Industrial business management and engineering economics


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Industrial business management and engineering economics

  1. 1. Industrial Business Managementand Engineering EconomicsM.R. Karthikeyan , BE,M.Tech, DTT,MISTE1 Karthikeyan M R
  2. 2. Management Concepts Management is a universal phenomenon. It is avery popular and widely used term. Allorganizations - business, political, cultural orsocial are involved in management because it isthe management which helps and directs thevarious efforts towards a definite purpose. ―Management is an art of getting things donethrough and with the people in formally organizedgroups. It is an art of creating an environment inwhich people can perform and individuals andcan co-operate towards attainment of groupgoals‖.2 Karthikeyan M R
  3. 3. Management can be defined in detailin following categories Management as a Process Management as an Activity Management as a Discipline Management as a Group Management as a Science Management as an Art Management as a Profession3 Karthikeyan M R
  4. 4. Determiningplanning premisesEstablish objectivesDevelop StrategiesEstablish policiesDevelop programforaccomplishmentsEstablish schedulesand budgetsEstablishproceduresIdentify potentialproblemsDevelop preventive&/or contingentactionCoordinatethroughout theplanningHow does a management Plan?4 Karthikeyan M R
  5. 5. Features of Management1. Management is Goal-Oriented: Thesuccess of any management activity isaccessed by its achievement of thepredetermined goals or objective.Management is a purposeful activity. It is atool which helps use of human & physicalresources to fulfill the pre-determined goals.For example, the goal of an enterprise ismaximum consumer satisfaction byproducing quality goods and at reasonableprices. This can be achieved by employing5 Karthikeyan M R
  6. 6. Features of Management 2. Management integrates Human,Physical and Financial Resources: In anorganization, human beings work with non-human resources like machines. Materials,financial assets, buildings etc. Managementintegrates human efforts to those resources.It brings harmony among the human,physical and financial resources.6 Karthikeyan M R
  7. 7. Features of Management3. Management is Continuous: Management isan ongoing process. It involves continuoushandling of problems and issues. It is concernedwith identifying the problem and taking appropriatesteps to solve it. E.g. the target of a company ismaximum production. For achieving this targetvarious policies have to be framed but this is notthe end. Marketing and Advertising is also to bedone. For this policies have to be again framed.Hence this is an ongoing process.7 Karthikeyan M R
  8. 8. Features of Management 4. Management is all Enveloping: Managementis required in all types of organizations whether it ispolitical, social, cultural or business because ithelps and directs various efforts towards a definitepurpose. Thus clubs, hospitals, political parties,colleges, hospitals, business firms all requiremanagement. Whenever more than one person isengaged in working for a common goal,management is necessary. Whether it is a smallbusiness firm which may be engaged in trading ora large firm like Tata Iron & Steel, management isrequired everywhere irrespective of size or type of8 Karthikeyan M R
  9. 9. Features of Management5. Management is a Group Activity:Management is very much less concernedwith individual‘s efforts. It is more concernedwith groups. It involves the use of groupeffort to achieve predetermined goal ofmanagement of ABC & Co. is good refers toa group of persons managing the enterprise.9 Karthikeyan M R
  10. 10. Levels of Management Top level / Administrative level Middle level / Executory Level Low level / Supervisory / Operative / First-linemanagers10 Karthikeyan M R
  11. 11. Functions of Management11 Karthikeyan M R
  12. 12. Planning Planning is deciding in advance - whatto do, when to do & how to do. Planning is determination of courses ofaction to achieve desired goals. Thus, planning is a systematic thinkingabout ways & means foraccomplishment of pre-determinedgoals.12 Karthikeyan M R
  13. 13. OrganizingIdentification of activities.Classification of grouping of activities.Assignment of duties.Delegation of authority and creation ofresponsibility.Coordinating authority andresponsibility relationships.13 Karthikeyan M R
  14. 14. Staffing―Managerial function of staffing involves manningthe organization structure through proper andeffective selection, appraisal & development ofpersonnel to fill the roles designed un thestructure‖.Staffing involves: Manpower Planning (estimating man power in terms ofsearching, choose the person and giving the right place). Recruitment, selection & placement. Training & development. Remuneration. Performance appraisal. Promotions & transfer.14 Karthikeyan M R
  15. 15. Directing It is that part of managerial functionwhich actuates the organizationalmethods to work efficiently forachievement of organizational purposesDirection has following elements:SupervisionMotivationLeadershipCommunication15 Karthikeyan M R
  16. 16. Controlling ―Controlling is the process of checking whether or notproper progress is being made towards the objectives andgoals and acting if necessary, to correct any deviation‖. The purpose of controlling is to ensure that everythingoccurs in conformities with the standards. An efficientsystem of control helps to predict deviations before theyactually occur. Therefore controlling has following steps: Establishment of standard performance. Measurement of actual performance. Comparison of actual performance with the standards andfinding out deviation if any. Corrective action.16 Karthikeyan M R
