Performance Management And Management Accounting Techniques At AiFAB In The Aluminum Industry

Overview of the Aluminum Industry

The Aluminum Industries was found in the year 1996 and is largely driven by a futuristic vision and long term strategic planning. The firm is engaged in in various product brands and service departments and aims to engage in the high quality service for the different customers. Each of the company`s brand is a market leader which thereby goes a long way in assisting the firm to attain long term success (Aifab.com.au. 2018). The report will be concentrating on one of the five brands named AiFAB. The firm is a services and systems supplier for the different fabrication needs of the organization and is engaged in a die design and the supply of aluminum extrusion so as to engage in surface finishing, assembling, packaging and shipping.

The main aim of the report is to analyze the manner in which AiFAB makes use of various performance management as well as management accounting techniques so as to help their managers in the procedure of decision making. The report has been divided into two parts with the first part concentrating on the industry analysis using the tool of Porter`s Five force model. This shall assist in the identification of the competitive strategy of Priceline. The second half of the report will be discussing the different performance measures as adopted by AiFAB, the product costing, cost volume and profit analysis along with budgeting, sustainability and other tools to analyze the standing of AiFAB. Lastly, certain recommendations in order to assist the organization will also be provided with respect to the mentioned aspects.

Part A 

Overview of the Aluminum Industry

The Global Aluminum market is highly competitive with well-resourced players who have been applying various techniques and growth strategies in order to compete with various firms in the market.  Strategic Alliances can be deemed to be a common strategy which assists the different firms to perform simultaneously and engage in various competitive gains (Frost.com  2018).

Moreover, with the power of the different economies have been increasing considerably the use of aluminum in the automobile industry has also increased and has been benefitting the particular industry at large. According to Matchdeck.com. (2018), the global aluminum market has been displaying a CAGR of approximately 6.4% between the years 2017 to 2025. Hence, it is understood that if it’s progressing at this rate, the market will be valued at around US$249.29 bn by the end of 2025 which is almost a 100 bn difference from the year 2016.

Analysis of Competitive Forces – Porter’s Five Force Model

Moreover, in order to analyze the global aluminum market, it can be studied on the basis of a few parameters which shall assist in the analysis of the growth drivers of the particular industry. The different segments into which the global market has been divided into is dependent on the products such as plates, foils, ingots, sheets and wires.

In order to figure out the success of the market, the Aluminum market can be classified into the major markets of North America, Asia Pacific, Europe, Latin America as well as Africa. Although the aluminum market has been expanding in all these countries, the growth in the Asia- Pacific industry can be taken to be the largest (Futuremarketinsights.com. 2018).  This can be said to be a result of the growth in the industries of India, Malaysia, China, Vietnam and other industrialized countries. The quality of Aluminum as a contributor to the construction industry can be stated to be the primary reason why the aluminum industry has been performing well.

The five forces can be stated to the primary tool which assists in the analysis of the different competitive forces which tend to operate in a specific industry and go a long way in helping the firm to ensure that they are reasonably aware of these forces and based on this they form their decisions considerably with respect to the particular strategy which they will be making use of in order to attain success (Ibisworld.com. 2018). This tool was developed by Michael Porters and analyses any industry with respect to the given five aspects:

• Barriers to entry
• Power of the buyers
• Power of the Suppliers
• Rivalry
• Availability of Substitutes

This factor can be defined as a force which has a huge impact on the performance of the current players in the industry. If the barriers to enter the industry is considered to be high then no new firms will be able to enter the industry easily and this is considered to be highly beneficial for the existing players.  However, if there exists low barriers to entry then, the existing players face a continuous trend of increased competition. Hence, for the aluminum industry, the barriers to entry are considered to be relatively medium. This is because, the economies of scale can be deemed to be a relatively important factor for the particular industry and hence, if the economies of scale are better than lower costs are incurred and the bargaining power during the sourcing procedure of the raw materials increase considerably. In this case, if the different aluminum companies are integrated then, the barrier to entry becomes higher. Moreover, another factor why the particular factor becomes high is because the capital investments which are required in the particular industry are considerably high and thus it is not possible for all the different business to soundly invest in the particular field. In addition to this, the gestation period of the industry can be also considered to be quite high which makes the different businesses quite skeptical. However, a positive aspect is that the government policies in the particular segment are quite favourable in nature and thus this often encourages the new companies as well as the existent firms.

