Day: April 25, 2024

Working capital is one of the most important aspects of a business. In recent years the world has witnessed surging growth in the development of large-scale and small-scale companies. These companies have faced numerous challenges in gathering formal credit for their working capital and tracking the cash flow. These factors have affected the growth of these companies.

Therefore, a company needs effective working capital management that optimise the cash flow and can enhance the operational work of the company. This management also allows a company to track its current liabilities and current assets so that its obligations can be reduced rapidly. 

A senior management course will assist the senior managers of your company to learn more about working capital management and its functions. This will educate the existing employees in the company and will reduce the cost of hiring new employees.

Let’s dive into this article to learn more about working capital management!

What Do You Understand by a Working Capital?

The amount of liquidity that is available for a company through which it performs its daily operational works is termed working capital. You can calculate the working capital of a company by performing a subtraction between its current assets and current liability. The current assets are the money that is available in the bank and can be converted into cash whenever the company requires it.

On the other hand, current liabilities mean the current loans that the company needs to repay to the lender. A company will have a positive working capital when there are more current assets than current liabilities. If the situation is quite the opposite then the working capital of the company turns out to be negative. 

If you wish to learn more about important management topics such as working capital management, a senior management certification can definitely help you.

Definition of Working Capital Management

All companies need to manage their short-term assets and current liabilities this procedure of managing a company’s capital is termed working capital management. This management supervises a company’s inventory, current cash, as well as loans. It helps a company to have a continuous cash flow without hindering its operational works.

Continuous cash flow is maintained by working capital management simply by maximizing efficient operations that eventually cut off expenses and short-term loans. Working capital management also allows a company to reduce the number of loans from financial institutions. 

Companies Using Working Capital Management in Real-Life

There are renowned global companies that use working capital management just to maintain a continuous cash flow. Here are a few examples of such companies:

• Walmart

Walmart is one of the most trusted and famous companies due to its efficiency. This is because Walmart owns one of the most successful working capital management. It also has one of the finest supply chains in the States.

An efficient supply chain management will guide a company to have a lesser number of inventories that also decrease the various working capital requirements.

• Apple

Apple manages its working capital by simply having a negative working capital, this is a unique strategy of this company. This is done because it directly takes capital from the consumers before paying it to the suppliers. This model allows the company to use the money of its suppliers for various operational work.

The senior management team of a company heads the working capital management system of that company. Hence to learn more about this team you can join an online senior management course.

What are the Objectives of a Working Capital Management?

There are a few important objectives of working capital management. These objectives have been vividly elucidated below:

• The main object of working capital management is to ensure that a company does not face any problems while operating the business. It creates a smooth trajectory right from the collection of raw materials for production to the delivery of the end products to the consumers.
• Working capital management also tries to increase the returns that the company has invested in various investments upon its current liabilities. This means the valuation investments are higher than the funding of the current assets.
• The cost of capital is also controlled with the efforts of working capital management. This is executed by negotiating with the financial institutions and selecting the most suited mode of finance.
• Working capital management also optimises the profit margins of a company. If there is a delay in purchasing the raw materials then there is going to be a late delay in producing the final products which creates a huge loss for the company. Working capital management ensures that this scenario does not take place.

Effective working capital management is an important part of financial management and it allows companies to reach their financial goals effectively.

Importance of Working Capital Management

Working capital management plays a crucial role in maintaining the finances of a company. Here we have stated why working capital management is important:

• Cash Flow Management

A company needs to effectively manage its cash flow and hence it needs to reduce its external financing. Working capital management comes in such scenarios to rescue a company from getting insolvent by simply managing its daily capital and tracking the liquidity. 

• Efficient Operations

Efficient working capital management is important in a company so that all the operational works can be smoothly carried on. For example, if a small company has an inventory with overstocking then this management would help it to control this situation as extra inventories require more space as well as capital.

• Relationship with the Suppliers

To earn great credit terms and discounts a company must maintain a good relationship with its suppliers by sending them all their pending payments on time. Effective working capital management allows a company to build a good relationship of trust with the suppliers by sending them their pending payments on time.

• Customer Relationship

For a continuous cash flow, a company needs to establish a good relationship with its consumers by making them happy with the end products and gaining their trust. Working capital management can easily create a good customer relationship by collecting customer data and analysing them.

