E. Finance Interacting With The Organisation Flashcards
The finance function relate to other functions?
provide information
Provide insight about value creation
Influence and shape how function preserves value
Achieve desired organisational impact
What is an operations function?
Activity is concerned with the acquisition of raw materials, the conversion into finished products and the supply of that finished product to the customer
“what the company does”
Explain the operations processes in four steps
- input resources
- transformation process
- output products and services
- customers
What is operations management?
Activities involved in designing, producing and delivering products and services that satisfy the customers requirements
Operations management and IKEA: explain how operations management improved IKEA’s business?
Self assembly innovators operations and reduce selling costs
Showing in warehouse concept allows customers to pick up furniture themselves
Operations managers are involved in numerous activities: process design, product design, job design, supply network design, supply chain management, capacity management, failure prevention, inventory management, quality monitoring, operations improvement
What are processes in operations?
A collection of processes that are building blocks of operations and connect with one another to form a network
The process of transferring the input resources into output products/services
Name the inputs, processes and outputs for the following operations:
Airline
Department store
Police
Frozen food manufacturer
See pg 213
What are the four Vs of operations processes?
Volume of inputs and outputs
Variety of inputs and outputs
Variation in demand
Visibility to customers
Describe how volume dimensions make a difference at McDonald’s?
Volume implications:
– repeatability of tasks
– systemisation of the work
As tasks are systemised and repeated it’s worthwhile developing specialise fries and others
This gives lower unit costs
What is Porters value chain model based around?
The value chain model is based around activities rather than traditional functional departments e.g. operations or finance
How are the activities on Porter’s value chain split?
Primary activities – customer can see value creation in these activities
Secondary activities – support primary activities by improving efficiency and effectiveness
How is the margin achieved in Porters value chain?
If the customer is willing to pay more for the product/service than the sum of all the costs of all the activities in the value chain
Draw Porters value chain
Primary activities across the bottom
Support activities dropping down from the top
Tip of Pentagon is margin
See page 215
What are the primary activities of Porters value chain?
Inbound logistics – receiving, storing and handling raw material inputs
Operations – transformation of raw materials into finished goods and services
Outbound logistics – storing, and distributing and delivering finished goods and services
Marketing and sales – mechanism by which the customer is made aware of the product or service
After sales service – all activities that occur after the point of sale, such as customer enquiries, returns and repairs
Which primary activities is operations management concerned with on the value chain?
Inbound logistics, operations, outbound logistics, and after sales service
i.e everything except marketing
What are the support activities of Porters value chain?
Infrastructure – how the firm is organised
Human resource management – how people contribute to competitive advantage e.g. recruitment, selection, training and development and reward policies
Technology – how the firm uses technology
Procurement – purchasing, but not just limited to materials e.g. a new building
Which support activities is operations management directly concerned with?
Procurement and some elements of infrastructure and technology development
What are the different approaches to value chain?
One manufacturer might add value and hopes that they can charge a premium
Another manufacturer might help to gain economies of scale thus selling at a cheaper price
What do you linkages in the value chain do?
They connect interdependent elements of the value chain e.g. better quality production could reduce the need for after sales service
What is process design?
The method by which individuals specialists seek to understand business processes and ensure that these processes are designed to be efficient and effective as possible
The design of these processes will go hand-in-hand with the design of new products and services
What is a process map?
It provides a visual representation of the steps and decisions by which a product/transaction was processed
Can assist in examination before process design
What are the advantages of process maps?
Management understanding – better understanding of the basic processes that are undertaken that’s providing management with the convenient overview demonstrating responsibilities and key stages
Role understanding – allows workers to understand what their job is and how it fits in the whole process. Can also help with role reallocation
Standardisation – highlights where opportunities exist to standardise processes
Highlights and efficiencies – visually highlights areas where inefficiencies are present through analysis of cues, value and location does pinpointing areas of waste. Provides an agenda to tackle duplication, requirement of a necessary paperwork, and misdirected queries that hold up production
Supports corporate initiatives – nothing can be used as a tool as part of a corporate initiatives such as customer satisfaction improvement programs
What is the first stage of product and service development?
