COMPANY

4-4

Company Member

Kumar Prince (49)

Mohit Aggarwal (50)

Mrinal Rawat (51)

Mudit (52)

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Company
Lean management

Lean Management (Euro) in Period 0 1,40,000

Your decision for Period 1 200000
Change from Period 0 to Period 1 42.86%
Estimated Effect of the Change 20.00%

Lean management is an approach to running an organization that supports the concept

of continuous improvement, a long-term approach to work that systematically seeks to achieve
small, incremental changes in processes in order to improve efficiency and quality.

It seeks to eliminate any waste of time, effort or money by identifying each step in a business
process and then revising or cutting out steps that do not create value.

During the starting of the Period 0 Lean Management was at 1,40,000 and as a company we
took a decision to increase the lean management by 2,00,000 which resulted into the change of
42.86%. The estimated effect of the change we are looking toward is 20% as in the expert
opinion 25% reduction of the company fixed cost is possible.

Company Fixed Costs

Base Value in Period 0 1,20,00,000

Estimated Value in Period 1 9,60,000

Fixed cost of the company in Period 0 is 12,00,000 and the estimated value to change in Period
1 expected was 9,60,000 but when the report was generated, we could only see a change of
0.0099% which resulted to 11,89,714 Euros.

Payment of Dividends

In Period 0 the value of the dividends to be paid was 8% but as a company we took a decision
to increase it by 1% so now the dividend to be paid in the Period 1 is 9%. The reason to take
this decision are:

 This will help in not reducing the company’s own retained earnings and credit line.

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  Will also help in improving the company’s image.

This will be a safe tactic to see the improvement for the next period and helping to know on
which factor to be focused more.

Demand forecast Petra

State of Economy

Base value in period 0 100 100 index

Estimated value for period next
period 95 101 index
Change from period 0 to next
period -5.00% 1.00% %
Forecast 1 28,500 90,900 units

In Period 0 the Home Market and Export Market is 100 index each. According to the market
research report we got to know that home market is still in a deep crisis so, for the next period
1 we reduced the estimated home market by 5 Index and the new estimation was 95. But for
the export market we got to know that it may increase so, we increased the index by 1 and the
estimation for the next period became 101. Change from period 0 to period 1 for home market
it showed a negative effect and for export market a slight increase. Forecasted unit for home
market was 28,500 units and for export market was 90,900 units. State of economy factor
influence the demand of the product.

Product life cycle

Base value in period 0 100 100 index

Estimated value for next period 100 102 index
Change from period 0 to next
period 0.00% 2.00% %
Forecast 2 28,500 92,718 units

Petra as a product is at a maturity stage. The base value for the home market and the export
market is 100 index. According to the market research report the estimated value for period 1

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for the home market is remained constant and for the export market it is increased by 2 index
as the export market is being optimistic towards the growth. Change from period 0 to period 1
for home market had no impact and for export market a slight increase. Forecasted unit for
home market was 28,500 units and for export market was 90,900 units. Product life cycle factor
also influence the demand of the product.

Price policy - Sales price

Base value in period 0 190 225 CU

Your decision for next period 186 255 CU
Change from period 0 to next
period -2.11% 13.33% %
Estimated effect of the change 0.00% 0.00% %
Forecast 3 28,500 92,718 units

Cost per unit for Petra for home market is 190 and for export market 255. After reading the
market research report we as a company took a decision to reduce the price of the Petra in the
home market in the hope to see increase in the sales and as for export market, we decided to
keep the price constant. The change from period 0 to period 1 we could see a negative effect
on the home market but a huge positive effect in export market but the estimation for both the
market as a company for next period we had 0% as we didn’t expect any changes.

Communication policy: Advertising, sales promotion

Base value in period 0 7,20,000 12,00,000 CU

Your decision for next period 7,40,000 13,20,000 CU
Change from period 0 to next
period 2.78% 10.00% %
Estimated effect of the change 1.00% 2.00% %
Forecast 4 28,785 94,572 units

To increase the sales of Petra in home market we increased the value by 20,000 and for the
export market we increased it by 1,20,000. In home market we just need to remind the public
about the product as Petra is at maturity level and as there might be an optimistic growth in
export market, we as a company took a decision to increase its communication policy. We had

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positive effect change for both the markets but the estimation as a company we had for the next
period is 1% change in home market and 2% in the export market. This lead to the change in
the units for the markets, home market – 28,785 and for export market – 94,572.

