CU-MCOM-SEM-IV-Strategic Cost Management-Second Draft

UNIT - 12: ACTIVITY BASED COST MANAGEMENT STRUCTURE 12.0 Learning Objectives 12.1 Introduction 12.2 Just-in-time (JIT) 12.2.1 The JIT Strategy 12.2.2 Advantages of Just-In-Time System 12.2.3 Disadvantages of Just-In-Time System 12.2.4 Precautions to remember while implementing Just-In-Time System 12.2.5 Performance Measurement in a JIT System 12.3 Enterprise Resource Planning (ERP) 12.3.1 Need for ERP 12.3.2 Features of Enterprise Resource Planning 12.3.3 Advantages of Enterprise Resource Planning 12.4 Activity Based Cost Management 12.4.1 Disadvantages of Traditional Costing System 12.4.2 Activity-Based Costing 12.4.3Stages of Activity Based Costing 12.4.4 Purpose of Activity Based Costing 12.4.5 Benefits of Activity Based Costing 12.5 Summary 12.6 Keywords 12.7 Learning Activity 12.8 Unit End Questions 12.9 References 151 CU IDOL SELF LEARNING MATERIAL (SLM)

12.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Discuss the concept the Just in Time.  Explain the concept of Enterprise Resource Planning.  Discuss the concept of Activity Based Cost Management.  List the purpose of Activity Based Cost Management.  Discuss the various Benefits and Purpose of Activity Based Cost Management.  Explain the various stages of Activity Based Cost Management 12.1INTRODUCTION In this Unit, we will be able understand the JIT system, its advantages and disadvantages. ERP system aims to streamline and consolidate business processes and information and the various benefits, purpose and stages of Activity Based Cost Management. 12.2 JUST –IN-TIME (JIT) Just in time (JIT) is a production system that relies on actual orders to determine when a product should be made. Demand-pull manufacturing allows a company to manufacture only what is needed, in the right quantity and at the right time. This means that raw materials, components, work-in-progress, and finished items stock levels can be kept to a bare minimum. There is a need scheduling and resource flow throughout the manufacturing process in this system. Modern manufacturing companies utilize sophisticated production scheduling software to schedule production for each period of time, including ordering the appropriate supplies. Only when supplies are required are they delivered to the production line. A Bike manufacturing factory, for example, might receive exactly the proper amount and kind of tyres for one day's production, and the supplier would be expected to deliver them to the correct loading bay on the production line within a very tight time frame. 12.2.1 The JIT Strategy: Companies may typically save a lot of money by using a JIT inventory and product handling method. Inventory costs are a significant part of a company's operating costs, particularly in manufacturing. By keeping your inventory to a minimum, you can save money. 152 CU IDOL SELF LEARNING MATERIAL (SLM)

JIT Systems A variety of systems are required to support a JIT strategy. A Kanban is the most notable. This is a Japanese method of guaranteeing that inventory or product is available at all times. Kanbans were created to aid in the JIT process. A Kanban is a visible signals that it's time to restock and maybe replenish stock. JIT is also used with continuous improvement programmers. Total Quality Management and Six Sigma are broad programmes that help you examine every step of the manufacturing process in detail and discover areas for improvement. JIT allows you to keep an eye on the production process at all times. Because JIT is meant to scatter throughout the organization, it can have a wide range of effects via improving procedures. When lean manufacturing is prioritized, systems tend to become simpler and more predictable. JIT enhances efficiency in a variety of ways, from how a product travels through the facility to techniques to encourage worker involvement in system design. 12.2.2 Advantages of Just-In-Time System: 1. Stock holding expenses are kept to a bare minimum with just-in-time manufacturing. The release of storage space leads to higher space use, which has a positive influence on the rent paid and any insurance premiums that would otherwise be required. 2. Just-in-time production eliminates waste by removing out-of-date or expired products from the equation. 3. Because only essential stocks are obtained using this method, procurement requires less operating capital. A minimum re-order level is established, and only new supplies are ordered once that level is reached, making this a boon to inventory management as well. 4. Because just-in-time manufacturing operates on a demand-pull basis, all things produced are sold, allowing it to adapt to fluctuations in demand with surprising ease. This makes it particularly appealing in today's market, where demand is variable and unpredictable. 5. Just-in-time production promotes the right-first-time idea, which reduces inspection and rework expenses. 6. Following a just-in-time production method can result in higher-quality products and increased efficiency. 153 CU IDOL SELF LEARNING MATERIAL (SLM)

7. A just-in-time manufacturing system fosters close ties throughout the production chain. 8. Customer satisfaction is high when there is constant communication with the customer. 9. When just-in-time manufacturing is used, overproduction is eliminated. 12.2.3 Disadvantages of Just-In-Time System: 1. Just-in-time manufacturing has a zero-tolerance policy for mistakes since it makes rework extremely difficult in practise because inventory is kept to a minimum. 2. There is a lot of reliance on suppliers, whose performance is usually out of the manufacturer's control. 3. Because there will be no buffers for delays, production downtime and line idle may occur, putting a strain on finances and the production process's equilibrium. 4. Due to the lack of additional end items, the organisation would be unable to meet an unanticipated rise in demand. 5. Because transactions would be frequent, transaction costs would be quite high. 6. Just-in-time manufacturing may have some negative environmental consequences due to frequent delivery, which would result in higher transportation use, which would burn more fossil fuels. 12.2.4 Precautions to remember while implementing Just-In-Time System: 1. If a just-in-time manufacturing system is to be successfully implemented, it will require management buy-in and support at all levels of the company. 2. Adequate resources should be set aside to obtain technologically advanced software, which is normally required for a successful just-in-time system. 3. Just-in-time manufacturing is not something that can be implemented immediately. Because it is so distinct from standard production techniques, it necessitates time commitment as well as organisational cultural reforms. 4. In order to accommodate just-in-time production, the design flow process must be modified and layouts must be re-formatted. 5. Lot sizes must be kept to a minimum. 6. Whenever possible, the capacity of workstations should be balanced. 7. To avoid machine malfunctions, preventive maintenance should be performed. 8. Wherever possible, setup times should be cut. 154 CU IDOL SELF LEARNING MATERIAL (SLM)

9. Quality improvement programmes must be implemented in order to implement entire quality control techniques. 10. It is necessary to combine shorter lead times and more frequent deliveries. Many manufacturing companies have successfully applied the just-in-time manufacturing philosophy. 12.2.5 Performance Measurement in a JIT System: In a JIT environment, several measurements that are used in traditional accounting systems are not used. New metrics that take advantage of the system's specific properties can be implemented. In a typical system, machine utilization, for example, is an important metric. This is used to guarantee that the company's assets are being fully utilized. This is especially relevant where a significant amount of money has been invested in automation or massive, high-speed machinery. The method is different in JIT. The core rule of the JIT system is to produce only what is truly required. 1. Inventory Turnover: The minimization of unnecessary inventory is one of the key goals of JIT systems. As a result, in JIT, Inventory Turnover is an appropriate performance metric. Raw Materials, Work in Process, and Finished Goods can all be separated into separate ratios with this metric. 2. Reduced Setup Time: The average setup time per machine can be monitored and plotted on a trend line on a regular basis. Short setup intervals are critical for the success of short production runs; hence this is a key JIT metric. It is preferable to measure it machine by machine rather than as a total for all machines. 3. Customer Complaints: JIT assumes that the product is of the highest possible quality. As a result, client concerns about product issues should be investigated right away. The collection and transmission of consumer complaints to management should be regarded a crucial JIT step. 4. Scrap: The goal of JIT is to reduce material scrap rates. As a JIT system is implemented, the cost of scrap (together with a thorough inventory of products that were destroyed) is of special interest, as it aids in identifying problem areas that require more managerial attention. 5. Cost of Quality: When working with JIT, it's important to keep track of the whole cost of quality (which includes defect control, failure, and lost sales) on a trend line. 155 CU IDOL SELF LEARNING MATERIAL (SLM)

