CHAPTER 5

MANAGING SUPPLIERS
& CUSTOMERS

Dr. Le Hoang Oanh

Division of management accounting
LOGO
School of accounting
CONTENTS

1 4 MANAGING CUSTOMERS
SUPPY CHAIN MANAGEMENT

2 MANAGING SUPPLIERS 5 TIME MANAGEMENT

3 MANAGING INVENTORY
SUPPLY CHAIN MANAGEMENT

LOGO
SUPPLY CHAIN MANAGEMENT

v Supply chain
v Supply chain management
v Using technology to enhance supply chain
management
v Software in supply chain management

4
SUPPLY CHAIN

SUPPLY CHAIN

The interlinked organisations Demonstrate material movement

involved in the creation, throughout the process from the
distribution and sales of goods original supplier to the
or services. ultimate customer.

5
SUPPLY CHAIN MANAGEMENT

The management of the key business processes that

extend across that supply chain, from original suppliers to
ultimate customers.

6
EXAMPLE FOR SUPPLY CHAIN
MANAGEMENT

7
USING TECHNOLOGY TO ENHANCE SUPPLY CHAIN
MANAGEMENT

eCommerce
to coduct
Using electronic data business transactions

8
SOFTWARE IN SUPPLY CHAIN MANAGEMENT
Software
Enterprise Resource Planning ERP

Procurement Systems PS
Advanced Planning & Scheduling APS
Transportation Planning Systems TPS
Demand Planning DP
Customer Relationship Management CRM
Sales Force Automat SFA
Supply Chain Management SCM
Inventory Management Systems IMS
Manufacturing Execution Systems MES
Transportation Scheduling Systems TSS
Warehouse Management Systems WMS
MANAGING SUPPLIERS

LOGO
MANAGING SUPPLIERS

v Supplier relationship management

v Selecting supplier
v Analysing total cost of ownership (supplier costs)
v Evaluating supplier performance
v Supplier Performance Measures

11
SUPPLIER RELATIONSHIP MANAGEMENT

GOALS:
Minimise supplier- related to costs. Low-cost
Minimise inventory- related to costs strategy

Enhance product quality

Differentiation
Improve production lead time strategy

à developing and strengthening supplier relationships

12
SELECTING SUPPLIER
The criteria to select suppliers
§ Price
§ Quality
§ Delivery
§ Supplier’s performance history
§ Capacity
§ Communication systems
§ Geographical location

Sign a long-term contract with a reputable supplier

13
ANALISING SUPPLIER COSTS

TOTAL COST OF OWNERSHIP

Costs associated with

dealing with a particular
supplier
ü Costs of purchasing
ü Costs of holding
inventory (carrying costs)
ü Costs of poor quality
ü Costs of delivery
failure
14
ANALISING SUPPLIER COSTS

TOTAL COST OF OWNERSHIP

Costs associated with

dealing with a particular
Costs of
supplier
materials, costs
ü Costs of purchasing of ordering
inventory,
ü Costs of holding delivery,
inventory (carrying costs) receiving and
inspection
ü Costs of poor quality
ü Costs of delivery
failure
15
ANALISING SUPPLIER COSTS

TOTAL COST OF OWNERSHIP

Costs associated with

dealing with a particular Costs of rework,
scrap, returning
supplier defective
ü Costs of purchasing material to
suppliers &
ü Costs of holding downtime
inventory (carrying costs) caused by using
low-quality
ü Costs of poor quality material
ü Costs of delivery
failure
16
ANALISING SUPPLIER COSTS

TOTAL COST OF OWNERSHIP

Costs by late
delivery à
Costs associated with expediting costs,
dealing with a particular additional labor
costs to receive
supplier late or early
ü Costs of purchasing deliveries,
downtime due to
ü Costs of holding the deliveries, lost
inventory (carrying costs) CM from lost sales
due to failed
ü Costs of poor quality deliveries
ü Costs of delivery
failure
17
ANALISING SUPPLIER COSTS

ManyCP
ofSỞ
theHỮU – COST
above costsOFare hard to uncover due to be
OWNERSHIP
hidden in overhead costs in a traditional costing system,
even though they may be significant and may very different
between suppliers
à Need to be considered as selecting suppliers.

