Post on 18-Jan-2018
description
Chapter 5Strategic Planning Regarding
Operating Processes
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-2
What are the Primary Influences on Selling Price?
Customers– Customer perspective of balanced scorecard
Competitors– Learning and growth perspective
Legal and social forces– Learning and growth perspective
Cost– Internal perspective of balanced scorecard
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-3
How does the External Market Influence Selling
Prices? Pure competition
– Market determines selling price– Individual company is price taker
Monopolistic competition– Market influences selling price– Individual companies influence selling
price through advertising
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-4
External Market Continued
Oligopoly– Very few companies control selling price– Government monitors selling prices
Monopoly– One company controls market and selling
price– Government approves price changes
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-5
What is the Difference between Penetration Pricing
and Predatory Pricing? Penetration pricing
– Setting a lower initial selling price to entice customers to try the product/service
– Legal Predatory pricing
– Setting a low initial selling price to drive out the competition
– Illegal
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-6
What is the Difference between Skimming Pricing
and Price Gouging? Skimming pricing
– Setting higher initial selling prices due to uniqueness of product
– Legal Gouging
– Setting high price due to unusual demand– Illegal
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-7
What is the Difference between Life-cycle and
Target Pricing? Life-cycle pricing
– Setting a selling price for the life of the product/service based on cost
– Determine cost, determine required markup, set selling price
Target pricing– Setting a selling price for the life of the
product/service based on the market– Determine selling price, determine required
return, set target cost
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-8
What are the Common Reasons for Holding
Inventory? Meet customer demand Smooth production scheduling Take advantage of quantity discounts Hedge against anticipated cost
increases
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-9
What are the Common Reasons for Not Holding
Inventory? Significant costs are incurred Holding inventory allows the company
the “hide” its internal process problems because demand can be met from inventory
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-10
What is the Difference between EOQ and JIT?
EOQ– Short-term model– Minimizes incremental ordering and
holding costs JIT
– Long-term philosophy– Assumes product-sustaining and facility-
sustaining costs are relevant
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-11
What is the EOQ Model?
Q = 2DO
C
Where,
D = annual demand
O = incremental ordering cost (batch-related)
C = incremental carrying cost (unit-related)
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-12
How is the JIT Model Different?
Demand-pull system Kanban (visual) system Goals
– Eliminate disruptions in production– Reduce or eliminate nonvalue-added
activities– Minimize inventory levels
Risk: stockouts and resulting customer ill will
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-13
What are the Common Compensation Plans?
Piece rate– Pay based on units completed
Commission– Pay based on sales
Hourly– Pay based on hours worked
Salary– Pay based on period of time
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-14
What are Other Compensation Issues?
Bonuses– Additional pay based on some future event
Insurance– Protection for employees
Paid leave– Protection for the company
Gross pay versus net pay– Gross = amount earned– Net = amount received
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
5-15
How are Bonuses Calculated?
Bonus amount– Net income before bonus (and taxes)– Net income after bonus (before taxes)– Net income (after bonus and taxes)
Bonus rate– Percentage of bonus amount