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Budget (34) Views

Jun 9th
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Meaning:

Budget is a financial statement incorporating the income and expenditure of a public authority for one financial year. In India the central government, state government, local self governments and even autonomous institutions like universities prepare and present their own budgets.

Budget is prepared by the finance department and is presented to the legislature by the finance minister. It is discussed and passed by the legislature.

The budget contains two parts:

Part A – Speech of the finance minister giving economic survey of the country, which serves as a background against which the budget is presented.

Part B – Tax proposals. The taxes are of two types; Direct & Indirect taxes.

The finance bill which is attached to the budget contains tax proposals. Government is empowered to impose and collect a tax only after the finance bill is passed by the parliament, but that does not allow the government to use that money. The money collected through taxed is credited in to the Consolidated Fund of India. The government has to introduce another bill called the appropriation bill in parliament. Government is authorised to withdraw money from the consolidated fund of India and use it only when the appropriation bill is passed by Parliament.

Importance of the budget

Though budget is a financial statement incorporating the income and expenditure of the government, it has wide effects on the economy of the country. The budget is an instrument which can be used for controlling production of goods and services, distribution of income and wealth amongst different sections of the community, controlling internal and foreign trade, giving protection to the domestic industries and accelerating the rate of economic development. The budget is like a weapon which can be used for removing the obstacles in the path of economic development and expediting the pace of economic development.  Hence a modern budget is regarded as reflection of the mind of the government in respect of the economic and social problems confronting the country and the possible solutions to them.

Parts of the Budget

A budget is divided in to two parts namely income and expenditure. Both of them are further classified into two categories: Read more…

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Option Terminology (80) Views

Apr 14th
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Underlying – The specific security / asset on which an options contract is based.

Option Premium - This is the price paid by the buyer to the seller to acquire the right to buy or sell.

Strike Price or Exercise Price - The strike or exercise price of an option is the specified/ pre-determined price of the underlying asset at which the same can be bought or sold if the option buyer exercises his right to buy/ sell on or before the expiration day.

Expiration date - The date on which the option expires is known as Expiration Date. On Expiration date, either the option is exercised or it expires worthless.

Exercise Date - is the date on which the option is actually exercised. In case of European Options the exercise date is same as the expiration date while in case of American Options, the options contract may be exercised any day between the purchase of the contract and its expiration date (see European/ American Option)

Assignment - When the holder of an option exercises his right to buy/ sell, a randomly selected option seller is assigned the obligation to honor the underlying contract, and this process is termed as Assignment.

Open Interest – The total number of options contracts outstanding in the market at any given point of time.

Option Holder – is the one who buys an option which can be a call or a put option. He enjoys the right to buy or sell the underlying asset at a specified price on or before specified time. His upside potential is unlimited while losses are limited to the Premium paid by him to the option writer.

Option seller/ writer - is the one who is obligated to buy (in case of Put option) or to sell (in case of call option), the underlying asset in case the buyer of the option decides to exercise his option. His profits are limited to the premium received from the buyer while his downside is unlimited.

Option Class – All listed options of a particular type (i.e., call or put) on a particular underlying instrument, e.g., all Sensex Call Options (or) all Sensex Put Options

Option Series - An option series consists of all the options of a given class with the same expiration date and strike price. E.g. BSXCMAY3600 is an options series, which includes all Sensex Call options that are traded with Strike Price of 3600 & Expiry in May.

(BSX Stands for BSE Sensex (underlying index), C is for Call Option, May is expiry date and strike Price is 3600)

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X-Y-Z ANALYSIS (214) Views

Apr 10th
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X-Y-Z analysis is based on value of the stocks on hand (i.e. inventory investment). Items whose inventory value are high are called as X items while those inventory value are low are called Z items. And Y items are those which have moderate inventory stocks.

Usually X-Y-Z analysis is used in conjunction with either ABC analysis or HML analysis.

XYZ analysis helps to identify a few items, which account for large amount of money in stock and take steps for their liquidation/retention.

XYZ when combined with FSN analysis helps to classify non-moving items into XN, YN, and ZN group and thereby identify a handful of non-moving items, which account for bulk of non-moving stock. These can be studied individually in details to take decision on their disposal or retention.

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S-OS ANALYSIS (71) Views

Apr 10th
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S-OS analysis is based on seasonality of the items and it classifies the items into two groups S (seasonal) and OS (off seasonal). The analysis identifies items which are:

Seasonal and are available only for a limited period. For example agriculture produce like raw mangoes, raw materials for cigarette and paper industries, etc. are available for a limited time and therefore such items procured to last the full year.

