This is the second part of the Cost management series of article. One of the main purposes of cost information system is to support the decision making process. Cost information is normally required for three purposes: decision support, cost control/cost reduction and statutory requirement.
To be competitive, a company must know its sources of profit and understand its cost structure. Key decision makers must also be aware of how informed their decisions are. Further, they must be able to answer how they landed in a profit or loss making situation.
Resolving cost-related issues in any organisation calls for an
uncluttered understanding of the root cause of the cost and focus on that. This can happen, if there is a clarity on the sources and causes of cost. There are four drivers of Cost, Economic, Design, Operational and Attitudinal. Tackling cost is not the domain of an accountant.This is an article written by me in 2011
This is first of a series of 14 articles written by me on Cost Management in Modern Plastics and Polymers. This was between 2005 and 2007. Though a decade old, the central theme is relevant in today's context as well. This is the first piece on Cost Management - A perspective:
Cost Management is defined by me here. "Cost management is any cost improvement that creates and sustains value for the customer better than the competition".
"Customer value is at the center of Cost Management. of cost management. The perspective of cost management is to create customer value. A firm has to find ways of creating
more value for the customer at lesser cost."
Every organisation embarks upon a journey of operational excellence. One listens to myriad evangelical presentations by consultants and practitioners,tries each method and finally ends up creating numerous flavours of the month. Here’s a take on demystifying the basics by putting into perspective the various popular methodologies available for some to adopt. This is an article written by me for Efficient Manufacturing.
Operations management involves planning, organizing, coordinating, and controlling resources to efficiently produce goods and services. It is responsible for managing processes to support a company's strategic goals through analysis and measurement. Operations management applies to all companies regardless of size, industry, or profit status, as it oversees the core function of production. It uses resources like people, equipment, technology, and information to design, execute, and control operations that implement business strategies.
Trends & Challenges of Operation Management by Asikur Rahman (Operation manag...Asikur Rahman
Operation management transforms inputs into goods and services that add value for customers. Several trends impact operation management, including increasing productivity through more efficient processes. Continuous improvement aims to constantly evaluate and improve products, services, and processes. To be competitive globally, operations must be strategically aligned to serve customers through low costs, high quality, fast delivery, flexibility, and rapid new product introduction. Technological changes can increase efficiency and output without increasing inputs, helping operations reduce costs, improve delivery, standardize quality, and customize to add value for customers. Managers must also consider environmental, ethical, and diversity issues in their decisions and address pollution, waste, social responsibility, and business ethics beyond profit.
The document discusses total quality management (TQM) in the airline industry. TQM aims to achieve customer satisfaction and cost effectiveness through process improvement, customer and employee involvement, and training. Key elements of TQM for airlines include continuous improvement, communication, customer satisfaction, management commitment, teamwork, and process improvement. Implementing TQM in airlines can be difficult due to issues like organizational culture change and measuring effectiveness, but benefits include reduced costs, risks, delays, and improved customer perceptions.
Resolving cost-related issues in any organisation calls for an
uncluttered understanding of the root cause of the cost and focus on that. This can happen, if there is a clarity on the sources and causes of cost. There are four drivers of Cost, Economic, Design, Operational and Attitudinal. Tackling cost is not the domain of an accountant.This is an article written by me in 2011
This is first of a series of 14 articles written by me on Cost Management in Modern Plastics and Polymers. This was between 2005 and 2007. Though a decade old, the central theme is relevant in today's context as well. This is the first piece on Cost Management - A perspective:
Cost Management is defined by me here. "Cost management is any cost improvement that creates and sustains value for the customer better than the competition".
"Customer value is at the center of Cost Management. of cost management. The perspective of cost management is to create customer value. A firm has to find ways of creating
more value for the customer at lesser cost."
Every organisation embarks upon a journey of operational excellence. One listens to myriad evangelical presentations by consultants and practitioners,tries each method and finally ends up creating numerous flavours of the month. Here’s a take on demystifying the basics by putting into perspective the various popular methodologies available for some to adopt. This is an article written by me for Efficient Manufacturing.
Operations management involves planning, organizing, coordinating, and controlling resources to efficiently produce goods and services. It is responsible for managing processes to support a company's strategic goals through analysis and measurement. Operations management applies to all companies regardless of size, industry, or profit status, as it oversees the core function of production. It uses resources like people, equipment, technology, and information to design, execute, and control operations that implement business strategies.
Trends & Challenges of Operation Management by Asikur Rahman (Operation manag...Asikur Rahman
Operation management transforms inputs into goods and services that add value for customers. Several trends impact operation management, including increasing productivity through more efficient processes. Continuous improvement aims to constantly evaluate and improve products, services, and processes. To be competitive globally, operations must be strategically aligned to serve customers through low costs, high quality, fast delivery, flexibility, and rapid new product introduction. Technological changes can increase efficiency and output without increasing inputs, helping operations reduce costs, improve delivery, standardize quality, and customize to add value for customers. Managers must also consider environmental, ethical, and diversity issues in their decisions and address pollution, waste, social responsibility, and business ethics beyond profit.
The document discusses total quality management (TQM) in the airline industry. TQM aims to achieve customer satisfaction and cost effectiveness through process improvement, customer and employee involvement, and training. Key elements of TQM for airlines include continuous improvement, communication, customer satisfaction, management commitment, teamwork, and process improvement. Implementing TQM in airlines can be difficult due to issues like organizational culture change and measuring effectiveness, but benefits include reduced costs, risks, delays, and improved customer perceptions.
This document discusses the key concepts of operations management. It begins by introducing the group members presenting and defining operations management as the set of activities that creates value through transforming inputs into outputs. It then outlines the transformation process of operations management involving inputs, processes, and outputs. The document also discusses objectives of operations management including quality production and fulfilling stakeholder interests. Finally, it explores several operations management decisions at the strategic, tactical, and operational levels.
This document discusses competitiveness, strategy, and productivity. It defines competitiveness as how effectively an organization meets customer wants and needs relative to competitors. Strategy is defined as plans for achieving organizational goals, while tactics are specific methods for accomplishing strategies. Productivity is a measure of output to input and is important for effective resource use. Factors that influence productivity include capital, technology, management methods, and other organizational factors. Measuring and improving productivity is key for organizational success.
This document discusses the relationship between productivity and business competitiveness. It defines productivity as a measure of efficiency or the amount of output produced compared to the amount of input required. The document explains that productivity can be improved by either producing more outputs from the same inputs through better use of resources, or by reducing inputs needed for the same level of outputs through waste elimination or technology upgrades. It also notes that improvements can be made in facilities, materials management, quality control, and technology. Competitiveness refers to being as good or better than rivals based on factors like cost, quality, and delivery speed.
A research on total cost of ownership and firm profitabilityAlexander Decker
This document summarizes a research study that examines how using a total cost of ownership (TCO) approach to supplier selection can help companies improve profitability. The study uses a case study of a computer company with three potential suppliers (A, B, C) to calculate the TCO for each supplier. It finds that although supplier A has the lowest purchase price, suppliers B and C have lower total costs when indirect costs are considered. Selecting supplier C results in the highest gross and net profit margins for the company. The study concludes that considering total costs rather than just purchase price through a TCO framework can help optimize supplier selection and positively impact company profitability.
