Material is an important cost in any business organization. However, in Manufacturing organizations it is prime cost where it can go up to 90% of total cost. Material Control is important function for any MIS. It has primarily four objectives:
Improving
Material Quality and Customer Satisfaction
Reducing
Material Cost
Ease
of Material Availability
Improving
overall Material Management System
Keeping
above objectives in mind following Class of MIS Reports are generated for Material:
Material Cost Reports: Purpose of these reports is to Plan, Collect and analyze information on Material Cost factors.
Material Quality Reports: Purpose of these reports is to analyze impact of Material Quality on Final Product.
Material Availability Reports: These reports analyze parameters to ensure timely and adequate availability of material for production.
Material Storage Reports: These Reports analyze parameters to check smooth and efficient working of material stores & warehouse.
Procurement Process Efficiency Reports: These reports analyze efficiency of procurement process.
Based on above classifications, key Material MIS Reports which should be generated in any organization are as below:
A. Strategic Material MIS
Macro Analysis for Material Management
Bottleneck Analysis for Materials
Material Content Improvement MIS
Material Cost Reduction MIS
Material Planning Report
B. Material Quality MIS
Material Quality Improvement Report
Materials Quality Related Rejections Trend
Customer Quality Grievances Report
Production Rejections Analysis Report
Vendor Rejections Analysis Report
Vendors with high Rejections Report
Rejections Cost Performance Report
C. Material Storage MIS
Stock Verification Discrepancy Report
Physical Verification Frequency Report
Stores Physical Condition MIS
SRNS NOT PREPARED
SRN not Accounted For
Material not Returned
Returnable Gate Passes Report
Ageing Analysis
Slow Moving Items Report
Stock Loss at Stores
D. Material Lead Time MIS
Indent & Purchase Order Gap Report
Purchase Order to Supply Time Gap Report
Time Gap for Inspection of Goods Report
Time taken from gate to stores Report
Time taken for issue of material Report
Time taken for release of payment Report
Vendor Wise Supply Delays Report
Item Wise Delays Report
E. Material Price MIS
Price Verification Analysis
Price Composition Trend Report
Foreign Exchange Fluctuation Impact MIS
Price Discounts Efficiency MIS
Price Reduction MIS
Freight Cost Analysis MIS
Demurrage Cost Analysis MIS
Material Price Verification Frequency Report
Adequacy of Quotations Report
F. Purchase MIS Reports
Pending Purchase Orders MIS
Purchase Orders Cancellation MIS
Purchase Orders Revision MIS
Purchase Authority Variation MIS
Vendor Database MIS
New Vendor Development
Vendor Advances Blocked
Material Vendors Ageing MIS
Vendors Balance Confirmations MIS
Legal Vendor Cases Status
Purchase not with lowest bidder’s report
Emergency Purchases MIS
Pending Purchase Requisition MIS
Purchase Order Variation MIS
Pending Disputed Purchases
Stock loss at Material Receipt
Material Return MIS
G. Special Material MIS Reports
Balance Sheet Analysis for Materials
Material Reconciliation MIS
Material Management Process Automation MIS
Production Loss due to Material Availability
Purchase Expenses Analysis
Material Working Capital MIS
Consumables & Packing Cost Analysis
Goods Lost MIS
Insurance Coverage of Stocks MIS
Empty Containers / Bags MIS
Scrap Treatment MIS
Material Shortage Analysis Report
Material Standards & Ratios Analysis MIS
———————————————————–
Please watch this space for regular articles on Strategy, MIS , Systems, Costing & Audit. For Free Updates & Subscription
to CSM Strategy & MIS Journal , Please send request for same in comments or
Email given below.
Every company has some form of Management Information
System (MIS) which provides information for making decisions. Most of
information is generated from with in the organization. Reports are generated
for different operational parameters like Production, Sales, Cost, Assets,
Liabilities , Profits, Rejections, Stocks etc. Further every organization also
develops some sort of Checks and Balances System to ensure hygiene of
transactions and activities.
However it is generally found that almost
every organization and business owner experiences nasty surprises , lost opportunities,
frauds and avoidable losses. These losses and surprises originate from
Inadequacy of Information Systems prevailing in the organization.
There is lot of Information flow in
organization, but this may not include knowledge which is critical for
business. Moreover Information often does not come at time thus preventing timely
corrective action. Some of limitations
of Information Systems (MIS), are as below:
Information Not Aligned to
Business Goals and Strategic objectives :Flow of Information should
start identification of Business Goals and Strategic Objectives. This should
include information on critical bottlenecks which prevent achievement of these
goals. However most of MIS frameworks are Static and not perfectly aligned to
Strategy of Organization. This reduces utility of these Information Systems.
