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Lecture Notes 8

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Queensland University of Technology

AYB321 – STRATEGIC MANAGEMENT ACCOUNTING Lecture 8: The Balanced Scorecard (Part 2) The Customer Perspective Meeting Customer Expectations  What do our customers value? o Product/service attributes o Image and reputation o Customer relationship Product/Service Attributes + Image + Relationship  Measure product/service attributes on three critical dimensions: o Time  Rapid response gains and keeps customers  The time from when the order is initiated until delivery  Compared with customer expectations  Reliability of lead time (not just speed) – For JIT  Time to introduce new products (especially in IT) o Quality  Focus of the 1980s  From strategic advantage to competitive necessity  Most relevant as a customer BSC measure if potential for competitive advantage (otherwise part of internal business perspective)  Quality Measures  Defect rate/customer returns/warranty claims  A problem for service industries e.g. no returns (can use service guarantees)  Quality can refer to time also e.g. OTD o Price  Low price does not always mean low cost  Low price supplier who only delivers in bulk or not on time  A low cost supplier may have higher prices but be defect free  Aim to become the most ‘profitable’ supplier  ABC can calculate profitability by supplier  Be careful to make sure that these are ‘profitable’ customers Typical measures of the Customer Perspective  Market share  Account share o Number of customers, dollars spent, unit volume sold o If targeted at customer segments gives a measure of market penetration e.g., fast food restaurants, accounting firm  Retention and loyalty o Identification of customers o Retention targets and/or growth in business with existing customers (account share) e.g., accounting firm  Acquisition o An objective to increase customer base in targeted segments o Number of new customers or the total sales to new customers in targeted segments, rate of conversions from solicitations (e.g., a consultant) o Need to be careful not to be too broad  Satisfaction o Measures of outcomes o Need to aim for completely or extremely satisfied o Problem - assesses attitudes not actual behaviour  Link with more objective measures  Profitability o Success at retention, acquisition and satisfaction does not ensure strategic success  Use an activity based costing approach  Some customers may be unprofitable  New customers (lifetime returns) Internal Business Perspective  Operations cycle o Time  What do customers want?  The value proposition offered to targeted customers often includes response times  Customers value: o short “lead times” (measured by MCE) o reliable lead times (measured by on-time delivery).  Just in Time’: Efficient, reliable, defect free, short cycle order fulfilment i.e., low cost and timely supplier  ‘Just in Case’: Produce and hold large stocks of inventory, “just-in-case” o Leads to very high production, inventory carrying and obsolescence and slow response times  MCE  Efficiency of cycle time measured  Throughput time (a.k.a. cycle time, lead time): o A measure of the total elapsed time of a process or part of a process. o Broadest definition: Receipt of a customer order to when the customer has received the product/service. o Narrower definition: Any process or part of a process to be measured.  Produce product/ deliver the service. (Value Add Time)  Plus:  Waiting time  Rework  Inspection  Materials handling  Etc. (Non-Value Add Time)  Processing time = that part of throughput time when value is being added to the product. o Produce product/ deliver the service. o  MCE = processing time/throughput time = value-add time / (value-add time + non value-add time)  Ideal MCE is 1, but (almost) always < or = 1 because  Throughput time = processing time + inspection time + movement time + waiting/storage time  Avoidable delays from: o Poor and uncertain quality  Leads to inspection of parts, reworking of parts, replacing of scrapped parts o Producing quantities of products in excess of current demand to economise on setup and ordering costs o Quality  Measures in manufacturing  Process parts per million (PPM) defect rates  Waste/scrap/rework/returns  Measures in service industries  W
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