Jul 8, 2016

TIPS! SALESPEOPLE MUST KNOW


Basic tips required by Salespeople

One of the most important duties of a salesperson is not only to acquire sales activity skills, but also acquire knowledge about other departments of an organization. For instance manufacturing process, production and planning, quality control and testing, purchase and stores, and finance and account skills.

He should possess at least basic ideas about these fields to attain perfection. This leads to the progress of a salesperson and allows him to attain high levels in the organization.Industrial sales man usually deals in limited lines of products. He has full knowledge of the products which he sells.

He deals directly with customers, distributors, dealers and collects orders from them and sends them to the management for further course of action. Industrial salesman must possess deep knowledge about technology, vast experience about the product dealt with. Also, he is required to study about his product for various applications. There should be exchange of application case histories by him among his colleagues.

He should also possess enough knowledge about his customer’s product and technology. A good sales man should have qualities like: forecasting skills, communication skills, coordination skills, and territory knowledge, computer skills, presentation skills etc... These skills enable him to track down his customers quickly and efficiently. If he’s found to lack any of the above skills, the sales man must adopt training as Training enhances one’s qualities.

Moreover he must be engaged in creating a market for the new products of the company. Therefore, he’s concerned with creating and cultivating outlets for the new products so far unknown to the distributor. He must possess expert knowledge of the products and he’s main concern must be to create an interest in the minds of the distributor about the new products. So, the sales man must be, therefore, aggressive and imaginative.

Such a sales man must sell the product of the company to distributor and dealers. He must sell the product which is already in the market. Therefore, he’s main concern must be retain and expand the market already existing. Due to this he always manages to serve a large number of distributors. For the purpose he must have a well planned sales call on the distributor regularly. He must help the dealers, salesmen in coaching the effective selling methods.

He is the sales person who is concerned with the carrying on of the sales promotional activities rather than collecting or directly securing orders. He’s mainly concerned with the collection of information and giving of advice on various problems relating to the sales of his products. For this purpose, he must visit the distributor, discuss with them on the selling methods, advice them as to how best they should sell and guide them in their selling activities.

Such a sales person helps the manufacturers in creating and enhancing the market for his products. He should generally posses high qualifications and expert knowledge of the product his company sells. He should also posses extraordinary characteristics, pleasing manners, commanding confidence, deep experience etc.

Below are few simple and brief details about Finance and accounts, marketing functions, purchase processes,Production, Planning & Control, etc apart from Sales Management described in this blog. Salesperson must have knowledge and skills on Engineering and the technical features of the products .

FINANCE AND ACCOUNTS

EQUITY

Equity comprises the amount originally contributed by the owners together with profits from previous years not distributed by way of dividend.

LONG TERM DEBT

Two popular forms of long term debt are:

Debenture or Loan stock

Debenture or loan stock tends to be issued by well established companies seeking additional capital.

A debenture is a loan secured on specific fixed assets. If the business gets in to difficulties, the proceeds of certain assets are used to repay the debentures.

Loan stock is often issued with a convertible option attached to it, at the end of a attached period, the lender may convert it in to ordinary shares.

SALE AND LEASEBACK

A business can sell a valuable assets, usually a building or piece of land to finance house for a capital sum and then lease back the assets for an annual rental.

WORKING CAPITAL MANAGEMENT

A business will collapse without funds generated from within. Sooner rather than later, a company must generate sufficient funds for normal trading operations to maintain the existing level of business and to provide the backbone of the future expansion.

Profits must be the starting point for internally generated funds. Profit is the surplus left when the cost of producing and selling have been deducted from the revenue derived from sales. But a company does not keep all of its profits. Taxation takes a percentage and share holders wants a return on their investment.

But please remember profit is not cash. Managers tends to be more concerned with cash or liquidity than with profits, Wages, dividends, taxes, are all cash leakages, not profits. Managers should be able to understand how cash is pumped around the business and where surplus cash can be drained off.

THE PROFIT AND LOSS ACCOUNT

Companies are obliged by law to prepare a set of financial statements each year. The law spells out what items must be included and how they must be presented.

