d.

Benchmarking

Benchmarking is a process by which a firm

• determines its critical success factors

• studies the best practices of other firms (or other units within a firm) for achieving these
critical success factors, and

• then implements improvements in the firm's processes to match or beat the performance of
those competitors.

Today benchmarking efforts are facilitated by cooperative network noncompeting firms that
exchange benchmarking information.

Benchmarking

Benchmarking is about comparing a company’s performance to the best practices of other

companies. This process helps businesses identify areas where they can improve and learn from
those who are already excelling. The goal is to match or exceed competitors' success.
Steps in benchmarking:

 Identify success factors: What makes a company successful?

 Study others: Look at how competitors or industry leaders achieve these factors.

 Implement improvements: Adapt and improve processes based on these findings.

Example: If one delivery company is famous for delivering packages within 24 hours, other
companies might study their logistics system and adopt similar strategies to speed up their own
deliveries. This way, benchmarking encourages constant growth and learning.

e. Mass Customization

Many manufacturing and service firms increasingly find that customers expect products and
services to be developed for each customer's unique needs. And many firms have been
successful with a strategy that targets customer's unique needs.

Mass customization is a management technique in which marketing and production processes

are designed to handle the increased variety results from delivering customized products and
services to customers.

The growth of mass customization is in effect another indication of increased attention given to
satisfying the customer.
Mass Customization

Mass customization combines two things: efficiency from mass production and the
personalization that customers love. It allows companies to make products or services unique to
each customer while keeping costs manageable.

Why is this important? Customers today want products that reflect their individual tastes.
Businesses that meet these needs stand out in the market.

Example:

 Clothing: Online stores like Uniqlo let customers choose the size, color, and fit of their
clothes.

 Technology: Dell allows customers to build their own computers, choosing components
like memory, storage, and graphics cards.

Mass customization improves customer satisfaction and builds loyalty because customers feel
the product was made just for them.

f. Balanced Scorecard

The balanced scorecard is an accounting report that includes the firm's critical success factors in
four areas

(a) financial performance,

(b) customer satisfaction,

(c) internal business process, and

(d) innovation and learning.

The concept of balance captions the intent of broad coverage, financial and nonfinancial of all
the factors that contribute to the success of firm in achieving its strategic goals. The use of the
balanced scorecard is thus a critical ingredient of the overall approach, that firms take to
become and remain competitive.

Balanced Scorecard

A balanced scorecard measures a company’s performance in four key areas to ensure long-term
success:

 Financial: Is the company profitable and managing money well?

 Customer: Are customers happy with the products and services?

  Internal Processes: Are operations running efficiently and effectively?

 Innovation and Learning: Is the company improving and adapting to changes?

This method ensures that a company doesn’t only focus on making money but also on satisfying
customers, improving internal processes, and staying innovative.

Example: A company may find that even though profits are high, customer satisfaction is low
because of late deliveries. With this insight, they can focus on fixing delivery times to keep
customers happy while maintaining profits.

g. Activity-based Costing and Management

Activity analysis is used to develop a detailed description activities performed in the operation
of the firm. Many firms have found that they can Improve planning, product costing, operational
control, and management control by using activity analysis to develop a detailed description of
the specific activities performed in the firm's operations. The activity analysis provides the basis
for activity-based costing and activity-based management. Activity-based costing (ABC) is used
to by improving the tracing of costs to products or to individual customers. Activity-based
management (ABM) uses activity analysis to improve operational control and management
control. ABC and ABM are key strategic tools for many firms, especially those with complex
operations, or great diversity of products.

Activity-Based Costing (ABC)

ABC is a way of tracking the real cost of activities in making a product or service. Instead of just
looking at total costs, it focuses on the specific steps involved in production and shows where
money is being spent.

Why does this matter? It helps companies understand which activities are costly and whether
they bring enough value.

Example:

 A bakery might discover that frosting cupcakes takes more time and resources than
baking the cupcakes. By understanding this, the bakery can either adjust pricing for
frosted cupcakes or find ways to make the frosting process cheaper.

