Page 269 - DCAP601_SIMULATION_AND_MODELING

Unit 13: Simulation Languages (I)

Looking back, what tools or information due you think would have helped the CFOs Notes
make a better and more flexible investment decision?
Every rupee investment either as capital expenditure or as working capital in today's
world can be made with a decision taken in an informed environment. With the availability
of tools and commonsensical and logical adaptation of the same - especially hybrid mix-
and-match of different functional information - this can be done.
While businesses have traditionally looked at technology decisions by the CTO and CIO,
the usage of applications has also been standalone. But just like how a senior management
constituting of CEO, CIO, CTO, COO, and CFO have strategy discussions and align thoughts
for business, it is also necessary to provide an information framework that allows all the
key executives to delve into operational data in real time to take informed decisions in
their functions.

Let's look at current assets. Availability of all current assets in real time provides a CFO a
much more informed decision-making platform. While businesses are used to reconciling
physical cash in hand and in bank, and ensuring that they are synced in real time with the
IT records of cash component in current assets in the accounting systems, rarely do we see
that in other components such as work in progress, inventory and finished goods.
There are valid records in the ERP, based on transactions, but there are no real-time
records based on physical validations. The constant argument in case being the volume of
physical quantity is so much, and that it is not practical. But there are tools which can be
adapted akin to a bank statement or ATM records, to get records of physical transactions,
to track from the shop floor manufacturing line and independently record the levels of
inventory consumed, produced goods and asset usage in real time.

If the shop machine is intelligent to make the goods, with incremental intelligence and
investments, it can certainly be made to share that intelligence on throughput, consumption
availability to a real-time view of the finance team. Real-time finance dashboard with key
operational data on hourly, shift, daily, weekly, and for that matter any defined time line
resolution is feasible. The CFO should exercise the power to have it.
On the capital investments side, today in the discrete manufacturing sector, there are tools
with use of which companies can make informed decisions. With a virtual modelling and
discrete event simulation tool, you can build the entire facility, model the operations, and
take investment decisions.
For example, take the case of a storage facility of x sq.mt size with steel housing. What
optimum size that provides the right investment for the scale is an investment decision.
Floor space usage in factory, size of storage, mix ratio of mechanised fork lift vs manual
labourers are also investment decisions resulting from design stage decisions. Today
there are design tools that provide what-if investment analysis for each option or choice
made, and this can provide a CFO a clear insight into the impact of the choice of investment.

Going forward, are there IT tools which can help the CFO maintain a real-time dashboard
as help in knowing the changes happening in the cost structure and take appropriate
decisions before it is too late?

Typically most manufacturers have standard cost calculations based on base line cost of
individual components of products, average operating costs validated year on year and
then new product pricing is done based on product mix planned in the capacity for
production.
Contd...

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