3-Developing-a-competitive-strategy-contemporary-cost-management.pdf

DEVELOPING A COMPETITIVE STRATEGY & CONTEMPORARY COST MANAGEMENT TECHNIQUES Lesson 3  DEVELOPING A COMPETITIVE STRATEGY  STRATEGY A set of policies, procedures and approaches to business that produce long term success.  Finding a strategy begins...

DEVELOPING A COMPETITIVE STRATEGY & CONTEMPORARY COST MANAGEMENT TECHNIQUES Lesson 3  DEVELOPING A COMPETITIVE STRATEGY  STRATEGY A set of policies, procedures and approaches to business that produce long term success.  Finding a strategy begins with determining the purpose and long-range direction or mission of the company. Strategy specifies how an organization matches its own capabilities with the opportunities in the market place to accomplish its objectives.  Cost Leadership Product Differentiation Offers unique products or Providing quality product services that are often or service at low prices priced higher that its competitors Jollibee, Pure Gold, Cebu Shangri-La, Rustan’s Pacific Department Store Management accountants work closely with managers in formulating strategies by providing information about the sources of competitive advantage.  The management accountant also helps formulate strategies by answering questions such as: Who are our most important customers? How sensitive are their purchases to price, quality, and service? Is the industry demand growing or shrinking? STRATEGIC MEASURES OF SUCCESS Firms uses cost management to support their strategic goals. Financial Performance measures includes: Growth in sales Cash flows Stock price Non-Financial measures of operations includes: Market share Product quality Customer satisfaction Growth opportunities  The non-financial factors show the firms current and potential competitive position as measured from 3 additional perspective: The customer Internal business process Innovation and learning  Strategic financial and non-financial measures of success are also commonly called: Critical Success Factor (CSFs) Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Financial Measures of Success Level of sales in critical product groups, sales trend, percent of Sales sales from new products, sales forecast accuracy Earnings from operations, earnings Profitability trend, dividend growth Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Financial Measures of Success Cash flow, trend in cash flow, interest coverage, asset turnover, Liquidity inventory turnover, receivables turnover, credit ratings Market value Share price Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Non-Financial Measures of Success Customer Factors Customer returns and complaints, Customer satisfaction customer survey Coverage and strength of dealer and distributor channel Dealer and distributor relationships; e.g., number of dealers per state or region Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Non-Financial Measures of Success Customer Factors Trends in sales performance, Marketing and selling training, market research activities; measured in hours or peso On-time delivery performance, Timeliness of delivery time from order to customer receipt Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Non-Financial Measures of Success Customer Factors Customer complaints, warranty Quality expense  Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Internal Business Process Number of defects, number of returns, customer survey, amount of scrap, Quality amount of rework, field service reports, warranty claims, vendor quality defects Cycle time (from raw materials to finished product); labor efficiency; Productivity machine efficiency; amount of waste, rework, and scrap  Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Internal Business Process Flexibility Setup time, cycle time Downtime, operator experience, machine capacity, maintenance Equipment readiness activities Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Internal Business Process Number of accidents, effects and Safety accidents  Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Learning and Innovation Number of design changes number of Product innovation new patents or copyrights, skills of research and development staff Number of days over or under the Timeliness of new product announced ship date  Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Learning and Innovation Number of training hours, amount of Skill development skill performance improvement Employee turnover, number of Employee morale complaints, employee survey Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Learning and Innovation Rate of turnover, training, experience, Competence adaptability, financial and operating performance measures Financial and Nonfinancial Measures of Success or Critical Success Factors and How to Measure CSF Critical Success Factors How to Measure CSF Other factors Number of violations, community Government relations service activities  Consequences of Lack of Strategic Information : Lack of clear and