenses/Total Expenses

gives us an indication if our products are improving

Employee evaluation index

Employee evaluation index shows continued improvement in employee productivity

Innovation Perspective : Conclusions and Recommendations

The Muesli Express should continue to maintain its required amount of working capital and try to maximize its market position amongst competitors thereby supporting the financial perspective.