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5th Edition STRATEGIC COST & PERFORMANCE MANAGEMENT CA- FINAL NOV 24 Onwards Features: This book covers all the im...

5th Edition STRATEGIC COST & PERFORMANCE MANAGEMENT CA- FINAL NOV 24 Onwards Features: This book covers all the important topics, along with the Questions asked by ICAI. This book will help you get Sure shot 60+ marks in SCPM Authored by: Vaibhav Bansal YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal TESTIMONIALS REPLY OF THOSE WHO ACE THROUGH THIS  ……still counting DON’T MISS THIS!! HOW TO MAKE THE BEST OUT OF THIS COMPILER This PDF covers important topics for Set B- SCPM exam along with ICAI asked questions (Memory Based). Along with this PDF do ICAI SM MCQs. This PDF will be very helpful for those students who do not have much time to spare on this subject and exams are near. Students must practice the Illustrations and Practical Questions of ICAI SM, along with this. Telegram Group Link- CA with Vaibhav Bansal YouTube- Vaibhav Bansal Ace Your Exams, Good Luck!! After your exams, kindly share your reviews. Thanks VAIBHAV BANSAL Table of Contents Chapter 1 Introduction To SCM..................................................................................................................................... 1 Chapter 2 Modern Business Environment...................................................................................................................... 5 Chapter 3 Lean System and Innovation......................................................................................................................... 9 Chapter 4 Specialist Cost Management Techniques...................................................................................................... 12 Chapter 5 Management of Cost Strategically for emerging Business Models................................................................. 16 Chapter 6 Strategic Revenue Management.................................................................................................................. 19 Chapter 7 Strategic Profit Management...................................................................................................................... 22 Chapter 8 Intro to Strategic performance Management............................................................................................... 23 Chapter 9 Strategic performance measures in Private Sector........................................................................................ 28 Chapter 10 Strategic performance measures in Non-Private Sector.............................................................................. 32 Chapter 11 Preparation of Performance Report........................................................................................................... 33 Chapter 12 Standard Costing...................................................................................................................................... 34 Chapter 13 Transfer Pricing........................................................................................................................................ 35  Vaibhav Bansal Chapter 1 Introduction To SCM Value Chain Analysis: Primary Activities comprising of: I. Inbound logistics cover receiving, storing, and handling raw material inputs. Mind it, inbound logistics don’t cover the purchase or procurement. Inbound logistics are deeply impacted by the location of business operations. II. Operations include the transformation of raw materials into finished goods and services; operations must be seen in depth; it may or may not be possible for an organisation to be master of all the activities that are required to render the service or to convert raw material into finished goods; the organisation may take the decision to outsource those activities which are not its core competences. III. Outbound logistics covers storing, distributing, and delivering finished goods to customers. This includes how, when, and where for customer reference. Where to deliver, how to deliver, and when to deliver. IV. Marketing and sales activities comprise conducting market research to determine the marketing mix8 that comprises product, price, place, and promotion. McCarthy’s concept was further developed by Booms and Bitner9 into the 7Ps of the marketing mix by adding three more Ps, i.e. People, Process, and Physical evidence (sometime referred to positioning). V. After sales service includes all those activities that occur after the point of sale, such as installation, training, and repair. It is important to note that the importance of after sale services is higher in the case of durable products in comparison to products falling into the FMCG category. In the service industry after sale service depends on the nature of the service. Support activities also referred as to secondary activities; it comprises of: I. Firm infrastructure deals with how the firm is organised. It basically describes the activities pertaining to legal, general management, administrative, accounting, finance, public relations, and quality assurance in the organisation apart from who will perform these and how. II. Technology development describes how the firm uses technology. Activities such as research and development, IT management, and cybersecurity that build and maintain an organization's use of technology. III. Human resource management describes how people contribute to competitive advantage. Basically, it deals with the management of human capital. Human resource functions such as hiring, training, building and maintaining an organizational culture, and maintaining positive employee relationships. IV. Procurement signifies purchasing, but not just limited to materials. Finding new external vendors, maintaining vendor relationships, negotiating prices, and other activities related to bringing in the necessary materials and resources used to build a product or service. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 1  Vaibhav Bansal Competitive Advantage A Competitive advantage is the ability of an organization to outperform its competitors and make more profits than its competitors do from an equivalent set of activities through superior performance. Gaining and maintaining a competitive advantage over a period of time is challenging for organisations in the global economy with the speed of competition and information exchange possible today. Companies must search out “white space” in the industry, which usually means competing on either one of two fronts- Differentiation: Driving up prices is one way to increase profitability. To command a premium price, a company must deliver distinctive value to customers. A customer may perceive the high value of any product and be ready to pay a premium due to the differentiation it offers. Cost Leadership: Driving down costs is another way to increase profitability. To compete on cost, firm must balance price with acceptable quality and become the lowest cost producer in an industry. A firm can create a cost advantage in two different ways, by reducing the cost of individual value chain activities and by reconfiguring the value chain. Porter’s 5 Forces: 1. Bargaining Power of Buyers Bargaining power of buyers determines their ability to dictate terms, including price. Bargaining power will be high if the cost of switching supplier is low, buyers are few and buyers buy in high volume from small suppliers. High bargaining power may lead to low prices or high costs, hence resulting in a low margin. 