Business

A Simple Way To Implement Corporate Management Information System

“Every department, every activity has to be a looked upon as a profit centre to ensure optimal functioning and earnings of the company as a whole.” This was my main mantra when I worked with various companies as a consultant, or a CEO, or operations director. “That of course, did not make me a hit with the department heads, but it sure brought in the desired performance improvements and results in the various units under my control,” says R.R. Gosai, a reputed textile consultant, who does not mince words. Corporate Management Information System is the backbone for achieving best standards in the industry, but even today, it is not given its due importance and place in the system, he believes. Today, many corporate have their offices in metro cities, and manufacturing units at various remote locations. Owners and corporate managers regularly visit the plants to keep track of plant performance, etc. However, this results in waste of productive time spent in travelling, and additional travel related expenses. “In this present age of digitisation and internet, if proper corporate management information systems are practiced, such hassles can be minimised to a great extent and remote controlled management practice can be effectively followed. At the same time, it is important that these systems are designed in such a way that it requires minimum report size, may be two/three pages, which provides complete insight of plant performance covering each and every aspect, easy to draw conclusions and plan corrective action.” “There are many such systems available in the market, but I find they have certain drawbacks – they are exorbitantly costly, and many times do not fit into the existing culture of the organisation and their data-keeping/reporting systems. Let me assure you, there are some simple yet effective systems which can be easily followed even by the small manufacturing organisations.” Profit and Loss Accounts Yes, it’s a very common term, but we are not here to discuss the simple definition of income minus expenses equals profit. We need to understand the potential profitability of a manufacturing organisation (if it works in line with best industry standards on all spheres); compare it with actual profit or loss and calculate the difference. Say for example, considering the unit’s performance at par with the best industry standards on all aspects and having most profitable and in-demand product mix, potential profitability of a unit is Rs. 10 million/year. But as per normal profit & loss account, actual profit is Rs 8 million/year. So in our understanding it is not the profit of Rs 8 million but a loss of Rs 2 million. The next task then is to analyse and identify the responsible section/operation (there may be many contributing their share) for this Rs 2 million/year loss and to take corrective actions accordingly. How this system works For working out such accounting systems first we need to classify major activities as individual profit centre.

Purchase
- Raw Material
  - Purchase Rate
  - Quality Impact
  - Inventory
  - Production loss due to shortage
  - Payment Schedule
- Major Consumables
  - Purchase Rate
  - Quality Impact
  - Inventory
  - Production loss due to shortage
  - Payment Schedule

Production
- Production Volume (Efficiency/Utilisation%, Breakdowns etc...)
- Value loss due to poor quality
- Material Wastage
- Maintenance Cost
- Utility Consumption (Power, Water etc...)
Engineering
- Power cost
- Water cost
- Sewage & Treatment cost
- Fuel/Steam Cost
- Utility Maintenance Cost
- Production losses due to utility shortage
Marketing
- Product Mix
- Sales Rate
- Advertising & other sales cost
- Discounts & Commissions
- Finished Goods Inventory
- Packing Cost
- Receivables/Ugai - interest loss on it
Finance
- Bank interest on borrowings
- Bank interest on deposits
- Interest loss due to cash on hands
- Transport cost (Raw Material, Major Consumables & Finished goods)
- Taxes & Penalties
Human deployment.
- Hands Employed
- Wage Rates
- Production loss due to worker shortage, strikes etc...
Overheads
- Administration expenses
- Management & Staff salaries & perks
- Travelling, Rent & Other sundry expenses

Likewise for all other sections. These can further be sub-classified too. As second stage, we need to fix norms/standards based on best industry practices and allocate income/expenses budget for each of the profit centres. Working out cumulative figures for all those, we can make overall budget of income and expenses and find out potential profitability of the organisation. At third stage, we can compare actual income and expenses with budgeted one and find out excess or shortfalls. This analysis will point out the sections/functions responsible for profit or loss. Product Costing & Analysis Normally product pricing is market driven, however for any organisation it is very important to know which products are profitable (some may be giving very high profit compared to others) and which are non-profitable. Normally marketing department tend to go for easy selling products but those may not necessarily be highly profitable too. Corporate Management must always be aware about which products are giving high profit, average profit and negative profit. For this it is advisable to have regular working on product costing not only of pre-production costing but a comparison of it with post-production costing too. This analysis must be carried out regularly for all products under manufacturing; and final product mix has to be decided accordingly along with consideration of market intelligence report. Task and Agenda follow-up In normal day-to-day operations, review meetings or from reports, corporate office/higher management observe certain areas/points where corrective actions are warranted and accordingly certain instructions/task are given to concerned officials. Concerned official must provide target date by which s/he shall complete that task/rectify the flaws observed. A regular reporting system of such task, showing when they are fulfilled/completed and if any deviation is observed over targeted date v/s actual work done date, remedial measures can be taken. Report listing out such task, target dates, on date status and reason for deviation if any should be made as regular practice of reporting. Monthly Progress Report (MPR) Corporate office should make it a practice to call for MPR for all organisations under its control. This report is a detailed analysis form of: 1) Profit & Loss account details compared with potential profitability workings for each profit centre and its sub sections. 2) Product wise profitability analysis 3) Task and Agenda action taken report. 4) Report with analysis about customer complaints, product/process R & D undertaken and market feedback. 5) Market Intelligence report with required actions. 6) Follow up on any special project/task. Conclusion Thus with this simple, minimum effort, but very effective system of reporting, corporate management can easily keep track on performance of individual functions under its direct control. (R. R. Gosai is Consultant, R. R. Gosai & Associates. He can be contacted on Mobile: +91 9723887611. E-Mail: rrgosainassociates@gmail.com. Website: www.rrgosainassociates.in )