Seasonal but are available throughout the year. Their prices, however, are lower during the harvest time. The quantity of such items requires to be fixed after comparing the cost savings due to lower prices if purchased during season against higher cost of carrying inventories if purchased throughout the year.

Non-seasonal items whose quantity is decided on different considerations.

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ABC Analysis (127) Views

Apr 9th
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ABC analysis underlines a very important principle “Vital few: trivial many”. Statistics reveal that just a handful of items account for bulk of the annual expenditure on materials. These few items, called ‘A’ items, therefore, hold the key to business. The other items, known as ‘B’ and ‘C’ items, are numerous in number but their contribution is less significant. ABC analysis thus tends to segregate all items into three categories: A, B, and C on the basis of their annual usage. The categorization so made enables one to pay the right amount of attention as merited by the items.

A-items: it is usually found the hardly 5-10% of the total items account for 70-75% of the total money spent on the materials. These items require detailed and rigid control and need to be stocked in smaller quantities. These items should be procured frequently, the quantity per occasion being small.

B-items: these items are generally 10-15% of the total items and represent 10-15% of the total expenditure on the materials. These are intermediate items. The control on these items need not be as detailed and as rigid as applied to C items.

C-items: these items are generally 70-80% of the total items and represent 5-10% of the total expenditure on the materials. The procurement policy of these items is exactly the reverse of A items. C items should be procured infrequently and in sufficient quantities. This enables the buyers to avail price discounts and reduce work load of the concerned departments.

Policies of Control for A, B and c Categories.

Any sound stock control system should ensure that the each item gets the right amount of attention at the right time. ABC analysis makes this possible with considerably less efforts due to its selective approach there are number of ways in which ABC classification can be made use of: Read more…

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Strategic Supplier Relationships (63) Views

Mar 27th
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To run a good business, company should always be act as a good communication unit. As we know company deals its business not for their purposely only but for the welfare of the other companies to. Many companies focus on maintaining relationships with the suppliers of key components critical in their manufacturing process. Maintaining good relationship with suppliers gives various advantages to manufacturing company also and to the supplier to. Advantages like,

Maintaining long term contract would enable the supplier to invest more and more in plants and machinery and other fixed assets and such investment leads to cost reduction for the manufacturer. It also helps in sharing risk, cost cutting and joint technology development. To obtain the right quantity and quality of parts at the right time manufacture therefore should be in regular touch with the supplier.

Sometimes company outsourcers some components to external manufactures. These manufacture or out sources manage many operations of the company s value chain and thus become important business partners. Certain outsourcers may manage the same operations for other companies also.

Many a time’s manufacture and supplier relationship doesn’t work because of the reasons like

Mostly in the trading market industry if the supplier is the leader in that industry then he is not inclined to develop a long – term relationship with the buyer due to his status.

The efficiency of the supplier plays an important role in building a long term relationship. If the supplier is not capable of providing better equipment or technology, manufactures shift to others suppliers terminating the relationship.

Traditional strategic component supplier relationship

In the traditional set up, the company sends its agent to discuss details with the supplier and finalize design specification, price and delivery schedules before the production of a critical component begins. As production gets under way too, the company needs to contact with supplier every now and then because so that necessary changes can be done in manufacturing process.

If cases where suppliers reside far away from the manufactures, manufacturing companies need to acquire the technology of facilitate real-time communication with the suppliers. These two parties have to communicate regularly whether there are obstacles in demand forecast and production. it will be dangerous if the company doesn’t inform the changes in demand the supplier will not able to serve the company effectively

E-enabled strategic component supplier relationship:

To launch their product ahead in market against their competitors they need to contain product development cost and maintain low prices.

E-business technology brings easier to process the components and bring down their cost. It also collaborate with the strategic components suppliers so that new and improved components can be designed .through these new technologies , the company can be in constant contact with the supplier regarding product specification , changes in design , inventory , pricing , demand forecast and production schedules , but at much lower cost than the traditional communication methods.

Modern supply chain tools provide a number of features that enables a company to manage supplier relationship, multi-organizations collaboration and inventory cost. They automate much of the negotiation process and, make online bidding much easier for the both the parties. Such technology is necessary in developing long-term relationships, since locating strategic components suppliers and especially those who meet high standards of quality is difficult.

For the better communication and proper delivery and acceptance of goods and materials many companies nowadays using software’s and different kind of system. In olden days during 80’s and 90,s many firm used old and traditional technique to communicate with the intermediaries, but now the scenario has changed many organization run their business in proper format as well as use easy technology.

