Meaning of parta system in strategic management?

Answer 1

The late Mr. Ghanashyam Das Birla, the grandfather of the late Mr. Aditya Birla developed the system.

Parta means what will be the return to pocket in net. Parta is a system of establishing return on Investment based on Cost Management.

Since the Group had diversified in different businesses based on availability of licence, technology & resources for raw material they needed a system to monitor profits consistently. It is a system of accountability based on which each company in the group had to draw a series of estimates for any new investment: how much it should cost to manufacture a particular volume of product, sell it & make a profit. The Project department will give the cost of capital for different capacity levels or different processes or different raw materials. These are the tools to analyse new businesses, viability of new & old business. This will also give factual information for investment to Stake Holders including Bankers and helps later on for review and monitoring based on norms and commitment given while taking sanction of Capital purchase. The group maintained very good control on preoperative costs to keep a healthy cash flow. There have been hardly any cases of overrun I have seen during my tenure of over 25 Years with Aditya Birla Group.

Parta could be of different types:

1. Production based -Capacity of each equipment based on guarantee of production given by the manufacturer of machinery. There are cases where the Birla companies exceeded the rated manufacture. Manufacturers came and studied the factors that enabled overshooting of rated production. Estimate of investment will give the capacity of project. (Where supply is short of demand). Like - Birla super. 2. Market Based -With increase in capacity in items where demand was lesser than supply, it was based on market research & projected estimates. Dynamics of changes in policy may give further moderation like Birla White.

Parta is normally made at the start of Project / New Plant / New Machinery / New Product Manufacturing.

All information were validated by discussion & questioning with related persons Finally the member of the Birla family approves Parta for each unit. Sanction for capital expenditure is given only after the Parta is approved. Working of parta to get details of (1) INPUT Raw Material (a) Mix (Quantity), (b) Source, (c) Quality

(2) Production Cost, (a) Capacity Utilization, (b) plant no of days running in year

(3) Selling & Administrative Cost per Unit of Product, 1) Fixed 2) variable

(4) Marketing & Advertising costs: one-time and Regular.

There is a meeting of different units manufacturing the same product (like cement business parta) at a common place which generates healthy competition and sharing of knowledge as well as concerns. Parta system keeps a close watch on efficiency.

Parta-- Executive summary

-It is MIS tool developed by Birlas, commonly accepted by all -Challenge and Controls generates competition to perform better than the best. -Parta is a control device in micro terms for time (Daily Parta), product mix, consumption, logistics, sales volumes, and profits and losses. -Corrective actions are taken in time - A Stitch In Time Saves Nine. -Each and every rupee spent either towards capital expenditure or revenue expenditure must earn in a pre decided time Parta is to see that the object is met. -Not only Production or Sales are monitored through parta but almost all aspects of cost and revenue.

Out Put - Selling Price, Return- Discount I Brokerage I Commission, Freight, Tax. Market Mix Product Mix Finance Cost- (a) Interest (b) Borrowing Mix (c) Cost of public issue Parta = Selling Cost -(Manufacturing Cost + Administrative Cost include finance cost) = Net Profit

Once master parta is made then the monthly Target is made based on environment of marketing & Plant Machinery running (after shut down required for maintenance) Time. Parta v/s Target explained by CEO I COO to the member of Birla Group who is in charge of the particular unit.

Target v/s Daily Working is explained by Head of function, marketing I Com/Production, to CEO. For exceptions & action corrective actions are taken in time - Parta v/s Target - (Monthly Profitability Statement) exceptions. Monthly Progress Report. Target v/s Daily - Daily Report of Profit (loss) & specific Break down etc

Daily report is for Daily Parta of Gain (Loss) Statement i.e. only minus figures are reported & update is for the month. It is the control device in Micro terms for time, product mix, consumption & yield of raw material, logistics, sales volume & profit / loss. Cumulative Average = Cumulative Profitability/Working days

By 20th of the month you must be near the target; if not, a serious review is done between Mr. Birla and the CEO and the Head of Function.

Change in Parta takes place if there is Marketing Change / Plant Capacity Change I Raw Material factor Change / Product factor Change

Excellence & Constraints in System

Having worked in different groups I find the system is ideal in principle for a multi unit group. It is a convenient and efficient mechanism for control and monitoring. The changes are less and proper Home Work is done. But it could not be owned by young Managers due to Secrecy & rigidity of Top man in fixing norms and intolerable attitude of the top person for facts. Also mostly it was a production oriented system i.e. the underlying assumptions of "whatever is produced will be sold".

In making parta one may challenge norms & its controls generate competition to perform better than the previous best. Parta monitors all aspects of business not only sales or production. It is a dynamic concept, which changes with any major change.

Main parta has full details of working running into more than 100 pages while daily review is on one sheet and the monthly review goes up to 10 sheets.

· Parta is a dynamic concept and not only an academic one, and this is proved during the last 100 years of Birla record of growth. · The CEO gives his explanation for the exceptional items to Mr. Birla. · The group organizes Parta conferences at different places, and different unit teams deliberate almost all the aspects so as to determine targets for expenses and savings. · Parta conference generates a healthy competition amongst the units and ultimately the Bottom-lines are improved for all the organizations. Parta is thus a powerful tool for ensuring the continued viability of the unit.