Page 268 - DCAP601_SIMULATION_AND_MODELING

Simulation and Modelling

Notes during the year. But what would be of specific interest this year is for organisations to
learn and understand the financial impact caused due to shortened time lines for business
decision-making, says Uma Balakrishnan, CEO, Axcend Automation & Software Solutions
Pvt Ltd, Bangalore ( www.axcend.com).
For example, let's look at typical business decision-making cycles in the discrete
manufacturing sector, she notes, in an email exchange with Business Line. "All major
decisions - be they in enhancing existing capacity or building forward or backward
integration business or entering complementary businesses - are made for the medium
and long term, while operational decisions are made during the year."
The uncertainty in the economy and the sudden shift in market dynamics would have
necessitated many interim course corrections in the business plan, with some assumptions
being no longer valid, reasons Uma. "So, there is one aspect of shortened decision cycle
triggered through this. The other is that all operating base lines on cost of raw material,
operating cost, supplier business healthiness and availability internally, and demand
forecast baseline from external world, also had huge swings…"
With the standard historical data based costing losing its relevance temporarily, what was
needed was on-the-feet thinking from all facets of business and taking immediate actions,
she explains.
Excerpts from the interview:
What are the lessons learnt?
The year closure provides a good trend of the past few quarters' financials and the same
when mapped with time-based event mapping of key decisions taken would provide
some insights, especially on business execution in turbulent times and its impact.
To cite an example, on the decision of using available credit lines in working capital in a
particular week towards paying a local supplier who was critical to ensure completion of
key customer delivery (as stated and highlighted by production then!) vis-à-vis having to
import a long-lead item, which is still not in the radar as emergency, the finance department
has to make a choice.

Given that there is a constraint on quantum of working capital availability, further a
business strain with delayed collections cycles, the finance would take a decision based on
business impact, rather than extinguishing escalations as they come from shop-floor.

The consequence of deferring local supplier payment might have impacted the revenue
for the month, increased WIP to a defined extent, but based on the collection cycle expected
for that customer shipment the cash flow could have some impact.
In the case of the imported supplier payment, there might be a firm defined collection
with LC, export customer insisting on penalty for delayed delivery and WIP or raw-
material holding.
This is like a T20 match scenario for finance, except that you don't have a dynamic scorecard
as in the match with other team's net run rate inside that group - how you bat, who to bowl
to win and what speed is relative to the real-time context of the situation with long-term
impact of being in the game. The 5-day cricket strategy does not need ball-to-ball
information, but innings to innings.
Today's business in a turbulent environment is akin to playing 5-day match, as a sum of
many 20-20 sessions by the same team. So, the year-end finance figures are scorecards of
the complete match, while breaking into events and analysing the same is like taking 20-
20 snapshots. It helps to learn lessons and understand how to bat the next innings, that is,
the next year, better.
Contd...

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