5. The Finance Function's Relationship with Operations Flashcards
What is operations management?
The planning, directing and controlling of the transformation of inputs into outputs that meet the needs of the organisation’s customers
What is process design?
The method by which individual specialists seek to understand business activities and ensure that they are as efficient and effective as possible
What are the 4 Vs of process design?
- Volume (no. of inputs and outputs)
- Variety (no of different inputs and outputs)
- Variation (when outputs are required)
- Visibility (if customers can view it or not)
What is a process map?
Setting out a process visually to show how inputs and transformed into outputs, and enabling people to understand it or to see where efficiencies could be found
Who created the value chain?
Michael Porter
What is the value chain split into?
Primary and support activities
What are the 5 primary activities of a manufacturing company?
- Inbound logistics
- Operations
- Outbound logistics
- Marketing and Sales
- Service
What are the 4 support activities of a manufacturing company?
- Procurement
- Human resource management
- Technology development
- Firm infrastructure
What is the value network?
How organisations are linked to other organisations involved in the production and delivery or products and services to the ultimate customer - they do not operate in isolation
What do new big data and technological advances allow for finance to do in regards to operational efficiency?
Access customer feedback, operations logs and procurement information in order to make operations thinking more customer focused
What is capacity planning and control?
Balancing the customers demand for the product with the company’s supply of that product
What happens if a company is over capacity?
Resources available for production are not fully utilised, leading to high stock levels and under used employees
What happens if a company is under capacity?
The organisation is unable to produce the quantity being demanded, leading to delays in fulfilment
How does capacity planning have an impact on cost?
If the firm produces below it’s capacity, then resources such as staff time are waster
How does capacity planning have an impact on revenue?
If customer demand exceeds production capacity, revenue and customer goodwill will be lost
How does capacity planning have an impact on quality?
If production has to be rushed, quality will suffer
What are the 3 strategies available for capacity planning?
- Level capacity - constant
- Chase demand - match closely to forecast demand
- Demand management - attempt to manipulate demand levels
What is Manufacturing Resource Planning? (MRP II)
A method for the effective planning of all resources of a manufacturing company (identifying and forecasting orders, managing capacity requirements and placing stock orders automatically)
What are the 5 benefits of MRP II?
- Reduced stock handling
- Improved ability to meet orders
- Reliable quotations of delivery times
- Better supplier relationships
What is Optimised Production Technology?
OPT is a computer based method for scheduling production requirements to identify and eliminate bottlenecks
What is Enterprise Resource Planning?
ERP software integrates all departments and functions of an organisation in a computer system able to meet all the needs of all organisational users (SAP/Oracle)
What are the 5 main reasons that organisations hold inventory?
- To meet customer demand
- To meet production needs
- To deal with uncertainty
- To take advantage of bulk purchasing discounts
- To absorb seasonal fluctuations
What does inventory management aim to do?
Minimise the combined cost of inventory…
ordering costs + holding costs + stock out costs
What are inventory ordering costs?
The costs associated with placing the order, receiving good and goods transport
What are inventory holding costs?
The costs of storage and stores operation, the typing up of cash, insurance costs, deterioration and risk of obsolescence
What are inventory stock-out costs?
The loss contribution on unfulfilled orders, loss of customer goodwill, cost of idle time and customer admin expenses
What is a continuous inventory system?
Inventory is continuously monitored so that exact levels are known at any point in time, and a fixed amount is ordered once stocks fall below a predetermined level
What is Economic Order Quantity?
Techniques that determine the optimal size of order to place with the supplier, taking into account demand as well as the cost of ordering and holding inventories
What is a periodic inventory system?
Checking stock on a regular basis and placing an order of a variable size dependent on usage during the period
What is an ABC system?
The classification of stock based on the Pareto principle, focusing on A items, then B, then C
What is Just In Time?
An approach to inventory management based on the idea that goods should be produced, or services delivered, only when they are needed, eliminating large stocks of materials
What are the 4 key characteristics of Just in Time inventory management?