  17. 17. Productivity Productivity is a measure of the efficiency ofproduction. Productivity is a ratio of production output towhat is required to produce it (inputs). The measure ofproductivity is defined as a total output per one unit of atotal input. At the national level, productivity growth raises livingstandards because more real income improves peoplesability to purchase goods and services, enjoy leisure,improve housing and education and contribute to socialand environmental programs. Productivity growth is important to the firm because itmeans that the firm can meet its obligations tocustomers, suppliers, workers, shareholders, andgovernments (taxes and regulation), and still remain17 Karthikeyan M R
  18. 18.  Economic well-being is created in a productionprocess. Production means, in a broad sense, alleconomic activities that aim directly or indirectlyto satisfy human needs. The degree to which theneeds are satisfied is often accepted as ameasure of economic well-being. The satisfaction of needs originates from the useof the commodities which are produced. Theneed satisfaction increases when the quality-price-ratio of the commodities improves and moresatisfaction is achieved at less cost. This kind ofeconomic well-being cannot be measured withproduction data.Characteristics of production18 Karthikeyan M R
  19. 19. Characteristics of production Economic well-being also increases due to thegrowth of incomes that are gained from the moreefficient production. The most important forms ofproduction are market production, publicproduction and production in households. In orderto understand the origin of the economic well-being we must understand these threeprocesses. All of them have production functionsof their own which interact with each other.Market production is the prime source ofeconomic well-being and therefore the ―primusmotor‖ of the economy. Productivity is in thiseconomic system the most important feature and19 Karthikeyan M R
  20. 20. What is OHSAS 18001?OHSAS 18000 is an international occupationalhealth and safety management systemspecification20 Karthikeyan M R
  22. 22. MATERIALSMANAGEMENT Materials management is simply the process by whichan organization is supplied with the Goods andservices that it needs to achieve its objectives ofbuying, storage and movement of materials. Materials management is related to planning,procuring, storing and providing the appropriatematerial of right quality, right quantity at right place inright time so as to co-ordinate and schedule theproduction activity in an integrative way for anindustrial Undertaking.22 Karthikeyan M R
  23. 23. MATERIALS MANAGEMENT Most industries buy materials, transport them in tothe plant, change the materials in to parts,assemble parts in to finished products, sell andtransport the product to the customer. All these activities of purchase of materials, flowof materials, manufacture them in to the product,supply and sell the product at the market requiresvarious types of materials to manage and controltheir storage, flow and supply at various places. Itis only possible by efficient materialsmanagement23 Karthikeyan M R
  24. 24. FUNCTIONS OF MATERIALS MAGEMENTPlanning Determination of materials requirements. Production scheduling according to therequirement, keeping in view the variousconstraints. Planning of inventories – determination of stocklevels, recorder timings and quantities etc. Co-coordinating various activities of materialmanagement to improve efficiency (reduce paperwork, eliminate duplication etc). Liaison with other functions of management. Classification and codification materials24 Karthikeyan M R
  25. 25. Procurements: Market research for materials – development ofmost suitable source, purchasing research. Value Analysis – substitute development. Negotiations, pricing and placing of orders. Expediting and follow up of purchase orders Contracting of labour, transport and otherservices (for handling of materials) Insurance of materials. Disposal of surplus, obsolete and scrap materials.25 Karthikeyan M R
  26. 26. Receiving & Storage: Receipt of materials, unpacking, entering into booksetc. Inspection of materials, approval (or rejection) storageof approved materials (or return or rejected materials). Handling and maintaining physical inventories periodicstock verification (reconciliation with book balances). Maintaining stock records and Bin cards (or kaidex)etc. Indenting of stock items. Physical inventory Control. Packing of final product. Issue of materials.26 Karthikeyan M R
  27. 27. Movement & Transportation: Transportation of materials, minimizingtransportation costs. Clearing of various shipments, incoming as wellas outgoing at various points (Excise, customsetc.) Claims for losses and damages. Dispatching of finished goods.27 Karthikeyan M R
  28. 28. 28Purchasing SystemsForward Buying: Forward buying is nothing but committing anorganization into the future. The buyer commits to buyat a future date a contacted quantity at a concentratedprice, whatever may be the ruling market price then.The trader makes such moves with a speculativeinterest with an idea that the actual prices will rise inthe future and hence he will be able to make profits.The reasons for the industrial buyer are different. Heseeks to protect his organization from any futureshortages or undue increases in price. He isinterested in having an uninterrupted supply ofmaterials.Karthikeyan M R
