FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 1 OUTLINE Questions? Quiz Results Go over homework Stories or experiences? Chapter 14

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 2 Quiz Results

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 3 Chapter 14 – Sourcing Decisions Assessing suppliers Selecting suppliers - Single or multiple Contracts Design Collaboration Procurement Process

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 4 Definitions Cost of Goods Sold – total expenditures to obtain or manufacture the product. This does not include Sales and administrative costs. Safety Inventory – Inventory held to protect against variations in demand and lead time Cycle Inventory – Inventory held to account for lot sizing Landed Cost – Purchase Price plus transportation in Bullwhip effect – accentuation of variations in demand as we go up the chain Replenishment lead time – time from ordering to receipt

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 5 Definitions - continued Quantity Discounts – Price depends on the amount purchased Double Marginalization – Retailer sets price higher than is optimal for the chain in order to have enough margin (Sales are a function of price) Newspaper problem – Deciding how many of a perishable item to order, based on loss of profits (under stocking) and cost of unsold goods (over stocking) Excel Norm functions to calculate normal probabilities: –NORMINV(percentage, mean, standard deviation) = Value –NORMDIST(Value, mean, standard deviation, TRUE) = percentage

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 6 CHAPTER 2 of Park - CATEGORIES OF RATIOS DEBT MANAGEMENT - HOW DO YOU GET YOUR CAPITAL LIQUIDITY - CAN YOU PAY YOUR DEBTS ASSET MANAGEMENT- INVENTORY AND RECEIVABLES MARKET VALUE - HOW REALISTIC IS THE VALUE OF THE STOCK PROFITABILITY - HOW WELL ARE YOUR INVESTMENTS GENERATING PROFITS

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 7 CHAPTER 2 of Park - DEBT MANAGEMENT DEBT RATIO = TOTAL DEBT / TOTAL ASSETS HAVE YOU BORROWED TOO LARGE A PART OF YOUR ASSETS? TIMES INTEREST EARNED RATIO = EARNINGS BEFORE INTEREST AND INCOME TAXES / INTEREST EXPENSE CAN YOU EARN ENOUGH TO PAY THE INTEREST?

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 8 CHAPTER 2 of Park - LIQUIDITY CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES DO YOU OWE MORE THAN YOU HAVE? QUICK RATIO = (CURRENT ASSETS - INVENTORIES) / CURRENT LIABILITIES HOW FAST CAN YOU PAY YOUR DEBTS?

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 9 CHAPTER 2 of Park - ASSET MANAGEMENT INVENTORY TURNOVER = SALES / AVERAGE INVENTORY BALANCE ARE YOU MOVING YOUR INVENTORY FAST ENOUGH? ACCOUNT RECEIVABLE TURNOVER (DAYS SALES OUTSTANDING) = RECEIVABLES / DAILY SALES ARE YOU COLLECTING FROM YOUR CUSTOMERS? TOTAL ASSET TURNOVER = SALES / TOTAL ASSETS ARE YOUR ASSETS GENERATING SALES?

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 10 CHAPTER 2 of Park - MARKET VALUE PRICE EARNING RATIO = STOCK PRICE / ANNUAL EARNINGS PER SHARE LIKE INTEREST (JUST A LOT LOWER) BOOK VALUE PER SHARE (TOTAL STOCK HOLDER EQUITY - PREFFERED STOCK) / SHARES OUTSTANDING USUALLY MUCH LOWER THAN THE STOCK PRICE

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 11 CHAPTER 2 of Park - PROFITABILITY PROFIT MARGIN ON SALES = NET INCOME / SALES HOW EFFECTIVE ARE YOUR SALES IN GENERATING INCOME? RETURN ON TOTAL ASSETS = (NET INCOME + TAXED INTEREST EXPENSE) / AVERAGE TOTAL ASSETS ARE YOUR INVESTMENTS GENERATING ENOUGH INCOME?

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 12 Contracts Objectives –Protect both parties –Reduce double marginalization –Reduce information distortion –Increase agent effort –Induce improvement in performance Types –Buyback or return –Revenue sharing –Quantity flexible

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 13 Design Collaboration Customers’ Requirements Suppliers’ specifications Design for manufacturability (DFM)

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 14 Procurement Process Placing orders Receiving orders Paying for orders Consider types of transaction when designing the process Separate direct from indirect purchases

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 15 Auctions

FACILITIES PLANNING ISE310L SESSION 14 Chapter 14, March 1, 2016 Geza P. Bottlik Page 16 END ON A FUN NOTE _Bummer of a birthmark, Hal