How the finance function interacts with
operations
Lesson 2: Finance interactions with operations and Supply Chain
Management
Learning outcomes
1. Describing how the finance function interacts with operations which includes:
The main role of operations
Areas of interface with finance
Key performance indicators
What are we discussing
How the finance
Main role of Key performance
function interacts
operations indicators
with operations
Areas of interface
between operations How finance
and finance Supply chain manages
management operations KPI
Intro & strategies
Material
Areas of
requirements
Operational interface
planning
improvements between SCM
Quality
and finance
management
Basic finance activities
Source: The changing role and mandate of finance (CGMA Whitepaper)
Finance interaction
with operations
Finance interaction with operations
Purchasing / Procurement
Establishing credit terms
Establishing and negotiating terms of credit
Prices
Maximum prices to maintain margins
Payments
Made by finance
Record keeping
Details of purchases sent to finance
Purchasing / Procurement
Inventory
Determining stock levels & quantity required
Budgeting
Finance will consult procurement when preparing budgets
Production
Allocation costs
Finance determines costs of production
Budgeting
Cost and quantity of items produced determined and included in budget
Maximise quality and profit
Decide together quality of products versus cost of products
Inventory
Sufficient levels of raw materials for production
Service provision
Characteristics of service provision
Intangibility
Inseparability
Perishability
Variability
Service provision
Finance can assist in:
Determining charge-out rates
Estimating costs
Measuring benefits
Supply Chain
Management
Supply chain
A supply chain 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 sale to the
end customer.
Usually complex with numerous suppliers and customers
Supply chain management
The co-ordination of activities from the supplier(s) of raw materials at
one end of the supply chain to the customer at the other end.
The objective of SCM is to achieve synergies that benefit every player
along the chain.
Supply is a strategic issue
Tool - The strategic supply wheel - Cousins
The strategic supply wheel - Cousins
Cousins’ thinking is based on the notion that an organisation’s supply
strategy should involve several key areas described as ‘spokes’ in the
wheel.
Underlines need for integrated approach
Supplier
relationships
Supplier relationships
Competitive (contractual)
Hence, no single supplier ever knew enough about the ultimate
customer to suggest ways of improving the cost-effectiveness and
quality of the trading relationship.
Collaborative (relational)
Partnerships with key customers and suppliers so as to better
understand how to provide value and customer service
Material
requirement
planning
Material requirement planning
One important aspect of supply chain management is to ensure that
materials are ready when they are needed.
Helps answer the question:
What is needed?
How much is needed?
When is it needed?
Material requirement planning benefits
Reduced stock holding (reduces costs)
Close supplier relationships
Improved forecasting (adequate planning)
Improved ability to meet orders leading to increased customer
satisfaction.
The MRP schedule can be amended quickly if demand estimates
change since the system is computerised.
Bottlenecks or delays warnings (pick up problem areas)