Stage 1: consider customers needs
Product to satisfy the needs of the customer e.g. VFM, high quality, cutting edge design
What is the second stage of product and service development?
Stage 2: concept screening
The product/service concept should be vetted.
It will only pass through to the design and development process of mean certain criteria e.g. is it profitable?
What is the third stage of product and service development?
Stage 3: the design process
This may include procedures such as:
– building a physical prototype (using CAM)
– value engineering i.e. ensuring that all the components/features add value
What is the fourth stage of product and service development?
Stage 4: time – to – market
A short time to market is desirable sense:
– new product/service may be released ahead of competitors
– development costs may be lower
What is the fifth stage of product and service development?
Stage 5: product testing
The new product should be tested before it’s released market:
– does it work properly?
– do customers like it?
Name two ways that companies can understand customers needs better
– CRM: customer relationship management systems will allow this either directly or via surveys or more softly via prudent logging of Customer sentiment
– more radical solutions e.g. customer portal idea of crowdsourcing validation used at Lego
How does purchasing coordinate with the finance function?
Establishing credit terms– Liaise with suppliers to obtain credit card or negotiate credit terms
Prices– Advise purchasing on max price that should be paid to maintain margins
Payment– Payment to be approved by purchasing but made by finance
Data capture e.g. orders– All the details input by purchasing and passed on to finance
Inventory– Purchasing will consult with inventory section of finance to determine quantity in stock and therefore quantity required
Budgeting:The finance function will consult with purchasing and the likely costs in preparing budgets
How does production of the operations function coordinate with the finance function?
Cost measurement, allocation, absorption-Production Measures quantities of material and time used; management account and gives a monetary value to them. Cost of then allocated and absorbed to calculate production costs based on advice given about production
Budgeting – production or decide on quantities produced and finance will determine costs are incorporate it in the overall budget
Cost best quality– Functions will discuss the features that can be included and products and materials that should be used. They should agree with better quality materials and features justify the extra cost and how to Max quality and profit
Inventory – production will liaise with the inventory section of finance to ensure that there are sufficient materials for production that is planned
What are the four main characteristics of services?
Intangibility - physical aspects
Inseparability - Created same time they are consumed therefore inseparable from person/organisation providing service
Perishability– Services cannot be stored for later
Variability– Every services is unique and cannot be repeated in the same way making standardisation difficult
What are the issues where service departments may need input from the finance function?
Charge out rates: hourly rates which should be higher than salary as it should include a share of overhead e.g. training and any profit the company wishes to make. However the higher charge out rates may cause customers to go elsewhere
Estimating costs: problems may arise in determining amount of overhead included in charge out rate. Also services take longer than expected the company may not be able to pass on extra cost
Problems Measuring benefits: market conditions may mean charge out rate contains a low profit element and may lead the company to question whether it’s worth carrying out the services. Due to intangibility they’re not easy to measure
What is the supply chain?
It consists of a network of organisations.
Together they provide and process the necessary raw materials firstly into work in progress and then into finished goods for distribution and sealed to the end customer
What are the four stakeholder stages of supply chain?
Raw material supplier
Manufacturer
Wholesaler and retailer
Customer
What activities does the transformation of the product along the supply chain include?
Product planning Purchasing Materials management Distribution Customer service Forecasting
What is supply chain management (SCM)?
It involves the coordination of activities from the suppliers of all materials at one end of the supply chain to customers at the other end
It seeks to save costs while adding value
Explain how Provenance uses block chain to increase supply chain transparency?
