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GEMBA XII – Theme 3BThe General Manager as Integrator5–9 November 2015, Shanghai Jiao Tong University, ShanghaiProfessors Mark Young (Management Accounting) and Jonathan Yormark (Operations Management)All assigned readings and cases for all the week's sessions need to be read and studied before the first session at SJTU. Focus on reading and being prepared to discuss.____________________________________________________________________________Thursday, 5 November07:30Breakfast08:15Introduction to Theme 3B – Professors Yormark and Young08:30Management Accounting Session 1 – Professor YoungTopic: Management Accounting Concepts and TerminologyDiscussion: Essential Management Accounting Concepts (class handout)Required Readings: Textbooks: AKMY, Chapter 1 – “How Management Accounting Information Supports Decision Making.” and Chapter 2 – “The Balanced Scorecard and Strategy Map.”P. Drucker, “Be Data Literate, Know What to Know,” RIMA 1.1A. Mersereau, “Pushing the Art of Management Accounting,” RIMA 1.309:45Break10:00Management Accounting Session 2 – Professor YoungTopic: Introduction to Traditional Product Costing and Overhead AllocationDiscussion: Traditional Overhead AllocationRequired Readings: Textbooks:AKMY, Chapter 3 – “Using Costs in Decision Making.” and Chapter 4 “Accumulating and Assigning Costs to Products,” (pp. 121-139)R. Cooper, “Does Your Company Need a New Cost Management System, “RIMA 3.2.Optional Reading: Textbook: S.M. Young, J. Gong and W. Van der Stede, “The Business of Making Movies. “RIMA 3.5.11:15Break11:30Management Accounting Session 3 – Professor YoungTopic: Cost Distortion with Traditional Product Costing and Overhead AllocationRequired Reading: Case: Bridgeton Industries, HBS #9-190-085Case Discussion Questions:The overhead allocation rate used in the 1987 model year strategy study at the ACF was 435% of direct labor cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers?Calculate the overhead allocation rate for each of the model years, 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred?Consider two products in the same product line:Product 1Product 2a.Selling Price $62 $54b.Standard material cost $16 $27c.Standard labor cost $ 6 $ 3Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price and material and labor cost do not change from standard.Are the product costs reported by the cost system appropriate for use in the strategic analysis?12:45Lunch13:45Operations Management Session 1 – Professor YormarkTopic: Process View of the FirmIn this session, we will explore the key building blocks of operations management: processes, measures and controls. We will introduce several measures (throughput time, throughput rate, work-in-process, inventory turns and other measures) that enable us to evaluate the performance of processes.Required Reading:A Note On Bottlenecks And Process Analysis15:00Break15:15Operations Management Session 2 – Professor YormarkTopic: Process AnalysisIn this session, we will continue our earlier discussion, and delve deeper into the analysis of processes. We will review the rudiments of process and capacity analysis: determining the capacity and bottlenecks of a process, utilization of various resources, and such. Also, we will explore the impact of variety, variability, and flexibility on operations, especially in complex processes with multiple stages.Friday, 6 November07:30Breakfast08:30Operations Management Session 3 – Professor YormarkTopic: Process Analysis and Real Options: Cleveland Cliffs caseThis case provides for an exploration of basic concepts in capacity, output and costs in a heavy industrial manufacturing scenario. We will apply some of the concepts we learned in the previous session to this specific setting. It also illustrates how understanding processes well is critical to making sound investment and operational analysis decisions. It also introduces some concepts in decision making under uncertainty.Required Reading:Case: Pumping Iron at Cleveland CliffsCase Discussion Questions:As a member of, or a consultant to, the board of Cleveland Cliffs, what would you recommend concerning the future of the Circored plant? Qualitatively outline and discuss the alternatives and reflect what this would mean for Cleveland Cliffs’ long-term valuation.At the time of the case, the market price of DRI is around $90 per ton. What is your assessment of the plant’s current production cost, measured in cost-per-ton of output? (Use the cost information given in the case.) Determine the capacity or maximum output of the system assuming that the FB reactor is the bottleneck. Ignore the statements in the case referring to a 500,000 ton design capacity. Assume the plant operates 24 hours/day, 365 days per year.What is your assessment of the two improvement projects suggested by the