Bài giảng môn Quản trị kinh doanh - Chapter 2: Profitability: business success from operations success

Chapter 2Profitability: Business Success from Operations Success1Understand and describe the concepts of value and profitability.Understand and describe the effects operations management has on profitability measures.Describe Economic Value Added (EVA).Calculate the average level of inventory from a delivery pattern.Understand productivity measures for resources.Calculate utilization and efficiency. Explain the importance of customer relationships. Distinguish between local and global productivity measures.Identify conflicts between productivity measures. Describe how to improve productivity measures.Set up and complete a decision tree analysis.Describe the balanced scorecard approach.Learning Objectives2Operations provides the means to accomplish financial goals.Financial return must be good enough, given other alternatives.Uncertainty comes from not knowing, in advance, how customers will value outputs (NPV).The Link Between Value andInvestment Results3When Examining alternatives, we need to consider our competitors’ actions.Exhibit 2.1 Realistic Cost/Benefit DecisionsInsert Exhibit 2.1Cost/Benefit Decisions4Net income:Net Sales – Cost of Goods sold – Depreciation – Interest - TaxesChallenge of Net Income  “My business made $50,000 last year”How did I do???Consider the amount invested to generate the profit:If I used $10,000 If I used $1,000,000 If I used $10,000,000 Evaluating Progress Toward “The Goal”5Profit Margin Income/salesProfit generated per dollar of sales.Low costs  efficient use of operations resources in processesHigh sales  high levels of value created by those processesEvaluating Profitability6Return on Assets (ROA)Net Income / Total AssetsProfit per dollar of assetsEfficient use of resources reduces asset needsRelevant because operations managers control so many valuable assetsReturn on Equity (ROE)Net Income / Total EquityProductivity of stockholder investmentLess directly applicable to operations managers because ROA measures the assets themselvesBut ultimately how the company is judged by investorsEvaluating Profitability7Economic Value Added (EVA)Operating profit minus cost of capitalNot a ratio, but an absolute measure of the value createdBook Example:You use $3,000 to start your business.“Cost of Capital” is 8%$3,000 * 8% = $240$240 is the “opportunity cost” of the resources you used.Profit > $240 means you created “economic value”Profit < $240 means you destroyed “economic value”EVA is increased by reducing cost or by selecting high return investments for the firm.Economic Value Added8Resource categories:InventoryWorkforceCapacityFacilitiesCustomer relationshipsProductivity measures for resources are often like local profitability measures. Profitability from Operations Resources9Exhibit 2.2 Daily orders vs MonthlyOrders to Meet 100 unit/Month DemandInventoryProducts and components of products soldAverage inventory level is basis for productivity measurement.Inventory turnover is most common productivity measure.10Beginning Inv. + Ending Inv.2InventoryInventory turnover is the most common inventory productivity measureInventory Turnover = Net Sales /Average InventoryAverage inventory level is basis for productivity measurement11Example 2.1Deliveries of 800 cases weekly (assume all are consumed evenly during a five-day week)Cases are valued at $265 Financial consequences of inventory turnover Average investment in inventoryWeekly: $106,000Daily: $21,200-------------------------Difference: $84,800 What is average level of inventory?What is average level of inventory if we change from weekly to daily delivery?Inventory12Capacity is the capability to produce output in a given amount of time.Utilization: Comparison of time spent actually working against theoretical time available to workActual running time/time availableCapacity: Equipment13Capacity: EquipmentEfficiencyEfficiency is the comparison of what actually happened to what “should have” happenedActual output/ Standard outputStandard = 5400/hour14FacilitiesBuildings used to house all aspects of a business.Expensive, long-term investments.Output per square foot of facilities is common productivity measure.15Often the greatest resourceOften the most difficult resource to manageProductivity measurement depends on the objective and the behavior desired.Exhibit 2.5: Monthly Performance Data for Sales ForceExample 2.4Exhibit 2.6: Possible Productivity Measures for Sales ForceWorkforce16Local vs. Global Optima – Productivity Tradeoffs It is not always possible to maximize productivity everywhereTradeoffs are required.Example: Inventory vs. Service LevelsService Level  Percent of demand satisfied from stockSvc. LevelInv.01000∞To increase service level,Inventory levels must be increased.17Measurement ImprovementTwo ways to increase productivity: Increase output (numerator), decrease input (denominator), or both.For profitability, increase net income or decrease costs (or assets) or do both.18Decision Tree AnalysisA Decision Tree is a useful tool for organizing decisions by identifying expected revenues associated with alternatives.They provide a very structured framework for a decision, so that all alternatives can be understoodThey enable the decision maker to quantify uncertaintyThey allow the decision maker to mix facts and predictionsThey provide the best outcome, given the available information19Decision Tree AnalysisDecision Tree for a New Product Design DecisionInsert Exhibit 2.720Decision Tree AnalysisExample 2.5Insert Exhibit 2.821The Balanced Scorecard Measuring performance beyond financial measures. 22