Many parties are interested in these statements, investors, employees, creditors, banks, tax authorities and consumer groups. It is essential for managers to know how they are prepared and hat they disclose. Profit and loss account and balance sheet are the two principal amount financial statements.

The profit and loss account is a major of the operating performance of a business over a given period of time.

The profit and loss account measures the normal operating activities of the business; especially, it compares revenue for the year against the cost of goods sold and other expenses.

After provision has been made for the tax due, the profit and loss account discloses how the profit will be used; as dividends to the shareholders and the balance to expand the company’s future operations.

THE BALANCE SHEET

The balance sheet of a company is a statement of what it owns (assets) and what it owes (liabilities) at a particular time, usually the last day of the company’s financial year. It is composed of three major classes of items; assets, liabilities and owners equity.

ASSETS

Assets are the resources of the company that have the potential for providing it with future economic services or benefits. An asset is a future benefit which has been invested in the past.

Monetary assets such as cash and debtors are shown in the balance sheet at their cash equivalent values. Non –monetary assets (stocks of raw materials, land, buildings and equipment) are stated at an acquisition cost.

Assets are usually split into fixed assets (such as land, building, plant, vehicles and intangible such as goodwill) and current assets (such as stocks of raw materials, work in progress and finished goods, debtors, short term investments, prepaid expenses and cash).

LIABILITIES

Liabilities represent obligations of a company to make payments in the foreseeable future for goods or services already received. Other liabilities include long term debt, company loans and obligations under long term leases, deferred taxes etc.


























Jul 3, 2016

HANDLING PURCHASE DEPARTMENT

HANDLING PURCHASE DEPARTMENT

Many salespeople would rather spend eight hours on the factory floor than eight minutes in front of a purchasing agent. Yet the purchasing agent is often the essential character in the company buying scheme. Usually the purchasing agent enters the buying picture sometimes after the initial sale, or after the initial commitment.

This is particularly true in the case of automotive OEM’s, which price buyers are. He or she may be called a buyer or be in procurement. Sometimes, the purchasing agent is part of the initial buying decision. Sometimes, the purchasing agent is the decision maker (especially when the customer organization doesn’t have “purchasing agent” or staff). But there is always a purchasing agent.

UNDERSTANDING THE PURCHASING AGENT:
Many salespeople see the PA as an adversary. Often there is good reason to view the PA as an adversary, but to act as if the PA is the enemy, creates an adversarial and anti selling situation.

Good salespeople never treat the PA as an adversary regardless of how obnoxious, arrogant, or small minded the person may be.

Good salespeople try to understand the PA’s unique business position, and try to put themselves in the PA’s place. The PA is often in box. He is under great pressure to cut costs. He is also a human being and is in a relationship situation with the human beings who sell to his company. Like most people, he his fair, honest, hardworking and wants to have friends, not enemies. The good salesperson understands the PA’s internal tension.

The PA, particularly today, is connected with product quality. He does not want to jeopardize his company’s end product by cutting quality. The PA defines quality in many ways including delivery promptness, warranty experience, percent of shipment defects, rejects and other realized cost and time saving.

In many industries, a new breed of PA is emerging, and with very different responsibilities and workloads.

THE PROFILE OF THE NEW PA:
Often pre-trained in finance or accounting.

Can have an M.COMMERCE/MBA.

More often than in the past, the buyer is women.

Sees the PA job a career step from which he or she will be promoted

Sometimes looks for a job in sales.

Is moved among product assignments at least every two years.

Is overloaded with purchasing responsibilities, as the number of PA’s has been reduced at most companies. He buys more products, and spends more money.

Is buttoned-up, business-like, and has very little time for each supplier.

The PA also understands that long term relationships with good suppliers save his company money. He understands the turmoil associated with the education of a new supplier. He understands that experience is an investment.

Consequently, the PA is, in actually, loathe changing suppliers. A supplier has to be exceptionally bad to be taken off the approved list. And a new supplier has to be exceptionally skillful and persistent to take business away from m good, entrenched competitor…………. especially a single source supplier.

This dynamic underscores the need for the salesperson to find ways to regularly inform the PA.

WHAT PURCHASING PEOPLE LIKE TO HEAR AND SEE DURING A SALES CALL?
Money saving ideas.

