Order Cost


Order cost includes all incremental costs associated with placing or receiving an extra order that are incurred regardless of the size of the order. Components of order cost include:

  • Buyer time: Buyer time is the incremental time of the buyer placing the extra order. This cost should be included only if the buyer is utilized fully. The incremental cost of getting an idle buyer to place an order is zero and does not add to the order cost. Electronic ordering can significantly reduce the buyer time to place an order by making order placement simpler and in some cases automatic.
  • Transportation costs: A fixed transportation cost is often incurred regardless of the size of the order.
  • Receiving costs: Some receiving costs are incurred regardless of the size of order. They include any administration work such as purchase order matching and any effort associated with updating inventory records. Receiving costs that are volume dependent should not be included.
  • Other costs: Each situation can have costs unique to it that should be considered if they are incurred for each order regardless of the quantity of that order.

The order cost is estimated as the sum of all its component costs. The order cost is often a step function; it is zero when the resource is not fully utilized, but takes on a large value when the resource is fully utilized. At that point the order cost is the cost of the additional resource required.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Required Organizational Performance


Required organizational performance demonstrates that the same levels of performance will produce markedly different levels of success for different organizations; and in return, that the same degree of success can be achieved by different organizations putting in different levels of performance.

Required organizational performance is based on the interplay between two key variables and suggests that by linking these two variables we can predict the level of performance that an organization must deliver to succeed.

  • Duration of competition, defined as the period of time that an organization is actively planning for, that is to say the time they willing to wait until the benefits of their decisions start to materialize. Every decision that we make comes with an attached time scale – are we willing and can we afford to invest three years in a project, or do we  want results within the next three months or even the next three days?
  • Degree of competition, which reflects the openness of the marketplace  to new entrants and how fiercely other organizations are competing for the same customers. The degree of competition is determined by the market conditions.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

The Profit Economics


The following information is required, at a minimum, to understand the profit economics of a business:

  1. How many dollars of assets are committed in each stage of each product/market business (e.g., R&D, materials, plant and equipment, finished stock, post-sale support)?
  2. What is the fixed/variable cost relationship for each product/market business, that is, for each dollar of sales, how many cents are attributable to bedrock fixed costs, how many to structured or discretionary costs, and how many to out-of-pocket costs?
  3. How do costs and profit change with swings in volume?
  4. What is the break-even point at current volume and what actions could be taken to bring that break-even point down should volume potential decline?
  5. What is the rate of incremental profit on each added increment of volume? What are the volume points where new increments of structured cost must be added?

A net profit and loss statement (after all allocations) and a balance sheet for each product line are essential for generating answers to these questions. Despite their claim that “we know all that,” very few managers actually have this information readily available.

Actually, most accounting systems are not designed to provide these kinds of statements and the accountants will argue that you can’t get them because many products run over the same machines, a lot of indirect costs can’t be allocated, and so on. To which we say, baloney! Shared fixed and indirect charges often represent the most serious cost problems in business situations where a cost disadvantage exists. And they are impossible to attack in the aggregate. They must be broken down and assigned to a discrete business unit even if done arbitrarily. Then a manager with hands-on responsibility can argue about fairness and whether there is value received for the costs involved. Although this is obviously not a precise exercise, it is effective and essential. Without full cost profit and loss and balance sheet statements managers cannot really understand the profit economics of their business. Further, they can’t make the types of intelligent business decisions and plans so important in today’s environment.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Lectures, Line of Sight

Great Managers Rely on Steps


The best managers know that their challenge is not to perfect people, but to capitalize on each person’s uniqueness. They select for talent, no matter how simple the role. Their first instinct is to trust the people they have selected. And they believe that, with enough thought, even intangibles like “customer satisfaction” and “employee morale” can be defined in terms of outcomes.

However, this does not mean they dismiss the need for steps. They don’t. A manager’s basic responsibility is to turn talent into performance. Certain required steps can often serve as the platform for that performance. These managers, in a survey, described how and when they use required steps to drive performance.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Expertise


Whaereas intelligence is a feature attributable to most people, expertise is a scarcer commodity. This scarcity gives expertise its value and makes attempting to capture expertise worthwhile. The skills needed to process a company’s payroll would not, for example, be considered expertise. Although it may make sense to program this task, the ability to process payroll is not rare. Certain areas of expertise have more practical value than others. For example, expertise in deciphering Egyptian hieroglyphics may be scarce but is of less practical value than expertise in strategic management or auditing.

 The difficulty in acquiring expertise is what usually contributes to its scarcity. Expertise must be obtained from some source (e.g., an expert). Most companies make use of expertise either by acquiring it temporarily in the form of consultants or by sending a seasoned employee from site to site.

 One of the problem in defining expertise is understanding exactly what knowledge the expert has acquired and how it can be used. Expertise can be the ability to interpet Egyptian hieroglyphics, diagnose certain diseases, or formulate a strategic plan. For computers to perform specific tasks, they must be programmed to stimulate features of expertise. The goal of an expert systems development poject is to understand and embed scarce expertise in the computer program and use it to solve specific problems.

 The first question that must be answered concerns where to find the required expertise. The time spent answering this question, acquiring the relevant knowledge, and then encoding it in a program constitutes the bulk of the development effort.

 My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Value Stream Management


Value Steram Management is a strategic and operational approach to the data capture, analysis, planning and implementation of effective change within the core cross-functional or cross-company processes required to achieve a truly lean enterprise.

 

Value Stream Mapping approach was initially developed with an underlying rationale for the collection and use of the suite of tools as being ‘to help researchers or practitioners to identify waste in individual value streams and, hence, find an appropriate route to (its) removal. The approach requires the researcher to identify the severity of a series of wastes that exist generically within a supply chain and to choose, apply and then analyse the out output from a series of appropriate contingent tools.

 

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Niche and Technology


Within each industry, each organization tries in some way to find a niche that distinguishes it from its composition. It may do this in the products or services it offers (price, quantity, quality, location, convenience, service, etc.) or in the way it offers them. Noting the ways in which an organization attempts to distinguish itself is useful, both for understanding its place in its environment (and predicting its chances of survival and prosperity) and for understanding the impact these differences may have on the people, things, activities, and space within the organization.

Technology, to a large extent, can be related to the industry a company chooses to enter. Technology means the knowledge, skill, and things required to accomplish specific kinds of work. The technology required in a bank differs greatly from that required in a grocery store, or a chemical plant, or an insurance company. Many internal factors are influenced significantly by the technological requirements of the organization. Consider the impact on the people hired, the things and space required, and their cost, as well as the work to be done and how it is divided.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact www.asifjmir.com, Line of Sight