Managers can use this data to determine where the Company's highest quality costs still exist, and then seek to lower them. 6. Customer Service: This metric includes (a) delivering products on the dates specified by customers, (b) dispatching complete orders to customers, and (c) lowering rejections and returns. 7. Idea generated: The JIT method works best when employees make suggestions for improvements that, when combined, result in a greatly improved and efficient operation. The number of ideas per worker, the overall number of ideas recommended, the number of ideas implemented, or the proportion of suggested ideas that are implemented can all be used to gauge the quantity of idea generation. 12.3 ENTERPRISE RESOURCE PLANNING (ERP) Enterprise Resource Planning (ERP) is the most recent high-end solution lent to commercial applications by information technology. The ERP system aims to streamline and consolidate business processes and information flows in order to synergize an organization's resources, such as men, material, money, and machines, through information. Due to the exorbitant cost, ERP programmes were initially only available to large multinationals and infrastructure companies. Many Indian businesses are implementing ERP systems these days. Meaning: ERP is enterprise resource planning software, which aims to connect various departments and services within a company into a single computer system that can fulfill all of those departments' specific needs. ERP, on the other hand, brings all computerized departments together with the use of a single integrated software programme that works on a single database, allowing different departments to share information and commissions more simply. 12.3.1 The need for ERP: Most businesses have realized that in today's fast-paced world, it's impossible to construct and maintain a customer-designed software package that meets all of their needs while also remaining current. Recognizing the needs of users, some of the world's best software companies have created Enterprise Resource Planning software, which provides an integrated software solution for all of an organization's functions. 156 CU IDOL SELF LEARNING MATERIAL (SLM)

12.3.2 Features of Enterprise Resource Planning: 1. ERP is a company-wide Integrated Information System that includes manufacturing, selling, and distribution, as well as payables, receivables, inventories, accounts, human resources, and acquisitions. 2. ERP automates fundamental processes and improves customer service, enhancing the company's reputation. 3. ERP bridges the information divide between businesses. 4. ERP is the solution for improved project management since it allows total system integration not only across departments but also between enterprises under the same management. 5. Most business concerns, such as material shortages, productivity gains, customer service, cash management, inventory issues, quality issues, and timely delivery, are eliminated by ERP. 6. ERP not only meets the company's current needs, but it also allows for continuous improvement and refinement of business processes. 7. Business intelligence capabilities such as Decision Support Systems (DSS), Executive Information System (EIS), and Reporting are available with ERP. Data mining and early warning systems (Robots) to help people make better decisions and enhance corporate operations. 12.3.3 Advantages of Enterprise Resource Planning: 1. Product Costing: Accurately determining the cost of products is crucial in every industry. Standard costing, actual costing, and activity-based costing are among the advanced costing methodologies supported by ERP. Furthermore, all costing methodologies and data can be integrated with finance. This supplies the organisation with critical financial data for cost control and monitoring. 2. Inventory Management: Inventory Management: ERP can be employed in manufacturing and distribution contexts that are multi-national, multi-company, and multi-site. This system streamlines challenging logistics by letting users to plan and run businesses in multiple countries as a single entity, and its comprehensive functionality allows users to handle product and financial data in a variety of ways. 3. E-Commerce: Internet, Intranet, and Extranet solutions for company, business to consumer, employee self-service, and more. 157 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Quality Control: It ensures that the quality control method is carried out automatically. 5. After-Sales Service: It ensures that the customer receives superior after-sales service. 12.4ACTIVITY BASED COST MANAGEMENT Introduction: Activity-Based Costing (ABC) is a useful method for monitoring performance that is used to identify, describe, allocate costs to, and report on agency operations. ABC is a cost management method that determines the “true” cost of a product or service, which is more accurate than standard cost accounting. It discovers opportunities to improve business process effectiveness and efficiency by finding the “true” cost of a product or service. Activity Based Costing (ABC) is a cost estimation method that divides a project into discrete, quantifiable activities or work units. 12.4.1 Disadvantages of Traditional Costing System: 1. The current costing method has established a handy overhead recovery base and blanket overhead recovery, which are suitable when valuing stocks for financial reporting but ineffective when utilised for decision-making and typical product strategy decisions. 2. The typical fixed vs. variable cost divide is sometimes unrealistic as businesses expand and become more sophisticated, and many fixed costs become variable throughout this period. 3. Because traditional costing systems have difficulty collecting, classifying, allocating, and recovering overheads to individual products, companies that manufacture and sell multiple products often make pricing, product mix, process technology, and other decisions based on distorted cost information. 4. Traditional accounting was limited to providing information at the product level, especially when the direct labour component was reduced to a tiny proportion. The new manufacturing method necessitates performance feedback while production is still on-going, rather than after the fact. 12.4.2 Activity-Based Costing: During the 1970s and 1980s, ABC concepts were established in the manufacturing sector of the United States. It is a method of identifying activities and calculating the associated 158 CU IDOL SELF LEARNING MATERIAL (SLM)

expenses of completing them, resulting in actual costs chargeable. The activities are at the center of activity-based costing. As a result, determining activities is a natural first step in creating an activity-based costing system. An activity is a task, event, or unit of work that has a specific goal. Designing products, setting up Plant, and distributing products are only a few examples. Peter B. B. Turney defines ABC as “a method of measuring the cost and performance Of activities and cost objects. Assigns cost to activities based on their use of resources and assigns cost to cost objects based on their use of activities. ABC recognizes the causal relationship of cost drivers to activities.” 12.4.3Stages of Activity Based Costing: The following are the different steps or stages in the ABC system: Identify the cost object Categorize the various activities that take place within the organization Identifying the product's direct cost 159 Relating the overhead in context with the actions Supporting activities are distributed across the primary activities Detaining the cost drivers for each task Calculating the cost-driver rates for activities Calculating the entire cost of goods or services CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 12.1 Stages of Activity Based Costing 1. Identify the cost object: The products or services are the cost objects of any firm, and the purpose is to assess the entire cost of making and distributing these things, as well as their unit cost. 2. Categorize the various activities that take place within the organization. Following the identification of cost items, the primary activities carried out by the company must be determined. Normally, the number of activities in ABC will exceed the number of cost centers.When compared to a regular overhead system, there will be a significant increase. The actual amount will be determined by how the organization's functions are divided by management. 3. Identifying the product's direct cost: Direct material costs, direct labour costs, and direct expenses are all examples of direct costs for items or commodities. As many of the overall costs as is economically reasonable should be classified as direct costs. It lowers the percentage of costs that are classed as indirect. 4. Relating the overhead in context with the actions: Following the identification of the organization's activities, the numerous overhead items are linked to the actions that created them, both support and primary. Cost pools or cost buckets are generated as a result of linking overhead items to numerous operations. 5. Supporting activities are distributed across the primary activities: The distribution of support activities (i.e., activities that support or aid manufacturing) across primary activities (which are associated to the number of units produced) is done on some appropriate basis that reflects the utilization of support activities. The base is a cost driver that determines how support activities are used. 6. Detaining the cost drivers for each task: The purpose of determining the activity cost drivers is to link the overhead collected in cost pools to product cost objects. It is carried out in accordance with the element that promotes activity consumption. 7. Calculating the cost-driver rates for activities: 160 CU IDOL SELF LEARNING MATERIAL (SLM)

