Modern Business Environment and Management Accounting

What is Modern Business Environment ?

The modern business environment has changed drastically in a short time. Business technology has advanced business functions and operations to levels not previously believed possible. The role of accounting and business is perhaps one of the most reliable functions in business. While a few basic procedures or methods have changed, the purpose of accounting remains the same. Business owners often use accounting to measure their company’s financial performance and make business decisions.

Modern Business VS Traditional Business

Modern Business Traditional Business

Highly competitive environment Relatively simple production technology

Use of robotics Mostly manual

Initiate new industries Little innovation

Change in focus towards customer, quality and value

Concerned primarily with internal matters

Flexible production system Labour and material costs were easily identifiable

Just In Time An inventory strategy companies employ to

increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs

JIT Production : - a production system driven by demand for Finished Goods where each component on a Production Line is produced ONLY when needed for the Next Stage

JIT Purchasing : - a purchasing system where Material purchase is contracted in such a way that Receipt & Usage of material, to max. extent possible, COINCIDE.

Characteristics of JIT Production & JIT Purchasing

JIT Production JIT Purchasing

Reduction storage spaces needed to store materials

Flexible work teams

Reliable delivery schedules Defects aggressively eliminated

High quality materials used Setup & manufacturing cycle time reduced

Long-term agreements needed with few suppliers

Simplified production processes

Reduction storage spaces needed to store materials

Purchase in small lots

Advantage & Disadvantage of Just In TimeAdvantage Disadvantage

Increase in cash flow Danger of lost sales

Less space required for stock

Less time for quality control on arrival of materials

Reduction in stockholding costs

Increased ordering and admin costs

Closer relationships with suppliers

High dependence on suppliers

Total Quality Management (TQM)

Total Quality Management (TQM) is a comprehensive and structured approach to organizational management that seeks to improve the quality of products and services through ongoing refinements in response to continuous feedback.

Seeks to ensure that goods produced & services supplied are of Highest Quality .

Types of quality cost

Quality costs or cost of quality is a means to quantify the total cost of quality-related efforts and deficiencies.

External Failure Cost: Cost associated with defects found AFTER the customer receives the product or

service. Example: Processing customer complaints, customer returns, warranty claims, product recalls.

Internal Failure Cost: Cost associated with defects found BEFORE the customer receives the product or

service. Example: Scrap, rework, re-inspection, re-testing, material review, material downgrades

Inspection (appraisal) Cost: Cost incurred to determine the degree of CONFORMANCE to quality

requirements (measuring, evaluating or auditing). Example: Inspection, testing, process or service audits, calibration of measuring and test equipment.

Prevention Cost: Cost incurred to PREVENT (keep failure and appraisal cost to a minimum) poor

quality. Example: New product review, quality planning, supplier surveys, process reviews, quality improvement teams, education and training

Six Key Features of TQM 1- Customer-oriented : - TQM focuses on

customer satisfaction through creation of better quality products and services at lower costs.

2 - Employee involvement and empowerment: Teams focus on quality improvement projects and employees are empowered to serve customers well.

3 - Organization-wide : - TQM involves every department or division.

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4 - Continuous improvement: - Quality improvement is a never-ending journey.

5 - Strategic focus : - Quality is viewed as a strategic, competitive weapon.

6 - Process management : -TQM adopts the concept of prevention through process management.

Benefits of TQMTQM has numerous benefits. It enables organizations to: attain higher profitability and increased market

share improve customer satisfaction improve organizational productivity improve employee morale and job satisfaction create a positive work culture undertake systematic problem solving and

decision making through project teams improve teamwork create a climate conducive to continuous

improvement

Computer integrated Manufacturing (CIM)

CIM is the integration of the total

manufacturing enterprise through use of

integrated systems and data communications

coupled with new managerial philosophies

that improve organizational and personnel

efficiency.

Types of CIM system

Computer Aided Design (CAD) Involves the use of computers to create design

drawings & product models. Computer Aided Engineering (CAE)

The broad usage of computer software to aid in engineering tasks

Computer Aided Manufacturing (CAM) The use of computer software to control

machine tools & related machinery in manufacturing of work pieces.

http://en.wikipedia.org/wiki/Computer-integrated_manufacturing

Computer Aided Process Planning (CAPP) The use of computer technology to aid in the process

planning of a part of product, in manufacturing. Computer Aided Quality Assurance (CAQ)

Engineering application of computers & computer controlled machines for the inspection of the quality of products.

Production Planning & Control (PPC) Concerned with planning & controlling all aspects of

manufacturing, including materials, scheduling machines & people, & coordinating suppliers & customers.

Enterprise Resource Planning (ERP) Systems integrate internal & external management

information across an entire organization, embracing finance/accounting, manufacturing, and sales & services.

Benefits of CIM improves production productivity by 40 to 70

percent, as well as enhances engineering productivity and quality.

also decrease design costs by 15 to 30 percent, reduce overall lead time by 20 to 60 percent, and cut work-in-process inventory by 30 to 60 percent.

there is a direct relationship between the efficiency of information management and the efficiency and the overall effectiveness of the manufacturing enterprise.

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