Product Policy

Base value in period 0 1,60,000 Euro

Your decision for next period 2,00,000 Euro
Change from period 0 to next
period 25.00% %
Estimated effect of the change 5.00% %
Forecast 5 30,224 99,301 units

The base value for product policy was 1,60,000 and as a company we took a decision to
increase it to 2,00,000 for the next period. The change which was visible was of 25% but the
estimation we took was of 5% of change in the next period. This lead to the change in the units
for the markets, home market – 30,224 and for export market – 99,301.

Training of sales personnel

Base value in period 0 3,00,000 6,30,000 CU

Your decision for next period 3,50,000 7,20,000 CU
Change from period 0 to next
period 16.67% 14.29% %
Estimated effect of the change 3.00% 5.00% %
Forecast 6 31,131 1,04,266 units

The sales will increase if the sales personnel will be able to convince customer to buy the
product so, the company decided to pay for the training of the personnel. Also we made few
changes in the product policy, so it was necessary for the personnel to be trained. For the home
market we spent the same amount as the base value of 3,50,000 but for the export market we
increased it from 6,30,000 to 7,20,000 as the export will increase according to the market
research. We could see a good change for the next period, but we only estimated 3% change of
effect on home market and 5% change for the export market. This lead to the change in the
units for the markets, home market – 31,131 and for export market – 1,04,266.

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Buffer Stock

Your decision for buffer stock in the

next period 1.0% 3.0% %
Buffer quantity 312 3128 units
Planned Demand 31,443 1,07,394 units

The buffer stock required for the next period for the home market will be 1% due to the crisis
report and for export market it will be 3% as we expect an optimistic growth. The buffered
quantity for home market is 312 units and for the export market it is 3,128 units.

So the final demand planned for Petra units for the Period 1 is:

 Home Market – 31,443 units.

 Export Market – 1,07,394 units.

Demand for Quarto

State of the economy
Base value in period 0 100 100 index
Estimated value for next period 99 102 index
Change from period 0 to next
period -1.00% 2.00% %
Forecast 1 11,880 36,720 units

In Period 0 the Home Market and Export Market is 100 index each. According to the market
research report, we got to know that home market is still in a deep crisis so, for the next period
1 we reduced the estimated home market by 1 Index and the new estimation was 99. However,
for the export market we got to know that it may increase so, we increased the index by 2 and
the estimation for the next period became 102. Change from period 0 to period 1 for home

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market it showed a negative effect and for export market a slight increase. Forecasted unit for
home market was 11,880 units and for export market was 36,720 units. State of economy factor
influence the demand of the product.

Product Life Cycle

Product life cycle

Base value in period 0 100 100 index
Estimated value for next period 101 103 index
Change from period 0 to next
period 1.00% 3.00% %
Forecast 2 11,999 37,822 units

Quarto as a product is at a growth stage. The base value for the home market and the export
market is 100 index. According to the market research report, the estimated value for period 1
for the home market is increased by 1index as Quarto is high quality product and for the export
market, it is increased by 3 index as the export market is being optimistic towards the growth.
Change from period 0 to period 1 for home market had no impact and for export market a slight
increase. Forecasted unit for home market was 11,999 units and for export market was 37,822
units. Product life cycle factor also influence the demand of the product.

Price-Policy

Price policy - Sales price

Base value in period 0 230 309 CU

Your decision for next period 230 315 CU
Change from period 0 to next
period 0.00% 1.94% %
Estimated effect of the change 0.00% 3.00% %
Forecast 3 11,999 38,956 Units

Cost per unit for Quatro for home market is 230 and for export market 309. After reading the
market research report we as a company took a decision to keep the price constant of Petra in
the home market and as for export market, we decided to increase the price. The change from

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period 0 to period 1 we could see no effect on the home market but a slightly positive effect in
export market but the estimation for the home market as a company for next period we had 0%
as we didn’t expect any changes and for export market we expected a 3% change.

Communication Policy

Communication policy:
Advertising, sales promotion

Base value in period 0 700,000 1,020,000 CU

Your decision for next period 850,000 1,200,000 CU
Change from period 0 to next
period 21.43% 17.65% %
Estimated effect of the change 3.00% 3.00% %
Forecast 4 12,359 40,125 units

To increase the sales of Quatro in home market we increased the value by 1,50,000 and for the
export market we increased it by 1,80,000. In home market we just need to remind the public
about the product as Quarto is at growth level and as there might be an optimistic growth in
export market, we as a company took a decision to increase its communication policy. We had
positive effect change for both the markets but the estimation as a company we had for the next
period is 3% change in home market and 3% in the export market. This lead to the change in
the units for the markets, home market – 12,359 and for export market – 40,125.