2. Bargaining Power of Suppliers Bargaining power of suppliers determines the cost and quality of input. Bargaining power is higher if a replacement or alternate is not available. 3. Threat of Substitute Products or Services Threat of substitute may cause a loss of revenue (top-line) or an increased cost of retention. Threat will be high if the substitute is perfect in nature and cheaper. Substitute can be from different segment and different industry. Switching cost and the perceived level of product differentiation are also relevant here. 4. Threat of New Entrants New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. Hence, the threat of new entrants may damage market share if materialize. The degree of threat depends on the barrier to entry coupled with the reaction from existing competitors that the entrant can expect, apart from perceived profitability. The major sources of barriers to entry are economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, government policy, etc. 5. Rivalry among Existing Firms Rivalry occurs because one or more competitors either feel the pressure or see the opportunity to improve their position. Competitive moves by one firm generally have effects on its competitors and thus may incite retaliation or YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 2  Vaibhav Bansal efforts to counter the move; that shows firms are mutually dependent. Competition will be stiffer if the number of firms increases, extra capacity exists, products are homogenous, fixed costs are high and exit barriers are also high. Interconnectedness of Barriers (Exit Barriers and Entry Barriers) and Profitability - Although exit barriers and entry barriers are conceptually different, their joint level is an important aspect of the analysis of an industry. Often, exit and entry barriers are related. Substantial economies of scale in production, for example, are usually associated with specialized assets, as is the presence of proprietary technology. Core competencies analysis Core Competency is a unique preposition that helps a firm stand out in the industry by providing value to its customers. Core Competency leads to either cost leadership or product differentiation, which are the primary sources for a firm to gain a competitive advantage. Core competencies can arise out of- ▪ Resources – Which firm has, and others don’t. ▪ Capabilities – Ability to coordinate resources and make optimal use of them. Test of core competency contains three parameters Relevance – The competence must give your customer something that strongly influences him or her to choose your product or service. If it does not, then it has no effect on your competitive position and is not a core competence. Difficulty of imitation – The core competence should be difficult to imitate. This allows you to provide products that are better than those of your competition. And because you're continually working to improve these skills, means that you can sustain competitive position. Breadth of application – It should be something that opens up a good number of potential markets. If it only opens up a few small, niche markets, then success in these markets will not be enough to sustain significant growth Value Proposition Canvas Value Proposition describes the benefits that customers can expect from a product and the bundle of products and services that business offer to specific customer segment to create value. The value proposition canvas is the tool that will help the organization to design, test, build, and manage the great customer value propositions. It’s like a plugin for the business model canvas. The tool is based upon two elements of the business model, i.e., the customer segment for whom the business firm intends to create the value and the value proposition (value proposition map) that will attract customers to the business. With a value proposition canvas, a business firm can map out both of these (customer segment and value proposition) with more granularity and show the fit between what it offers and what customers want. Customer Segment Profile The customer segment profile describes the characteristics of the business’s customers in more detail. The profile is composed of three elements: first, the jobs (termed as ‘Customer Jobs’) that customers are trying to get done in their service or product; second, the related pains, i.e., aspects outlining the negative aspects that customers hate or like to YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 3  Vaibhav Bansal avoid; and third, the gains, i.e., aspects describing the positive outcomes or benefits that your customers desire to have. Customer Jobs describes the important issues that business customers are trying to solve/ resolve in their work; it could be their needs that they wish to satisfy or a task that they try to perform and complete in their lives (professional and personal) or at work. (Example: Matrimonial services, legal advice, a specially designed shoe for an internationally recognised player, construction of the house (safety, look, and comfort can be major concerns), ordering food with specifications, face mask/ PPE Kit to protect from specific viruses etc.) Pains describes anything that annoys the customer before, during, or after getting a job done. This could be unwanted cost, situation, negative emotion, or even risks. Obviously, some of the customer’s pains will be severe, while others are mild. Gains describe the outcome or benefits that the customer requires, expects, or desires, as well as a complementary benefit that he doesn’t expect, but will be excited about or surprised by if he gets it. This includes things like functional utilities, social gains, positive emotion, and cost savings. Obviously, some of the benefits will be more relevant to customers than others. Value Proposition Map A value proposition map describes the features of a business’s value proposition that it has designed to address its customers’ jobs (through products and services), pains (through pain relievers); and gains (through gain creators). Hence, a value proposition map is composed of the three elements: firstly, the product and services around which your value proposition is built; secondly, the pain relievers that outlines how the business’s products and services alleviate the customers’ pains; thirdly, the gain creators describe the positive outcomes and benefits that business’s products and services create for your customers. Products and Services outlines the bundle of products and services that the business is offering to its customers to help them get a functional, social, or emotional / personal job done and to address their pains and gains in the process. Pain Relievers explicates how your products and services will alleviate specific customer pains before, while, and after the customer tries to get the job done. Pain relievers show or highlight which of all the customers’ pains are addressed by the value proposition by either eliminating or reducing them. Gain Creators describes how products and services offered by business create customer gains. Gain creators show which of all the customers’ gain s are addressed by the value proposition by creating benefits and outcomes. Business is said to achieve a problem-solution fit when the features of its value proposition map perfectly match the characteristics of customer segment profile. When the market validates this match and the business value proposition gets traction with real customers, the business has achieved the product-market fit. It is worth noting that successful and sustainable business es have more than just great value propositions; they also have a great business model that makes a great customer value proposition possible. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 4 S. No. Case Study DEF Ltd. is a company operating in the consumer electronics industry. The strategic management team at DEF Ltd. uses Porter ʼs Five Forces Model to analyze the competitive environment and to develop strategies for maintaining its market position. The analysis covers: Threat of New Entrants: The industry has high barriers to entry due to significant capital investment requirements and strong brand loyalty among consumers. Bargaining Power of Suppliers: There are few suppliers of critical components, giving suppliers considerable power over prices. 1 Bargaining Power of Buyers: Buyers have a moderate amount of power due to the availability of alternative brands and the increasing access to market information. Threat of Substitute Products: The threat is high due to rapid technological advancements and the availability of alternative electronic products. Industry Rivalry: Competition is intense among existing players, with aggressive marketing and frequent product innovations. Questions Answers Reasons Which of the following factors is considered under the "Threat of New Entrants" in Porterʼs Five Forces Model? High capital investment a) High bargaining power of suppliers b) Significant capital investment requirements create barriers to b) Significant capital investment requirements requirements entry, making it difficult for new c) Availability of substitute products firms to enter the market. d) Intense competition among existing players What effect does the high bargaining power of suppliers have on DEF High bargaining power of Ltd.'s operations? suppliers means that they can a) It increases the threat of new entrants c) It puts upward pressure on production demand higher prices for their b) It decreases the bargaining power of buyers costs components, increasing DEF c) It puts upward pressure on production costs Ltd.'s production costs. d) It reduces the intensity of industry rivalry Why is the threat of substitute products considered high for DEF Ltd.? Rapid technological a) Due to strong brand loyalty among consumers advancements lead to the b) Because of rapid technological advancements b) Because of rapid technological development of alternative c) Because suppliers have considerable power advancements electronic products that can d) Due to high barriers to entry replace DEF Ltd.'s offerings. What is the primary reason for intense industry rivalry in the consumer Intense rivalry is characterized by electronics market as faced by DEF Ltd.? aggressive marketing strategies a) High barriers to entry c) Aggressive marketing and frequent and frequent product innovations, b) Few suppliers of critical components product innovations leading to strong competition c) Aggressive marketing and frequent product innovations among existing players. d) Availability of alternative brands Which of the following strategies can DEF Ltd. use to mitigate the threat of new entrants? By enhancing brand loyalty, DEF a) Establishing strong relationships with suppliers b) Enhancing brand loyalty through Ltd. can create a stronger b) Enhancing brand loyalty through marketing marketing customer base that is less likely to c) Reducing production costs to increase marginsd) Developing substitute switch to new entrants. products How does moderate bargaining power of buyers impact DEF Ltd.? Moderate bargaining power of a) It allows DEF Ltd. to increase prices without losing customers buyers means that DEF Ltd. must b) It forces DEF Ltd. to focus on customer satisfaction and competitive b) It forces DEF Ltd. to focus on customer maintain competitive prices and pricing satisfaction and competitive pricing high customer satisfaction to c) It reduces the need for marketing and innovation retain its market share. d) It increases the power of suppliers A company has four products S, P, A, N with different tag lines: S- "Why pay more when you can pay less" 2 P- Slogan related to sustainability & environment A- "Safety first!" N- "You get what you pay for" Questions Answers Reasons Which product relates to cost leadership? The tagline "Why pay more when a) Product P you can pay less" indicates a cost b) Product A c) Product S leadership strategy focused on c) Product S d) Product N providing lower-priced products. Which product is likely to be marketed as a premium product with an The tagline "You get what you pay emphasis on quality and value? for" suggests that Product N is a) Product S positioned as a high-quality, d) Product N b) Product P premium product, implying a c) Product A differentiation strategy based on d) Product N quality. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 5  Which product emphasizes a differentiation strategy based on The slogan related to environmental sustainability? sustainability and environment a) Product S for Product P aligns with a b) Product P b) Product P differentiation strategy focusing c) Product A on environmentally friendly d) Product N products. Which product emphasizes safety as its primary differentiating factor? a) Product S The tagline "Safety first!" b) Product P indicates that Product A c) Product A c) Product A differentiates itself based on its d) Product N focus on safety features. CoalPro Ltd. is a leading company involved in the mining and production of coal. The company operates in a highly regulated industry with 3 significant capital investments required for exploration and mining operations. Below is a detailed analysis of CoalPro Ltd. using Porter's Five Forces model. Questions Answers Reasons Identify the level of threat of new entrants in the mining and production of coal industry. Due to, High Capital a) High Requirements, Regulatory c) Low b) Moderate Barriers, Access to Distribution c) Low Channels, Economies of Scale d) Very High Evaluate the bargaining power of buyers in the coal industry. a) High Due to Large Volume Purchases, b) Low a) High Price Sensitivity, Alternative c) Moderate Energy Sources d) Very High Assess the bargaining power of suppliers in the coal mining industry. a) High Due to Abundance of suppliers, b) Low b) Low Standardization of inputs, c) Moderate backward intigration d) Very Low Analyze the intensity of competitive rivalry within the coal mining industry. a) High Due to Numerous competitors, d) Very High b) Low Price wars, Overcapacity c) Moderate d) Very High Determine the level of threat posed by substitute products in the coal mining industry. a) High Due to Renewable energy a) High b) Low sources, government policies c) Moderate d) Very High ABC Ltd. is a global manufacturing company looking to expand its operations in a new international market. The company's strategic team conducts a STEEPLE analysis to understand the various external factors that might impact their decision. The analysis covers: Social Factors: Increasing demand for eco-friendly products among consumers. Technological Factors: Rapid advancements in manufacturing technology. Economic Factors: Fluctuating exchange rates and inflation rates in the target market. 