• Reduction in Financing Costs

Working capital management allows a company to reduce its financing costs. This allows a company to discourage taking short-term loans and credits that hinder the current assets.

• Various Opportunities for Investments

With the assistance of working capital management, a company can save a lot of capital that can be invested in lucrative opportunities that have a high rate of return. Otherwise, the surplus capital of the company can be used during any economic crisis.

• Sustainability

Often companies earn very negligible profits. In such scenarios, working capital management assists these companies, in the long run, to be sustainable and profitable. It also prevents a company from becoming insolvent by maintaining a continuous cash flow.

• Risk Controlling

Companies are often extremely vulnerable to economic downfall, market crashes, and other catastrophic events. These events cause economic shocks to these companies. Working capital management helps these companies save adequate capital so that they can control the risk of business failures.

• Flexibility and Adaptability

There are certain instances when companies may face unexpected circumstances where there may be extra expenditure or changes that might hamper the working capital. Working capital management allows a company to be flexible enough so that it can adapt to such a situation.

Calculation of Working Capital

There is a formula for deriving the working capital of a company. If you take away current liabilities from current assets, you can easily derive the final working capital of a company. The formula is:

“Current Assets – Current Liabilities= Working Capital”

Current Assets

Current assets are those that a company can convert into cash at any given time. This asset must be utilised within the usual operating business cycle or a year. Here are some examples of current assets:

• Cash

Cash refers to the available money a company has in its bank account that it can use for business purposes at any time.

• Inventory

Inventories are those products that are yet to be sold to consumers. They are either in the form of raw materials or in the form of final products that can be found in retail stores.

• Accounts receivable

Account receivable is the money that a company will receive from its customers for the products as well as services that have been sold or given on credit.

• Prepaid expenses

Prepaid expenses are the last example of the current assets. These are the advanced payments that are made by the consumers to the company for some services that they will avail of in the future. Insurances are one of the most popular examples of prepaid expenses.

Current Liabilities

Current liabilities are the debts and loans that a company needs to repay within a year or the usual operating business cycle. Here are some examples of current liabilities:

• Short-term loans

Short-term loans are one of the perfect examples of current liabilities. These loans need to be repaid by the company within a period of 1 year.

• Bank Overdraft

When a company withdraws more of the available money from its banks it is termed a bank overdraft. This is another example of current liabilities that a company has to face while carrying out its business.

• Accounts Payable

The money a company needs to pay back when it takes goods or services from its suppliers on credit is termed accounts payable. This is another kind of current liability.

• Unpaid Liabilities

When a company uses some services without payment is known as unpaid liabilities. Some examples of unpaid liabilities are utilities and wages.

What are the various Working Capital Ratios?

Current Ratio

The liquidity ratio that decides if a company is capable of repaying all its obligations, liabilities, as well as short-term loans is called the current ratio. Most of the investors of a company are interested in knowing this ratio so that they can analyse if a company can easily optimise its current assets as per the balance sheet.

Formula: “Current Assets ÷ Current Liabilities = Current Ratio”

Quick Ratio

The quick ratio is slightly different than the current ratio as it considers those liquidities that can be quickly converted into cash.

Average Collection Period Ratio

The average period that a company takes to collect all its receivables is known as the average collection period ratio. This ratio allows a business to get a better idea about its cash flow and plan a strategic business plan accordingly.

Formula: “365 days ÷ Average Receivable Turnover Ratio = Average Collection Period Ratio”

Inventory Turnover Ratio

The inventory turnover ratio shows how well a company is using its inventory and the number of inventories it is selling within a particular period. 

Formula: “Cost of Sold Goods ÷ Avetage Inventory at Selling Price = Inventory Turnover Ratio”

Things that can Influence the Performance of Working Capital Management

It is important to have efficient working capital management that can easily optimise the cash flow of a company so that it can run without any external hindrance. However, certain factors can highly influence the performance of working capital management. These factors are:

• Scale of Operation

The scale of operation is one of the first factors that have a direct influence on the working capital of a company. A small-scale working capital is required if a company is working on a small-scale operation. On the other hand, if a company is working on a large-scale operation then it requires a large-scale working capital.

• Production Cycle

The next factor that has a high influence on working capital is the production cycle. For a long production cycle, a company will require less working capital which is in the form of raw materials or inventories or semi-finished products. In a shorter production cycle, a company will require less working capital if it is compared to a longer production cycle.

