Managing Operations and Finance for New Life Logistics: A Report

This report analyzes the financial management of New Life Logistics and Transportation, a firm operating eight depots in the UK. It evaluates operational, regulatory, and environmental factors, including process planning, quality control, pollution control, and consumer law, that the company's board must consider. The report examines the financial worth of a proposal to introduce new vehicles, detailing the financial needs of the project, depreciation calculations, and maintenance costs. It also explores alternative sources of finance, such as bank loans, crowdfunding, venture capital, angel investors, and initial public offerings. The report provides an overview of each financing option's advantages and disadvantages, helping the company make informed decisions for its financial planning and growth. The report concludes with recommendations based on the analysis.

MANAGING OPERATIONS AND
FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
A) Operational, regulatory and environmental factors consider by board..................................1
B) Evaluation of alternative source of finance............................................................................4
C) Financial worth of current proposal and remodelling of financial plan.................................7
D) Conclusion and recommendations........................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Financial management is the process of managing financial resources in such manner so that
enterprise can get higher return over investment (McKinney, 2015). Companies makes effective
control over economic activities so that funds can be utilised effectively. Present study is based
on New Life logistics and transportation firm. Entity is the holding firm for eight depots in east
and south of UK. It aims to invest in new project to get more profit. Current assignment will
evaluate operational, regulatory and environmental factors that must be considered by board.
Furthermore, financial worth of existing proposal will be examined and remodelling of financial
plan will be done. In addition, study will explain alternative sources of finance available to
business.
TASK
A) Operational, regulatory and environmental factors consider by board
The management needs to evaluate various factors to implement the current proposal as
there are many factors that may affect the operations and decisions of the company.
Since the company is planning to introduce their own vehicles the management needs to go
through operational theories such as product planning and product designing theory and other
factors are also required to be considered to make the current proposal more profitabl
Process Planning and Product Designing Theory
Process Planning is related with strategic transformation or conversion processes required to
transform the material into finished products. Production process is a chain of manufacturing
activities performed to accomplish design specifications of the projected output (Bai and et.al.,
2017).
Process planning subsists of two parts:-
Process design
Operations design
Process Design is related with the series of activities needed to obtain the product specifications.
It determines the type of work stations which are required to be consumed, necessary equipments
and machines and the quantities in which these are required.
Operation Design is subject to the design of the individual manufacturing activities. It
determines the man-machine relationship that how much of machine and man time is needed for
transforming each unit of production (Antonopoulos and Hall, 2018).
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However the process of establishing automotive plans is especially reliant and complex.
Therefore various type of factors are required to be considered such as surveys of market trends,
fuel costs, forecasts of market size, consumer preferences, sales and technology availability and
costs. So this plan of introducing new vehicles involve various inherent uncertainties as the
market conditions can even in the middle of the process. Being such a complex process the
management needs to take care of all the operations so that it helps in achieving the goals of the
company (Baños-Caballero, García-Teruel and Martínez-Solano, 2016).
When the company plans to launch their own vehicles it also needs to verify that the consumers
also want at the same time. Hence to satisfy these needs the company needs to evaluate all these
factors:-
Operational Factors:-
Quality control:-
The company needs to follow all the quality procedures to sustain in the competitive market. The
management needs to identify the standards of vehicles and try to improve their quality standards
as compared to other competitors.
Cost influences:-
The company needs to minimise their cost to earn sufficient revenues. Effective cost helps the
company to provide the services at a price lower than the competitors which will ultimately
attract the consumers. There are various types of costs such as maintenance cost, operational
cost,depreciation cost and others which have a huge impact on the business enterprise (Burger,
Kaufman and Atkinson, 2015).
Risk Factor:-
The company need to evaluate all growing requirements to invest in new and innovative
vehicles, automation and emerging technologies in manufacturing to stay competitive. IT risks
concerned with cyber security breaches or disruption in the operation of the systems may
adversely affect the company's ability to compete. So all these factors are required to be
considered.
Environmental Factors:-
Pollution control:-
The company needs to concentrates on low emission vehicles because the vehicles which are low
on fuel consumption are supported by government and law and also receive tax subsidiaries.
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These days the pollution investigations have grown stricter and only those vehicles which are
passing these verifications are allowed in the market (Tonkiss, 2016).