18
ANALISING SUPPLIER COSTS
3 levels of supplier activities and costs incurred by a buying org.

Unit level Order Supplier

activities level level
activities activities

- Related to faulty - Related to each order - Related to a contract

or late delivery à ordering, receiving à Quality audit to
à Internal and & inspecting; appraising quality
external failure processing & paying. processes , R&D to
costs - Independent units in understand MRG
an order processes. 19
ANALISING SUPPLIER COSTS

Ex 1 – file word

20
EVALUATING SUPPLIER
PERFORMANCE
Supplier Performance Index

Total supplier activity costs

SPI =
Total purchase price

Compare SPIs to
select suppliers.

21
ANALISING SUPPLIER COSTS

SPI = =

SPI = =

22
SUPPLIER PERFORMANCE MEASURES

Criteria Examples of measures

Delivery % orders delivered on time
Average lead time for delivery
Quality % orders rejected
Achievement of quality certification
Cost Percentage reduction in price of materials supplied
Manufacturing costs reduction targets
Organisational Implementation of team structures
change Adoption of EDI system
Relationship Supplier satisfaction surveys
Number of disputes between suppliers and the organization
resolved within 7 days
Workplace Number of days of downtime due to industrial action
relations

23
SUPPLIER PERFORMANCE MEASURES

Tiêu chí
Number of reliable suppliers
Number of new suppliers contracted
Number of suppliers that improve and innovate products
Time to respond to inquiries from suppliers

Provide timely ordering information to the supplier

% place an order through e-commerce
Reduce the number of suppliers
Number of Orders is fast expedited

24
MANAGING INVENTORY

LOGO
MANAGING INVENTORY
Why hold inventories?
Traditional approaches to inventory management
Just-in-time systems

26
WHY HOLD INVENTORIES?

Copying with uncertainties in

customer demand and in
production process

Qualifying for discounts available on

large orders
Avoiding future price increases in raw
materials
Avoiding the costs associated with
placing numerous relatively small
orders with suppliers 27
WHY HOLD INVENTORIES?
High
High interest deterioration High risk of
charges obsolescence

High inventory levels

à High holding costs

High costs of
High insurance
storage & stores High risk of cost
operations theft

HOLDING COSTS = CARRYING COSTS

WHY HOLD INVENTORIES?

Low inventory levels

Place more frequent orders

Costs of
obtaining inv
High ordering costs

Clerical & Transport Production

administrative costs costs run costs
Associated with
If produces
purchasing, accounting
components
for & receiving goods
WHY HOLD INVENTORIES?

Extra costs of urgent,

small quantity, Labour frustration
Lost contribution replenishment orders over stoppages
for lost sales
Shortage
Too low inventory levels costs
à Stockout costs

Loss of future sales

Loss of customer Cost of production
due to disgruntled
goodwill stoppages
customers
TRADITIONAL APPROACHES TO INVENTORY
MANANGEMENT
Not carry an excess
Not run out of inv & 4 Inventory amount of inv taking up
space, incur storage
suffer disruption to
control levels costs, possibly
production deteriorate with age

Consider the balance between 3 kinds of costs :

§ Ordering costs

§ Holding costs

§ Stockout costs

31
TRADITIONAL APPROACHES TO INVENTORY
MANANGEMENT
To maintain inventories at
optimum level

4 Inventory control levels

Reorder Reorder Minimum Maximum

level level
level quantity

When to reorder??
How much to reorder?? EOQ
INVENTORY CONTROL LEVEL

v Quantity of inv ordered when inv

Reorder reaches reorder level
= v If reorder quantity is set to minimise
quantity
the total costs associated with holding &
ordering inv, it is known as the EOQ
EOQ
Mathematical model

Q =

Q: Economic order quantity (EOQ), best amount to order

h: Cost of holding/unit/year
c: Cost of ordering a consignment
d: Annual demand
EOQ

Plastic pellets are purchased in 25 kilogram-bags and

4,800 bags are used each year. Each bag costs $10. The
incremental cost of placing and receiving a typical order
for plastic pellets is estimated at $60, and the annual cost
of carrying plastic pellets in inventory is $2.5 per bag.

Determine EOQ for pastic pellets.

