1. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Inventory  Products and components of products sold  Average inventory level is basis for productivity measurement.  Inventory turnover is most common productivity measure. Exhibit 2.3 Daily orders vs Monthly Orders to Meet !00 unit/ Month Demand

2. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.1: Average Inventory Calculations  Deliveries of 800 cases weekly  Cases are valued at $265  What is average level of inventory?  What is average level of inventory if change to daily delivery?

3. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.1: Average Inventory Calculations  Solution: 800 + 0 2 400 cases, $106,000 160 + 0 2 70 cases, $21,200 Excel Tutor 2.1

4. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Workforce  The employees  Labor costs high in some industries, low in others.  Productivity measured as output/input

5. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.2: Calculating Productivity Measures

6. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.2: Calculating Productivity Measures  Solution Excel Tutor 2.2

7. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Capacity  Capability to produce output in a given amount of time.  Utilization: Actual running time/time available. ReelVideo 2.1

8. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.3 Utilization Calculation  What is the utilization of the new robot, given the observations in Exhibit 2.6? Excel Tutor 2.3

9. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.4 Efficiency Calculation  What is the efficiency of the check clearing operation using the data in Exhibit 2.7? Excel Tutor 2.4

10. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Facilities  Buildings used to house all aspects of a business.  Expensive, long-term investments.  Output per square foot of facilities is common productivity measure.

11. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Customer Relationships  The longer a customer stays with a business, the more profitable the customer.  Advances in technology enable businesses to manage customer relationships as an investment.

12. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Measurement Improvement  Increase output (numerator), decrease input (denominator), or both.  For profitability, increase net income or decrease costs (or assets) or do both.

13. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Decision-Making Tools: Breakeven Analysis  Identification of best among alternatives, given fixed and variable costs, by comparing total cost curves. Interactive Model 2.1

14. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.5: Breakeven Analysis  Complete the breakeven analysis for the alternative software providers in Exhibit 2.8

15. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.5: Breakeven Analysis Exhibit 2.9 Call Management Software Cost Comparison

16. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Example 2.5: Breakeven Analysis  Solution 360,000 + 0.38n = 224,000 + 0.97n 136,000 + 0.38n = 0.97n 136,000 = 0.59n 230,508 = n 480,000 + 0.07n = 360,000 + 0.38n 120,000 + 0.07n = 0.38n 120,000 = 0.31n 387,097 = n Excel Tutor 2.5

17. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. The Balanced Scorecard  Measuring performance beyond financial measures.  Financial objectives  Customer outcomes  Internal business processes  Learning and growth