Activity-Based Management at Stream International Case Study Solution
Evaluation of Five Process Improvement Projects
First Project:
The first proposal for process improvement is related to the quick response to the customer’s information requests, which helps to reduce the ad hoc reporting which ultimately leads to the efficiency in response to the customer’s information requests. This project also demands for the clarifications of the roles and responsibilities of the employees along with the identification of the potential needs and wants of the customers, which will be helpful in effective decision making. The annual return from this process would be 206 thousand dollars, while the annual return per FTE would be 7,893 dollars, and the return per head count would be 920 dollars.
This higher customer satisfaction might lead to the increase in revenues ultimately profits for Stream International. It will also increase the customer loyalty,which will improve the customer’s retention rate. The best advertisement to increase the reputation of the company is the word of mouth advertisement, which would increase the stock prices of the company due to an increase in the return of assets.
Second Project:
The second proposal for process improvement is related to the improvement of quality control systems of Stream International by collecting the data provided by the customers to improve the process. It might also be used to improve the association with ISO. While comparing the things from its past, qualitative information might be the better anticipation, but the company should remember one thing that it was not analyzed at all. The costs associated with second project is related to the training of all employees for performing the assigned documented task in better and efficient way to maintain the quality during process. The expected annual return from this process would be 251,576 dollars, while the annual return per FTE would be 10,202 dollars, and the return per head count would be 1,328 dollars.
This improvement might lead to the efficiency in the utilization of assembled information, which will be helpful to make effective decisions for the purpose of maximizing the wealth of the existing shareholders, which will provide an assistance to capture the potential investors.
Third Project:
The third proposal for the process improvement is related to the reduction of moving and storing the cost of inventory, which might occurs due to the shifting of inventory from one place to another. This process improvement brings the new ways to store and move the inventory by reducing the non-value added costs form the process, which will lead to the decrease in the inventory costs as well as an increase in annual savings of 808,291 dollars with the expected rate of return of 33 percent. Furthermore, the annual return per FTE would be 34,469 dollars, and the return per head count would be 5,181 dollars.
The shortcomings form this process leads to the decrease in closing inventory costs as well as the costs of work in progress goods and inventories by reducing the costs of rent, utilities, insurances and taxes. The strength of this process would be an increase in the return on assets along with an increase in the customer satisfaction level due to the lower prices, which will ultimately lead to an increase in the shareholder’s wealth due to the growth in share prices.
Fourth Project:
The fourth proposal for process improvement is related to the streamline process of billing, which is used to reduce the costs of those activities that are not adding value in production process. The costs saved form this process will lead to the efficiency in production process that would allow to earn 5.3 million dollars per FTE.
Fifth Project:
The fifth proposal for process improvement is related to the streamlined activities of human resources, which includes the responsibility to define the roles and supervisory position to all the employees. This process might lead to the efficient and effective decision making, which helps to increase the response time to the complaints received form the customers.
Conclusion
After analyzing all the proposals, it has been recommended to choose the proposal for process improvement related to the reduction of moving and storing cost of inventory, which might occur due to the shifting of inventory from one place to another, because this option has given the highest savings along with the highest return on FTE and highest per head count.
Exhibit 1: Calculations for Proposal 1
| Activity | FTEs | Head Count | Fragmentation | Six-month ABM costs | Annual Costs | Target Savings |
| Respond to customer requests | 8.2 | 66 | 12% | 118,000 | 236,000 | 59,000 |
| Manage Customer complaints | 4.9 | 57 | 9% | 73,000 | 146,000 | 36,500 |
| Track / Expedite jobs | 8.5 | 67 | 13% | 135,000 | 270,000 | 67,500 |
| Maintain job files | 4.5 | 34 | 86% | 86,000 | 172,000 | 43,000 |
| Total | 26.1 | 224 | 412,000 | 824,000 | 206,000 | |
| Return on ABM Cost | 206,000 | |||||
| Annual Return per FTE | 7,893 | |||||
| Return per Head Count | 920 | |||||
Exhibit 2: Calculations for Proposal 2
| Activity | FTEs | Head Count | Annual Costs | Target Savings |
| Pull Samples | 1 | 12 | 43,462 | 13,039 |
| Inspect Samples | 4 | 16 | 155,735 | 46,721 |
| Ensure Process Capabilities | 2 | 20 | 70,307 | 21,092 |
| Ensure ISO 9000 Compliance | 7 | 48 | 194,738 | 58,421 |
| Ensure Compliance (other) | 3 | 32 | 59,711 | 17,913 |
| Benchmark performance | 0 | 6 | 23,410 | 7,023 |
| Make Process Improvements | 7 | 56 | 291,223 | 87,367 |
| Total | 25 | 190 | 838,586 | 251,576 |
| Return on ABM Cost | 251,576 | |||
| Return per FTE | 10,201.78 | |||
| Return per Head Count | 1,327.58 | |||
Exhibit 3: Calculations for Proposal 3
| Total Annualized Expense | 2,474,466 |
| FTE | 23 |
| Head Count | 156 |
| Annual Savings | 808,291 |
| Return % | 33% |
| Return per FTE | 34,469 |
| Return per Head Count | 5,181 |
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