4 Environmental Factors: Stricter environmental regulations and sustainability initiatives. Political Factors: Political stability and government policies favoring foreign investments. Legal Factors: Compliance with international trade laws and local labor laws. Ethical Factors: Corporate social responsibility and ethical labor practices Questions Answers Reasons YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 6  Which of the following is an example of a Social factor in the STEEPLE analysis for ABC Ltd.? Social factors include a) Political stability in the target market c) Increasing demand for eco-friendly demographic and cultural aspects b) Rapid advancements in manufacturing technology products such as consumer preferences c) Increasing demand for eco-friendly products and trends. d) Compliance with international trade laws How might rapid advancements in manufacturing technology, a Technological advancements can Technological factor, impact ABC Ltd.'s decision to expand? lead to more efficient a) By increasing the political stability in the target market b) By reducing production costs and manufacturing processes and b) By reducing production costs and improving efficiency improving efficiency lower costs, making expansion c) By influencing local labor laws and regulations more attractive. d) By causing fluctuations in exchange rates Which factor in the STEEPLE analysis would involve assessing the Legal factors encompass laws and compliance with international trade laws and local labor laws? regulations that the company a) Social d) Legal must comply with in the new b) Technological market, including trade and labor c) Political laws. d) Legal What type of factor is "stricter environmental regulations" in the context of the STEEPLE analysis for Environmental factors include ABC Ltd.? regulations and sustainability a) Economic b) Environmental initiatives that impact the b) Environmental company's operations and c) Political environmental footprint. d) Legal XYZ Ltd. operates in the consumer electronics industry and has adopted two distinct competitive strategies for its product lines: cost leadership and product differentiation. For its basic line of smartphones, XYZ Ltd. focuses on cost leadership, aiming to become the lowest-cost 5 producer in the industry. For its premium line of smartphones, XYZ Ltd. emphasizes product differentiation by offering unique features and superior quality. Questions Answers Reasons Which strategy is XYZ Ltd. using for its basic line of smartphones? a) Market penetration b) Cost leadership b) Cost leadership c) Product differentiation d) Focus strategy What is the primary objective of a cost leadership strategy? a) To achieve the highest quality in the industry c) To become the lowest-cost producer in b) To offer unique products at a premium price the industry c) To become the lowest-cost producer in the industry d) To target a narrow market segment Which of the following features is most likely associated with XYZ Ltd.'s premium line of smartphones? a) Basic functionality and low price b) Unique features and superior quality b) Unique features and superior quality c) Mass production and economies of scale d) Minimal investment in marketing In the context of XYZ Ltd., what could be a potential benefit of implementing a product differentiation strategy for its premium line? a) Reduced costs of production b) Increased brand loyalty and customer b) Increased brand loyalty and customer retention retention c) High sensitivity to price changes d) Streamlined operations and reduced complexity What could be a significant challenge for XYZ Ltd. when pursuing a product differentiation strategy in a highly competitive market? a) Maintaining the lowest production costs b) Keeping up with frequent technological b) Keeping up with frequent technological advancements advancements c) Achieving high sales volume with low prices d) Reducing the number of product variations YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 7  Which of the following is a potential risk of the cost leadership strategy for XYZ Ltd.? a) High production costs c) Competitors imitating cost reduction b) Inability to attract price-sensitive customers strategies c) Competitors imitating cost reduction strategies d) Over-investment in product development What is a key characteristic of a product differentiation strategy? a) High levels of production efficiency c) Unique product attributes that create b) Low pricing to attract cost-sensitive customers value for customers c) Unique product attributes that create value for customers d) Focus on a small niche market If XYZ Ltd. wants to maintain its cost leadership strategy, which of the following actions should it prioritize? a) Investing heavily in research and development b) Reducing overhead costs and improving b) Reducing overhead costs and improving operational efficiency operational efficiency c) Expanding the product line to cater to various customer segments d) Enhancing the aesthetic design and functionality of its products Match the Following Statements to the Elements: Statements: 1. The industry requires significant capital investments for new firms to enter. 2. Large volume purchases by power plants give them significant negotiating power. 3. The presence of alternative energy sources like natural gas and renewables. 4. Numerous coal mining companies compete aggressively for market share. 6 5. Standardized inputs and multiple suppliers reduce supplier leverage. Elements of Porter's Five Forces: a) Threat of New Entrants b) Bargaining Power of Buyers c) Threat of Substitutes d) Competitive Rivalry e) Bargaining Power of Suppliers Questions Answers Reasons Match the Following Statements to the Elements 1-a 2-b 3-c 4-d 5-e Individual MCQs Questions Answers Reasons Full Form of STEPLE social, technological, economic, 7 environmental, political, legal, and ethical Which of the following is not a reason to use the concept of Learning 8 Introducing new technology Curve? Which of these doesn't affect market share variance a) sales efforts, 9 Learning curve effect b) successful marketing strategy, c) learning curve effect. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 8  Vaibhav Bansal Chapter 2 Modern Business Environment Cost of Quality Prevention Cost The costs incurred for preventing the poor quality of products and services may be termed as Prevention Costs. These costs are incurred to avoid quality problems. They are planned and incurred before actual operation. Example: Examples include the costs for: ❑ Quality engineering ❑ Quality training programs ❑ Quality planning ❑ Quality reporting ❑ Quality audits ❑ Quality circles ❑ Field trails ❑ Design reviews❑ Process engineering ❑ Supplier evaluation and selection ❑ Preventive equipment maintenance ❑ Testing of new materials ❑ Education of suppliers Appraisal Cost These are costs associated with measuring and monitoring activities related to quality. Appraisal Cost incurred to determine the degree of conformance to quality requirements (measuring, evaluating, or auditing). They are associated with the supplier’s and customer’s evaluation of purchased materials, processes, products, and services to ensure that they are as per the specifications. Examples include the costs for: ❑ Field testing ❑ Inspecting and testing materials ❑ Packaging inspection ❑ Product acceptance ❑ Process acceptance ❑ Measurement (inspection and testing) equipment ❑ Outside Certification Internal Failure Cost: Internal Failure Cost associated with defects found before the customer receives the product or service. Internal failure costs are incurred to remedy defects discovered before the product or service is delivered to the customer. These costs occur when the product does not meet design quality standards. Examples include the costs for: ❑ Scrap ❑ Rework ❑ Re-designing ❑ Re-testing ❑ Downtime External Failure Cost: External failure costs are incurred to remediate defects discovered by customers. These costs occur when products or services that fail to meet design quality standards are not detected until after transfer to the customer. Examples include the costs for: ❑ Costs of recalls ❑ Lost sales due to poor product performance ❑ Returns and allowances ❑ Warranties ❑ Repaid ❑ Product liability ❑ Customer dissatisfaction ❑ Lost market share ❑ Customer support YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 9  Vaibhav Bansal TOTAL QUALITY MANAGEMENT (TQM) TQM aims to improve the quality of organizations outputs, including goods and services, through the continual improvement of internal practices. TQM's objectives are to eradicate waste and increase efficiency. This is done by ensuring that the production of the organization's product (or service) is appropriate the first time. Six C’s of TQM ❑ Commitment: If a TQM culture is to be developed so that quality improvement becomes a normal part of everyone’s job, a clear commitment from the top must be provided. Without this, all else fails. It is not sufficient to delegate ‘quality’ issues to a single person since this will not provide an environment for changing attitudes and breaking down the barriers to quality improvement. Such expectations must be made clear, along with the support and training necessary for their achievement. ❑ Culture: Training lies at the centre of effecting a change in culture and attitudes. Management accountants too often associate ‘creativity’ with ‘creative accounting’ and associated negative perceptions. This must be changed to encourage individual contributions and to make ‘quality’ a normal part of everyone’s job. ❑ Continuous Improvement: Recognition that TQM is a ‘process’ not a ‘programme’ necessitates that we are committed in the long term to the never-ending search for ways to do the job better. There will always be room for improvement, however small. ❑ Co-operation: The application of Total Employee Involvement (TEI) principles is paramount. The on-the-job experience of all employees must be fully utilized, and their involvement and co-operation must be sought in the development of improvement strategies and associated performance measures. ❑ Customer Focus: The needs of the customer are the major driving thrust, not just the external customer (in receipt of the final product or service) but the internal customer’s (colleagues who receive and supply goods, services, or information). A perfect service with zero defects is acceptable at either internal or external levels. Too frequently, in practice, TQM implementations focus entirely on the external customer to the exclusion of internal relationships; they will not survive in the short term unless they foster the mutual respect necessary to preserve morale and employee participation. ❑ Control: Documentation, procedures, and awareness of current best practices are essential if TQM implementation is to function appropriately. The need for control mechanisms is frequently overlooked, in practice, in the euphoria of customer service and employee empowerment. Unless procedures are in place, improvements cannot be monitored, measured nor deficiencies corrected. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 10  Vaibhav Bansal PDCA Cycle Deming developed the Plan – Do – Check – Act cycle. PDCA Cycle describes the activities a company needs to perform in order to incorporate continuous improvement in its operation. This cycle is also referred to as the Deming wheel. The circular nature of this cycle shows that continuous improvement is a never-ending process. Let’s look at the specific steps in the cycle. Pull- Push Model Upstream-Downstream Flow A supply chain begins right from the supplier and finally ends with the end customer or consumer. In the total chain, there are flows of material, information, and capital or finance. When the flow relates to the supplier it is termed as upstream flow. If the flow is with consumers or customers, it is called downstream flow. (Author’s Note: In this, only this much concept is sufficient for SPOM). YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 11  Vaibhav Bansal Outsourcing Outsourcing is defined as the transfer of non-core business functions or activities to other external firms or organizations that specialize in that type of work. The external agency is referred to as a "Third Party Service Provider" as the set of business processes or the specific project is related to the arrangement between the client, "The First Party" and the end user, or "The Second Party". Pros of outsourcing include reduced cost of operations, improved productivity (opportunity to focus on core functions), striving or driving for specialization, and flexibility (to scale up or down). Shortcomings of outsourcing include cultural differences, security issues (reliability), and communication problems (privacy or trade secrets). The following steps should be taken to ensure the success of outsourcing strategies– 1. When it comes to outsourcing vendors, the bigger and older the better. 2. Outsourcing should be avoided for jobs that are proprietary or require strict security. 3. It is best to start small and constantly monitor. Service Level Arrangements (SLA) An agreement between the customer and service provider is termed as a service-level agreement. This can be a legally binding formal or informal "contract". The agreement may be between separate organisations or within different teams inside the organization. SLAs commonly include many components, from a definition of services to the termination of an agreement. To ensure that SLAs are consistently met, agreements are often designed with specific lines of differentiation, and the parties involved are required to meet regularly to create an open forum for communication. Providers rewards and penalties are specified. There is always room left for revisiting in most SLAs. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 12 S. No. Case Study A service level agreement (SLA) has been established between XYZ Company and its client. The agreement includes a gain-sharing arrangement based on cost savings achieved over three years. The cost savings realized in each year are as follows: 1 Year 1 ₹1,00,000 Year 2 ₹1,50,000 Year 3 ₹2,00,000 Questions Answers Reasons If the gain-sharing ratio is 50:50, how much does XYZ Company receive from the total savings? a) ₹1,50,000 c) ₹2,25,000 b) ₹2,00,000 c) ₹2,25,000 d) ₹2,50,000 What is the total cost savings achieved over the three years? a) ₹3,00,000 b) ₹4,00,000 c) ₹4,50,000 c) ₹4,50,000 d) ₹5,00,000 Assuming the total cost savings in Year 3 are shared in a 30:70 ratio, how much does XYZ Company receive? a) ₹60,000 a) ₹60,000 b) ₹1,00,000 c) ₹1,40,000 d) ₹1,80,000 For Year 2, with a gain-sharing ratio of 40:60, what is the clientʼs share of the cost savings? a) ₹60,000 b) ₹90,000 b) ₹90,000 c) ₹1,00,000 d) ₹1,20,000 Raya Health Care Limited, a leading healthcare service provider in Mumbai, is outsourcing its CT scan and MRI services to Livlife, an international chain of diagnostic centres. Livlife promises to provide radiologist reports within 24 hours. The agreement includes: Cost savings generated in the first year will be retained by Livlife. Cost savings generated in the second and third years will be shared between Raya and Livlife at a ratio of 30%:70%. Cost savings generated in the fourth year will be passed to Raya 2 Additional Data: The total cost savings generated in each of the first four years are as follows: Year 1 ₹1,00,000 Year 2 ₹2,00,000 Year 3 ₹3,00,000 Year 4 ₹4,00,000 Questions Answers Reasons How much cost savings is attributable to Company 1 (Raya Health Care In the second and third years, the cost Limited) in the second and third years combined? savings are shared at a ratio of 30% to Raya and 70% to Livlife. ₹ 1,50,000 