3. APROXIMACIÓN AL DISEÑO EXPERIMENTAL:
3.7. COMPORTAMIENTO DE POBLACIONES NATURALES: ESTUDIOS DE CAMPO
Introduction
Economic Value Added (EVA)
Budget
Budgetary Control
UNIT 20: CASE STUDIES
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UNIT 16:Financial Aspects of Supply Chain Management
Notes
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Financial Aspects of Supply Chain Management
Objectives
After completion of this unit, the students will be aware of the following topics:
Supply Chain Accounting
SCMA in Practice: Sainsbury’s
Accounting and Logistics Cost: An Impediment to Supply Chain Effectiveness
Consignment Accounting
Introduction
Management accounting in supply chains (or supply chain controlling (SCC)) is part of the supply chain management concept.
This necessitates the need for planning, monitoring, management, and information provision of logistics and manufacturing processes throughout the whole value chain. The goal of management accounting in supply chains is the optimization of these processes.
Therefore, this strategy is a form of controlling, focused on the support of management.
Supply Chain Accounting
We can examine eight key Supply Chain Management Accounting (SCMA) techniques that can be used in specific supply chain situations. These techniques are as follows:
Open Book Accounting
This is where management accountants share cost information about relevant processes in the supply chain, both within and across organisations. The purpose is to identify non value adding processes that could be withdrawn without detriment to the customer – or that could even enhance customer service.
Open book accounting promotes margin improvement through cost reduction, which can be shared between partner organisations. If
Activity
Present a detailed report on the techniques used to boost competitiveness in the supply
chain management
accounting.
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Notes
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Accounting in Logistics and Supply Chain Sector
both supplier and customer share process cost information, they are more likely to be successful in identifying non-value adding processes.
Value Chain Costing
Value chain costing builds on Porter’s value chain analysis which argues that competitive advantage in the marketplace results from either better customer value for the same cost (a differentiation strategy) or the same customer value for less cost (a cost leader strategy).
A series of activities, or ‘links in a chain’ occur between a product’s design and its distribution. Management accountants need to identify where in the chain:
customer value can be enhanced
costs can be reduced or
differentiation can be achieved in the company’s segment of that value chain.
Target Costing
Here, management accountants must determine a target cost for a newly designed product or service to satisfy customer need. The target cost is reached by identifying a selling price for the product or service, and then subtracting the amount of profit margin required from that product or service by the company’s overall long-term margin requirements.
Target costing is usually implemented during the development and design phases of the manufacturing or service process. If costs are exceeded after the target cost has been set, management accountants need to identify process changes to meet the target cost.
Quality Costing
Quality costing is an important SCMA technique that aims to improve supply chain quality, both in and across organisations. It has two benefits – to reduce quality costs and to increase the quality offering to the ultimate customer. Quality costs are:
the cost of conformance (costs of prevention and costs of appraisal)
the costs of non-conformance (costs of internal and external failure).
(c)UPES, Not for Reproduction/Sale
UNIT 16:Financial Aspects of Supply Chain Management
Notes
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The intention is to reduce poor quality and waste by improved preventative measures that minimise the recurrence of failure costs and improve customer experience. Management accounting has a significant role to play because organisations can be unaware of the costs of failure.
Performance Measurement
This needs to occur throughout the supply chain, and should include both financial and non-financial measures. The balanced scorecard can be extended to include supply chain partners, because the objective is to create a far more competitive supply chain than the alternative supply chain providers of that product or service.
The balanced scorecard has its greatest impact when it drives the change process in support of the organisation’s strategic intentions.
The challenge for management accountants is how to extend the traditional balanced scorecard (financial perspective, customer perspective, internal perspective, innovation and learning perspective) across supply chain members. This demands a sound understanding of the key performance areas that will drive competitive advantage.
Make versus Buy (Outsourcing)
Traditional management accounting techniques such as ‘make versus buy’ are often used in a supply chain context, particularly when identifying opportunities for outsourcing. However, caution must be exercised, because outsourcing decisions must be made in the strategic contexts of ultimate customer satisfaction and preservation of the company’s core competences – that is, what it must be able to do to survive.
