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Paramjit Sharma
Cost Management and Strategy:Cost Management and Strategy: an overviewan overview
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Wal-Mart Story
Grown from a discount store in 1962 to become world’s largest Retailer
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Constant focus on Customer ServiceExtensive use of technologyManagement Structure that welcome changeOpportunity Oriented ManagementExtensive effort to Grow business GloballySetting Ambitious GoalsSales from $44 billion in 1992 TO $312 billion in 2006
How did it happen?
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the wall mart story-one instance
Now, I want you to raise your right hand…… I want you to repeat after me:
from this day forward I solemnly promise and declare
that every time a customer comes within 10 feet of me
I will smile,
Look at him in the eye and greet him,
I am Sam May I help You
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Paramjit Sharma
the wall mart story
Success
Mission Strategy
a firm must define clearly what it means bySuccess in its mission Statement
Then it must develop a road map to accomplishthe mission which we callstrategy
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Wal-Mart"To give ordinary folk the chance to buy the same thing as rich people."
Mission Statement of Wal-Mart
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Success Comes from developing & implementing an effective Strategy aided by Management Accounting Methods
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Wal - mart could not have achieved success without Strategic Cost Management
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Paramjit Sharma
1 Use of Cost Information in 4 Managerial functions2 Strategic Management & Strategic Cost Management3 Contemporary Business Environment- influence on CM4 Strategic Focus on Cost Management5 How a firm succeed- competitive cost management strategy5 Developing Competitive Strategy for Success
Scope of The Session
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1 Use of Cost Information
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concept of cost management information
The most successful man in life is the man who has the best information Benjamin Disraeli, a 19th Century PM of England
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concept of cost management information
The most tradeable item in the 21st century would be data & the information Paul Kennedy Preparing for the 21st century
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What Information may be required by an organisation to manage Cost? & What may be their uses?
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the uses of cost management system
CMI is the information the manager needs to effectively manage the firm and includes both financial, about costs and revenues, as well as relevant non financial information about productivity,quality and other success factors for an organization
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CMI
Usefulness&
Timeliness
CMI
Accuracy &Compliance
FMI
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4 functions of Management
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StrategicManagement
Planning &DecisionMaking
Management &
OperationalControl
Preparationof
FinancialStatements
4 functions ofManagement
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StrategicManagement
functions ofManagement
A strategy is a set of goals and specific Action plans that, if achieved, provide
the desired competitive advantage
SM involves identifying and implementingthese goals and action plans
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Planning &DecisionMaking
4 functions ofManagement
It involves budgeting, profit planning, cash flow,others decisions related to firm’s operations, such as deciding when to buy or lease a facility, when to repair or replace a piece of equipment, when to change a marketing plan and when to begin new product development
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Management &
OperationalControl
4 functions ofManagement
OC takes place when mid level managers monitorsthe activities of operating level managers
MC is the evaluation of mid-level managersby upper level managers
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Preparationof
FinancialStatements
4 functions ofManagement
Management complies withfinancial reporting requirements
as per law
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CMI and managerial functions
1 StrategicManagement
CMI is needed to make sound strategic decisions regarding choice of products, manufacturing methods. Marketing techniques & channels and other long term issues
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CMI and managerial functions
2 Planning &Decision Making
CMI is needed to support recurring decisionsregarding replacement of equipments,managing cash flow, budgeting RM Purchases, scheduling production and pricing
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CMI and managerial functions
3 Management &Operational Control
CMI is needed to provide a fair and effective basisfor identifying inefficient operations and to reward and motivate the effective managers
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CMI and managerial functions
4 Preparation ofFin Statements
CMI is needed to provide accurate accounting for Inventory and other assets, in compliance with reporting requirements, for the preparation of financial reports and for use in the three other management functions
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2 strategic management and strategic cost management
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strategic management and strategic cost management
Pressure on Business due to
Global CompetitionTechnological InnovationChanges in Business Process
ManagersMust think
Competitively
Doing so requiresStrategy
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strategic management and strategic cost management
•Anticipating changes•Product and production designed to accommodate expected changes•Flexibility•Ability to make quick changes•Speed to market•Agile manufacturing•Driving firm by using windshield not the rear view mirror•Creative and integrative thinking………
strategic thinkingStrategicissues aregaining
importance
More costInformationis Required
Focus onStrategic CostManagement
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Strategic Cost Management
SCM is the development of costmanagement information to facilitatethe principal management function,strategic management
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Paramjit Sharma
Mergers & Acquisition— tata steelIssue of IPO -Reliance PowerIndia as a Market -Pepsi appointing Indira NooyiLess Cost at other Plant----Bajaj ScootersSelling Shampoo in Pouch—Cavin Kare
Organizational Strategies
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3 Contemporary business environment- influence on cm
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contemporary business environment- influence on cm
1 Increase in Global Competition2 Advances in manufacturing technologies3 Advances in information technologies4 Greater focus on customer5 New forms of business organizations6 Changes in Social, Cultural, Political Environment
Changes in Business Environment which influencedModification in Cost Management Practices
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contemporary business environment- influence on cm
GlobalBusinessEnvironment
Increased CompetitionEconomic interdependenceWTONAFTA SAFTAEuropean UnionOther AlliancesHigh Value Low Cost
Increase need of CMI to competeIn other countries