Each activity's activity cost rates are determined in the same way as overhead absorption rates are calculated in the traditional system. It can be presented in the following way: Activity cost driver rate = Total cost of activity/Activity driver The amount of overhead chargeable to specific cost objects or goods will be determined using these activity cost driver rates. 8. Calculating the entire cost of goods or services: To calculate the entire costs of the products, add all direct and indirect costs associated with them. The amount of overhead that can be charged to a product or cost object is computed by multiplying the activity cost by the overhead rate. 12.4.4 Purpose Of Activity Based Costing: 1. ABC calculates how much each activity costs and then takes efforts to lower those costs by modifying the manufacturing process or outsourcing those tasks. 2. Product price and decisions about whether or not to continue manufacturing a product or keep a specific customer. ABC gives more accurate cost data than traditional costing. This information can be used by management to negotiate price increases with customers or to discontinue unproductive products. 3. Budgeting and performance measurement: Management can improve budgets and measurements of department and division performance by using more precise cost information. 12.4.5 Benefits of Activity Based Costing: 1. It reduces arbitrary cost allocations, resulting in more accurate product costing information. 2. It aids in determining which activities can be removed. 3. It is straightforward method of allocating overhead in the product. 4. It connects between cause and consequence. 5. ABC aids in the identification of value-added activities (which raise customer satisfaction) and non-value-added activities (which cause customer satisfaction difficulties). 6. ABC converts cost into a language that consumers can comprehend and associate with commercial activity. 161 CU IDOL SELF LEARNING MATERIAL (SLM)

Characteristics of Activity Based Costing: 1. The number of cost pools used to accumulate overhead costs has increased. The number of pools depends on the cost of the driving activity. Therefore, instead of Accumulating general costs in a single company group or department group, costs accumulating by activity. 2. Charges indirect costs to different jobs or products in proportion to the cost of driving activities instead of total rates based on direct labor costs or direct hours or machine hours. 3. Improves the traceability of indirect costs, thus providing management with more accurate unit cost data. 4. Identifying the cost during the activity and its reasons not only helps to calculate the more accurate product or labor costs of, but also eliminates the additional activity of Worthless. Eliminating non-value-added activities will reduce product costs. 12.5 SUMMARY  Just in time (JIT) is a production system that relies on actual orders.  JIT allows you to keep an eye on the production process at all times.  Just-in-time manufacturing has a zero-tolerance policy.  The ERP system aims to streamline and consolidate business processes and information flow.  Activity-Based Costing (ABC) is a useful method for monitoring performance.  Activity Based Costing (ABC) is a cost estimation method that divides a project into discrete, quantifiable activities or work units.  ABC gives more accurate cost data than traditional costing.  ABC aids in the identification of value-added activities 12.6 KEYWORDS  Cost: The cost of an activity is the amount paid for the resources it consumes.  Activity: An activity is a collection of closely related tasks with specified purposes that are used to achieve a goal or achieve objectives.  Scrap: a small bit or piece of something that is left over after the majority of it has been consumed. 162 CU IDOL SELF LEARNING MATERIAL (SLM)

 Unpredictable: now no longercapable of be predicted; changeable.  Tolerance: the ability to bearpersisted subjection to somethingwhich includes a drug or environmental situationswithoutnegative reaction. 12.7 LEARNING ACTIVITY 1. Define Activity Based Costing. ___________________________________________________________________________ ___________________________________________________________________________ 2. What is ERP? ___________________________________________________________________________ ___________________________________________________________________________ 12.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What do you mean by Just in Time? 2. Explain the concept of ERP. 3. Define Activity-Based Costing. 4. Discuss the purpose of using ABC Costing. 5. List down the benefits of ABC. Long Questions 1. Define JIT. Explain its advantages. 2. Discuss the disadvantages of JIT. 3. What Precautions should be taken while implementing Just-In-Time System? 4. Explain the Performance Measurement in JIT System. 5. Explain the features and advantages of ERP. B. Multiple Choice Questions 1. Kanbans were created to aid in the ………….process 163 a. ERP b. JIT CU IDOL SELF LEARNING MATERIAL (SLM)

c. ABC d. All of these 2. ………is a cost management method that determines the “true” cost of a product or service a. ABC b. ERP c. JIT d. None of these 3. ………….gives more accurate cost data than traditional costing. a. ABC b. JIT c. ERP d. None of these 4. DSS is ……………………. a. Decision Support Systems b. Divide Support System c. Decision Systematic Scheme d. Dependent Support System 5. …………is enterprise resource planning software. a. ABC b. ERP c. DSS d. JIT Answers 164 1-b, 2-a, 3-a, 4-ba, 5-b CU IDOL SELF LEARNING MATERIAL (SLM)

12.9 REFERENCES References book  Aswathappa, K. (2002). Human Resource Management. New Delhi: Tata McGraw- Hill.  Dessler, G. (2012). Human Resource Management. New Delhi: Prentice-Hall of India.  Rao, V.S.P. (2002). Human Resource Management: Text and cases. New Delhi: Excel Books.  Decenzo, A. & Robbins P Stephen. (2012). Personnel/Human Resource Management. New Delhi: Prentice-Hall of India.  Ivancevich, M John. (2014). Human Resource Management. New Delhi: Tata McGraw-Hill. Textbook references  Mamoria, C.B. (2002). Personnel Management. Mumbai: Himalaya Publishing House.  Dipak Kumar Bhattacharyya, Human Resource Management, Excel Books.  French, W.L. (1990), Human Resource Management, 4th ed., Houghton Miffin, Boston.  H.J. Bernardin, Human Resource Management, Tata McGraw Hill, New Delhi, 2004. Website  http://www.slideshare.net/sreenath.s/evolution-of-hrm  www.articlesbase.com/training-articles/evolution-of-human-resource- management- 1294285.html  http://www.oppapers.com/subjects/different-kinds-of-approaches-to-hrm- page1.html 165 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 13: COST OF QUALITY AND TOTAL QUALITY MANAGEMENT STRUCTURE 13.0 Learning Objectives 13.1 Introduction 13.2 Cost of Quality 13.3Total Quality Management 13.3.1 Principles of TQM 13.3.2 Steps in Total Quality Management 13.3.3Control Techniques in TQM 13.3.4Management of Inventory 13.4 Summary 13.5 Keywords 13.6 Learning Activity 13.7 Unit End Questions 13.8 References 13.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Discuss the concept of Total Quality Management.  Explain the principles of Total Quality Management.  Discuss the steps involved in Total Quality Management.  Discuss the Control techniques of TQM.  Explain the various stages of Activity Based Cost Management 13.1INTRODUCTION In this Unit, we will be able learn how Total Quality Management (TQM) is a management paradigm based on the notion that an organization's long-term success can be achieved by 166 CU IDOL SELF LEARNING MATERIAL (SLM)

having all of its members, from entry-level employees to top executives, focus on increasing quality and, as a result, delivering customer satisfaction. 13.2 COST OF QUALITY The consumer determines the quality of the product or service, which is incorporated into the service or product design. A customer's needs or criteria for a product or service are specific. The design of a product or service incorporates these criteria as product or service specifications, as well as the manner in which the product or service is provided to the consumer. The production of a product or the delivery of a service is governed by a set of sequential processes. While the design activity is being carried out, this set of processes, their order, and interdependence are specified, and the process design has a direct impact on the outcome, that is, the extent to which the outcome meets the specifications developed during design. Quality is also influenced by process design. Organizations have realized the tremendous cost of poor quality, which is why quality has gained such prominence. Quality influences every part of a business and has a significant financial impact. The most visible effect arises when low quality results in disgruntled customers, which leads to business loss. However, there are other costs associated with quality that can be separatedinto two distinct groups. The first category includes costs associated with reaching high quality, such as Quality control costs. There are two types of costs: preventive and appraisal. The second group includes the costs associated with poor quality, referred to as poor quality failure costs. There are two types of poor quality failure costs: external failure costs and internal failure costs. Prevention Cost: All costs involved in the process of preventing poor quality are referred to as prevention costs. They include expenditures associated with quality planning, such as those associated with designing and implementing a quality plan. The costs of product and process design, from gathering consumer input to building methods that ensure specification conformance, are also covered. This cost includes employee training in quality measurement, as well as the price of keeping quality-related information and data records. Appraisal Cost: The expense of an appraisal is incurred when defects are discovered. They cover the costs of quality inspections, product testing, and auditing to ensure that quality standards are met. 167 CU IDOL SELF LEARNING MATERIAL (SLM)

