Chapter 9 - How finance function interacts with operations Flashcards
What does the finance function do?
- Assemble and extract data to provide info to other functions
- Work with other functions and stakeholders to influence and shape how value is created and preserved
- CFO works with other heads of functions to have desired impact
What is operations management?
Activities involved in designing, producing and delivering products and services that satisfy customer’s requirements
How to operations processes differ from one another?
- Volume of inputs/outputs
- Variety of inputs/outputs
- Variation in demand
- Visibility to customers
What is porter’s value chain based on?
Activities that create value and drive costs
What are primary activities?
Directly concerned with creation/delivery of a product/service
What are the primary activities in Porter’s value chain?
- Inbound logistics
- Operations
- Outbound logistics
- Marketing and sales
- After sales service
Is marketing and sales included in operations management?
No
What are support activities?
Help improve the efficiency and effectiveness of primary activities
What are the support activities in Porter’s value chain?
- Infrastructure
- HR management
- Tech
- Procurement
What connects the interdependent elements of the value chain together?
Linkages
What is a process map?
Visual representation of the steps and decisions by which a product/ transaction is processed
What is process design?
Method where individual specialists seek to understand process to see if they’re as efficient and effective as possible
What are the advantages of process maps?
- Management understanding
- Role understanding
- Standardisation
- Highlights inefficiencies
- Supports corporate initiatives
what are the stages of product/service development?
- Consider customer needs
- Concept screening
- Design process
- Time to market
- Product testing
How does procurement co-ordinate with the finance function?
- Establishes credit terms
- Prices
- Payment
- Data capture
- Inventory
- Budgeting
How does production co-ordinate with the finance function?
- Cost measurement/allocation/absorption
- Budgeting
- Cost vs quality
- Inventory
What are the 4 main characteristics of services?
- Intangibility
- Inseparability
- Perishability
- Variability
How are services related to the finance function?
- Charge out rate
- Estimating costs
- Problems measuring benefits
What are the steps of the supply chain?
- Raw materials supplier
- Manufacturer
- Wholesaler and retailer
- Customer
Is supply viewed as an operational or strategic issue?
Strategic
What are the spokes of the Cousins’ strategic supply wheel?
- Organisation structure
- Supplier relationships
- Cost/benefit
- Competences
- Performance measures
What are the 2 broad approaches to supplier relationships mentioned by Cousins’?
- Competitive aka contractual
- Collaborative aka relational
Why was the supply chain typically defined by competitive relationships?
- Purchasing functions sought out cheapest suppliers
- Penalty clauses
- Info withheld to prevent supplier competitive advantage
Why is the supply chain moving more towards a collaborative approach?
- Partnerships with key customers/suppliers
- Discussions between customers/suppliers
- Suppliers rewarded with long term exclusive agreements
What is MRP?
Computerised system for planning the requirements for raw materials, WIP and finished items
What are the functions of MRP?
- Identifying firm orders and forecasting future orders
- Using orders to determine quantity of materials required
- Calc purchase orders based on stock levels
- Automatically placing POs
- Scheduling materials for future production
What are the benefits of MRP?
- Improved forecasting
- Improved ability to meet orders
- Reduced stock holding
- Close relationships with suppliers
What does MRPII include?
- Production planning
- Machine capacity scheduling
- Demand forecasting and analysis
- Quality tracking tools
- Employee attendance and productivity tracking
What is enterprise resource planning (ERP)?
Next evolution of an MRP system
What are the benefit of ERP?
- Identification and planning of resources fulfilled
- Free flow of info across all functions
- Aids management decision making
- Can be extended to include SCM and CRM
What are the 4 main types of quality related costs?
- Prevention
- Appraisal
- Internal failure
- External failure
What are the 2 costs of conformance?
- Prevention costs
- Appraisal costs
What are the 2 costs of non-conformance?
- External failure costs
- Internal failure costs
What are prevention costs?
Cost of implementing a quality improvement programme to prevent defects
e.g. training costs
What are appraisal costs?
Cost of quality inspection and testing
What are external failure costs?
Cost arising from a failure to meet quality standards AFTER g/s reaches customer
e.g. cost of recall
What are internal failure costs?
Cost arising from a failure to meet quality standards BEFORE g/s reaches customer
e.g. cost of scrapped material
What is statistical process control (SPC)?
Method for measuring and controlling quality during a process
How does SPC work?
- Data that falls within control limits indicates everything operated fine
- Data outside means variations should be investigated
What is total quality management (TQM)?
Continuous improvement in quality, productivity and effectiveness obtained by establishing management responsibility for processes and output
What are the fundamental features of TQM?
- Prevention of errors
- Continual improvement
- Real participation by all
- Commitment of senior management
What are the steps of TQM?
- Senior management consultancy
- Establish a quality steering
- Presentations and training
- Establish quality circles
- Documentation
- Monitor progress
What does kaizen mean?
Japanese term for philosophy of continuous improvement in performance via small incremental steps
What are the characteristics of kaizen?
- Involves setting and continuously improved on standards
- Focus on eliminating waste
- Involves all areas of the business
- Employees work in teams
- Respond quickly to changes
What is six sigma?
Quality management programme pioneered by Motorola in 1980’s
What is the aim of the six sigma approach?
Achieve reduction in number of faults that go beyond an accepted tolerance limit through stats
How does the six sigma work?
If error rate lies beyond sixth sigma of probability, fewer than 3.4 defects in every 1 million
What are the key requirements for successful six sigma implementation?
- Focused on customer
- Based on level of performance acceptable to customer
- Targets should be related to main performance drivers
- To max savings, six sigma part of a wider performance management programme
- Senior management key role
- Tight target set
- Training and education
What are some criticisms of six sigma?
- Focus on current processes
- Time consuming
- Expensive
- Heavily data driven
What does lean thinking aim to do?
Systematically eliminate waste through identification and elimination of all non-value adding activities
What wastes need to be eliminated?
- Inventory
- Waiting
- Defective units
- Effort/motion
- Transformation
- Over-processing
- Over-production
What are the characteristics of lean thinking?
- Improved production scheduling
- Small/continuous batch production
- Economies of scope
- Continuous improvement
- 0 inventory
- 0 waiting time
What is the main objective of the lean supply chain?
Completely remove waste in order to achieve competitive advantage through lower costs
What are the limitations of lean manufacturing?
- High initial outlay
- Requires culture change
- Part adoption
- Cost may exceed benefit
What are the requirements for successful JIT?
- High quality and reliability
- Elimination of non-value added activities
- Speed of throughput
- Flexibility
- Lower costs
What is reverse logistics?
Return of unwanted/surplus goods/materials/equipment to be reused
What are the main reasons for returns?
- Unsatisfied customer
- Installation/usage issues
- Warranty claims
- Recall
What can be done to attack returns issue?
- Minimise returns
- Ensure returns can be reused
What techniques can be used to attack returns issue?
- Root cause analysis
- Outsourcing returns process
Why is a collaborative relationship between CFO and leader of supply chain beneficial?
Work together to understand, analyse and address supply chain issues
What are the characteristics of good KPI’s?
- Cascade from strategy to tactics and to operational level
- Should cover all aspects of supply chain management
- Challenging but achievable
- SMART
- Extended to include supply chain partners