Product Policy

Product policy
Base value in period 0 270,000 Euro
Your decision for next period 320,000 Euro
Change from period 0 to next
period 18.52% %
Estimated effect of the change 3.00% %
Forecast 5 12,730 41,329 Units

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The base value for product policy was 270000 and as a company, we took a decision to increase
it to 320000 for the next period. The change, which was visible was of 18.52% but the
estimation we took was of 3% of change in the next period because it will improve the design
of the product and expansion of customer service and guarantee. This lead to the change in the
units for the markets, home market – 12,730 and for export market – 41329.

Training of sales personnel

Training of sales personnel

Base value in period 0 300,000 630,000 CU

Your decision for next period 350,000 720,000 CU
Change from period 0 to next
period 16.67% 14.29% %
Estimated effect of the change 3.00% 5.00% %
Forecast 6 13,111 43,395 units

The sales will increase if the sales personnel will be able to convince customer to buy the
product so, the company decided to pay for the training of the personnel. In addition, we made
few changes in the product policy, so it was necessary for the personnel to be trained. For the
home market we spent the same amount as the base value of 3,50,000 but for the export market
we increased it from 6,30,000 to 7,20,000 as the export will increase according to the market
research. We could see a good change for the next period, but we only estimated 3% change of
effect on home market and 5% change for the export market. This lead to the change in the
units for the markets, home market – 13111 and for export market – 43395.

Buffer Stock

Buffer Stock

You decision for buffer stock in the

next period 2.0% 3.0% %
Buffer quantity 263 1302 units
Planned Demand 13,374 44,697 units

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The buffer stock required for the next period for the home market will be 2% due to the crisis
report and for export market it will be 3% as we expect an optimistic growth. The buffered
quantity for home market is 263 units and for the export market it is 1302 units.

So the final demand planned for Petra units for the Period 1 is:

 Home Market – 13374 units.

 Export Market – 44697 units.

Sales
Home Export
market market
Forecast demand for
period 2
Petra 31,443 1,07,394 units
Quarto 13,374 44,697 units
This result generated automatically from the demand forecast of Petra and Quarto.

Home market Export market

Unfilled orders at the end of

period 1
Petra 0 0 units
Quarto 0 0 units
The quantity of Petra and Quarto is 0 in home as well as export market and the data are taken
from sales department of management report.

Backlog at the end of the

previous period units
Petra 0 units
Quarto 0 0

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Backlog of Petra and Quarto is 0 in home and export market given in the sales department of
management report.

Final stock at the end of period 1

Petra 0 0
Quarto 0 0
Final stock of Petra and Quarto is 0.

Quantity needed to be
transported from the
central store Total
Petra 31,443 1,07,394 units 1,38,837 units
Quarto 13,374 44,697 units 58,072 units

Production
Setting up the production program to manufacture the product Petra and Quarto utilizing the
available capacities of raw material, machines and personnel. Production plays very important
role because if:

 Demand is greater than supply your company cannot meet the demand, with
unfavourable consequences for the company.
 Demand is lower than the supply of products available, stock piling is inevitable.

Number of working hours per day 8

Number of working days per week 5
Number of weeks per month 4
Number of months per period 3

Production time available 144,000

Capacity utilization 123.8938%

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Currently production capacity is over utilization at 123.89% that will incurred three losses are
as follows:

 Availability loss: Breakdowns of the machines.

 Performance loss: Reduced speed and small stops of the machine.
 Quality loss: Production Rejects or Increase in rejection rate.

We as company decided to choose overtime out of available option of overtime, purchase of

machinery or bought in goods. Overtime is suitable because of the following reason:

 Employee of the company has the necessary expertise to perform the job duties.
 If company go for the purchase of machinery option, then we have to recruit one
employee for every new machine. Moreover, new employee requires training and ramp-
up time.
 If company go for the bought in goods option, it will affect the image of the company.
However, may be quality of the product will get affected.

After adopting the overtime in production decision, we get the following result:

Number of working hours per day 8 10 hours

Number of working days per week 5 days
Number of weeks per month 4 weeks
Number of months per period 3 months

machine
Production time available 144,000 180,000 hours

Capacity utilization 123.8938% 99.1150%

Overtime hours required in next machine

period 34,407 hours

 Capacity utilization reduced to 99.11% that is near to full utilization of machine.