Threats and Opportunities for AiFAB

The Bargaining power of the suppliers can be considered to be considerably low in case of the fully integrated upstream suppliers as they tend to have their own resources for the same. However, for other semi- integrated products which are considered to be downstream in nature, the bargaining power becomes a bit higher (Ibisworld.com. 2018).  Very often the bargaining power for the power purchase becomes limited because the government acts as a sole provider, the increased usage of the captive powers thereby assist the firm in ensuring that the companies tend to rationalize their costs to a great extent.

As the end product of the particular industry relatively acts as a commodity, the different customers in the industry tend to enjoy a relatively high power of bargaining as the different prices of the industry greatly depend on the demand as well as the supply. For this reason, the different companies tend to bargain and demand a price which is relatively based on their convenience. Moreover, the different aluminum firms are supposed to abide by this because very often the automobile as well as the construction firms have a relative sister concerned business which provides them with adequate raw materials and other resources.

The competitive rivalry can be considered to be quite high in the industry because there is an existent of various firms in the industry and their competition is largely a factor of the price charged and the quality of the product being provided (Ibisworld.com.  2018). In order to ensure that the different companies are being successfully able to combat against the particular competition, they engage in relative differentiation so as to ensure success.

The threat of substitutes can be deemed to be lower based on the perspective that the usage of the aluminum in the automobile as well as the construction industry has been increasing considerably.  However, in return steel tends to act as a considerable substitute for the particular organization in the segment. Moreover, with respect to the power sector, copper is being replaced by the aluminum due to its conductivity. Aluminum still holds a considerable position and its usage remains the highest but it can be stated there is a presence of various substitutes for the particular product.

It is predicted that in the future the demand will increase even more at a rate of six to eight percent per annum.

The organization is a profit business and thus it needs to engage in an adequate strategy to ensure that it is able to compete with the different competitive powers.  The threats which the company has been facing from the new competitors can be deemed to be relatively high because not only the company faces extensive competition from the international companies but also with respect to the local manufacturers. The primary international competitors are the importers. In addition to this, the firm also has to combat against the competition as the customers have increasing power over the purchases. The main point of consideration for the firm can be taken to be that the rivalry companies have been increasing considerably. Additionally, it can be stated that the overall strategy which is being followed by AiFAB is the differentiation strategy whereby the business seeks to provide unique services to the different customers and seeks to ensure that all their problems are resolved.

Performance Measures Adopted by AiFAB

The primary target market for the company can be stated to be the different large organizations who use the aluminum as a raw material for their operations and related projects. The company offers a wide range of products like the CNC Capabilities, Manufacturing Logistics, Digital Fabrication, Extrusion Design as well as related consultancy. Moreover, each of its product offerings tend to have exquisite Aluminum finish which is considered to be good for the firm at large (Just-auto.com. 2018).

Hence, it targets old as well as new companies who would like to enable the latest trends in the aluminum industry and ensure that their products are the best. Moreover, it can be seen that the organization indulges in a niche marketing strategy for a selected group of organizations. This is considered to be good with respect to the unique offerings being made by the firm (Aluminum Industries. 2018).

In general it can be stated that the firm is employing differentiation strategy which will enable them to achieve success in the long run and ensure a competitive edge for the firm.

Part B

The Business Activities

The primary business activities of the chosen brand under the Aluminum Company, AiFAB will be extensively discussed in this section. The main activities of the firm are considered to be extrusion design and consultancy services. The main purpose of AiFAB is to provide the different customers with a full package which shall assist them in achieving their specific project needs. They tend to engage in innovation through some unique ways as the designers of the system tend to work in hand with the different machinists and the fabricators. The firm greatly relies on the following in order to ensure long term success:

• The firm ensures suite compatibilities before engaging in the production stage which thereby goes a long way in ensuring that the organization tends to ensure good quality products and services.
• The firm draws on checks for errors as well as intolerances.
• Reduces manufacturing costs and increases the quality of the products
• It engages in stock forecasting which provides tailored solution to consumer needs.
• Engages in 3D printing
• Helps the organization by consulting them for new ideas.

Extrusion Design

The AiFAB has one of the best design departments. The company has an access to various in house designers which then go a long way in ensuring that the firm tends to work in a close association with the fabrication teams to improve the designs. The firm tends to make use of the latest designs and 3d printings.  The main key aspect of the firm in the given case lies in ensuring that the client companies tend to engage in extrusion of efficiencies and tend to improve their quality.