plant? Would you invest in them? When evaluating the yield improvement project, assume that the project reduces yield losses to 1% at the flash heater and 1% at the briquetting machine.09:45Break10:00Operations Management Session 4 – Professor YormarkTopic: The Impact of Variability on OperationsIn this session, we will continue our discussions of processes and explore the impact of variability (in both supply and demand) on operations.11:15Break11:30Operations Management Session 5 – Professor YormarkTopic: Leading and Lean: Basics of the Toyota Management System In this session we will learn about the basic principles of the Toyota Management System and its generalization into lean operations and lean thinking. Lean organizations are learning organizations and place great importance on developing their people and their talent, requiring a different type of leadership style that generates tremendous value for the firm. Done properly, lean thinking produces a highly focused and self-directed organization that is highly robust and flexible, able to quickly adapt and evolve in a rapidly changing world that often pushes even smart firms into periodic bouts of crisis management and disruptive change.Required Readings: The first 11 videos on overview, basics, and leadership are required and should be viewed a little at a time, since some are long. The remaining clips should be watched only if you are interested.Video:Overview: : : : : : : : : : : : : : Healthcare: Healthcare: Healthcare: Construction: for Fun Accounting Session 4 – Professor YoungTopic: Multiple Cost PoolsRequired Readings: Textbook: L. Gordon and M. Loeb, “Distinguishing Between Direct and Indirect Costs is Crucial for Internet Companies.” RIMA 3.3Case: Seligram, Inc.: Electronic Testing Operations, HBS# 9-189-084Case Discussion Questions:What caused the existing system at ETO to fail?Calculate the costs of the five components described as reported byThe existing systemThe system proposed by the accounting managerThe system proposed by the consultantWhich system do you believe is best? Why?Would you recommend any changes to the system you prefer? Why?15:00Break15:15Management Accounting Session 5 – Professor YoungTopic: Activity Based Cost Management SystemsRequired Readings: Textbooks: AKMY, Chapter 5 – “Activity Based Cost Systems,” (pp. 165-178).R.J. Lewis, “Activity Based Costs for Marketing,” RIMA 5.3Case: Destin Brass Products Co., HBS#9-190-089Case Discussion Questions:Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing costs to estimate product costs for valves, pumps, and flow pare the estimated costs you calculate to existing standard unit costs (Exhibit 3) and the revised unit costs (Exhibit 4). What causes the different product costing methods to produce such different results?What are the strategic implications of your analysis? What actions would you recommend to the managers at Destin Brass?Assume that interest in a new basis for cost accounting at Destin Brass remains high. In the following month, quantities produced and sold, activities, and costs were all at standard. How much higher or lower would the net income reported under the activity-transaction based system be than the net income that will be reported under the present, more traditional system? Why? What were the lessons learned from the case and how can they best be utilized in your organization?Saturday, 7 November07:30Breakfast08:30Management Accounting Session 6 – Professor YoungTopic: Activity Based Cost Management Systems – Implementation IssuesRequired Reading: Textbook: S. M. Young, “Implementing Management Innovations Successfully: Principles for Lasting Change,” RIMA 9.709:45Break10:00Management Accounting Session 7 – Professor YoungTopic: Group Assignment – Using ABC in YOUR COMPANIESAssignment: In your assigned groups, you will be asked to apply the principles of ABC to a real problem in one of your organizations. You will elect a spokesperson who will have 10 minutes to present your project to the class. More details will be provided in class. Note these presentations will be graded and are worth 30% of your final grade.11:15Break11:30Management Accounting Session 8 – Professor YoungTopic: Group Presentations– Using ABC in YOUR COMPANIESAssignment: Each group leader will have 10 minutes to present the group’s project in class. Details to follow. Note: these presentations will be graded.12:45Lunch13:45Operations Management Session 6 – Professor YormarkTopic: Inventory and OperationsIn this session we start our formal discussion of supply chains. Supply Chain Management (SCM) is the process of planning, implementing, and controlling the operations of all agents that are involved in the supply chain. This includes purchasing raw material, producing components, assembling goods, storing components and finished goods, and delivering product