Effect of Standard Pricing Changes on Firm Operations

The Rise and Fall of Standard Pricing and Its Effect on Everyday Operations For European and American Firms

Table of Contents (Jump to)

Executive Summary

Overview of HTML0

Overview of accounting

Review of literature

Standard pricing in accounting practice

Management of operations

The life cycle of operations

Continuous improvement

Value systems with core values

Introduction and Conclusion

References

EXECUTIVE SUMMARY

The primary goal of this study and paper is to study costs or lean accounting within the management of operations and the way in which its fluctuating changes in value allow companies to continually learn and apply the management of knowledge as a fundamental value. It is also essential to select a company with a long history of excellent operations and a focus on customers on the provision of services. This research requires a deep investigation of the processes used in work as well as leadership and communication regarding knowledge management as a factor in the team structure, as well as the way this is reflected in the accounting principles that are leaning. What tools are available, and what type of change is Nestle going through to stay competitive in an ever-changing market? What is the impact of this on the management of knowledge and communications across the company? The argument in this study is that the accounting procedures are changing in response to the ever-changing business strategy. This is a move towards modern accounting. It is crucial to understand the relationship between cost accounting and its fluctuations, and the impact they have on the overall health of the company in general with regards to job satisfaction and productivity.

The way an organization implements methods of costing to its accounting system for expenses, and the increase and decrease throughout the lifecycle of a product, directly affect the manufacturing, operation distribution, and employee retention of the company’s global operations. The changes in accounting procedures have led to a number of established and tried-and-true business models no longer existing. Costing and the rate at which it rises and falls are often directly connected to the company’s success and competitive advantage in the marketplace. But the goal of this research is to examine and consider the way that accounting practices affect operations management as well as Supply Chain Management to be an instrument used by teams and managers alike. It is about the way accounting practices have impacted business practices due to new laws that focus on global businesses in Europe as well as those in the United States. Costs, expenses, and losses reflect the overall health of the company, and change can cause confusion. This study suggests that along with these changes comes an inability to define the value of the business in the market, but equally, the value it offers for its employees as they become active investors and participants.

GENERAL OVERVIEW

The way in which corporate accounting is managed has been changing all over the world. The method of accounting for each expense in an organization’s financial statements has been changing. This proposal to change has received a lot of criticism from not just the corporate and financial communities but also from corporate America as well as key representatives of Congress, European union leaders as well as the general public. The reason for this is the uncertainty about whether these changes will benefit companies and boost economic growth. There is a fear that these changes will have the opposite impact and cause the world’s leaders to lose their competitive advantage in the global marketplace. But this hasn’t put out the flame as the American Financial Accounting Standards Board (also known as FASB) has been searching to come up with a solution to this issue. The need for a quick solution was only highlighted recently, in light of scandals such as Enron as well as Tyco. There is a belief that businesses have to be honest in accounting for their expenses, but at what cost to their employees, their customers, and the economy? The issue in the current legislation that attempts to change the accounting procedure of employee stock choices is that it isn’t a method to determine the value of these options. This causes a shaky feeling among employees and investors who are unable to comprehend this benefit.

ACCOUNTING OVERVIEW

What does this mean for any business operating internationally or locally is that cost accounting is an issue that management has to take into consideration. It is possible to argue that the fluctuation in how pricing and costing is a factor in the overall operation has an impact on how the value of the company is perceived on the market. Costing throughout the lifecycle of a product is a major factor in the way that this valuation is decided, from inventory on the shop floor as well as the daily management of operations to an employee’s worth to the business and also their own personal worth. Global economic trends have changed over the last few years and the demise of tried and tested business models has left people with a bad flavor in their mouths due to the fact that it is essential to understand how efficiency, affordability, and effective leadership can be utilized. Costing or pricing that is effective for routine activities and corporate behaviors need to be monitored and analyzed to cut through the fat. This study will analyze precisely what the rise and decline of costing or pricing can mean for a global company operating on multiple levels. In order to prove the idea that changes in accounting practice have an adverse effect on the company, we will consider examples from the floor of the shop to the employees’ estimated value to the business in the form of the satisfaction they have with their jobs. Accounting for these expensing practices and pricing properly is what makes an organization robust, yet accurate in its valuation. This is why traditional business models such as Wal-Mart as well as Nestle are mentioned since they are global corporations.

