The Resourcing Model can quite complex as it needs to ensure there are sufficient resources to deliver the Value Proposition and achieve the Profit Mode. It is not just a Human Resourcing model it covers all aspects of resourcing:
1. Finance Management– That there is sufficient working capital to meet the operational needs of the business.
2. Human Resources Management– The human resource plan has the appropriate skills and experience to deliver the value Proposition.
3. Fixed Assets Management – That there is sufficient capacity and investment in assets to meet the business needs in terms of delivering the products or services to the customers.
4. Materials Management – Ensure that the supplier contracts deliver the quality and reliability to meet the customers demand for products and services.
Funding
In previous Blog “Starting with the Cash–to-Cash Business Process” I discussed the sources of cash to meet the operating needs of a business. This is an important factor in ensuring there is sufficient Working Capital to support the Profit Model. Cash is the life blood of a business and if the flow of cash is insufficient to meet the operational needs of a business there can be very serious consequences.
The Cash Cycle is defined as the length of time between the purchase of raw materials and the collection of accounts receivable generated in the sale of the final product. However, what we are really interested in is the impact on the business of not being able to meet the daily cash needs of the company. The Cash reservoir is supported by the unused short term loans to supply the day to day cash needs of the business. Flowing into the reservoir is accounts receivable, which is the payment from the customers for products and services. As we indicated previously in the Profit Model, labour and materials is the two main out goings in the operational model. The Cash Cycle is expressed as a formula “Inventory Days plus Payable Days minus Receivable Days equals Working Capital Days”. Whereas “Working Capital is equal to Current Assets minus Current Liabilities” a positive working capital means that the company is able to pay off its short-term liabilities from the available cash, accounts receivable and inventory. If a company is unable to pay its creditors then a plan should be in place to obtain additional loans from the various sources of funding i.e. disposal of assets, raising of equity capital etc., in conjunction with a strategy to reduce operating costs. The funding strategy at this stage should be based on how an investor will perceive your business and what returns they would expect to see from investing in the business.
Human Resources
The skills and expertise required to meet the requirements of the business is critical to its success. Also as this is a heavy ongoing expense, care needs to taken in the way human resources are brought into the business and right from the outset how their success will measured and rewarded. No Human Resource should be indispensable, the business will develop a life of its own and so succession planning needs to taken into account.
The organisation structure will be considered at this stage and how the resources are distributed to meet the business requirements. This structure becomes very important once we start investigating business processes and defining ownership and responsibilities.
An important consideration also is to ensure that the planned Human Resources accept responsibility for performance and are actively engaged in business process improvement schemes embarked upon by the business. It is extremely difficult to introduce and get acceptance for performance related payment schemes once employees are used and comfortable with a basic salary plan. Also by pushing the performance indicators and ownership lower down in the organisation there is less requirement for intermediate management and hence an increase in control over costs.
Fixed Assets Management
There is usually a significant investment in Machinery and Buildings etc. to deliver the products and services. This varies depending on the industry type. There may also be requirement for the Assets to be strategically placed to better service the customers. An outsourcing strategy can be considered to investigate better ways of managing the investment in expensive assets with a focus on freeing up more funding for investing in the delivery of products and services.
Material Management
The Supply of materials is a key area and sits in the Value Chain of an organisation. The selection of suppliers and the negotiated contracts will impact the way a business delivers its products and services to its customers. It also impacts the Working Capital strategy for an organisation affecting the Working Capital days. Key also to this is the strategy to be adopted by the business on the receiving of materials i.e. how often are deliveries made, are raw materials purchased and manufacture into final products or sub-assemblies purchased and only the final assembly performed. Or as is becoming popular now is the whole manufacturing and logistics processes sub-contracted. Finally the quality standards are negotiated with suppliers to meet the Value Proposition previously defined.