35
EOQ

Q =

= ……… bags

36
EOQ

15-37
Total annual cost of ordering & holding
inventory

Total annual Annual demand Cost of ordering a

cost of = consignment
ordering Order quantity
and holding
inventory + Ordering quantity Annual holding
x
cost per unit
2

38
Total annual cost of ordering & holding
inventory

Ex: Determine total annual cost of ordering and holding

(carrying) inventory for plastic pellets

Total annual
cost of ordering
=
and holding
inventory
=

39
Total annual cost of ordering & holding
inventory
Ordering costs: inventory Holding (carrying) costs
that is purchased
Cost of finding suitable Storage costs (e.g.
suppliers warehouse cost)
Clerial costs of preparing Handling costs
purchase order
Transportation costs Insurance
Costs of receiving the order Spoilage and obsolescence
(e.g. unloading and inspecting)
Cost of processing the invoice Theft

Cost of expediting orders Opportunity costs of

committing resources to
inventory 40
Ordering costs: inventory is
manufactured in-house
Clerical costs of preparing the
work order
Costs of setting up for production
Preparing equipment and facilities Wages of idle workers
for production of the item
Wages of idle workers during
setup
Cost of idle machines during
setup
Cost of test runs
Stockout (Shortage) costs
Lost sales (current and future)
Costs of interrupted
production when raw
materials are not available
Extra machinery setup costs
(ordering costs)
Costs of expediting
41
INVENTORY CONTROL LEVEL – reorder level

Reorder level = Maximum usage X Maximum lead time

Time

Place an Inv
order available
for use

When inventories reach the reorder

level

à Order should be placed to

replenish inventories
INVENTORY CONTROL LEVEL – reorder level

Reorder point (reorder level) – ROP

The quantity of inventory on hand that triggers the
placement of an order from the suppliers

Reorder point = Average usage x Average lead time

43
INVENTORY CONTROL LEVEL – reorder level

LEAD TIME
For purchased inventory (material/goods): the period
between placing and receiving the purchase order.
Finished goods: the period between placing the work
order and completion of the goods.

44
INVENTORY CONTROL LEVEL – reorder level

Suppose the lead time for plastic pellets is two

weeks. Determine reorder point

ROP =

45
INVENTORY CONTROL LEVEL – reorder level
SAFETY INVENTORY (STOCK)

ü Extra inventory to cover above-average usage.

ü Increasing inventory holding costs

ü Minimise potential costs caused by shortage

Reorder Average Average Safety

= x
+
point usage lead time inventory

47
SAFETY INVENTORY (STOCK)

ü Suppose instead that weekly usage fluctuates between 86

and 106 bags. Determine reorder point

48
SAFETY INVENTORY (STOCK)

Reorder point =

49
MAXIMUM/MINIMUM INVENTORY CONTROL
LEVEL

Minimum control Reorder - (Average usage

=
level level x Average lead time)

Maximum Reorder Reorder (Minimum usage

= + -
control level level quantity x minimum lead time)
ASSUMPTIONS UNDERLYING EOQ

v Inventory usage/customer demand is known and

constant.

v Incremental ordering costs are known and are constant

per order

v Acquisition cost per unit is constant

v The entire order is delivered at one time

v Carrying cost is known and is constant per unit

v On average, one-half of the inventory order quantity is in

stock at any one time.
51
INVENTORY MANAGEMENT

Key features of Key features of JIT

JIT production purchasing

Just in time (JIT)

Is JIT too risky? Costs and benefits

of JIT

52
JIT

Comprehensive system
for controlling the flow of
manufacturing in a
multistage production
environment
JIT

Simplification of the
production process by
removing non-value-
added activities
JIT

Non-valued-added activity (not

add value to a product from the
customers’ perspective or for
the business) can be
eliminated
JIT

JIT production and inventory purchases system is pull

system – production and purchase is driven by the actual
demands of the final customer à significantly reduce
inventory.

56
 JIT
Demand for these raw material is Purchasing
signaled when there is a need in the plastic pellets
Plastic Moulding stage for more of
these inputs. This triggers for the
purchasing activity.
Demand for the production of Production Stage I
plastic components is signaled Plastic Moulding
when there is a need in the
Assembly stage for more of
these inputs. This triggers the
manufacturing activity in the Production Stage II Purchsing
Plastic Moulding stage Assembly stainless
Demand for the production of steel
cheese grater is signaled when
there is a need in the Packaging Packaging
stage for more of these inputs. The demand for these
This triggers manufacturing
materials is signaled when
activity in the Assembly stage. there is a need in
Demand for production of cheese Sales of Assembly for more of
grater is signaled when sales activity cheese these inputs. This triggers
warrants more finished units. This grater the purchasing activity.
triggers activity in the Packaging stage 57
KEY FEATURES OF JIT PRODUCTION