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Rejection Rate

Quantity required after rejects 138,837 58,072 units

Rejection rate 5% 10%

Minimum quantity to be produced 146,145 64,524 units

Rejection rate is the percentage of processed parts that are rejected due to low quality of the
product then its desired quality. That will increase the minimum quality to be produced to meet
the desired demand of the product in the market. As a company, we focused to reduce the
rejection rate because:

 As production unit increases, the variable cost will also increases.

 Capacity utilization is getting affected.

To minimize the rejection rate and error we decided to increase the expenditure on total quality
management (TQM) by 14.8% that is 40000 over the period 0 expenses. It will help in the
following ways:

Period 0 Period 1

Total Quality Management 270,000 310,000

 Recognizing errors at the earliest possible stage, or – even better -

 Not letting them occur at all.

Expenditure on TQM (e.g. the formation of quality circles, quality system certification, and so
on) enables you to:

 Reduce the rejection rate of faulty products. These rejects cannot be re-used.
 Improve the quality of products produced in your company.

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Production Technology

Production technology enhance the efficiency of the machine that can bring about a reduction
of the production time per unit. Therefore, as a company we decided to increase the expenditure
on the production technology by 16.66% that is 40000 over the previous period expenditure.

Period 0 Period 1

Production Technology 240,000 280,000

Training of personnel

Training of personnel helps in building the brand image of the company as well as it will
increase the efficiency of the employee that will help in the following ways:

 A reduction of staff turnover and non-reusable rejects.

 A shorter production time per unit.

Therefore, we increased the expenditure on the personnel training by 55.5% that is 50000 over
the previous year expenditure on the training of personnel.

Period 0 Period 1

Training of Personnel 90,000 140,000

Production priority

Petra Quarto

Production Priority 2 1
Production priority has given to the Quarto because state of economy of that product is better
than the Petra product. Moreover, demand of the Quarto is more due to its growth stage and its
high quality product as compared to the Petra.

Conclusion

 Production time of Petra and Quarto decreased by .71% and .73% respectively.
 Rejection rate of Petra and Quarto reduced by 1.4% and 1.3% respectively.

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  According to the balance scorecard, we still need to invest more on training of
personnel.

Petra Quarto

Production time 59.57 29.78 Minutes

Rejection rate 4.93 9.87 %

Training of personnel 500,000 477,500 4

Raw materials

Planned production quantity for period 2

Petra 1,46,145 units
Quarto 64,524 units

Tika Ulli Varu

Raw material required per unit

Petra 4 1 units
Quarto 1 2 units
The above data consist the quantity of raw materials required to make Tika, Ulli and Varu. The
decisions of the quantity required is taken from user manual which says Petra require 4 units
of Tika and 1 unit of Ulli whereas Quarto require 1 unit of Ulli and 2 units of Varu.

Tika | Ulli | Varu

Raw material required

Petra 5,84,580 1,46,145 0 units
Quarto 0 64,524 1,29,048 units
Total 5,84,580 2,10,669 1,29,048 units

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 Stock on hand at the end of period
1 0 0 0 units
Above decision of stock on hand data is taken from purchasing department of management
report. The quantity of Tika, Ulli and Varu is 0 at the end of period 1.

Orders of raw material in period 2 5,84,580 2,10,669 1,29,048 units

Financing
Factoring
Home Market No
Export Market No

Exchange Rate Fixing

Home Market No
Export Market No

Application for Long Term Loan 0

Redemtion of Long Term Loan 0

Fixed Term Deposit with Banks 0

Currently company are doing well in terms of financial, that is why we are financially
dependent upon the retained earnings.

Balanced Score
Card
Company Base
Weight value value Score

Financial perspective
Profit before tax 10 4,440,656 3,363,578 6
Debt-equity ratio 10 102 100 9
Dividend 5 9 8 8

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 Customer perspective
Market share (sales) 10 26 25 8
Image 8 102 100 6
Adherence to delivery dates 7 100 100 10

Internal processes perspective

Deliverable part of production 10 100 100 6
Rejection rate 10 7 8 7
Product quality 10 100 100 6
Production time 5 45 45 7

Learning and development perspective

Turnover of personnel 10 3 3 7
Training of personnel 5 500,000 477,500 4

Weighted average score 7.03

Need to improve area for the next period

Highly focused area for the next period

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