The document discusses global operations management. It covers topics like managing operations efficiently across different countries, global operations careers, and the importance of managing global operations to reduce costs, reduce risks, and improve customer service. Key issues in international operations management are discussed like manufacturing management, logistics management, procuring, technology transfer, and marketing management. Strategies for global operations include competing on cost, quality, and response time.
The document discusses key concepts in operations management, including:
1) Most operations produce both goods and services, and transform inputs like materials, products, services, and information into outputs for customers.
2) Operations management is concerned with efficiently producing and delivering products and services.
3) There is variation in operations depending on factors like demand, visibility, variety, and volume. This impacts considerations like capacity, flexibility, and costs.
4) Competitive advantage can come from an operation's speed, flexibility, costs, dependability, and quality. Different operations may prioritize these dimensions differently based on their industry.
Development of Model for Quality Costing in a Medium Scale Industry-A Case StudyIOSR Journals
Abstract: Quality c o s t s pl ay s vi tal rol e in improving productivity. These costs are typically
categorized into costs of prevention, appraisal, internal and external failure. Like other activities of
business, quality costs can be programmed, budgeted, measured and analyzed to attain the objective of
better quality at lower cost. Quality costs is the basis by which investments in quality programs may be
evaluated in terms of cost improvement , profit enhancement and other benefits for plants and companies
from these programs. The cost of quality is an increasingly important issue in the debates over quality.
There was a mistaken notion that achievement of better quality requires higher costs. It was the myth that
prevented many Indian companies to invest more on quality cost related programs. In this article the
authors made an attempt to identify the different types of quality costs in a medium scale industry because
the small and medium scale industries pay very little attention towards finding and developing a system for
knowing & optimizing the cost of achieving quality. A model is proposed to identify the different quality
costs in a medium scale industry and is further implemented. It has been found some quality costs are more critical and require greater attention.
Key words: Quality costs, Quality management, Pareto analysis, Model for optimization
Operation strategy is defined as the total pattern of decisions that shape a company's long-term production capabilities and how they contribute to overall business strategy by balancing customer needs with available resources. It should be linked to and support the business strategy. Key elements of operation strategy include positioning production systems, focusing factories and services, product/service design and development, technology selection, allocating resources to strategic alternatives, and facility planning. Companies now often adopt quality- and time-based strategies instead of just cost minimization or differentiation.
This document discusses principles of total quality management (TQM) and quality costing. It makes the following key points:
1) TQM focuses on customer satisfaction, continuous process improvement, and participation from all employees. Three basic TQM principles are making improvements, satisfying customers, and advancing the organization.
2) There are different types of quality costs, including prevention costs, appraisal costs, and failure costs both internal and external. Tracking quality costs can help quantify quality improvements.
3) Benchmarking involves measuring an organization's performance against leaders to identify areas for improvement. The plan-do-check-act cycle is used to implement changes based on benchmarks.
This document reviews previous research on factors influencing the successful implementation of Activity-Based Costing (ABC) systems between 1995-2008. It identifies some key gaps in the past research. Specifically, early studies focused mainly on technical factors, but more recent research found behavioral, organizational, and contextual factors to be more important predictors of ABC success. However, there has been little examination of the roles of organizational culture and structure. The paper concludes by proposing a new research framework to address these gaps and better understand the factors influencing successful ABC implementation.
Download our content ready supply chain management PowerPoint presentation to showcase the flow of goods and services to the management and client. This predesigned supply chain analysis PPT presentation comprises 77 slides. The Supply Chain Management presentation covers slide on various relevant subjects such as supply chain management process, SCM decision phases, strategic sourcing process, logistics, and it, planning and forecasting, inventory management, inventory management models, performance measures, and common problems with supply chain management. A team of the researcher has researched the content of the presentation, and top professional graphics designers have converted it into a stunning presentation. Use this SCM PowerPoint PPT to represent the process of design, planning, implementation, control, and monitoring of supply-chain tasks with the goal of preparing net value and constructing a competitive framework. Our presentation designers have used an appealing graphics of table, pie charts, bar graphs, circles, and icons to make this presentation professional and attention-grabbing. Grab this complete presentation on supply chain management and improve the relationship with customers. Throw a line with our Supply Chain Management Powerpoint Presentation Slides. Reel them in slowly to your point of view. https://bit.ly/3j9ezBG
The document discusses key concepts related to the modern business environment including just-in-time (JIT) production, total quality management (TQM), kaizen costing, target costing, value analysis, value engineering, business process reengineering, supply chain management, and gain sharing arrangements. It explains that JIT aims to produce the required items at the required quality, quantity, and precise time through flexible production and strong supplier relationships. TQM seeks the highest quality through continuous improvement approaches like kaizen costing and target costing. Value analysis identifies unnecessary costs while value engineering enhances value for customers.
REDUCING INDIRECT COSTS IN MANUFACTURING INDUSTRIESfaizyelectrical
This document discusses ways to reduce indirect costs in manufacturing industries. It defines direct and indirect costs, with the latter including overhead expenses like administration, utilities, and insurance. The document recommends systematically reviewing organizational structures and staffing to identify unnecessary roles and layers. It also suggests improving technology use, evaluating capabilities, reshaping functions, consolidating services, and monitoring billing rates and benefits costs to further reduce indirect expenses. With tighter indirect cost management, the document argues that manufacturers can lower overall costs and gain a competitive advantage in the market.
Purchasing mangement - Puchasing Process - Make Or Buy Decisions - Supplier S...FaHaD .H. NooR
Purchasing department in any organization assist with the identification, selection and acquisition of required materials and services.
Accomplish this as economically as possible, within acceptable standards of quality and service.
“Purchasing profession can be defined as the act of obtaining merchandise; equipment; raw materials; services; or maintenance, repair and operating (MRO) supplies in exchange for money or its equivalent”.
This document discusses value chain analysis, which was first proposed by Michael Porter in 1985. It involves identifying a firm's primary and support activities that add value to its products or services and analyzing them to reduce costs or increase differentiation. The key stages of value chain analysis for strategic cost management are identifying activities, establishing their costs and importance, comparing costs, identifying cost drivers, and finding opportunities to reduce costs or improve value through internal and external linkages. This allows firms to assess their competitive positioning and strategically improve quality, reduce time and costs, and increase benefits for both the firm and partners in the value chain.
This document discusses vendor rating systems. Vendor rating systems evaluate and rank vendors based on various performance criteria such as delivery, quality, price, and other factors. These ratings help buyers select vendors, facilitate negotiations, provide feedback to vendors, and encourage continuous performance improvement. The document outlines several specific vendor rating methods including categorical, weighted point, and cost ratio plans that assign scores or rankings to vendors based on different weighted factors and costs.
This document discusses sustainability in operations management. It begins with definitions of sustainability operations management and the triple bottom line of sustainability. It then covers topics like the importance of sustainability, operational sustainability frameworks, principles of sustainability in OM like reduce, reuse, recycle. Other sections discuss reverse logistics, design for sustainability, improving sustainability through production management, and challenges in creating sustainable operations.