§ A pull method of coordinating production between

production dept & purchasing dept
§ Simplified production processes
§ Purchase of materials, and manufacture of sub-
assemblies and product in small lots.
§ Quick and inexpensive setups of production machinery
§ High quality levels for raw materials, components and
finished products.
§ Effective preventive maintenance of equipment.
§ Flexible work teams.
58
JIT purchasing
Purchase raw materials only as
they are needed à avoid costly
Inv build-ups
Reducing number of suppliers
Entering into long-term contracts –
Establishing preferred suppliers.
Specifying quality target in supplier
contract to reduce the need to inspect
all deliveries
Using e-commerce applications to place
orders electronically with suppliers, to
provide suppliers with on-line access to a
Firm’s Inv files, and to pay suppliers’
59
invoice
COSTS AND BENEFITS OF JIT

Costs

§ Increase the risk of incurring inventory shortage

§ May lead to disrupted production, the costly expediting

of materials, and lost sales.

60
COSTS AND BENEFITS OF JIT

Benefits:
§ Reduced storage and handling costs; lower insurance costs;
fewer losses due to spoilage; obsolescence and theft.
§ Eliminating all non-value-added activity, not just excessive
inventories.
§ Improve productivity, manufacturing lead times and quality.
§ Customers’ needs are satisfied more quickly and more
effectively.

61
THE ROLE OF MANAGEMENT ACCOUNTANT
IN MANAGING INVENTORY
JIT requires a range of non-financial performance
measures linked to business strategies, to supplement the
traditional, largely financial, performance measures.

62
IS JIT TOO RISKY?

63
MANAGING CUSTOMERS

LOGO
MANAGING CUSTOMERS

ü Effective management of
customers
ü Improving customers
relationships and
enhancing customer value ü Better understanding
and satisfying customers’
specific needs.

65
CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Collecting & analyzing data to understand customers’

behavior patterns & needs.
Develop strong relationship with customers
Phát triển mối quan hệ tốt với khách hàng
An effective CRM system can lead to improved
customer service, retention of existing customers, the
acquisition of new customers, more effective and
efficient marketing & sales à increased sales
revenue & customer profitability.

66
E-COMMERCE: A CUSTOMER PERSPECTIVE

Electronic relationship with customers

Transactions between a firm & its customers: be

initiated & processed over the internet

Customers: not incur expenses associated the

raising & processing purchases orders

67
EXAMPLE – E-COMMERCE

68
CUSTOMER PROFITABILITY ANALYSIS (CPA)

v Using Activity-based costing

Customer cost analysis:
to estimate the costs of doing
assigning costs of products
business with particular
purchased by the customer,
customer or with groups of
along with the costs of any
customers.
other customer-driven activities.
v Using Activity-based costing
to determine the profitability of
customers

v Customers: be grouped by
sizes, industry, market or
distribution channel. 69
CUSTOMER PROFITABILITY ANALYSIS

Customer profitability
Determining and using
analysis: accumulating &
profitability of particular
comparing the costs of all
customer (group) for a
activities used to support a
range of strategic
customer (group) with the
decisions.
revenue generated by that
customer (group)
70
HOW DO A CUSTOMER DIFFER?
DIFFERENCES IN REVENUES:

ü Different prices (different distribution

channels, different discounts)

ü Sales volumes differ

ü Different products

DIFFERENCES IN COSTS :

ü Customisation of products

ü Marketing & selling activities

ü Distribution channels
71
ü Customer support activities
WHY CALCULATE CUSTOMER PROFITABILITY?
ü Which customers generate the greatest profits? And how can we
retain those customers?

ü Which customers generate the lowest profits? And what we can to

make those customers more profitable?

ü On what types of customers should we focus our business efforts in

order to maximise profitability?

2
1

72
WHY CALCULATE CUSTOMER PROFITABILITY?

§ Improve the cost performance relative to competitors.

§ Provide a different perspective on the product profitability

and allow managers to make series of strategic decisions
about which customers, markets or distribution channels
to focus on.

§ Identify areas for cost control & cost reduction.