Discussions about whether or not an employee’s fair market values an employee’s and the company’s stock options should be reflected in the income statement continue to be a topic of debate between representatives from the industry, politicians as well as experts. The expense recognition of stock options may be significant to earnings and net income per share, which is why this is a discussion worth engaging in. Many who study companies think that operating cash flow is a superior measurement of performance than income. One reason for this is that operating cash flows are believed to be unaffected by the disease that causes income to be extremely weak. For the instance of employees’ worth and stock prices, However, there is evidence that proves this assumption incorrect. Option exercise impacts operating and the flow of cash in ways analysts have to be aware of. The repurchase of shares in order to finance the option exercise can result in the financing of cash outflows. The cash flow effects of options tend to be negative, however, they can vary over time.

LITERATURE REVIEW

STANDARD PRICING AS ACCOUNTING PRACTICE

It is often difficult to determine why a product is sold at certain costs or prices to the customer. How do businesses arrive at a certain price for their product or service? What factors influence this figure and how can they be altered with time on the marketplace? Mish clarifies price as “the value or worth; the quality of one thing that is exchanged or demanded in barter or sale for another” (2004, p. 985). The mistake made by several companies is that they let the market determine the cost of their product and ignore the strategic management of pricing generally. What usually happens according to Nagle is that “they set prices based upon their own requirements and then adjust the transaction prices according to what the customers would be prepared to shell out. Some companies even question what makes someone willing to pay less than a certain amount, or how that desire could be modified” (2002, p. 1.). To be strategic when it comes to pricing, businesses must be aware and confident the fact that “pricing involves managing customers’ expectations to induce them to pay for the value they receive” (Nagle 2002, p.1). It is a good thing that in the case of financial products, a lot of customers aren’t aware of the products and services. Sometimes, a company that is geared towards service like Bank of England can take advantage of this kind of adulation, however since more information becomes accessible through the Internet as well, it’s becoming difficult for companies to establish the pace such away. In general, more firms, especially those that depend on relationships with customers permit the use of a value-based pricing system that is dependent on the client paying once the value is actually delivered. This type of pricing model relies on the segmentation of demographics when it comes to providing incentives and discounts to build customer loyalty. This is especially true for financial products that are clearly defined to the customer either by education or because they are essential in the life of a consumer such as the credit or loan product. With this in mind that many financial products are comprised of top quality products and add-ons which when made available by a single company, let that business diversify and set the price. The table below helps in explaining this idea.

Table 1: Pricing Strategies

P/Q Higher Price Lower Price
Higher Quality Premium Strategy Good Value Strategy
Lower Quality Overcharging Strategy Economy Strategy

(Anderson and Bailey 1998, (p. 2)

It is also crucial for companies to be aware that there is a demand for their products or services. This is why diversification, as well as globalization, are rapidly becoming a part of the strategy for companies as they are looking for new ways to attract customers and expand into new markets where their products have the potential to have a different life. It’s a matter of economics, but it is crucial for understanding the marketing strategy of a company with regard to cost-shifting or price shifting. “The greater the price elasticity, the closer the company can price products to similar competitive products and vice versa” (Allen 2002). In a field like a mortgage sector, in which homeownership is more common in Western nations, elasticity can be very high, and it’s fair to stay in the same league as other businesses. Additionally, a company such as Nestle could believe that charging less will result in more food items being made as customers realize that they receive better value for their money. In this regard, elasticity could be used in any way. It all depends on the amount of risk that a business will accept. However, it is to be determined how this tactic is effective in terms of customer loyalty. This will be discussed in more depth in the future. But it is yet to be determined whether price loyalty is actually a thing. It appears that “the key to effectively competing for loyalty is ensuring the quality of the customer experience, not the number of customer rewards or discount prices” (Compton 2005, p.1). But, the price has to be adjusted according to what customers expect. This could be a continuous cycle that is constantly changing based on the service or product.

