In: Operations Management
Honey is a large marketing consultancy that provides a
range of services including
developing marketing campaigns, designing web pages, managing media
relations
and so on. There are approximately 300 professional staff working
in departments
such as advertising and media relations and 600 support staff in
areas such as
administration and information technology (IT). Honey operates from
a large office
block in the centre of a major city.
In common with similar agencies, Honey is successful because it can
offer clients an
integrated service for all of their marketing and public relations
needs. Sometimes
those needs are related. For example, advertising staff may work
alongside public
relations staff to ensure that a new product is advertised
effectively and that any
positive press publicity, such as the consumers’ favourable
reaction at the product’s
launch, can be maximised.
Honey has a traditional management accounting system. Each
department has its own
detailed management accounts, which show financial transactions and
chargeable
hours. Financial transactions include all revenue from billings
invoiced to clients and
all costs. Included in the costs are substantial amounts for
overheads associated with
the running costs of the office building and the business as a
whole. Chargeable hours
are monitored for each member of staff. The hourly charge-out rate
varies according
to the seniority of the staff member and is set so that all costs
are recovered and a
healthy profit is charged on top. Any work undertaken for another
department is
charged internally at the staff member’s full charge-out
rate.
The media buying department of Honey buys and sells advertising
space in
newspapers and airtime on radio and television. The department
sells this space and
time to its clients at cost plus a mark-up and also makes it
available at the same price
to other departments in Honey. This means that Honey can offer to
plan and implement
a marketing campaign from the initial design all the way through to
the publication or
broadcast of the finished advertisement.
Honey’s board is concerned that the company’s traditional
management accounting
system is encouraging dysfunctional behaviour and causing disputes
between
managers. The following examples have been debated at recent board
meetings:
• The public relations department is paying external web designers
to design “blogs”
on behalf of clients rather than using the web designers from
Honey’s web design
department. The web design business has seasonal peaks and troughs
and there are
times when there is spare capacity, but the hourly rates charged by
the web design
department are more expensive than those available from third
parties.
• The staff coffee shop was closed to create additional work space.
Since the closure
the space has been empty because none of Honey’s department heads
wish to be
charged with the cost of additional overheads.
• Account executives within Honey are keen to earn as much profit
for themselves
from each sale. Consequently, they are dealing directly with major
broadcasters and
newspapers and are not using the media buying department. These
individual deals
are taking away the bargaining power of the media buying
department.
Honey’s board is keen to consider whether the implementation of
lean manufacturing
and lean management accounting techniques might improve matters. In
particular, the
following principles have been identified as being relevant to
Honey:
• Honey should be managed through processes or value streams rather
than
traditional departmental structures. The board believes that the
two value streams are
the sale of professional services and the sale of media
space.
• The consultancy should maximise the flow of services through the
value streams
while eliminating waste.
• Lean management accounting should provide the value stream leader
with
performance measurement information to both control and improve the
value stream.
Required - PLEASE NOTE ANSWERS SHOULD BE
DETAILED.
(a)
(i) Advise Honey’s board on the differences between managing value
streams and
managing departmental profits.
(ii) Recommend, stating reasons, the changes that Honey should make
to its
management accounting systems and policies in order to improve the
management of
the value streams.
(b) Advise Honey’s directors on the difficulties that are likely to
be associated with
implementing the changes that a move towards lean management
accounting will
create. Your advice should include recommendations as to how those
difficulties might
best be dealt with. ( 10 Marks)
Answer-
a)
1)Value stream is various advances that happen in the middle of to give an item or administration that a client needs or wants. Lean organizations compose their activities and accounting around value streams. Therefore, it is all middle person ventures from getting client request to conveying that request.
While a non-lean or conventional accounting process depends on office structure. This uses all inside money related investigation which incorporates departmental cost, productivity examination.
In this manner, as per the case, it follows conventional management accounting which records every office independently, including overhead charges, every hour rate, and so on
2. Nectar Consultancy should change its accounting practices to lean accounting which depends on a value stream framework. It very well may be viewed as a benefit focal point of lean business. Along these lines, all money related data is centered around the benefit place. Each cost and productivity ought to be identified with the value stream and not office savvy accounting.
This would help in decreasing the opposition to bring down overhead charges and individuals may move to a region coffeehouse.
Furthermore, website architecture work ought to be doled out to the inside staff in a manner that is less expensive than redistributing it. The equivalent is with media space.
Since along these lines of accounting gives an exhaustive image of the whole association, reducing expenses, or dispensing with squander won't be troublesome.
The mediator steps in the value stream can be useful to know, where the greatest costs are happening or steps to decrease that.
In this way, management should change its accounting style and make the procedure increasingly all encompassing
b) Lean reasoning may require association by all workers. Notwithstanding, numerous representatives in an organization are responsive and just follow orders, which turns into a test in executing it.
Subsequently, workers must be prepared and inspired to assist them with getting proactive.
Fundamental things like accounting are hard to adjust. A great deal of disarray may come which may make this procedure pointless. A couple of organizations may understand that it isn't for them. Therefore, each organization must understand it first, persuade its staff about it and then advancement.
Individuals may come up short on the inspiration to embrace it as in the conventional manner they had the option to diminish the expense for themselves and increment profits, keeping generally speaking productivity in question however here the contribution would be significantly more and it would reflect in focal benefit. To inspire individuals, impetuses can be given in the present moment until it turns into a training.
PLEASE LIKE MY ANSWER PLEASE..