3D Model Lifecycle of Money

3D Model Lifecycle of Money

"Money doesn't grow on trees" i.e. money isn't free, is pretty widely accepted - a business has to sell services or goods to make money. Perhaps not so obvious is that, in a business, money has a lifecycle and that lifecycle costs money.

Let's look at a generic company that operates entirely off of its cash flow and doesn't use credit for day to day operations. A simplified money lifecycle might look something like the following where:
'F' = funds (postage, shipping, etc)
'L' = labor
'M' = materials (forms, boxes, etc.)
'T' = time

Lifecycle Start
1. Get Money
   a. Customer Purchase Order Processing
      1. Receive PO   (L, T)
      2. Issue Shop Orders   (L, M, T)
   b. Fulfillment
      1. Pull Inventory   (L, M, T)
      2. Box and Ship   (F, L, M, T)
   c. Customer Invoicing
      1. Create and Send Invoices   (F, L, M, T)
      2. Wait for Payment   (T)
   d. Customer Payment Processing
      1. Receive and Process Payments   (L, M, T)
      2. Reconcile Delinquent Accounts   (F, L, M, T)
2. Keep Money (for some time period)   (T)
3. Spend Money
   a. Purchase Order Processing
      1. Generate Purchase Requisition   (L, M, T)
      2. Create and Send Purchase Orders   (F, L, M, T)
   b. Receive Goods
      1. Receive and Reconcile Shipments   (L, M, T)
      2. Receiving Inspection   (L, M, T)
   c. Invoice Processing
      1. Receive and Reconcile Invoices   (L, T)
      2. Issue Payment Request   (L, M, T)
   d. Payment Processing
      1. Generate and Send Payments   (F, L, M, T)
      2. Reconcile Accounts   (L, M, T)
Lifecyle End

If F, L, M and T all cost money, then the value of a dollar on a customer's PO is significantly reduced by the time it's spent i.e. when its lifecycle has ended. If a company only has one product and one customer, then the reduction in value may be fairly constant. However, if a company has multiple products and/or multiple customers, it is very unlikely that the cost will be constant.

Costs that vary by product or customer are not "overhead". If a company fails to understand the different costs, the company has no hope of maximizing its profit, it will invariably create undesirable price customer combinations. Customers being charged too much may leave. Customers being charged too little may bleed the company dry.