ROLE: Financial Director
In a few minutes, you will be attending a meeting of a working group chaired by Alex Rheingold (your MD) to discuss the possible adoption of an MRP2 system in Oakland. The initial meeting will be followed by a consultant's presentation and then a final meeting to take a decision.
You joined Oakland Furniture not long after the Management Buy Out had established the company's independence - not being part of the original buy-out team means that you sometimes feel left out in the cold in decision-making. However, as a fully qualified accountant you are the company's expert on the turnover and profitability of the firm and the capital investment in the machinery. You are always interested in anything that can improve the present situation characterized by an endemic lack of control, but not at any price. You have to be very tough on the pay-back of proposals, especially given the recent disappointing performance of the company. Normally, one would expect profits in the industry to be running at some 6% of sales.
But at present, despite improving their performance since the buy-out, the company have no scope for funding investments and are scarcely breaking even. They have major cash flow worries. Long and uncertain lead-times presently result in delays of nearly a year in many cases between paying for the raw materials and the receipts for the final goods. You are consequently rather suspicious of any significant control system that is not going to be under your own personal control. Currently, you have established a control target of £45,000 worth of production every day to keep the company on an even keel financially.
You believe that simple payback within two years is a perfectly adequate criterion. If an investment proposal requires any fancy number juggling, then clearly it cannot be that good. In particular you are rather concerned about a recent deal that Rowan Gregory, the Chief Designer, managed to swing. This involved the purchase of a very sophisticated machining centre. This was partly because of the initial buy-out conditions (Gregory was one of the principals), and partly because of special payment terms. These were in recompense for Gregory's design contribution to the new machine's development. You are not entirely satisfied that that investment was properly scrutinized. Worse still, you have yet to be satisfied that it was in reality a good deal for the company, since it does not seem to be producing the savings promised.
You will need some persuading that further costly expenditure on production systems can really help the firm.