Loblaw combines this low cost strategy with an

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Unformatted text preview: s Information Management Lease Operations Alliances Core Services/ Products Customers 16 n KPMG/University of Illinois Business Measurement Case Development and Research Program July 1999o Part II Business Process Analysis Mary Lou and her staff have tentatively concluded that Loblaw has adopted a business strategy whereby it is a low cost provider of groceries and related goods and services. Loblaw combines this low cost strategy with an attention to product differentiation (e.g., private labels such as President’s Choice™) and process differentiation (i.e., store layouts). Because the grocery industry is a commodity industry in which it is difficult to sustain differentiation cost leadership is critical. During the discussion between Mary Lou and her team members they consider the link between the entity’s strategy, related business objectives, and the actions that need to be taken inside the business processes that make up the business and its interaction with outsiders. They employ in this analysis a KPMG training document which provides a starting point for thinking about the links between a cost leadership strategy and its effects on various functional areas. (See Box 5.) Box 5 Implications of a Cost Leadership Strategy for Selected Functional Areas* Functional Area Strategy Description Purchase at low cost through quantity discounts. Purchasing and materials management Operate storage and warehouse facilities and control inventory efficiently. Emphasize operation efficiencies through Production/operations management learning, economies of scale, and capital-labor substitution possibilities. Research and development Emphasize process R&D aimed at reducing costs of operations and distribution. Information systems Emphasize timely and pertinent information on costs of operations. Marketing Emphasize low-cost distribution and low-cost advertising and promotion. Human resource management Emphasize reward systems that encourage lowering of costs. * An extract from a KPMG corporate strategy training document. Mary Lou and her team also summarized the core and resource management processes that comprise a retail grocer (see Figure 2 and Appendix I for a description of those processes). Mary 17 n KPMG/University of Illinois Business Measurement Case Development and Research Program July 1999o Lou reminds her team that they need to focus their attention on those processes with significant business risk, because it is those processes that are the most likely sources of audit risk. These processes, known as key business processes, are determined by assessing the following criteria in the context of the client’s objectives and strategy: • • • Strategic relevance of the process: Assess the importance of the process given management’s strategy. Inherent risk of the process: Consider the complexity of the process, the extent of managerial judgment involved in the process, and prior auditor experience with auditing the process or related financial statement ite...
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