Year 2= 30% of ₹2,00,000 =₹60,000 Year 3= 30% of ₹3,00,000 = 90000 Total for Year 2 and 3 ₹60,000 +90,000= ₹1,50,000 How much cost savings is attributable to Company 2 (Livlife) in the In the second and third years, the cost second and third years combined? savings are shared at a ratio of 30% to Raya and 70% to Livlife. ₹ 3,50,000 Year 2= 70% of ₹2,00,000 = ₹1,40,000 Year 3= 70% of ₹3,00,000 = ₹2,10,000 Total for Year 2 and 3= ₹1,40,000 + ₹2,10,000 = ₹3,50,000 What is the cumulative amount of cost savings retained by Livlife over the Year 1= 100% of ₹1,00,000 = ₹1,00,000 four years? Year 2= 70% of ₹2,00,000 = ₹1,40,000 Year 3= 70% of ₹3,00,000 = ₹2,10,000 ₹ 4,50,000 Year 4= 0% of ₹4,00,000 = ₹0 Total for four years: ₹1,00,000 + ₹1,40,000 + ₹2,10,000 = ₹4,50,000 YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 13  JK Ltd. produces and sells a single product. Presently, the company has an annual external failure cost of ₹440,000 and an internal failure cost of ₹850,000. The company considers implementing a new quality control system, which would result in an annual prevention cost of 3 ₹560,000 and an appraisal cost of ₹70,000. The new system is expected to reduce external and internal failure costs by ₹100,000 and ₹410,000 respectively. All other activities and costs will remain unchanged. Questions Answers Reasons What will be the total cost of quality (COQ) after implementing the new 14,10,000 Current COQ = External Failure Cost + quality control system? Internal Failure Cost a) ₹1,800,000 = ₹440,000 + ₹850,000 b) ₹1,590,000 = ₹1,290,000 + 560,000+70,000-100000- c) ₹1,370,000 410000 d) ₹1,410,000 Based on the new system, should JK Ltd. implement the new quality b) No, it results in an additional control system? cost. a) Yes, it results in a cost saving. b) No, it results in an additional cost. c) Yes, but only if external failure costs are completely eliminated. d) No, unless internal failure costs are zero. Red Star Limited (RSL) is the largest manufacturer of AirConditioners. RSL is not good at attending the customer calls due to lack of capabilities, but it is an important activity from the aspect of the value chain. Hence, in order to improve customer experience (downstream supply chain), RSL decided to hire Krishna Infotech & BPO Services (KIBS) for attending the calls of their existing and prospective customer. Service level agreement (SLA) was duly entered and service level (SL) of 90/20 has been prescribed to keep a check on service quality. Invoice will be generated monthly, and SL will also be observed on monthly basis. For the first month along with the invoice, KIBS provide the following details to RSL– 4 - Total calls offered = 5,120 - Calls answered within threshold time = 4,850 - Short or Abandon calls within threshold time = 115 CFO while authorising the payment queues generated by the account executive in ERP, come across the KIBS payment; he immediately seeks a copy of SLA from legal but not able to understand the technical aspects hence he decided to calls you (management accountant) to EXPLAIN few terms (including SL) and certain COMPUTATIONS. Questions Answers Reasons What is the SLA threshold time? c. 20 seconds A service-level agreement (SLA) threshold a. 90 seconds is the activity response time specified in a b. 15 seconds service level agreement. In the current c. 20 seconds case, the SLA threshold is the number of d. 30 seconds seconds within which a call shall be responded to by a tele-caller at KIBS. The threshold time, in this case, is 20 seconds it is represented by a service level (SL) of 90/20. What is the significance of 90/20 SL? b. 90% of the calls should be a. 100% of the calls should be answered within 30 seconds answered within 20 seconds A service-level agreement (SLA) defines the b. 90% of the calls should be answered within 20 seconds level of service you expect from a vendor, c. 90% of the calls should be answered within 30 seconds laying out the metrics by which service d. 100% of the calls should be answered within 20 seconds is measured. Service level basically measures the performance. Service level (SL) of 90/20 signifies that 90% of the calls shall be answered within 20 seconds. How much is the SL level for the first month? c. 96.90% SL for month = a. 94.72% SL for month = b. 95.25% Total Calls answered within threshold c. 96.90% time/( d. 90.00% Total calls offered − short or abandon calls within threshold time) 4,850/(5,120 − 115) = 96.90% Whether KIBS attained the SL level to full the terms of SLA a. Yes a. Yes Against the expected service level of 90%, b. No KIBS attain the service level of 96.90% which means out of each 100 calls nearly 97 class are answered within 20 seconds (threshold time), whereas the requirement was minimum requirement is 90%; hence KIBS attain the SL level to full the terms of SLA. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 14  For how many calls KIBS can bill to RSL c. 5,005 Calls a. 5120 calls No, doubt SL used for measuring the b. 4,850 calls performance which relies upon the calls c. 5,005 calls answered within the threshold time, but d. 4,950 calls the calls answered beyond threshold time also cause costs and resources at end of the BPO vendor (KIBS in this case) hence billing shall be for total calls responded/answered (rather only those which are answered in threshold time). Hence, in a given case, the KIBS can raise an invoice for 5,005 calls i.e., 5,120 (total calls offered) – 115 (short or abandon calls within threshold time). ABS Company: Total calls: 12,000 Calls answered within the threshold limit: 11,500 Abandoned calls: 300 RBS Company: Total calls: 9,500 5 Calls answered within the threshold limit: 8,000 Abandoned calls: 250 The figures 95/20 and 90/15 need to be interpreted in the context of service levels: 95/20 for ABS= This likely means that 95% of the calls should be answered within 20 seconds. 90/15 for RBS= This likely means that 90% of the calls should be answered within 15 seconds. Questions Answers Reasons What is SLA threshold & what is threshold time? For ABS, the threshold is 20 It is Activity response time specified in seconds. agreement. For RBS, the threshold is 15 seconds. What is the SLA threshold in percentage for ABS and RBS? 95% and 90% Compute the Service Level (SL)? ABS: 98.29% For ABS = Total calls answered: 12,000 - RBS: 86.49% 300 (abandoned calls) = 11,700 Calls answered within the threshold: 11,500 SLA Achievement: (11,500 / 11,700) * 100 = 98.29% For RBS = 9500-250 = 9250 SLA Achievement = (8000/9250)*100 = 86.49% A Ltd. is a manufacturing co. that outsourced its customer service to B and C LTD with SLA of 90/10 and 95/20 respectively. Total number of 6 calls to be attended were 10,000 and 12,000 in a month respectively. No. Of attended calls by B LTD was 9200 and C LTD was 10,200. Unattended calls were 750 and 250 respectively. On what basis should B and C LTD bill A LTD? Options were: (a) 10,000 and 12,000 (b) 9200 and 10,200 (c) 9950 and 10,450 Individual MCQs Questions Answers Reasons Which of the following is NOT a component of the Cost of Quality? d) Market Share Costs a) Prevention Costs 4 b) Appraisal Costs c) External Failure Costs d) Market Share Costs Which of the following costs is associated with the prevention of poor c) Prevention Costs quality in products and services? a) Appraisal Costs 5 b) Internal Failure Costs c) Prevention Costs d) External Failure Costs Who popularized the concept of the Cost of Quality in his book "Quality Is c) Philip B. Crosby Free"? a) W. Edwards Deming 6 b) Joseph M. Juran c) Philip B. Crosby d) Armand V. Feigenbaum YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 