• Business Cycle

The third factor that has a direct impact on the working capital is the business cycle. When there is a rapid economic boom, the sales of the finished products rise along with the working capital of a country. Similarly, when the economy of a country is facing recession the sales of the finished products go down along with the working capital of a company.

• Accessibility of Raw Material

The last factor that has a direct influence on working capital is the accessibility of raw materials. When there are sufficient raw materials then a company does not need a huge working capital. However, if there is a crisis of raw material then very little working capital will be required by a company if it is compared with the normal situation.

How can Working Capital Management work Effectively?

For efficient working capital management, a company has to plan out successful strategies that will work without any failure. Here are some of the strategies that a company has to follow for successful working capital management:

• Financial Analysis

For efficient working capital management, a company should schedule financial analysis either in a monthly interval or a yearly interval. This analysis will allow a company to understand where it’s making financial mistakes and this will allow a company to grow further. A financial analysis monitors the patterns of inventory, accounts payable, and accounts receivable.

Tracking these patterns and analysing these insights help a company to create strategic financial as well as working capital plans for the next financial year.

• A Good Inventory Management

Good inventory management is another strategic measure that a company can take for efficient working capital management. This helps a company maintain an optimal level of inventory. This management helps a company reduce the capital that is required for extra storage and works on better customer satisfaction.

• Performance Indicators

Performance indicators or KPIs are also important for efficient working capital management. It tracks the company’s accounts receivable, accounts payable, and inventory so that the indicators can tell which areas need to be improved and what strategies should be followed for better performance.

• Continuous Supervision

A company must supervise its capital daily to achieve good working capital management. Supervision and reviewing allow a company to comprehend the capital position and identify the potential threats. The company must immediately take action against the threat before it becomes a huge economic risk.

Continuous supervision also allows a company to achieve all its financial objectives for the current financial year.

• Terms with Suppliers

Negotiating the terms with suppliers also allows a company to have efficient working capital management. If a company can negotiate its terms with the suppliers then it will have more capital that can be used for immediate important operations.

Conclusion

For a small company, it is extremely crucial to make a strategic financial decision on working capital, hence working capital management is extremely essential in such a competitive market. This decision has an impact on the finances and growth of a company. Hence, companies are actively hiring senior managers who can easily manage the working capital.

A solid senior management certification programme can help you learn how to effectively manage working capital and other crucial financial management skills.

To commence a career as a senior manager you can enrol yourself in the new online senior management course launched by Imarticus Learning. This is a collaboration with IIM Lucknow, where you can learn this course under the guidance of an experienced faculty. So without any further delay join this course to bag alluring opportunities and facilities.

The appropriate decisions made by the senior management play a huge role in the success of an organisation. Decisions regarding finances and investment opportunities are one such important decision. It involves purchasing or allocating resources for better growth of the company. For example, choosing and investing in projects that can be profitable in the future or acquiring strategic companies. 

Finance and investment-related decisions are not only centred on funding but include several other calculations as well. The senior management is responsible for the financial choices that drive the company’s success and long-term value. If this decision-making holds such importance, individuals must look for a senior management course that can teach them in depth how to become one such leader. Let us start with understanding the importance of a financial decision for the company. 

Importance of Financial and Investment Decisions

One of the essential features of financial decision-making resides in its choices that determine where resources are directed. These choices hold the power to make or break a business. It impacts everything from employee morale to the company’s reputation. The financial choices of the business can directly impact a company’s ability to;

• Drive Growth

To take a company towards its unstoppable growth, it is essential to invest in the right projects and R&D. This fuels innovation, which ultimately leads to increased market share and profitability. 

• Maintain Financial Health

Accurate financial decisions result in a balance between debt and equity, ensuring that the company is well-equipped with the necessary capital to manage financial needs. 

• Maximising Shareholder’s Return

It is one crucial duty of the company to provide good returns to its shareholders. Financial decisions do a lot to this as they heavily influence dividend policies and stock performances.

Risk Tolerance and Time Horizon

In this pivotal decision-making process, senior management often struggles with two important factors. One is the risk tolerance of the company, which dictates how comfortable the team is with potential losses. Another factor is the timeframe for realising investment returns. 

