Operations and Productivity – Operation Management

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Operational management involves managing the process of acquiring materials, transforming them into finished products, and delivering them to buyers. Brandon Production, a small firm that assembles and sells custom computers, is facing tough competition and is exploring options to stay profitable. Three options are being considered: marketing to increase sales by 50%, vendor (supplier) changes to reduce input costs by 10%, and an OM option to lower production costs by 25%. After analyzing the financials, it is recommended that the firm pursue the OM option, which would result in the highest profitability. Feasibility of the options should be considered, with marketing being very difficult while the other two options are possible but challenging.

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Operational management

  • this is the activity of managing the process of acquiring materials, their transformation into a finished product and the delivery of this product to the buyer;
  • is the management of the production of goods and services;
  • this is an activity related to the development, use and improvement of production systems, on the basis of which the main products or services of the company are produced, etc.

Brandon Production is a small firm focused on the assembly and sale of custom computers. The firm is facing stiff competition from low-priced alternatives, and is looking at various solutions to remain competitive and profitable. Current financials for the firm are shown in the table below. In the first option, marketing will increase sales by 50%. The next option is Vendor (Supplier) changes, which would result in a decrease of 10% in the cost of inputs. Finally there is an OM option, which would reduce production costs 25%. Which of the options would you recommend to the firm if it can only pursue one option? In addition, comment on the feasibility of each option.

Answer: Marketing would increase sales to $120,000 ($80,000 * 1.5) but increase cost of inputs and production costs to $112,500 (($50,000+$25,000)*1.5). This would net an additional $2500 of profit ($120,000-$112,500-current profit of $5000). Vendor (Supplier) Changes would decrease cost of inputs to $45,000 ($50,000*.9), resulting in $5,000 of additional profit (savings) ($50,000-$45,000). Finally, the OM option would save $6250 ($25,000 – $25,000*.75), resulting in an additional $6250 of profit. Thus the OM option is the most profitable. Comments on feasibility should center on the near impossibility of increasing revenue by 50%, while noting the other two options are difficult but not impossible.

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