The Structure and Processes Involved in Administrative Coordination as Described by Chandler - Assignment Example

Management Accounting Management Accounting The structure and processes involved in ‘administrative coordination’ as describedby Chandler. Chandler (1977) defines a modern business enterprise as an institution that has many distinct operating units managed by a hierarchy of salaried executives. Each unit in the enterprise is autonomous, and it has its administrative office which is manned by a full-time salaried manager. The units have their books of account separate from the main business and are audited on their own since they operate independently (p.1). He continues by comparing the traditional business plan; a single business enterprise, owned by an individual or a small number of owners who operated a shop, factory or a bank from a single office. This business existed before trade was revolutionized and operated a unique line of products and managed from the same geographical location. The traditional businesses were personally owned and managed, and their activities were coordinated and monitored by market and price mechanism (Chandler, 1977, p.1). The shift to modern business approach allowed business to operate from different geographical locations and handle different line of enterprises. The activities and transactions between these units became internalized and were monitored and coordinated by salaried employees rather than market play. Businesses employed a hierarchy of top and salaried managers who monitors and coordinates activities of the units below them. This is opposed to traditional business owners who employed subordinates like foremen to supervise the activities of their businesses (Chandler, 1977, p.3). Chandler says that the visible hand of management replaced the invisible hand which was influenced by market mechanisms. Salaried management allowed greater productivity, lower costs, and higher profits as contrasted by coordination of the market mechanism. Consequently, businesses acquired units capable of operating on their own. Internalization of business between units led to low costs of transactions, linking the administration of production, purchase and distribution units led to low cost of production and increased productivity. It also increases the flow of cash and products by having reduced costs of transactions. Internalization can only be achieved by managerial hierarchy as top managers coordinate and evaluate the activities of managers in lower echelons. The provision allows managers in different units to agree on a joint buying, pricing, production, and marketing policies. This is only achieved through managerial hierarchy (Chandler, 1977, p.7). 2. Direct and indirect costs and their differences. According to Goodrich (2013), direct costs (cost object) are those costs that identified with a particular project and one which cannot be inclusive for the project to be a success. A good example is the cost of paying salaries to those producing goods. Direct costs are either fixed (salaries) or variable (cost of buying raw materials). Indirect costs (“overhead” costs) on the other hand are costs which are incurred by the business for a joint or common cause and cannot be directly tied to a certain project but are attributed to the success of the company as a whole. They are not directly involved in the operation, but they make sure that the process runs smoothly, e.g., advertisement. Indirect costs can also be fixed (rent) or variable (electricity bill) (Peavler, 2014). 3. How logistics (indirect cost) can contribute to management’s coordination of activities in a production department. Peaver (2014) says that indirect costs are those costs that don’t directly affect the production of a particular product but affect the overall performance of an organization. Simatupang, Wright & Sridharan (2002), say that Competition due market globalization is a major reason why firms collaborate in supply chain for mutual benefit. This coordination mainly occurs at four levels. They include; logistic synchronization, information sharing, incentive alignment and collecting learning (289). They go on to say that in logistics costs (indirect cost) the logistics manager can liaise with the suppliers, manufactures, distributors, third party logistics providers and retailers. The coordination among those units will help the business gain the competitive advantage in the sense that it will operate beyond its boundaries and hence maximize its potential increased profitability (Simatupang, Wright & Sridharan, 2002, p.289). Coordination among those units also ensures that products are delivered in the business premise at the expected time. This leads to customer satisfaction since finished goods are replaced in time. It is also crucial in tracking down of sales and stock data. The supplied goods cannot go bad since they are ordered according to statistics of the goods movement. The coordination among units which is made possible by the logistic manager enables the business to make profits (Simatupang, Wright & Sridharan, 2002, p.289). (Words 757) Question 2. 