The costs of worker time spent measuring quality and the cost of quality appraisal equipment are also included in this category. Internal Failure Cost: Internal failure costs are related to detecting bad product quality before it reaches the customer. Rework, which is the cost of fixing the defective item, is one sort of internal failure cost. Sometimes an item is so damaged that it cannot be repaired and must be discarded. This is referred to as scrap, and it includes all material, labour, and machine costs incurred in the production of the defective product. External Failure: When clients receive substandard products, costs are incurred. They include the expense of dealing with customer complaints, warranty replacements, returns product repairs, and the cost of a tarnished company reputation. Illustration 1: XYZ Ltd. initiated a quality improvement program at the beginning of the year. Efforts were made To reduce the number of defective units produced. By the end of the year, reports from the production Manager revealed that scrap and rework had both decreased. Though pleased with success, the CEO of the company wanted some assessment of the financial impact of the improvements. To make this assessment, the following financial data were collected for the current and preceding year: Particular 2019-20 2020-21 Sales 1,00,00,000 1,00,00,000 Scarp 4,00,000 3,00,000 Rework 6,00,000 4,00,000 Product Inspection 1,00,000 1,25,000 Product Warranty 8,00,000 6,00,000 168 CU IDOL SELF LEARNING MATERIAL (SLM)

Quality Training 40,000 80,000 Material Inspection 60,000 40,000 You are required to — (i) Classify the cost as prevention, appraisal, internal failure, or external failure. (ii) Compute the profit that has increased because of quality improvements. Solution: Cost Classification: Prevention Costs Quality training Appraisal Cost Product inspection and materials Internal Failure Inspection External Failure Scrap and rework Product warranty Computation of the profit that has increased because of quality improvements: Total quality cost for the year 2019-20 40,00,000 Total quality cost for the year 2020-21 30,90,000 Cost savings/ profit increased 9,10,000 169 CU IDOL SELF LEARNING MATERIAL (SLM)

13.3 TOTAL QUALITY MANAGEMENT Total Quality Management (TQM) is a philosophy that focuses on continuously improving the quality of all goods and processes in response to customer input in order to meet their needs. It tries to get things right the first time instead than having to remedy problems later (a company should prevent faults rather than correct them). Its primary goal is customer happiness. TQM is a customer-focused, prevention-oriented, continuous improvement method based on a scientific approach utilized by cost-conscious employees who are devoted to satisfying consumers the first time, every time. Its goal is to manage an organization in such a way that it excels in areas that are vital to customers. Elements of TQM: (i) Satisfyingcustomerrequirements: Customer satisfaction is the key to the survival and development of an organization. TQM aims to best meet the ever-changing customer needs; but it will continue tochange with changes in the environment and needs, preferences, etc. customer. (ii) Continuous improvement: TQM is a complete concept. It involves the integration of all functions and processes within theorganization to achieve continuous improvement of product/service quality.Furthermore, quality is a dynamic concept. As technology advances,organizations must adopt new processes and redesign products to continually improve quality to providecustomers with the best technology benefits. (iii) Participation of all employees: TQM is called human success. According to TQM's philosophy, quality is not just the responsibility of the productionstaff.Rather, it is the responsibility of the entire company. TQM can only be successful when the entireorganization is quality conscious. Advantages of TQM: (i) Improve thecompetitiveadvantage of the company: TQM helps organizations reduce costs byeliminating waste andrework,improve profitability and 170 CU IDOL SELF LEARNING MATERIAL (SLM)

competitiveness of the company and help improve the competitive advantageof the organization in the globalized economy current. (ii) Excellent customersatisfaction: By focusing on customer needs, TQM achieves excellent customer satisfaction. This leads to more and more sales and good customerrelationships. (iii) Improvement oforganizationalperformance:By promoting a culture of quality in the organization, TQM leads to an improvement in the performance of administration and operations personnel. (iv) Good publiccorporate image: TQM helps establish a corporate imagebefore the generalpublic. This is due to the emphasis on the total quality system and customer requirements under the TQM philosophy. (v) Improverelations with employees: TQM aims topromote mutual trust and openness among employees at all levels of the organization. This leads to better relationships in the company. Disadvantages of TQM: (i) Relations between workers and management:The success of TQM depends on relations between workers and management, because the participation of staff at all levels is a prerequisite for the implementation of the quality management plan total. In many national and foreign organizations, labor relations are very tense. Therefore,the initiation, acceptance and implementation of the TQM program are nothing more than a dream for such organizations. (ii) Changes in attitudes,behaviors,and etc. people start TQM and accept the TQM philosophy requires a long wait for the organization.Youcannot accept and implement TQM overnight. 13.3.1 Principles of TQM TQM is based on the following concepts, which are enumerated below: 1. A clear explanation of the project's advantages. 2. Participation of all employees 3. Measurement of the process 4. All customers and donors are involved. 5. Irrelevant data is removed. 171 CU IDOL SELF LEARNING MATERIAL (SLM)

6. Recognize the requirements of the entire procedure. 7. To aid comprehension, employ graphical and pictorial techniques. 8. Defining performance standards and goals. 9. Make use of blunders to motivate you to keep improving. 10. Use data to inform others about their progress. 13.3.2 Steps in Total Quality Management: 1. Identification of customers/customer groups: The Firm should identify main customer groups using a team approach (a technique known as Multi-Voting). This aids in the identification of customers and significant issues in the supply of decision-support information by setting priorities. 2.Determine what customers expect: Following the identification of the primary client groups, a list of their expectations is created. What does the customer expect from the firm? Is the question to be answered? Identifying consumer needs for decision-making and product utility: 3. Identifying customer decision-making requirements and product utilities: A decision-support system that incorporates both financial and nonfinancial and nonfinancial information and strives to satisfy user requirements can be established by identifying the need to stay connected to clients and follow their suggestions. As a result, the company learns the answer to the question: \"What are the customer's decision-making requirements and product utilities?\" The answer is found by listing managerial impressions rather than actual customer engagement. 4. Identifying perceived issues in the decision-making process and utility of products: The Firm tries to outline its perceptions of issue areas and limitations in achieving client requirements via participatory techniques such as brainstorming and multi-voting. This will identify areas of weakness where the biggest effect could be made by implementing improvements. The firm determines the response to the inquiry, \"What are the issue areas in the decision-making process that we see?\" 5. Benchmarking and comparison with other firms: 172 CU IDOL SELF LEARNING MATERIAL (SLM)

Internal deliberations are detailed and thorough, allowing the firm to obtain a comprehensive understanding of its own strengths and limitations, as well as the areas of greatest insufficiency. Benchmarking allows the company to understand how other businesses are dealing with similar issues and possibilities. 6. Customer Feedback: Steps 1–5 establish an information basis that was produced without the customer's input. Steps 6 and 7 correct this by conducting a survey of representative customers, which includes their perspectives on perceived issue areas. Interaction with clients and receiving their feedback assists the company in correcting its own perceptions and improving its operations. Identifying areas for improvement and putting the Quality Improvement Process into action: 7. Identifying areas for improvement and putting the Quality Improvement Process into action: It include the identification of improvement opportunities and the implementation of a formal improvement process, are informed by the results of the customer survey, benchmarking, and internal analysis. This is accomplished through PRAISE, a six-step procedure. 13.3.3 Control Techniques in Total Quality Management 1. Benchmarking: Benchmarking is the process of comparing the results of a team's performance indicators to those of industry leaders. It is possible to identify and address problems and inefficiencies. It is possible to create, organize, and implement performance improvement goals. With the achievement of a goal, one's performance improves and one's knowledge expands. 2. Continuous improvement process: The continuous improvement process, often known as continuous improvement, is concerned with the continuous improvement of services, products, and processes utilizing incremental and breakthrough measurements. Incremental improvement occurs over time, whereas breakthrough improvement occurs all at once. The PDCA cycle (Plan-Do-Check-Act) is the most extensively used tool in the continuous improvement process. 3. Statistical process control: 173 CU IDOL SELF LEARNING MATERIAL (SLM)