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Commodity Based Supplier Relationship (56) Views

Mar 27th
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Companies are often negligent in maintaining relationship with the supplier of Commodities .Price is the major factor that influences the purchasing    decision for commodity products. Other factors include the physical proximity of the supplier customer services offered by him the level of quality required and the quality maintained by the supplier .Most of Commodities required by the companies are available several suppliers. Thus the companies can easily switch from one supplier to another supplier in case of any problems with the existing suppliers. Therefore companies do not pay much attention to relation with commodity suppliers, so that they can retain their flexibility.

However Companies can obtain consistent quality and reliable delivery of commodities through strong relationship with the commodity suppliers. They can also reduce costs by choosing different procurement methods for purchasing direct material and indirect material.

Traditional direct commodity relationships

Purchasing department often focus more on the procurement of direct material than indirect material. They  consider cost as well as the  ability of the supplier to deliver  product on time in their commodity  purchasing decision .they also have agreements with the supplier  to  ship  the commodities on consignment enabling them to pay only for the amount of material actually used in production .The department  purchase from a particulars as long as the  he deliver  the commodity at a price agreeable  to the former. That is the supplier of Commodities and supplier of indirect material are treated alike .Long term relationship are not maintained by companies with either of them.

Companies require their supplier to deliver the right product at the right time. This means that they should not have insufficient inventory at certain times and the surplus inventory at other times. However often for various technician and non technician reason, companies are unable to communicate information about last minute changes in production schedules and material requirement to the suppliers. Sometimes the supplier fail to ship the material on time .To accommodate such contingencies companies and suppliers tent to maintain inventory levels higher than the required levels, leading to accumulation of inventory.

Enabled direct commodity relationship:

Product scheduling and purchasing of direct commodities can be significantly improved through E- business .It enables companies to share forecasts inventory.

Information and production schedules electronically with the supplier .Instead of stacking up inventory, information flows help maintaining just adequate inventory. The real time exchange of information between the suppliers and the company allows them to Co-ordinate their   activities respond to current changes in demand and supply effectively and plan or possible changes in the future.

Companies can improve the efficiency of their material management system by collaborating with key suppliers. They may adopt an E-nabbed Vendor Managed Inventory (VIM) system to allow the key suppliers to determined inventory requirement replenish the inventory from time to time and send shipment notices VIM reduces the cost and cycle time  of commodity purchase  minimize the need of human interference and chance of wrong or missed deliveries .however the success of VIM depends on company willingness to share information such as demand forecasts current inventory level and logistic information with its suppliers.

An important force in the micro environment of company is the supplier i.e. those who supply the input like raw material and components of the company.

Eg: NIRMA & TATA MOTOR

Because the sensitivity of suppliers companies like NIRMA & TATA MOTOR goes for Backward Integration .In Backward Integration Company expand its actives towards the supply of raw material or components, reliable delivery.

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Collaborative Design (55) Views

Mar 27th
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For the purpose of reducing product cycle time and lead times of new product, companies are looking at new ways of designing products. Under collaborative designing, product development teams and individuals spread across different geographical locations collaborate with each other through internet to arrive at a product design.

Collaboration in business can be found both inter- and intra-organization and ranges from the simplicity of a partnership to the complexity of a multinational corporation. Collaboration between team members allows for better communication within the organization and throughout the supply chains. It is a way of coordinating different ideas from numerous people to generate a wide variety of knowledge. The recent improvement in technology has provided the world with high speed internet, wireless connection, and web-based collaboration tools like blogs, and wikis, and has as such created a “mass collaboration.” People from all over the world are efficiently able to communicate and share ideas through the internet, or even conferences, without any geographical barriers.

For example: we can take the example of Wal-Mart, the communication is such like that if one store lacks in some product or fall of sales of some product occurs  then the nearest shop where that product has high sales , the second  will call for that product to the first shop.

Supplier relationship Management

The efficiency of a company depends on its ability to communicate with its suppliers and other channel partners. In the industry, different components and materials holds varying levels of importance in the production process.  Also the relation with suppliers and different channel partners also varies. There are two types of relationship between supply chain partners:

  1. Commodity based relationship
  2. Strategic relationship

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Collaborative Planning, Forecasting and Replenishment (69) Views

Mar 27th
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Developed by the voluntary Inter-industry Commerce Standards Organization (VICS), Collaborative planning, forecasting and replenishment (CPFR) is the sharing of business information such as promotional planning and merchandising planning among the business chain partners for errorless forecasting and automatic replenishment of goods. CPFR aims to improve the flow of goods from the suppliers to the manufacturer and finally to the retailer. It identifies errors in the forecasts relating to the ordering and inventory management functions of the organization.

