Advanced Management Accounting Week 4 Lecture Textbook reference: Langfield-Smith, K., Thorne, H. and Hilton RW (2012), Management Accounting, Information for Creating and Managing Value, 6th Ed.,...

Advanced Management Accounting Week 4 Lecture Textbook reference: Langfield-Smith, K., Thorne, H. and Hilton RW (2012), Management Accounting, Information for Creating and Managing Value, 6th Ed., McGraw Hill Australia Pty Ltd, North Ryde NSW Chapter 15 Managing Suppliers and Customers Managing suppliers and customers ? Supply chain management ? Managing suppliers ? Managing inventory ? Managing customers ? Managing time 2 Supply chain management (SCM) ? SCM is the management of key business processes that extend across the supply chain, from the original suppliers to final customers ? The supply chain ? Interlinked customers and suppliers that work together to convert, distribute and sell goods and services among themselves, leading to a specific end product ? SCM can involve managing costs, accelerating time-tomarket of new products, creating close relationships with customers and suppliers 3 Supply chain management (SCM) ? Ecommerce—use of electronic transmission media to engage in the buying and selling of goods and services ? B2B—ecommerce activities between two businesses ? Electronic data interchange (EDI) links a firm’s computer system to suppliers/customers to allow electronic purchasing and buying ? Enterprise resource planning (ERP) systems support different functional areas of a business and enable SCM 4 2 Managing suppliers ? Improved supplier relationships can reduce supplier and inventory-related costs ? Selecting suppliers ? Based on a range of criteria ? Price, quality, delivery, performance history, capacity, communications systems and geographical location ? Long-term supply controls and preferred suppliers 5 Analysing supplier costs ? The total cost of ownership is the total cost of dealing with suppliers, including ? Purchase price ? Costs of purchasing—ordering, receiving and inspection ? Costs of holding inventory ? Costs of poor quality ? Costs of delivery failure 6 Evaluating supplier performance ? Supplier performance index: the ratio of supplier costs to total purchase price ? Measures include ability of supplier to supply at the contract price, material quality, delivery performance, quality of relationships between employees, union and management ? A buyer may also assess their own performance in relation to the management of the supplier 7 8 3 Managing inventory ? Why hold inventory? ? Cope with uncertainties in customer demand and in production processes ? Qualify for quantity discounts ? Avoid future price increases in raw materials ? Avoid the costs of placing numerous small orders ? Conventional approaches to inventory management focus on balancing ? Ordering costs: incremental costs of placing an order ? Carrying costs: the costs of carrying inventory in stock ? Shortage costs (or out-of-stock costs) 9 Economic order quantity (EOQ) ? The optimum order size for individual inventory items, to minimise the total ordering and carrying costs 10 15-11 Economic order quantity (cont.) Contemporary inventory management: Just-in-time (JIT) systems ? JIT inventory and production system ? A comprehensive system for controlling the flow of manufacturing in a multi-stage production environment ? The underlying philosophy: simplify the production process by removing non-value-added activities ? JIT can cover all aspects of the production process ? Inventory management is crucial ? Inventory is a major cause of non-value-added activities and cost