The Impact of Costs and Finance on Supply Chains

Question 1

What happens when wastes are removed from your organisation but still exist within the supply chain?

Answer 1

Costs are passed on to the purchasing organisation

Question 2

What are Porter’s generic strategies?

Answer 2

Cost leadership, cost focus, differentiation, differentiation focus

Question 3

What affects an organisations approach to cost management?

Answer 3

Financial objectives:
Tactical, medium term, strategic (long term) – focus on:
Cost management, revenue generation, profitability, shareholder value

Question 4

What type of funding is used to meet the day-to-day operating costs?

Answer 4

Working capital – finance generated directly by orgs operations
Long term requirement are funded from specific sources

Question 5

Name 4 key financial decisions

Answer 5

Liquidity – finances easily transferred into cash early, org meet financial obligations,
Investments – long term financial decisions (what assets to buy)
Finance – choice of finance options (loans, share issue)
Reward – what to reward people & orgs who have invested, reasonable

Question 6

What makes up suppliers costs?

Answer 6

Direct costs – directly link to production or delivery of service
Indirect costs – cost that cannot be attributed to a specific product or service delivery (overheads)
Fixed costs – unaffected by changes in activity levels
Variable costs – vary in line with changes in activity
Semi-variable – fixed and variable elements

Question 7

How are organisations expenditures broken down?

Answer 7

Capital Expenditure – spend either on fixed assets or to add value to a fixed asset
Operating Expenditure – spend which is incurred in the routine running of the organisation – Working capital (day-to-day running of org)

Question 8

How do you work out an organisations working capital position?

Answer 8

Balance sheet
Comparing current assets (cash, inventory, receivables) and current liabilities (due in the next 12 months – borrowing, payables, tax)

Question 9

What is meant by working capital gap?

Answer 9

Occurs what payment terms with client are longer than the credit it take from suppliers
Gap must be filled by external finance

Question 10

How do you improve an organisations working capital position?

Answer 10

Inventory – reduce stock holding, turnover stock quicker
Payables – negotiate longer payment terms, take full credit term
Receivables – tighten management of invoices, offer prompt payment discounts, offer shorter payment terms to new clients

Question 11

How do you generate finance from receivables?

Answer 11

Invoice discounting – borrow against invoices issued, % of value
Factoring – provider also manages invoicing process

Question 12

What are the financing options for longer term projects?

Answer 12

Debt – aka borrowing, make regular repayments to lender & cover interest, medium term needs met by using debt finance (Loans, finance leases,hire purchase)
Equity – capital, generally regarded as permanent, not entitled to reg repayment, may receive dividends

Question 13

What are the main issues that need to be taken into consideration when understanding if debt finance is appropriate?

Answer 13

Availability – not all types are available
Term – how long is the finance required
Purpose – why borrowing
Affordability – make repayments
Interest – fixed or variable
Security – meeting requirements

Question 14

What is the main method for financing medium and long term requirements?

Answer 14

Bank loans – secured against the asset being acquired, contribution required from borrower

Question 15

what is the meaning of direct and indirect costs?

Answer 15

attributing costs to specific products or services
direct - costs accurately and specifically traced to a product or service
Indirect - cannot a easily attributed to a product or service

Question 16

name 5 forms of finance

Answer 16

sale of assets
bank overdraft
line of credit
sale and leaseback
factoring and invoice discounting

Question 17

what are the pros and cons of generating finance from sales of assets?

Answer 17

pro - asset no longer needed

cons - reduces overall value of org, lengthy and complex

Question 18

what are the pros and cons of generating finance from bank overdrafts?

Answer 18

pro - quick and easy, cheaper than a loan

con - interest rates can be high, may be withdrawn

Question 19

what are the pros and cons of generating finance from factoring and invoice discounting?

Answer 19

receiving a % of invoices
pro - makes cash available to expand business
con - can be a costly approach, can damage relationship with supplier

Question 20

what is a cost centre?

Answer 20

a cost centre can be a location, function, process or any other identifiable centre -
each centre would have an owner

Question 21

what is the role played by the banking sector in international trade?

Answer 21

banks facilitate international trade, provide liquidity guarantee payment, lend money through various types, enable payments,

Question 22

name 3 services provided by the banking sector to facilitate international trade

Answer 22

Documentary letters of credit - help ensure the creditworthiness and payment of the overseas parties
Bills of exchange or documentary collections - help in retaining control of goods and timing of payment
Guarantees - comfort that the bank will pay
Trade Finance - help finance growth when trading internationally