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Homework answers / question archive / 1)Benchmarking, the measuring of a company’s operations and performance against those of world-class firms, can be applied to ratio analysis

1)Benchmarking, the measuring of a company’s operations and performance against those of world-class firms, can be applied to ratio analysis

Accounting

1)Benchmarking, the measuring of a company’s operations and performance against those of world-class firms, can be applied to ratio analysis. Give your opinion on whether or not benchmarking is a good practice. You may explain your answer using the financial ratios which you have calculated for MS Tech in ‘Section A’ earlier, as well as other figures in MS Tech financial statements and compare them to the Global Industry Average (GIA). (8 marks)


2. The MS Tech executives are asking for your input on how to reduce their annual inventory costs. Help explain to them what it means by the notion “the overall annual inventory costs represent a case of trade-offs”. (8 marks)

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Answer:

Meaning & Defination of Benchmarking:-

                                                                 Benchmarking is a process where different companies compare their nature of work with other companies in the same field of business and they set a certain type of standard of work.

It is a matter of work from different companies which creates some standard for the work they deliver. And this standard of their work is considered and called as benchmarking.

Opinion -1. Benchmarking is Good Practice:

There are several advantages of benchmarking. Most of the common benefits of benchmarking help to improve the productivity & Efficiency of the company. Moreover, these advantages can provide a clear picture of the key factors of benchmarking in the company. And increased productivity elements, display the successful features of the company. Following are the some benefits of Benchmarking.

1. Implements creative ideas:

One of the common type of benchmarking where in which all the beneficial aspects of the company are creatively implemented for the overall development of the company.

2. Developing Improvements: It is clear about benchmarking that it deals with those findings of the company and another company which helps them find their position in the business market. And if there are any chance or space available for improvement in the company activities, then the company needs to develop those improvements in the company for the growth of the company in its own terms.

3. Identifies Essential Activities: One of the best possible advantages of benchmarking is that it can help all the companies to identify their own essential activities that can improve the profits of the company.

4. It Improve Work's Quality: Because of benchmarking once the company identifies their strengths and weakness compared with the rest of the company, then it is quite clear that all the aspects of the company need to be improved at a time to time basis.

2. Opinion-2 : Benchmarking is not a Good Practice.

As the company can receive some sort of benefits from these benchmarking processes, then it is quite obvious that the company can be covered with some of the disadvantages as well. And those disadvantages are as follows:

1. Insufficient Information: Sometimes it happens that while comparing the aspects of different companies, the information acquiring company can be left behind with their information-gathering techniques. And that is why it can face tremendous loss in their business because of insufficient information about the company.

2. Decreased Results: Most of the time when a company sets its standard and try to improve that standard by implementing some new and creative ideas, then at that time the company need to look at those companies which are doing quite good in their similar type of business. And analyze the actual problem in their company.

3. Lack of Understanding: As most of the companies keep an eye on their competition instead of their own growth, it is quite clear for all the company that such type of obsession with another company can not lead the company anywhere.

4. Increased Dependancy: Most of the companies think that benchmarking helps them improve their company position as it helped those successful companies to be in the top. But most of the companies forget that those companies which made themselves to that top position have earned their hard work.

2. As per my point of view following are the some ways by which The executive of M S Tech can reduce its annual inventory cost:

1. Avoid Minimum Order Quantity (MOQ):

A minimum order quantity (MOQ) is defined as the smallest amount or number of a product that a company will supply.MOQs are very common, and they’re used by suppliers and manufacturers to unload more of their inventory on retailers and wholesalers – reducing their cost of inventory but increasing Ours.

2. Know the Re-Order Point:-    A reorder point formula will help you determine when you need to order your next shipment of stock. Knowing your reorder point can ensure you never order too much and risk obsolescence, but never order too little and risk stockouts.

3. Impliment Just In Time (JIT) Inventory System:-

JIT is a method for keeping almost no inventory in your warehouse at all, but instead, ordering everything you need the moment you need it.

It’s a form of lean manufacturing that would mostly eliminate the cost of inventory.

It requires you to:

– Develop a strong relationship with your supplier

– Find a long-term supplier for each purchased part

– Shorten your production cycle

– Separate your repetitive orders from you one-stop business

– Institute or improve your quality control program

While JIT isn’t for everybody, it’s a proven way to dramatically reduce your inventory costs.

4. Use Consignment Inventory: It allows you to offload a portion of your inventory to the retailer carrying your inventory. The catch to this arrangement is that the retailer doesn’t pay for the inventory upfront. Instead, they pay you when they make a sale.

5. Reduce the Lead Time: It is the process of shortening the time it takes to receive a purchase order.

6. Use Accurate Forecasts: Monitoring your business in real-time not only lets you know when you’re low on stock, it also helps you know your best-selling items, your worst-selling items, and trends in demand.Forecasting demand through accurate reports allows you to order just enough to satisfy demand throughout the year, for every season.