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Operations Management: Operating Expense & Inventory Expense

QUESTION:

Relating to operations management state how "Throughput, Inventory & Operating Expense relate to successful & in some cases unsuccessful business operations practice"

ADDITIONAL INFO:

Throughput means the rate at which an organization generates money through sales, if something has been produced but has not been sold then it is NOT throughput.

Inventory means money invested in purchasing things that are intended to be sold.

Operating expense means money spent in order to turn inventory into throughput (Inc. Labour, management, computers etc).

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QUESTION:

Relating to operations management state how "Throughput, Inventory & Operating Expense relate to succesful & in some cases unsuccesful business operations practice"

ADDITIONAL INFO:

Throughput means the rate at which an organization generates money through sales, if something has been produced but has not been sold then it is NOT throughput.

Inventory means money invested in purchasing things that are intended to be sold.

Operating expense means money spent in order to turn inventory into throughput (Inc. Labour, managment, computers etc).

WORD COUNT: AROUND 2000 WORDS

Manufacturing throughput time is defined as the length of time between the release of an order to the factory floor and its receipt into finished goods inventory or its shipment to the customer. We will use different Quality management techniques to improve through put, inventory turnover and reduce the costs. "Quality" is continually evolving, an emerging consensus includes: Continuous Improvement and Learning: Continuous improvement and learning refers to both incremental and "breakthrough" improvement, and applies to both the individual and organizational levels. Improvement and learning can be directed toward better products and services, to better processes, and to being more responsive, adaptive, and efficient.

APPLICABILITY OF THEORY OF CONSTRAINTS
We can apply theory of constraints to improve the efficiency of the organization.
The Theory of Constraints of Eliyahu Goldratt is a model that is the practical result of Eli Goldratt's work on "how to think". The Theory of Constraints (TOC) is an overall philosophy developed by Dr. Eliyahu M. Goldratt, usually applied to running and improving an organization. TOC consists of Problem Solving and Management/Decision-Making Tools called the Thinking Processes (TP).

TOC is applied to logically and systematically answer these three questions essential to any process of ongoing improvement:

* "What to change?"
* "To what to change?"
* "How to cause the change?"

These are the original Goldratt "process of ongoing improvement" (POOGI) steps for identifying, exploiting and managing the systems constraints, whether the system is manufacturing, distribution, sales, or project management.

1. Identify the system's constraint(s).
2. Decide how to exploit the constraint(s).
3. Subordinate everything else to the above decision.
4. Elevate the constraint.
5. If, in any of the above steps, the constraint has been broken, go back to Step 1.
www.sytsma.com/cism700/toc.html

The above process is used to
* Increase Throughput by increasing the contribution margin (Sales-Variable Cost)
* Reduce Inventory and increasing the inventory turnover ratio
* Reduce Operating Expense by improving the efficiency of the system

Reference:

http://www.sales-system-management.ch/Sales-System-Management.htm)...
Operations Management by Frazier
www.goldratt.com
Goldratt, Eliyahu M., "Computerized Shop Floor Scheduling," International Journal of Productivity Research (Vol. 26, No. 3), March 1988.

Goldratt, Eliyahu M. and Cox, Jeff, The Goal, Second Revised Edition, Croton-on-Hudson, N.Y.: North River Press, 1992.

Application of JIT to reduce the inventory costs and operating expenses

JIT is a philosophy of continuous improvement in which non-value-adding activities (or wastes) are identified and JIT is not about automation. JIT eliminates waste by providing the environment to perfect and simplify the processes. JIT is a collection of techniques used to improve operations. It can also be a new production system that is used to produce goods or services.
According to Wikipedia, Just in Time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory ...

Solution Summary

The solution discusses the importance and role of throughput, inventory and operating expenses.

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