Journal PAPER REVIEWS

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Transfer Pricing 1 Target Costing 2

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Customer Profitability Analysis 3 Finding a Common Language for Disaster-resistant Supply Chains 4 5 The New Science of Financial Retailing 5 4

What is an International Transaction? An international transaction is essentially a cross border transaction between AEs in any sort of property. the Finance Act. Therefore.How Identified? The basic criterion to determine an AE is the participation in management. Transfer pricing is a fundamental principle used in assigning value and revenue attribution to the various business units. A and Mr. Accordingly. if Mr. The participation may be direct or indirect or through one or more intermediaries. and control over various components of the business activity performed by the taxpayer such as control over raw materials. 1961 which guides computation of the transfer price and suggests detailed Documentation procedures. control or capital (ownership) of one enterprise by another enterprise. It even applies to transactions involving a mere book entry having no apparent financial impact. 2001 Introduced law of transfer pricing in India through sections 92A to 92F of the Indian Income tax Act. generally it applies to all cross border transactions entered into between associated enterprises. At least one of the parties to the transaction must be a non-resident entering into one or more of the following transactions . blood relationships. controlled or owned either directly or through an Intermediary. then Enterprise B is said to be an AE of enterprise A. Hence. Importance of transfer pricing • Substantial Growth in trade between Multinational Enterprises (MNE) globally • Different Tax rates and rules between States • Tax is a cost of the Total MNE • MNE’s concern is overall Profitability in a worldwide basis Associated Enterprises ('AEs'). B control both Enterprise A and Enterprise B then both Enterprise A and Enterprise B AEs. there was a need to introduce a uniform and Internationally accepted mechanism of determining reasonable. lending of money etc. It appears that one may go to any layer of management. The aim is to arrive at the comparable price as available to any unrelated party in open market conditions and is known as the Arm's Length Price ('ALP'). fair and equitable profits and Tax in India in the case of such multinational enterprises. but also through debt. whether tangible or intangible. if enterprise B is managed.1 ARTICLE 1 TRANSFER PRICING Introduction Increasing participation of multi-national groups in economic activities in India has given rise To new and complex issues emerging from transactions entered into between two or more enterprises belonging to the same group. SCOPE & APPLICABILITY Transfer Pricing Regulations ("TPR") are applicable to the all enterprises that enter into an 'International Transaction' with an 'Associated Enterprise'. Further. The concept of control adopted in the legislation extends not only to control through holding shares or voting power or the power to appoint the management of an enterprise. control or ownership in order to find out association (a) Direct Control (b) Through Intermediary For instance. sales and intangibles. or in the provision of services.

losses or assets (e) Mutual agreement between AEs for allocation/apportionment of any cost. The taxpayer can select the most appropriate method to be applied to any given transaction. a variance allowance of 5 percent has been provided under the TPR. With a view to allow a degree of flexibility in adopting the ALP. The ALP is to be determined by any one or more of the prescribed methods. In such a case the transaction with the unrelated enterprise will also be subject to TPR. An illustration of a distant 'International Transaction' could be where a resident enterprise exports goods to an unrelated person abroad. The prescribed methods have been listed below (a) Comparable Uncontrolled Price Method ('CUPM') (b) Resale Price Method ("RPM') (c) Cost plus method ('CPM') (d) Profit Split Method ('PSM') (e) Transactional Net Margin Method ('TNMM') 2 ARTICLE 2 Target Costing: . sale or lease of Tangible or Intangible Property (b) Provision of services (c) Lending or borrowing of money (d) Any transaction having a bearing on profits. and there is a separate arrangement or agreement between the unrelated person and an AE which influences the price at which the goods are exported. but such selection has to be made taking into account the factors prescribed in the TPR. METHODS OF DETERMINING THE ALP In accordance with internationally accepted principles. contribution or expense.(a) Purchase. which is the price that would be charged in the transaction if it had been entered into by unrelated parties in similar conditions. the TPR have provided that any income arising from an international transaction between AEs shall be computed having regard to the ALP. income.