Time saving ideas.

Problem solving ideas.

Ideas to make the PA a hero.

Low sales pressure demonstrations.

Knowledge of what your product can do for him and his company?

Confidence and enthusiasm.

Ease of doing business.

A clear schedule of appointments and agendas.

Request to participate in the buyers value analysis committees.

SELLING TACTICS TO USE WITH PURCHASING AGENTS

Always inform your customers’ PA when you will be visiting their company even if you are not going to see him.

Ask the PA how he’s decisions and performance are reviewed and evaluated by his superiors. Find out what is expected of him.

Keep a customer service value file for each customer. (See “Customer service value file”). Review this regularly with the PA. Keep detailed records on how many visits you and others in your company have made; how many hours of free engineering and technical service provided; value of samples, literature, tests, emergency services and training at headquarters.

Be sure to quantify in terms of money, time and savings the value of your service. For example if you arranged for 6 hours of equipment repair or any other services, your customer service value file entry might read: “6 hours engineering- $900. No charge”

Also quantify the value of your product benefits to the PA Company. For example, if your product solved annual costs of 3% on $9 of manufacturing costs then the cost benefits your customer receives is $270,000 per year…multiplied by the number of years your application is in use?

Have your other contracts in the PA Company write letters of support for your efforts. In fact, you should write the letters for your non PA contacts. Put these in the CSV File.

Constantly give the PA ammunition to prove to his superiors that you are a bargain, a great investment.

Always set an appointment, usually for 15 to 30 minutes. In the first 1 minute tell the PA your objective for the meeting, how long the meeting will last (even if he knows), and what he’s expected return (on the sales cost, or investment) will be.

To illustrate: “Thank you Mr. Customer for this opportunity. As we agreed this meeting should last 20 minutes, okay? My objective is to interest you in a new, but proven, idea that will give you $1000 a month and 100% ROI by the end of the year. All right”

Handling the PA price objections is a constant sales process. Another portion of this program deals extensively with handling price objections in general. However, your job is to move the PA to consider your quantified product benefits, not just price.

You say: “Mr. Customer, I agree with you that we must be price competitive. (You often can use such a phrase regardless of how he phrased his price objection.) Is it fair for me to assume you are interested in getting the most for your money?” (Pause and listen.)

“AS you know, we do not price our products to lose business. And I know that your company didn’t hire you simply to pick the lower of 2 prices. We believe that our quality and price go hand in hand. May I tell you why?”

“What do you need from us to show, to confirm your business judgment?”

Find out the PA needs. Ask him what his supplier’s selection criteria are. Find out his expectations of the arrangement. Ask what he likes and dislikes about suppliers.

THE PURCHASING ENCOUNTER:

Ask for an order or for a specific act that leads directly to an order, but don’t be disappointed if you don’t obtain one right then and there. You should plan to make at least 5 different and preplanned calls before the buyer has confidence in you.

Except 25% acceptance on the first or second call.

If you walk out of a sales call thinking, “That guy was a dope” you have failed.

The Purchasing Department wants to get the most out of you and give you the least.

Be sure the first order is handled flawlessly.

Once established, except to maintain the account. However, don’t take the account for granted.

If it is a key account, keep in regular contact. The purchasing agent doesn’t want to call you. But your competition will be there.

SOME DO’s AND DON’Ts WHEN SELLING THE INDUSTRIAL DECISION MAKER:

Do’s:


Be punctual. If you are running late, have the courtesy to call. Time is important to both of you.

Keep your promises.

Know your customer’s products.

Have a meaningful benefit to present.

Be prepared.

Know your own product line.

Know your account’s personality, demands, needs and wants.

Do your homework on proposal. Generally don’t ask to requite unless you were given erroneous information or there was a change in ground rules.

Be neat, stylish, well mannered, and professional.

Know your competition, and their sales staff.

Keep your calls to the purchasing department brief unless you were asked in.

Establish the ground rules for your next call.

Schedule your next call.

Show them something new or use a new approach on each call.

Keep them interested.

Be positive.

Train your inside customer service people, and everyone else how to treat the account.

Ask questions.

Listen.