2.
Macro Environment Factors Information Missing: Every business is impacted by wide range of
environment factors whose impact can be forecasted. This includes factors such
as Government Policy Framework, Market Conditions, Technology, Competitors,
Exchange Markets, Capital Markets, Crop Patterns, Global indicators etc. Most
of organizations do not have formal systems to track and analyse these Macro
Environment factors. Due to this deficiency these MIS frameworks serve limited
purposes.
Too much Information which may not be needed :
This is a common flaw in most organizations. There are too many reports , too
much information which may not be needed. Information overload is a common
problem today and is not desirable.
Critical Information not
segregated from Non Critical : In order to make
Information systems effective , it is essential that Critical Information is
segregated from Non Critical Information.
Many MIS professionals see Variance Analysis as critical information. This is
incorrect. Information System need to identify Critical Information and develop
separate reporting pattern for same.
Intangible Information Missing: Business is not run only
by numbers and figures. Non tangible factors such as customer sentiments,
company image, employee creativity, employee sentiment is more critical than
mere balance sheet numbers. Most of organizations do not have systems to track
and measure these Intangible factors affecting their business.
Too many business review tools & methods -: Most businesses have
too many review functions like Internal Audit, Management Audit, Cost Audit,
Budgeting, Standards etc. This creates lot of analysis and duplication which is
not required. Further every audit tool looks at a particular aspect of business
and not as an Integral entity linked to wider environment.
Imbalance between Formal
& Informal Systems : Big organizations depend too much upon Formal
Systems. This cripples the vital creativity and dynamism. On other hand small
organizations depend too much on Informal Information. A dynamic MIS combines
both Formal & Informal Information systems in perfect balance and aligns to
strategic objectives of business.
Late arrival of Information
: Information
for incident happened should be available at the earliest. Similarly
Information about probability of events likely to happen should come well in
advance. However in most of organizations information comes too late which
leads to losses and delay in corrective action.
Information to wrong person
: Most
organizations provide information to too many persons who may not need it.
Information should go only to person who are involved in taking corrective
action.
Incorrect Form of
Information : Most
of information system rely on information in form of Excel Sheets, Text Reports
or PPT Presentations. Information is also circulated mostly by Emails. This is
not Action Friendly way of providing Information. Best form of information is
in form of brief SMS Texts or Social Media Groups. Reports should only be
provided wherever essential.
—————————————————————————————————-
Please watch this space for
regular articles and updates on Dynamic MIS, Systems, Planning , Costing ,
Risk & Profit . To get Free Updates directly in your Inbox,
please send your E-Mail details.
To know more about our Media,
Training and Consultancy Services please contact on details below. To
download complete Catalog , click on link below: https://www.csmstrategy.com/pdf/Catalog.pdf
Developing Critical Information System for Cost Management
Profit Maximization
objective of business is dependent upon two variables i.e. Revenue Maximization
and Cost Minimization. Both these systems together lead towards maximization of
top line and bottom lines of balance sheet.
Cost can be classified
in three broad categories depending upon their linkages with revenue:
Cost Directly linked with Revenue
Generation
Cost Indirectly linked with Revenue
Generation
Cost Not linked with Revenue
Generation
Cost can also be
categorized as costs related to:
Business Acquisition
Fulfillment or Order Execution
Support
Elements of Cost: There are three
major cost elements in any organization:
Manpower
Materials
Expenses
Cost Management: A subject of
Caution
Cost Management subject
has to be treated with a caution. Any Cost Management framework has to
ensure that:
It does not impact Revenue
Generation
It does not create resentment among
employees
It does not impact vital creativity
in organization
The best form of Cost Management comes out of Self Initiative from
employees. All systems and frameworks for Cost Reduction have to be
creative and owned by employees.
Framework for Cost Management
System:
Cost Management
Framework involves following steps:
1.Formation of Cost Management
Group:
This group shall have representatives from different function heads. The
mandate of this group should be to keep cost to an agreed level and work to
reduce the levels. This group shall take all steps to develop a Cost Management
System.
2. Cost Classification &
Cost Centers: Clear
cut Classification and Codification of Cost Elements. Every cost from major to
minor should have Cost Code and Cost Centre.