Statistical process control is a quality control method that employs statistical techniques to control, monitor, and manage a process. Quality data is collected in the form of real-time measurements of products or processes. Control limits have been established. If data falls outside of the control limits, it shows a deviation from the process standards, and it's time to look for a cause. Benchmarking Risk Continuous Management in improvement Variation process Total Quality Six Sigma Management Statistical process control Reengineering of Business Processes Fig 13.Control Techniques in Total Quality Management 4. Risk Management in Variation: A tool for discovering, analyzing, and, if necessary, nullifying undesired variation in a process is variation risk management. 5. Reengineering of Business Processes: Discovering the business operations and processes, detecting the flaws and inefficiencies, redesigning these processes to minimize redundancies, and eventually executing these redesigned processes are all part of the business re-engineering process. Re-engineering 174 CU IDOL SELF LEARNING MATERIAL (SLM)

stresses a holistic approach, focusing on large-scale change that may be executed while focusing on business objectives and related procedures. 6. Six Sigma: Six sigma is a data-driven methodology for eliminating faults in any process, from manufacturing to engineering, product development, and service delivery. DMAIC (Define, Measure, Analyze, Improve, Control) and DMADV (Define, Measure, Analyze, Design, and Verify) are the two primary essential principles used in six sigma techniques. 13.3.4 Management of Inventory Inventory management aids businesses in determining which goods to order and when to order it. It keeps track of merchandise from purchase to sale. The practice monitors and reacts to trends to guarantee that there is always enough stock to satisfy client orders and that shortage are detected early. Inventory becomes revenue if it is sold. Inventory ties up cash before it sells, despite the fact that it is reported as an asset on the balance sheet. As a result, having too much inventory costs money and lowers cash flow. Inventory turnover is one indicator of good inventory management. Inventory turnover is an accounting metric that shows how frequently stock is sold over time. A company does not want to have more inventory than it can sell. Dead stock, or unsold inventory, can result from low inventory turnover. Benefits of Inventory Management: 1. Saves Money: Knowing stock trends allows you to know how much and where you have anything in stock, allowing you to make better use of what you have. This also allows you to hold less stock at each location (store, warehouse), as you can fulfill orders from anywhere – all of this lowers inventory costs and reduces the quantity of product that goes unsold before it becomes obsolete. 2. Improves Cash Flow: Proper inventory management allows you to spend money on inventory that sells, allowing cash to flow freely throughout the company. 3. Customers are satisfied: 175 CU IDOL SELF LEARNING MATERIAL (SLM)

Ensuring that customers obtain the things they desire without having to wait is an important part of building loyal customers. Inventory Management Techniques: Six Sigma Materials ABC Requirem Analysis ents Planning Minimum Inventory Batch Order Management tracking Techniques Quantity FIFO and LIFO Just-In- Time Inventory Safety Economic Stock Order Consign Quantity( ment EOQ) Fig 13.2 Inventory Management Techniques 1. ABC Analysis: This strategy works by determining which stock types are the most and least popular. A, B, and C. ABC analysis is a fairly simple methodthatcan help managers focus their time and energy on trackingthe most important items ininventory. They can also customize their inventory control strategies for each category to help ensure they optimize the correctinventory levels. 2. Batch tracking: 176 CU IDOL SELF LEARNING MATERIAL (SLM)

It combines similar goods together to track expiration dates and hunt down defective items. Batch tracking is sometimes calledbatch tracking, which is the process of using batch numbers toeffectivelytrackproductsthroughout the distribution chain. \"Batch\" refers to a group of specific commodities that are produced together and use the same materials. For example, a batch of milk is a group of individuallypackaged milk that uses the same ingredients and has the same expiration date because they are produced together at the same time. From raw materials to finished products, batch tracking allows you to view thesource,whereabouts,shipment volume, and if thereis an expiration date, when it will expire. 3. Consignment: It means that your company won't pay its supplier until a product is sold. Until your company sells the goods, that supplier retains ownership of it as well. When the sender ships goods to the recipient,you donot need to create journalentries related to the actual movement of the goods.Generally, it is sufficient to record the change in location in the shipper's inventoryrecord-keeping system. In addition, the shipper should consider the following maintenance activities: Periodically send a statement to the recipientindicating the inventory that should be on the recipient's premises. The recipient can use this report to periodically verify the actual quantityavailable against the sender's records. When the consignor performs a physical inventory, it. An occasional audit of the inventory reported by the recipient may also be helpful. From the point of view of the consignee, there is no need to record the consignment inventory because it is owned by the consignor. For reconciliation and insurance purposes, it may be helpful to record all consignment inventories. 4. Economic Order Quantity (EOQ): This formula determines how much inventory a company should order in order to save money on storage and other expenses. Economic OrderQuantity (EOQ) is a decision tool used in cost accounting. It is a formula that allows you to calculate the ideal amount of inventory to order for a given product. This calculation is designed to minimize ordering and maintenance costs. It can betraced back to 1913, when Ford W. Harris wrote an article entitled\"How Many Parts AreMade at One Time\". 177 CU IDOL SELF LEARNING MATERIAL (SLM)

5. FIFO and LIFO: The terms \"first in, first out\" (FIFO) and \"last in, last out\" (LIFO) refer to the order in which you move the oldest stock first. Because prices always climb, last in, first out (LIFO) assumes that the most recently purchased goods are the most expensive and so sold first. 6. Just-In-Time Inventory (JIT): Companies employ this strategy to keep stock levels as low as possible before restocking. 7. Materials Requirements Planning (MRP): MRP (Materials Requirements Planning) is a manufacturing planning, scheduling, and inventory control system. 8. Minimum Order Quantity: In order to keep costs low, a company that relies on minimum order quantity would order small amounts of merchandise from wholesalers in each order. 9. Safety Stock: Prioritizing safety stock in inventory management ensures that there is always excess stock on hand in case the organization is unable to restock those things. 10. Six Sigma: This is a data-driven strategy for eliminating inventory waste in enterprises. 13.4 SUMMARY  Quality influences every part of a business and has a significant financial impact.  All costs involved in the process of preventing poor quality are referred to as prevention costs.  The expense of an appraisal is incurred when defects are discovered is called appraisal cost.  Total Quality Management (TQM) is a philosophy that focuses on continuously improving the quality of all goods and processes in response to customer input in order to meet their needs.  TQM is a customer-focused, prevention-oriented, continuous improvement method.  Benchmarking is the process of comparing the results of a team's performance indicators to those of industry leaders. 178 CU IDOL SELF LEARNING MATERIAL (SLM)

 Statistical process control is a quality control method that employs statistical techniques to control, monitor, and manage a process.  Six sigma is a data-driven methodology for eliminating faults in any process, from manufacturing to engineering, product development, and service delivery.  Inventory turnover is an accounting metric that shows how frequently stock is sold over time. A company does not want to have more inventory than it can sell. Dead stock, or unsold inventory, can result from low inventory turnover. 13.5 KEYWORDS  Statistical: an area of mathematics concerned with gathering, analysing, interpreting, and presenting large amounts of numerical data.  Inventory: A company's inventory is its collection of finished items or goods utilised in production.  Reengineering: reorganise (a firm or a portion of its operations), particularly through the use of information technology.  Perception: the way something is viewed, comprehended, or interpreted.  Oriented:Align or position (something) relative to the factors of a compass or differentdistinctive positions. 13.6 LEARNING ACTIVITY 1. What do you mean by Prevention cost? ___________________________________________________________________________ ___________________________________________________________________________ 2. What is Appraisal Cost? ___________________________________________________________________________ ___________________________________________________________________________ 13.7 UNIT END QUESTIONS 179 A. Descriptive Questions Short Questions 1. Explain Internal Failure Cost 2. What is Benchmarking? CU IDOL SELF LEARNING MATERIAL (SLM)