Consulting services

The brand tends to engage into the service of consulting as well as advice upon project management capacities. They manage the aluminum activities of the organization and tend to offer the stocking as well as forecasting services as a part of their package. The business cycle of the firm is reviewed along with ensuring that the stock of the firm is adequate with respect to the peak demand periods. By assisting the client companies with adequate product development facilities, the organization provides innovative solutions to the different consumers.

Product Costing, Cost Volume and Profit Analysis

Digital Fabrication

The firm has availability of a wide array of advanced machinery and tooling options which then permits them to provide an intricately interconnected systems. The firm has an access to various CNC Machines and therefore, their equipment’s can be used to design the aluminum products in the desired manner.

The balanced scorecard is a useful management tool which thereby goes a long way in helping any business enterprise to ensure that it is successfully able to engage in the meeting of its business objectives and goes a long way in ensuring that any business enterprise is successfully able to engage in taking long term as well short term decisions. However, it is essential to note that the company, AiFAB does not make use of the Balanced scorecard as a performance measure, however, in return it does make use of the AiFab doesn’t  use balanced score card but they do follow the four perspectives including Financial, customer, internal process, sustainability and learning and growth.  To be able to achieve its long term objectives. The four different perspectives are as follows:

1. Financial perspectives
2. Customer perspectives
3. Internal processes perspectives
4. Sustainability, Learning and growth perspectives

Objectives	Measures	Targets	Initiatives
Improving margins	Amount spent on aluminum raw materials	Reducing margins by 20%	Applying lean manufacturing
Expansion of the revenue opportunities	The increase in the income from new products	Increasing the revenues by 30%	Engaging in new product lines
Reducing costs	Increase in the overall profit	Cists to be reduced by 10%	Cutting down on additional expenses

In order to ensure that AiFAB is successfully able to ensure that it is able to achieve all its financial objectives, the organization takes considerable steps as to see to it that they successful. The firm ensures that it is successfully able to improve its profit margins by reducing inefficiencies. Moreover, in order to reduce costs they form direct relations with the various suppliers and the different parties which will then allow the organization to make use of discounts and decreased costs of middlemen. The cost of quality is not considered to be something which AiFAB is largely concerned about.

The customer perspective of the organization looks out for the customer goals of the organization with respect to the increase in its customer base or an increase in the popularity of the firm in the designated market. The customer perspective of the organization can be stated to be as follows:

Objective	Measures	Targets	Initiatives
Increasing the market share of the company	The number of customers and the increase in them.	To increase the consumer base by 20%	Following a customer loyalty program.
Improving upon the customer satisfaction aspect	The number of consumer complaints index and the number of high ratings achieved.	To increase the customer satisfaction index  and ratings by 2 points	By hiring an efficient consumer team.
Improving services with respect to after sales support	The time taken to deal with the different consumers.	To ensure the lead time is below 2 minutes	By following a good training program for the employees.

The customer satisfaction is often considered to be an important aspect for AiFAB to consider. This is because the customer service aspect is deemed to be one of the most important aspects which a company needs to consider with respect to the management as well as the extra designing services. AiFAB ensures that it engages in successful feedback procedure for the firm and that a survey is undertaken to evaluate their experience at large. The increase in the market share of the company is often considered to be an indicator of the increase in consumers.

Budgeting and Sustainability

The internal business processes perspectives seeks to ensure that the internal operations and related business processes which are carried out by AiFAB are successfully able to ensure the success of the firm in the long run. If a business is successfully able to manage its internal business processes, they can ensure the efficiency of operations.

Objective	Measures	Targets	Initiatives
Efficiency of the consultation provided	The satisfaction of customers	To ensure that the satisfaction of consumers is heightened	Applying best practices
Efficiency of the projects handled	The outcome of the project	To ensure that each project receives a five star rating	Ensuring a project lead conducts better inspections.
Efficient sales support	Time taken to deal with returns.	To ensure that the time reduces by 2 minutes	Ensuring specific training is provided to the employees.

The AiFAB makes extensive use of the parent company`s management system. It engages in a large number of business activities which ensure that it is successful able to provide the customers with the best offering. In order to be able to achieve its long term vision AiFAB needs to see to it that it brings about an effective operations procedure which will ultimate lead to the achievement of its business objectives like the achievement of the customer satisfaction, reduction in costs, better quality and other aspects.  It considers the efficiency of the internal processes as an adequate aspect because the firm is highly connected to the vision it has set for itself.

The fourth balanced scorecard perspective is the learning and growth aspect whereby it can be considered to be the most crucial aspect of the organization. However, AiFAB also makes use of sustainability in this aspect. This means that all the organizations in the long run aim to ensure that they are required to acquire the required rate of growth which is considerable for the particular industry and is also able to see to it that they adopt the model of a learning organization.