Provenance
– start-up tech firm tracking journey of organic food
-Hopes to give users the products complete supply chain journey
-pilot uses blockchain tech
-leaves out app as info of products journey is instantaneously
available
– The tech will be available both on product packaging and on the shop shelf
What does cousins model emphasise the importance of?
Doing supply as central to the organisation and its effectiveness
Additionally supply was viewed as an operational issue i.e. purchasing was seen as an administrative task
In today’s competitive environment it is seen as a strategic issue
What notion is Cousins thinking based on?
The notion that an organisation supply strategy should involve a number of key areas i.e. spokes in the wheel
As such the model can help an organisation concentrate on key areas for attention and action
Model-strategic supply wheel
Key areas-spokes
Corporate supply strategy-hub of wheel I.e balances spokes
What are the five spokes of cousins strategic supply wheel?
Organisation structure: choice of structure impacts control and interaction, should enhance rather than hinder supply strategy
Relationships with suppliers: should be competitive (contractual) or collaborative (relational)
Cost/benefit: decision should be based on benefits as well as costs
Competencies: necessary skills?
Performance measures: necessary for monitoring and controlling start strategy chosen and measures should extend beyond price and be aligned with strategy
What are Cousins two broad approaches to supply relationships?
Competitive: contractual
Collaborative: relational
What defines competitive relationships with suppliers?
This was the typical nature of relationships in the past
– lowest price applies through tendering use of power or switching
– heavy penalty clause if there was mistrust with supply contracts
– knowledge and skills of supply could not be exploited
Therefore no single supplier knew enough about the ultimate customer to suggest ways of improving cost effectiveness or quality of relationship
Describe the collaborative supplier relationship of cousins wheel?
Change in the past couple of decades from competitive to collaborative relationship to improve job satisfaction and increase market share
– enter partnerships with key customers and suppliers to provide better understanding of services
– product design process includes discussions with customer and supplier
– enHance the nature of collaboration and reward suppliers with long-term sole sourcing agreements
– nature of collaboration needs to shift to reflect Constant change
What recent changes in the UK are impacting on supply chain collaboration?
– A volatile political and economic climate
– increased urbanisation in the UK
– a dramatic change in consumer behaviour i.e. preference for convenience and online shopping
– a growth in automation
– shift towards digitisation
What is material requirements planning?
MRP is a computerised system for planning the requirements for all materials, work in progress and finished items
What three questions is MRP designed to answer?
What is needed?
How much is needed?
When is it needed?
What are the functions of MRP?
– Identifying firm orders and forecasting future orders
– using orders to determine quantities of materials required
– determining the timing of the material requirements
– automatically placing purchase orders
– scheduling materials for future production
What are the benefits of MRP?
Improved forecasting
Improved ability to meet orders leading to increase customer satisfaction
Reduced stockholding
Schedule can be amended quickly if demand estimates change since the system is computerised
System can warn of purchasing or production problems due to bottleneck or delays in the supply chain
Close relationship tends to be built with suppliers i.e. consistent with just-in-time
When is MRP not suitable?
If it is not possible to predict sales in advance
Name two technologies that have been developed from MRP
Manufacturing resource planning (MRPII)
Enterprise resource planning (ERP)
What is MRPII?
Goes several steps beyond MRP - manufacturing resource planning
Includes: – production planning – machine to scheduling – demand forecasting and analysis – quality tracking tools – employee attendance – productivity tracking
What is ERP?
Technology that is the next evolution of an MRP system
Integrate information from many aspects of operations and supports functions into one single system
What are the benefits of ERP?
- identification and planning of the use of resources across org to provide better service
- free flow of information across all functions and improved communication between depts
- aids mgmt decision making due to decision to support features
- can be extended to incorporate SCM and CRM softwares this helping manage org connections
How do you define quality?
– Is the product free from errors and does it adhere to design specification? (industrial context)
-Is a product/service fit for use?
– Does the product/service meet the customers needs?
How do Japanese companies define quality?
How does Juran?
How does Ken Holmes?
