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Modern Business Environment

Modern Business Environment. Management Level – Paper P2 Advanced Managemen t Accounting. Lecture - 03. Vidya Rajawasam ACMA CGMA MBA. Modern Business Environment. In our previous lecture we have discussed Implementation Problems with regard to ABC & ABM

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Modern Business Environment

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  1. Modern Business Environment Management Level – Paper P2 Advanced Management Accounting Lecture - 03 Vidya Rajawasam ACMA CGMA MBA

  2. Modern Business Environment In our previous lecture we have discussed • Implementation Problems with regard to ABC & ABM • Product/Customer/Distribution channel profitability

  3. Modern Business Environment In this lecture we will discuss • Modern business environment • World class manufacturing • Just in Time systems

  4. Modern Business Environment Characteristics of modern business environment Global Environment • Firms have to be worldclass to compete • Firms haveto comply with internationalregulations

  5. Modern Business Environment Characteristics of modern business environment Flexibility • In global environment customers have far greaterchoice then ever before. • There has been a hugeincrease in demand for new, cutting-edge, innovative products.

  6. Modern Business Environment Characteristics of modern business environment Flexibility • Customers are demanding ever- improving levels of service, quality, reliability and delivery. • Customers demandflexibility. The firms needs to respond to this scenario in order to survive.

  7. Modern Business Environment Characteristics of modern business environment Flexibility As a result , the companies needs to have very diverserange of products with high levels of tailormade products or services. Furthermore, productlifecycles have dramatically reduced from several years to few months.

  8. Modern Business Environment Characteristics of modern business environment Flexibility The shift related to movingaway from production of standardizedunits to individually customized productionunits means that the massproductiontechniques are becoming redundant.

  9. Modern Business Environment Characteristics of modern business environment Flexibility The current trend is to take an order from placement to completion in the shortestpossible time. Therefore, the production process needs to be re-designed to accommodate flexibility of production rather than just throughput based production.

  10. Modern Business Environment Characteristics of modern business environment Employee empowerment In order to incorporate flexibility into production process, the managers need to empower their employees to make decisionsquickly without referring to more senior managers.

  11. Modern Business Environment Characteristics of modern business environment Employee empowerment By empowering employees, giving them resources needed and providing them with relevant information, they will be able to respond to customer requirements faster, increase processflexibility, reduce cycle times and improve moral.

  12. Modern Business Environment Characteristics of modern business environment Employee empowerment The management accounting systems are moving from providinginformation to managers to monitor employees to providing information to employees to empower them to focus on continuous improvement.

  13. Modern Business Environment World class manufacturing The worldclass approach to quality is quite different from traditional approach to quality since the world class approach focuses on resolution of problems that causes poorquality, rather than merely detecting quality issues.

  14. Modern Business Environment World class manufacturing The newsystems are more pro-active and tries to prevent problems from occurring in the firstplace rather than waiting for the problems to occur and then rectify them. The related systems are developed under TotalQualityManagement systems.

  15. Modern Business Environment World class manufacturing The newsystems are more pro-active and tries to prevent problems from occurring in the firstplace rather than waiting for the problems to occur and then rectify them. The related systems are developed under TotalQualityManagement systems.

  16. Modern Business Environment World class manufacturing (WCM) Commercial example, The Chrysler Group started the World Class Manufacturing (WCM) program, when Fiatacquired majority shares in 2009 (as a consequence of the financialcrisis driving Chrysler to bankruptcy).

  17. Modern Business Environment World class manufacturing Commercial example, Today, Chrysler is well known as the ComebackKid. The incredible transformation is partly credited the WCM practices as a change program.

  18. Modern Business Environment World class manufacturing (WCM)

  19. Modern Business Environment Review MCQs The Characteristics of modern business environments are? • Companies operate in a world economy. • Companies does not compete with each other. • Products are made from components from around the world. • Non of the above

  20. Modern Business Environment Review MCQs The Characteristics of modern business environments are? • Companies operate in a world economy. • Companies does not compete with each other. • Products are made from components from around the world. • Non of the above

  21. Modern Business Environment Review MCQs One of the key features of World Class Manufacturing (WCM)? • Focuses on short term financing needs • Difficulties in valuation of products. • Pro-active approach to quality. • Does not require additional resources.

  22. Modern Business Environment Review MCQs One of the key features of World Class Manufacturing (WCM)? • Focuses on short term financing needs • Difficulties in valuation of products. • Pro-active approach to quality. • Does not require additional resources.

  23. Modern Business Environment Just in Time Just in time is a productionphilosophy which focuses on procuring or producing products or components on the basis of customerrequirements rather than takingfrominventory.

  24. Modern Business Environment Just in Time In other words, Just in time system is a pullsystem based on demand, in contrast to a pushsystem which act as a buffer between purchasing, production and sales.

  25. Modern Business Environment Just in Time – Toyota example Western organizations traditionally used ‘push’ production flow systems. The system has following stages; • Buy raw materials and put them into inventory • Produce production schedules based on future salesforecasts.