  29. 29. Hedging(Any technique designed to reduce oreliminate financial risk; for example, taking twopositions that will offset each other if priceschange) Hedging is slightly different from more forward buying. Inthis case the buyer tries to protect himself in the future byentering into two transactions- a purchase and a sale intwo markets whose prices move up and down together.Thus the profit or loss sustained in the buying transactionis compensated by the loss or profit in the sellingtransaction. This implies that the two markets behavesimilarly and one can reach the ideal solution of sero lossby a perfect hedge. Thus hedging is basically a tool forprotecting oneself against future losses due to vagaries ofprices in the commodities market. To operate successfully29Karthikeyan M R
  30. 30. Stockless Purchasing: Here the items, that are required in large quantitiesand for which the seller has other markets as well canconsider them for stockless buying. The seller holdsthe stocks in a convenient location so that the buyercan draw from it according to his needs.30Karthikeyan M R
  31. 31. STEPS FOR EFFECTIVE PURCHASING The following steps are taken for carrying outeffective purchasing: Pre-purchase System. Ordering System. Post purchase System.31Karthikeyan M R
  32. 32. Principles of Purchasing Right Price. Right price need not be the lowest price as usuallyunderstood. The tender system of buying is normally used inpublic sector organizations. The objective should be to identifythe lowest responsible bidder and no the lowest bidder. Theprice can be kept low by proper planning and not by rush buying.Price negotiation also helps to determine the right prices. Right Quality. In order to determine the quality of a productsampling schemes are quite useful. The quality particulars areobtained from the indents and experience indicates that thesubstantial portion of the indents prepared by the userdepartments are invariably incomplete. The objective ofpurchasing is to ensure continuity of supply the time at which thematerial is provided to the user department assumes greatimportance.32Karthikeyan M R
  33. 33.  Right Time. The purchase manager should have lead timeinformation for all products. Lead time is eth total time elapsedbetween the recognition of the need of an item till the itemactually arrives and is provided for use. While determining thepurchases, the buyer has to consider emergency situations likefloods, strikes, etc. However rush purchase should be resortedto only in exceptional circumstances Right Sources. The source of the material should bedependable and capable of supplying items of uniform quality.Techniques such as value analysis will enable the buyer to locatethe right material. Specifying the right place of delivery, say,head office or works would often minimize the handling andtransportation costs. Packaging forms an important aspect in thecost of an item.33Karthikeyan M R
  34. 34.  Right Quantity. The right quantity is an important parameter inbuying. Economic Order Quantity (E.Q.Q), Economic PurchaseQuantity (E.P.Q.), Fixed quantity systems will serve as broadguidelines. The buyer has to adopt separate policies andprocedures for capital and consumer items. Negotiation. Negotiation for prices has been accepted as apolicy by some material managers. It is an art of embodyingsophisticated tactics. A successful negotiator has to possess thequalities of patience, persuasiveness, clear thinking, logicalanalysis, optimism knock of getting along with people, ability toplan and be ―thick skinned‖.34Karthikeyan M R
  35. 35. Store Keeping It is servicing facility, inside an organization, responsible for properstorage of the material and then issuing it to respective departments onproper requisition. The custodian of stores is generally known as store-keeper or Store-controller. Those items which are not in use for some specific duratione.g. spare parts and the raw-materials are called as stores and thebuilding or space where these are kept is known as store room Alfordand Beauty say that, ―storekeeping is that aspect of material controlwhich is concerned with the physical storage of goods.The duties of storekeeping are to receive materials to protect them whilein storage from damage and unauthorized removal, to issue thematerials in the light quantities, at the right time, to the right place and toprovide these services promptly and at least cost.‖35Karthikeyan M R
  36. 36. Functions of Store To receive, check and a range all incoming materials and supplies. To keep inventories as low as possible consistent with the market conditions To meet the demands of consuming departments by proper issues againstauthorized requisitions, and account for the consumption. To forecast market conditions of the supply an availability of various items. To minimize obsolescence, surplus and scrap through proper codification,preservation and handling. To highlight stock accumulation, discrepancies and abnormal consumptionand effect control measures. To maintain accurate records. To ensure good store-keeping so that inventory handling, materialspreservation, stocking, receipt and issue can be done adequately. To assist in verification and provide supporting information for effectivepurchase action. To ensure that various documents and reports relating to storage functionsare sent to required departments without delay.36Karthikeyan M R
