Financial Decision Making Week 6 Lecture Notes

Key Learnings

• Business Process: Ongoing collection of related activities creating value.
• Information Systems & Business Processes: Critical for process management.
• Business Process Improvement (BPI): Includes methodologies like Six Sigma.
• Supply Chain: Framework for managing materials, information, and services.
• Push vs Pull Model: Different production strategies depending on demand.

Business Processes

• Definition: A business process is defined as an ongoing collection of related activities that create a product or service of value.
  • Key Elements:
  • Inputs: Resources needed to start the process.
  • Resources: The components that facilitate the process (human, financial, informational).
  • Outputs: The final products or services resulting from the process.
  • Efficiency vs. Effectiveness:
  • Efficiency refers to the utilization of resources effectively without waste.
  • Effectiveness focuses on the extent to which the intended results are achieved.

Examples of Business Processes

• Accounting Processes:
  • Managing accounts payable, accounts receivable, bank reconciliations, and cash receipts.
• Finance Processes:
  • Managing collections, bank loans, forecasts, and customer credit approvals.
• Marketing Processes:
  • Customer follow-ups, sales tax collections, trademark applications, and satisfaction management.
• Production/Operations Management:
  • Processes include managing raw materials, inventory, and distribution.
• Human Resources:
  • Hiring, employee orientation, payroll management, and training.
• Management Information Systems (MIS):
  • Security management, data capturing, and policy applications.

Business Process Management (BPM)

• Phases in BPM:
  1. Identify processes for change.
  2. Analyze existing processes.
  3. Design new processes.
  4. Implement new processes.
  5. Continuous measurement of process effectiveness.
• As-Is vs. To-Be Process:
  • As-Is: Current state of processes.
  • To-Be: Desired future state after re-engineering.

Information Systems and Business Processes

• Roles of Information Systems:
  • Execute processes, capture/store data, and monitor performance.
  • Facilitate communication and coordination across functional areas.
• Data Types:
  • Captured data includes times, product numbers, employee actions, etc.
• Monitoring:
  • Evaluates process performance at both instance level and overall process level.

Business Process Improvement (BPI)

• Objective: Move towards process-centered operations.
• BPI focuses on reducing output variations by recognizing their root causes.
• Methodology: Six Sigma is a prevalent method for improving business processes.

The Six Sigma DMAIC Improvement Process

1. Define: Establish project goals and customer deliverables.
2. Measure: Assess current process performance.
3. Analyze: Identify root causes of defects.
4. Improve: Eliminate defects.
5. Control: Maintain performance improvements.

Supply Chains

• Definition: The flow of materials, information, money, and services across organizations.
• Components:
  1. Upstream: Procurement from suppliers.
  2. Internal: Manufacturing and assembly activities.
  3. Downstream: Distribution to final customers.
• Flows in Supply Chains:
  • Material Flows: Physical goods exchange.
  • Information Flows: Demand, orders, returns data.
  • Financial Flows: Payments, credit, and financial data exchanges.

Supply Chain Management (SCM)

• Functions:
  1. Plan: Strategic management of resources.
  2. Source: Supplier selection and procurement.
  3. Make: Production scheduling and processes.
  4. Deliver: Logistics and order fulfillment systems.
  5. Return: Management of returns and customer support.

Push vs Pull Model

• Push Model:
  • Production based on forecasts, aiming to stock products.
• Pull Model:
  • Production based on actual customer orders, aligned with mass customization strategies.