Bring any key inside people to visit key customers.

If you don’t understand a request or a question, repeat it.

Don’ts:

Don’t exaggerate or deceive.

Don’t lay your briefcase or any other tool kit on a desk without permission.

Don’t make promises you can’t keep.

Don’t be a know-it-all.

Don’t talk more than 20% of the call. (Ask question and listen).

Don’t interrupt when the customer is speaking.

Don’t forget your price list and literature etc.

Don’t overstay your welcome. When you accomplish your objective………. Leave.

Don’t go on a call unprepared.

PLOYS OF THE PROFESSIONAL BUYER:

Purchasing executives regularly attend “professional” buying courses and seminars. Unfortunately, some of the techniques they are taught are unprofessional and adversarial. They are also taught buying skills that require salespeople to have exceptional preparation and negotiating skills and abilities. These are typical purchasing ploys you should prepare to face and overcome.

COMMON PLOYS:
Just say “No!” One seminar entitled “Dealing with vendors and Suppliers” has the participants, on the count of three; all scream “No!”

“Ask for the sky”. For example, P.A.’s are encouraged to ask every single salesperson for 2% net 180 day terms….. On the theory this will get better terms than what is being offered.

“May I see your Books?” This buyer is looking for price negotiation leverage.

“What percentage of your sales revenues do we represent?” This information helps the purchasing agent gauge how important he/she is to your company, in order to wrest concessions.

“Fib about Bids” Buyers are counseled to overstate how much lower is a competitors bid?

“Last Look” The buyer promises the salesperson he will get the “last look” at all the bids. The implication is the salesperson will have last chance to come in with a better offer. The reality in this ploy there is only a “last listen” – the buyer tells the salesperson how much lower the competition is, but never shows the written bid.

“Make ‘em sweats!” One buying courses advises buyers to put the salesperson off-balance with inflammatory or abusive opening comments. “Get em to sweat and they will crumble.” One P.A. keeps a broken whip in her office.

Don’t answer when asked. Buyers are told there are many closing techniques, and that most reps know only 2 or 3 but rarely use them. Buyers are introduced to certain common closes and told to remain silent when asked a closing question. Silence will wilt most sales people, and the sales person will either terminate the call or voluntarily improve the offer.

“This won’t fly with my boss” Bringing in an invisible decision maker, the buyer gains leverage over the sales person to blindly improve the offer.

“Have to bring it to the committee.” This is the committee that never meets, but the introduction of an invisible decision maker creates another set of objections to overcome… and insulates the buyer from any negative decision.

EXCESSIVE PAPERWORK DEMANDS

Demanding proposal after proposal, re works, referrals, and such are designed to wear the salesperson down and to divert him from his sales objective.

“We’ll market test and shop around.” This threat to invite new suppliers to bid on the product is designed to get price concessions.

SISTER COMPANY BLACKMAIL.

The buyer implies that if there is not a better offer, than the customers other divisions will restrict doing business with the sales person’s company.

LEAVE ‘EM IN THE LOBBY.

The buyer makes the salesperson stew in the lobby. The ploy upsets the sales person’s schedule and the salesperson.

DEALING WITH PLOYS


Handling the ploys, overcoming objections and negotiation strategy starts before the sales call. Pre call planning and preparation is crucial to sales call success. Anticipate the objections and practice your response. Have a return sales call objective i.e. beneficial to the customer. Have the facts on the quantified benefits the customer gets or will get from your product or services. Be prepared, practiced, professional, dignified and calm.

TIPS FOR HANDLING BUYER PLOYS

Just say “No!”Prepare questions that are open ended, that ask for opinion, or are structured to get an affirmative response. For example, you might ask, Mr. Buyer your decision to use our product has resulted in a significant reduction in warranty claims. How has that success impacted your company?”

“Ask for the sky.” If you are asked for outrageous term, for example, counter with an offer i.e. slightly worse than where you are supposed to settle. Let the PA extract from you a concession or improvement on your initial response.

“Show us your books.” This is a very controversial area and one that could have ethical over tones. There are reasons why customers should not see a company’s books: competitive security, corporation’s tax policies, union bargaining information and others.