  37. 37. Project Management Project Management is the art of managing all theaspects of a project from inception to closure using ascientific and structured methodology. The termproject may be used to define any endeavor that istemporary in nature and with a beginning or an end.The project must create something unique whether itis a product, service or result and must beprogressively elaborated. As the definition implies, notevery task can be considered a project. It would beworthwhile to keep this definition in mind whencategorizing projects and studying their role in thesuccess of the organization. With the above definitionof the project, one gets a clear idea on what a projectis.37Karthikeyan M R
  38. 38. Program Management Program Management is defined as adepartment that centralizes the managementof projects. What this means is that the PMOor the Project Management Office is arepository of all the projects that are beingexecuted in an organization. ProgramManagement serves the CIO (ChiefInformation Officer) by providing him or herwith regular status updates regarding theprogress of all the projects in the company.38Karthikeyan M R
  39. 39.  The PMO‘s role is to ensure that the projects arefinancially viable and to raise an alert wheneverthere is a possibility or occurrence of a cost overrun. The PMO also keeps tab on the billing andother details that are concerned with the project.Thus, the PMO‘s function is to oversee theprojects coming under its domain and act as akind of monitoring agency for them. In the currentscenario, there is a need for visionary leadershipby the CIO‘s in addition to the technicalleadership.39Karthikeyan M R
  40. 40.  The role of a project manager is similar to that of aconductor in a symphony. Individually each of theartists knows what has to be done for his or her role.But, there needs to be a person who has the overall―big picture‖ or the collective vision to make theperformance a success. Similarly, the projectmanager drives the entire project team in pursuit ofcommon goals.40Karthikeyan M R
  41. 41.  The Project Manager‘s role is to ensure that theoverall objectives of the project are achieved with theparticipation of each individual member. The projectmanager deals how well he or she can leverage thestrengths of the individual members while minimizingthe impact of their weaknesses. Program managerstake the same view but at a much higher level. Theirjob is on the overall bottom line for the division or thecompany and they drive the individual projectmanagers.41Karthikeyan M R
  42. 42. Importance of Project Management Project management is the art of managing the project andits deliverables with a view to produce finished products orservice. There are many ways in which a project can becarried out and the way in which it is executed is projectmanagement. Project management includes: identifyingrequirements, establishing clear and achievableobjectives, balancing the competing demands fromthe different stakeholders and ensuring that acommonality of purpose is achieved.42Karthikeyan M R
  43. 43. KarthikeyanMarketing Management for Textile & Leather
  44. 44. 44What is Marketing…??Selling?Advertising?Promotions?Making products available in stores?Maintaining inventories?All of the above, plus much more!Karthikeyan M R
  45. 45. 45Marketing = ?Marketing is the process of planning and executing theconception, pricing, promotion, and distribution of ideas,goods, services to create exchanges that satisfyindividual and organizational goalsKarthikeyan M R
  46. 46. 46Marketing = ?Marketing management is the art and science ofchoosing target markets and getting, keeping, andgrowing customers through creating, delivering, andcommunicating superior customer value.Karthikeyan M R
  47. 47. 47Simple Marketing SystemIndustry(a collectionof sellers)Market(a collectionof Buyers)Goods/servicesMoneyCommunicationInformationKarthikeyan M R
  48. 48. 48Marketing = ? Marketing is the sum of all activities that take you to asales outlet. After that sales takes over. Marketing is all about creating a pull, sales is allabout push. Marketing is all about managing the four P‘s –productpriceplacepromotionKarthikeyan M R
  49. 49. 49The 4 Ps & 4CsMarketingMixProductPrice PromotionPlaceCustomerSolutionCustomerCostCommunicationConvenienceKarthikeyan M R
  50. 50. 50Difference Between - Sales & Marketing ?Salestrying to get the customer to want what thecompany producesMarketingtrying to get the company produce what thecustomer wantsKarthikeyan M R
  51. 51. 51Scope – What do we market Goods Services Events Experiences Personalities Place Organizations Properties Information Ideas and conceptsKarthikeyan M R
  52. 52. 52Core Concepts of MarketingBased on : Needs, Wants, Desires / demand Products, Utility, Value & Satisfaction Exchange, Transactions & Relationships Markets, Marketing & Marketers.Karthikeyan M R
  53. 53. 53Needs, wantsdemandsMarkets Marketing &MarketersUtility, Value &SatisfactionXchange, TransactionRelationshipsProductsCore Concepts of MarketingKarthikeyan M R
  54. 54. 54Core Concepts of Marketing Need – food ( is a must ) Want – Pizza, Burger, French frys ( translation of a needas per our experience ) Demand – Burger ( translation of a want as per ourwillingness and ability to buy ) Desire – Have a Burger in a five star hotelKarthikeyan M R