The document discusses the role of the Theory of Constraints (TOC) in the success of IT systems, specifically Enterprise Resource Planning (ERP) systems. It first provides background on ERP systems and their benefits and challenges in integrating business functions. It then discusses some limitations of ERP, including high costs, need for business process reengineering, and inability to adapt to changes. The document introduces TOC and its five focusing steps to identify and address constraints. It argues that combining ERP with TOC can help address ERP shortcomings by focusing on constraints throughout the project lifecycle. Case studies show improvements like reduced planning times and inventory when TOC was applied. The conclusion is that TOC can help ERP systems
Sustainable development aims to meet the needs of the present without compromising the ability of future generations to meet their needs. It balances human needs with environmental protection. Key dimensions are social, economic, environmental, and institutional. Sustainable development in the petrochemical industry can generate value through cost reduction, brand enhancement, and revenue generation from new products, differentiation, and leveraging downstream pricing. Radical changes in energy technology are needed to address economic, social and environmental challenges through technological innovation, especially in developing countries which account for most energy demand growth.
Defective supply chains are costing companies billions every year in lost revenue and create significant negative environmental impact.
Warehouses can play an important role in mitigating the environmental impacts of logistics activities through green initiatives.
Logistics centres being an integral part of manufacturing, the concept of green warehousing is going to be an operational norm, and should attract investment from both MNC’s and SME’s.
MNCs having aggressive targets of reducing carbon emissions from both mobile infrastructure and immobile infrastructure in the entire supply chain, are likely to be the prime investors in this segment.
This document discusses the key concepts of operations management. It begins by introducing the group members presenting and defining operations management as the set of activities that creates value through transforming inputs into outputs. It then outlines the transformation process of operations management involving inputs, processes, and outputs. The document also discusses objectives of operations management including quality production and fulfilling stakeholder interests. Finally, it explores several operations management decisions at the strategic, tactical, and operational levels.
This document discusses competitiveness, strategy, and productivity. It defines competitiveness as how effectively an organization meets customer wants and needs relative to competitors. Strategy is defined as plans for achieving organizational goals, while tactics are specific methods for accomplishing strategies. Productivity is a measure of output to input and is important for effective resource use. Factors that influence productivity include capital, technology, management methods, and other organizational factors. Measuring and improving productivity is key for organizational success.
This document discusses the relationship between productivity and business competitiveness. It defines productivity as a measure of efficiency or the amount of output produced compared to the amount of input required. The document explains that productivity can be improved by either producing more outputs from the same inputs through better use of resources, or by reducing inputs needed for the same level of outputs through waste elimination or technology upgrades. It also notes that improvements can be made in facilities, materials management, quality control, and technology. Competitiveness refers to being as good or better than rivals based on factors like cost, quality, and delivery speed.
A research on total cost of ownership and firm profitabilityAlexander Decker
This document summarizes a research study that examines how using a total cost of ownership (TCO) approach to supplier selection can help companies improve profitability. The study uses a case study of a computer company with three potential suppliers (A, B, C) to calculate the TCO for each supplier. It finds that although supplier A has the lowest purchase price, suppliers B and C have lower total costs when indirect costs are considered. Selecting supplier C results in the highest gross and net profit margins for the company. The study concludes that considering total costs rather than just purchase price through a TCO framework can help optimize supplier selection and positively impact company profitability.
The document discusses global operations management. It covers topics like managing operations efficiently across different countries, global operations careers, and the importance of managing global operations to reduce costs, reduce risks, and improve customer service. Key issues in international operations management are discussed like manufacturing management, logistics management, procuring, technology transfer, and marketing management. Strategies for global operations include competing on cost, quality, and response time.
The document discusses key concepts in operations management, including:
1) Most operations produce both goods and services, and transform inputs like materials, products, services, and information into outputs for customers.
2) Operations management is concerned with efficiently producing and delivering products and services.
3) There is variation in operations depending on factors like demand, visibility, variety, and volume. This impacts considerations like capacity, flexibility, and costs.
4) Competitive advantage can come from an operation's speed, flexibility, costs, dependability, and quality. Different operations may prioritize these dimensions differently based on their industry.
Development of Model for Quality Costing in a Medium Scale Industry-A Case StudyIOSR Journals
Abstract: Quality c o s t s pl ay s vi tal rol e in improving productivity. These costs are typically
categorized into costs of prevention, appraisal, internal and external failure. Like other activities of
business, quality costs can be programmed, budgeted, measured and analyzed to attain the objective of
better quality at lower cost. Quality costs is the basis by which investments in quality programs may be
evaluated in terms of cost improvement , profit enhancement and other benefits for plants and companies
from these programs. The cost of quality is an increasingly important issue in the debates over quality.
There was a mistaken notion that achievement of better quality requires higher costs. It was the myth that
prevented many Indian companies to invest more on quality cost related programs. In this article the
authors made an attempt to identify the different types of quality costs in a medium scale industry because
the small and medium scale industries pay very little attention towards finding and developing a system for
knowing & optimizing the cost of achieving quality. A model is proposed to identify the different quality
costs in a medium scale industry and is further implemented. It has been found some quality costs are more critical and require greater attention.
Key words: Quality costs, Quality management, Pareto analysis, Model for optimization
Operation strategy is defined as the total pattern of decisions that shape a company's long-term production capabilities and how they contribute to overall business strategy by balancing customer needs with available resources. It should be linked to and support the business strategy. Key elements of operation strategy include positioning production systems, focusing factories and services, product/service design and development, technology selection, allocating resources to strategic alternatives, and facility planning. Companies now often adopt quality- and time-based strategies instead of just cost minimization or differentiation.
This document discusses principles of total quality management (TQM) and quality costing. It makes the following key points:
1) TQM focuses on customer satisfaction, continuous process improvement, and participation from all employees. Three basic TQM principles are making improvements, satisfying customers, and advancing the organization.
2) There are different types of quality costs, including prevention costs, appraisal costs, and failure costs both internal and external. Tracking quality costs can help quantify quality improvements.
3) Benchmarking involves measuring an organization's performance against leaders to identify areas for improvement. The plan-do-check-act cycle is used to implement changes based on benchmarks.
This document reviews previous research on factors influencing the successful implementation of Activity-Based Costing (ABC) systems between 1995-2008. It identifies some key gaps in the past research. Specifically, early studies focused mainly on technical factors, but more recent research found behavioral, organizational, and contextual factors to be more important predictors of ABC success. However, there has been little examination of the roles of organizational culture and structure. The paper concludes by proposing a new research framework to address these gaps and better understand the factors influencing successful ABC implementation.
Download our content ready supply chain management PowerPoint presentation to showcase the flow of goods and services to the management and client. This predesigned supply chain analysis PPT presentation comprises 77 slides. The Supply Chain Management presentation covers slide on various relevant subjects such as supply chain management process, SCM decision phases, strategic sourcing process, logistics, and it, planning and forecasting, inventory management, inventory management models, performance measures, and common problems with supply chain management. A team of the researcher has researched the content of the presentation, and top professional graphics designers have converted it into a stunning presentation. Use this SCM PowerPoint PPT to represent the process of design, planning, implementation, control, and monitoring of supply-chain tasks with the goal of preparing net value and constructing a competitive framework. Our presentation designers have used an appealing graphics of table, pie charts, bar graphs, circles, and icons to make this presentation professional and attention-grabbing. Grab this complete presentation on supply chain management and improve the relationship with customers. Throw a line with our Supply Chain Management Powerpoint Presentation Slides. Reel them in slowly to your point of view. https://bit.ly/3j9ezBG
The document discusses key concepts related to the modern business environment including just-in-time (JIT) production, total quality management (TQM), kaizen costing, target costing, value analysis, value engineering, business process reengineering, supply chain management, and gain sharing arrangements. It explains that JIT aims to produce the required items at the required quality, quantity, and precise time through flexible production and strong supplier relationships. TQM seeks the highest quality through continuous improvement approaches like kaizen costing and target costing. Value analysis identifies unnecessary costs while value engineering enhances value for customers.