Carmona et al (2004) wrote about the origins of activity-based costing accounting or ABC which was popular in Europe in the 1920s. What exactly is ABC does is precisely is that Carmona and et. and et (2004) describe Vollmers’s work as:

The group has made significant efforts to cover marketing and distribution costs, that are often overlooked in the present. This initial event is then regarded as a record of the source (both with regard to space as well as space) and from where the practice was largely was able to spread spatially and temporally. (p. 36)

This marks the beginning of the transition to the dual entry method. it was a time of delay as well as flaws because it failed to provide a complete, clear view of the accounting. The weaknesses of the system were uncovered through inefficiencies in discharges and charges. In the beginning, double-entry systems were considered undependable and ineffective for large-scale businesses. It was not until much later that modern bookkeeping procedures were able to incorporate modern manufacturing processes. Carmona et. al. (2004) discovered these systems, though not yet perfected, were in use in England and in the Colonies from 1760 onwards (p. 37). It appears that this was the case since there was no streamlined, consistent system that would be implemented before the time that modern business practices came into force within the United States.

The move to a global stage and production model and a more precise process is required as there is more at the table. Global business is all about particulars. As it became more commonplace to invest, the more widely accepted accounting methods were seen because of the advancement of technologies. Accounting practices were more widely accepted practices as businesses increased in size and prominence in the global community. These practices are enacted in the same way as Abu-Raddaha et al (2000) suggest the following:

The accounting information is supposed to facilitate international trade as well as capital flow, and not hinder the flow of capital and trade. Accounting should be informative rather than just providing reports. In addition, the requirements for information of both international and domestic commercial and financial relationships should be met. (p. 19).

Everything should be in balance or be presented like a well-oiled machine.

What is the process for an organization to reach this level of change in the accounting procedures it employs? Modern accounting requires greater involvement and optimization from beginning to end for the accountant in charge of the corporation. The activities of corporate accountants have to be rethought in the context of efficient functioning takes place. This should not be a painful experience but one of innovation as well as flexibility and expansion. There is a fear that lean accounting forces the user to shut off their creativity and be confined to only one type of thought process or task. This issue is being explored as a post-modern view of business, where every person is a part of the whole quality management or TQM viewpoint. Modern businesses may employ this as a framework, however, the contemporary business model has moved beyond this traditional perspective. The reality is that modern accounting practices can be more different from the notion of being confined to a certain area, however, they go beyond the box, changing the way of thinking. accounting is considered differently than it was before. Accounting is seen as having no finite options however, it is a field of infinite thought. The traditional methods are flawed, as suggested by Van Der Merwe and Thomson (2007), “the direct costing approach doesn’t absorb any overhead or even fixed costs…resource consumption accounting or RCA makes no arbitrary assignments at all” (p. 29). A method that is efficient and lean permits a more thorough analysis of the costs associated with capacity and a method of gathering data. Modern times demand modern concepts and values regarding seamless business actions throughout the manufacturing floor. Lean methods employ the “one-touch flow system” (Van Der Merwe and Thomson 2007, page. 29) for the transfer of information throughout the entire life cycle. This flow system that is one-touch is able to be integrated into the supply chain quickly and shows this value-added aspect as a means to ensure greater transparency and accuracy in accounting.