Jap definition:‘Degree of conformance to standard’ was too narrow so use new definition of ‘user satisfaction’
Juran: ‘Fitness for use’
Holm: ‘The totality of features and characteristics of a product or service which bears on its ability to meet stated or implied needs’
What is Pret A Manger is focus on quality
The secret is to continuously focus on quality in every aspect of the operations practice
– avoid chemicals and preservatives
– fresh food
– reject centralise sandwich factory i.e each store has its own kitchen
– build great teams through rewards and career opps
-use customer feedback in weekly meetings and daily briefs
Who can we attribute the growth of global companies resulting in dramatic improvement of quality to?
Japanese manufacturing companies
Who are the three key writers on quality?
W.Edwards Deming
Joseph M. Duran
Philip P. Crosby
What main contribution to quality did Deming have in terms of beliefs and what was he credited with the creation of?
Believed:
– managers should continuously improve systems in which people work
– managers should work with employees to gain their feedback
-workers should be trained in quality to identify what needs changing and how
Credited with creation of TQM in Japan and developed 14 points for quality improvement
What principle did Juran draw on and what was his argument about quality focus?
– Pareto principle: stated that 85% of quality problems are due to the systems employees work within rather than the employees
– Therefore, need to develop key projects for dealing with quality problems rather than concentrating on employee motivation
– quality should focus on the role of the customer i.e. anyone affected by the product
What concept of Crosby introduce? What did he think was the key quality and what did he argue for?
– Introduce the concept of “zero defects “
– believe that prevention is key and importance of quality is measured by the cost of not having quality
– argued for worker participation and need to motivate individuals to do something about quality
What are the four main types of quality related costs that the organisation needs to identify?
Costs of conformance:
– prevention costs
– appraisal of costs
Cost of nonconformance:
– internal failure costs
– external failure costs
Businesses should monitor the costs and set targets for each of them
What is the prevention cost?
The cost of implementing a quality improvement program to prevent defects before they occur
Should lead to continuous improvement
Examples:
– cost of designing products and services with built in quality
–Cost of training employees and the best way to do the job
– cost of equipment testing to ensure it conforms to quality standards required
What are appraisal costs?
The cost of quality inspection and testing
Example: inspection and testing of purchase material or service
What are internal failure costs?
Costs arising from the failure to make quality standards BEFORE the good reaches the customer
Examples:
– cost of scrapped metal due to poor quality
– cost of reworking
– reinspection costs
– lower selling prices for low quality products
What are external failure costs?
Costs arising from the failure to make quality standards AFTER the good reaches the customer
Example:
-Cost of recording and correcting products
– cost of lost goodwill
What are seven quality focus techniques used for operational improvement?
Statistical process control TQM Kaizan Six Sigma Lean thinking Just-in-time Reverse logistics
What is SPC in manufacturing?
A method for measuring and controlling quality during a process
Real-time data is plotted on a graph with predetermined targets and control limits
Any variation within the control limits is due to natural variation and is expected
Data outside of the control limit should be investigated and corrective action taken before defect occurs
How is SPC used for Mars bars?
Used as a large number of items are produced
– target weight for Mars bar : 51g
– control limits above or below : 1g
–investigate any outside limit: above 52 or below 50
X axis: bars sampled
Y axis: weight
What is TQM and when did it originate?
Total quality management is a CONTINUOUS IMPROVEMENT in quality, productivity and effectiveness obtained by establishing management responsibility for processes as well as outputs. In this, every process has an identified process or not every person and entity operates within the process and contributes to his improvement
Philosophy of quality management that originated in 1950s Japan
What are the four fundamental features of TQM
Prevention of errors before they occur: get things right first time, increase in prevention costs but decreasing in internal and external costs
Continual improvement: not a one off process, continuous examination improvement
Real participation by all: the “total” TQM means that everyone in the value chain is involved in the process including employees, suppliers and customers
Commitment of senior management: management must be fully committed and encourage everyone else to become quality conscious
Who is involved in TQM value chain process improvement and how?