REDUCING INDIRECT COSTS IN MANUFACTURING INDUSTRIESfaizyelectrical
This document discusses ways to reduce indirect costs in manufacturing industries. It defines direct and indirect costs, with the latter including overhead expenses like administration, utilities, and insurance. The document recommends systematically reviewing organizational structures and staffing to identify unnecessary roles and layers. It also suggests improving technology use, evaluating capabilities, reshaping functions, consolidating services, and monitoring billing rates and benefits costs to further reduce indirect expenses. With tighter indirect cost management, the document argues that manufacturers can lower overall costs and gain a competitive advantage in the market.
Purchasing mangement - Puchasing Process - Make Or Buy Decisions - Supplier S...FaHaD .H. NooR
Purchasing department in any organization assist with the identification, selection and acquisition of required materials and services.
Accomplish this as economically as possible, within acceptable standards of quality and service.
“Purchasing profession can be defined as the act of obtaining merchandise; equipment; raw materials; services; or maintenance, repair and operating (MRO) supplies in exchange for money or its equivalent”.
This document discusses value chain analysis, which was first proposed by Michael Porter in 1985. It involves identifying a firm's primary and support activities that add value to its products or services and analyzing them to reduce costs or increase differentiation. The key stages of value chain analysis for strategic cost management are identifying activities, establishing their costs and importance, comparing costs, identifying cost drivers, and finding opportunities to reduce costs or improve value through internal and external linkages. This allows firms to assess their competitive positioning and strategically improve quality, reduce time and costs, and increase benefits for both the firm and partners in the value chain.
This document discusses vendor rating systems. Vendor rating systems evaluate and rank vendors based on various performance criteria such as delivery, quality, price, and other factors. These ratings help buyers select vendors, facilitate negotiations, provide feedback to vendors, and encourage continuous performance improvement. The document outlines several specific vendor rating methods including categorical, weighted point, and cost ratio plans that assign scores or rankings to vendors based on different weighted factors and costs.
This document discusses sustainability in operations management. It begins with definitions of sustainability operations management and the triple bottom line of sustainability. It then covers topics like the importance of sustainability, operational sustainability frameworks, principles of sustainability in OM like reduce, reuse, recycle. Other sections discuss reverse logistics, design for sustainability, improving sustainability through production management, and challenges in creating sustainable operations.
The document discusses the role of the Theory of Constraints (TOC) in the success of IT systems, specifically Enterprise Resource Planning (ERP) systems. It first provides background on ERP systems and their benefits and challenges in integrating business functions. It then discusses some limitations of ERP, including high costs, need for business process reengineering, and inability to adapt to changes. The document introduces TOC and its five focusing steps to identify and address constraints. It argues that combining ERP with TOC can help address ERP shortcomings by focusing on constraints throughout the project lifecycle. Case studies show improvements like reduced planning times and inventory when TOC was applied. The conclusion is that TOC can help ERP systems
Sustainable development aims to meet the needs of the present without compromising the ability of future generations to meet their needs. It balances human needs with environmental protection. Key dimensions are social, economic, environmental, and institutional. Sustainable development in the petrochemical industry can generate value through cost reduction, brand enhancement, and revenue generation from new products, differentiation, and leveraging downstream pricing. Radical changes in energy technology are needed to address economic, social and environmental challenges through technological innovation, especially in developing countries which account for most energy demand growth.
Defective supply chains are costing companies billions every year in lost revenue and create significant negative environmental impact.
Warehouses can play an important role in mitigating the environmental impacts of logistics activities through green initiatives.
Logistics centres being an integral part of manufacturing, the concept of green warehousing is going to be an operational norm, and should attract investment from both MNC’s and SME’s.
MNCs having aggressive targets of reducing carbon emissions from both mobile infrastructure and immobile infrastructure in the entire supply chain, are likely to be the prime investors in this segment.
The document is UltraTech Cement Limited's annual report for 2019-20. It discusses the company's products that are recognized by the Indian Green Building Council for use in green buildings. It also describes the company's focus on reducing its carbon footprint through alternatives to traditional fuels, improving energy efficiency, and educating stakeholders on sustainable cement use. The report provides details on the company's procedures for sustainable sourcing and mechanisms to recycle products and waste.
This document discusses green supply chain management. It defines green supply chain management as integrating environmental thinking into supply chain activities from production to end of life management. This includes using environmentally friendly inputs and ensuring processes minimize waste and pollution. The document then discusses scholars' definitions of green supply chain management and provides reasons why it has increased in significance for Kenyan firms, like diminishing resources and increasing pollution. It also outlines various green supply chain practices and their benefits, challenges, enablers, and ways to measure organizations' level of greenness.
Over the next few decades the number of people living in cities will nearly double. Yet even today many cities lack sufficient clean drinking water, electricity and other basic resources essentially needed to support the exploding populations and stable strengthen economy.
These problems are created by rampant urbanization and are amongst the most important challenges of our times. These problems represent greatest responsibilities for the emerging business models by positioning them to shape the sustainable economic landscape of the future.
Across the world addressing resource scarcity involves either government action or private-sector action and either increasing the resource base or managing the demand by reducing and reutilizing. A vast opportunity exists for the private sector to provide products and services that make the most efficient use of available resources.
Green supply chain management (GSCM) aims to minimize adverse environmental impacts across the supply chain from product design to disposal. It provides various benefits including lower costs, better compliance, and improved brand reputation for suppliers, producers, customers and society. While GSCM can help companies, there are also barriers to implementation like maintaining relationships and market share. Green logistics also considers environmental impacts and seeks to reduce costs, improve reliability and efficiency in a sustainable way, though this sometimes leads to paradoxes with traditional logistics priorities. Governments, markets, and companies all play a role in driving adoption of green supply chain practices.
The document discusses seven factors for success in the packaging industry:
1) Managing raw material costs and passing costs through to customers.
2) Reducing waste and raw material content through process improvements and investments.
3) Determining optimal capital expenditure levels to maintain competitiveness without overspending.
4) Accurately measuring key performance indicators like overall equipment effectiveness to drive continuous improvement.
5) Identifying underperforming products, customers, and markets and being willing to exit unprofitable relationships.
6) Investing in innovation to differentiate from competitors.
7) Effectively managing global supply chains and offshoring.
