Operations Management: Financial Dimensions

Operations Management

• Definition: Involves the implementation of policies and tasks to satisfy customers, employees, management, and stockholders in a firm.
• Impact: Major influence on sales and profits.

Profit Planning

• Profit-and-loss Statement: A financial document summarizing revenues and expenses over a specific time.
  • Time Frames: Can be analyzed yearly, quarterly, or monthly.
  • Comparison Periods: Often compared to similar periods (e.g., This Year vs. Last Year).

Major Components of a Profit-and-Loss Statement

• Net Sales: Revenues after returns, markdowns, and discounts.
• Cost of Goods Sold (COGS): Cost incurred to acquire sold merchandise.
• Gross Profit (Margin): ext{Gross Profit} = ext{Net Sales} - ext{Cost of Goods Sold}
• Operating Expenses: Costs associated with running the business.
• Net Profit After Taxes: Profit remaining after all expenses and taxes, calculated as ext{Net Profit After Taxes} = ext{Net Profit Before Taxes} - ext{Taxes} .

Example Profit-and-Loss Statement

• Net Sales: $330,000
• Cost of Goods Sold: $180,000
• Gross Profit: $150,000
• Operating Expenses: $95,250
• Other Costs: $20,000
• Total Costs & Expenses: $115,250
• Net Profit Before Taxes: $34,750
• Net Profit After Taxes: $19,250.

Asset Management

• Definition: Management of a retailer's assets and liabilities.
• Balance Sheet Formula: ext{Assets} = ext{Liabilities} + ext{Net Worth}

Types of Assets

• Current Assets: Cash, inventory, and accounts receivable.
• Fixed Assets: Property, buildings, and equipment.

Types of Liabilities

• Current Liabilities: Short-term obligations due within a year (e.g., payroll expenses, accounts payable).
• Fixed Liabilities: Long-term obligations (e.g., mortgages and long-term loans).

Budgeting

• Purpose: Outlines planned expenditures based on expected performance and sets structured financial goals.
• Benefits:
  • Performance-based expenditures.
  • Adjustability as goals change.
  • Efficient resource allocation.
  • Structured and integrated planning.

Retail Budgeting Process

• Preliminary Decisions: Include budgeting authority, time frame, frequency, cost categories, level of detail, and budget flexibility.

Cash Flow Management

• Definition: Relates to timing of revenues received versus expenditures.
• Objective: Ensure revenues are received before expenditures are made.
• Tools for Management: May require short-term loans if cash flow is weak.

Resource Allocation

• Types:
  • Capital Expenditures: Long-term investments in assets.
  • Operating Expenditures: Short-term running costs.
  • Opportunity Costs: Benefits forfeited by choosing one opportunity over another.

Productivity Measurement

• Key Performance Indicators:
  • Sales per square foot.
  • Inventory turnover.
  • Costs/Sales ratio.
• Improvement Strategies: Increase sales via better performance and reduce costs through automation.

Funding Sources

• Mortgages: Refinancing can lessen monthly payments.
• REITs: Used for funding construction by investing in income-generating real estate.
• IPOs: Raise capital through stock sales for expansions.

Bankruptcy & Liquidations

• Bankruptcy Advantages: Protection against debts, and ability to renegotiate obligations.
• Liquidations: Result in permanent closure of the business.

Operational Decisions

• Factors Considered: Operating guidelines, store formats, inventory management, and personnel alignment with customer traffic.

Store Maintenance**

• Areas Included:
  • Exterior Maintenance: Parking, signage, and entry points.
  • Interior Maintenance: Floors, lighting, fixtures, etc.

Inventory Management

• Goal: Maintain proper merchandise assortment efficiently.
• Decisions: Include coordination with suppliers, inventory levels on sales floors vs. storerooms, acceptable breakage rates, etc.

Store Security

• Basic Issues: Personal and merchandise security for both employees and customers.

Insurance Management**

• Key Considerations: Rising premiums and the importance of safety measures in retail environments.

Credit Management Decisions

• Considerations:
  • Acceptability of payment forms.
  • Administration of credit plans.
  • Handling of late payments.

Outsourcing

• Definition: Engaging outside parties for operational functions to reduce costs and save employee time.

Crisis Management

• Importance: Establishing contingency plans for various crisis situations and effective communication during a crisis.