9. Finance function and operations Flashcards
What are the core business funcitons
Operations: fulfilling customer orders through production of goods, devliery to customer
Marketing and sales: identify customer needs and commmunicate products
Product and service development: design new products to meet customer needs
other functions: Finance, IT
Define Operations management
Transformation of inputs into outputs that meet needs of customer
- ensure organisation is run efficiently, effectively and cusotmer centric
What is the transformation process model
- Input resources transformed through processes into an output which meets customer needs
- Transforming inputs: Labour, Facilities
- Transformed Inputs: Materials, information, customers
- Transformation processes
- Outputs: products + services
What method is used to analyse differences between transformational processes
Using Four Vs
What is meant by the Four Vs of operation
Volume: high volume= capital intensive, low volume= labour intensive
Variety: ranges of inputs or outputs or whether it’s uniform
Variation in demand: demand might be seasonal, peaks and dips
Visibility: the degree to which operations are visible to the customer
What are the benefits of a efficient operational process
- More products and services, given level of input - increasing profit
- Reduced wastage which improves profitability and is favourable to corporate social responsibility
What is the prism of the value chain
Sequence of business activities by which value is added to the products produced by an entity
- from perspective of end user
- business is profitable if the realised value to customer is > cost of performing transforming activities
How is Porter’s value chain structured
- Primary Activities: inbound logistics, operations, outbound logistics, marketing & sales, services
- Support activities: Firm infrastructure, HR, Technology development, Procurement
Define the primary activiites in Porter’s value chain
Inbound logistics: activities involved with receiving, handling and storing inputs into a production system
Operations: convert resources into the final product
Output logistics: storing product and distribution
Marketing and sales: informing customers about product
After sales service: installing products, repairing and providing spare parts
Define the support activities in Porter’s value chain structure
Firm infrastructure: Systems of planning, finance quality control- responsible for strategic capability
HR: Recruiting, training, developing and rewarding staff
Tech Development: Activities related to product design and improving processes/ resource utilisation
Procurement: acquiring resource inputs for primary activities
What is a value system according to Porter
Value added beyond the organisation’s boundaries - which are connected to the value chain eg. supplier, distributor etc\
What are the two ways to create value in the value chain
High volume + low margins or
Low volume + high margins
What is meant by process and process design
Process: a bounded set of activities undertaken in response to an event to generate output
Process design: concerned with understanding activities that are undertaken in a business process to enhance efficiency and effectiveness
What is the purpose of process design
- Reduce cost
- Provide a scalable platform
- Offer better products to be competitive
- Exploit opportunities of better tech
- Execute new strategy
What are the steps in a simple process map
1: Approval from board
2. Notify and invite interested suppliers
3. Review tenders submitted
4. Invite selected suppliers
5. Select the best supplier offering
What are the advantages of process maps
- Better understanding of steps
- Role understanding and allocation of tasks
- Opportunities: highlight areas for improvement
- Support organisational schemes
What are the five stages of product and service development
- Consider Customer needs: quality, design, value
- Concept Screening: vetted against criteria
- Design process: prototypes, value engineering
- Time to market: final design, marketing
- Product testing
How does finance team support procurement
- Credit terms: negotiate favourable terms
- Price: identify maximum price
- Payment: processed by finance
- Data capture
- Inventory: monitor levels to order correct amount
- Budgets
How does the finance team support Production/Operations
- Cost measurement, Allocation and absorption: calculate the monetary value of the cost of labour and material
- Budgets: calculate the cost of the level of outputs
- Cost and quality: Decide whether the cost is justified by added quality
- Inventory: ensure sufficient levels of inventory for production
What are the characteristics of organisations that provide services instead of products
- Intangibility: no physical aspects
- Inseparability: of business or employee and service
- Perishability: service cannot be stored
- Variability: services are unique and hard to standardise
What things does finance team calculate to help service provision
- Charge out rates: hourly rate charged to clients for service to cover overheads and profits
- Cost estimates: Levels of overheads to include in service charge
- Measuring benefits: of continued service provision
Define supply chain management
Concerned with flow of goods nad services through supply chain - goal is to contribute to customer satisfaction
- Source of competitive advantage
- Supply chain should be responsive and reliable
How did traditional supply chains operate