15  What type of cost is associated with defects that are found before the b) Internal Failure Costs customer receives the product or service? a) Prevention Costs 7 b) Internal Failure Costs c) External Failure Costs d) Appraisal Costs What is the correct sequence of the 5S methodology? C. Sort, Set in Order, Shine, A. Sort, Shine, Set in Order, Standardize, Sustain Standardize, Sustain 8 B. Shine, Sort, Set in Order, Sustain, Standardize C. Sort, Set in Order, Shine, Standardize, Sustain D. Set in Order, Sort, Shine, Sustain, Standardize 9 Rework cost can classified as Internal failure Cost YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 16  Vaibhav Bansal Chapter 3 Lean System and Innovation 5 Principles of Kaizen The kaizen is a Japanese word that means ‘Continuous Improvement’. Kaizen Costing is a cost reduction system through small, continuous, and incremental improvements. It is based on the belief that nothing is ever perfect, so improvements and reductions in cost are always possible. Kaizen goals are set based on actual results from a prior period. The goal is to reduce the actual cost of the current period in the coming period/(s). Kaizen Costing Process Step 1 – Establishing a cost reduction goal (kaizen cost target). Step 2 – Ascertain the gap by comparing the goal to the actual cost. Step 3 – Formulate and implement a cost reduction plan based on value analysis. There are 5 Fundamental Kaizen Principles that are embedded in every Kaizen tool and in every Kaizen behavior. The 5 principles are – 1. Know your customer – Understand them and their interests so that business can enhance their experience. (Aim for creating customer value) 2. Let it Flow – Everyone in the organisations aims to create value and eliminate waste. (Aim for targeting zero waste) 3. Go to Gemba – Value is created where things actually happen - go there; go to the real place. Hence, the act of visiting the shop floor in Lean and Kaizen. (Aim for following the action) 4. Empower People – Set the same goal for your teams and provide a system and tools to reach them. (Aim for organizing your teams) 5. Be Transparent – Performance and improvement should be tangible and visible. (Aim for speaking with real data). 5S 5S is the foundation of the pillars of TPM (Total Productivity Maintenance). 5S is the name of a workplace organization method that uses a list of five Japanese words: seiri, seiton, seiso, seiketsu, and shitsuke. they can be translated from the Japanese as “sort”, “set in order”, “shine”, “standardize”, and “sustain”. It explains how a workspace should be organized for efficiency and effectiveness by identifying and storing the items used, maintaining the area and items, and sustaining the new order. Sort (Seiri): Sort the material at the production floor or any other part of the production facility Set in Order (Seiton): Set-in-order signifies the systemic arrangement by adherence to the 14th Principle of Management enunciated by Henri Fayol in Administrative Theory of Management, i.e., Principle of order which provides that there shall be place for everything and everything shall be in its place. Shine (Seiso): Shine ensures there must be cleanliness ‘in and of’ everything. Obviously, if there are fewer items, then there is less to clean. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 17  Vaibhav Bansal Standardise (Seiketsu): Establish and standardise the best practices at the workplace and make them part of organisation wide standard operating procedures (SOPs) so that sorting, set in order, and shine become a habit of the workforce. Organisations need to maintain SMART standards; strive for standardised orderliness so that everything is in order according to its standard. Every process must have a standard. Sustain (Shitsuke): In order to sustain the established standard, it is required to do, ▪ Daily Monitoring. ▪ Improving ownership by allocating areas. ▪ Using ‘Red Tag Campaign’. ▪ Communicating visually through fixed point photography. ▪ Structured communication. ▪ Continuous training of all employees. ▪ Periodic audits at all levels. ▪ Motivating staff through recognition. Six Sigma The premise of Six Sigma is that by measuring defects in a process, a company can develop ways to eliminate them and practically achieve “zero defects”. Six Sigma can be used with a balanced scorecard by providing a more rigorous measurement system based on statistics. Six Sigma practices are based upon the following assertions – ▪ Continuous efforts to attain a stable and predictable process, which result in no variance. ▪ Character of a process that can be measured, analysed, improved, and controlled. ▪ Achieving sustained quality improvement through overall commitment from the entire organisation, especially top-level management. Implementation of Six Sigma DMAIC DMADV Just in Time (JIT) A just-in-time approach is a collection of ideas that streamline a company’s production process activities to such an extent that waste of all kinds, viz., time, material, and labour, is systematically driven out of the process. JIT has a decisive, positive impact on product costs. Pros and Cons of JIT Clearly, the changes imposed by a JIT system are profound and can greatly improve company operations when installed and operated correctly. They can also have a profound effect on product costs. So, the JIT YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 18  Vaibhav Bansal system aims at: 1. Meeting customer demand in a timely manner 2. Providing high quality products and 3. Providing products at the lowest possible total cost. JIT has cons as well. The potential problems that JIT may cause include – 1. It is not always easy to predict demand patterns, making it difficult to operate without inventory. 2. The lack of inventories exposes an organization to any disruption in the supply chain. Overall Equipment Effectiveness (OEE) Accordingly, OEE at World Class Performance would be approximately 85%. Kotze (1993) contradicted this saying that an OEE figure greater than 50% is more realistic and therefore more useful as an acceptable target. Solve KIWI Ltd. Question from ICAI SM Illustration 2, page 3.30 Do Illustration 1 and TYK 2 and 5 as well YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 19 S. No. Case Study DEF Manufacturing has decided to implement Just-in-Time (JIT) inventory management to streamline their production process and reduce costs. Before implementing JIT, the company held an average inventory worth ₹500,000. Post-implementation, several changes were observed: Inventory holding costs reduced by 25% 1 Production lead time decreased from 12 days to 7 days On-time delivery rate improved from 80% to 92% The defect rate decreased from 6% to 3% Questions Answers Reasons What is the amount of reduction in inventory holding costs post-JIT implementation? Initial inventory holding cost = a) ₹100,000 ₹500,000 b) ₹125,000 b) ₹125,000 Reduction = 25% of ₹500,000 = c) ₹150,000 0.25 x ₹500,000 = ₹125,000 d) ₹200,000 By how many days did the production lead time decrease after Initial lead time = 12 days implementing JIT? New lead time = 7 days a) 3 days c) 5 days Decrease = Initial lead time - New b) 4 days lead time = 12 days - 7 days = 5 c) 5 days days d) 6 days What is the new inventory holding cost after the reduction? New inventory holding cost = a) ₹375,000 Initial cost - Reduction b) ₹400,000 a) ₹375,000 New inventory holding cost = c) ₹425,000 d) ₹450,000 ₹500,000 - ₹125,000 = ₹375,000 What is the percentage improvement in the on-time delivery rate? Initial on-time delivery rate = a) 10% 80% b) 12% b) 12% New