A lot of investment decisions highly depend on the company’s risk tolerance. If a business or its management believes in high-risk, high-reward projects, they are more likely to invest in early-stage acquisitions. However, a team taking a safer road might prioritise lower-risk investments with steadier returns.

Understanding the time horizon is equally important for a business. To realise its short-term goals like funding next quarter’s operations, a company can go for less risky investments like bonds with predictable returns. Conversely, a long-term goal like building a future technology platform allows for riskier investments as venture capital. 

Hence, it is up to the senior management to make informed decisions that balance potential rewards with an acceptable level of risk.

Key Considerations for Accurate Investment and Financial Decision Making

Before coming to a decision, the senior management must evaluate several facts related to the business. Here are some basic and crucial considerations to ensure a more stable financial decision;

• Market Analysis

Market analysis stands at the top of making any decision in a company. However, specifically in the financial domain, it helps in identifying investment opportunities along with anticipating potential risks. Through market analysis, the senior management will be up to date not only with the economic climate but with the industry trends and competitor’s strategies as well.

• Business’s Capabilities

Without thoroughly understanding the company’s strengths and weaknesses, it is impossible for anyone to frame any work of action in favour of the business. When the management successfully aligns their investments with the internal capabilities, the chances of return on investment get higher. 

• Legal Framework

The regulatory changes can often dramatically impact the profitability of certain projects. In order to not get any sudden shocks from it, one must understand the legal and regulatory framework surrounding some potential investments.

A solid senior management programme can help you learn how to get your company a competitive advantage over other brands or organisations.

Core Investment Decisions

In a business, there can be investments of different types. Be it any kind of capital allocation,it is crucial for a company’s long-term success. Here, in this section, we will delve into three core investment decisions. 

• Capital Budgeting Techniques

Through this, one can evaluate the potential profitability of new projects or investments that align with the company’s goal.

• Net Present Value (NPV)

With NPV, the senior management can easily determine how much an investment is worth through its lifetime discounted to today’s value. A positive NPV is a sign that the project creates value. Conversely, a negative NPV suggests the opposite.

There are both pros and cons of evaluating profitability through NPV. It is true that NPV gives emphasis on the time value of money and includes all project cash flows. But that being said, it also heavily relies on the accuracy of the discount rate, which is subjective. Also, it doesn’t consider any project’s payback period.

• Internal Rate of Return (IRR)

The senior management often calculates the return on a potential investment with the help of IRR. This number reflects the expected annual rate of growth from an investment.

One unique feature of IRR is that it provides a single metric for project evaluation. However, it can also give out multiple solutions in certain scenarios, which makes it difficult to interpret.

Another drawback to IRR is that it ignores the project’s cash flow pattern.

• Payback Period

The payback period is the time it takes for an investment to recover its initial cost. It is simple to calculate and with this one can assess short-term liquidity needs as well. But, it doesn’t take the cash flows after the payback period under consideration,

Mergers and Acquisitions

If explained in short, M&A involves combining two companies into one. Here are a few types of mergers and acquisitions, along with their primary reasons behind merging with another company. 

• Horizontal

This type of integration of two or more companies is considered a strategic move as the merger happens with a company that operates in the same industry. Also, the company should be at the same stage of production. 

The goal behind a horizontal merger is to increase market power, take advantage of a larger customer base and boost revenue and profits. 

• Vertical

In a vertical merger, the acquisition happens between companies that produce different services along a similar supply chain to benefit the economies of both the merged and the entities. 

• Conglomerate

Entirely different from the first two, conglomerate mergers involve companies that work in different industries, categories, and geographical locations. This kind of merger not only leads to diversification in revenue stream but also reduces market risk.

• Strategic Advantages of Merger and Acquisition

For a business, a M&A offers both a set of advantages and disadvantages. However, if the right merger is locked between the involved companies, the advantages can be quite extraordinary. 

• Competitive Advantage

One significant benefit that merger and acquisition brings is the elimination of competition between businesses that can boost long-term growth and company value.

• Enhanced Performance

A merger combines the resources and expertise of more than one company. These resources and expertise can enhance a company’s financial capacity and performance. It can lead to both cost savings and operational efficiency.

• Access to new technologies

Another crucial advantage of merging companies or acquiring one is the access to cutting-edge technology. This helps in enhancing the research and development capabilities of the product and service. 