  55. 55. 55In order to understand Marketing let us begin with theMarketing TriangleCustomersCompetitionCompanyKarthikeyan M R
  56. 56. 56Who is a Customer ??Anyone who is in the market looking at a product / service for attention,acquisition, use or consumption that satisfies a want or a needCUSTOMER IS . . . . .Karthikeyan M R
  57. 57. 57Customer –CUSTOMER has needs, wants, demands anddesiresUnderstanding these needs is starting point ofthe entire marketingThese needs, wants …… arise within aframework or an ecosystemUnderstanding both the needs and theecosystem is the starting point of a long termrelationshipKarthikeyan M R
  58. 58. 58How Do Consumers Choose AmongProducts & Services?Value - the value or benefits the customers gain fromusing the product versus the cost of obtaining theproduct.Satisfaction - Based on a comparison of performanceand expectations. Performance > Expectations => Satisfaction Performance < Expectations => DissatisfactionKarthikeyan M R
  59. 59. 59Customers - Problem SolutionAs a priority , we must bring to our customers ―WHATTHEY NEED‖We must be in a position to UNDERSTAND theirproblemsOr in a new situation to give them a chance to AVOIDthe problemsKarthikeyan M R
  60. 60. 60Customer looks for ValueValue = Benefit / CostBenefit = Functional Benefit + EmotionalBenefitCost = Monetary Cost + Time Cost +Energy Cost + Psychic CostKarthikeyan M R
  61. 61. 62Strategic MarketingStrategic marketing management is concerned with how we willcreate value for the customerAsks two main questions What is the organization’s main activity at aparticular time? – Customer Value What are its primary goals and how will these beachieved? – how will this value be deliveredKarthikeyan M R
  62. 62. 63Strategic PlanningStrategic Planning is the managerial process ofcreating and maintaining a fit between theorganization‘s objectives and resources and theevolving market opportunities. Also called Strategic Management Process All organizations have this Can be Formal or InformalKarthikeyan M R
  63. 63. 64The Strategic-Planning, Implementation,and Control ProcessKarthikeyan M R
  64. 64. 65Business Strategic-Planning ProcessExternal environment(Opportunity &Threat analysis)Internal Environment(Strength/ Weakness analysis)Goal FormulationBusiness MissionKarthikeyan M R
  65. 65. 66Strategy FormulationEnvironmental AnalysisInternal AnalysisCompetitorCustomerSupplierRegulatorySocial/ PoliticalTechnology Know-HowManufacturing Know-HowMarketing Know-HowDistribution Know-HowLogisticsStrength & WeaknessesIdentity Core CompetenciesOpportunities & ThreatsIdentify opportunityFit internal Competencies with external opportunitiesFirm StrategiesKarthikeyan M R
  66. 66. 67The Marketing PlanA written document that acts as a guidebook ofmarketing activities for the marketing managerKarthikeyan M R
  67. 67. 68CONTENTS of MARKETING PLANBusiness Mission StatementObjectivesSituation Analysis (SWOT)Marketing Strategy Target Market Strategy Marketing Mix Positioning Product Promotion Price Place – Distribution People ProcessImplementation, Evaluation and ControlKarthikeyan M R
  68. 68. 69The Marketing ProcessBusinessMissionStatementObjectivesSituationor SWOTAnalysisImplementationEvaluation, ControlTarget MarketStrategyMarketing StrategyProductPromotionPlace/DistributionPriceMarketing MixKarthikeyan M R
  69. 69. Marketing Environment
  70. 70. 71Why a product like radio declinedand now once again emerging asan entertainment medium ?Karthikeyan M R
  71. 71. 72What Were the Drivers of This Change ?Technology ?Government policy ?Other media substitutes ?Karthikeyan M R
  72. 72. 73Why Market Leaders Suffered ? HMT vs. Titan HLL vs. Nirma Bajaj vs. Honda boom, then bust and now resurgence Market leadership today cannot be taken forgranted.New and more efficient companies are ableto upstage leaders in a much shorter period.Karthikeyan M R
  73. 73. 74FactorsInfluencingCompany’sMarketingStrategyKarthikeyan M R
  74. 74. 75DemographicsSocialChangeEconomicConditionsPolitical &Legal FactorsTechnologyCompetitionEnvironmentalScanningTarget MarketProductDistributionPromotionPriceExternal Environmentis not controllable Ever-ChangingMarketplaceExternal Marketing EnvironmentPhysical / NaturalKarthikeyan M R
  75. 75. 76The macro-environmentis the assessment of the external forces that act upon thefirm and its customers, that create threats & opportunitiesKarthikeyan M R
  76. 76. 77P r o d u c tKarthikeyan M R
  77. 77. 78Anything that is offered to the market forattention, acquisition, use or consumption thatsatisfies a want or a needProduct is . . . . .Karthikeyan M R
  78. 78. 79Types of ProductsConsumerProductsIndustrialProductsPRODUCTSServicesKarthikeyan M R
  79. 79. 80Product Items, Lines, and MixesProduct ItemProduct LineProduct MixA specific version of a productthat can be designated as adistinct offering among an organization’s products.A group of closely-relatedproduct items.All products that anorganization sells.Karthikeyan M R
  80. 80. 81Product MixWidth – how many product lines a company hasLength – how many products are there in a product lineDepth – how many variants of each product exist withina product lineConsistency – how closely related the product lines arein end useKarthikeyan M R
