ASSIGNMENT 5 ISSUUES IN MANAGEMENT ACCOUNTING

COMSATS University Islamabad

DEPARTMENT OF MANAGEMENT SCIENCES

QUIZ 3 REPLACEMENT

Course Title: ISSUES IN MANAGEMENT ACCOUNTING

Submitted to: DR. ATTiYA SHAFIQUE
Submitted by: Khola Khalil (FA20-BAF-030)

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ASSIGNMENT 5 ISSUUES IN MANAGEMENT ACCOUNTING

QUIZ 3 Replacement:

Case Study 1
Deere & Company

Summary:
Deere & Company, known for its agricultural and construction machinery, faced supply chain challenges
due to diverse products and seasonal sales. They aimed for a 10% cost reduction in four years to tackle
high costs and slow operations. They redesigned their supply chain network by introducing "merge
centers," optimizing terminal locations, consolidating shipments, and using third-party logistics. This
initiative led to a $1 billion inventory decrease, halving customer delivery led times to five days or fewer,
and saving around 5% in annual transportation costs.

Case Study 2
Intel

Summary;
Intel faced a challenge in reducing supply chain costs for its low-cost "Atom" chip, where the $5.50 per
chip expense was steep compared to the chip's market price of $20. Their leverage for cost reduction was
limited to inventory, with no room for service trade-offs or duty payment reductions due to the chip's

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single-component nature. Intel, previously maintaining high inventory to support a nine-week order cycle,
aimed to slash cycle time and inventory levels. To achieve this, they implemented a make-to-order
strategy, initiated in Malaysia, and gradually streamlined processes. Tactics included shortening chip
assembly tests, adopting S&OP planning, and shifting to vendor-managed inventory models where
feasible. Their efforts successfully reduced the order cycle time from nine weeks to two, cutting supply
chain costs by over $4 per unit for the Atom chip, significantly improving from the initial $5.50 expense.

Case Study 3
Starbucks

Summary
During 2007-2008, Starbucks faced supply chain challenges amid declining sales and a $75 million surge
in supply chain costs across its 16,700 outlets. Investigating the rising expenses, they discovered service
shortcomings like late deliveries, costly outsourcing decisions, and a needlessly complex supply chain
structure. To tackle this, Starbucks aimed to reorganize, reduce costs, and pave the way for future supply
chain capabilities. They divided supply chain functions into "plan," "make," and "deliver" groups, added a
new production facility, and streamlined partnerships, retaining only the most effective 3PLs. Managing
these partners through a scorecard system and renewed service agreements, Starbucks completed its
transformation, saving over $500 million by 2010, with a substantial portion from supply chain
improvements, per Peter Gibbons, the former EVP of Global Supply Chain Operations.

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Case Study 4
AGCO

Summary
AGCO, a major player in agricultural machinery like Deere & Company, faced escalating supply chain
complexity and costs due to rapid growth through acquisitions. The decentralized network managing
sourcing and logistics across countries lacked transparency, synergy, and economies of scale. To address
this, AGCO initiated a strategic optimization program. They established a logistics control tower in
Europe by employing a globally integrated transport management system (TMS) and partnering with a
capable 3PL provider after a SCOR benchmarking exercise. Within 18 months, this initiative resulted in
an 18% reduction in freight costs and continued savings of 3-5% annually.

Case Study 5
Terex

Summary
Terex Corporation, operating in aerial working platforms, struggled with a manual yard management
system causing excessive costs and time inefficiencies in locating customer units for delivery at its North
Bend transfer center. Using wallboards and stickers, their solution cost six minutes per unit and demanded
monthly physical inventories. Terex opted for a digital transformation to address this, implementing RFID
tracking via yard management software (YMS). After a successful pilot, they fully adopted electronic
tracking, replacing manual methods with digital inventory management. Though the YMS doesn't
automatically reconcile with the ERP, it provides daily inventory counts, saving on manual labor costs.

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Most significantly, the RFID-based system reduced unit location time from six minutes to just 30
seconds, saving the company around 70 weeks per year in labor costs.

Case Study 6
Avaya

Summary:
Avaya, a key player in business communication tech, faced a disastrous supply chain post multiple quick
acquisitions, leading to a chaotic, manual, and inefficient operation with excess inventory and a lengthy
cash-to-cash cycle. After acquiring Nortel Enterprise Solutions in 2009, the situation worsened with
disparate IT systems failing to offer a comprehensive view or support analysis. Avaya's solution involved
transitioning to cloud technology, unifying processes onto one platform to automate non-value-added
activities, and integrating critical supply chain elements like point of sale and inventory planning. Over a
3–4-year transformation (2010-2014), they standardized processes, invested in talent, and rigorously
tracked KPIs. This effort led to a dramatic shift: inventory turns improved by over 200%, stock tied-up
cash decreased by 94%, and overall supply chain expenses halved. Avaya's success hinged on not just
improving existing processes but challenging and reshaping their approach fundamentally.

Case Study 7
Sunsweet Growers

Summary

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Sunsweet Growers, a leading dried fruit producer, faced high production costs impacting their supply
chain despite efficient distribution operations. Identifying forecasting and planning inefficiencies as the
root cause, they realized their manual forecasting approach led to excess warehouses and inflated
expenses. To combat this, Sunsweet opted for a supply chain planning suite after evaluating multiple
solutions. Implementing a phased improvement plan and adopting a sales and operations planning
(S&OP) program enabled them to forecast plant requirements months in advance. The results were
notable: a 15-20% increase in forecasting accuracy, reduced production overtime from 25% to 8%, 30%
less finished goods spoilage, and a warehouse reduction from 28 to 8 in the US.