Waste Disposal:-
The company also requires to include product recovery as a new affair in their operation
function. As there is scarcity of land and the vehicle fleets is also growing which will lead to fall
in the availability of landfill sites and as result the cost of waste disposal for end of life vehicles
will
ultimately rise.
Recycling:-
Recycling uses less energy than manufacturing new vehicles and helps in protecting natural
resources for a longer period of time (Zietlow and et.al., 2018). Producing new steel requires
burning huge amount of coal which leads to releasing green house gases which pollutes the
atmosphere. So Recycling vehicles means fall in the use of fuels, less energy and less landfill as
well as more affordable consumer products. Recycling is growing widespread as more people
understand the value of recycling their vehicles to help the environment.
Regulatory Factors:-
Vehicle Replacement Policy:-
The company needs to interrogate that whether the replacement policy will prove to be effective
or not. Vehicle replacement policy may include mixing various strategies for different functions
and making use of short term programs. So the Management needs to evaluate this policy
effectively to earn better revenues.
Consumer Law:-
Consumer law or consumer protection is prepared to protect the rights of consumers from
fraudulent practices and defend their rights in the marketplace. The company is required to put a
sufficient amount of their resources for providing information about their products and policies.
So the company needs to go through all these conditions to protect the rights of the consumers
before implementing their proposal (Burtonshaw-Gunn, 2017).
Hence the management needs to go through all these factors for proper implementation of
the plan which ultimately result in generating more revenues.
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B) Evaluation of alternative source of finance
Financial needs of a project
New life logistics and transportations need to maintain a cash balance between cash
inflows and outflows . Steps to be followed while financing a project :
 identify the project. It is not difficult to find good project in need of investment .
 Determine the feasibility of project
 identify sources of technology
 identify sources of project finance
 mitigate the project risk.
In this proposed project of purchase of vehicle company spends 14900000 in purchase of 180
vehicles of 105000 each ,depreciation on asset at written down value method 50% in year 1 i.e.
52500, 30% in year 2 i.e. 15750, 10% in year 3 i.e. 3675, 5% in year i.e. 4 1653.75 ,5% in year
5 i.e. 1571.063 ,5% in year 6 i.e. 1492.209 . maintenance cost of each vehicle is 8000 in 1st year,
10000 in 2nd year and 15000 in 3rd , 4th , 5th ,6th year . Operational cost 15000 per vehicle .
Company spending 100000 on maintenance and repairs on average. 75% of hire fees can be
avoided for 4 years and 50% for a further 2 years. One qualified driver plus two support staff per
10 vehicles required . Driver turnover is 10% p.a. .
Companies need fund to run business successfully, various funding sources are explained s
below:
Bank loans
Bank loan is the source of long or medium-term finance in which a bank lends money on
the interest rate to an organisation an also sets a fixed period of time. In this alternative source o
finance company has to repay its capital with interest in a fixed time. Bank also require some
collaterals as a security for loan (Marti and Scherer, 2016). If the company does not return
money within fixed time, bank has the right to forfeiture that security collateral registered by the
company. But this alternative source does not oversees the use of loan money and allows firm to
use money with its own choices. New Life Logistics and Transportation Group Plc company can
use this source of income for increasing capital as it has high advantages of no involvement of
lenders as bank does not take an equity ownership in the firm or it does not take control over the
business. But it also has disadvantages of high interest rates, and also it is highly difficult to get
qualify for the bank loans.
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Crowdfunding:
Crowdfunding is a funding process in which they can gain support from multiple
investors for their brilliant ideas which results in collection of large amount of money for their
project. Crowdfunding is a programme in which large number of audience is allowed to
participate, contribute and to invest their money for a project that gives them interests. Generally
it is done with the use of internet and also connects large number of small retailers with the big
projects or businesses. New Life Logistics and Transportation Group Plc company can apply this
source of finance for their new project as it is beneficial to avail large amount of money in small
time, and is also beneficial for implementing improvement in the project ideas because it allows
to get number of feedbacks and suggestions to business ideas. But it also has disadvantage that
the others can copy their ideas and can execute in their own firm (Herdjiono and Damanik,
2016).
Venture Capital:
Venture capitalist are the investors who invests for a long term in a business which has
high potential towards growth and also oversees the use of their money and also gains some
amount of ownership and an equity position in the entity. In this type of investment, investors get
highly involved in the running of an organisation, give advice and tightly controls the use of their
money. In this, they also try to recover their money with high profits within less number of years.