Employee – seek out, identify and correct quality problems. Teamwork is vital and they should be empowered to decide how best to do the work and be responsible for achieving targets
Suppliers – quality and reliability of suppliers will play a vital role
Customers – goal is to identify and meet the needs of customers
How was Corning Inc a TQM success and how was British telecom a TQM failure?
Corning Inc
– world leader in specialty glass and ceramics due to TQM
– 1983:1 .6 billion investment in TQM including intensive training and decade of applying TQM
– all employees bought into quality concept
– impact of techniques lead to profits soaring
BT
– launched total quality program in late 1980s
– got bogged down in quality processes and You’re a Chrissy
– failed to focus on customers and dismantled TQM program
– great cost to company as they failed to make a full recovery
What are the six steps to implementing TQM?
1.thesenior management consultancy
– managers must be committed and should undergo quality training
2.establish quality steering committee
– committee will guide the company through the process of implementation
3.presentations and training
– the steering committee should communicate the benefits to employees to gain buying
4.establish quality circles
– this will involve employees in the process of quality improvement
5.documentation
– The actions carried out should be clearly documented
6.monitor progress
– actual results to be monitored against the standard set
What is the Kaizan philosophy?
Japanese term for the philosophy of continuous improvement in performance by a small, incremental steps
What are the characteristics of a Kaizen philosophy?
– setting standards and then continually improving the standard to achieve long-term sustainable improvements
– focuses on eliminating waste, improving processes and systems and improving productivity
-employees often work in teams in our empowered to make changes. Employees are a source of ideas so a change in culture is required to encourage them to suggest
– Allow the organisation to respond quickly to changes in the competitive environment
How have Japanese companies introduced a Kaizan approach and what is its effect?
In company such as Toyota and Canon, 60 to 70 suggestions put employer written and shared annually
It’s not unusual for over 90% of the suggestions to be implemented
How was British cycling revolutionised through small, incremental improvements?
- Sir David Brailsford became performance director
- believed huge cumulative gains could be achieved by making 1% improvements in many areas
- made marginal changes by looking for weaknesses
Examples:
- paint paint floor white to spot impurities which stopped dust affecting aerodynamics
- made employees use antibacterial gel to reduce illness
- team bus redesigned to improve comfort and recuperation
Lead to multiple Olympic medals and Tour de France wins since 2012
How is continuous improvement different from business process re-engineering (BPR)?
BPR:Radical one-off changes
Concepts of continuous improvement:
– organisation should always seek perfection
– search for perfection ingrained into culture and mindset of employees
– individual improvements identified by workforce will be small rather than far reaching
What is the six Sigma approach? What is the aim?
Quality management program pioneered in the 1980s by Motorola
Aim is to achieve a reduction in the number of faults that go beyond and accepting tolerance limit through the use of statistical techniques
Sigma equals standard deviation: if the error rate lies beyond the sixth stigma of probability, there will be fewer than 3.4 defects in every 1 million
This is the tolerance level set and is almost perfection and Is close to perfection as customers will complain fewer than 4 times per million
How can the hospital use the six Sigma process to improve patient waiting times?
– Patients do not want to be called before the appointment time (lower limit = 0 minute wait)
– maximum length of time they are prepared to wait after appointment is 30 minutes (< 30 mins)
X axis length of weight after appointment
Y-axis is frequency
Bell curve with mean at peak
0 min wait
Key requirements for successful six Sigma implementation
– Focused on customer and based on the level of performance acceptable to Customer
– target for process should be related to the main drivers of performance
– to maximise savings, six Sigma needs to be part of a wider performance management strategy which is adding to the strategy of the organisation. Doing things better and different
– senior managers have a key role in driving process
– training and education about process is essential for success
– set a target target but except some Failure: target is 0 defects, 3.4 failure in a million expected
What are the criticisms/limitations of six sigma?