1.QMF Should Make Hygiene A Direct Cost To Signal Importance To The Production Process. According to Winterman (2013), there has been a rising trend in the demand for ready food that is the core business of QMF. According to Abdel-Kader & Luther (2006), management accounting is used by firms to provide relevant information useful for the internal decision making. Some models that a company can use for short-term decision management include Cost-Volume –profit (CVP) analysis, product profitability analysis, customer profitability analysis, and stock control model (p.8). QMF can use a model like Cost-Volume –profit (CVP) to know the budget to allocate to hygiene as a direct cost. from the case study, we find that QMF is facing revenue threats especially since supermarkets are always looking to lower the prices they pay to their suppliers. The second is the cost of food inspection and hygiene. The making of hygiene a direct cost will signify the importance attached to it since it’s one of the core business of the organization. According to “from the gate to plate,” the company can reduce the cost of commodities in the food industry by negotiating with the farmers for lower prices. This way, the cost of operation is reduced and in turn can be transferred to hygiene budget. Many food manufacturers are facing closure due to a rise in cost of service, this is because the profit margin is very little and supermarkets are making it worse by offering very offering to buy from them at very low prices (Sibun, 2009). This means that the business has to be very careful when it comes to budget allocation for hygiene as a cost. Making Hygiene a direct cost will also ensure that high hygiene standards are maintained and also preventing food scandals like substituting expensive beef meat for cheap horse meat as we are being told by Jack (2014). 2. In Measuring Hygiene Team Performance One Should Focus On The Quality Of Inspections Outcomes. According to Yates & Geoghegan (2014), the food industry has sometimes been rocked by scandals. One such scandal is the McDonalds food scandal in japan and Hong Kong. There were reports that McDonalds stopped importing chicken nuggets from Shanghai Husi Food (U.S owned Chinese company). This is because the company did not maintain good hygienic standards. This happened after a scandal alleged that that Shanghai Husi Food was using long expired meat and picking up food from the floor to add to the mix. A scandal like this one can be very bad to a business like QMF. This is because customers expect high hygiene standard to be observed at all levels of operation. By focusing on the quality of inspections outcomes, it’s very easy to avert such scandals and also to mitigate them should the same happen. That is why QMF need to invest heavily on quality of inspections outcomes. Having a good hygiene strategy also ensures that customers don’t complain about food poisoning after eating QMF’s meals. Lawrence , Wasley and Ciorniciuc (2014) say that many people in Britain who from suffer food poisoning mainly get it from the campylobacter. This is a type of bacteria that can contaminate meat especially chicken meat if it’s not handled hygienically. Whistleblowers revelation has brought this to light following complains that organizations like 2 Sisters Food Group and Faccenda are some of the culprits implicated. It is therefore important for QMF to ensure that hygienic measures are practiced at all levels. This, the organization is going to remain profitable in the face of the industry decline. 3. How Production Managers Can Be Rewarded By The Top Management If They Succeed In Reducing Hygiene Costs While Maintaining Hygiene Quality. According to research by Fao.org (n.d), managers should always ensure that all staff understands the business core enterprise and work towards ensuring its success. In our case the production managers in QMF should ensure that costs of maintaining hygiene in all actives are kept low without compromising on quality. If the managers achieve this, by Fao.org (n.d) proposes that the top management of QMF can reward them by offering them the following: A rise in their salary Job security. A feeling of belonging to the company. Respect for their skills and knowledge. Good relationship with other staff. Opportunity for career growth and development Offer them better working conditions. Offering the performing managers the above will act as a motivator in the sense that they will continue to perform even better. This means that the organization will continue to uphold its hygiene policies (756 words). References Chandler, A.D. (1977). The Managerial Revolution in American Business. The Visible Hand: pp.1-3, 6-7 Goodrich, R. (2013) Direct Costs Vs. Indirect Costs: What Is The Difference? Available from: http://www.businessnewsdaily.com/5498-direct-costs-indirect-costs.html [accessed 1st Dec 2014 ] Peavler, R. (2014). Direct and Indirect Costs and Their Effect on Pricing your Product. ? Available from: http://bizfinance.about.com/od/pricingyourproduct/a/Direct-And-Indirect-Costs-And-Their-Effect-On-Pricing-Your-Product.htm[accessed 1st Dec 2014 ] Simatupang, T.M., Wright, A.C. & Sridharan, R. (2002). The Knowledge Of Coordination For The Supply Chain Integration. Business Process Management Journal, Vol 8(3) Abdel-Kader, M. & Luther, R. (2006). Management Accounting Practices In The British Food And Drinks Industry. British Food Journal. Vol 108(5) pp336-357 From the gate to plate-strategic management accounting in the UK agricultural industry Jack. L. (2014). We Still Don’t Know What We Are Eating – Here’s How to Tackle Food Fraud. The Guardian. ? Available From: http://www.theguardian.com/commentisfree/2014/sep/07/eating-food-fraud-review-horsemeat-scandal [accessed 1st Dec 2014 ] Yates,D.& Geoghegan, I. (2014), In China Meat Scandal, McDonald’s Japan Switches To Thai Chicken, No Nuggets In Hong Kong. Reuters. Available from: http://www.reuters.com/article/2014/07/25/us-china-food-hongkong-idUSKBN0FU00J20140725[accessed 1st Dec 2014] Lawrence,F. Wasley A. and Ciorniciuc, R. (2014). Revealed: the dirty secret of the UK’s poultry industry. The guardian. Available from: http://www.theguardian.com/world/2014/jul/23/-sp-revealed-dirty-secret-uk-poultry-industry-chicken-campylobacter [accessed 1st Dec 2014 ] Fao.org (n.d).Managing Production And Quality Assurance.FAO Corporate Document Repository. ? Available From: http://www.fao.org/docrep/w6864E/w6864e0d.htm [accessed 1st Dec 2014 ] Read More