  81. 81. 82Gillette’s Product Lines & MixBlades and Writingrazors Toiletries instruments LightersFusion – 5 bladeMach 3 TurboMach 3 Series Paper Mate CricketSensor Adorn Flair S.T. DupontTrac II Toni S.T. DupontAtra Right GuardSwivel SilkienceDouble-Edge Soft and DriLady Gillette FoamySuper Speed Dry LookTwin Injector Dry IdeaTechmatic Brush PlusWidth of the product mixDepthoftheproductlinesKarthikeyan M R
  82. 82. 83What is a Service? Definingthe EssenceAn act or performance offered by one party to another(performances are intangible, but may involve use ofphysical products)An economic activity that does not result in ownershipA process that creates benefits by facilitating a desiredchange in customers themselves, or their physicalpossessions, or intangible assetsKarthikeyan M R
  83. 83. 84Some Industries - Service SectorBanking, stock brokingLodgingRestaurants, bars,cateringInsuranceNews and entertainmentTransportation (freight andpassenger)Health careEducationWholesaling and retailingLaundries, dry-cleaningRepair and maintenanceProfessional (e.g., law,architecture, consulting)Karthikeyan M R
  84. 84. 85Classification of ServicesPure Tangible ProductMaterials / ComponentsComputersMajor Product withMinor ServicesProduct = ServiceMajor Service withMinor ProductBusiness HotelsGood TransportationBankingPure IntangibleServiceKarthikeyan M R
  85. 85. 86 Intangibility – Services are intangibility cannot be seen,tasted, felt, heard or smelled before purchase. Inseparability - Services are produced and consumedsimultaneously. Variability or Heterogeneity – Services are highly variable Perishability – Services cannot be stored. Non Ownership - Services are rendered but there is notransfer of titleMajor Characteristic of ServicesKarthikeyan M R
  86. 86. 87The Marketing MixThe conventional view of the marketing mix consisted offour components (4 Ps): Product, Price, Place/distribution and Promotion.Generally acknowledged that this is too narrow today;now includes , Processes, Productivity [technology]People [employees], Physical evidenceMarketers today are focused on virtually all aspects ofthe firm‘s operations that have the potential to affectthe relationship with customers.Karthikeyan M R
  87. 87. 88The “8Ps” of Integrated ServiceManagement vs. the Traditional “4Ps”► Product elements► Place, cyberspace, and time► Process► Productivity and quality► People► Promotion and education► Physical evidence► Price and other user outlays
  88. 88. 89The Give and Get of MarketingKarthikeyan M R
  89. 89. 90Great Words on Marketing1. ―The purpose of a company is ‗to create a customer…The onlyprofit center is the customer.‘‖2. ―A business has two—and only two—basic functions: marketingand innovation. Marketing and innovation produce results: all therest are costs.‖3. ―The aim of marketing is to make selling unnecessary.‖4. ―While great devices are invented in the Laboratory, greatproducts are invented in the Marketing department.‖5. ―Marketing is too important to be left to the marketingdepartment.‖Karthikeyan M R
  90. 90. 91Drivers of Customer SatisfactionMany aspects of the firm‘s value proposition contributeto customer satisfaction: The core product or service offered Support services and systems The technical performance of the firm Interaction with the firm and it employees The emotional connection with customersAbility to add value and to differentiate as a firm focusesmore on the top levelsKarthikeyan M R
  91. 91. 92Marketers and MarketsMarketers are focused on stimulatingexchanges with customers who make upmarkets – B2C or B2B.The market is comprised of people who play aseries of roles: decision makers,consumers, purchasers, and influencers.It is absolutely essential that marketers have adetailed understanding of consumers, theirneeds and wants.Much happens before and after the sale toaffect customer satisfactionKarthikeyan M R
  92. 92. 93Stages of Customer InteractionKarthikeyan M R
  93. 93. 94What Changed in Marketing… Organize by product units Focus on profitable transactions Look primarily at financialscorecard Focus on shareholders Marketing does the marketing Build brands through advertising Focus on customer acquisition No customer satisfactionmeasurement Over-promise, under-deliver• Organize by customer segments• Focus on customer lifetime value• Look also at marketing scorecard• Focus on stakeholders• Everyone does the marketing• Build brands through performance• Focus on customer retention• Measure customer satisfaction andretention rate• Under-promise, over-deliverOld Economy New EconomyKarthikeyan M R
  94. 94. 95Are Banks trulymarketing-savvy andcustomer - centric?Karthikeyan M R
  95. 95. 96Myth 1 – The larger the range of products, the morecustomer-centric I am.Mythbuster – The range of products hasemerged from beingcompetition-centric.Karthikeyan M R
  96. 96. 97Myth 2 – Better technology (read CRM) leads tobetter customer service.Mythbuster – Technologyalone does not deliver,helps people do.Karthikeyan M R
  97. 97. 98Myth 3 – Launch a product and the customer will startusing instantly.- Give a customer a card and he will learn how to playwith it immediatelyMythbuster – Customers needTo be educated too…Karthikeyan M R
  98. 98. 99Mythbuster – Customersare not only presentwhere competition is.Myth 4 – The only way to get a customer is fromcompetition.Karthikeyan M R
  99. 99. 100Myth 5 – Just advertise and - You will sell.Mythbuster – Advertising will only sell,Not retain customers.Karthikeyan M R
  100. 100. 101Myth 6 – No difference between marketing & sellingMythbuster – “Selling focuses on the needs of the seller; marketing onthe needs of the buyer.