ABC helps businesses focus on the most profitable parts of their operations while reducing
unnecessary costs.

i.Life Cycle Costing

Life-cycle costing is a management technique to identify and monitor the product design and
purchase of raw material to delivery of and service of the finished product. The steps include

( I ) research and development

(2) product design, including prototyping, target costing and testing

(3) manufacturing. inspecting, packaging and warehousing

(4) marketing, promotion and distribution

(5) sales and

Cost management traditionally has focused only on costs incurred up to

the third step manufacturing. Management accountants now strategically

manage the product's full life cycle of costs, including upstream and

downstream costs as well as manufacturing costs.

Life Cycle Costing

This method looks at the total cost of a product throughout its entire life cycle—from the design
stage to the end of its use. It includes all stages:

1. Design and testing: Costs of research, prototypes, and product trials.

2. Manufacturing: Production, quality checks, and packaging.

3. Marketing and distribution: Advertising and delivering products to customers.

4. Service and disposal: Maintenance, warranty, or recycling costs.

Reason: Companies that consider the whole life cycle can avoid surprises later, like high
warranty costs or poor recycling systems.

Example: Electric car companies like Tesla focus on the full life cycle, ensuring their batteries can
be recycled after use to reduce environmental impact and long-term costs.

j. Target Costing

Target costing involves-the determination of the desired cost for a product or the basis of a
given competitive price so that the product will earn a desired profit. The basic relationship that
is observed in this approach is

Target cost= Market determined price — Desired profit

The entity using target costing must often adopt strict cost-reduction measures to meet the
market price and remain profitable. This is a common strategic approach used by intensely
competitive, Industries where even small price differences attract consumers to the lower-
priced product.

Target Costing

Target costing starts with the market price. The company decides how much customers are
willing to pay for a product, subtracts the profit they want to earn, and then figures out how to
make the product for the remaining amount.

Why is this helpful? It forces companies to find cost-effective ways to deliver value while staying
competitive.

Example: If a smartphone brand knows customers want a ₱10,000 phone, and they want ₱2,000
profit, they need to manufacture the phone for ₱8,000. This might mean using cheaper
materials or more efficient production methods.

k. Computer-Aided Design and Manufacturing

More companies are using computer-aided design (CAD) and computer-aided manufacturing
(CAM) to respond to changing customer tastes more quickly. These innovations allow
companies to significantly the reduce the time necessary to bring their products from the
design process to the distribution stage.

Computer-aided design (CAD) is the use of computers in product development, analysis, and
design modification to improve the quality and performance of the product. Computer-aided
manufacturing (CAM) is the use of computers to plan, implement, and control and production.

CAD and CAM

 CAD (Computer-Aided Design): Software used to design products faster and more
accurately. Engineers can make adjustments and test designs without creating physical
prototypes.

 CAM (Computer-Aided Manufacturing): Computers control machines in factories to

ensure precision and efficiency in production.

Together, CAD and CAM help companies reduce errors, save time, and improve product quality.

Example: In the car industry, CAD is used to design car models, and CAM ensures those designs
are turned into real cars with minimal defects.
L Automation

Automation involves and requires a relatively large investment in computers, computer

programming, machines, and equipment. Many firms add automation gradually, one process at
a time. To improve efficiency and effectiveness continuously, firms must integrate people and
equipment into the smoothly operating teams that have become a vital part of manufacturing
strategy. Flexible manufacturing systems (FMS) and computer-integrated manufacturing (CIM)
are two integration approaches.

A flexible manufacturing system (FMS) is a computerized network of automated equipment that

produces one or more groups of parts or variations of a product in a flexible manner. It uses
robots and computer-controlled materials- computer-controlled machines in switching from one
production run to another.

Computer-integrated manufacturing (CIM) is a manufacturing system that totally integrates all

office and factory functions within a company via a computer-based information network to
allow hour-by-hour manufacturing management.

The major characteristics of modern manufacturing companies that are adopting FMS and CIM
are production of high-quality products and services, low inventories, high degrees of
automation, quick cycle time, increased flexibility, and advanced information techn010U. These

innovations shift the focus from large production volumes necessary to absorb fixed overhead
to a new emphasis on marketing efforts, engineering, and product design.

Automation

Automation replaces repetitive tasks with machines, improving speed and consistency. This
reduces human error and allows workers to focus on creative tasks.

