Finance is a Liar Sometimes

There are numerous ways to measure success for a specific company. Whether it is pure revenue based, maximizing capacity, or providing the best quality, each company has its own specific way of measuring its success. The article from industry week discussed the dangers a company has when they use financial-based planning. One example the article gave when discussing a poor financial measurement was inventory. In the world of accounting inventory is considered a current asset. A current asset relies on liquidity and more specifically so being able to convert into cash within a year. The problem with that definition is that it relies on the fact the inventory will eventually be sold. The article stated that, “High inventories therefore mean longer cycle times, longer lead times and less responsiveness to customer needs.” That quote essentially means that the more inventories a company has the ability to change becomes weaker. 

Cheap offshore labor as a method as cost savings was also mentioned as being expensive. In the books, cheap labor looks attractive as costs are being minimized and more products are being able to be made. However, with off shoring come defective goods. In my own experience, anytime I order something through Amazon which I know is coming from China I am taking a risk. 50% of the time my order will be completely defective. If not defective, the quality will be sub-par. That level of quality cannot be measured by a financial metric and as a result is not taken into account with valuating success on a revenue based level.

 henry ford image

The measures to which a company should measure their success as the article states (and I agree as well) are the three KPIs: Time, Material, and Energy. Henry Ford was a strong component of these measurements as he believed, “time, material, and energy are worth more than money because they cannot be purchased by money.” Taking into account that belief, there then becomes four major points consulted when making decisions and improvements.
1. Waste of the time of people
2. Waste of the time of things
3. Waste of materials
4. Waste of energy
All four of those points touch on the certifications we have been talking about in class. While the six sigma is not discussed in the article, concepts of lean manufacturing are present throughout. In addition, ISO 14001 certification is mentioned. An example is given that it is not only wasting raw materials it is also wasting the scrap materials. Ford specifically showed this method that even though back in his time he could have thrown scraps in the river he instead decided to use it to make something else. This allowed him to maximize raw and scrap materials which led to cost savings. In accounting, and financial reporting that is never take into account. Through this article I really understood that while financials are important that should not be the only measurement used to determine a company’s success.

 

1.) What do you think is the best way for a company to measure success?

2.) Are resources such as time, energy, and materials equally important? Or does one stand out from the rest?

3.) What are some of your own personal experiences when  ordering goods from overseas?

 

http://www.industryweek.com/leadership/when-finance-runs-factory?page=3

How The Light Bulb Got Its Groove Back


incandescent_light_bulb
LED_Bulbcfl_light_bulb

In the 19th century, the only type of bulb available was the incandescent light bulb. This bulb was “the biggest thing since sliced bread” and incredibly effective at its job. Unfortunately for the light bulb, the business world seems to continuously search for improvements or replacements of the once great predecessor. Today, the incandescent light bulb seems like an antique compared to the variety of light bulbs available. Consumers can choose now choose from incandescent, fluorescent, halogen, HID (high-intensity discharge), and LED (light emitting diodes) light bulbs. Each light bulb usually provides a longer life and brighter light than their respective predecessors. Consumers also now have the option to choose from a variety of light types (i.e. warm, cool, natural) and whether they dim or not. At a certain point, a consumer can be quickly flooded with and drown in the massive amount of information and options of light bulbs.

At this point, someone may be thinking to themselves “why should I care about light bulbs?” I’ll admit that when considering a single light bulb the selection of said bulb would not save someone or a company millions of dollars, but an impact will be evident. The average person, especially not a company, does not utilize a single light bulb. Let’s consider an average home to use for as example: three bedrooms, two bathrooms, one kitchen, one dining room, etc. Each room requires at least one lighting fixture, and each fixture uses three light bulbs (if we stay on the conservative side). All these rooms and fixtures amount to a possible minimum of 30 light bulbs.

LED

Compact Florescent

Incandescent

Price per bulb

$ 35.95

$ 3.95

$ 1.25

Life Span

50,000 Hours

8,000 Hours

1,200 Hours

Kilowatts per year

329

767

3,285

Annual Oper. Cost

$ 32.85

$ 76.65

$ 328.59

Now imagine the impact this has over the possible minimum of bulbs established earlier. Although a single light bulb, or even light bulbs in general, might not seem to have a large impact on finances, this myth is quickly proven false. Buildings owners, whether residential or commercial, must take into consideration the price of and the operating costs of light bulbs into their expenses. This affects large buildings even more because of the massive amount of light bulbs in use at any given times. The light bulb is no longer solely symbolic of an idea and can now come to represent money, or $$$.

How could something so small and seemingly insignificant come to have such a large impact on the financial aspect of households and businesses? Should the government require homes and businesses to replace current light bulbs with more efficient ones? Would the requirement even be worth the hassle?

 

http://business.time.com/2013/05/09/long-live-the-lightbulb/

http://www.energystar.gov/index.cfm?c=lighting.pr_lighting_landing

http://www.megavolt.co.il/Tips_and_info/types_of_bulbs.html