Another reality is that reviewing any company’s books or cost information is not easy. There are a wide variety of ways different companies define profits, costs, over heads, depreciation schedules, absorption rates, R & D allocations, and so on. The shrewd sales person uses this complexity to take advantage of the ploy. This ploy is a perfect opening to use your CSVF. Use the CSVF to show the buyer your company’s true and total investment in the customer. If you add an allocated portion of R&D, company’s investment in customers is huge. This is a legitimate way to answer the buyer’s economic query, and to sell the value of your product.

“What percentage of your sales do we represent?” A correct response is I don’t know. We have thousands of applications throughout the industries. But you are a very important customer to our company and especially to me personally. You are so important we invest X$ (referred to your CSVF) every year in your business. For example, let us look at the various things we have done for you OK?

FIB ABOUT BIDS:

When the buyer gives you competitive price assume there is some exaggeration. A suggested answer is, Oh, I wander what they are cutting out. Well, we can’t meet that price without sacrificing quality or service. How would you like me to respond? (Note: You have not connected. This may elicited more information from the buyer, allowing you to re direct his attention to the values quantified in your IRA and CSVF.)

“Last look.” If a buyer suggests your price is too high vis-à-vis a competitor’s quote, yet offers you the chance tom rebid by giving you a last look at all the courts, respond as follows. “I appreciate your help, Mr. Buyer, but your investment is fair and competitive. Can you give me an idea how far apart we are, and I will see if we can adjust something?”





Jun 17, 2016

KNOW YOUR COMPANIE'S ACCOUNTANT

KNOW YOUR COMPANIE'S ACCOUNTANT

The transactions of raising funds and expending have to be recorded systematically. Here comes the role of Accountant to record these transactions in various books and registers (now software is being used to maintain records) and prepare of statement of affairs at regular intervals for its submission to the management. Salesperson must have thorough knowledge on Accounts Department.

VARIOUS BOOKS/REGISTERS OF ACCOUNTS

Cash Book: Record of receipts and payments made in cash

Bank Book: Record of receipts and payments made by Cheque, Demand Drafts, E Payment or bank advice.

Purchase Bill Register: Record of purchase bills.

Sales Bill Register: Record of Sales Bills.

Ledger: Accumulations of records from above referred four registers under various heads i.e. Capital, plant and machinery, purchases, sales etc., customer’s and suppliers’ position.

On the basis of above referred to books and registers, the accountant will prepare the statement of affairs as under:

RECEIPT AND PAYMENT STATEMENT

This statement gives the detailed showing inflow of funds from various sources i.e. capital loan, fixed deposits, sales recovery etc., and outflow of funds to purchase of funds to purchase of assets, payment to suppliers, repayment of loans and deposits etc.

PROFIT AND LOSS ACCOUNT

This statement gives the information regarding sales achieved and expenses incurred during the given period. Profitability is ascertained from this statement.

Balance Sheet

This statement shows the worth of the company. On receiving this statement, company can able to ascertain the following positions about the organization.

Soundness of the company

The borrowings are commensurate with the assets.

Wealth of the Company

Building, plant and machinery, vehicles, advances, stocks, dues from customers – giving break up as to how much are secured or can be recovered and how much are non recoverable.

In normal conversation, finance and accounts is one and the same thing. But finance means rising of funds and its disbursements. Accounting function is recording of financial transactions.

THE BALANCE SHEET

The balance sheet of a company is a statement of what it owns (assets) and what it owes (liabilities) at a particular time, usually the last day of the company’s financial year. It is composed of three major classes of items; assets, liabilities and owners equity.

ASSETS

Assets are the resources of the company that have the potential for providing it with future economic services or benefits. An asset is a future benefit which has been invested in the past.

Monetary assets such as cash and debtors are shown in the balance sheet at their cash equivalent values. Non –monetary assets (stocks of raw materials, land, buildings and equipment) are stated at an acquisition cost.

Assets are usually split into fixed assets (such as land, building, plant, vehicles and intangible such as goodwill) and current assets (such as stocks of raw materials, work in progress and finished goods, debtors, short term investments, prepaid expenses and cash).