Two examples of automation:

 Flexible Manufacturing Systems (FMS): Machines can switch between making different
products easily.

 Computer-Integrated Manufacturing (CIM): Computers manage the entire production

process.

Example: Factories making smartphones use robots to assemble parts and package them.
Automation speeds up production while ensuring high-quality products.

m. E-Commerce
A number of internet-based companies have emerged and been proven successful in last
decade. This E-Commerce business model adopted by Amazon.com and eBay has also attracted
many investors to pursue the use of Internet in conducting business. Established companies Will

undoubtedly continue to expand into cyberspace — both for business transactions and for
retailing. The Internet has important advantages over more conventional marketplaces for some
kinds Of transaction such as mortgage banking. It is also very likely that a blockbuster business
may be built around the concept Of selling low. value, low-margin and bulky items like groceries
over the internet.

E-Commerce

E-commerce refers to buying and selling products online. Platforms like Shopee, Amazon, or
Lazada have transformed how businesses operate.

Why is it popular?

 Customers can shop anytime and anywhere.

 Businesses can reach more people without the need for physical stores.

 It reduces costs for both customers and businesses.

Example: Grocery stores now allow online shopping, saving customers time and effort.

n. The Value Chain —

The value chain is an analysis tool that firms use to identify the specific steps required to
provide a product or service to the customer. The key idea of this concept is that the firm
studies each step in its operation to determine how each activity contributes to the firm's
competitiveness and profits.

Analyzing the firm's value chain helps management discover

• which steps or activities are not competitive

• where costs can be reduced, or

• which activity should be outsourced, and

• how to increase value for the customer at one or more Of the steps of the value chain.

When properly implemented, these approaches can (a) enhance quality, (b) reduce cost, (c)
increase output, and (d) eliminate delays in responding to customers. These techniques are
introduced here and most are covered more fully in later Chapters.
Value Chain

The value chain is a series of steps a company takes to make and deliver a product. Each step
should add value for customers.

Key uses of value chain analysis:

 Find weak steps and improve them.

 Decide which parts of the process should be outsourced.

 Increase value for customers by improving quality or lowering costs.

Example: A coffee shop focuses on sourcing high-quality beans, training staff, and creating a
welcoming atmosphere. Each step adds value for the customer.

The Changing World of the Management Accountant

The Institute of Management Accountants (IMA) recently conducted surveys and interviews
with industry experts, consultants, information technology major corporations and other
professional organizations and asked them to look to the year 2014 and predict major changes
and skills required for professi0n8iS in management accounting. The major findings are:

 More chief executive officers (CEO's) and chief operating officers (COO's) will have
experience as management accountants.
 Management accountant will serve as internal consultants who create strategies and
recommendations to guide management decisions.
 Management accountant will be key players in cross-functional teams (teams that span
design, production, marketing, etc.)
 Management accountant will be actively involved in initiating and implementing new
technology.
 Management accountants will need to adopt to an accelerating rate of change. This will
involve lifelong learning.

The Changing World of Management Accountants

Management accountants are no longer just "number crunchers." Their roles have evolved into
being strategic partners who help companies make important decisions.
Key changes include:

 More CEOs and COOs (Chief Operating Officers) come from a management accounting
background.
  Management accountants now act as consultants, offering recommendations to
improve operations.

 They are actively involved in using and implementing new technologies.

 Continuous learning is required because of rapid changes in business environments.

Example: In the past, management accountants mainly prepared reports. Today, they also
analyze trends, suggest cost-saving measures, and work with marketing, production, and IT
teams to achieve business goals.

Current Focus of Management Accounting

Impact on Organization Structure

A variety of works describing how to make organizations function better are contained in the
business sections of bookstores. They speak in terms of benchmarking, empowerment, total
quality management, reengineering, teaming, the virtual corporation, downsizing, just-in-
time, corporate value and many more. Most of these prescriptions are not directed
specifically at improving firm's internal accounting system. However, if implemented, •most
of these changes require significant changes in the accounting system because the
accounting system is an integral part of most firm's organizational structure.

The design of a management accounting system should be guided by the 'challenges facing
managers. There are at least four themes common to many companies, namely:

(l) customer focus theme;

(2) value-chain and supply chain analysis,

(3) key success factors' (i.e., cost and efficiency, quality, time and innovation), and

(4) continuous improvement and benchmarking.

