THE BALANCED SCORECARD

Discuss about the Balanced Scorecard.

The Balanced Scorecard (BSC) helps companies determine specific measurements to balance their financial perspective. BCS enables organizations to clarify their vision and strategy and. then translate them into action The BSC approach originates from a multi company stay conducted during 1990. Researchers believed traditional financial accounting measures were not sufficient to improving businesses. These accounting systems needed to be changed. Representatives from a dozen different organizations (manufacturing, service, heavy industry, and high tech) met bimonthly. They developed a new performance measurement/ accounting model. They believed this model would help organizations create future economic value. Through various iterations and implementation experiences in a variety of organizations, the model evolved to its current format as a strategic management tool. The current BSC accounting requires much more than relying on past performance financial measure merits. The company needs a wider measurement system to navigate through the competitive, technological, and capability-driven future
How it works

Essentially, BSC complements financial measures of past performance with additional measures of future performance drivers. In total, there are four perspectives reflected in the BSC 1) Financial 2) Customer 3) Internal business processes
4) Learning and growth : The Balanced Scorecard helps YOUR organization accomplish the following : 1. Clarify and, translate business strategy

A team of senior executive managers translates business unit strategies into specific strategic objectives. In formulating these objectives, the team clarifies the organizational vision and gains consensus. This team-based step in the BSC creates a shared model for the entire organization.
Communicate and link strategic objectives with the measures

Management communicates the strategic objectives and measures throughout the company. Communication includes newsletters, bull: tin boards, videos, presentations, normal, meetings, etc .This tells all employees that strategic objectives must be met for the organizational strategy to succeed. After understanding the high-level objectives for their business units, employees develop local actions to align their units to the strategic objectives. Plan, set targets, and align strategic initiatives Senior executives set ambitious targets for the scorecard measures (e.g., ones that would dramatically increase the stock price if the company is public, ones that double the return on investment capital, ones that double the growth rate). Next, managers identify stretch targets for their customer, internal business processes, and learning and growth objectives. Customer satisfaction measures and benchmarking can be used to develop the objectives. Managers then identify all the required initiatives to achieve the strategic breakthrough objectives.

Enhance strategic feedback and learning

This step provides for organizational learning. Monthly and quarterly management reviews examine financial targets as well as the other balanced scorecard measures. Monitoring allows adjustments to support business units, or, if necessary, fundamental changes in the strategy

The four area of the Balanced Score Card

1. Financial perspective

Financial measures summarize the readily measurable economic consequences of actions already taken. They answer tae question: Is the organization's strategy, deployment, and implementation contributing to bottom line improvement? Examples of financial indicators include: > Economic value added (EVA). > Generation of cash flow. > Operating income. . . > Rapid sales growth. > Return, on capital employed. > Return on net assets (RONA).
2. Customer perspective .
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Through the customer perspective, business unit managers identify the competing customer and market segments. They then select performance measure for these targeted segments. Examples of core customer measures are: > Customer satisfaction. > Customer retention. > New customer acquisition. . > Customer profitability. > Market and account share for the targeted segments.
3. Internal business process perspective

The internal business process perspective answers the question: What the critical internal business processes in which the organization must exact Internal business process measurements enable the business unit to: > Deliver value propositions that attracts and retain customers in the tart market segments.

> Satisfy shareholder expectations of superior financial returns. The Balanced Scorecard approach usually identifies entirely new processes at which the company must execute meet customer and financial objectives. The Balanced Scorecard approach also attempts to incorporate innovation
4. Learning and growth perspective

The learning and growth perspective identifies the infrastructure the organization trust build to create long-term growth and improvement. The three principal sources of organizational growth and learning are people, systems, and organizational procedures...The company identifies gaps between existing capabilities of people, systems, and procedures and the actions required to achieve breakthrough performance. To close gaps, the organization must invest in re-skilling employees, improving information technology and other support systems, and aligning organizational procedures and routines.

The value of using the Balanced Scorecard

The combining financial and nonfinancial measures is not unique to the Balanced Scorecard method. But in traditional applications, organizations use financial and nonfinancial measures primarily for tactical feedback and control of short-term operations. The Balanced Scorecard provides more than a tactical or operational measurement system. Innovative organizations use BSC as a strategic management system to manage strategy for long-term benefits. All together, the Balanced Scorecard translates organizational vision and strategy into objectives and measures across a balanced set of perspectives. In addition to financial measures, the Balanced Scorecard helps an organization measure... > > How business units create value for current and future customers. How internal capabilities must be enhanced.

> What investments must be made for people, systems, and procedures to improve future performance

KANBAN
Discuss about Kanban.

Definition and Explanation A Kanban system is a means to achieve just in time (JIT) production. It works on the basis that each process on a production line pulls just the number and type of components the process requires, at just the right time. The mechanism used is a Kanban card. This is usually a physical card but other devices can be used Two types of such cards are usually used. A withdrawal Kanban : Specifies the kind and quantity of product which a manufacturing process should withdraw from a preceding process. This card (illustrated below) shows that the preceding process which makes this part is forging, and the person carrying .this card from the subsequent process must go to position B-2 of the forging department to withdraw drive pinions. Each box of drive pinions contain 20 units and the shape of box is "B". This Kanban is the 4th of 8 issued. The item back number is an abbreviation of the item.

Withdrawal Kanban

A production ordering Kanban: Specifies the kind and quantity of the product which the preceding process must produce. The one illustrated below shows that the machining process SB-8 must produce the crankshaft for the type X50BC-150. The crankshaft produced should be placed at store F26-18. The production ordering Kanban is often called an in-process or simply a production Kanban.