to the customer. SCM is concerned with flows of material, information, and funds. The purpose is to satisfy customer requirements as efficiently as possible. SCM is also concerned with the integration of several areas, among the most important: inventory management, distribution management, production location, marketing and finance.Inventory management is an important part of managing the supply chain. Inventory has associated costs (opportunity cost, storage cost, insurance cost and obsolescence cost). It is also clear that inventory has some important benefits. We will study some of the most popular methods to balance the benefits and costs of inventory.We start by introducing the basic inventory model to determine the best production (ordering) quantity when demand is relatively well known. We will see how economies of scale play an important rule. We will show how we can precisely establish the appropriate safety stock to support this model so we can better control the probability of running out of inventory. We will then use our basic models to discuss some more realistic approaches that can incorporate many of the elements of real life systems.Required Reading:Textbook: Chase and Jacob, Chapter 20 – Inventory Management15:00Break15:15Operations Management Session 7 – Professor YormarkTopic: Matching Supply with Uncertain DemandNow we introduce a more inclusive inventory model, the “Newsvendor” model, to determine the best production (ordering) quantity when demand is uncertain.Required Reading:Textbook: Chase and Jacob, Chapter 20 – Inventory ManagementSunday, 8 November07:30Breakfast08:30Operations Management Session 8 – Professor YormarkTopic: Matching Supply with Demand – ExamplesIn this session we will expand our discussion of the Newsvendor model and look at some interesting examples to improve our understanding of the concepts. 09:45Break10:00Operations Management Session 9 – Professor YormarkTopic: Revenue ManagementIn this session we introduce the topic of revenue management, also often called yield management. Revenue management deals with the issue of how to maximize revenues in environments where capacity is limited and cannot easily be increased in the short run, and where no inventories can be held to satisfy fluctuations in demand. Sophisticated tools have been developed for revenue management, and are heavily used in industries such as airlines, hotels, car rental, and cruise lines.Required Reading:Note on Yield ManagementDiscussion Questions:What are the benefits of revenue management?In what industries is revenue management applicable?What are the challenges in applying revenue management?11:15Break11:30Management Accounting Session 9 – Professor YoungTopic: Customer Profitability AnalysisRequired Readings:Textbooks: AKMY, Chapter 6 – “Measuring and Managing Customer Relationships.R. S. Kaplan and V. G. Narayanan, “Measuring and Managing Customer Profitability,” RIMA 6.4Case: Allied Stationery ProductsCase Discussion Questions:Using the information in the text and in Exhibit 3, calculate “ABC” based services costs for the various services offered by TFC business.Using the new costing system, calculate distribution services costs for “Customer A” and “Customer B.”What inference do you draw about the profitability of these two customers?12:45Lunch13:45Management Accounting Session 10 – Professor YoungTopic: Introduction to the Balanced ScorecardLecture: The Balanced ScorecardRequired Readings: Textbook: AKMY, review Chapter 2, “The Balanced Scorecard and Strategy Map,” and read Chapter 9, “Behavioral and Organizational Issues in Management Accounting and Control Systems”.Video: The Balanced Scorecard featuring Robert Kaplan and David Norton15:00Break15:15Executive Talk, Panel and ReceptionMonday, 9 November07:30Breakfast08:30Operations Management Session 10 – Professor YormarkTopic: Operations Strategy in Service IndustriesIn this session we explore operations strategy in service operations, as well as the value of process innovation and creative product development in service businesses. Here we have a highly innovative insurance company that is unusual in the insurance industry in that it regularly makes a profit providing insurance. Most others lose money on the insurance side, which is then offset by investing the premiums. Progressive’s strength in IT, data analysis, and analytics has allowed it to price risk more accurately and take business away from its competitors. Progressive has developed an innovative pay-as-you-go insurance product, called Autograph, and now must decide how to manage a national rollout. But this is just another in a long string of innovative products and services that illustrate a clear strategy for excellence.Required Reading:Case: Innovation at Progressive (A): Pay-As-You-Go InsuranceDiscussion Questions:Compare Progressive’s performance