The Impact of Costs and Finance on Supply Chains Flashcards
What happens when wastes are removed from your organisation but still exist within the supply chain?
Costs are passed on to the purchasing organisation
What are Porter’s generic strategies?
Cost leadership, cost focus, differentiation, differentiation focus
What affects an organisations approach to cost management?
Financial objectives:
Tactical, medium term, strategic (long term) – focus on:
Cost management, revenue generation, profitability, shareholder value
What type of funding is used to meet the day-to-day operating costs?
Working capital – finance generated directly by orgs operations
Long term requirement are funded from specific sources
Name 4 key financial decisions
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
What makes up suppliers costs?
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
How are organisations expenditures broken down?
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)
How do you work out an organisations working capital position?
Balance sheet
Comparing current assets (cash, inventory, receivables) and current liabilities (due in the next 12 months – borrowing, payables, tax)
What is meant by working capital gap?
Occurs what payment terms with client are longer than the credit it take from suppliers
Gap must be filled by external finance
How do you improve an organisations working capital position?
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
How do you generate finance from receivables?
Invoice discounting – borrow against invoices issued, % of value
Factoring – provider also manages invoicing process
What are the financing options for longer term projects?
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
What are the main issues that need to be taken into consideration when understanding if debt finance is appropriate?
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
What is the main method for financing medium and long term requirements?
Bank loans – secured against the asset being acquired, contribution required from borrower
what is the meaning of direct and indirect costs?
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
name 5 forms of finance
sale of assets bank overdraft line of credit sale and leaseback factoring and invoice discounting
what are the pros and cons of generating finance from sales of assets?
pro - asset no longer needed
cons - reduces overall value of org, lengthy and complex
what are the pros and cons of generating finance from bank overdrafts?
pro - quick and easy, cheaper than a loan
con - interest rates can be high, may be withdrawn
what are the pros and cons of generating finance from factoring and invoice discounting?
receiving a % of invoices
pro - makes cash available to expand business
con - can be a costly approach, can damage relationship with supplier
what is a cost centre?
a cost centre can be a location, function, process or any other identifiable centre -
each centre would have an owner
what is the role played by the banking sector in international trade?
banks facilitate international trade, provide liquidity guarantee payment, lend money through various types, enable payments,
name 3 services provided by the banking sector to facilitate international trade
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