Target Costing is a disciplined process for determining and achieving a full-stream cost at which a proposed product with specified functionality. The system of Target Costing: The long and medium term profit plans for the whole company are computed and also the overall target profit for each period is determined for each product.(Fisher 1995. With such changes the cost management methods should be useful for the development of products that meet the key requirements of the customers at lowest cost possible as well as cost reduction of the current products by eliminating wastes. Target costing is the system to support the cost reduction process in the development and designing phase of new models. The manufacturing is carried out according to the target cost determined by the management. comprehensive system for cost reduction and strategic profit planning. from this price a profit margin is deducted and the result is TC.high appreciation of Yen currency. schmelze 1996) I would take the example of the automobile industry to explain this better. Kaizen Costing is the system to support the cost reduction process in the manufacturing of the existing models. In the Japanese automobile companies target costing and KAIZEN costing are linked together which form the total cost management system.(jstor^) TC= Target Profit – Market price. Target Costing is the reverse of target price because here the price is known or can be found out from the market due the competition of homogenous products. costing and price determination.1993). since that time it has become recognized as a dynamic. Changes in current economic and competitive conditions have created a need for a market oriented cost management system. The environmental changes in Japanese automobile companies.(Ansari & Bell 1997) The concept of TC was first originated in Japan at Toyota motor corporation 1960. TC takes place at the design stage of new product development and takes all the ideas for cost reduction during the product planning and R&D process (Kato. The competitive strategy that the company choosesand the TC depends upon the manner with which the company wishes to compete in its product market.are severe. In the 3 year profit plan : Marginal income= Selling price – variable costs Contribution margin= Marginal income – Fixed costs Operating Profit= Contribution margin – Fixed costs .(wikipedia)TC contradicts the traditional approach of production. For Ex a low cost strategy works well when the competition is intense and the organisations provide homogenous products. performance. It is based on the company’s strategy. the shortening of the product life cycle . a full model change or a mirror model change. To control costs of new products. product design. the diversification of demand and keen competition. Target costing is not a costing system rather it is a program aimed at reducing the life cycle costs of new products while ensuring customer requirements of quality and reliability. and quality must be produced in order to generate the desired profitability at the product’s anticipated selling price over a specified period of time in the future.

Target profit= Target sales price + allowable cost(AC) AC is the cost that the top management strongly desires to attain. Timewell (1994) continued this theme into the 1990’s when he regarded a customer focus as being “the critical success factor of the 1990’s” (p. Developing the project plan: The merchandizing department presents its wish for the development of a project to the planning department which is discussed by the top management and the product planning proposal is made . Determining the basic plan for a new product: In this the major cost factors like design and structure are determined and target costs are established. from this the target profit is calculated. .These give the figures for the development of models.29). the cost management team estimates the cost of the plan and finds out if they can attain the target profit. Based on this the profits are planned for each of the models in production. At the same time target price is gathered from the auto division(both foreign and domestic) . 3 ARTICLE 3 CUSTOMER PROFITABILTY ANALYSIS INTRODUCTION In the early 1950’s Drucker argued that the only reason for a company to be in business was for the customer (Drucker 1954).

However. ANALYSIS TECHNIQUES There are certain analysis tools that are used in developing customer profitability and gain understanding of a company’s customer diversity. WHY CUSTOMER PROFITABILTY ANALYSIS? It is considered good industrial marketing practice to build and nurture profitable relationships with customers. 1993. 1990. such that the profitability of those segments and/ or individual customers can be calculated. The result will be the total cost associated with the customer. it was argued that this form of analysis was too simplistic and other authors suggested that firms move to second generation analysis. a) Resource costing. 1989). CPA can deliver such knowledge. Customer profitability analysis (CPA) refers to the allocation of revenues and costs to customer segments or individual customers. The analysis is first developed by assigning the costs to the products. Foster et al 1996).In order to react and respond to customer needs firms must have information on their customers. Bellis-Jones. The early literature concerning customer profitability analysis focused on the use of first generation analysis (Foster and Gupta 1994). . assets and liabilities of an organization to the customers who cause them. This is where customer profitability analysis (CPA) is useful. The second step is to assign to customers expenses and assets that are driven by the marketing and sales process. WHAT IS CUSTOMER PROFITABILITY ANALYSIS? With any given customer base there will be differences in the revenues customers generate for the firm and in the costs the firm has to incur to secure those revenues. as well as what customer segments offer higher potential for future profitable customer relationships. To be able to do this. Information on the profitability of customers (and products) is considered to be one of the most important types of customer information (Howell & Soucy. While most firms know about the customer revenues. a firm should know how current customer relationships differ in profitability. 1994. expenses. many are unaware of all the costs associated with customer relationships. OBJECTIVES AND APPLICATIONS The objective of a CPA is to assign the revenues. This cost is then compared with the customer’s revenue stream to determine the profitability. Foster and Gupta. which identified the lifetime value of customers (Storbacka.