3. Write a note on TQM. 4. Explain Cost of Quality concept. 5. List down the principles of Total Quality Management. Long Questions 1. Define TQM. Explain the steps involved in TQM process. 2. Discuss the Control Techniques in Total Quality Management. 3. Explain Management of Inventory. Discuss its benefits. 4. Enumerate the various Inventory Management Techniques. 5. Explain the Cost of Quality in detail. B. Multiple Choice Questions 1. ………………influences every part of a business. a. Loss b. Benchmark c. Quantity d. Quality 2. Cost which prevents poor quality is……………… a. Prevention Cost b. Appraisal Cost c. Internal Failure Cost d. External Failure 3. ………… is a philosophy that focuses on continuously improving the quality of all goods a. TQM b. MRP c. EOQ d. JIT 4. PDCA cycle is…………. 180 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Plan-Do-Check-Action b. Plan-Do-Close-Act c. Point-Do-Check-Act d. Plan-Do-Check-Act 5. ………………..is one indicator of good inventory management. a. Just In Time b. Inventory turnover c. Quality Control d. ERP Answers 1-d, 2-a, 3-a, 4-d, 5-b 13.8 REFERENCES References book  Aswathappa, K. (2002). Human Resource Management. New Delhi: Tata McGraw- Hill.  Dessler, G. (2012). Human Resource Management. New Delhi: Prentice-Hall of India.  Rao, V.S.P. (2002). Human Resource Management: Text and cases. New Delhi: Excel Books.  Decenzo, A. & Robbins P Stephen. (2012). Personnel/Human Resource Management. New Delhi: Prentice-Hall of India.  Ivancevich, M John. (2014). Human Resource Management. New Delhi: Tata McGraw-Hill. Textbook references  Mamoria, C.B. (2002). Personnel Management. Mumbai: Himalaya Publishing House.  Dipak Kumar Bhattacharyya, Human Resource Management, Excel Books. 181 CU IDOL SELF LEARNING MATERIAL (SLM)

 French, W.L. (1990), Human Resource Management, 4th ed., Houghton Miffin, Boston.  H.J. Bernardin, Human Resource Management, Tata McGraw Hill, New Delhi, 2004. Website  http://www.slideshare.net/sreenath.s/evolution-of-hrm  www.articlesbase.com/training-articles/evolution-of-human-resource- management- 1294285.html  http://www.oppapers.com/subjects/different-kinds-of-approaches-to-hrm- page1.html 182 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 14: CORRECTIVE ACTIONS STRUCTURE 14.0 Learning Objectives 14.1 Introduction 14.2 PRAISE 14.3 Steps involved in PRAISE 14.4 Problems in PRAISE 14.5 Implementation of PRAISE 14.6 Summary 14.7 Keywords 14.8 Learning Activity 14.9 Unit End Questions 14.10 References 14.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the concept of PRAISE.  Describe the problems in PRAISE  Discuss the implementation of PRAISE 14.1INTRODUCTION In this Unit, we will be able learn what is PRAISE analysis and what are the various steps involved in it. What problems are involved in PRAISE analysis and implementations of PRAISE? 14.2 PRAISE The TQM Process uses a six-step activity sequence known as the PRAISE acronym to identify improvement opportunities and implement the quality improvement process. 183 CU IDOL SELF LEARNING MATERIAL (SLM)

14.3 STEPS INVOLVED IN PRAISE Step Activity Elements 1 Problem Identification  Customer Satisfaction Issues  Lack of a Competitive Advantage  Complacency with the current structure 2 Ranking Prioritize challenges and opportunities based on  Perceived importance  Ease with which they may be measured and solved. 3 Analysis  Identify possible causes by asking \"Why?\" Continue to inquire \"Why?\" beyond the basic symptoms to avoid leaping to conclusions;  Ask, ‘How much is it?' cause and effect should be quantified. 4 Innovation  Use your imagination to come up with potential solutions.  Put these solutions into action by identifying – 1. Implementation barriers, 2. Implementation facilitators, and 3. People who need to be enlisted. 5 Solution  Use the best option.  Take the necessary steps to get the desired results.  Reinforce, complete with training and documentation. 6 Evaluation  Keep track of how effective your actions are. 184 CU IDOL SELF LEARNING MATERIAL (SLM)

 Establish and understand performance indicators in order to track progress toward goals.  Return to Step 1 after identifying the possibility for more improvements. 14.4 PROBLEMS/DIFFICULTIES IN PRAISE The below mentioned table explains the difficulties and remedies of PRAISE: Step Activity Difficulties 1 Problem Identification  The consequences of an issue are obvious, but the causes are difficult to pinpoint.  While a problem may be identified, identifying a quantitative improvement opportunity is tough.  Some issues, such as morale, communication, and production, are difficult to define. 2 Ranking  Individual perceptions of ranking  Preferences depending on functions (e.g., production, finance, marketing, etc.)  Lack of unanimity across persons 3 Analysis  Adoption of quick solutions and adhoc techniques 4 Innovation  a lack of imagination or expertise  Inability to operationalize ideas, i.e., turns ideas into actions. 5 Solution  Middle managers are resisting. 185 CU IDOL SELF LEARNING MATERIAL (SLM)

6 Evaluation  Issues with implementation.  There is a scarcity of measurable data to compare expectations to reality. Step Activity Remedies 1 Problem Identification  Participatory methods such as brainstorming, multi-voting, and panel discussions.  Problem quantification and exact definition 2 Ranking  Participative \\approach.  Individual interests are subordinated to the groups. 3 Analysis  Brainstorming and Lateral Thinking 4 Innovation  Evaluation of all aspects of each plan in a systematic manner. 5 Solution  Internal communication that is effective;  staff and manager training; and a  Participatory attitude. 6 Evaluation  To track actual, use the Efficient Control System.  A system for receiving feedback. (a) Quality Control - the pursuit of continual quality improvements - and (b) Total Employee Involvement - employee cooperation and commitment - are at the heart of the PRAISE 186 CU IDOL SELF LEARNING MATERIAL (SLM)

system. This dual strategy maintains a single point of focus: the consumer, whose enhanced happiness is the procedure's primary purpose. 14.5 IMPLEMENTATION OF PRAISE The following is a three-point action plan for putting the approach into action: 1. Small to Big Issues: Big improvement possibilities are usually complicated and require substantial interdepartmental collaboration. In the beginning, choose a problem that is reasonably simple to solve. This will increase your chances of success. As a result, the TQM team must gradually go from minor to major concerns. 2. Problem that can be solved: The problem chosen should not be trivial, but it should have a significant impact and a clear improvement opportunity. In order to keep participants motivated and promote the success of the reform, measurable progress toward implementation should be made in a reasonable amount of time. 3. Participant recognition: Successful initiatives and team members should be recognised appropriately. As a measure of personal acknowledgment and encouragement to others, prominent persons should be rewarded for their contributions through monetary or nonmonetary values. 14.6 SUMMARY  The TQM Process uses a six-step activity sequence known as the PRAISE.  Brainstorming and Lateral Thinking are Remedies of Analysis Stage.  Quality Control - the pursuit of continual quality improvements.  The problem chosen should not be trivial, but it should have a significant impact 14.7 KEYWORDS  Brainstorming: Brainstorming is a group exercise in which each person expresses their thoughts as they arise.  Preferences: Buyers choose or have a special liking for one person or object over another or others.  Analysis:distinctiveexam of the factors or shape of something.  Evaluation: the making of a judgement approximately the amount, number, or cost of something; assessment. 187 CU IDOL SELF LEARNING MATERIAL (SLM)