How Reshoring Manufacturing Helps in Business Sustainability.pdfMr. Business Magazine
A key catalyst for business sustainability:
1. Enhanced Quality Control
2. Supply Chain Optimization
3. Lower Transportation Costs
4. Job Creation and Social Sustainability
Organisational Behaviour: Business Models for a Profitable and Sustainable Fu...Ken Dooley
There is a growing trend for companies to integrate sustainable strategies that require a comprehensive reconfiguration of their daily operations. This is referred to as “embedded sustainability”. Whilst also providing significant reductions in environmental impact, these sustainability strategies result in (a) reduced short term operational costs, (b) reduced exposure to future environmental risk and (c) an improved brand image. This is in contrast to the sustainability actions implemented by the majority of companies currently reducing their environmental impact. These actions typically include solutions that have a short implementation period and only impact on the surface of the company’s operations. This is referred to as “surface sustainability”. “Embedded sustainability” strategies must be deeply integrated in the company’s operations as they directly impact on the behaviour of the organisation’s stakeholders. One drawback is that as a consequence of this stakeholder interaction, these strategies take longer to be implemented and thus require support from all levels of the organisation. The primary purpose of these strategies is to considerably reduce environmental impact, however as a by-product they can achieve significant long term financial results while also yielding reductions in short term operational and capital expenditure. The tangible financial and environmental benefits of these actions are highlighted through a wide range of innovative international case studies. The key concepts discussed in this paper are most applicable to companies that produce tangible products, rather than services companies, and thus consume materials and manage a supply chain. It is anticipated that the majority of the lessons learned from the case studies are adaptable and scalable and thus can be transferred across organisations.
NEW MATERIALS, NEW BUSINESS MODELS FOR SUSTAINABLE INNOVATION 2013Tracey Rawling Church
How can businesses use materials innovation to disrupt markets and create new revenue streams? What are the opportunities, and what are the challenges? Based on the experience of Kyocera, this presentation explores the application of new materials to solve resource efficiency challenges and facilitate new business models. Presented at Sustainable Innovation 2013, 4th November 2013.
This document discusses sustainable supply chain management. It begins with an introduction to supply chain sustainability and outlines some drivers and barriers. It then discusses managing carbon footprints through tools like life cycle analysis. Low carbon economy approaches are also examined, including energy efficiency and renewable energy. The document also covers social aspects of sustainable supply chains, including frameworks for supply chain social sustainability. Case studies on Walmart's sustainability metrics and examples of companies achieving low carbon economies through their supply chains are provided.
CORPORATE ENVIRONMENTAL SUSTAINABILITY – A KEY FIGURE-BASED APPROACHijmvsc
This paper describes the rationale and the development of a structured digital approach for measuring
corporate environmental sustainability using performance metrics.
It is impossible to imagine today's age without the preservation of our environment, not even in the
corporate environment. Currently, sustainability is mostly only rudimentarily considered in companies,
mostly only with written down phrases on the website. This will no longer be sufficient in the future, which
is why companies should record sustainability on a numerical basis. Based on the development of a
workable concept for companies, a small empirical study was carried out, which can be used to
numerically measure the sustainability performance of companies. Two utility analyses were completed.
One of them was supplemented by expert interviews. Well-known practitioners from the business world
were interviewed and asked for their assessment of ecological performance indicators. The result of the
research is an indicator-based concept that can be applied in corporate practice to determine ecological
sustainability performance.
CORPORATE ENVIRONMENTAL SUSTAINABILITY – A KEY FIGURE-BASED APPROACHijmvsc
This paper describes the rationale and the development of a structured digital approach for measuring
corporate environmental sustainability using performance metrics.
It is impossible to imagine today's age without the preservation of our environment, not even in the
corporate environment. Currently, sustainability is mostly only rudimentarily considered in companies,
mostly only with written down phrases on the website. This will no longer be sufficient in the future, which
is why companies should record sustainability on a numerical basis. Based on the development of a
workable concept for companies, a small empirical study was carried out, which can be used to
numerically measure the sustainability performance of companies. Two utility analyses were completed.
One of them was supplemented by expert interviews. Well-known practitioners from the business world
were interviewed and asked for their assessment of ecological performance indicators. The result of the
research is an indicator-based concept that can be applied in corporate practice to determine ecological
sustainability performance.
12 Simple Ideas To Make Your Supply Chain Greener ExecLidia Gasparotto
The document outlines 12 steps that electronics companies can take to reduce the carbon footprint and create a more sustainable supply chain. The steps include redesigning products, shifting to green suppliers, shortening transportation distances, consolidating shipments, and taking a lifecycle view of carbon emissions from production to disposal. Implementing these steps can help companies lower costs and environmental impact while gaining a competitive advantage through green credentials that customers are demanding. The document advocates viewing carbon reduction as a decision variable and identifying sources of carbon emissions at each stage of the multi-tiered supply chain in order to reduce overall industry impact.
Green supply chain management aims to reduce the environmental impact of supply chain operations. It involves designing green products, choosing environmentally friendly suppliers, implementing cleaner manufacturing processes, optimizing packaging and logistics, and managing product returns and end-of-life. Key strategies for greening the supply chain include adopting standards like LEED for green building, using eco-labels to recognize sustainable products, engaging in environmentally preferable purchasing, calculating carbon footprints, and promoting green sourcing from suppliers. Case studies demonstrate how companies like Walmart have improved their environmental performance and reduced costs by greening their supply chain management.
LearningObjectivesAfter studying Chapter 12, you will be .docxcroysierkathey
LearningObjectives
After studying Chapter 12, you will be able to:
Explain relationships among the costs of quality categories.
Understand the concepts of target costing and kaizen costing.
Distinguish between value-added and nonvalue-added activities.
Describe various types of non�inancial performance measures.
Identify non�inancial performance measures for multinational companies.
Comprehend the elements of a balanced scorecard.
Describe benchmarking techniques to improve productivity and quality.
12 Costs of Quality and Other Cost ManagementIssues
jacoblund/iStock/Thinkstock
Explain strategies to enhance productivity such as downsizing and business process
reengineering.
TQMandtheNeedtoMeasureQualityCosts
Pete Moss, considered the ace troubleshooter for DeKalb Fertilizer Company, was sent to its Georgia regional
of�ice by “Big Dan” DeLion, president of DeKalb, about 15 months ago. What he found was “big trouble.” The
region was losing about $400,000 per month—mostly from waste, low productivity, and customer warranty
claims. Revenues were declining, and too many customers were unhappy. This was Spring 2018, long after
Total Quality Management (TQM) was a cliché and a norm in most �irms. Yes, DeKalb had a TQM program that
“Big Dan” had announced in late 2019. Signs had been posted about quality being “No. 1.” A consulting �irm
had conducted seminars for workers, statistical control charts were maintained, and managers had
increased inspections. Faster response to warranty claims had been implemented through a costly system to
guarantee a 24-hour response to any customer problem.
Yet, productivity declined, scrap was up, and warranty costs soared. Workers saw the TQM program as a
management project. Managers blamed much of the problem on the lack of union cooperation and of
employee concern. No speci�ic quality goals were set. Everyone lacked a sense of urgency. Pete’s arrival
brought a sudden change: meetings with line workers quickly pointed to key production problems, warranty
claims were grouped to identify failure causes, landscape designers and on-site supervisors were brought
together to analyze failures, and certain changes were made “overnight.” A goal of cutting scrap by 50% in
three months was set.
At every step, the same question came up: “What’s this costing us?” Pete, knowing that this question was key
at other plants, sought out Rose Bush, the plant cost accountant. Rose was in the middle of an ABC study and
had begun to de�ine new activity centers and cost drivers. While not an easy task, Rose was able to modify
her system rather quickly to identify quality costs: which, where, and how much. Pete and Rose became allies,
promoting each other’s views to managers and employees alike. Within two months, Rose gave Pete a 2019
costs of quality analysis. These costs totaled a surprising 15% of revenues. Of this, little was spent on
prevention, about 30% was spent on appraisal, nearly 45% went to �ixing internal fai ...