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contemporary business environment- influence on cm
NewManufacturingTechnology
Speed To MarketFlexible manufacturingStatistical Quality ControlTarget CostingJIT
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contemporary business environment- influence on cm
InformationTechnologyInternet
E-commerce
Amazon. com
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contemporary business environment- influence on cm
Focus on ConsumerExpectations for product functionality & Quality
QualityServiceDeliveryFeatures of productsShort PLCLow cost high value
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contemporary business environment- influence on cm
New Form of ManagementOrganizationCustomer Based
Non Financial Measures Quality Time to delivery ServiceFlexible Structure
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contemporary business environment- influence on cm
SocialPoliticalCulturalConsiderationsWork Force
Ethical ResponsibilityFlexible and adaptableIncreased deregulation
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4 Strategic Focus on Cost Management4 Strategic Focus on Cost Management
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Strategic Focus on Cost ManagementStrategic Focus on Cost Management
CM CM focus is not on measurement per sefocus is not on measurement per sebut on identification of those measuresbut on identification of those measuresthat are that are CriticalCritical to the firm’s success to the firm’s success
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Sheep Story
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Strategic Focus on Cost ManagementStrategic Focus on Cost Management
Critical Success Factors Critical Success Factors ((CSF’sCSF’s) are measures of those) are measures of thoseaspects of the firm’s performance that are essentialaspects of the firm’s performance that are essentialto its to its competitive advantagecompetitive advantage and therefore, to its success and therefore, to its success
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influence of contemporary Mgt. techniques on CM
Computer aidedDesign &
ManufacturingTarget Costing Value Chain
BalancedScore card
Bench Marking
TotalQuality
Management
ContinuousImprovement
Activity BasedCosting &
Management
ReengineeringTheory of Constraints
Just in TimeMass
Customization
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5 How a firm Succeeds: the competitive Cost Management strategythe competitive Cost Management strategy
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Strategic Focus on Cost ManagementStrategic Focus on Cost Management
A strategy is set of policies, procedures and approachesA strategy is set of policies, procedures and approachesto business that produces long term successto business that produces long term success
MissionSpecific
PerformanceObjectives
Actions toAchieve
objectives
A strategy is a set of goals and specific action plans that, if achieved, provide the desired competitive advantage
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Paramjit Sharma
Strategic Focus on Cost ManagementStrategic Focus on Cost Management
A strategy is set of policies, procedures and approachesA strategy is set of policies, procedures and approachesto business that produces long term successto business that produces long term success
Mission20 years
SpecificPerformanceObjectives
5years
Actions toAchieve
ObjectivesCurrent Year
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Competitive StrategiesFollowed by Business Houses
Re-engineering Operational Processes,
Downsizing the workforce
Outsourcing Service Functions
Developing smaller, efficient Organizations
Societal Organizational Policies & Structures
Mergers & Acquisitions
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Mission Statements
Ford Motor (ford. com)
Provide personal mobility for people around the world
Ford Motor (ford. com)
Provide personal mobility for people around the world
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Mission Statements
United Parcel (ups. com)
To move at the speed of business
United Parcel (ups. com)
To move at the speed of business
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Mission Statements
Walt Disney (Disney. com)
To make people Happy
Walt Disney (Disney. com)
To make people Happy
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Strategic Measures of Success
Financial Measures of Success
Sales Growth Earning Growth Dividend Growth Bond & Credit Rating Cash Flow Increase in Share Price
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Strategic Measures of Success
Customer Measures
Market ShareCustomer ServiceDeliveryC SatisfactionBrand RecognitionMarket Position
Internal Business Process
Product QualityMfg.InnovationProductivityCycle timeReduction in waste
Learning & Innovation
CompetenceIntegrityEducation & TrainingMotivationInnovation
Non FinancialMeasures of
Success
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lack of Strategic Information- consequences
Decision making based on guess and intuitionLack of clarity in direction and GoalsLack of clear perception by customers & suppliersIncorrect investment decisionsIneffective to benchmark competitorsFailure to identify most profitable
Products Customers Markets
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6 developing a competitive strategy
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developing a competitive strategy
Cost Leadership
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developing a competitive strategy
Cost Leadership
Cost Leadership is a competitiveStrategy in which a firm succeedsin producing products or servicesat the lowest costs in the industry
NIRMA AMULBIG
BAZARCAVINCARE
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developing a competitive strategy
Cost Leadership
Cost Leader remains only so longas the consumer sees that productor service is at least nearly equivalent to competing productthat cost some what more
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developing a competitive strategy
Differentiation is a competitive strategy in whicha firm succeeds by developing and maintaining a unique value for the product as perceived byconsumers
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Target Scope
Broad(Wide Segment)
Narrow(Market Segment)
Advantage
Low Cost Product Uniqueness
Cost LeadershipStrategy
Differentiation Strategy
Focus Strategy(Low Cost)
Focus Strategy(Differentiation)
Porter's Generic Strategies
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Marketing Differentiation
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8 ways to create extra Value for customers
Cost Reduction through higher YieldReduce InventoryJust in timeReduce cycle timeRed. in Adm. CostImproving Safety for CustomersReducing Suppliers CostReduction Through Substitution
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Milind Lele5 Dimensions( Maneuverability)
1.Target Market
2.Product
3.Place
4.Promotion
5.Price
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Product
FormFeaturesPerformanceConformanceDurabilityReliabilityReparabilityStyleDesign
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Ordering EaseDeliveryInstallationCustomer-TrainingCustomer-ConsultingMaintenance &RepairsMiscellaneous
Services
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•Competence
•Communication
•Courtesy
•Credibility
•Reliability
•Responsiveness
Personnel
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Channel
COVERAGE
EXPERTISE
PREFERENCE
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IMAGE
Symbols
Media
Atmosphere
Events
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