Impact on Organization Structure

Modern organizations are adopting new strategies like benchmarking, empowerment,

teaming, and downsizing to remain competitive. These changes often require significant
adjustments to their internal structures, including their accounting systems.

Four major themes guide these changes:

1. Customer Focus: Delivering value to customers at a competitive cost.

2. Value Chain Analysis: Tracking activities that add value to products and services.
3. Key Success Factors: Emphasizing quality, efficiency, and innovation.

4. Continuous Improvement: Constantly looking for ways to improve processes.

Example: A company shifting to a customer-focused approach might reorganize its

accounting system to measure customer satisfaction and track costs related to improving
service quality.

Focus ON TRE CUSTOMER

To succeed in this era, customer value is a key focus that businesses of types must be
concerned with.

The value of a product or service to the customer is affected by such diverse attributes as
product price. quality, functionality, user-friendliness, customer service, warranty and
maintenance costs. By managing activities that will increase customer value, the firms can
establish a competitive advantage by creating better customer value for the same or lower
cost than that Of competitors. Cost information plays an important part in the process called

strategic cost management.

Focus on the Customer

In today’s business world, customers are the center of everything. To succeed, companies
need to focus on delivering value to their customers. This means offering products or
services that meet customer needs, preferences, and expectations at a competitive cost.

What is Customer Value?

Customer value is the benefit a customer gets from a product or service compared to the
cost they pay. It’s affected by several factors, such as:

 Price: Is the product affordable?

 Quality: Is the product reliable and well-made?

 Functionality: Does it work the way the customer needs?

 Convenience: Is it easy to use or access?

 Customer Service: Does the company provide good support?

Example: A budget airline might focus on providing low-cost flights (price-driven value),
while a luxury airline may focus on excellent service and comfort (service-driven value).
Generally, firms chose a strategic position corresponding to one of two general strategies:

(a) cost leadership, and

 Cost Leadership
 Offering products at the lowest possible price while still earning profit.
 Focused on efficiency and reducing costs.
 Example: Fast-food chains like McDonald’s, which focus on affordable meals.

(b) superior product through differentiation.

(c) Product Differentiation

a. Offering unique, high-quality products or services that stand out.
b. Customers are willing to pay more for better features, design, or experience.
c. Example: Apple, which emphasizes innovative design and advanced technology.

A focus on customer value means that the management accounting system should produce
information about both realization and sacrifice. The system should be able to measure
various attributes of customer value,

Why is Customer Focus Important?

When a business prioritizes customer value:

 Customer Loyalty: Happy customers are more likely to return.

 Competitive Advantage: Businesses gain an edge over competitors by better meeting

customer needs.

 Higher Profitability: Satisfied customers are often willing to pay more.

How Management Accounting Helps

Management accountants play a key role in supporting a customer-focused strategy by:

 Measuring customer satisfaction levels.

 Tracking costs associated with improving products or services.

 Analyzing which activities in the value chain add the most value for customers.

Example: If customers complain about late deliveries, management accountants can analyze
logistics costs and suggest changes to speed up the delivery process.
 Successful pursuit of cost leadership and/or differentiation strategies requires an

understanding of a firm's value chain (internal) and supply chain (external).

VALUE CHAIN AND SUPPLY CHAIN ANALYSIS

Value chain refers to the sequence of business functions in which usefulness is added to the
products or services of a company. The term value refers to the increase in the usefulness of the
product or service and as a result its value to the customer.

Internal value chain is the set of activities required to design, develop. produce' market and
deliver products or services to customers, If customer values are emphasized. managers are
forced to determine which activities in the value chain are important to customers. A
management accounting system should track information about a wide variety of activities that
span the internal value chain,

Figure 2.1 shows the various business functions making up the value chain.

