Performance objectives What do we consider to be the key areas of interest when considering our operations success Performance objectives Objective Description Quality Quality is a measure of excellence or a state of ID: 786660
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Slide1
Operations Strategies
Slide2A look at the syllabus
Slide3Performance objectives
What do
we consider to be the
key areas
of
interest when considering our operations success?
Slide4Performance objectives
Objective
Description
Quality
Quality is a measure of excellence or a state of
being free from defects, deficiencies, and significant variations
Speed
How quickly does production take and how quickly can it respond
to changes in demand?
Dependability
How
uniform, consistent and reliable a businesses products are.
Flexibility
How quickly
operations processes can adjust to changes in the market?
Customisation
Refers
to creation of individualised products to meet the specific needs of customers
Cost
Minimisation
of expenses so that the operations function can be completed as cheaply as possible.
Slide5Performance objectives
Q
antas
S
ales
D
epend
F
oreign
C
ustomers
C
alling
Slide6Come up with some KPIs for each
Objective
Examples
of KPIs
Quality
Number of defects in production
Amount of warranty returns processed.
Awards won.
Speed
Output per hour/day/week
lead times (time between order and delivery)
Dependability
- How uniform/identical the products are
Flexibility
- Variation in the output on a daily basis
(can you tolerate volatile orders?)
Customisation
- Number of unique orders
processed.
Cost
Total production costs
Costs per unit of output
Staff overtime wages level
Total staff efficiency
Slide7Strategy 1: Outsourcing
Outsourcing is the use of external providers to perform non-core business activities on your behalf in exchange for a fee.
Usually this is done because they can do the tasks required at a lower cost than you can.
Slide8What types of things can be outsourced?
Accounting
IT
manufacturing
Legal advice
Pretty much anything nowadays
Slide9Outsourcing video
http://www.youtube.com/watch?v=rYaZ57Bn4pQ
Slide10Outsourcing – pros and cons (p.91)
Advantages
Disadvantages
Potential cost savings
Superior quality available from the outsourcer because this work represents their core competency.
Reduced employment on-costs
(superannuation, workers compensation insurance).
increased accountability over the area that has been outsourced.
Access to skills/qualifications that are outside the realm of the current staff.
By outsourcing
non-core elements of the business, it can better focus on its core duties and drive improvements.
Service Level Agreements (SLAs) can provide compensation to your firm if the quality of work is poor.
Loss of control
over the outsourced process.
loss of ability in the outsourced area within the company. (i.e. Once you outsource your IT systems, you will never be able to reintegrate them back into the company without great expense and time).
Loss of corporate memory
Organisational resistance to change from employees
Payback period and costs: The first few years of outsourcing may be more expensive as you have to also consider the redundancy payments due to original workers no longer needed
.
Privacy breaches may occur because customer information is stored in another providers property.
Slide11Operations Strategies 2: Inventory Management
Inventory Management refers to the amount of stock that a business has on hand at any particular point in time. (raw materials, work-in progress and finished goods).
Slide12Advantages of holding stock?
Consumer demand can be met immediately. Less chance they will leave the premises and buy from somewhere else.
Reduces lead times between order and delivery of product
Making purchases in bulk can reduce the cost price per item. These big purchases need to be warehouses somewhere, hence stock is accumulated.
Slide13Disadvantages of holding stock?
Numerous costs including : leasing the facility, insurance, theft and handling expenses, security costs, obsolescence (if can’t be sold),
Stock represents cash tied up and not earning any interest.
Slide14HOW THE HELL DO I CALCULATE MY PROFITABILTIY FOR THE SALES I MAKE?!!??!!
Valuing Stock
A petrol station takes TWO fuel deliveries per week.
Delivery 1] The cost they paid was $1.45 per litre for 500,000 litres.
Delivery 2] The cost they paid was $1.10 per litre for 200,000 litres
Slide15Valuing Stock
http://www.youtube.com/watch?v=ExNsFh0_39s
(LIFO
vs
FIFO)
Slide16Inventory valuation methods
Step 1)
JB HIFI bought 3 X-boxes at the cost of $500 each in the first delivery.
THEN
Step 2)
JB HIFI bought another 5 X-boxes at the cost of $400 each in the second delivery.
STEP 3)
A customer comes up and buys an X-box for $450 from you. How much profit does JB-HIFI make?
Slide17LAST IN FIRST OUT (LIFO) Method
One method that can be used is called the LIFO method.
This method of valuing inventory assumes that
the last batch order of goods are also the first goods sold
and therefore values the cost of this number of units sold at the cost of the last batch purchased.
E.g. The last delivery of 5 X-boxes are assumed to be sold first, and as a result the first 5 X-boxes sold will all be costed at $400 each.
The remaining 3 X-boxes will be costed at the previous cost price $500
Cost Price $ 500 each
Cost price = $400 each
Slide18FIRST IN FIRST OUT (FIFO) METHOD
Another method that can be used is called the FIFO method.
This method of valuing inventory assumes that
first batch of goods purchased are the first goods sold
and therefore values the cost of this number of units sold at the cost of the first batch purchased.
E.g. The first delivery of 3 X-boxes are assumed to be sold first, and as a result the first 3 X-boxes sold will all be costed at $500 each.
The remaining 5 X-boxes will be costed at the previous cost price $400 each.
Cost Price $ 500 each
Cost price = $400 each
Slide19FIRST IN FIRST OUT (FIFO) METHOD
Cost Price $ 500 each
LIFO PROFITABILITY
FIFO PROFITABILITY
5
units sold at cost price of $400 each and sale price of $450 each.
There is a total profit of $250
3 units sold at cost price of $500 each and sale price of $450 each.
There is a total loss of $150
The last 3 units then sell at a cost of $500 each and sold at the sale price of $450 each.
Therefore there is a total loss of $150.
The last 5 units then sell at a cost of $400 each and sold at the sale price of $450 each.
Therefore there is a total profit of $250.
Overall profitability = $100
Overall
Profitability = $100
Slide20Some general conclusions
The overall profitability will be identical over a long enough time period.
However, the different methods will produce different results in the short-term.
LIFO PROFITABILITY
FIFO PROFITABILITY
5
units sold at cost price of $400 each and sale price of $450 each.
There is a total profit of $250
3 units sold at cost price of $500 each and sale price of $450 each.
There is a total loss of $150
The last 3 units then sell at a cost of $500 each and sold at the sale price of $450 each.
Therefore there is a total loss of $150.
The last 5 units then sell at a cost of $400 each and sold at the sale price of $450 each.
Therefore there is a total profit of $250.
Overall profitability = $100
Overall
Profitability = $100
Early on there is
Big difference in profitability
Eventually it sorts itself out.
Slide21Some general conclusions
LIFO
FIFO
Because the cost
of goods tend to rise throughout the year, the LIFO method tends to overstate the cost and understand the profit in the current period.
- Because the cost
of goods tend to rise throughout the year, the FIFO method tends to understate the cost and overstate the profit in the current period.
Most businesses use this because it makes sense to try and sell your oldest inventory first you are able to identify them as older stock (especially if inventory can perish).
They also prefer this method because it usually produces a higher profitability result in the near term if we assume that the goods become more expensive over time.***
***Note:
the opposite effect has happened in our example because the X-box falls in price over time. It is an unusual circumstance.
Slide22Just in Time – Inventory method
An inventory management system that ensures that the exact amount of material inputs will arrive only as they are needed in the operations process.
Benefits include
Easier to conduct stock take (less stock on hand)
Retailers can display a wider range of products because they do not have to stock as many duplicates
Saves on all stock related expenses mentioned earlier