– Criticised for its focus on current processes and reliance on data
– based on use of models which are by their nature simplification the real life, judgement needs to be applied
– approach can be time-consuming and expensive
– culture of organisation must be supportive of the scientific process
– heavily data driven which could become overly bureaucratic
– important to ensure that this does not become jargon
-assumes current process can meet expectations not if it is right process
What is the lean thinking quality approach?
It is a philosophy that aims to systematically eliminate waste with identification and elimination of all non-value adding activities
How did lean production help Toyota?
60 years ago, Toyota was making uncompetitive cars in both cost and quality
To catch up with American competitors are developed lean production
This lead it to become in the biggest car manufacturer in the world
What wastes can be eliminated through lean thinking?
Inventory – holding or purchasing and necessary materials
Waiting – time delay/idle time when value is not added
Defective units – production of a part that is scrapped or requires re-work
Effort or motion – actions with people/equipment that do not add value
Transportation – delays in transportation on necessary handling due to poor planning or factory later
Overprocessing – unnecessary steps that do not add value
All the production – produce more than customers have ordered
Characteristics of lean production
Improve production scheduling: demand pull production, not supply push
Small batch production or continuous production: based on customer demand so highly flexible and responsive processes
Economies of scope: economical to produce more batches of a variety of products, contrast with traditional manufacturing economies of scale
Continuous improvement: reduce process times
Zero infantry: just-in-time production
Zero waiting time: reducing lead time
How did lean management improve the customer experience in the NHS?
Patient perspective: value defined solely from customer’s perspective, any thing That helps treat patient is value adding, anything else is a waste
Pull: to create value NHS aims to provide services in line with demand
Is the main objective of the lean supply chain?
What are the other benefits?
What are the disadvantages?
Main objective: to completely remove waste in order to achieve competitive advantage for a reduction in costs and improvement in quality
Benefits:
– reduced inventory thus increasing cash flow and profits
– shortly lead times thus faster deliveries
– few bottlenecks leading to profit improvement
– few quality problems
Disadvantages:
– potential for large, powerful customers to dominate supply chain
– over emphasis on cost reduction rather than quality improvement
What are the criticisms and limitations of lean manufacturing
High initial outlay: changing systems, old equipment, training employees
Requires a change in culture: philosophy/culture of working, need employee commitment
Part adoption: companies might select some parts and not others
Cost may exceed benefit: lower cost and shorter lead times might not materialise or might be smaller than expected
What is lean synchronisation?
Aims to meet demand instantaneously with perfect quality and no waste
Overlaps to a large degree with the concept of lean thinking (eliminating waste) and just in time (pull production)
What is the just-in-time system?
The system is objective it is to produce or procure products or components as they are required by the customer or for use, rather than for inventory
This means inventory levels of raw materials, work in progress and finished goods can be kept to a minimum
How does just-in-time apply to production within an organisation and purchasing from external suppliers?
JIT purchasing: Involves ordering materials only when customers place an order so good to go straight to production
JLT production: driven by demand for Finished product whereby each component is only produced when needed for the next stage
How does Toyota use just-in-time manufacturing?
Supply some parts daily
Notified electronically when assembly line is running out
400 trucks a day
Long-term relationship with suppliers and has a stake in most of them
Requirements for successful just-in-time system?
High quality and reliability Elimination of non-value-added activities Speed of throughput Flexibility Lower costs
What are the advantages of a just-in-time company developing better relations with the supplier?
No reject/returns
OnTime deliveries
Low infantry
Close proximity
What are reverse logistics?
The return of unwanted or surplus goods, materials or equipment back to the organisation for reviews, recycling or disposal
How has Internet selling lead to more organisations focusing on the reverse logistics capacity?
Product some shorter life cycles
Some Internet retailers estimate returns of 50%