 Identification: the movement or technique of figuring outa person or some thing or the truth of being identified. 14.8 LEARNING ACTIVITY 1. What do you mean by PRAISE? ___________________________________________________________________________ ___________________________________________________________________________ 2. What are the Elements of Problem Identification? ___________________________________________________________________________ ___________________________________________________________________________ 14.9 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What elements are involved in analysis activity? 2. List the elements in the Evaluation stage. 3. Explain the three-point action plan of PRAISE. 4. List any 2 Remedies in PRAISE analysis. 5. List the difficulties in the Problem Identification stage. Long Questions 1. What is PRAISE? Explain the steps involved in the analysis. 2. Discuss the various difficulties in PRAISE analysis. 3. Explain how PRAISE can be implemented. 4. Enumerate the steps and difficulties of PRAISE. 5. Explain the Remedies in PRAISE. B. Multiple Choice Questions 1. The TQM Process uses a …………-step activity. 188 a. Five b. Six c. Seven CU IDOL SELF LEARNING MATERIAL (SLM)

d. Eight 2. Reinforce, complete with training and documentation is in ……………. Stage of PRAISE. a. Solution b. Analysis c. Ranking d. Evaluation 3. Identify possible causes by asking \"Why?” Is n which step of PRAISE. a. Ranking b. Evaluation c. Innovation d. Analysis 4. Brainstorming and Lateral Thinking is in …………stage. a. Ranking b. Evaluation c. Solution d. Analysis 5. Scarcity of measurable data to compare expectations to reality is the difficulty in ………………stage. a. Analysis b. Problem Identification c. Evaluation d. Ranking 189 CU IDOL SELF LEARNING MATERIAL (SLM)

Answers 1-b, 2-a, 3-d, 4-d, 5-c 14.10 REFERENCES References book  Aswathappa, K. (2002). Human Resource Management. New Delhi: Tata McGraw- Hill.  Dessler, G. (2012). Human Resource Management. New Delhi: Prentice-Hall of India.  Rao, V.S.P. (2002). Human Resource Management: Text and cases. New Delhi: Excel Books.  Decenzo, A. & Robbins P Stephen. (2012). Personnel/Human Resource Management. New Delhi: Prentice-Hall of India.  Ivancevich, M John. (2014). Human Resource Management. New Delhi: Tata McGraw-Hill. Textbook references  Mamoria, C.B. (2002). Personnel Management. Mumbai: Himalaya Publishing House.  Dipak Kumar Bhattacharyya, Human Resource Management, Excel Books.  French, W.L. (1990), Human Resource Management, 4th ed., Houghton Miffin, Boston.  H.J. Bernardin, Human Resource Management, Tata McGraw Hill, New Delhi, 2004. Website  http://www.slideshare.net/sreenath.s/evolution-of-hrm  www.articlesbase.com/training-articles/evolution-of-human-resource- management- 1294285.html  http://www.oppapers.com/subjects/different-kinds-of-approaches-to-hrm- page1.html 190 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 15: CONTROL OF CREDIT STRUCTURE 15.0 Learning Objectives 15.1 Introduction 15.2 Collection management 15.3 PARETO Analysis 15.4 Quality Costs 15.5 Summary 15.6 Keywords 15.7 Learning Activity 15.8 Unit End Questions 15.9 References 15.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the concept of collection management.  Describe PARETO Analysis.  Discuss the concept Quality Cost. 15.1INTRODUCTION In this Unit, we will be able learn Pareto analysis decision-making technique that statistically divides data entries into groups that have the most or least impact on the data. The Concept of quality cost and collection management. 15.2 COLLECTION MANAGEMENT The term receivable refers to a customer's debt owed to the company as a result of the sale of products or services in the ordinary course of business. Receivables are also one of the most important components of a company's current assets. It is also known as Account Receivables or Bills Receivables because it only emerges as a result of credit sales to consumers. Account 191 CU IDOL SELF LEARNING MATERIAL (SLM)

receivable management is described as the process of making decisions that lead to the investment of funds in these assets in order to maximize the firm's total return on investment. The goal of receivable management is to increase sales and profits until the return on investment in further funding receivables is less than the cost of funds collected to finance that extra credit. The following are the costs connected with credit extensions and accounts receivables: 1. Collection Costs: These are the expenses incurred in recovering receivables from clients who have received credit sales. 2. Capital Expense: This is the cost of using extra capital to support credit sales that may have been put to better use elsewhere. 3. Administrative Costs : This is an additional administrative cost for keeping account receivable in the form of salaries for personnel who keep accounting records for clients, cost of investigation, and so on. 4. Default Price: Overdues that cannot be recovered are referred to as default fees. Due to the inability of customers to pay, the business concern may not be able to reclaim the overdue amounts. Factors: 1. One of the most crucial criteria that define the size of a company's receivable is its sales volume. If the company wishes to grow its sales, it must liberalise its credit policy and terms and conditions. When companies maintain higher sales, there is a chance that their receivables will grow in size. 2. The determination of credit standards and analysis is referred to as credit policy. It might differ from one company to the next or even from one product to the next within the same industry. Liberal credit policies enhance sales volume while simultaneously increasing receivables size. The size of the receivable is reduced by a strict credit policy. 192 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Credit terms define the payback terms for credit receivables; the size of the receivables may increase or decrease depending on the credit terms. As a result, one of the elements that influence the size of a receivable is the credit period. 4. In the case of credit sales, it is the period for which the customer is given trade credit. It's usually represented in terms of 'Net days.' 5. Customers are rewarded with a monetary discount if they pay their bills ahead of schedule. If the consumer pays before the deadline, he will receive a special discount. 6. It is also one of the factors that influence the size of the company's receivables. When management takes a systematic approach to receivables, the firm's receivables can be reduced in size. 15.3 PARETO ANALYSIS Pareto analysis is a strategic decision-making method for comparing and resolving challenges. It employs the Pareto principle, commonly known as the 80/20 rule, which was named after by Italian economist Vilfredo Pareto. Many events or trends, he discovered, follow the 80/20 rule. The 80/20 rule can be used to strategically identify the challenges that will have the most impact in a firm. It can aid in the stimulation of creative and organised thought in the context of corporate innovation or problem-solving. One thing to keep in mind is that the 80/20 rule is merely a guideline, not a precise ratio or law. Steps to create Pareto: 1. Create a list of issues. The list should ideally be developed based on feedback from employees, clients, or consumers. Anonymous complaint/feedback forms, customer surveys, and staff organizational proposals are all common instances. 2. Determine the source of each issue. What caused the issue in the first place? Remember to consider the root reason, which may be hidden. 3. Give each problem a score. Assign a numerical value to each problem depending on its negative impact. The grading system will be determined by the problem that needs to be solved. 193 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Assemble the issues groups. Calculate the total score by grouping all of the comparable tasks together. The problem with the highest score will almost certainly be the one you should try to solve first, as it will yield the best results. Benefits: Depending on the type of project, Pareto analysis has a number of advantages. It aids in the identification of issues and the prioritization of job completion. Pareto analysis can aid in the improvement of efficiency, profitability, and a variety of other factors. Finally, it improves the overall performance of the organization by coordinating the highest-return tasks to pursue.  Helps determine the main rootcause.  Helps to prioritize the main problem in the problem and try to eliminate it first.  Givesthe concept of the cumulative effect of the problem.  Corrective and preventiveactions can be better planned.  Provides a clear, simple and focused way to find some importantreasons.  Helps improve problem-solving and decision-making skills.  Improve the effectiveness of quality management.  Contributesto variousforms of leadership decision-making.  Helps time management, whetherit is work or personal.  Assist in general performance management.  Helpsto plan, analyse, and solve problems.  Helpssolve problems and make decisions.  Helps manage changes.  Helps time management. Limitations: Pareto analysis, like any business analysis methodologies, has limitations. The most common is the ease with which little difficulties might be overlooked during the analysis, which can mount up over time. It also ignores the severity of a flaw or problem, focusing solely on the quantity. Other sorts of study must be used to make the most informed decision possible while fixing a problem. Hazard analysis, fault tree analysis, and functional failure mode and impact analysis 194 CU IDOL SELF LEARNING MATERIAL (SLM)

