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Part One
Introduction
Figure 2.10 Performance objectives have both external and internal effects. Internally, cost is influenced by the
other performance objectives
Worked example
Slap.com is an Internet retailer of speciality cosmetics. It orders products from a number
of suppliers, stores them, packs them to customers’ orders, and then dispatches them
using a distribution company. Although broadly successful, the business is very keen to
reduce its operating costs. A number of suggestions have been made to do this. There are
as follows:
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Make each packer responsible for his or her own quality. This could potentially reduce
the percentage of mis-packed items from 0.25 per cent to near zero. Repacking an
item that has been mis-packed costs a2 per item.
Negotiate with suppliers to ensure that they respond to delivery requests faster. It is
estimated that this would cut the value of inventories held by slap.com by a1,000,000.
Institute a simple control system that would give early warning if the total number of
orders that should be dispatched by the end of the day actually is dispatched in time.
Currently one per cent of orders is not packed by the end of the day and therefore has
to be sent by express courier the following day. This costs an extra a2 per item.