Strategy And Quality Flashcards
Introduction to strategy
Many enterprises want to see their management accounting systems more closely aligned with their strategies.
Management accounting can assist managers in accounting for and managing quality.
What is strategy
Strategy describes how an organisation matches its own capabilities with the opportunities in the marketplace to accomplish its overall objectives.
In formulating its strategy, an organisation must thoroughly understand the industry in which it operates.
Strategic management accounting (SMA)
A form of management accounting which places emphasis on information which relates to factors external to the firm, as well as non-financial information and internally generated information.
SMA is orientated towards the future and the enterprises position relative to that of its competitors.
Industry analysis focuses on
Five forces
Competitors
Rescuing prices of products is critical to growth for any industry
Competition is severe along the dimensions of price, timely delivery and quality
Potential entrant into the market
- Competition usually keeps profit margins small
- Existing companies are likely to have lower costs
- Existing companies also have the advantage of close relationships with customers
Equivalent products
Technologies that allow customers flexibility reduce the potential for equivalent products or new technologies to replace existing products.
Bargaining power of customers
Customers have bargaining power because they buy the products and can obtain the products from other potential suppliers.
Bargaining power of input suppliers
Suppliers of high-quality materials have some bargaining power to demand higher prices.
Skilled engineers, technicians and manufacturing labour have some bargaining power to demand higher wages.
Two generic strategies that organisations use are:
Product differentiation
Cost leadership
Product differentiation
Refers to offering products and services that are perceived by customers as being superior and unique relative to those of its competitors.
- Apple in the mobiles industry
- Coca-Cola in the soft drinks industry
Cost leadership
Is achieving low costs relative to competitors.
- achieve low costs through =
Productivity and efficiency improvements
Elimination of waste
Tight cost control
Implementation of strategy
To be successful, a company must both formulate an effective strategy and implement it vigorously.
Management accountants have an important role to play in the implementation of strategy.
This role is designing reports to help managers track progress in implementing strategy.
The balanced scorecard
Translates an organisations missions and strategy into a comprehensive set of performance set of performance measures.
Because the non-financial and operational indicators measure fundamental changes that a company is making.
The financial benefits of these fundamental changes may not be captured in short-run earnings.
Strong improvements in non-financial measures signal the prospect of creating condominium value in the future.
The tableau de bord
A management tool that is very similar to the balanced scorecard.
TdBs are founded on multi criteria models of control that use both financial and non-financial indicators.
Each member of the management team of a company has a specified TdB - ranging from the managing director with a TdB dealing with the company’s objectives and attainments to individual plant managers, with much more specific microlevel details on plant production focuses.
Quality Management
Two aspects of quality
1) Quality of design measures how closely the characteristics of products or services meet the needs and wants of customers.
2) Conformance quality refers to the performance of a product or service according to design and product specifications
Costs of quality
Refer to costs incurred to prevent, or costs arising as a result of, the production of a low-quality product.
These costs focus on conformance quality and are incurred in all business functions of the value chain.
Prevention costs
Costs incurred in precluding the production of products that do not conform to specifications.
Appraisal costs
Costs incurred in detecting which of the individual units of products do not conform to specifications.
Internal failure costs.
Costs incurred by a non-conforming product detected before it is shipped to customers.
External failure costs
Costs incurred by a non-confirming product detected after it is shipped to customers.
Non financial measures of customer satisfaction
Number of customer complaints
Detective units as a percentage of total units shipped to customers
Percentage of products that experience early or excessive failure
On-time delivery rate
Non financial measures of internal performance
Number of defects for each product line Process yield (ratio of good output to total output) Employee turnover (ratio of the number of employees who left the company to the total number of employees)
Techniques used to identify quality problems
Three methods that companies use to identify quality problems and to improve quality are:
Control charts
Pareto diagrams
Cause-and-effect diagrams
Advantages of financial measures of quality
Focus attention on the costs of poor quality
Help to evaluate quality improvement programmes
Financial measures are helpful to evaluate trade-offs between prevention costs, appraisal costs and failure costs.
Advantages of non-financial measures of quality
Often easy to quantify and understand
Direct attention to physical processes and hence focus attention on the precise problem areas that need improvement.
Provide short run feedback on quality success
Financial benefits of JIT production systems
Lower investment in stocks.
Reduction in carrying and handling stocks
Lower investment in space for stock and production
Reduction in manufacturing costs
Reduction in waste and spoilage
Higher revenue
Reduction in paper work
Product-costing benefits of JIT production systems
Reduction of overheads (e.g inspection)
Enables direct tracing of overhead costs
Easy to trace: costs of set-up, minor maintenance and quality inspection.
Multi skilled workers allow the cost of set up, minor maintenance and quality inspection to become easily traced, direct costs
Enterprise resource planning systems
The enterprise resources planning systems comprises a single database that collects data and feeds it into applications supporting all of a company’s business activity.
Importance = it is essential to support JIT since it has an impact on time.
Challenge = Find the balance between systems across all business and geographical locations and unique systems.
Sequential tracking
Entries in the same order of purchases and production.
Traditional system track costs
Backflush
Delays the recording until the good is finished.
It is attractive to companies with low stocks - JIT
It may not adhere principles of external reporting for example recognition of WIP
Adopting backflush costing
Management wants a simple cost system
Each product has a set of budgeted or standard costs
Backflush costing reports approximately the same financial results as sequential costs would generate.
Purchasing costs - costs associated with goods for sale
Costs of goods + transportation
Ordering costs - costs associated with goods for sale
Costs preparing and issuing an order
Carrying costs - costs associated with goods for sale
Costs of holding stocks (e.g storage space, insurance)
Stockout costs - costs associated with goods for sale.
When a company runs out an inter in demand.
It includes additional ordering costs + transportation.
Quality costs - costs associated with goods for sale
Costs to comply with standards (e.g prevention costs)