3. Integrating Costs Elements
with Accounts Master: This shall ensure that Financial Accounts generate
information for Cost Analysis & MIS.
4. Entering Cost Center with
every transaction:
This shall ensure that every cost is booked to a definite cost center. This is
an important step towards Cost Management.
5. Zero Based Cost Budgeting: This ideally
means challenging each element of cost with an open mind and answering
questions such as:
Whether it is really required?
What will happen if it is not
incurred?
What can be done to reduce or
eliminate it?
6. Integrating with ERP: Integration of
Cost Management with ERP is essential. Cost Centers should be integral part of
any transaction. Similarly budgets for costs should be mandatory for
transactions. Any expense above budgets should raise alert and go to approval
system.
7. Incentive Scheme: Building
up an Incentive Scheme which identifies, measures and rewards the Cost
Reduction results achieved in different schemes. This shall require
building up a Suggestion Scheme where employees are encouraged to provide
suggestions to reduce cost in different domains.
8. Collective Bargaining: Some of expenses
like Purchases of Material can be done at Group Level. This shall help to
bargain in a better way. This can also be applied to some of the services
such as Travelling, Cars Hiring, Telephone Expenses etc.
9. Penalties: Penalties is one area
which should get first priority. Penalties are mostly paid in area of Statutory
Compliance \, Banks and Vendors etc. This cost need to show separately in
monthly MIS and ways found to tackle it.
10. Process Mapping: Some of Costs
like Manpower Cost and Fuel can also be tackled by way of Process Mapping for
some critical areas which involve major cost drivers. These processes need to
be identified and studied.
11. Manpower Cost: Manpower Cost is a
critical cost. It is a sensitive matter and needs to be tackled with
caution. HR Cost management requires that.
Any Recruitment and Increment is
done after due diligence from a core team which should include a person
from Cost Management Committee.
An effective Performance Support
System should be put in place to ensure that every person is provides
optimum performance matching his grade and remuneration.
It has to be ensured that every
person is effectively utilized. This also requires effective Process
Mapping and Work Flow study.
12. Effective Asset
Management: Some
of costs related to Assets Management like Repairs and Maintenance, Fuel
Consumption, Insurance can be controlled with asset management steps like
preventive maintenance, AMC etc.
13. Cost Minimization MIS: Costing MIS should be
part of regular Monthly MIS. This should be part of Profit
Analysis Statement. A special Cost Minimization MIS can be compiled on regular
basis. This report analyses Cost Structure of business and seeks to lay down
targets and strategies for cost minimization. This report can be compiled on
following lines:
a. Cost Heads: Costs are divided as
Variable, Semi Variable Costs & Fixed Costs.
b. Budgeting Factor: Budgeting Factor has
to be fixed for each type of cost. Budgeting factor can be as % to Sales, or
Per Person basis etc.
c. Present Level: Present Level of Cost
to be ascertained and recorded.
d. Reduction Target – Conservative:
Targeted Cost Reduction on a conservative basis to be fixed.
e. Reduction Target – Optimistic:
Targeted Cost Reduction on Optimistic basis to be fixed.
f. Local Industry Cost Levels – Cost Levels at
local industry level.
g. Global Cost Standards – Cost Levels at
Global Level
h. Framework: Framework for
meeting Cost Minimization Standards
i. Key Strategies: Key Strategies to
achieve Cost Standards.
Some of figures like local and global standards may not be easily
available, but with some research they may be estimated.
14. Annual Cost Audit – Non
Statutory: Annual
Cost Audit exercise is essential to have an overall review of Cost Audit. Non
Statutory Cost Audit can be integrated with Statutory Cost Audit. For
companies not covered under Statutory Cost Audit, cost audit template can be
developed as a standalone activity.
Implementation Steps:
P.S: This article is
part of publication Strategic MIS.
During my interactions with community of
business owners and professionals, one common concern that comes out is Non Availability of Critical Information for
decision making. There is lot of information available through reports,
systems, people &but this does not prevent from nasty surprises, losses,
frauds and lost opportunities.
Being
flooded with information doesn’t mean we have the right information or that
we’re in touch with the right people. Bill Gates
Non Availability of Critical Information on
a Real Time Basis is
prevalent in all Big and Small organizations. Big organizations suffer from
mind set of depending too much on Formal Systems while Small organizations
depend too much on Informal methods of gathering information. Further most of
organizations do not have comprehensive Information Systems which tracks Macro Environment Factors as well as Intangibles impacting
success of business.