Objective	Measure	Targets	Initiatives
Achieve employee training	Employee turnover rate( The amount of time which the company will take in order to ensure that the staff team changes)	Ensuring all the employees are highly trained	Getting efficient training facilities for the employees.
Enable employee satisfaction	This can be measured with the help of turnover rates.	To ensure that potential customers are attracted	Providing efficient after sale services.
Creation of a proactive work environment	The average tenure of the service achieved by the employees and employee satisfaction index.	To ensure that the work place health increases	Conducting outings and other related programs

The AiFAB runs with the primary objective that it is successfully able to foster a conducive work atmosphere which will then go a long way in ensuring that the business is successfully able to achieve its work objectives. The firm in order to maintain the quality of the work which it provides to the customer and in order to successfully ensure that it is able to engage in successful relationships with the different employees would be required to engage in a good learning and development program. For this reason, the management team at AiFAB ensures that it is able to provide the different employees with exquisite training facilities which shall then enable the firm to achieve long term success.  As stated earlier, AiFAB understands the importance of a successful learning and growth program whereby the creation of a positive environment shall ensure greater customer as well as employee satisfaction.

The organization AiFAB tends to adopt the pricing strategy of a value based pricing method which means that the price of the product and the services which the company tends to offer to the different customers is based on the value which it generates to the customers by making the particular offering. Moreover, a job costing and activity based costing are also used. Hence, value is deemed to be a relevant component which is used to determine the price made by the firm. Secondly, the different direct cost considerations are required to be successfully considered for the costing method. The direct costs involved in the business of the firm can be primarily considered to be as follows:

• The costs of the raw materials: The primary raw material is the aluminum products and other related products which are required to be engaged in to complete the business activities in which the firm is largely involved in.
• The wages and the retail staff involved: The wages and the other costs involved can be considered to be the direct costs of the organization.
• The utilities and cost of manufacturing products:  The utilities and other related costs can also be considered to be the direct costs.

Recommendations for AiFAB

The services which they tend to provide are based on the equipment’s and other services they provide. Hence, this service is deemed to be free of cost for the different consumers whereby the firm tends to charge the consultancy fees for the different customers. The cost of the wages of the employees can be considered to be an essential aspect of the direct costs of the firm because they are the ones who are carrying out the various operations important.  Furthermore, the difference in prices between the discounted price of the customers and the normal price of the customers can be considered to be as an indirect cost. Moreover, the indirect costs are considered to be the other selling costs of the organization and office maintenance costs of the firm.

AiFAB follows two product costing and allocation methods. These methods can be essentially described as having been related to job costing and activity based costing. AiFAB allocates job costing as a method for the direct costs when related to the production of goods and tends to apply the method of activity based costing, for the activities related to the consultation it provides. This costing methods makes it essentially easier for the company to ensure ease of operations.

The cost volume and profit analysis is a tool which is primarily used to analyze the number of units which is sold by the organization in order to earn a considerable share of the targeted revenue or the whole revenue as a whole. In the given scenario, there can be taken to be two major methods of identifying the estimated volume change. The first method is the number of clients which the organization serves and the other is the number of units sold by the firm. As stated previously, the fixed costs which are required of the firm are the different costs like the cost of the equipment’s, the fees of the different employees and the advertisement as well as utility costs. Hence, it can be rightfully stated that the main income of the firm can be taken to be the income from the customers like consultancy fees and the other related costs of designing and related extrusion. AiFab essentially offers various services to its different clients and thus for this reason, it tends to calculate the breakeven point in a unique manner. First of all the business determines its gross profit which is then followed by the analysis of the overhead costs which are incurred in the business. Once the business is essentially able to figure these costs out it then considers the balance sheet amount. After calculating the different aspects as mentioned, AifAB tends to use the formula as given as follows:

The budgeting is often considered to be an essential aspect of the organization as it goes a long way in ensuring that the firm is successfully able to measure the manner in which it is able to align the expenses with the budgeted expenses. The budgets can be rightfully measured as the internal measurement tool which is used by the organizations in order to motivate the different managers and employees in the long term as well as in the short term perspective. The AiFAB tends to review its budget on a yearly basis whereby it engages in a forecast of the designated expenses of the organization as well as the income of the organizations in the long run. The long term budget of the brand is calculated on the basis of the number of projects to be taken in the long run. The primary budget comprises of the costs like the costs of the raw materials and other wages to be incurred and they also make use of the training costs.  

