Excel Models for Business Management
Mr Dashboard develops models for various aspects of business management. In order to illustrate how the activities of a typical manufacturing business are interrelated, a systems approach is now presented.
The systems approach provides an overall view of an organizational activities whereby a business is separated into identifiable subsystems / departments. All such departments are interdependent and perform specific tasks of work which contribute to the business goals.
The simplest model of a business system consists of three basic elements:
Output information is used as a control mechanism which is normally called a feedback loop so to correct deviations from planned business performance.
For example, the inputs consist of the raw materials that are used to make products. The actual process is the manufacturing in which the materials are converted into outputs – final products. The process is controlled by monitoring the output. A feedback loop thus ensures that the correct conditions are maintained at any time.
Finished goods and services
Outputs can be either finished goods or services. Manufacturing business produces a tangible output whereas service businesses are more customer focused.
Generally, service operations use more labor with less equipment than manufacturing businesses. Throughput is sometimes used to refer to items that are still in the process and have not yet been converted into finished goods.
Systems view of business performance
While all organisations do not have the same functions, one common approach to functional organisation is to have four main divisions, namely human resources, marketing, finance and production. Within each of these four divisions, there are further functional subsystems creating a hierarchical structure.
Business management is interpreted in the wider sense of covering all four divisional areas while operations management is concerned specifically with the activities of the production divisions.
The human resources division deals with the human aspects of an organisation such as labour relations, the work environment and in-house training.
Because personnel activities are people orientated, the human resources division use computers chiefly as information-retrieval systems, utilising records which are stored in a database. Mathematical applications relating to personnel actions are restricted here to staff planning models in marketing.
Market research is used to identify what consumers actually want, including their preferences and behaviour patterns. The product development department then translates these consumer preferences into specifications for modified products. At a later stage, the general specifications are refined into detailed product design by the production division.
Product development is an example of an interfacing activity requiring input from both marketing and production. Other marketing subsystems which contribute to sales are sales forecasting, advertising, salesforce allocation and scheduling, and pricing.
Budgeting is the practical outcome of a business planning and is used to ensure that expenditure does not exceed income, to ensure that the company makes a profit.
The main objective of the production division is to convert raw materials into finished goods. The first step in the manufacturing process is to decide what is to be made and when it is needed.
After customer requirements have been established, a product is then designed. This product may be a modification of an existing product or it may be completely new. The resources required to manufacture the product are specified and where appropriate the necessary amounts quantified. These resources include raw materials and spare parts, labour, and production facilities.
After the product design and manufacturing processes are determined, the product must be scheduled along with any other products made by the organisation. An effective production schedule is a vital element of production operations. It involves checking production capacity, is there sufficient labour and materials available, is machine capacity adequate to perform the job, etc.
Having established that there is adequate capacity, the next step is to order the necessary raw materials and parts. Machines and personnel are then scheduled to perform the necessary manufacturing steps.
During certain stages of production, the product is examined and compared to its design specifications for performance and quality, quality control is performed. If the finished product meets all the original design specifications, it is shipped directly to the customer or stored in the warehouse.