Outsourcing, where it occurs, should enhance the ultimate customer proposition. ‘Make versus buy’ accounting needs to take this broader requirement into account.
Benchmarking
Management accountants can use benchmarking to compare performance of one organisation against the best in class to provide a particular product, process or service.
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Notes
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Accounting in Logistics and Supply Chain Sector
The technique can be extended to benchmark performance across supply chains – for example, different supplier performance or different customer performance in terms of using a particular product or service.
Benchmarking is often used in conjunction with other SCMA techniques – for example, there are numerous examples of firms using Activity-based costing and benchmarking together.
Activity-based Costing
This approach to costing focuses on processes rather than functions. Finance professionals can only manage costs by managing the activities that cause the costs. The key aspect is to identify cost drivers and to allocate costs to an activity on the basis of that cost driver.
Activity-based costing collects data that cuts across traditional organisational functional boundaries. It can be used alongside continuous improvement programmes such as Six Sigma or Kaizen to create leaner and more responsive organisations and supply chains.
Activity-based costing can also be used with open book accounting and quality costing to remove non value adding processes. In terms of supply chains, it is essential to undertake Activity-based analysis, both inside and outside of traditional organisational boundaries.
SCMA in Practice: Sainsbury’s
In practice, many of the techniques above are used together.
An example is Sainsbury’s use of Activity-based costing for benchmarking suppliers as part of a value chain analysis.
Suppliers were analysed into three categories depending on the volume they delivered and the strategic importance of their products to Sainsbury’s. The three categories were core suppliers, middle to large suppliers, and small suppliers. Activity-based costing information was developed – mainly with core suppliers – to provide benchmark data and to identify development opportunities.
So management accountants should not think about SCMA techniques in isolation, but should consider which could apply to create value for the ultimate customer.
(c)UPES, Not for Reproduction/Sale
UNIT 16:Financial Aspects of Supply Chain Management
Notes
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Check Your Progress
Fill in the blanks:1. ... is where management accountants share cost information about relevant processes in the supply chain, both within and across organisations.
2. ... builds on Porter’s value chain analysis which argues that competitive advantage in the marketplace results from either better customer value for the same cost
3. ... is an important SCMA technique that aims to improve supply chain quality, both in and across organisations.
Accounting and Logistics Cost: An Impediment to Supply Chain Effectiveness
Supply Chain Management (SCM) is one of the key drivers in today’s business world with offshore sourcing, foreign competition and global markets.
The responsiveness required to keep the inbound supply chain flowing with materials and products and to keep store shelves filled is demanding. SCM requires reducing costs, increasing inventory velocity and compressing cycle time; and these three may not be compatible or consistent.
Doing all this-and doing it well-takes creativity and management skill. However there is a factor that limits the design, development and implementation of such supply chains. That factor is accounting and how it recognizes and treats logistics costs.
Accounting is an impediment for logistics whether for supply chain management, both international and domestic, for lean and for outsourcing.
Generally accepted accounting principles create the foundation so that every company reports its financial data the same way. This financial snapshot is consistent then from firm to firm. This makes analysis of the data and comparisons possible.
These accounting standards have a long history. They date back to Henry Ford and the Model A. Companies then may have been vertically integrated with a primary focus on domestic sales,
Activity
Create a draft of an assignment on the accounting and logistic cost as an obstacle in the supply chain effectiveness.
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Notes
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Accounting in Logistics and Supply Chain Sector
sourcing and production. That business model has become nearly extinct, especially for large companies. As a result, accounting rules have not kept up with present business operations and practices.
Some differences with supply chain management and accounting are:
Process versus Transactions: SCM flows across the organization. As a process, it flows across many of the company departments and boundaries. Accounting is transactions-oriented with its focus on identifying and summarizing vertical sales and make-or-buy activities.
Organization Direction: Supply chain management is horizontal and crosses departments and organization boundaries. Transactions are vertical and are consistent with organization silos.