The costs assigned to a segment should include all costs attributable to that segment from the
company's entire value chain. For financial reporting purposes, however, only manufacturing
costs are included in product costs. Consequently, when trying to determine product
profitability for internal decision-making purposes, some companies deduct only manufacturing
costs from product revenues. As a result, such companies omit from their profitability analysis
part or all of the "upstream" costs in the value chain, which consist of research and
development and product design. and the "downstream" costs, which consist of marketing,
distribution, and customer service. Yet these nonmanufacturing costs are just as essential in
determining product profitability as are the manufacturing costs. These upstream and
downstream costs, which are usually titled Selling General, and Administrative (SG & h) on the
income statement. can represent half or more of the total costs of an organization. If either the
upstream of downstream costs are omitted in profitability analysis, then the product is
undercosted and management may unwittingly develop and maintain products that in the long
run result in losses rather than profits for the company.
Industrial value chain is the linked set of value-creating activities from basic raw materials to the
disposal of the final product by end-use customers.

Figure 2.2 illustrates a possible value chain for the mango industry.

A given firm operating within the industry may not — and likely will not — span the entire value
chain. The figure illustrates that different firms participate in different segments of the chain.
Understanding the industrial value chain is critical to understanding a firm's strategically
important activities. Breaking down a firm's value chain into ,its strategically important activities
is basic to successful implementation of cost leadership and differentiation strategies.
Fundamental to a value-chain framework is the recognition of existing complex linkages and
interrelationships among activities both within and external to the firm. Thus, there are two
types bf linkages: internal and external. relationships among activities that are performed within
firm's portion of the industrial value chain (the internal value chain). External linkage are activity
relationships between the firm and firm's suppliers and customers. Thus, we can talk about
suppliers’ linkages and customer linkages. Using these linkages to bring about a win to win
outcome for the firm, its suppliers, and customers is the key to successful strategic cost
management. The Objectives, Of course; is to manage these linkages better than competitors,
thus creating a competitive advantages.
Value Chain and Supply Chain Analysis

 Value Chain: This is the set of activities a company performs to add value to its products
or services, from raw materials to final delivery to the customer.

 Supply Chain: This focuses on the external activities, like sourcing materials and
distributing products.

Analyzing these chains helps companies:

 Identify weak steps and improve them.

 Decide which activities to outsource.

 Add value at every step, ensuring better customer satisfaction.

Example: A mango juice producer might analyze its value chain to ensure high-quality mango
sourcing, efficient juice production, and faster delivery to stores. They might outsource logistics
to a company that can deliver the product faster and cheaper.
KEY SUCCESS FACTORS

Cross-Functional Teams

In years past, managers tended to stick to their own turf. Production managers focused on how
best to manufacture a product or produce a service. Marketing managers concentrated on
selling the product or service. Design engineers often emphasized engineering elegance rather
than designing a product for manufacturability. Managerial accounting provided information for
decision making, planning, control, and performance evaluation.

Today a cross-functional approach has replaced this narrow managerial perspective. A cross-
functional approach to management is crucial in managing the time to market. Cross-functional
managerial teams bring together production and operations managers. marketing managers,
purchasing and material-handling specialists, design engineers, quality management personnel,
and managerial accountants to focus their varied expertise and experience on virtually all

management issues. If products are to be designed and manufactured with the customers'
needs in mind. a cross-functional approach is crucial. Marketing managers have the best feel for
customer needs, and production managers are up on the latest in manufacturing technology.
Design engineers know how to build the functionality into a product that customers demand,
and purchasing managers can acquire the materials, parts, and services necessary to get the job
done. Managerial accounting information is the glue that holds the cross-functional team
together. The managerial accountant designs an. information system and provides data ranging
across all aspects of the organization's internal operations and external environment. Then the
managerial accountant works as an integral member of the cross-functional team, interpreting
information and analyzing the implications of decision alternatives. Working together, the cross-
functional team creates value for the organization by meeting the customer's needs in the most
effective manner possible.

Managing the value chain means that a management accountant must understand many
functions of the business, from manufacturing to marketing to distribution to customer service.
This need is magnified when the company is involved in international trade. We see this, for
example, in the varying definitions of product cost. Activity-based management accounting has
moved beyond the traditional manufacturing cost definition of product cost to more inclusive

definitions. These contemporary approaches to product costing may include initial design and
engineering costs, as well as manufacturing costs, and the costs of distribution, sales, and
service. An individual well-schooled in the various definitions of product cost, who understands
the shifting definitions of cost from the short-run to the long-run, can be invaluable in
determining what information is relevant in decision making. For example, strategic decisions
may require a product cost definition that assigns the costs of all value-chain activities. Whereas
a short-run decision that is concerned with whether a special order should be accepted or
rejected may require a product cost that assigns only marginal or incremental costs. Information
about the trade-offs between time and cost in all phases of a product's development is
particularly important.