Right Information is most important tool for
any business owner and professional. Right Information leads to success,
profits, safety, security and opportunities while wrong information or lack of
information leads to failures, losses, frauds , risks and nasty
surprises.Whether running a prevalent business or planning to enter & exit
it , one needs:
Right Information at Right Time at Right Place in Right Form.
Right
Information : MIS
Professionals need to Identify Information which is Critical for growth ,
safety and perpetuation of business. Filtering out of information has to be an
ongoing process. Information has to align with Strategic objectives and
bottlenecks of business. It has to cover both Macro and Micro as well
as Tangible and Intangible factors
impacting business.
Right
Time : Timing of
Information is crucial. Any information which needs corrective action , has to
come at early stage. For example Stocks which are slow in consumption need to
be highlighted at an early stage. Similarly market information about financial
position of a debtor has to be informed as soon as signals for same are
available.
Right
Place & Person : Information
has to provided to person only to person who has to take action on same. It has
also to be given at place and time when they can take notice of that.
Right
Language and Form : Information
has to be provided in a form and language which is brief, simple and easily
readable. The best form of information is
in form of Short Text Messages over phone or Inter company social media groups. This
can be read immediately and action can be taken. Complex Excel Sheets, Text
Reports, Power Point presentations etc. are be avoided or used only as a
reference. Information on Emails or Printed documents are also to be avoided or
used only for detailing purposes.
Dynamic MIS is vital tool to generate Right
MIS for any organization. It is a system to identify, collect, present & assimilate
critical information from company as well as wider Macro Environment. Dynamic
MIS helps in aligning Information System with Business Strategy and helps in
Better Planning, Cost Control, Timely Detection of Faults & Effective
Decision Making. It tracks Information
which is critical i.e. one which is really needed and helpful for taking
decisions.
———————————————————–
Please watch this space for regular articles and updates on Dynamic MIS, Systems, Planning , Costing , Risk & Profit . To get Free Updates directly in your Inbox, please send your E-Mail details.
To know more about our Media, Training and Consultancy Services please contact on details below. To download complete Catalog , click on link below: https://www.csmstrategy.com/pdf/Catalog.pdf
A successful organization strives to attain Critical Cutting Edge Knowledge in its domain which gives it advantage over competitors and is vital for its long term success. Knowledge Management has developed as a strategic domain in dealing with creation, storage & application of critical knowledge applicable to an organization.
Critical knowledge is increasingly being recognized as a key strategic input for competitive edge. Knowledge Management leads to a constant learning process & improvement to make organization as a whole more productive & creative.
An organization can be lacking in critical knowledge when it is not able to innovate at a faster pace or when its relations with customer fail to improve. Knowledge management is integrally linked with competency creation as well as business intelligence. It is an essential input to achievement of overall business mission & objectives.
Knowledge Management is a Key Corporate Governance objective. This involves following steps:
Knowledge Management Officer (KMO) appointment to lead the KM effort.
Knowledge Management Group to support KMO in designing and implementing KM framework.
Critical Knowledge Identification as applicable to company and its different business units and functions.
Knowledge Gaps Identification: Knowledge required to solve critical problems of organization.
Macro Environment Analysis System for collection of External Knowledge from sources such as News Letters, Govt. Notifications, Court Case Laws, Conferences etc.
Internal Knowledge Collection System to record critical information generated in form of Flow Charts, Learning Experiences etc.
Critical Research & Development Framework
Environment Feedback System to collect feedback from customers, vendors, visitors, bankers and wider environment.
Creativity Management Policy to develop highly creative company.
Knowledge Preservation System: Technology & systems for storage & processing of this information
Knowledge Protection System.
Knowledge Culture Development: Developing an organizational culture where knowledge is treated as a valuable asset.
Knowledge Management MIS: Feedback & follow up system to check effectiveness of knowledge management system.
The CSM Strategy approach to knowledge management is outlined below:
1. Appointment of Knowledge Management Officer (KMO): A Knowledge Management Officer (KMO) shall lead the efforts to design and implement Knowledge Management Framework of organization. KMO should be person of high analytic abilities with a grasp of vision of company and industry as a whole. He may not be a person from industry but he should have sound experience of KM function.
2. Knowledge Management Group: Knowledge Management Group shall be the support group to help KMO design and implement KM framework. It should have ideally executives from different units and functions. KM group should have persons who has time and inclination to spread KM culture in organization.KM group should meet periodically, may be once a month. The group should keep in contact by forming a communication group for sharing mails and views.