  26. Modern Business Environment Just in Time – Toyota example The system has following stages; • Withdraw rawmaterials from inventory and makeproducts according to the productionschedule. • Transfercompleted units unto finishedgoods stock. • Sell from the finished goods stock, when customersrequest for the products.

  27. Modern Business Environment Just in Time – Toyota example The system has following stages; • Sell from the finished goods stock, when customersrequest for the products. • Work in Progress (WIP) is an unavoidablefeature of such system.

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  30. Modern Business Environment Just in Time – Toyota example Toyota developed a completely a different system known as JIT. This system is not a ‘push’ system, but a ‘pull’ system. The uniquefeature of this system is that a product is not ‘made’ until the customerrequests it.

  31. Modern Business Environment Just in Time – Toyota example Furthermore, components are notmade until they are required by the nextstage of production. Therefore, in a full JIT system there are noinventoryheld as raw materials and finished goods. But there is a smallamount of WIP inventory held.

  32. Modern Business Environment Just in Time – Toyota example The system works by customertriggering the final stage of production. The related procedures are; When a vehicle is assembled, the components are requested to the production flow.

  33. Modern Business Environment Just in Time – Toyota example This triggers the component level production and the cycle goes on until the finaltriggerrequests are made to rawmaterialssuppliers. For the JIT system to worksmoothly, the suppliers must deliver the raw materials severaltimes and whenever a purchase is made the raw materials goes straight in to the production

  34. Modern Business Environment Just in Time – Toyota example This means that the productionleadtime becomes the processingtime or equal to the processing time. The scenario is different in western organizations, where it takesseveralmonths to complete a product from start to finish.

  35. Modern Business Environment Just in Time – Toyota example With reference to the JIT system working continuously, it takes only fewdays to complete the production. Therefore, the difference in time gap is mainly due to workinprogress waiting to be used in nextprocess.

  36. Modern Business Environment Just in Time – Toyota example Another very important factor that needs to be understood with reference to JIT is that the valueaddition takes place only at the time of production stages. Holding raw materials, WIP and finishedgoodsstocks only add costs to the business organization.

  37. Modern Business Environment Just in Time – Toyota example It is very clear that almost 90% of the production process addcosts and only10%addvalue with reference to traditional ‘push’ productionsystems. JIT system introduced by Toyota has overcome this problem.

  38. Modern Business Environment Smooth operation of JIT Smooth operation of JIT system requires following; • The labourforce must be versatile, the staff needs to be adapted to carry out many differentfunctions in order to keep the production process moving. Sometimes they may have to performroutinepreventive maintenance.

  39. Modern Business Environment Smooth operation of JIT • The production processes must be grouped by productline rather than by production functions. This grouping supports the elimination of inventorymovements between stages of production and improves production flowspeed.

  40. Modern Business Environment Smooth operation of JIT • Infallible , simpleinformationsystem, Originally the Japanese staff used a cardbased system known as ‘kanbans’. The the movement of kanbanstrigger component production in differentstages of production. In today's context, computersystems monitor production stages and the simplicity of the system is maintained.

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  42. Modern Business Environment Smooth operation of JIT • A get it rightfirsttime approach, The approach aims for zero defects. Defects cause breakdown in the valuechain, stops the flow of production, creates expensivereworks and lead to latedeliveries to customers.

  43. Modern Business Environment Smooth operation of JIT • Strong supplier relationships, The suppliers must ensure and takeresponsibility with reference to the quality of the goods. The supplier must inspect the part of materials or components before delivery.

  44. Modern Business Environment Smooth operation of JIT • Strong supplier relationships, The enhance supplier support is obtained through reduction of suppliers to fewnumbers while increasing the businessgiven to them. Longtermcommitments are entered with the suppliers and assuring supplier with continuity of demand. The supplier becomes the keypart of the valuechain.

  45. Modern Business Environment Review MCQs What is true related to Just in time production process ? • Produces goods as they are required by the customers. • Does not focus on good suppler relations. • Does not give preference to customer requirements. • Non of the above

  46. Modern Business Environment Review MCQs What is true related to Just in time production process ? • Produces goods as they are required by the customers. • Does not focus on good suppler relations. • Does not give preference to customer requirements. • Non of the above

  47. Modern Business Environment Review MCQs Not a significant part of supplier relationships identified in Just in time production process? • No Long term commitments from suppliers. • Suppliers are not key part of process • Suppliers take responsibility for quality of goods. • Non of the above

  48. Modern Business Environment Review MCQs Not a significant part of supplier relationships identified in Just in time production process? • No Long term commitments from suppliers. • Suppliers are not key part of process • Suppliers take responsibility for quality of goods. • Non of the above

  49. Modern Business Environment Lecture Summary We have discussed the • Modern business environment • World class manufacturing • Just in Time systems

  50. Modern Business Environment Management Level – Paper P2 Advanced Management Accounting Lecture - 03 Vidya Rajawasam ACMA CGMA MBA

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