Cross-Functional Teams

Cross-functional teams bring people from different departments together to solve problems or
work on projects.

Why is this important? It ensures that decisions consider all aspects of the business.

Example: When designing a new product, engineers, marketers, and accountants work together
to make sure the product is functional, appealing, and within budget.

Computer-Integrated Manufacturing

Manufacturing processes over a long period of time has evolved from labor-intensive methods
to more automated processes, in which most of the Work is accomplished by machines. This
trend continues today, as computer-integrated-manufacturing (CIM) systems become more
common. A CIM process is fully automated, with computers controlling the entire production
process. In CIM systems. the types of costs incurred by the manufacturer are quite different
from those in traditional manufacturing environments. Using computers to control equipment,
including robots, generally increases the flexibility and accuracy of the production process.
However, the use of state-of-the-art equipment and computer control systems may help firms
meet the challenge of global competition, but they also have a significant effect on the
composition of product costs.

Recent studies indicate that, on average, product costs in recent years have consisted of 53
percent material, 15 percent direct labor, and 32 percent overhead. Some highly automated
companies, however, report that direct lab« accounts for as little as 3 percent of total
production costs. Decreasing labor costs are causing many companies to reconsider their
overhead allocation bases Presently, the most commonly used allocation bases for assigning
overhead to jobs are direct labor hours and direct labor cost. However, in highly mechanized

companies where direct labor is a small part of total manufacturing costs, using labor as an
allocation base is generally not appropriate.

Computer-Integrated Manufacturing (CIM)

CIM is an advanced system where computers manage every part of production, from planning
to manufacturing. This creates a seamless, automated process.
Benefits of CIM:

 High-quality production.

 Faster manufacturing times.

 Lower costs and minimal errors.

Example: In a factory making electronics, CIM ensures that all machines work together. The
computers adjust production schedules, detect errors, and maintain efficiency, ensuring
products are made accurately and quickly.

Product Life Cycles and Diversity

One impact of highly automated manufacturing systems has been to enable manufacturers to
produce an ever-more diverse set of products. Moreover, the rate at which is changing means
that the life cycles of most products are becoming shorter. In the computer industry, for
example, product models used only a few years before they are replaced by more powerful To
be competitive, manufacturers must keep up with the rapidly changing marketplace. Managers
must have timely information about production costs and other product characteristics in order
to respond quickly and effectively to the competition.

Product Life Cycles and Diversity

Products today have shorter life cycles due to rapid technological changes and customer
demands. This means companies must:

 Quickly design, produce, and sell new products.

 Offer a diverse range of products to meet different customer preferences.

Example: In the smartphone industry, companies like Apple release new models every year to
keep up with competition and customer expectations. They also offer various options to cater to
different budgets and needs.

Time-based Competition

In a global competitive environment, time has become a very significant element in many
companies' strategies for success. A company can gain an important edge over its competitors
by reducing the time it takes to develop a new product and transporting the product in the
market more quickly. Thus, the time to market becomes a critical objective for many companies.

Response time, lead time, on time and downtime are among the many time-based phrases that
crop up in conversations of today's managers. Reducing the time elapsed from the
conceptualization of a new product to having the product in the retailers' stores requires careful
time management at each stage of a product's development.

Delays between product development stages must be reduced if not totally eliminated. The
production process must be efficient and product quality must be high.

These factors work together to reduce the costs of conducting international trade, and make it
possible for foreign companies to operate and compete to a more equal footing with local firms.
Local firms on the other hand cannot afford to be must world-class competitors. And from the
Standpoint of consumers, heightened competition can result to an even greater variety of goods
at higher quality lower prices.

Time-Based Competition

Time has become a critical factor in modern business. Companies that can bring products to
market faster gain a significant advantage.

Key aspects:

 Time to Market: Reducing the time from product design to launch.

 Response Time: Quickly addressing customer needs and feedback.

 Efficiency: Ensuring smooth production with minimal delays.