73
CALCULATING CUSTOMER COSTS
Determine customer costs

Use Activity-based costing

Recognize a hierarchy of customer-driven

activities to help assign costs to customer
(groups) more accurately.

q Order level activities

q Customer level activities
q Market level of activities
74
CUSTOMER PROFITABILITY EXAMPLE

q Last year, Hardy Saucepans sells two products to three groups of

customers: direct customers, small retailers and large retailers.
ABC costing has been used to analyse manufacturing activities
and determine product costs for the two products: the standard
saucepan set and the premium saucepan set. The selling prices
and manufacturing costs were as follows:

Selling price Manufacturing cost

Standard saucepan set $160 per set $30 per set
Premium saucepan set $240 per set $60 per set

75
CUSTOMER PROFITABILITY EXAMPLE
q Seven customer-driven activities have been identified with
their costs given followings:
Activity Cost
Order level
Processing an order $561,540

Delivering the product 269,500

Customer level
Sales calls 136,000

Handling customer complaints 24,000

Market level
Market research – retail market 80,000

Advertising in retail trade magazines 70,000

Advertising in consumer magazines 25,000

Total activity costs $1,166,040

76
CUSTOMER PROFITABILITY EXAMPLE
q Customer-driven activities for 3 customer group have been
shown below:
Direct Small retailers Large
customers retailers
Number of customers 50 25 4
Sales unit – standard 1,800 600 3,600
saucepan sets
Sales unit – premium 1,200 3,000 5,800
saucepan sets
Number of sales orders 2,100 72 120
Number of deliveries 2,200 110 140
Number of sales calls - 100 70
Number of complaints 95 80 25

q Required: Determine activity costs by customer group

77
CUSTOMER PROFITABILITY EXAMPLE
Activity costs
Activity Costs Cost per unit of Direct Small Large
activity driver customers retailers retailers
Order level
Processing an order $561,540
Delivering the product 269,500
Customer level
Sales calls 136,000
Handling customer 24,000
complaints
Market level
Market research – 80,000
retail market
Advertising in retail 70,000
trade magazines
Advertising in 25,000
consumer magazines
Total activity costs $1,166,040 78
CUSTOMER PROFITABILITY EXAMPLE

Customer profitability analysis

Direct Small Large Total

customers retailers retailers
Sales revenue
Costs of goods sold
Gross margin
Customer costs
Contribution to company
profits
% contribution

79
CUSTOMER PROFITABILITY EXAMPLE

Lập
Customer
đồ thị profitability
lợi nhuậnkháchgraph
hàng
ty

$1,600,000
1.600.000
profits

$1.318.500
nhuận công

1.400.000
1,400,000
1.200.000
1,200,000
company

1.000.000
1,000,000
800.000
800,000
600.000
600,000 $438.360
Đóng góp vàotolợi

400.000
400,000
200.000
200,000
Contribution

0 D customers
Direct Cus
-200.0000 Small
Small Re Large Re
-400.000 retailers retailers
$(342.900)
-600.000
80
CORE CUSTOMER MEASURES
Core Definition Examples of performance
customer measures
measure
Market share The proportion of an % org’s sales to major
organization’s sales to retailers compared with total
total industry sales industry sales to those
retailers
Change in an org’s market
share each quarter
Customer The rate at which an ü The number of new
requisition organization attracts customers
and wins new ü The sales to new customers
customers ü Sales to existing customers
as a proportion of total sales.

81
CORE CUSTOMER MEASURES

Core customer Definition Examples of performance

measure measures
Customer The rate at which a ü Sales to existing customers as a
retention business retains, or proportion of total sales
maintains, ongoing
relationships with
customers

Customer The satisfaction of ü Customer satisfaction surveys

satisfaction customers, in terms that address the level of
of specific criteria satisfaction with specific criteria,
such as product reliability,
technical support & product
features
82
CORE CUSTOMER MEASURES

Core customer Definition Examples of performance

measure measures
Customer The profit ü Change in customer
profitability attributable to a profitability per quarter.
customer or ü Proportion of loss
customer group customers compared to
profitable customers.

83
MANAGING TIME

LOGO
MANAGING TIME

§ Time-based management.

§ Measures of time:

§ Develop new products and services

§ Fulfill customer orders for products & services

§ Reliability in meeting scheduled delivery dates

§ Identifying and managing the drivers of time

85
MANAGING TIME
Time dictates the rate at
Time determines how
which products &
long resources are
services are produces tied up during
& revenue is generated processing

Time: an important driver of

both costs & revenue?
Time delays often
cause a build-up of Times for developing
inventories & new products
associated carrying
costs 86
MANAGING TIME

Time-based manangement

Focus on compressing Consider time as

the time it takes to primary focus for
undertake all of the managers’ decision.
business’ processes.