In venture capital, firm does not have to pay back to venture capitalist (Bai and et.al., 2017). But
this can be harmful for environment and management of the entity due to involvement of the new
candidate. New Life Logistics and Transportation Group Plc company can use this alternative
source on money as it has pros that it can increase large amount of money within short period of
time and can also get help for management of the organisation. But it also carries cons that
venture capital shares the ownership with the investors due to which ownership of the founder
get reduced and it is also difficult to find venture capitalist which can lead to distraction.
Angel Investors:
This kind of investors are very rich and wealthy, gives large amount of money for
businesses and gains equity ownership in the organisation. It may be defined as an informal way
of one time funding by an individual to a business for a start up in an exchange of amount of
ownership in the firm. Angel investors invest their money at the initial level of the new set up of
the business and earns from the organisation (Loke, 2017). Angel investors give advices, coach.
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But if the company gets failures it does not have to return money back to the angel investor. New
Life Logistics and Transportation Group Plc company can also use this alternative source of
finance for new projects as it can give benefits of good knowledgeable advices and coaching for
development of the business, and also provide company with good contacts. But this also carries
disadvantages that angel investors are highly interfering in the running of the business and it also
involves sharing of the ownership (Morden, 2016).
Initial Public Offering:
Initial public offering is public investment techniques through which a private company
can convert itself into a public cooperation by selling its new shares to public. Using this
technique, firm does not have to repay its money to investors. This techniques permits investors
to resale these new shares in an open market. New Life Logistics and Transportation Group Plc
company can use this source as it has advantages that it can be helpful in raising high amount of
capital and can also improve publicity of the company. But it also has disadvantages that founder
losses its control over its own company (Kajola, Adewumi and Oworu, 2015).
Family and Friends:
Organisation can use its family and friends as a alternative source of money in which
they can raise their capital with least interest rate. Family and friends does not oversees the use
of money and does not have much queries before lending money. New Life Logistics and
Transportation Group Plc company can use this source because it gives advantages as it is the
process of availing loan at very less interest. But it can be harmful in a maintaining relationship
with an informal investor , as it can bring distance between the two of money lenders and money
borrower of the firm, if the money does not get paid back to the friends and family (Michalak,
2016).
Bank overdraft:
In this technique of raising capital, an overdraft gives permission to an account holders to
practise continuous withdrawal even after the presence of zero amount in the account. In this
alternative source, bank extends credit limit and deposit time and gives that limited amount of
money on the rate of interest. This type of accounts is linked with the security collateral and the
bank has the power to forfeiture security collateral, if the account holder does not give returns.
New Life Logistics and Transportation Group Plc company can use this income source as it
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gives benefits of flexibility that is it allows to change the limit of taken amount. But it has
disadvantage that it gives very limited amount of money (Antonopoulos and Hall, 2018).
C) Financial worth of current proposal and remodelling of financial plan
Critical evaluation of current proposal
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Revenue 8128350 8128350 9726615 9722977 9722828 9722687
Expenses
Purchase cost 18900000 0 0 0 0 0
Maintenance
cost 1440000 1800000 2700000 2700000 2700000 2700000
Operational
cost 2700000 2700000 2700000 2700000 2700000 2700000
Depreciation 52,500 15750 3675 1653.75 1571.063 1492.509
Total
expenses 23092500 4515750 5403675 5401654 5401571 5401493
Gain or loss -14964150 3612600 4322940 4321323 4321257 4321194
Cash flow Discount rate Present value
Year 1 -14964150 0.934579439 -13985186.92
Year 2 3612600 0.873438728 3155384.75
Year 3 4322940 0.816297877 3528806.744
Year 4 4321323 0.762895212 3296716.626
Year 5 4321256.9 0.712986179 3080996.412
Year 6 4321194 0.666342224 2879394.025
Total 1956111.641
NPV -16943888.36
Working notes
Vehicle cost 105,000
Number of vehicles 180
Purchase cost 18900000
Vehicle cost 105000
year 1 52500
Residual value 52500
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Year 2 15750
Residual value 36750
year 3 3675
Residual value 33075
year 4 1653.75
Residual value 31421.25
year 5 1571.063
Residual value 78.55313
year 6 1492.509
Residual value 74.62547
Final value 1417.884
NPV analysis eliminates the time element by comparing alternative investments . NPV
provides better decision than other methods when making capital investments. When choosing
between competing investments using net present value calculation one should consider the one
with highest present value .
