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... ment is required in training employees, maintenance of equipment and integrating with suppliers. With this embedded into the processes the goal of achieving zero defects can be achieved. Executives claim that manufacturing costs decrease as quality increases thus a continuous drive to reduce product defects will enhance the long run productivity of the production process. Managers tend to use the economic order quantity (EOQ) model which helps in determining the cost balance between an additional set-up (for a new production run or change of product) to the cost of holding inventory.
If set-up costs could be driven to zero and by just-in-time inventory control systems implementation firms would hold less inventory and raw materials. These would result to lesser costs in holding material that has no value being added to it. In addition, reducing uncertainties in deliveries from suppliers through close co-ordination can enable factories to run without any raw materials in stock. Reducing machine breakdowns also contributes significantly toward reducing work-in-process (WIP). Thus by investing in information systems and integrating with suppliers, inventory costs can be reduced significantly and accurate information on the company's manufacturing performance can be obtained. Productivity measures for manufacturing performance have not yet been considered as part of the information that will help managers in decision making and control activities.
These measures should be a supplement to financial measures that highlight improvements. Developing new productivity measures would thus be a fruitful field for accountants. There are companies present whose competitive strategy is based on the introduction of new products with unique characteristics, rather than producing mature products with lower costs. These companies will only succeed if their products are introduced at the right time and have features that are desired by their customers. Companies that are forced to produce these products on existing line, due to lack of space, will have to directly monitor the performance, quality and delivery and disregard traditional measurements which put an emphasis on efficiency.
The attitudes, skills and morale of employees are important if companies are to succeed in achieving their goals. Investing in skills training, conducting surveys of employee attitudes etc by human resources are all critical if employees are to share company goals. It is clear from the above indicators of manufacturing performance that non-financial measures are essential in rejuvenating mature businesses to become world-class. Executives are also aware that traditional accounting measures like ROI can give misleading information on continuous improvement and innovation which current competitive environments demand.
Managers want a balanced presentation of both financial and operational measures which led Kaplan and Norton to devise a balanced scorecard that incorporated both such measurements. The scorecard aids the building of a comprehensive picture of the company's health and effectiveness in achieving its goals. The balanced scorecard includes financial measures that produces results on actions already taken and is complemented by operational measures on customer satisfaction, internal business processes, innovation and learning activities. It is these operational measures that will fuel the performance of future financial measures.
The balanced scorecard yields several benefits, including the ability to bridge the gap between objectives of high level executives and those of front-line workers whose performance is ultimately responsible for reaching the company's goals. Rather than focusing on short-term financial results, which can blind management to internal efficiency and lead to continued revenue losses, chief executives can benefit by using the balanced scorecard as a strategic management system for translating strategy into action at all levels of the enterprise. The four measures will be discussed further below: 1. Customer Perspective: How do customers see us? Many companies want to achieve 100 % customer satisfaction. To do so, they must translate the strategy (that achieves this) into specific measures that will reflect on factors that are really important to customers.
Kaplan and Norton recognise time, quality, performance and service as the four key categories. Lead-time measures are to do with the time taken for the company to deliver a product or service upon request by the customer. Quality measures the number of defects produced and the quality complaints received by customers. Performance and service measures how much value the product or service is giving to the customer. In addition, carrying out regular surveys in the company ranking as seen by customers, customer satisfaction indexes and market share statistics will also aid in identifying new measures that need to be taken. 2. Internal Business Perspective: What must we excel at internally?
If all the customer requirements have been identified, the company must look at its internal processes for achieving these needs. Companies must identify their core competencies and define measures that will help them to excel at them. Measures for factors such as quality, delivery, cycle time and productivity, which have the greatest impact on customer satisfaction, should be translated to the shop floor levels, as this is where goals can be achieved. 3. Innovation and Learning Perspective: How do we learn and innovate? In today's global environment, companies must make their processes more efficient, innovate new products (either through radical or incremental innovation strategies) that create more value to customers and make continuous improvements on mature products and services. By reducing the time to market new innovative products, companies are able to gain market share and penetrate new markets.
Employee suggestions are a good method of obtaining ideas in how to make processes efficient. 4. Financial Perspective: How do we look to shareholders? Financial measures indicate how healthy a company is. Typical measures are return on capital employed (ROCE), cash flow and shareholder value. This is a critical measure, as managers need to translate the improved operational performance into financial performance e. g.
if cycle times were reduced significantly this would result in an increase in capacity (excess capacity) which need to be utilised or discarded, otherwise the true financial benefits will not be realised. Utilisation of excess capacity can be through expanding sales into new and existing markets, which will add to revenues without significant rise to operational expenses. By combining financial, customer, internal and innovation perspectives, the balanced scorecard helps managers in problem solving and decision making. Managers should, if possible, integrate the scorecard into their planning and budgeting processes. In this way, the scorecard helps managers align their business units as well as their financial and physical resources, to the strategy of the whole organisation. The integrated planning and budgeting process directs capital investments, capital initiatives and discretionary expenses to achieving ambitious targets for the objectives and measures on the business unit's scorecard.
The balanced scorecard has helped companies like Rock water's achieve its mission of being the industry's leader. Present cost accounting and management control systems were developed almost a century ago when the nature of competition and demands for internal information were very different from what they are today. Accounting and financial executives must redirect their thinking from external reporting to the more effective management of their companies' tangible and intangible assets. Internal management accounting systems also need renovation.
This essay has highlighted the ways in which these can be done. Bibliography:
Free research essays on topics related to: decision making, raw materials, product or service, customer satisfaction, balanced scorecard
Research essay sample on Product Or Service Balanced Scorecard