with that of other insurance companies using the data in Exhibits 5 through 8. Base this comparison on loss and expense ratios and premiums earned. What insights can you draw from these numbers?How does Progressive attempt to achieve competitive advantage in the insurance industry?Assess the viability of the Autograph system. What level of consumer acceptance will it take to make Autograph successful? What are the barriers to consumer acceptance? Can you suggest ways to lower these barriers? Should Autograph be expanded nationwide?09:45Break10:00Operations Management Session 11 – Professor YormarkTopic: Operations Strategy in Service Industries – Wal-Mart Global ExpansionIn this session we explore the challenges and pitfalls of global expansion. We look at the efforts of the world’s largest retailer, Wal-Mart, to expand globally, and in China in particular. By 2006 Wal-Mart was in its ninth year of operations in China, but its stores were still losing money. Despite incredible success with innovative operations practices, it was still unclear whether it could transfer the Wal-Mart business model to other global markets that had very different characteristics. Here we look at an example of operations strategy and global expansion with clear issues of entry strategy, localization versus standardization, the effect of regulatory changes on the competitive landscape, and their impact on firm performance.In the follow-up case, Wal-Mart In China (2012), we revisit Wal-Mart and see if any of the recommendations we might have made have been attempted and where did they lead. Several newsworthy developments add some interesting perspective as we observe a less aggressive Wal-mart trying to find a suitable growth model. What lessons has China taught Wal-Mart?Required Readings: Case: Wal-Mart Stores - Everyday Low PricesCase: Wal-Mart In China (2012)Discussion Questions:Why is Wal-Mart successful in the US? What are Wal-Mart’s critical competitive advantages, and what are the sources of these advantages?Can Wal-Mart easily replicate its domestic model in its original form in China? Why? Can it build the same competitive advantage(s) in China using its successful domestic model? Why?Propose some alternative potential strategies that Wal-Mart China might consider in attempting to gain some of its traditional advantages and thereby establish a pathway to profitability in the world’s largest market.With the hindsight of several years’ additional performance, and a China feeling growing pains itself, what path do you think Wal-Mart should build for the future?11:15Break11:30Joint Session– Professors Yormark and YoungTopic: Application of the Balanced Scorecard Required Reading: Case: Volkswagen do Brasil, HBS# 9-111-049Case Discussion Questions:What challenges does Thomas Schmall face upon becoming CEO of Volkswagen do Brasil (VSB)?Describe VWB’s new strategy.How does the strategy map (Exhibit 4) and Balanced Scorecard (Exhibit 5) help Schmall and Senn implement the new strategy? What are the strengths and weaknesses of the scorecard and its implementation?How can Schmall and his team use the scorecard to deal with the challenges faced by the company in January 2009?12:45Lunch13:45Summary and Evaluations14:15Break14:30Management Accounting Session 11 – Professor Young’s In-Class Final ExamThis is an open-book, open notes examination. While it is up to you, I strongly suggest that you bring all of your materials with you including your textbooks, cases, and class notes. You will not need your laptop for this examination but you may use it if you think it is necessary. The only uses for your laptop during the exam will be to access your class notes or to use Excel. Internet access to any websites is expressly forbidden on this examination.Further, communication of any sort, including live discussions, texting, instant messaging or emailing between students on the exam is strictly forbidden, and will result in an immediate grade of zero on the final exam and a failing grade for the entire course.As noted in the front of the syllabus, I do not give makeup final exams. If a student has to miss the final for work-related reasons a penalty of up to 20% will be assessed. The student must take the makeup within two business days after the regularly scheduled final exam. After two days, an additional penalty of 5% per day until the exam is taken will be assessed. I employ this policy in order to be fair to those students who took the exam during its regularly scheduled time. In extraordinary circumstances such as severe illness or great personal difficulty, penalties (if any) will be assessed after consultation with the student and Dean Van Fleet. All makeup exams must be taken in the GEMBA office under the supervision of one of the staff. ................
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