Traditional supply chains: operate independently, independence was maintained through holding buffer stock and managing lead times
- no control over other channel members
- no wider perspective of the whole system
What is the aim of an integrated supply chain network
Co-ordination from raw material suppliers to end customers
- Network of vendors supporting network of customers
What are the implications of integrated supply chains
- Price and inventory coordination: to avoid bottlenecks caused by short-term surges in demand
- Linked computer systems: use of electronic data interchange allowing paperless communication
- Earlier supplier involvement in product development and design
- Logistics design
What is Cousin’s stratigic supply chain
Corporate and supply strategy is linked to
- Organisation structure (centralised or decentralised control)
-Portfolio of relationships ( adversarial or collaborative)
- Cost/benefit analysis ( intangible and tangible)
- Skills and competencies ( negotiation skills)
- Performance measures (cost per kg vs customer complaints)
What is meant by the portfolio of relationships or Partnership sourcing
Can be either Adversaraial or collaborative
Adversarial/Contractual: low level of cooperation, suppliers are selected on the basis of price and threat of buyer power
Collaborative/Relational: high level of cooperation, working together to meet market needs
What are other methods of efficient production and delivery of goods/services
- Demand Networks
- Supply portfolios
- Supply Strategies
- Benchmarking
What is meant by demand networks
-‘pulled system’ - Organisations in demand networks share information to collaborate on products to produce the correct amount of goods for operational efficiency
- By managing three factors of :
Alignment of shared incentives
Agility to respond to demand
Adaptability to adjust the structure of the supply chain to meet demand
What is meant by supply portfolio
Organisations use a number of suppliers for raw materials and there is a range of strategies to determine who to purchase from
- eg some might be better in quality whilst others in price and others in managing risk
- eg. some suppliers might be suited for large orders, some might have better expertise in specific things
What are the four Supply Strategies
- Single Supply strategy: buyer chooses one source of supply
- Multiple supply strategy: The buyer chooses several sources of supply
- Delegated supply strategy: A supplier is given responsibility for the delivery of sub-assembly rather than dealing with multiple suppliers for different parts
- Parallel supply strategy: combining other three approaches to maximise the benefits of each
What is meant by benchmarking analysis and what are the different types
- Comparing the efficiency of production and delivery to the analysis of performance with similar activity elsewhere
Type of benchmarking:
- Internal Benchmark: comparison against elsewhere in the organisation
- Competitive benchmarking: comparison against the best elsewhere in the industry
- Inter-industry benchmarking: comparison against the best functional area in any industry
What are the traditional and contemporary methods of supply chain relationship management
Traditional: Contractual approach
Contemporary: Relational approach
What is MRP I
Material requirements planning : a technique for deciding the volume and timing of materials in the manufacturing process
- Calculates quantity of materials required
- Determines when they will be required
- Only appropriate when sales can be forecasted
What is MRP II
Manufacturing resource planning: evolved from MRP I - planning and monitoring all the resources of a manufacturing company
- Of marketing, finance and engineering
- Computerised system with single database
What is OPT
Optimised production technology: computer-based method to schedule production focusing on capacity constraints or bottlenecks of the operation
- Identify bottlenecks
- Identify ways to overcome capacity constraints
What is ERP
Enterprise resource planning
- Developed from MRP II
- Wider basis on integrating and using databases from all parts of the organisation
Quality assurance
Ensuring defects are eliminated or minimised during the development of the production process
- Pre building - minimise waste and defects
Quality Control
Checking and reviewing work that has been done
- Post building or retrospective
What does Deming write on quality
- Managers should prompt continuous improvement
- Managers should seek feedback from workers
- Workers should be trained on what needs changin
What does Juran say about quality
- Pareto Principle: 85% of the quality issues are due to systems of weakness rather than workers
- Organisational focus should be on system improvement
- Customer should be focus of quality
What does Crosby write about quality
- Zero Defects concept
- Prevention is Key: cost of prevention is lower than cost to fix
- Workers should be involved in quality projects
What is meant by quality planning and management
Activities that ensure products are fit for purpose and meet specifications
What are aspects of quality planning
- Plan: standards of quality
- Devise: suitable instruments to monitor quality
- Compare: actual vs planned
- Control: take action when quality is below
- Review: the plan and standards for continuous improvement
What is quality circles
- Employees meet regularly to discuss quality issues to suggest improvements
What is statistical process control