OPERATIONS MANAGEMENT

One of the most crucial aspects for facilities management to consider is the need for Total Quality Management (TQM) or a variant of TQM. TQM is, according to David Steingard is “a set of techniques and procedures used to reduce or eliminate variation from the production process or service delivery system in order to improve efficiency” (Steingard 2002, p. 2.). TQM is compatible with the facility management method of working since a lot of their tasks require constant monitoring of weekly, daily, and monthly tasks. Since this is a modernist idea and the modernist movement was based on certainties and static ways of thinking about the world, there’s little place for the uncertainty is created by the change in the modern workplace if you are using TQM strictly. Thus, any change in this setting must be controlled or a variation of TQM is required to make the process work and incorporate new technology. If not, TQM alone invents a working environment that is similar to the work of Franz Lang’s Metropolis and alienates employees. The TQM variation can be employed in facilities management to assist in defining the roles of team members because it views the entire team as one big machine “machine creates a system of interlocking parts each with clearly defined use, centralized authority, and high degrees of worker discipline culminating with the goal of routinized, efficient and predictable system performance” (Steingard 2002, page. 2.). Every team member has an important role in the operation that the system. Similar to today’s workplace where change is constant, the system demands constant adjustment, modifications, and improvement of functions. TQM as a method of defining the work process is not able to function completely in the current global marketplace since it is at the cost of innovation and expansion of the employee. It doesn’t leave space for change or new methods of improving the capabilities. It is a relic of pure TQM fuels to the “modernist machine of consumer capitalism which encourages over-consumption, planned obsolescence, ecological damage and depletion of natural resources” (Steingard 2002 page. 4.). This memory also has impacted management with the desire to control, perfection efficiency, consistency, and efficiency increase with time. In today’s facilities department, it is essential to find an acceptable way to use not just the old methods to improve efficiency and efficiency, but also incorporate modern equipment and tools to aid in the process.

To remain in the game, technology can’t be overlooked, and the tools that it offers need to be put into place in order to ensure that logistics are smooth and to keep pace with customer expectations and demand. The case of a company that fails to adopt technology and logistics results in inventory costs that cost a business more to store than it’s worth. McCullogh writes “Right now sitting around the globe is a bunch of inventory (worth an estimated) the United States $1 trillion–the United States $1 trillion of boxes of stuff is just sitting around a warehouse” (‘Warning: Don’t Shout at Logistics in the Workplace’ page. 1.). It is possible for this to make up around 60 percent of an average business’s working capital. It is capital that is in limbo, not making the most of its investment.

One sign of success in operation on the shop floor is the dependence on a minimal amount of warehouse storage. That is warehouses are measured by the number of days per month that a product is stored in the warehouse. If logistics is properly implemented it will reduce and then stabilize. The average retail store for the stock is about 26 days that are not used, profits being lost, and expenses are caused by an interminable holding pattern. To reduce the time that stock is sitting, companies need to develop stronger relations with suppliers on the internet or create an efficient system of communication among sources to eliminate the warehousing altogether. Instead of stock being stored due to wireless communications as well as data gathering, the item will be transported directly from the source to the store’s shelves through the distribution center, which functions as a sorting center for mail. This is possible due to the fact that technology allows retailers to immediately send information to the vendor of the products which are being taken off the shelves with the click of an icon. Through this electronic message, the supplier can determine the requirements of the retailer as well as what kinds of products are most popular and how much and then transmits the information immediately directly to the retailer’s distribution center. In companies as large as Nestle or Wal-Mart, the logistics strategy needs considerable planning and thought since there are multiple branches and divisions part of the procedure. The goal is to cut expenses and enhance the value of the organization by making the business more efficient and productive. This must be accomplished with utmost efficiency to ensure relationships with customers and brand loyalty as well as ensuring the competitive edge and market share. Many ways to think about it, the implementation of this strategy results in an uneasy balance.

To have more effective Business to Business or B2B relationships, it is essential to understand the relationship. Thierauf and Hoctor Thierauf as well as Hoctor (2003) describe, “B2B is about connecting shared businesses and information processes of the extended trading networks, planning, shipping and logistics, inventory management and customer retention to name a few” (Thierauf and Hoctor, p. 181). Also optimizing the planning process could result in savings of millions of dollars and enable a multinational company to achieve its mission and increase market share. This is by utilizing the latest technology like i2 that is used for Dell Computers and typical ERP vendors. Today, when it comes to doing business, B2B exchanges are based on supply chain management, or SCM technologies (Thierauf and Hoctor 2003, p. 182). This means a substantial investment in this technology, but the advantages in market share could prove to be a worthwhile investment over the long term (Burn and Hachney 2002, Scerbo 1999).