If,
NPV> 0, accept the investments
NPV < 0, reject the investments
NPV = 0, investment is marginal.
The most critical variable in applying the net present value method is the selection of an
appropriate discount rate. Riskier investment should have a higher discounting rate than safe
investments. Longer investments should use a higher discount rate than short time project.
Considering some factors which affect NPV analysis:
 focus on cash flows
 Factoring in inflation
 be aware of qualitative factors
 ethical issues
 short term incentives affect long term decisions
 modifying cash flow estimates to get approval.
NPV is net off of present value of cash inflows and outflows by discounting the cash flows at a
specified rate (Baños-Caballero, García-Teruel and Martínez-Solano, 2016).
Formula for npv: (cash flows) /(1+r)i
i=initial investment
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r=discount rate
i=time period.
New life logistics and Transportation currently providing their services by using hired
vehicles now company wants to continue their services with owned vehicles . By using net
present value method company evaluating whether there current proposal will become profitable
than current expenses on hired vehicles . Company currently spend 1800000 p.a. on hire vehicles
to meet client needs now company purchasing their own vehicles . Company required to
purchase 180 vehicles for its day to day operations which costs 105000 each vehicle with the
depreciation of 50% in year 1 ,further 30% in year 2,10%in year 3 and 5% for each year
thereafter (Burger, Kaufman and Atkinson, 2015).
Expenses on purchase of vehicles in first year is 18900000 and maintenance cost is 8000
in first year ,10000 in second year ,15000 in third, fourth, fifth and sixth year. Operational costs
are 15000 per year .company spending 100000 on maintenance and repairs .
Therefore, total expense in first year is 23092500,in second year 4515750,in third year
5403675,in fourth year 5401654, in fifth year 5401571 and in sixth year 5401493,in respect of
revenue which is 8128350 in first year, 8128350 in second year, 9726615 in third year, 9722977
in forth year ,9722828 in fifth year and 9722687 in sixth year. After deducting revenue from
expenses company facing situation of loss in first year of 14964150, in second profit of
3612600 ,in third year profit of 4322940,in fourth year 4321323 , in fifth year profit of 4321257
and in sixth year profit of 4321194. In first year company is facing loss because there is capital
expenditure on purchase of vehicle but in remaining years there is no capital expenditure
company and the amount of depreciation is reducing year by year because of using diminishing
value method .Depreciation is considered to be a non cash expense therefore, it creates nil effect
on cash flows while calculating profit or loss but still its depends on company's policy whether it
would be considered as part of cash flows or not (Tonkiss, 2016). But the maintenance cost is
increased in later years in comparison to first year which is 360000 in second year and in third
year ,fourth year, fifth year and sixth year is 1260000. NPV by using cash flows at the
discounting rate of 6% p.a.. total amount of present value factor deducted from purchase cost of
18900000. This calculation shows a negative NPV . Therefore this recommendation of purchase
of vehicle in not a profitable decision for company . This option of purchase of vehicle is not to
be a better option which should be considered in respect of present option of hiring of vehicle.
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Hence , there is situation of loss , new life logistics and transportations board not able to
approve this project of negative NPV .
Re-modelling of Financial Plan
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Revenue 40528350 40528350 41802615 41798976.75 41798827.9
1
41798686.5
2
Expenses
Purchase cost (£) 18900000 18900000 18900000 18900000 18900000 18900000
Maintenance cost (£) 900000 1440000 2160000 2160000 2160000 2160000
Operational cost (£) 2160000 2160000 2160000 2160000 2160000 2160000
Depreciation (£) 52,500 15750 3675 1653.75 1571.0625 1492.50937
5
Total expenses (£) 22012500 22515750 23223675 23221653.75 23221571.0
6
23221492.5
1
Gain or loss 18515850 18012600 18578940 18577323 18577256.
85
18577194.
01
Cash flow Discount rate Present value
Year 1 18515850 0.934579439 17304532.71
Year 2 18012600 0.873438728 15732902.44
Year 3 18578940 0.816297877 15165949.28
Year 4 18577323 0.762895212 14172550.77
Year 5 18577256.85 0.712986179 13245327.39
Year 6 18577194.01 0.666342224 12378768.77
Total 88000031.35
NOV 69100031.35
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