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Unformatted text preview: The Goal • The Goal and Measurements o The goal of a firm= to make money by reducing operational expenses and reduce inventory while simultaneously increasing throughput. o 3 Financial Measures of the Goal Net Profit (P) Return on Investment (ROI) Cash Flows (CF) o 3 Process-Level Measures of The Goal (enable you to develop operational rules or guidelines for running your plant) Throughput (T) the rate at which the system generates money through sales (not production; you must sell the item for it to count towards throughput) • Ex) Inventory (I) all the money the system has invested in purchasing things that it intends to sell • Ex)inventory, parts, scraps, knowledge, (not restricted to products or parts) Operational Expense (OE) all the money the system spends in order to turn inventory into throughput • Ex)Labor, tooling, machines, scrap, knowledge o T, I, and OE to link local performance to global performance – each one of the measurements for inside the plant use the word “money.” T is the money coming in, I is the money currently in the system, and OE is the money that you pay out to make T happen. always talking about the organization as a whole (global performance) not just the manufacturing department. o *** GOAL: increase throughput while simultaneously reducing both inventory and operating expense • Statistical Fluctuations and Dependant Events o Balanced Capacity System a system where the capacity of each and every resource is balanced exactly with demand from the market. Unbalanced Capacity System a system where the capacity of each resource might be operating below or above the demand level from the market. • ***takes into consideration the statistical fluctuations and dependent events o Fallacy of the balanced plant – the closer that you get to a balanced plant, the closer that you come to bankruptcy o A Balanced Capacity System is NOT a good idea, due to: Statistical Fluctuations Dependent Events A system with one, but not the other...
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This note was uploaded on 01/31/2012 for the course MGT 302 taught by Professor Baker during the Spring '09 term at Miami University.
- Spring '09