The operation of these centers effectively is a major challenge for managing. Manufacturers need to develop new capabilities and resolve channel conflict with distributors, dealers as well as and independent operators. The people in these positions need to be able to manage the conflicts that arise in these channels. However, well-run distribution centers would more than just justify the risk, since it could save an organization an enormous amount of expense.

Operating expenses being the primary cost, it’s possible to turn the distribution company almost self-funded. Facilities can be rented out on short-term leases. They can be repossessed when the place isn’t performing within one or two years. The cost of materials and labor can be managed when the volume increases. It is important to remember that a manufacturer’s initial warranty works typically account for around half of the cost of labor and can be more than 20% of the value of the services offered, but the cost is usually billed at the expense of the unit that is providing the services, rather than paid by the distribution company of the company. If the market is not serviced by local dealers or distributors, the center should tailor itself towards its business’s final customers by choosing an online store that is highly trafficked. Profits from these sites are primarily derived from the selling of accessories and other services for walk-in and mail-order customers. The outlets consequently require appealing displays or sales displays.

Different types of retail distribution centers follow different models of economics. While gross margins for sales to customers are higher, sales are typically smaller. The locations that concentrate on distributors will grow faster and earn as much. The generally similar economics of service centers differ in relation to the type of customer that is served best at each site. The companies operate their own centers and set management bonuses in relation to profit and growth targets at each location. In any case, certain tasks that support the business, such as HR, Marketing, financial, and information systems should be managed at the company level.

Warehouses and distribution centers are caught up between demands from customers as well as cost drivers. The main challenge facing most companies is to create a system that is able to meet the demands of customers while reducing costs. This is the most difficult task in the management of supply chains. Supply chain management is the biggest challenge in terms of the cost of operations. The tools used have been reduced in cost due to the ease of use. This is why increasing numbers of businesses are adopting a supply chain management strategy for distribution, and are reviewing the effectiveness of their system every two years, compared previously, 5 years every two years. Management personnel is keen on determining if the effectiveness of the center is in line with its services offered.

The research has revealed that there is a direct correlation between the number of points for distribution, the cost of transportation, and customer service objectives. The network’s design and layout are driven by improvement to ensure that the expense for transportation is reduced. This could include reviewing the organization’s transport arrangements. It is also recommended to look at the loading patterns. assessed to identify ways to reduce the size of container trailers as well (Trunick, p. 1.). What options can be utilized to get a more cost-effective solution for the distribution center? Do you think this means the consolidation of shipments, or moving to parcels and lesser than truckload shipping? Are shipments able to be combined to make better use of cargo space on trucks? Does the company have the option of hiring railways or even airliners as options for shipping instead of employing company trucks on long distances? Additionally, in addition to looking at loading can the routes taken by trucks be modified in order to improve efficiency? An organization could profit from the state’s transportation management system or the department of transportation DOT to draw out distribution patterns and volumes. This can help in providing flexible routing options that can be adaptable to changing the distribution requirements of the network. This will improve the efficiency of the entire fleet, as they can reduce fuel consumption and also help to manage the cost of fuel and use. This would be because the routes will decrease in the mileage, and also wear and tear on the vehicles, as well as the cost of insurance.

Efficiency within each of the walls in the distribution center could also be improved. The size of the typical distribution center has increased between 300,000 and up to one million square feet (Trunick, at. 2.). This is simply because of the operational space required to move inventory from point A towards point B. The reason that the distribution center is so large nowadays is that companies have realized the necessity to bring all operations under one roof. The combination of multiple facilities in one large distribution center reduces the time required to move the inventory. The larger center is possible due to modern transportation systems, as well as the introduction of new technologies that enhance not just the physical store, but also a virtual one. Furthermore, the business is able to put all the staff in one place. The company leases just one building and stores the inventory in one location rather than shifting the inventory from one warehouse. This allows the business to provide better services to its customers. Due to these reasons, the importance of information systems is for the success of the distribution center that is larger. Information has to move from one location to another, which is the reason why more and more companies invest in radio frequency devices that are both mobile and mounted to vehicles.

