Chapter 2 - Profitability: Business success from operations success. The main goals of this chapter are to: Understand 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,. | Chapter 2 Profitability: Business Success from Operations Success Understand 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 Objectives 2- Operations 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 and Investment Results 2- . | Chapter 2 Profitability: Business Success from Operations Success Understand 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 Objectives 2- Operations 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 and Investment Results 2- When Examining alternatives, we need to consider our competitors’ actions. Exhibit Realistic Cost/Benefit Decisions Insert Exhibit Cost/Benefit Decisions 2- Net income: Net Sales – Cost of Goods sold – Depreciation – Interest - Taxes Challenge 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” 2- Profit Margin Income/salesProfit generated per dollar of sales. Low costs efficient use of operations resources in processes High sales high levels of value created by those processes Evaluating Profitability 2- Return on Assets (ROA) Net Income / Total Assets Profit per dollar of assets Efficient use of resources reduces asset needs Relevant because operations managers control so many valuable assets Return on Equity (ROE) Net Income / Total Equity Productivity of stockholder investment Less directly .