The document discusses supplier development programs that can help companies gain the full cost savings benefits of sourcing from low-cost countries. It provides guidelines for effective supplier development: 1) Target a small number of suppliers and focus on key areas; 2) Align the organization behind the program; 3) Choose tailored development approaches for each supplier; 4) Engage and motivate suppliers to change; 5) Develop a progress roadmap; and 6) Measure results to track progress. Effective programs can deliver measurable benefits within six months through improvements like 25-30% higher productivity.
Green supply chain practices such as green design, green manufacturing, green logistics, and disassembly help reduce environmental impact but face challenges in adoption. Green design aims to reduce impact through product life cycles via methods like checklists, guidelines, and life cycle assessment. Challenges include lack of experience and support for economic gains. Green manufacturing and logistics focus on reducing waste and emissions through technologies and scheduling, but regulatory pressure is a main driver. Disassembly retrieves parts for reuse via optimized sequences, but uncertainties in quality and quantity affect efficiency.
This document discusses environmental cost management and eco-efficiency. It provides examples of how to calculate activity rates and assign environmental costs to products using activity-based costing. It shows how improving environmental performance through reducing materials usage and emissions can lower production costs. Tracking environmental costs can identify opportunities to lower costs while reducing impacts. Assigning full environmental costs provides the most complete picture, though firms often only report private costs.
El documento habla sobre la importancia de enfocarse en el valor del cliente y la rentabilidad. Menciona que el objetivo del diseño y las operaciones no es reducir costos sino mejorar la rentabilidad del producto trabajando juntos. También discute la necesidad de atraer a los clientes con calidad y precio competitivo para que estén contentos y paguen los salarios. Explica conceptos como costo, ganancias, precio de venta y rentabilidad para los accionistas.
Valmiki Ramayana is rich in content and lessons to lead our life. It is also a treasure trove of lessons on Leadership, Management, Planning and Implementation. This is a presentation made by me on 25 February 2018 at Leadership Seminar of International Lions Club of District 3231 at Malad, Mumbai, India
This document discusses lean thinking and leadership. It covers topics like changing cost perspectives in lean from focusing on costs to customer value. It emphasizes sustaining inequality between customer value and costs. The document presents models for lean thinking alignment with aspects like purpose, process, people and prosperity. It discusses integrating lean with quality management standards. Other topics covered include identifying types of waste, using tools like 5S, standard work and visual management. The document emphasizes leadership aspects such as engaging people, evidence-based decision making and developing a long term philosophy. It presents models for process control and improvement as well as aligning activities through hoshin kanri for business breakthroughs.
Managing Input Cost Volatility is possible if one understands the key four drivers of cost; only then the costs can be addressed accordingly. With fragmented players, competing collectively can help in addressing volatility
This document discusses strategies for startups. It begins by outlining the evolution of different types of startups. It then emphasizes the importance of understanding customers, having a clear strategy, and focusing on financial reactions to actions. The document provides models for competition, including strategies for weaker and stronger competitors. It stresses the importance of purpose, process, and people in an organization. Throughout, it stresses the importance of creating value for customers in order to succeed as a business.
The document discusses leadership skills that can be learned from the Ramayana. It provides examples of leadership qualities shown by various characters in the epic such as Rama, Lakshmana, Sugriva and Hanuman. Some of the leadership lessons highlighted include analysis and foresight of a leader, collaboration, preparedness for crises, and importance of implementing strategy effectively. The document contains passages from the Ramayana translated to English that exemplify these leadership skills.
The document discusses leadership skills from the Hindu epic Ramayana. It describes Ram's traits as a leader, including having self-control, keeping thoughts private, conquering anger, and lack of arrogance. It also discusses Ram's advisors in his court, who were skilled, affluent, well-versed in sciences, courageous, truthful, patient, and valiant. The document advocates identifying potential future leaders early and guiding their development.
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Industrial Tech SW: Category Renewal and CreationChristian Dahlen
Every industrial revolution has created a new set of categories and a new set of players.
Multiple new technologies have emerged, but Samsara and C3.ai are only two companies which have gone public so far.
Manufacturing startups constitute the largest pipeline share of unicorns and IPO candidates in the SF Bay Area, and software startups dominate in Germany.
Digital Marketing with a Focus on Sustainabilitysssourabhsharma
Digital Marketing best practices including influencer marketing, content creators, and omnichannel marketing for Sustainable Brands at the Sustainable Cosmetics Summit 2024 in New York
The Genesis of BriansClub.cm Famous Dark WEb PlatformSabaaSudozai
BriansClub.cm, a famous platform on the dark web, has become one of the most infamous carding marketplaces, specializing in the sale of stolen credit card data.
Unveiling the Dynamic Personalities, Key Dates, and Horoscope Insights: Gemin...my Pandit
Explore the fascinating world of the Gemini Zodiac Sign. Discover the unique personality traits, key dates, and horoscope insights of Gemini individuals. Learn how their sociable, communicative nature and boundless curiosity make them the dynamic explorers of the zodiac. Dive into the duality of the Gemini sign and understand their intellectual and adventurous spirit.
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Anny Serafina Love - Letter of Recommendation by Kellen Harkins, MS.AnnySerafinaLove
This letter, written by Kellen Harkins, Course Director at Full Sail University, commends Anny Love's exemplary performance in the Video Sharing Platforms class. It highlights her dedication, willingness to challenge herself, and exceptional skills in production, editing, and marketing across various video platforms like YouTube, TikTok, and Instagram.
At Techbox Square, in Singapore, we're not just creative web designers and developers, we're the driving force behind your brand identity. Contact us today.
Storytelling is an incredibly valuable tool to share data and information. To get the most impact from stories there are a number of key ingredients. These are based on science and human nature. Using these elements in a story you can deliver information impactfully, ensure action and drive change.
Best practices for project execution and deliveryCLIVE MINCHIN
A select set of project management best practices to keep your project on-track, on-cost and aligned to scope. Many firms have don't have the necessary skills, diligence, methods and oversight of their projects; this leads to slippage, higher costs and longer timeframes. Often firms have a history of projects that simply failed to move the needle. These best practices will help your firm avoid these pitfalls but they require fortitude to apply.
How to Implement a Strategy: Transform Your Strategy with BSC Designer's Comp...Aleksey Savkin
The Strategy Implementation System offers a structured approach to translating stakeholder needs into actionable strategies using high-level and low-level scorecards. It involves stakeholder analysis, strategy decomposition, adoption of strategic frameworks like Balanced Scorecard or OKR, and alignment of goals, initiatives, and KPIs.
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- Learning and Adaptation
- Alignment and Cascading of Scorecards
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Building Your Employer Brand with Social MediaLuanWise
Presented at The Global HR Summit, 6th June 2024
In this keynote, Luan Wise will provide invaluable insights to elevate your employer brand on social media platforms including LinkedIn, Facebook, Instagram, X (formerly Twitter) and TikTok. You'll learn how compelling content can authentically showcase your company culture, values, and employee experiences to support your talent acquisition and retention objectives. Additionally, you'll understand the power of employee advocacy to amplify reach and engagement – helping to position your organization as an employer of choice in today's competitive talent landscape.