on-time delivery rate = 92% c) 14% Improvement = New rate - Initial d) 16% rate = 92% - 80% = 12% What is the percentage decrease in the defect rate? Initial defect rate = 6% a) 2% New defect rate = 3% b) 3% b) 3% Decrease = Initial rate - New rate c) 4% d) 5% = 6% - 3% = 3% ABC Ltd. implemented Just-in-Time (JIT) inventory management. The following changes were observed post- implementation: Reduction in inventory holding costs by 30% 2 Increase in on-time delivery from 85% to 95% Decrease in production lead time by 40% Improvement in product quality, reducing defects by 20% Questions Answers Reasons What was the initial inventory holding cost if it was reduced by ₹60,000 after a 30% reduction? a) ₹1,20,000 b) ₹2,00,000 b) ₹1,50,000 c) ₹1,80,000 d) ₹2,00,000 If the initial production lead time was 10 days, what is the new lead time after a 40% reduction? a) 4 days b) 6 days b) 6 days c) 7 days d) 8 days What is the new on-time delivery rate after JIT implementation? a) 85% b) 90% c) 95% c) 95% d) 100% YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 20  If the defect rate was initially 5%, what is the new defect rate after a 20% improvement? a) 1% c) 4% b) 2% c) 4% d) 5% Individual MCQs Questions Answers Reasons Which of the following is NOT a characteristic of lean management? D. Maximizing inventory levels A. Focus on customer value B. Elimination of waste 3 C. Flexibility and continuous improvement D. Maximizing inventory levels Which technique is commonly used in JIT to signal the need for b) Kanban system production or replenishment of inventory? a) Push system 4 b) Kanban system c) FIFO system d) Batch processing Aim of JIT reduce inventory holding costs and 5 increase inventory turnover What are primary objective of Just-in-Time (JIT) inventory management? 6 Minimizing inventory levels Which of the following best describes a key benefit of implementing Just- 7 Reduced waste and improved efficiency in-Time (JIT) systems? 8 Which of the following does Kaizen improvement process not focus on? Improvement by innovation 9 Traditional order size 1000 per order i.e. 13 orders but under Jit 100 units per order therefore 130 order. Order cost 200 per order but it will increase by Re. 1 per unit under the JIT. Which is better? JIT or Traditional? YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 21  Vaibhav Bansal Chapter 4 Specialist Cost Management Techniques Cost reduction vs Cost control Cost control implies regulation of the cost of operation through the action of executives. It involves setting up the targets (yardstick) for managers who are responsible for cost centers and comparing their performance against such targets. Therefore, Cost Control involves continuous comparisons of actual with the standards or budgets to regulate the former. Cost reduction is the real and permanent reduction in the unit cost of goods manufactured or service rendered without impairing the utility for the intended use. Therefore, cost reduction is continuous effort to reduce cost through economics (standardization of product or component) and savings in costs of manufacture, administration, selling and distribution. It believes in reducing to cost till the optimal level rather any specified level such as standards or budget. Target Costing Target costing can be described as a process that occurs in a competitive environment, in which cost reduction is an important component of profitability. Target costing can be defined as “a structured approach to determining the cost at which a proposed product with specified functionality and quality must be produced, to generate a desired level of profitability at its anticipated selling price”. SP – Profit = Cost YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 22  Vaibhav Bansal Pros: ▪ It reinforces top-to-bottom commitment to process and product innovation, and is aimed at identifying issues to be resolved, in order to achieve some competitive advantage. ▪ It uses management control systems to support and reinforce manufacturing strategies, and to identify market opportunities that can be converted into real savings to achieve the best value rather than simply the lowest cost. ▪ A proactive approach to cost management ensures proper planning well ahead of actual production and marketing. ▪ Implementation of target costing enhances employee awareness and empowerment. It also fosters partnership with suppliers. ▪ Encourages the adoption of value- added activities with higher pay-off and elimination of non-value-added activities to residual level. ▪ It enhances product life by reducing the time to market. ▪ Target Costing takes a market-driven approach towards cost, in which value is defined not only by what customers demand but also by what they are willing to pay for. Cons: ▪The development process can be lengthened to a considerable extent only - since the design team may require a number of design iterations before it can devise an acceptable low-cost product that meets the target cost, margin criteria, and customers’ specifications. This occurrence is most common when the project manager is unwilling to “pull the plug” on a design project that cannot meet its costing goals within a reasonable time frame. ▪ A large amount of mandatory cost-cutting can result in finger-pointing in various parts of the company; especially if employees in one area feel they are being called on to provide a disproportionately large part of the savings. ▪ Representatives from a number of departments on the design team can sometimes make it more difficult to reach a consensus on the proper design because there are too many opinions regarding design issues. ▪ Effective implementation requires the development of detailed cost data. This can be really costly and may not be profitable for the company when a detailed cost-benefit analysis is done. ▪ Use of target costing may reduce the quality of products due to the use of cheap components which may be of inferior quality. ▪ Based upon innovation, also involves a great amount of forecasting and estimation. A substantial portion of information is market-led, hence highly dynamic in nature. Value Analysis vs Value Engineering Value Analysis is a planned, scientific approach to cost reduction which reviews the material composition of a product and production design so that modifications and improvements can be made which do not reduce the value of the product to the customer or to the user. Value Engineering is the application of value analysis to new products. Value engineering relates closely to target costing as it is cost avoidance or cost reduction before production. Value analysis is cost avoidance or cost reduction of a product already in production; both adopt the same approach i.e. a complete audit of the product. YouTube- Vaibhav Bansal Telegram- CA with Vaibhav Bansal 23  Vaibhav Bansal Product Life Cycle Each product has a life cycle, which may vary from a few days to months to several years depending upon the aging process of product. The product life cycle is a pattern of types of cost, amount of expenditure, quantum and value of sales and amount of profit over the stages from conceiving the idea till the deletion of product from the product range. The life cycle of any product consists of four phases, which are – ❑ Introduction (market development or launch) ❑ Growth ❑ Maturity ❑ Decline Introduction: Stage one is where the new product is launched in the market. As the product is novel, there is minimal awareness and acceptance of it. Competition is almost negligible, and profits are non-existent. The length of the introduction stage differs from prod