Example of Production Kanban

Using KANBANS on Production Lines

Each process (area, cell) on the production line has two KANBANS "post-boxes", one for withdrawal and one for production ordering KANBANS. At regular intervals a Single-card systems work well in companies in which it is relatively easy to associate the required quantity and timing of component parts with the schedule of end products. These are usually companies with a relatively. small range of end products, or products which are not subject to rapid, unexpected changes i \ demand levels.
Benefits of Kanban
1. Reduce inventory and product obsolescence

Since component parts are not delivered until just before they are needed, there is a reduced need for storage space. Should a product or component design be upgraded, that upgrade can be included in the final product ASAR There is . no inventory of products or components that become obsolete. This fits well with the Kaizen system on continual improvement. Product designs can be upgraded in small increments on a continual basis, and those . upgrades are immediately incorporated into the product with no waste from obsolete components or parts.
2. Reduces waste and scrap.

With Kanban, products and components are only manufactured when they are needed. This eliminates overproduction. Raw materials are not delivered until they are needed, reducing waste and cutting storage costs.
3. Provides flexibility in production.

If there is ..sudden drop in demand for a product, Kanban ensures you are not stuck with excess inventory. This gives you the flexibility o rapidly respond to a changing demand. Kanban also provides flexibility in how your production lines are used. Production areas are not locked in by their supply chain. They can quickly be switched to different products as demand for various products changes. Yes, there are still limits imposed by the types of machines and equipment, and employee skill, however the supply of raw materials and components is eliminated as a bottleneck.
4. Increases Output
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problems visible quickly, allowing them to be corrected ASARKanbar reduces wait times by making supplies more accessible and breaking down administrative barriers. This results in an increase in production using the same resources. 5. Reduces Total Cost
The Kanban system reduces your total costs by: > Preventer j Over Production > Developing Flexible Work Stations > Reducing Waste and Scrap > Minimizing Wait Times and Logistics Costs > Reducing Stock Levels and Overhead Costs > Saving Resources by Streamlining Production . .> Reducing Inventory Costs '

Disadvantages of KANBAN 1 It is less effective in shared-resource situations. Suppose the upstream station made several parts. Then a request to make more of the part needed by the & downstream station will have to wait if other parts have to made. A buffer is needed to ensure the downstream station doesn't run o>'t meanwhile. And, because each part needs a separate signaling card, the system becomes more complex than if the resources were dedicated. 2 3 4 5 6 Surges in mix or demand cause problems because KANBAN assumes stable repetitive production plans. It is less suited to industries where mix and volumes fluctuate. KANBAN in itself doesn't eliminate variability so unpredictable and lengthy down times could disrupt the system; poor quality in terms of scrap and rework also affect its good functioning. KANBAN systems are not suited for manufacturing environments with short production runs, highly variable product demand, poor quality products, and a multitude of product types. A breakdown in the KANBAN system can result in the entire line shutting down. The throughput of a KANBAN system is not managed but is instead a result of controlled WIF and known cycle times.

ACTIVITY BASED COSTING (ABC) Discuss about Activity-Based Costing (ABC)

. By realizing end improving the quality of products-and services enterprises ascertain competitive advantage in the length of time. In order to realize it, it is necessary to manage activities and processes in the right way, so that it i; made possible the product to get desired characteristics. Quality is not to be singled out of the product, but it must be involved in all activities of the enterprise. In that sense, enterprisers viewed as a system of business processes through which resources are transformed into products intend ?d for market. Business process is a series-of activities arranged according to certain order in time and space, which asks for certain inputs, add value and produce output for internal and external users. It is by performing business processes that value is created both for the owners 'and the customers. The source of enterprise competitive advantage stems from its capability, by performing business processes} to create value for its customers, the one that overpasses the costs of creating. Special importance is giver: to .creating superior value for customers, that the other competitors on the market are not capable of creating or imitating. Total quality management means excellent quality of products and services and its goal is to carry out the things well at the first time, and to work oil continuous improvement. It emphases the need for production functions in the enterprise to be continually improve 1 Traditional cost accounting systems are directed to the product, not to the process, and thus they are not compatible with the philosophy of total quality management Enterprises can, in order to increase operation efficiency and realize higher quality, se the business system "Just-in-Time" and total quality management, but use of traditional systems cc cost accounting creates problems, specially when overall costing is concerned. Traditoftal cost accounting systems application, which in overall costs allocation use drive/ costs connected with production volume, Lads to the fact that more overall costs are imputed to products manufactured in large volume, and less to products manufactured in small volume, without taking into account those products needs for supporting activities

Traditional cot accounting methods were created in conduit ns when enterprises manufactured products with a little variety, with a predominant proportion of direct work costs in price costs and with similar requirements for supporting activities. On the other side, contemporary manufacturing is characterized by complexity and variety, wide range of products, growing number of operations in the process, complex product design, etc. These factors, combined with increased application of atomization, resulted in increased portion of overall costs in total costs, and thus in problems concerning their allocation, if as a bases are used measures connected with volume (direct work- hours, machine-hours, etc.). Many costs are created due to activities that are not connected with physical volume. . Activity-based traceability of costs means: identifying the concept and types of activities, identifying driver costs for certain activities, putting those activities together into centers for analyzing according to activities and fixing cost price of the component parts and final product. Classifications of activities that are to be reported depends on enterprise organizational structure, size, type of activities that the enterprise performs, etc.