1. SMART MANAGER
50 Modern Plastics & Polymers ● August-September 2005
C
ost management has been defined as
any cost improvement that creates and
sustains value for the customer better
than the competitor.Put it simply,
cost improvement is not cost reduction.
Rather,it is value creation.Cost improvement can
be achieved by either keeping costs constant
& increasing value,or by reducing cost & keeping
value constant,or increasing cost a bit & increasing
value more, reducing cost & increasing value,
or reducing cost more & reducing value a little.
Further,the customer is at the heart of cost
management and organisations have found ways
to create more value for the customer at lesser cost.
Steps of cost management
Most organisations create customer value at
two levels: internal and external.The internal level
comprises three activities: R&D and engineering
cycle, operations and delivery cycle and post-sales
service cycle.The external activity includes buyer
supplier interface.
Internal level
Internal activities are the links in a chain
that create and sustain customer value. In
many industries, a part of these activities are
performed outside the firm. However, these
should not be viewed as silos but as links of a
chain. Otherwise, one could end up improving
the links and fail to address the linkages. The
three internal stages address specific customer
values (Figure 1). For example, the mould cost
and processing cost that will be incurred at the
operations and delivery cycle greatly depends
upon the kind of plastics decided at the time of
R&D and engineering cycle.
R&D and engineering cycle: Metals, wood,
glass and polymers compete with each other.
Each of them offers different value propositions to
the customer. Polymers compete on many of the
value parameters. However, there are difficulties to
provide cost effective replacement where extreme
strength, odour, etc, become critical.
For example, in the Indian context, tractors are
not only used for farming but also as a medium
for transporation. Imagine half a dozen heavily
built farmers travelling on fenders made of
plastics. Additionally, offensive odours emitted
by plastic products have long been a deterrent.
This problem becomes quite acute in the case of
recycled plastics.
Cost management
The focus
The first article of our series on cost management explored the perspective of cost management with respect to the
plastics and polymers industry. The second article of this series focusses on the various stages of cost management
and unravels its focus. Read on…
M Hariharan
Figure 1: Customer value creation through the three stages
2. SMART MANAGER
Modern Plastics & Polymers ● August-September 2005 51
Customer value creation at the R&D and
engineering stage, thus, becomes critical.
R&D efforts to increase the strength of the
polymer without compromising on the cost
can go a long way in ensuring the desired
customer value. Similarly for odour, plastic
resin compounders try to overcome odour
by replacing unpleasant smelling additives
with low-odour substitutes, minimising
levels of monomers in plastics, adding odour
absorbers to plastics and using antimicrobial
agents to prevent formation of musty
odours by bacteria and fungi.
Continuous innovation leads to sustaining
customer value throughout the lifecycle
of the product. Innovations are critical in
enhancing plastic’s performance, which
include properties like better thermal
behaviour, better low-temperature
behaviour, ease of processing leading to
lighter and cheaper packaging and, shorter
cycles, innovative processes and materials to
enhance shelf-life and recycling.
Electronic components are sensitive to
static discharge. So, it becomes dangerous
to use insulated materials such as polymers
in the vicinity of sensitive components. It is
therefore imperative for design engineers to
understand their options well.This will help
them to manufacture static safe polymers
from insulated polymers.
Thus, introduction of new products in the
market, reduced time to market and efforts
at the design stage to plan the future cost,
create phenomenal value for the customer.
Operations and delivery cycle: What is
planned at the design stage is fulfilled at
the operations and delivery stage. Besides,
having a focus on process technology to
enhance process capability, reducing the
delivery cycle time and efforts to control/
reduce the current cost, ensure customer
value creation and sustenance.
For example, for reduction of lingering
odours in the case of recycled plastics,
solvent extraction and degassing during
processing can help.
In the case of manufacturing containers
of different colours, colour changes cause
wastage of process efforts and materials.
Efforts to reduce this wastage can greatly
improve the flexibility of the plant to adapt
to the customer’s needs of varying colours.
Biodegradable polymers are generally
considered to be costly for processing and
less robust physically, when compared to
conventional plastics. However, innovations
at processing stage are bringing down
the costs of these plastics. Sophisticated
polymerisation and blending techniques are
making such materials stronger and more
durable.Thanks to eco-consciousness, these
plastics are gaining ground these days.
The use of plastic containers - compared
to glass - lead to tremendous energy
savings, handling, transport and end-use
wastes. Plastics requires blow moulding and
thus provides flexibility of volume
and variety.
Post-sales service cycle: There is a
difference between the cost incurred
in acquiring the product and total
cost of ownership (TCO) (ie, total cost
of acquiring, using and disposing the
product). Many a times, one tends to look
only at the purchasing cost and fails to
recognise the TCO.
All innovations in design and
processing are put through the litmus
test at the usage stage. Ultimately, the
product’s failure at the users’ end, the
response of the service provider and the
product & service capability to reduce
TCO, impact the customer value. Impact
of plastics and polymers on TCO is both
positive and negative.
For example, automotive industry
incorporates methodologies to ease
assembly, stock control, purchasing.There
is tremendous proliferation of models.
Plastics offers solutions to reduce the TCO
with lower processing costs and lower
end-user maintenance costs. Polymers
and composites allow integration of
functionalities with a substantial reduction
of part number.Thus, assembly costs are
greatly brought down. Possibilities of
bulk colouring and in-mould decoration
contribute to the reduction of finishing
costs.Tooling costs are lower than that of
metal; hence, easier modifications of tools
that allow frequent introduction of new
variants of vehicles and extension of ranges
are possible. At the customer’s end, use of
polymers saves the weight and thereby
leads to savings in fuel consumption.
On the negative side, there are
environmental issues like chemical risks,
pollution, recycling risks, etc.
Managing the TCO is critical for
customer value and economic value
creation. Hence, processing post-sales
services should be viewed as a seamless
chain providing cost management
solutions. Various cost management
methods are used at three internal stages
of value creation (Figure 2).
Buyer supplier interface
Firms do not compete any more. Rather,
it is supply chains that compete. So one
has to look beyond the firm to understand
where and how value is created. One also
has to identify and fulfill value-creating
opportunities through three stages
and across the value chain (starting
from suppliers’ end to customers’ end).
Interaction between the various players
- from source suppliers to end customers
- creates and sustains customer value
and increases economic value. At this
stage, cost management graduates from
Figure 2: Cost management methodologies
3. SMART MANAGER
52 Modern Plastics & Polymers ● August-September 2005
a firm level to inter-organisational cost
management (IOCM) (Figure 3).
Focus of cost management
A common refrain from many CFOs is,
“Our guys in operations claim that the
plant efficiency has improved by 60 per
cent in the last five years; but on the
contrary our ROCE has dipped from 17 per
cent to 3 per cent. I wonder where all that
‘efficiency’ vanished!”
What one must understand here is that
though there are systems and procedures in
place - to plan & incur capital expenditure
(capex), to control cost & to motivate people
towards achieving their goal - these are
however not an insurance against bad
decisions. For example, we conducted a
simple exercise in one of the companies
to check whether their capex budgeting
process was robust enough to validate
good investments. Its operations were also
quite energy intensive, and most of the
capex proposals were for energy saving.