. bonus plans and discounts to customers. rather than reactive or tactical. FINDINGS . POTENTIAL BENEFITS OF CPA 1. forcing slowdowns in their production scales and frustrating buyers.Resource costing simply combines activity analysis and direct costing techniques to assign resources in a logical way to customers or to products. CPA opens up possibilities for segmentation and targeting strategies based on cost and profitability profiles. leading discussion groups such as the World Economic Forum (WEF) and the Council for Supply Chain Professionals (CSCMP) have been intensifying their efforts to create comprehensive frameworks and common standards for evaluating and enacting risk-mitigation initiatives that are pro-active and strategic. CPA provides basis for well informed prcing decisions. airline flights across the Atlantic were disrupted for days. In these cases and others. 4 ARTICLE 4 Finding a Common Language for Disaster-resistant Supply Chains BY:-Tom Gerrad ABSTRACT When Iceland's Eyjafjallajökull volcano erupted in 2010. many companies have been hampered by the fact that there was no way to forecast where and when the next natural disaster would occur. and global supply chains for products like fruits and fresh flowers were severely interrupted. 2. CPA uncovers opportunities for targeted cost management and profit improvement programs. When a tsunami and nuclear meltdown hit northern Japan in 2011. It shows why filling some orders cost more than others and enables firms to have their prices reflect those differences (Shapiro et al. automakers and electronics manufacturers in Asia and North America lamented that some key suppliers could not comply with their delivery dates. Spurred by a sharp increase in concern about extreme weather events. b) Nine Box profile It is an analytical tool used to gain understanding about a company’s customer diversity. 3. 1987).

For this retailers have the data they need to manage supply chains more efficiently and increase sales and profits but analytics are required for transforming the supply chain and improving the performance. relationship of the stock market valuation of a retailer have to its ability to manage its inventory. "the need to build greater agility and flexibility into resilience strategies. the need for a "common vocabulary" when talking about risk. retailers are hard-pressed to increase revenues. or they lack the resources to tackle its increased complexity. adaptable strategies to improve common resilience" and "expand the use of data sharing platforms for risk identification and responses. Among the biggest challenges retailers face is matching supply with demand. second. The author covers topics of retailing such as how to match supply and demand. People have various definitions of what risks are to them.The report also outlined three "must-have" requirements that have emerged from WEF-sponsored workshops and dialogues held in recent months: First. mobilize international standards bodies to "further develop. either because they don't understand the increasing vulnerability of their global supply chains. Stock excess is just as problematic and leads retailers to heavily discounted pricing. incentivize organizations "to follow agile. inflexible supply chains becoming the bane of all retailers ISSUES COVERED . 5 ARTICLE 5 The New Science of Financial Retailing Marshall Fisher ABSTRACT In today's economy. Many smaller companies have yet to cope up. C) Risk management must be an explicit but integral part of supply chain governance. harmonize and encourage the adoption of resilience standards"." Sophistication and market calibration should never be pursued at the cost of robustness. B) The report made key recommendations: institutionalize "a multi-stakeholder supply chain risk assessment process rooted in a broad-based and neutral international body". It is hard to communicate with people without having a common language and structure to think about supply chain operating risks b) He did not suggest how smaller companies will cope up with risk management in supply chain management. and third." GAPS a) Author did not mention about a formal structure about the definition of risks. the need for improved data and information among those involved with supply chains.

or the quantity and experience of the store associates. The author also does not mention which are the strategies and the relevant data that has to be collected for getting the right mix of profit and sales for retailing which is important for the retailers in doing their basics right. Retailers should work with a number of volunteers who collected customer satisfaction data. A culture that understands and promotes the capabilities of analytics to shape favorable outcomes needs to be built. Retailers need to move beyond adding technology solutions on top of existing processes and cultures and expecting analytics to work miracles. You need more accurate forecasts. A number of factors have caused supply chains to become inflexible over time. GAPS The author did not mention the plan or methodology in implementing the various techniques in implementing the above solutions. to make decisions. . Retailers. as well as the arena they operate in. The author does not mention the importance of good strategic assessing of the position of every company and its competitors. on shopping experience. have not had sufficiently granular data on what stock levels are existing at their outlets and donot know what are the item sales level. the lowest rung of the organizational ladder. which means short lead time. These issues can be sorted out by getting staffing levels right in the store. the ability to supply the quantity the market needs efficiently. better choice of the right inventory levels and a flexible supply chain. A steady investment in analytics is vital for retailers to understand their performance. predict trends and subsequently enhance sales and profit. But probably the biggest one is the pursuit of low cost by sourcing from Asian countries. Retailers must empower product teams in the trenches. surveys from their customers.This paper covers that Retailers seem to be struggling to make sense of the variable data at their disposal. which might be a lot.

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