Scope: SCM extends into suppliers and logistics service providers to gain inventory velocity and to reduce cycle time.
Accounting stays within the company facilities and boundaries and looks inward.
Outward or Inward: Supply chain management looks both company–inward and outward to deal with suppliers, transport firms, warehouses and other logistics service providers. Collaboration is important to managing the complex, global supply chain. Accounting is traditional and focuses within the corporate boundaries.
Continuous versus Discrete: SCM is ongoing. Product is always flowing. Accounting looks at different summaries which create supply chain disconnects. Logistics costs are individually recognized, not recognized at all or recognized in different places. For example, freight and warehouses show on the income statement and are recapped monthly. Inventory appears on the balance sheet and is presented annually. So three key logistics elements are dissected and shown in different financial reports. And nowhere does “time”, a vital business driver and the action that creates inventory and service, appear on any financial statement. To some extent this view of logistics costs makes accounting obsolete for supply chain management.
(c)UPES, Not for Reproduction/Sale
UNIT 16:Financial Aspects of Supply Chain Management
Notes
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Dynamic versus Static: Supply chain management is constantly changing – as suppliers, customers, plants and warehouses, shipment sizes and order mix and as store locations change. This contrasts with accounting which has the historical perspective of what has already happening. As a result, accounting does not understand changes in transportation costs, for example, because of changes in the distance inbound and outbound shipments must travel, or in the shipment size or in the mix of commodities being shipped.
These differences make it difficult to develop meaningful performance metrics for supply chain management that are recognized in the board room and that are aligned with the company strategic plan. Financial metrics, while commonly used, have limited application to supply chain management performance improvement.
For example, inventory velocity, inventory turns and inventory yield maximization are important to achieving the best returns on inventory and on the capital that it represents. Cycle time, from purchase order to sale or time within the total supply chain, are measure of company performance with strong bottom line implications. Yet none of these are part of traditional accounting measures which are rooted in the past.
Today’s business world is focused on the customer. The perfect customer order is a key performance metric for gaining and maintaining customers and for achieving deeper customer penetration. But again, these are not standard financial measure.
Similarly developing unique supply chain programs that differentiate by A vs. B vs. C inventory, or by customer or by product family segment or other delineator are not supported by accounting. Financial standards do not readily recognize such stratifications. Sourcing right decisions are also restricted by accounting which has blinders as to the potential impact of the outsourcing decision on the company and transforming its processes, operations and results.
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Notes
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Accounting in Logistics and Supply Chain Sector
Check Your Progress
Fill in the blanks:1. ... is one of the key drivers in today’s business world with offshore sourcing, foreign competition and global markets.
2. SCM extends into suppliers and logistics service providers to gain inventory velocity and to reduce ...
Consignment Accounting
The word consignment can be generally defined as the act of sending a quantity of goods by the manufacturers and producers of one country or place to their agents in another at the risk of the principals for the purpose of sale.
Goods so sent are known as “consignment”. The sender of the goods is called the consignor. Generally the manufacturers or producers are consignors. The person to whom goods are forwarded for the purpose of sale is known as the consignee. The consignment can be classified as:
Outward consignment.
Inward consignment.
It is called “outward” when the dispatch of a quantity of goods from one country to another is made for the purpose of sale and is called
“inward” when the receipt of the quantity of goods is made for the purpose of sale.
Difference between Consignment and Sale
The following are the main points of the difference between consignment and sale.
1. Transfer of Legal Ownership of the Goods: In case of sale, the legal ownership of the goods sold is transferred to the purchaser of goods. Whereas in case of a consignment of goods, the legal ownership of the goods is not transferred to the consignment but the ownership of the goods remains vested in the consignor till the goods consigned are sold by the consignee.
Activity
Develop an assignment on consignment accounting.
(c)UPES, Not for Reproduction/Sale
UNIT 16:Financial Aspects of Supply Chain Management
Notes
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2. Relationship between Consignor and Consignee: In case of a sale of goods, the relationship between the seller and the purchaser of the goods is that of a creditor and a debtor whereas in case of a consignment the relationship between the consignor and the consignee is that of a principal and agent, because the consignee is to sell goods on behalf of the consignor.