- High quality production
- Speed
- Reliability
- Flexibility
What are the 3 considerations to make when applying JIT to service organisations?
- No. of able employees available
- Customer facing staff are key
- Quality can be difficult to measure
What are the 5 steps in product and service development?
Anticipate the need Be innovative Challenge the concept Design the new output Expedite to market Finish
What is supply chain management?
Managing the flow of goods and services through the organisation with the aim of making the firm more competitive
What are 4 reasons for organisations to manager their relationship with suppliers?
- Obtain the most competitive prices
- Ensure communication leads to improvements in quality
- Ensure continuity of supply
- Tie in the supplier if exclusivity is desired
What is procurement?
The sourcing and purchasing of goods and services for business use
What are the 4 stages in Reck & Long’s evolution of procurement model?
- Passive - clerical function
- Independent - best price searching
- Supportive - increased importance, central unit
- Integrative - part of strategy
What are the 5 elements of Cousins’ supply wheel?
- Organisation structure
- Portfolio of relationships
- Cost/benefit analysis
- Skills and competencies
- Performance measures
What are the performance objectives of supply chain?
Speed, dependability and cost
What are the 4 possible sourcing strategies?
- Single sourcing
- Multiple sourcing
- Delegated sourcing (external)
- Parallel sourcing
What is the supply portfolio?
The overall mix of suppliers that should maximise cost and quality benefits and minimise risk to interruption of supply
What is the overarching trend in supply chain networks, and the attributes of these networks?
Towards closer links with suppliers and the development of stronger networks
- Fewer customers
- Deeper relationships
- Close IT links
- Open communication
- Supplier involvement in product development
- Demand networks
- Collaboration and joint problem solving
What are demand networks?
Products and services are developed in response to customer demand - pulled into existence (pull based rather than traditional pushing out into market)
What is the definition of quality?
The totality of features and characteristics of a product or service which bears on its ability to meet stated or implied needs - is it fit for purpose?
What is quality control?
The traditional approach to quality management, inspecting output after production to ensure it meets standards (else it will be scrapped or reworked)
What is quality assurance?
A proactive approach which focuses on the production process and aims for zero defects
What are the 4 types of quality cost?
- Prevention costs (quality assurance - cost of conformance)
- Appraisal costs (quality control - cost of conformance)
- Internal failure costs (non conformance)
- External failure costs (non conformance)
What is Total Quality Management?
Deming’s concept of continuous improvement in quality, productivity and effectiveness through a management approach focusing on both process and product
What are the 7 elements of TQM?
- Prevention of errors
- Elimination of waste
- Right first time
- Full participation of employees
- Everybody’s concern
- Continuous improvement - Kaizen
- Teamwork
What are the 6 steps of TQM?
- Senior management commitment
- Carry out instructional presentations and training
- Establish quality circles
- Gather evidence and document the results
- Evaluate and implement change
- Monitor and report back
What is the main criticism of TQM?
Can be bureaucratic and costly
What is Kaizen?
Continuous improvement through small incremental steps - a long term approach to quality improvement
What is six sigma?
A statistical approach to quality management that aims to reduce defective output to near perfect
What is lean thinking?
Aiming to systematically eliminate waste in all areas of the organisation (product defects, overproduction of goods, unnecessary movement and idle time)
What is lean synchronisation?
The application of lean techniques wit a customer focus, aiming to meet customer needs and wants at the right time, in the right location, at the right price
What are reverse logistics?
The flow of surplus or unwanted materials back to the organisation for reuse, recycling or disposal - mainly returned purchases or items for recycling
What is benchmarking?
The comparison of a company’s service, practise or process with another party
What are the 3 types of benchmarking?
- Internal
- Competitive
- Best practise
What are 4 key operational KPIs?
- Inventory turnover
- Wastage
- Returned items
- Supplier payment days