• Financial Benefits of M&A

It is essential to see a merger and evaluate it from a financial viewpoint. Because, in the end, it’s the numbers that decide the performance of a company. There are several financial parameters to evaluate a merger on. However, we have listed a few of the important ones below. 

• Valuation

Determining the valuation of the company you’re acquiring is the most crucial. To calculate this, one can use several methods like discounted cash flow analysis or comparable company analysis. 

• Synergy Analysis

Another analysis that a company should run through before merging with another business is the synergy analysis. This estimates the potential cost-saving and revenue growth that the company will benefit from after the operations of merging companies get combined.

• Integration Cost

It is true that mergers and acquisitions come with a new set of expenses. These can involve integrating personnel technologies or processes. Hence, the integration cost must be factored into the overall finance of an M&A. 

• Due Diligence Costs

Calculating and thoroughly investigating the target company’s financial and legal issues is essential. Apart from that, one must be familiar with the operation risks associated with the company, if any. These hidden liabilities can cause severe financial harm to the acquirer if they emerge after the deal is closed. 

• Case Studies on the Impact of Investment and Financial Decisions

Here, with two real-life examples, we will see how a financial or investment-related decision taken by the senior management does to a company.

• Successful M&A

One prime example of a successful M&A is Disney’s acquisition of Pixar in 2006. Since then, Disney has been at the top of its game as the deal provided them with Pixar’s animation expertise. This fueled Disney’s blockbuster releases and made his animation’s dominance. 

• Unsuccessful M&A

America Online’s merger with Time Warner in 2001 was one of the biggest mergers in American business history. However, it turned out quite poorly. Both companies struggled to integrate their business models and cultures, resulting in a significant decline in shareholder value.

• Research and Development

Another core investment decision that senior management makes is to put money behind the lifeblood of innovation, which is the research and development process. It drives the creation of new products, services, and technologies. Let us go through the important features of doing a thorough R&D.

• Staying Ahead

It enables businesses to stay ahead in this competitive landscape by addressing evolving customer needs. Through R&D companies get well-equipped to cater to the unique needs of the customer and foster groundbreaking solutions that keep them ahead of their competitors.

• Boost Productivity

R&D is also used in companies to improve the existing operational procedures. The new information that the research department gathers about the current industry processes, helps in learning more about the operational tools and systems.

• Improvement in Marketing 

Apart from improving products and services, research and development in the marketing department allows for a more targeted approach. This helps the business to understand its target audience more specifically, thus, preparing marketing strategies according to the customer’s preferences.

• Evaluating R&D ROI

Earlier, it was difficult to measure the return on investment for R&D projects due to their long-term results and uncertain outcomes. However, now there are several methods to calculate the ROI and provide valuable insights about the R&D process. Here, we mention two such methods that are commonly used in companies.

• Real Options Analysis

This approach views R&D as an option to develop new technologies with uncertain options. To calculate the ROI, it analyses the potential value of R&D’s success and the cost of failure. This assesses the overall attractiveness of the investment.

• Scorecard Approach

This is one method that goes beyond the traditional financial metrics. In the scorecard approach, one keeps track of non-financial indicators like patent applications, scientific publications, and market research. This helps in gauging the progress and potential future returns.

If you wish to learn more about financial management, a senior management certification programme can help you out.

Financial Decisions By Senior Management

Similar to investment decisions, financial decisions are also critical for senior management as they shape how a company funds its operations and growth. In this section, we will discuss two essential financial decisions, that are capital structure and dividend policy. 

• Capital Structure

It is the combination of debt and equity that a company uses to finance its operations and work on its growth. Here’s a breakdown of its components.

• Debt Financing

It simply means borrowing funds from banks or issuing bonds. Debt financing offers companies the benefit of leveraging and allowing them to magnify their potential returns. 

Along with its pros, debt also has its share of cons as it increases the financial risk with its fixed interest payments and repayment obligations.

• Equity Financing

In equity financing, the senior management decides to raise capital against the shares of the company. By issuing shares of ownership, management restricts the company from a debt burden. However, the ownership gets diluted and can be more expensive than  debt financing due to the potential for higher returns expected by investors.

• Factors Affecting Capital Structure

Several factors are responsible for influencing the optimal capital structure of a company. A solid working capital management plan is absolutely necessary for the success of an organisation. As there is no one formula that is fit for all. Hence, a few elements must be considered before finalising the right mix of debt and equity.