Under CPFR, the manufacturer’s business information such as sales history and planned sales is collated with the suppliers’ information such as availability of raw materials and lead times. Both are integrated and the information is used to draw up an efficient plan of raw material supply, thus improving the profitability of all supply chin partners. Once deployed, the CPFR system allows both the manufacturer and the supplier to access information through the internet. The supplier can constantly monitor the manufacturer’s inventory levels and whenever the stick with the manufacturer falls below a certain fixed level, the CPFR system signals the supplier by sending an automatic e-mail. The supplier then suppliers the required stock and thus an efficient replenishment system is put in place.

In the 1990s, the global communications leader Motorola faced problems in meeting customer demand during year-end shopping seasons. Distributors regularly over-order for the shopping season, and therefore Motorola had to maintain huge inventories, just to handle these large orders. This left Motorola with a lot of inventory after the season. To avoid this, Motorola deployed a CPFR system in its personal communications division in August 2003. The system was developed by Manugistics Group Inc., an SCM specialist. The system helped Motorola to collaborate with its suppliers and customers to improve the efficiency of the forecasts, reduce excess inventory and improve customer service. The collaboration was further extended to other areas like designing and managing sales promotions and developing new products.

CPFR Model

The CPFR model presents the aspects in which industries focus. The model provides a basic framework for the flow of information, goods, and services. In the retail industry the “retailer typically fills the buyer role, a manufacturer fills the seller role, and the consumer is the end customer.” The center of the model is represented as the consumer, followed by the middle ring of the retailer, and finally the outside ring being the manufacturer. Each ring of the model represents different functions within the CPFR model. The consumer drives demand for goods and services while the retailer is the provider of goods and services. The manufacturer supplies the retailer stores with product as demand for product is pulled through the supply chain by the end user, being the consumer.

Some of the main processes shown in the model can be found in the second ring that has arrows in a circular pattern. This is displayed with collaboration arrangement, joint business plan, sales forecasting, order fulfillment etc. This stage will be described in detail below:

“Strategy & Planning, Collaboration Arrangement is the process of setting the business goals for the relationship, defining the scope of collaboration and assigning roles, responsibilities, checkpoints and escalation procedures. The Joint Business Plan then identifies the significant events that affect supply and demand in the planning period, such as promotions, inventory policy changes, store openings/closings, and product introductions.”

“Demand & Supply Management is broken into Sales Forecasting, which projects consumer demand at the point of sale, and Order Planning/Forecasting, which determines future product ordering and delivery requirements based upon the sales forecast, inventory positions, transit lead times, and other factors.”

“Execution consists of Order Generation, which transitions forecasts to firm demand, and Order Fulfillment, the process of producing, shipping, delivering, and stocking products for consumer purchase.”

“Analysis tasks include Exception Management, the active monitoring of planning and operations for out-of-bounds conditions, and Performance Assessment, the calculation of key metrics to evaluate the achievement of business goals, uncover trends or develop alternative strategies”. Eg. Wall-mart supply chain and logistics management.

VICS CPFR Model:

Establish the ground rules for the collaborative relationship. Determine product mix and placement, and develop event plans for the period.

Collaboration Arrangement

Setting the business goals and defining the scope for the relationship

Assigning roles, responsibilities, checkpoints and escalation procedures

Joint Business Plan:

Identifies the significant events that affect supply and demand, such as promotions, inventory policy changes, store openings / closings, and product introductions.

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Visibility across Supply Chain (46) Views

Mar 26th
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Typically supply chain partners do not share their business information with other partners. For example a manufacture does not share his production details with his suppliers. This leads to difficulty for the supplier to plan his production process. Visibility across supply chain means integrating information on the suppliers’ rate of productio0n, lead times and the manufacturers’ requirements of raw materials to optimize the business processes and increase overall efficiency of the supply chain. From manufacturers point of view visibility refers to his ability to track the performance of suppliers.

Distrust between supply chain partners, cost of integration and technology limitations of supply chain partners are some of the reasons for reduced visibility across the supply chain. Increase in visibility helps in cutting down growing competition. It also helps in better inventory management and cost savings. A manufacture can respond to sudden changes in the supply and demand change in the market if proper visibility is maintained. It provides a centralized control and visibility across orders, shipment and inventory processes. It also helps the customers with online tracking of their order status.

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