3. Critical Knowledge Identification: Knowledge Management is practical when it focuses on knowledge which is critical and useful. It is futile to create & store knowledge & information’s if it cannot be used. Company should identify critical knowledge factors for different functions and units. This list can be quite vast and include factors such as Industry demand, competitor news, new products launch, new technology, Govt. Policies, Labor Laws, Taxation laws, environment risks etc.
4. Knowledge Gaps Identification: Company should make an inventory of problems of its own business as well as industry as a whole. As a strategy , company shall work towards core bottlenecks of market & operations. Every bottleneck is associated with a particular knowledge gap to be filled. It is this gap which has to be identified & knowledge has to be created for this.
5. Macro Environment Knowledge & Analysis: The company should have a Macro Environment Analysis System which involves identification of critical macro factors which can affect company, identification of sources which provide such information and system for collection & analysis. External Information comes from inputs from macro environment, training program as well as publications. It also comes from interaction with various Govt. agencies and trade bodies.
6. Internal Knowledge Collection: A company generates substantial information internally which comes from experiences of doing business. The company should create an appropriate system for collection & development of this knowledge. Internal Knowledge is coming from experiences in form of flow charts & written reports as well as from an effective MIS to gather inputs & analyze to find critical gaps. The company should initiate a learning process in all its operations. As far as possible flow charts, checklists & written reports should be made for each function & process.
Flow Charts if properly maintained shall keep on improving from experiences & ideas. This should be preserved and can become a reference for future workers executing that operation. This should extend from process in shop floor to all service functions like accounting. This should also involve flow charts for important decisions taken at different level of management. This knowledge comes out of actual experiences & hence is valuable.
7. External Feedback System: System should also be created for collection of views & opinions of external agencies. The company should have a policy of asking its executives to file a Monthly Feedback Report on their interactions with external agencies. Company can also integrate security function with social feedback system. The gate register should be supplemented with social feedback register incorporating opinions, suggestions & views from people visiting company.
8. Creativity Management Policy: This company should to have a sound Creativity Management Policy. This involves providing adequate platforms to generate peak creativity in every individual & organization as a whole. Further company also has to develop cross functional teams to create knowledge for complex problems which requires integration of various functions.
An organization with high level of creativity & focus leads to constant flow of practical ideas and latest information in company. Hence company shall always have an edge over its competitors even if some of this information is leaked out.
One additional advantage is that it shall reinforce image of company as a highly creative organization in industry which shall result in additional benefits like: attracting more information, brighter employees and better brand equity. The company shall thus become an information junction for industry.
9. Research & Development: Every company must have a Research & Development budget to work pointedly on specific issues and problems facing company. Objectives of R&D should be linked to Core Bottlenecks and Problems of company. R&D cost is not a waste but investment in future for organization.
10. Storage of Information: Knowledge Management system also involves creating system for proper storage & retrieval of critical knowledge. This requires providing for technology & space along with system for protection. This should also involve policy for destroying information when it is not needed.
11. Knowledge Protection System: System has to be made for protection of critical information. While doing this, one has to see whether information is really secret. Too much secrecy is harmful for organization which should be avoided.
The strategic approach to Knowledge Protection is to focus on knowledge which is really critical and requires protection. In present age of information era, most of information is not confidential. With advent of Internet most of information is freely available.
However, there is certain knowledge which really gives the company a critical edge over its competitors. It should focus on protecting this knowledge. A hard look needs to be given whether it is really that confidential. This means focus has to be made on really critical & secret information.
The Threat Analysis has to be on following lines
What are sources of threat of leakage of this information?
Which of these sources present maximum threat?
What are strongest motives of this threat source?
Once this information is peeled over, company shall focus its energies on protecting this information. Further the company shall have a backup strategy – what to do in case the information is leaked in spite of precautions?
12. Knowledge Management MIS & Feedback System: Knowledge Management Officer (KMO) should develop a Quarterly MIS on KM function to KM group and Management Committee. This should include factors such as Implementation of different measures, Quality suggestions and feedback received, Costs incurred, Knowledge security audit, Benefits received from KM framework etc.
13. Knowledge Management Culture: The key to KM framework is to develop a culture in which knowledge is considered a valuable asset which has to be cultivated, preserved and used judiciously. Developing culture is a key strategic function of corporate governance and is discussed separately.
Knowledge Management is a dynamic function involving system for collecting & analyzing information from internal as well as external environment. If handled properly can lead to long term changes in organizational productivity, creativity & competitiveness.