Further, we added up investments made
during the past three years with respect to
energy savings and also added up all the
‘savings’claimed by those investments.This
process revealed that total energy savings
were indeed 70 per cent of the total energy
consumed by the plant. Subsequently, we
suggested adding a few more capex so
that by running the furnace one could
‘generate’ energy.
Causes that lead to the above include:
In many organisations, ‘management
accountant tends to be an accountant
appointed by the management whose
job is to justify the unjustifiable
actions and rationalise irrational
decisions.’ The decisions are taken
and then they are justified
‘People behave in the way their
performance is measured’. In many
organisations, the reason for bad
organisational performance is
inappropriate performance measures.
Many a times, managers are motivated to
do the wrong things
The focus of cost management, however,
addresses the first cause. One of the main
purposes of cost information system is to
support the decision making process. Cost
information is normally required for three
purposes: decision support, cost control/cost
reduction and statutory requirement.The
numbers required for these three purposes
are different (Figure 3)
Costing is normally presumed to be an
accounting function. It is run by a team
of accountants, whose prime objective is
‘statutory compliance’. In the process, the
cost information system (CIS) turns out to be
a‘cost accounting system’. Cost accounting
systems are appropriate for meeting the
statutory requirement and not for decision
support and control/reduction.With its
primary objective being compliance, the
other two requirements lose out.
To be competitive, a company must know
its sources of profit and understand its cost
structure. Key decision makers must also
be aware of how informed their decisions
are. Further, they must be able to answer
the following questions, without much of a
number crunching effort.
Customer/channel/segment decisions:
How profitable are our
customers/segments?
Which among them are the least
profitable and how can their
profitability be improved?
Who generates the greatest profit
contribution and how best can we
protect them?
Which is the most profitable channel to
reach our customer?
How does our competitor trigger
our cost?
How cost-effective are our marketing and
sales efforts?
What will be the impact of distributing to
major customers via their channel rather
than through our own network?
What is the implication of serving small
accounts through third party logistics?
What are the maximum discount/ service
packages we can afford in the next round
of negotiations with our largest customers
while still meeting our profit objectives?
What type of account should we
focus our new business effort on, for
maximum profitability?
Do our large accounts really make
money? Under what conditions are
we prepared to walk away from that
volume and what will we have to do
as a consequence?
Does this product contribute
sufficiently to profitability to justify
retaining it in the range?
Should we stay in this market?
Product decisions:
How profitable are our products?
Is it appropriate to launch the product in
this market at this price?
Should we drop this product? Should we
withdraw the product from this market?
Are our R&D efforts paying?
Should we make or buy?
Process decisions:
How cost effective are our processes?
What is the cost of accommodating less
than our desired‘batch’?
Is it the right time to expand
our capacities?
Are we sweating our capacities?
Is our capacity excess or protective?
Figure 3: Cost management – stages and enablers
4. SMART MANAGER
Modern Plastics & Polymers ● August-September 2005 53
Which material is appropriate for
managing the overall cost of ownership?
If these questions can be answered with
reasonable assurance with reference to their
profit impact, then it can be presumed that
the company’s CIS is quite supportive.
For every action there is a
financial reaction
Had Sir Isaac Newton been in business,
his third law would have been‘for every
action there is a financial reaction’.Whatever
be the function we are in, so long as our
firm is‘for-profit’, the ultimate goal has to
be the‘bottomline’(economic value). Cost
management perspective has to be backed
by the focus of cost management. Focus
of cost management is to understand,
articulate and communicate the‘financial
reaction’of the firm’s actions.
Many a times accounting justification is
done more as an afterthought. Or worse,
accounting requirements create hurdles
to cost management. What is missing in
many firms is an integrated approach
towards cost management with customer
value creation as the perspective and the
bottomline as the focus.Therefore, cost
management calls for an organisational
effort to integrate, and align financial
analysis and customer focus.
Cost information system forms the edifice
of cost management. It cannot be viewed as
an extension of financial accounting system.
To sustain the focus of cost management,
we need a cost information system that
can articulate the financial reaction of
the actions by addressing the resource
consumption. (Figure 3)
Performance management system
It is important to decide how you
will evaluate the effectiveness of your
performance management system
before you begin implementing it.
What are the outcomes you want from
the system and how will you measure
them? Most organisations will initially
focus on monitoring.
However much we plan, it all boils down
to people. Firms attempt to align employee
performance to the overall goal. But, inspite
of this noble intention, we end up having
conflicts between individual goals and firm
goal; and conflict among individual goals.
We end up creating conflicts, resolving
conflicts and get‘enlightened’.
No performance measurement and
management system can be fully aligned
ever. But, we cannot do away with them
either. After all we cannot manage what
we do not measure. Attempts are made by
firms to have an aligned the performance
measures to the business goals. (Figure 3).
However, it goes out of sync more often
than not.
There are two primary reasons for this:
People behave in the way their
performance is measured. Individual
players end up protecting their turf.
Employee focus gets localised. In the
process, the overall goal is lost
Performance metrics are to be aligned
to the strategy of the firm. Strategy
depends to a great extent,
on changes in the environment.
Strategy is for the future while
performance metrics are for the
present. There is always a time gap
between changing environment and
strategy alignment; and strategy
alignment and alignment of
performance measures
Conclusion
The perspective of cost management
is to create value for customers. And, this
is achieved through three stages: design,
process and usage. It is sustained through
better buyer supplier interface. Further,
different methods and tools are used at
these three stages to ensure customer
value creation.
The focus of cost management, on
the other hand, is to create an economic
value for the customer. A robust cost
information system ensures that the
financial reactions of the actions are
reasonably articulated. Besides, various
tools used at the stage of customer
value creation also ensure economic
value creation. To carry these efforts
one should have a performance
measurement and management system.
Such a system should be aligned with
the goal of the firm.
‘Cheshire puss,’ asked Alice,“Would
you tell me, please, which way I ought
to go from here?”“That depends a good
deal on where you want to get to,” said
the cat.“I don’t much care where…” said
Alice.“Then it doesn’t matter which way
you go,” said the cat.
M Hariharan is the
director of Savoir Faire
Management Services,
Mumbai. He has been
helping firms across sectors
in identifying their core
problem, aligning their
processes according to
customer needs and enable sustenance of
the efforts. He preaches what he practices and has
successfully trained more than 5,000 executives
on these aspects. He can be reached on
email: sfgroup@vsnl.com
Table 1: Cost information depends upon the purpose
Purpose Grammar Information need
Decision support
What will be the
cost? (Future
tense)
Incremental cost/Revenue
Planned capacity utilisation differentiating between
protective capacity and excess capacity
Type of cost information required for the hierarchy of
the decision maker
Classification of cost based on cost drivers
Classification of cost based on the cost object
Customer/channel/segment/profitability, product
cost analysis / R&D, etc
Control/reduction
What should have
been the cost or
what should be
the cost? (Present
‘p erfect’ tense)
Function wise cost
Value stream cost
Controllable and uncontrollable cost
Cost driver analysis
Based on the current capabilities/efficiencies
Statutory
requirement
What was the
cost? (Past tense)
As required by the specific external agency -
company law, electricity regulator, cost audit, tax
requirement, etc