LIABILITIES

Liabilities represent obligations of a company to make payments in the foreseeable future for goods or services already received. Other liabilities include long term debt, company loans and obligations under long term leases, deferred taxes etc.

















Apr 4, 2016

SUPPLIER SELECTION

SUPPLIER SELECTION

Upon receipt of a requisition, the purchase department checks if the item in question is already covered by a contract. If it is, an order can be placed against the contract without delay. If it is not covered by the contract the next stage is to select a supplier and negotiate the price and terms of payment and delivery period etc.

There is a strong preference for continuing to deal with regular suppliers, so as long as they continue to prove satisfactory. Nevertheless, it is advisable periodically to check the market to see what other suppliers have to offer.

It is good practice for purchasing staff to know their regular suppliers well, to be personally acquainted with the people who process and make decisions about their orders, to keep in touch with business plans, product developments and so forth. Suppliers are a major source without which, manufacturers could not operate. The management of supply market can be a very important matter which calls for advance planning, forethought and some strategic decisions.

When making a new purchase for which, there is no regular supplier, or when checking the market for regular purchases, the usual procedure is to send a request for quotation to a shortlist of possible sources (Floating of an enquiry).

The request for quotation or enquiry is simply the usual letter head with a standard pre-printed text asking the addressee to quote the price, terms etc. for supply of under-mentioned goods. A list of items of the purchase enquiry form is given below :

Ms.
Our ref.
Date.
Please quote before:
Dear Sirs,
Please send your lowest quotation for the following:
S.No.
Material description.
Quantity.
Note:
Please send catalog along with your quotation in duplicate.
Acceptance of material is subject to inspection at our end.
Quotation should be valid at one month.
Maker’s name should be invariably mentioned.
Payment after one month.

In most cases, the information s supplier given on his tender or quotation need to be supplemented by information in financial stability, quantity, capability performance record etc, which has to be obtained independently by purchasing staff. When considering regular purchases or established supplier, the track record is of particular importance although it should not be forgotten that past history is not a sure guide to future behavior, management does change, new development may occur, new products are launched, new customers found: nevertheless it would not be prudent to ignore the record of how a particular supplier has behaved in the past. Vendor rating is an attempt to systematize this information.

THE CONTRACT STAGE

A contract is a business agreement for the supply of goods and subject usually to a number of thousand conditions. When purchased order is placed and when order acceptance is sent by the supplier, it becomes a contract.

In normal cases, both order and contract are incorporated in single documents, the purchase order form. Normal practice is to make it a rule that all purchases subject to certain clearly defined exceptions, must be made by means of official purchase order.

It establishes clearly what the organization is committed to accept and pay for or by stipulating that the order number must be quoted on advice note and on invoices. Goods receiving personnel can then be given instructions not to accept which are not delivered without an official order number. The contract or agreement with the supplier may cover the supply of aggregated requirement over a considerable period of time.

All quotations received will be kept confidential and will not be divulged under any condition. The selection of perspective suppliers or contractors is indicative of the company’s confidence in their ability and progressiveness.

While placing the order first it has to be entered in the order placement Register. Original copy of the order is sent to the supplier, second the copy is kept in the Master Order File, the third copy is sent to the accounts department, the fourth is kept in the concerned file and the fifth is sent to the stores for information and verification of the goods received.




Apr 1, 2016

INVENTORY CONTROL

INVENTORY CONTROL

The financial investment tied up in total manufacturing stock is bound to represent a very high proportion of the capital employed in any typical manufacturing company.

Total inventory comprises purchased materials and components held in store.
Stock of finished goods awaiting sale and all the work in progress. The value of work in progress includes not only the relevant material costs, but also the value added in terms of labor costs incurred in machining, assembly and all other process operations thought the factory.

Stocks and work in progress on sub-contractors premises also contribute to this total investment. Since so much capital is attributable to inventory holding, it follows that sensible and efficient control of stock level is an essential ingredient of profitable management. Hence effective inventory control denotes efficient working of an industrial undertaking.

STOCK – TAKING

Stock taking is a tedious and laborious chore that has to be performed annually to the satisfaction of the company’s auditors in order to evaluate the quantities of stock of materials and work in progress. The results are used in preparing the company’s financial accounts and are also important for management control. Stock taking verifies the accuracy of stock records and discloses the possible frauds of other losses. Stock taking needs careful planning to ensure that the whole exercise can be completed during the prescribed period.