• Size and Nature of Business

These two are one of the crucial factors to consider when making the capital structure. The size of the business often determines if they will be able to raise capital or not. For example, a small business can have difficulty in borrowing funds because of their less credibility. 

 

Additionally, the nature of the business specifies the need for the capital. Bottom level businesses like that of manufacturers or farmers would need more flexible capital structures

• Business Ownership

A lot about the capital structure depends on what kind of ownership the company has. For instance, a company with sole proprietorship or with fewer partners can adjust its capital structures more easily as per the given situation. 

Conversely, a public company might restrict themselves for a flexible capital structure as they have the stakes of numerous individuals.

• Earnings

The stability of revenue in a company is a crucial factor to consider when laying out its capital structure. A company with a stable revenue can afford a more significant amount of debt compared to a business that faces higher fluctuation in its sales. It also has high-income prospects and can bear the fixed financial charges.

• Risk Management

Before deciding the ratio of debt and equity in the capital structure, senior management must be aware of its risk appetite. It heavily affects the capital structure as some managers prefer a low-risk strategy and thus, go for equity shares to raise finances.

On the other hand, managers with confidence in repaying big loans prefer long-term debt instruments. 

• Dividend Policy

If put simply, a dividend policy determines how much of a company’s profit is distributed to shareholders as cash dividends. Apart from the specific amount, the policy also includes specific details like how often and when the payouts will be distributed. There are essentially two main payout strategies.

• Growth Strategy

When a company goes with the growth strategy, it means there will be lower or no dividend payouts to the shareholders as the company prioritises reinvesting the profits back into the business. Often, companies do this for their future growth. 

• Income Strategy

Companies often distribute a larger portion of profits to their shareholders as dividends. This mostly appeals to income-oriented investors seeking regular cash flow.

• Factors Influencing Dividend Policy

Similar to capital structuring, the management should evaluate the financial health of the company on several factors before deciding how much profit should be distributed to shareholders. In this decision, they should keep in mind the objective of maximising shareholder wealth apart from retaining profits for future growth.

• Financial Need

It is of utmost importance to first consider the financial needs of the business before planning about distributing the profits. Companies that are in need of investments should prioritise retaining their profits. 

• Investor Expectations

Companies that have large income-oriented investors might get pressured to maintain a consistent dividend payout. In these situations, management has to think of the investors more than the company.

• Market Conditions

There is no denying the fact that dividends cost more when raising money is hard. Hence, firms pay lower dividends in order to raise cash and vice versa. Therefore, the ease with which a company raises money directly affects its dividend policy.

• Taxes and Regulations

It is the taxes on dividends that make them more costly for the companies. This makes the management think twice about the laws and taxes before making their dividend policy. 

Wrapping Up

There are a lot of responsibilities on the shoulders of the senior management, one of which is to make crucial decisions related to finance and investment. And it is quite important to make the right financial decisions as many things related to the business depend on it. This involves evaluating the company’s capital allocation, R&D investments, and several other elements mentioned above to fuel growth, maximise returns, and manage risk profile. 

It is pivotal that senior management continuously improves its financial decision-making as it can benefit the business by staying abreast of current financial trends. Additionally, it leverages data analytics for informed choices and creates a culture of critical thinking within the leadership team. 

If you’re someone who wishes to acquire this set of skills and wishes to be in the senior management of a company, you must enrol for the Senior Management Program by Imarticus Learning. This senior management course not only introduces you to new-age skills but also assists in your transformation journey of becoming a leader who can make the right decisions for the company.

It is said that today’s market is highly competitive. The phrase symbolises that the concept of monopoly is non-existent for almost all market products and services. Organisations utilise a series of well-defined processes and technology to manufacture a good quality product. They also utilise the best supply chain practices so that the products reach their customers on an earlier date.

There is fierce competition amongst different manufacturers and service providers having common client interfaces. The salient features of an organisation that enable it to produce cheaper and better products or render cost-effective quality services are referred to as competitive advantage.

Several reputed companies spend a fortune to leverage upon competitive advantage and increase operational efficiency over their rivals. They even sponsor the senior management course for their C-suite leaders and other key officials engaged in business and operation. 

Competitive Advantage Strategies

To build a competitive advantage over rivals, an organisation must know its strengths and weaknesses. The general steps followed by companies are as follows:

Thorough market research 

Market research energises an organisation to locate its target market for the products it plans to launch. Such efforts optimise the promotion or branding expenses and motivate target customers to purchase the products. Understanding customer needs is also an important aspect of this function.