Example: A clothing brand that responds quickly to fashion trends can produce and launch new
designs faster than competitors, staying ahead in the market.

How would competition affect management accounting?

For a firm to become a world-class. it should be able to plan, direct, control is and make
decisions using an effective management accounting system that provide the relevant data it
needs. An excellent management system will not by itself guarantee success, but a poor system
can stymie the best efforts of people in an organization to make the firm truly competitive.

How Would Competition Affect Management Accounting?

Competition pushes companies to use their accounting systems more strategically.

Management accountants play a key role in:
  Planning strategies to reduce costs.

 Providing relevant data for quick decision-making.

 Monitoring global operations to stay competitive.

Example: In a competitive market, a management accountant might suggest reducing

production costs by switching to cheaper raw materials without sacrificing quality.

Information and Communication Technology Management

In the face of the increased global competition, firms around the world are new manufacturing
and information technologies to remain competitive. For example, just-in-time inventory
methods are adopted to reduce the waste of maintaining large levels of new materials and
finished product. Also, methods that produce significant cost and quality improvements through
the use quality teams and Statistical quality control are now being used by many firms around
the world.

Information and Communication Technology (ICT) Management

ICT has revolutionized how businesses operate. It enables companies to:

 Track financial and operational data in real-time.

 Improve product and service quality.

 Respond quickly to changes in the global market.

Example: A company using just-in-time (JIT) inventory systems can monitor stock levels through
ICT, automatically placing orders when supplies run low, thus avoiding overstocking or delays in
production.

Global Competition and Technology

With companies competing worldwide, using technology wisely is essential. For example:

 Just-in-Time Inventory: Companies order supplies only when needed, reducing waste
and storage costs.

 IT Systems: Technology helps companies monitor sales, track production, and adapt
quickly to changes.

Example: A global brand uses IT to track demand in different countries and adjusts production
accordingly.
It has been reported by executives from 150 Of the Fortune 1000 companies that use of
information technology is considered the major driver Of globalization, allowing these firms to
respond quickly to changing conditions around the world. Majority of the executives viewed
information technology as a strategic investment it enabled them to track financial and
operating events in firm, to improve service quality. to improve profits and to improve product
quality.

Cost Management System

The cost management is widely used today. No uniform definition however exists some entities
would use cost management to describe activities of managers in short-run and long-run
planning and control of costs. For instance, managers make decisions regarding changes of Plant
processes and design. Information from accounting systems helps managers make such rational
decisions. But the systems and the information by themselves are not cost management.

Cost management has a broader focus. For example, to generate more revenues and profits,
managers will often deliberately incur additional costs for product improvement and
advertising. Cost management is often carried out as an important part of general management
strategies and their implementation.

Cost Management System

Cost management focuses on spending money wisely to create more value for the business.
Sometimes, spending more now (like on better materials) can lead to bigger profits later.

Example: A shoe company invests in sustainable materials. While it costs more upfront, it
attracts eco-conscious customers, leading to long-term sales growth.

CONTINUOUS IMPROVEMENT AND COMPETITIVE STRATEGY

To stay competitive, companies must concentrate on continuously improving the different

aspects of their own operations. One approach is the cross-functional approach as discussed in
the earlier section. The continuous improvement targets are often set by benchmarking in
measuring the quality of the products, services and activities of the company against the best
levels of performance found in competing companies.

Continuous improvement is the constant effort to eliminate waste, reduce response time,
simplify the design of both products and processes, and improve quality and customer service.
Managerial accountants contribute to the continuous improvement programs of many
organizations through the development of cost management systems which are discussed next.

Continuous Improvement
This is the idea of always finding ways to improve, even if the changes are small. The focus is on
reducing waste, improving speed, and delivering better quality.

Example: Toyota’s "Kaizen" approach encourages every employee to suggest ways to improve
the company, from making production faster to enhancing product quality.

Competitive strategy involves determination policies, procedures and approaches to business

that produces long-term success.

Competitive Strategy

Companies use strategies to win in the market:

 Cost Leadership: Selling products at the lowest price.

 Differentiation: Offering unique, high-quality products.

Example: A budget airline focuses on low costs to attract price-sensitive travelers, while a luxury
airline focuses on premium service and comfort.