Stock taking provides an opportunity which should not be missed, of identifying obsolete and redundant stocks, the disposal of which can release both cash and space.

It is important to understand that the objective of stock taking is not simply to verify the accuracy of stock records, but to assess the total value of stocks and work in progress and value of slow moving items as well. This means that all the stocks have to be counted and valued, including materials, components, and assemblies throughout the factory and its stores and stock yards.

RECORDING STOCK

There is a vast numbers of systems used to record stock. Nevertheless, they can usually be classified under 3 headings; Bin cards, Kardex and computer system. All record systems cost money to operate, whether they are carried out manually or by computer.

All systems depend on the prompt and accurate recording of every physical stock movement. This often requires sound staff training and education (particularly in the case of computerized software system) to ensure that no private or bootleg systems are operated in parallel.

The essential requirements of any stock recording systems are ---

Accuracy of data.

Promptness of updating.

Updating facility limited to trained staff.

Security.

Regular comparison of actual quantity with recorded amounts.

GETTING THE RIGHT AMOUNT OF STOCK

It is for the materials manager to ensure that there are always enough raw materials and stock available to support the forward production and its potential variances but only just enough.

However, it is fairly obvious that no control over stock level can be exercised at all unless a firm knows with reasonable accuracy, the actual levels of stock held at all times.

It is, therefore, essential for materials managers to forecast what is going to be needed. This is best based on of forecast of sales of finished products which is then broken down to individual components. Next, it is important to know what and how much is currently in stock. Obviously this changes from day to day a stock gets used and new deliveries are received. So it is essential that materials management has an accurate and responsible recording system.

In theory, a comparison of how much stock is available against what is required will quickly identify how much more stock needs to be purchased. However, since there is always a variable period of time between deciding to buy the goods and receiving them, an extra level of buffer stock is often, required. This is usually calculated in terms of days, usages and reflects the time needed to get the material, the distance of the supplier and the method of transport.

Total stock system, stores and transit can then be measured in two ways; it can be compared to previously set budget levels or it can be measured in terms of inventory turns the number of items the stock is used up in a year which is probably the best yardstick.

Some firms believe as few as two or three turns the year, but the most efficient can get up to 5/7 times. The difference enables working capital to be better utilized and the business to be more profitable.

























Feb 29, 2016

FINANCE & ACCOUNTS

FINANCE & ACCOUNTS

Capital is conventionally described as short term, medium and long term. The distinctions are not rigid but short term capital may be regarded as liability repayable within one year, medium term as repayable between one and ten years in the future and everything else being long term capital (this covers both the proprietors ordinary risk capital or equity and long term borrowings or debt capital). In general, working capital requirements should be financed by short term capital and capital permanently invested in business should be long term.

Medium term capital is useful to give added flexibility and balance to the overall financial structure. One of the most important considerations is to preserve a proper balance between debt and equity in the company’s financial structure. The object of the company financial management should be to see that the company has adequate funds at the lowest cost consonant and so to seek to maximize its earning for ordinary shareholder.

NEED FOR CAPITAL

Capital is required to finance the conduct of business. When a manufacturing business is first established, factory and office premises will be needed and plant machinery and transport vehicles. They can either be bought out right or hired: in the first case, the expenditure represents capital invested permanently in the business. In addition, funds will be required to finance the production from the initial purchase of raw materials until the sale of the finished products, to pay for wages and to meet overheads: these funds are known as working capital. As the business expands, fresh injections of both permanent and working capital will be required. When the original fixed assets need replacing, more expenditure will be needed. Funds will also be required for acquisition.

RAISING OF FUNDS

Few entrepreneurs can afford to start up using their own savings. The capital of owners is equity. Other forms of capitals are long term debt which can vary in amount, purpose and legal entitlement.

Long term debt must be repaid at the end of the stated terms unless both sides are willing to re negotiate terms for another period.

Lenders must be paid interest each year. When the profits of the business fall, this interest commitment becomes a burden.