1. Operating Budget

In order to measure their expenses, AiFAB first makes use of an operating budget whereby the costs of the company in form of the expenses as well as the project revenue of the upcoming year are laid and presented. The operating budget by AiFAB makes use of a summary schedule so as to ensure that each line in the budget is supported by a statement. The reason why AifAB makes use of this system is because it helps them in identifying their resources required in the future.

1. Cash Flow Budget

This method which is used by AiFAB is the cash flow budget whereby the firm estimates the cash receipts as well as cash expenditure which is expected to be incurred during a particular time frame. These expenses are calculated on monthly basis but later on calculated on a yearly basis. The company makes use of the budget to calculate the estimated production as well as sales costs.

The Sustainability can be considered to be an effective aspect of the organization and the firm believes that it is required to engage in sustainable works so as to ensure that the community benefits. Hence, the AiFAB organization tends to see to it that they engage in both issues relating to the social as well as the environmental aspects. The business tends to engage in the recycling as well as reuse of the different aluminum materials which it gets from the different suppliers as well as the inventory aspects. The organization in order to save paper tends to make use of computerized claiming whereby it submits online reports and other receipts. These measures have been largely taken in order to ensure that the business becomes environmental friendly. In addition to this, the social performance of the business tends to be measured in terms of the employee happiness and other aspects which exists in the organization and in terms of the quality of services provided to the different consumers.  One of the major sustainable programs which AiFAB makes relevant use of is the Green Industry program. In this Green Industry Initiative the industrial development is made sustainable in nature with respect to the rising global sustainable challenges. As a firm in the industry, the organization seeks to attain growth by striving into a path of green public investments and initiatives in order to encourage responsible private investments.

After the analysis, it can be stated that in order to achieve success in the long term of the organization, AiFAB has been performing considerably well at present, however, it is required to ensure  that it needs to improve certain aspects of its operations so as to ensure that it is able to gain sustainable competitive advantage.

1. (i) Evaluation for Performance Measures:

After the analysis, it can be stated that although AiFAB does not make use of a Balanced Scorecard, it does take into consideration the four aspects relating to the same.

(ii) Recommendation for Performance Measures:

Hence, with respect to this it can be stated that AiFAB can make use of a Balanced Scorecard tool to ensure clarity into its operations.

2. (i) Evaluation for Budgeting

The budgeting technique as followed by AiFAB can be stated to be fairly accurate in nature and as observed it follows cost and operational methods which assist it to figure out related estimates.

(ii) Recommendation for Budgeting

It is recommended that AiFAB makes use of a monthly budgeting system for accurate evaluation.

3. (i) Evaluation for Cost –Volume- profit Analysis

The company makes use of a rigid formula to calculate the breakeven units however, it does not seem to have a valid system to evaluate the breakeven units for production.

(ii) Recommendation for Cost –Volume- profit Analysis

AiFAB needs to ensure that it takes out a manner in which it tends to see to it that breakeven is calculated for production in a unit manner so that adequate budgeting technique can be essentially followed.

4. (i) Evaluation for Sustainability

AiFAB is making use of various sustainable programs using which it is making a mark and contributing responsibly, however, there is a lot more which can be done.  However, there is one aspect which are required to be noted is that AiFAB is not sustainable in nature due to the materials involved as raw materials and other resources.  

(ii) Recommendation for Sustainability

It needs to ensure that it implements sustainability in materials and resources as well.

5. (i) Evaluation for Product and Service costing

The product and service costing as used by AiFAB is fairly clear in nature with methods like job costing and activity based costing being followed.

(ii) Recommendation for Product and Service Costing

It is suggested that the company differentiates based on the classification of different costs.

Conclusion 

Therefore, from the given analysis it can be rightfully stated that the organization under Aluminum, named AiFAB has been performing considerably well and has created a considerable niche market for itself. The aluminum industry has been performing considerably well and hence, for this purpose, AiFAB has been making a good position for itself. However, the competitive forces as present in the industry are quite large in number and hence, AiFAB will be required to ensure that it is able to make the right decisions. The report highlighted the status of the Aluminum market in Australia and then highlighted the business activities of the organization. This was followed by the analysis of the performance measurement of the firm followed by a proposed balanced scorecard, costing techniques, Cost -profit and volume analysis along with the budgeting techniques. The sustainability perspective of the organization has also been measured. The last part of the report presented certain suggestions for the different aspects like performance measures, costing techniques, Cost -profit and volume analysis along with the budgeting techniques and sustainability.

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