are examples of alternative problem-solving analytical tools that can be used in conjunction with Pareto analysis. 15.4 QUALITY COST The costs that a Company incurs in order to produce a quality product are known as quality costing, quality cost, or Cost of Quality (COQ). Or, to put it another way, it's the expense of preventing, detecting, and correcting product quality concerns. COQ, or cost of quality, comprises both the cost of avoiding low-quality production and the expenditures incurred after a company creates low-quality items. Example: When a customer buys a budget I-Phone, he or she expects it to have premium features like 5-6 cameras, extended battery life, greater storage, and so on. Instead, the user would hope that it would function properly. Types of Quality Cost: Prevention Cost Costs of Quality Costs of External Cost Appraisal (or Quality Inspection Costs) Costs of 195 Internal Failure Fig 15.1 Types of Quality Cost CU IDOL SELF LEARNING MATERIAL (SLM)

1. Prevention Cost: As the name implies, these charges assist a company in preventing or minimising quality difficulties. These are the most relevant and effective. It's because avoiding an issue from the outset saves time and money in the long run by avoiding the need to produce that damaged product (or units). Employees receive production process training. It aids in the removal of any production flaws. As there is no or little scrap, such prices also serve to cut scrap costs. Quality circles, technical support for suppliers, a quality system audit, and other fees are examples of preventative costs. 2. Costs of Appraisal (or Inspection Costs): Inspections are included in these fees to prevent quality concerns. Allowing or encouraging production workers to inspect parts and raw materials when they arrive, for example. When they depart the factory floor, they must also inspect the elements. This type of examination ensures that any flaws are discovered in a timely manner. Depreciation of test equipment, the cost of the test run, the compensation of testing workers, quality control inspections, and other charges are examples of appraisal costs. 3. Costs of Internal Failure These include monetary expenditures incurred after a company creates a substandard or damaged product. The shipment does not reach the customer in this situation. More scrap, waste, and spoiling expenses occur from internal failure. It comprises direct material costs, direct labour costs, production overheads, product rework costs, defective product disposal costs, and more. 4. Costs of External Quality It covers both actual and intangible expenditures associated with delivering a product to a customer. In this instance, the company will have to spend more money on customer service, product recalls, lawsuits (if any), and warranty fees. Furthermore, the company would be responsible for the cost of a tarnished reputation as well as the loss of customers. These charges might be quite costly for the organisation, and they could even bring it down. The first two are the Cost of Good Quality: preventative and appraisal charges (CoGQ). The cost of poor quality includes both internal and external failure costs (CoPQ). It's because the 196 CU IDOL SELF LEARNING MATERIAL (SLM)

first two types prevent low-quality output, whereas the latter two are the outcome of company-wide quality difficulties. A business must also properly classify costs, such as prevention, assessment, and internal and external failure costs. It would ensure that funds were allocated optimally among various quality control projects. Strategies to improve Quality:  Establish a positive relationship with your suppliers. It entails incorporating supplies into the manufacturing process, auditing and scoring suppliers, and more.  Employees should be informed about the importance of quality. Describe how high- quality products would improve their productivity and salary, and vice versa.  The company should make sure that quality and compliance information, as well as the process, is visible throughout the organisation.  Make use of technical advancements to improve the quality of your tools and manufacturing processes. 15.5 SUMMARY  The term receivable refers to a customer's debt owed to the company as a result of the sale of products or services.  One of the most crucial criteria that define the size of a company's receivable is its sales volume.  Credit terms define the payback terms for credit receivables; the size of the receivables may increase or decrease depending on the credit terms.  Pareto analysis is a strategic decision-making method for comparing and resolving challenges.  Pareto analysis can aid in the improvement of efficiency, profitability  The costs that a Company incurs in order to produce a quality product are known as quality costing, quality cost, or Cost of Quality (COQ). 15.6 KEYWORDS  Appraisal: a formal evaluation of an employee's performance over a period of time, usually conducted in an interview  Inspection: investigation or scrutiny with care. 197 CU IDOL SELF LEARNING MATERIAL (SLM)

 Prevention: the act of preventing something from occurring or emerging.  Quality: the degree of excellence of something as judged against other similar items.  Debt: a sum of money that is owed to you or that you are obligated to pay. 15.7 LEARNING ACTIVITY 1. What do you mean by PARETO? ___________________________________________________________________________ ___________________________________________________________________________ 2. What is Cost of Quality? ___________________________________________________________________________ ___________________________________________________________________________ 15.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Collection Cost? 2. What is Default Price? 3. Explain Administrative Costs. 4. Explain COQ. 5. Discuss Preventive Cost. Long Questions 1. What is Collection Management? Explain the costs connected with credit extension. 2. Discuss the factors responsible for Collection Management. 3. Define Pareto Analysis. Discuss the steps to create Pareto. 4. Enumerate the benefits and limitations of Pareto Analysis. 5. What is Quality Cost? Explain the Types of Quality Cost. B. Multiple Choice Questions 1. ……….. Include monetary expenditures incurred after a company creates a substandard or damaged product. a. Prevention Cost 198 CU IDOL SELF LEARNING MATERIAL (SLM)

b. Costs of Appraisal c. Costs of External Quality d. Costs of Internal Failure 2. COQ is……………….. a. Cost of Quality b. Cost of Quantity c. Coverage of Quantity d. None of these 3. ………………..is a strategic decision-making method for comparing and resolving challenges. a. TQM b. Quality Circle c. Pareto analysis d. ERP 4. Pareto analysis was named after Italian economist ………… a. Vilfredo Pareto b. Adam Smith c. Milton Friedman d. Alfred Marshall 5. ………….expenses are incurred in recovering receivables from clients who have received credit sales a. All of these b. Default Price c. Administrative Costs 199 CU IDOL SELF LEARNING MATERIAL (SLM)

d. Collection Costs Answers 1-d, 2-a, 3-c, 4-a, 5-d 15.9 REFERENCES References book  Aswathappa, K. (2002). Human Resource Management. New Delhi: Tata McGraw- Hill.  Dessler, G. (2012). Human Resource Management. New Delhi: Prentice-Hall of India.  Rao, V.S.P. (2002). Human Resource Management: Text and cases. New Delhi: Excel Books.  Decenzo, A. & Robbins P Stephen. (2012). Personnel/Human Resource Management. New Delhi: Prentice-Hall of India.  Ivancevich, M John. (2014). Human Resource Management. New Delhi: Tata McGraw-Hill. Textbook references  Mamoria, C.B. (2002). Personnel Management. Mumbai: Himalaya Publishing House.  Dipak Kumar Bhattacharyya, Human Resource Management, Excel Books.  French, W.L. (1990), Human Resource Management, 4th ed., Houghton Miffin, Boston.  H.J. Bernardin, Human Resource Management, Tata McGraw Hill, New Delhi, 2004. Website  http://www.slideshare.net/sreenath.s/evolution-of-hrm  www.articlesbase.com/training-articles/evolution-of-human-resource- management- 1294285.html  http://www.oppapers.com/subjects/different-kinds-of-approaches-to-hrm- page1.html 200 CU IDOL SELF LEARNING MATERIAL (SLM)