  101. 101. 102Myth 7 – In the absence of relationships ‘trust’ buildsfinancial brandsMythbuster – Trust is not a differentiator at all…it is the very minimum that the customer expects!!Karthikeyan M R
  102. 102. 103So what will the differentiators be :• Technology ?• Brand ?Karthikeyan M R
  103. 103. 104The real differentiator ofcustomer – centricity in acommoditised world of financialproducts -Customer Service !Karthikeyan M R
  104. 104. Costing & Depreiciation
  105. 105. Unit Cost The unit cost of a product is the cost per standardunit supplied, which may be a single sample or acontainer of a given number. When purchasing more than a single unit, the totalcost will increase with the number of units, but it iscommon for the unit cost to decrease as quantity isincreased (bulk purchasing), as there are discountsetc. This reduction in long run unit costs which arise froman increase in production/purchasing is due to thefixed costs being spread out over more products andis called economies of scale.106 Karthikeyan M R
  106. 106. Opportunity cost Opportunity cost is the cost of any activity measuredin terms of the value of the next best alternativeforgone (that is not chosen). It is the sacrifice related to the second best choiceavailable to someone, or group, who has pickedamong several mutually exclusive choices. The opportunity cost is also the cost of the forgoneproducts after making a choice. Opportunity cost is akey concept in economics, and has been describedas expressing "the basic relationship between scarcityand choice"107 Karthikeyan M R
  107. 107. Cash flow Cash flow is the movement of money into or outof a business, project, or financial product. It isusually measured during a specified, finite periodof time. Measurement of cash flow can be used forcalculating other parameters that give informationon a companys value and situation108 Karthikeyan M R
  108. 108. Sunk Cost In economics and business decision-making,sunk costs are retrospective (past) costs thathave already been incurred and cannot berecovered. Sunk costs are sometimes contrasted withprospective costs, which are future costs thatmay be incurred or changed if an action is taken109 Karthikeyan M R
  109. 109. Inflation Inflation is a rise in the general level of prices ofgoods and services in an economy over a periodof time. When the general price level rises, each unit ofcurrency buys fewer goods and services.Consequently, inflation also reflects an erosion inthe purchasing power of money – a loss of realvalue in the internal medium of exchange and unitof account in the economy. A chief measure of price inflation is the inflationrate, the annualized percentage change in ageneral price index (normally the Consumer PriceIndex) over time110 Karthikeyan M R
  110. 110. Depreciation Depreciation refers to two very different butrelated concepts: the decrease in value of assets (fair valuedepreciation), and the allocation of the cost of assets to periods inwhich the property are used (depreciation withthe matching principle).111 Karthikeyan M R
  111. 111. Depreciation involvesGenerally this involves four criteria: Cost of the asset, Expected salvage value, also known as residualvalue of the asset, Estimated useful life of the asset, and a method ofapportioning the cost over such life.112 Karthikeyan M R
  112. 112. Methods of depreciation Straight-line depreciation Declining-balance method (or Reducing balancemethod) Activity depreciation Sum-of-years digits method Units-of-production depreciation method Units of time depreciation Group depreciation method Composite depreciation method & Tax depreciation113 Karthikeyan M R
  113. 113. Straight-line depreciation Straight-line depreciation is the simplest and most-often-used technique, in which the company estimates the salvagevalue of the asset at the end of the period during which it willbe used to generate revenues (useful life) and will expense aportion of original cost in equal increments over that period. The salvage value is an estimate of the value of the asset atthe time it will be sold or disposed of; it may be zero or evennegative. Salvage value is also known as scrap value orresidual value.114 Karthikeyan M R
  114. 114. Depreciation formula for Straight-line depreciationCost of Fixed Asset – ResidualValueDepreciation = -------------------------------------------------Usual Life of Asset(InYears)115 Karthikeyan M R
  115. 115. Book valueatbeginning ofyearDepreciationexpenseAccumulateddepreciationBook valueatend of year$17,000(originalcost)$3,000 $3,000 $14,000$14,000 $3,000 $6,000 $11,000$11,000 $3,000 $9,000 $8,000$8,000 $3,000 $12,000 $5,000$5,000 $3,000 $15,000$2,000 (scrapvalue)116 Karthikeyan M R
  116. 116. Declining-balance method (or)Reducing balance method Depreciation methods that provide for a higher depreciationcharge in the first year of an assets life and graduallydecreasing charges in subsequent years are calledaccelerated depreciation methods. This may be a morerealistic reflection of an assets actual expected benefit fromthe use of the asset: many assets are most useful when theyare new. One popular accelerated method is the declining-balance method. Under this method the book value ismultiplied by a fixed rate.Annual Depreciation = Depreciation Rate * Book Value at Beginning ofYear117 Karthikeyan M R
  117. 117. Book valueatbeginning ofyearDepreciationrateDepreciationexpenseAccumulateddepreciationBook valueatend of year$1,000(originalcost)40% $400 $400 $600$600 40% $240 $640 $360$360 40% $144 $784 $216$216 40% $86.40 $870.40 $129.60$129.60$129.60 -$100$29.60 $900$100 (scrapvalue)118 Karthikeyan M R