Application of statistics to quality control
What is six sigma
A process designed to help organisations focus on developing and delivering perfect products and services to reduce the number of faults below the accepted tolerance limit
Who developed six sigma and what does it imply for quality
Motorola in 1980s
A score of 6 x Sigma in specification means 99.999% of items are within specification
- Identifies root causes of error
- Confirms critical root causes
-Implement corrective action
- Customer focused
What is TQM
Total quality management
- Continuous improvement of quality, productivity and effectiveness by establishing management responsibility for processes and outputs
What 7 principles are total quality management based on
- Prevention
- Right first time
- Eliminate waste
- Continuous improvement
- Everyone’s concern
- Participation
- Teamwork and empowerment
What practical aspects should be considered for Total quality management approach
- Service level agreements
- Quality culture
- Empowerment
- Quality costs
What are the four types of quality costs
conformance costs:
- Prevention costs: cost of designing in quality, training and equipment testing for quality standards
- Appraisal costs: inspecting finished goods or raw materials
Non conformance costs:
- Internal failure costs: cost of scrapping or re-working poor quality work or selling goods at lower price
- External failure costs: costs of recalling poor quality goods and losing customer goodwill
What is meant by Kaizan
Continuous improvement: the principle that quality management is not a one-off process but a continuous examination and improvement of processes
What are the principles of Kaizan
- People are organisation’s most important asset
- Progress isn’t radical but gradual
- Improvement is based on stats
- Resources incentives and rewards should be aligned
- customer needs should be taken into account
- Continous improvement allows new technology to be introduced
What are the 4 aspects of Kaizan process
- The five why process
- Fishbone diagrams
- Plan do check act (PDCA)
- Pareto analysis
What is the five why process
Identify root cause of the problem by asking why to generates symptom
What is meant by fishbone diagram
Cuase and efffect diagrams used to analyse all causes that result in a single output
What is PDCA
Plant do check act
- Plan the process
- Do: execute the process
-Check: check the outcome
-Act: feedback to improve process
What is Pareto analysis
80/20 RULE
- 80% of an outcome is dependent on 20% of the process
What is lean thinking
Minimise the amoutn of resources including time used in all activities by eliminating non value adding activities
What waste does lean thinking reduce
- Overproduction
- Waiting, time delays
- Transportation
- Unnecessary inventory
- Decrease in motions
- Over-processing
- Defective units
What are the two tenets of lean thinking
Continuous improvement and respect for people
What is meant by lean synchronisation
Application of many operational management techniques and ideas
- Delivering the right quantity of the right product at the right time in the right location for the right price
What are teh barriers of lean synchronisation
- Failure of organisaiton to eliminate waste
- Failure to involve relevant people in operation
- Failure to adopt principles of continuous improvement
What is JIT
Just in time: organisation produces goods as they are required
What are teh requirements for a successful JIT System
- Quality and reliability
- Focus on value-adding activities
- Speed
- Flexibility
- Focus on reducing cost
What are the 5 Ss
- Seiri or structure: segregate or discard introduce order where possible
- Selton or systemise: arrange and identify for ease of use and tasks systematically
- Seiso or sanitise: Clean daily, be tidy and avoid clutter
- Seiketsu or Standardise: Revisit each S frequently and consistency
- Shitsuke or self-disciple: sustain via motivation
What is reverse logistics and how do organisations handle this
Process of receiving products back from customer
- faulty or unwanted goods
- Enterprise resource planning systems can support plans to handle reverse logistics
What KPIs do finance functions use to support operations
- OPEX: operating expense ration
-Capacity utilisation rate - Process downtime level
- machine downtime level
- Order Fulfillment cycle time
- Inventory Shrinkage rate
- Rework level
What is OPEX KPI
Operating expense ratio
(Opex in period t/ sales revenue in period t) x 100
- ability to manage cost in relation to revenue
What is Capacity utlisation rate
(Actual capacity in period T/ Possible capacity in period T) x 100
- Actual capacity of operation function compared to full potential
What is the process downtime level
( Ta t /PPT) X100
TA t= actual productive time of a process in period t
PPT = planned productive time of the process in period t
- Measures the proportion of time the process was actually running compared to what was planned
What is machine downtime levels
(MTA t /MPPT) x 100
- MTAt= actual productive time of machine in period t
-MPPT= Planned productive time of machine availability in t
What is order fulfillment cycle time
Source cycle time + make cycle time + delivery cycle time
- measures total time taken from customer ordering to goods being delivered
What is inventory shrinkaage rate
(Recorded inventory level - Actual inventory level) / Recorded inventory level
- measures percent of inventory lost
What is the rework level
- Number or percentage of items that required reworking