87
MANAGING TIME

Time-based manangement

Lower costs & better quality

88
MANAGING TIME

Measures of time

§ Developing new products & service

§ Fulfil a customer’s orders

Innovation: key source of competitive advantage

89
TIME FOR DEVELOPING NEW PRODUCTS &
SERVICES
New product (or service) development time: Time to market

Time from the identification of initial concept through to the

release of the product (or service) for sale.

90
TIME FOR DEVELOPING NEW PRODUCTS &
SERVICES
Break-even time (BET)

The time from the identification of an initial

concept through to when the product has been
introduced & has generated enough profit to pay
back the original investment.

Another measure of effectiveness of the new

product development process.

91
TIME FOR DEVELOPING NEW PRODUCTS &
SERVICES
Ex:
Let’s explore new product development at Hardy
Saucepans. The market for kitchen equipment, including
quality saucepans, is very competitive, with many European
brands. These products are constantly being redesigned
and relaunched with enhanced feature, such as scratch
resistance, new non-stick surfaces and durability. To remain
competitive, Hardy Saucepans must compete on the basis
of innovation, as well as cost. Hardy has been developing a
new revolutionary non-stick grill pan, the Super Grill. The
sooner this product enters the market, the better, as its
superior quality and non-stick innovation will give Hardy a
definite edge over its competitors. Hardy has a cross-
functional team working on the product design of the Super
Grill, as well as on the design of the production process. 92
TIME FOR DEVELOPING NEW PRODUCTS &
SERVICES
Ex (cont.):
It is likely that this team also have a targeted new product
development time to ensure that the Super Grill is available
in the market as soon as possible, and to provide a timeline
for planning production and marketing campaign.
The life cycle of the new product consists of four phases:
product planning & initial concept design, product design &
development, production, and distribution and customer
support. The first two phases for the Super Grill will
commence in year 1 and extend into year 2. Production will
not commence until near the end of year 2, and the product
is expected to be sold over a four-year period. The budget
for the new product extends over its expected four-year
period (called life cycle budget)
93
TIME FOR DEVELOPING NEW PRODUCTS &
SERVICES
Initial Product Investment yet to
investment (Sales revenue – be recovered
production distribution
costs)
Year 1 800,000 -
Year 2 1,700,000 750,000
Year 3
- January 265,250
- February 238,000
- March 250,200
- April 375,000
- May 373,000
- June 382,000
Determine Break-even time
94
TIME FOR DEVELOPING NEW PRODUCTS &
SERVICES
Initial Cumulative Product Investment
investment initial (Sales revenue yet to be
investment – production recovered
distribution
costs)
Year 1 800,000 -
Year 2 1,700,000 750,000
Year 3
- January 265,250
- February 238,000
- March 250,200
- April 375,000
- May 373,000
- June 382,000
95
TIME FOR DEVELOPING NEW PRODUCTS &
SERVICES
Break-even time (BET)

BET can encourage incremental projects rather

than major innovation

- Longer life cycles

- Later sales
significantly exceeding
sales early in the life
cycle
- lower development
costs
- returns more quickly,
easily & predictably.
96
TIME TAKEN TO FULFIL A CUSTOMER’S
ORDER
Order Order Order set Order Order
placed received up produced delivered

Order Production lead

receipt (cycle time) Delivery
time time

Waiting Production
time time

97
MANAGING TIME DRIVERS
Managing drivers Possible management approaches
Poorly structured - Conduct value analysis to identify and
order
remove non-value-added activities.
- Implement continuous improvement
processes.
- Use business process re-engineering to
completely redesign processes.
Bottlenecks in ü Manage throughput by identifying and
order, production resolving bottleneck resources.
and delivery ü Attempt to minimise unpredictability in
processes customer demand.
98
MANAGING TIME DRIVERS

Managing drivers Possible management approaches

Poor quality Develop a total quality management
(TQM) culture, supported by
appropriate measures of quality costs
and quality drivers.
Inefficient inventory Improve supply chain managment to
management minimise delays caused by indequate
and poor quality supplies.
Poorly structured R & - Use target costing to manage the
D processes in product design and development
developing new process.
products and services - Ensure that value engineering
minimizes production time as well as
cost. 99
MANAGING TIME DRIVERS

§ Managing drivers of time à improve time management

à managing costs (allocation bases: production lead
time)

100