  118. 118. Depreciation Rate119 Karthikeyan M RNdAssetCostofFixeesidualValuonRateDepreciatiRe1
  119. 119. Activity depreciation Activity depreciation methods are not based on time,but on a level of activity. This could be miles driven fora vehicle, or a cycle count for a machine. When the asset is acquired, its life is estimated interms of this level of activity. Assume the vehicleabove is estimated to go 50,000 miles in its lifetime. The per-mile depreciation rate is calculated as:($17,000 cost - $2,000 salvage) / 50,000 miles =$0.30 per mile. Each year, the depreciation expense is thencalculated by multiplying the rate by the actual activitylevel.120 Karthikeyan M R
  120. 120. Sum-of-years digits method Sum-of-years digits is a depreciation method thatresults in a more accelerated write-off thanstraight line, but less than declining-balancemethod. Under this method annual depreciation isdetermined by multiplying the Depreciable Costby a schedule of fractions.Depreciable cost = original cost − salvage valuebook value = original cost − accumulateddepreciation121 Karthikeyan M R
  121. 121. Example Example: If an asset has original cost of $1000, auseful life of 5 years and a salvage value of$100, compute its depreciation schedule. First, determine years digits. Since the asset hasuseful life of 5 years, the years digits are: 5, 4, 3,2, and 1. Next, calculate the sum of the digits.5+4+3+2+1=15122 Karthikeyan M R
  122. 122. Sum-of-years digits methodBookvalue atbeginningof yearTotaldepreciablecostDepreciationrateDepreciationexpenseAccumulateddepreciationBookvalue atend ofyear$1,000(originalcost)$900 5/15$300 ($900* 5/15)$300 $700$700 $900 4/15$240 ($900* 4/15)$540 $460$460 $900 3/15$180 ($900* 3/15)$720 $280$280 $900 2/15$120 ($900* 2/15)$840 $160$160 $900 1/15$60 ($900 *1/15)$900$100(scrapvalue)123 Karthikeyan M R
  123. 123. Units-of-production depreciation method Under the units-of-production method, useful lifeof the asset is expressed in terms of the totalnumber of units expected to be produced Suppose, an asset has original cost $70,000,salvage value $10,000, and is expected toproduce 6,000 units.124 Karthikeyan M R
  124. 124. Cost of Fixed asset – Residual ValueDepreciation = ----------------------------------------------- X ActualProductionEstimated Total Production Suppose, an asset has original cost $70,000, salvage value$10,000, and is expected to produce 6,000 units. Depreciation per unit = ($70,000−10,000) / 6,000 = $10125 Karthikeyan M R
  125. 125. ExampleBookvalue atbeginningof yearUnits ofproductionDepreciationcost perunitDepreciationexpenseAccumulateddepreciationBookvalue atend ofyear$70,000(originalcost)1,000 $10 $10,000 $10,000 $60,000$60,000 1,100 $10 $11,000 $21,000 $49,000$49,000 1,200 $10 $12,000 $33,000 $37,000$37,000 1,300 $10 $13,000 $46,000 $24,000$24,000 1,400 $10 $14,000 $60,000$10,000(scrapvalue)126 Karthikeyan M R
  126. 126. Units of time depreciation Units of time depreciation is similar to units ofproduction, and is used for depreciationequipment used in mine or natural resourceexploration, or cases where the amount the assetis used is not linear year to year. A simple example can be given for constructioncompanies, where some equipment is used onlyfor some specific purpose. Depending on thenumber of projects, the equipment will be usedand depreciation charged accordingly.127 Karthikeyan M R
  127. 127. Group depreciation method Group depreciation method is used fordepreciating multiple-asset accounts usingstraight-line-depreciation method. Assets mustbe similar in nature and have approximatelythe same useful lives.AssetHistoricalcostSalvagevalueDepreciablecostLifeDepreciationper yearComputers$5,500 $500 $5,000 5 $1,000128 Karthikeyan M R
  128. 128. Composite depreciation method The composite method is applied to a collection of assetsthat are not similar, and have different service lives. Forexample, computers and printers are not similar, but bothare part of the office equipment. Depreciation on all assetsis determined by using the straight-line-depreciationmethod. Composite life equals the total depreciable cost divided bythe total depreciation per year. $5,900 / $1,300 = 4.5 years. Composite depreciation rate equals depreciation per yeardivided by total historical cost. $1,300 / $6,500 = 0.20 = 20% Depreciation expense equals the composite depreciationrate times the balance in the asset account (historical cost).(0.20 * $6,500) $1,300. Debit depreciation expense and creditaccumulated depreciation.129 Karthikeyan M R
  129. 129. Tax depreciation Most income tax systems allow a tax deduction for recovery of the cost ofassets used in a business or for the production of income. Suchdeductions are allowed for individuals and companies. Where the assets are consumed currently, the cost may be deductedcurrently as an expense or treated as part of cost of goods sold. The costof assets not currently consumed generally must be deferred andrecovered over time, such as through depreciation. Some systems permit full deduction of the cost, at least in part, in the yearthe assets are acquired. Other systems allow depreciation expense oversome life using some depreciation method or percentage. Rules vary highly by country, and may vary within a country based on typeof asset or type of taxpayer. Many systems that specify depreciation livesand methods for financial reporting require the same lives and methods beused for tax purposes. Most tax systems provide different rules for realproperty (buildings, etc.) and personal property (equipment, etc.).130 Karthikeyan M R
  130. 130. 131Thank YouKarthikeyan M R