Decision making based Lack of clarity about favorable perception of on intuition direction and goals. the firm by customers and suppliers Incorrect investment Inability to effectively decisions; choosing benchmark competitors, Failure to identify most products, markets or resulting in lack of profitable products, manufacturing knowledge about more customer and markets processes inconsistent effective competitive with strategic goals strategies COMPETITIVE STRATEGIES  Cost Leadership Product Differentiation a competitive strategy in implemented by creating a which a firm succeeds in perception among consumers producing products or that the product or service is services at lowest cost in unique in some important way, the industry. usually by being higher quality, features or innovation. This perception allows the firm to charge higher prices and outperform the competition. CONTEMPORARY COST MANAGEMENT TECHNIQUES  Just-in-Time (JIT) Life Cycle Costing Total Quality Target Costing Management (TQM) Computer-Aided Process Reengineering Design and Benchmarking Manufacturing Mass Customization Automation Balanced Scorecard E-Commerce Activity Based Costing The Value Chain and and Management Supply Chain Analysis Theory of Constraints  Just-in-Time (JIT) This is the philosophy that activities are undertaken only as needed or demanded. Also known as pull-it-through approach, in which materials are purchased and units are produced only as needed to meet actual customer demand.  Total Quality Management (TQM) This is a technique in which management develops policies and practices to ensure the firms product and services exceed customer expectations. Its characteristics are: focus on serving customer and systematic problem solving.  Process Reengineering Reengineering is a process for creating competitive advantage in which a firm reorganizes its operating and management functions (jobs are modified, combined, or eliminated). Process Reengineering is an approach where a business process is diagramed in detail, analyzed, and redesigned in order to eliminate unnecessary steps, reduce opportunity errors, and reduce costs.  Benchmarking This is a process by which a firm determines its critical success factors, studies the best practices of other firms and then implements improvements in the firms processes to match or beat the performance of those competitors.  Mass Customization This is a management technique in which marketing and production process are designed to handle the increased variety that results from delivering customized products and services to customers.  Balanced Scorecard This is an accounting report that includes the firms critical success factor in four areas: 1. Financial performance 2. Customer satisfaction 3. Internal business process and 4. Innovation and learning  Activity Based Costing and Management ABC is used to improve the accuracy of cost analysis by improving the tracing of costs to products or to individual customers. ABM uses activity analysis to improve operational control and management control.  Theory of Constraints This is a sequential process of identifying and removing constraints in a system. Emphasizes the importance of managing the organization’s constraints or barriers that hinder or impede progress toward an objective.  Life Cycle Costing This is a management technique to identify and monitor the cost of a product throughout its lifecycle. It consists of all steps from product design and purchase of raw material to delivery of service of the finished product.  Target Costing This involves the determination of the desired cost for a product or the basis of a given competitive price so that the product will earn desired profit. 𝑻𝑨𝑹𝑮𝑬𝑻 𝑪𝑶𝑺𝑻 = 𝑴𝒂𝒓𝒌𝒆𝒕 𝒅𝒆𝒕𝒆𝒓𝒎𝒊𝒏𝒆𝒅 𝒑𝒓𝒊𝒄𝒆 – 𝑫𝒆𝒔𝒊𝒓𝒆𝒅 𝒑𝒓𝒐𝒇𝒊𝒕  Computer-Aided Design and Manufacturing CAD is the use of computers in product development, analysis and design modification to improve the quality and performance of the product. CAM is the use of computers to plan, implement, and control production.  Automation This involves and requires a relatively large investment in computers, computer programming, machines and equipment. Flexible manufacturing system (FMS) – is a computerized network of automated equipment that produces one or more groups of parts or variations of a product in a flexible manner. Computer-integrated manufacturing (CIM) – is a manufacturing system that totally integrates all office and factory functions within a company via a computer-based information network.  E-Commerce This is the trading of goods and services online. It relies on technology and digital platforms, including websites, mobile apps and social media to make buying and selling possible.  The Value Chain and Supply Chain Analysis Value Chain refers to the sequence of the business functions in which usefulness is added to the products or services of a company. It is an analysis tool that firms use to identify the specific steps required to provide a product or service to the customer.