Discover strength areas 

A company always tries to leverage its strengths over its peers. Such parameters, which are often judged and compared by customers, may relate to availability, packaging, branding, delivery promptness, features, service excellence etc. 

However, the internal strength areas to be focused upon are raw material sourcing, vendor selection, optimised supply chain management, and strong work culture and processes amongst others.    

Competition study 

It is always necessary to stay ahead of rivals. Thus, researching firms with similar business interests is a key factor to success.

Outsourcing 

Hiring specialised firms to provide important business inputs is essential for a business advantage. 

Financial monitoring 

Organisations often use financial model systems to evaluate financial performance and identify growth centres. Operational competitive advantage is reflected in terms of increased profit through cost reduction. Effective working capital management and investment monitoring can help you gain an advantage over your competitors.

Operation review 

Production and supply chain management are the most important pillars of operation management. Both processes are an inverse function of time. Thus, continuous research and reviews are required to have an edge over rivals.  

Focus on service 

Even the best product with a poor after-sales network is bound to fail. So, service excellence is a key factor to competitive advantage.

Innovation and research 

An organisation progresses through the vision it envisages. Innovation and research must be an integral part of the work culture of a company to be successful.

Merger and acquisition 

Sometimes these two processes help to eliminate competition and increase business coverage. 

A solid senior management programme can help you learn how to get your company a competitive advantage over other brands or organisations.

Operation Management Pointers

Out of all the strategies discussed above, the ones involving operation management are, by far, the most important ones. The word operation denotes the entire gamut of business activities carried out by an organisation. It relates to those tasks which are carried out on the products manufactured or services catered by the organisation. 

Operation excellence becomes the key differentiator for organisations in terms of profit maximisation and customer satisfaction. The main parameters based on which the key decisions are required to be taken are as follows:

Product 

The chosen product should be able to address the client’s expectations. Since customer requirements shift with time and other factors, the research wing of the organisation should take note of the same and should be ready to upgrade the products accordingly. A similar idea goes for service as well.

Quality 

Besides the several features that a product may offer, it should be reliable and must have a “value for money” approach.

Process 

The process of production should be minimalistic so that production takes the least time. The process should also ensure quality, as mentioned above.

Location 

The location of the plant is very important since power and water availability should be abundant. Besides, the availability of raw materials and other vendor items should be smooth, as well.

Layout 

Product layout is a main factor in producing the best product in optimum time. The layout of subsequent processing units must be closely stationed to save time and cost in production.

Inventory 

A serious challenge in production management is having an optimum inventory. Having distribution centres at strategic points gives a cutting edge to an organisation.

Scheduling 

Setting correct re-order levels of raw materials is considered proper scheduling.

Maintenance 

The entire plant is run by automated machines. Thus, preventive maintenance plays a major role.

Human resources 

All processes mentioned above can be performed effectively when managed and monitored by qualified and experienced manpower. Thus, human talent stands tall as a backbone for gaining competitive advantage.     

If you wish to learn more about operations management, a senior management certification programme can help you out.

Operation Excellence Strategies

An operation staff must keep in mind the following strategies to achieve operation excellence:

Cost leadership 

In a general consumeristic market, cost leadership is the key to the sustainability and profitability of an organisation. Reduction of cost with better quality standards for sale price competitiveness needs to be followed. However, this can be achieved through a huge market footprint. Effective financial management is extremely important for achieving operational excellence.

Differentiation 

Some unique products are sold based on the value proposition to clients and cannot be imitated by other manufacturers. These special products create a niche market for the organisation through innovation, trust and absolute quality standards. 

Focus 

This approach takes both cost and differentiation into consideration. The organisation identify or creates a market and then develops products as per the requirements of that chosen market.   

Conclusion

Only the fittest will survive and sustain in the business world. Targeting markets, product or service value proposition and competition research are the cornerstones to effective operation goals and provide competitive advantage. Leaders should be trained to streamline the team towards the common goals to achieve brand value, profit and client delight. 

The Senior Management Programme by Imarticus will enable prospective candidates to have huge growth right at the start of their careers. The duration of this senior management course is 6 months.

Visit the official website of Imarticus for more details.