Chapter 9: The finance function & Operations

• Operations function


  One of the core functions of an organisation, even if it isn't called that
• Core functions

  • Operations
  • Sales and marketing
  • Product and service development
• Support functions

  • Finance
  • HR
  • IT
• Depending on the company, the support function could also be a core function
• Operations management

  The transformation of inputs into outputs that meet the needs of a customer, with the aim of being as efficient as possible
• Transformation process model

  Inputs are transformed in the Transformation Process, and then becomes an output
• Transformation process

  • Physical transformation
  • Change in nature
  • Change in ownership
  • Psychological change
• Transforming resources


  • Labour
  • Facilities
• Transformed resources


  • Material
  • Information
  • Customers
• The four V's of operations

  • Volume
  • Variety
  • Variation in demand
  • Visibility
• Volume


  The volume of units produced. High volume / Capital intensive. Low volume / labour intensive
• Variety


  Whether the operation handles multiple inputs OR outputs
• Variation in demand


  Demand for products depends on the season (Christmas)
• Visibility


  How much business operations are visible to customers
• Benefits of efficient operational processes

  • More products and services can be produced from any given level of input, this increases profitability
  • Reduced wastage will improve profitability and is seen as favourable from CSR point of view
• Value chain


  A sequence of business activities that adds value onto the final product or service. Value is created by performing transforming activities. The ultimate value an organisation creates is measured by the amount customers would be willing to pay. Business is profitable if the realised value to customers > collective cost of performing the activities.
• Porter's value chain


  A model of activities that shows how to add value across each step
• Primary activities of Porter's value chain

  • Inbound logistics
  • Operations
  • Outbound logistics
  • Marketing and sales
  • After sales services
• Inbound logistics


  Receiving, handling and storing inputs
• Operations


  Converting inputs into outputs
• Outbound logistics


  Distributing to customers
• Marketing and sales


  Promoting and selling to customers
• After-sale services


  Customer service for customers after purchase
• Support activities of Porter's value chain

  • Procurement
  • Tech development
  • HR management
  • Firm infrastructure
• Procurement


  Sourcing the resources needed
• Tech development


  R&D to improve the development of products and processes
• HR Management


  Hiring, training, developing and rewarding people
• Firm infrastructure


  The company's planning, finance, quality control and management tasks
• Value chain


  Ensuring that your suppliers have a strong value chain
• Process


  A bounded set of activities that are undertaken, in response to some event, in order to generate an output
• Process design


  Concerned with understanding the activities that are undertaken in a business process with the aim of enhancing its efficiency and effectiveness
• Reasons businesses seek to improve their processes

  • It reduces costs
  • Offer better products or services
  • Exploit opportunities provided by technology
  • Execute a new strategic decision
• Process map steps


  1. Get approval from board

  2. Notify and invite potential interested suppliers

  3. Review Suppliers who submitted

  4. Invited selected suppliers

  5. Select the best supplier offerings
• Stages of product and service development

  • Consider customer needs
  • Concept screening
  • Design process
  • Time-To-Market
  • Product testing
• Consider customer needs


  Ensure that the product meets the needs of the customer
• Concept screening


  Compare the product against criteria's before it reaches the design and development stage
• Design processing


  Processed and designed
• Time-to-Market


  Marketing it
• Product testing


  Testing the product before release to ensure up to standards for customers
• How the finance team can support the Procurement team

  • Credit terms
  • Price
  • Payment
  • Data capture
  • Inventory
  • Budgets