3. Expenses Incurred: In consignment, expenses incurred by the consignee in connection with the goods consigned to him are usually borne by the consignor whereas in case of a sale, expenses incurred after sale of goods are born by the purchaser.
4. Risk Attached to the Goods: In case of consignment, risk attached to the goods sold lies with the consignor till the goods consigned are sold by the consignee. But in case of a sale, risk attached to the goods sold is transferred to the buyer of goods.
5. Return of Goods: In case of consignment, return of goods is possible if the goods are not sold by the consignee. But in case of sale, return of goods is not possible as goods once sold are not returnable.
6. Requirement of Account Sale: In case of consignment, account sale is required to be submitted periodically by the consignee to the consignor. But in case of sales no account sale is required to be submitted by the purchaser to the seller.
Check Your Progress
Fill in the blanks:1. ... consignment is when the dispatch of a quantity of goods from one country to another is made for the purpose of sale.
2. ... consignment is when the receipt of the quantity of goods is made for the purpose of sale.
Summary
Management accounting in supply chains (or supply chain controlling (SCC)) is part of the supply chain management concept.
(c)UPES, Not for Reproduction/Sale
Notes
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Accounting in Logistics and Supply Chain Sector
The goal of management accounting in supply chains is the optimization of these processes. Therefore, this strategy is a form of controlling, focused on the support of management.
Activity-based costing collects data that cuts across traditional organisational functional boundaries. It can be used alongside continuous improvement programmes such as Six Sigma or Kaizen to create leaner and more responsive organisations and supply chains.
Suppliers were analysed into three categories depending on the volume they delivered and the strategic importance of their products to Sainsbury’s. The three categories were core suppliers, middle to large suppliers, and small suppliers. Activity-based costing information was developed – mainly with core suppliers – to provide benchmark data and to identify development opportunities.
Lesson End Activity
Visit a supplier and analyse the supply management accounting techniques adopted by him.
Keywords
Benchmarking: It is used to compare performance of one organisation against the best in class to provide a particular product, process or service.
Consignment Account: The consignment account is one which shows what profit or loss is made out of the dealing of the goods sent on consignment. It is the combination of the trading and profit and loss account of any particular consignment.
Consignment: It is defined as the act of sending a quantity of goods by the manufacturers and producers of one country or place to their agents in another at the risk of the principals for the purpose of sale.
Open Book Accounting: It promotes margin improvement through cost reduction, which can be shared between partner organisations.
(c)UPES, Not for Reproduction/Sale
UNIT 16:Financial Aspects of Supply Chain Management
Notes
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Quality Costing: It aims to improve supply chain quality, both in and across organisations. It has two benefits – to reduce quality costs and to increase the quality offering to the ultimate customer.
Value Chain Costing: It is built on Porter’s value chain analysis which argues that competitive advantage in the marketplace results from either better customer value for the same cost (a differentiation strategy) or the same customer value for less cost (a cost leader strategy).
Questions for Discussion
1. How accounting in supply chain can boost competition?
2. “Inventory measures reflect in part, the success in structuring supplier relationship to optimize inventory at the buying company”. Discuss the aptness of the statement with example to justify your response.
3. Distinguish between a sales and consignment.
4. Explain accounting and logistics cost: an impediment to supply chain effectiveness.
Further Readings
Books
Anthony R. N. and Reece J. S. Accounting Principles, 6th ed., Homewood, Illinois, Richard D. Irwin, 1995.
Bhattacharya S. K. and Dearden J. Accounting for Management–
Text and Cases, New Delhi, Vikas, 1996.
Hingorani, N.L. and Ramanathan, A. R., Management Accounting, 5th ed. New Delhi, Sultan Chand, 1992.
Hingorani, N.L. and Ramanathan, A. R., Management Accounting, 5th ed. New Delhi, Sultan Chand, 1992.