The investment in these RFID systems isn’t cheap and a lot of retailers like Wal-Mart as well as Target are searching for ways to improve the current technology and system without the need to install an entirely new infrastructure within the center’s walls. The ability to upgrade existing systems, they are economical as the upgrade is not only cost-effective but also simpler to train employees to use the system. It is the capacity of a company to manage investments in technology that allows the center to function better. However, as Trunick states, the problem is not in the hardware, but in the data. “Databases have traditionally been structured to feed a number of different systems, but that’s not a long-term architectural solution” (p. 2.). One of the challenges that distribution centers have with the storage of data is the ability to deliver the data in real-time and also allow the data to remain pure and not be crowded. This is why many businesses are seeking better solutions instead of using RFID in the management of supply chains. It is not shown to be efficient in the distribution center setting as opposed to 8 percent in warehouses (Trunick, page. 2.).

One of the new technologies that were presented to the Nestle Facilities Management group in the year 2006 was the introduction of a tracking system that was computerized for user orders from clients. The system was designed to improve the tracking of job orders between team members. This system was able to notify members of possible deadlines and workload status. Additionally, it allowed management to better monitor team and individual development. It also led to an annual recognition program that would indicate when quotas were fulfilled or when a team member was given praise from clients. The system was also able to track negative behavior instances, such as not showing up for the service call or failing to finish the daily monitoring to be inspected. The system could then send an email to the team member as well as the direct supervisor in the event that such behavior was observed (Facilities Training Group 2007, p. 11) 11). 11.). This new system replaces the traditional method that involved “tracking” client user orders which involved logging every order in the spiral notebook. Since the introduction of the intranet website of the company management wanted to enhance communication between the facilities staff and the user of the site through online request systems. This would decrease the amount of time that the facility team had to spend answering telephone calls, and also permit multitasking on different tasks.

What the management had hoped the system’s implementation would produce was not the case. It was because of team members’ inability to communicate and resistance to change due to the established TQM component within the previous process of processing the orders of clients. Management had been hoping, that, as it is stated in the Business Open Learning Archive details, “automation would exploit available technologies to improve processes, make them more reliable, and lower unit costs as well as their risks and expenses. This could allow flexibility to the current system” (Operations Technology, 2005 page. 1.). This new type of technology, also known as just-in-time also known as JIT technology requires meticulous handling and extensive training. The thing that the facility management team leaders did not prepare for was the response of team members. A lot of them, despite being responsible, competent employees were not aware of computers. A lot of team members had been in the company for more than a decade and were hired into the department. The majority of these individuals are classified as being older, yet also possessing specializations that they worked in the field for the majority often (Facilities Training Group, 2007 page. 24) without requiring additional significant abilities. Another aspect that management had not expected was a significant communication barrier, as a lot of team members, who had been working together for a long time, maintained their work in their mother language of Spanish. Another aspect of the team’s mixed reaction team was more to have to do with timing than anything else. Management offered a three-day training session, and then gave 2 weeks to allow the system implemented. The transition period was too short and received a lot of opposition from several members of the staff. Many people were not happy with the changes or were unable to fully understand what the brand new process was. A lot of people did not look at their emails or use the tracking function. In addition, despite the company-wide announcements of the new online request function, the majority of clients did not utilize it and instead continued to phone to make requests. This did not result in an increase in time in the phone, however, due to the system’s slow transition and disapproval by a portion of the team members, the team received three times the number of calls in a single period of time (Facilities Training Group, 2007; page. 33). The team was required to employ one temporary employee to help in answering calls, while team leaders offered instruction on the job and supervised walks through of the new system. It took six weeks was needed for the team to be able to implement the new process.

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