• Performance
• Features
• Reliability
• Conformance
• Durability
• Services ability
• Aesthetics
• Other perceptions that influence quality such as imange.

Real world example :  Airplane production

From news “After more than two years of delays, Boeing Co. said Thursday that it plans to fly its new 787 Dreamliner for the first time as early as next Tuesday.” and “ Boeing has touted the high-tech plane — which is made from 50% composite materials — as a long-range, highly efficient wide-body jetliner that will save airlines millions of dollars in fuel and maintenance costs compared with the types of planes they operate today. Chicago-based Boeing has been locked in a fierce competition for sales with rival Airbus’s A350 composite jet. Largely owing to the program’s delays and the poor global economy, Boeing has lost dozens of orders on the jet and seen some customers switch to current model Airbus A330 jets.”  And “But problems with Boeing’s far-flung outsourced supply chain and engineering and quality-control issues have bedeviled the program”

 My view and analysis :

Among the reasons that seems to be causes of delay launching 787 Dreamliners: supply chain, engineering and quality control issues, I think the major cause is the quality control issues, because the company focus to promote the quality of the airplane.

How many percent of quality control is acceptable?, for example, 99.9% –  2 unsafe planes landing at O hare international Airport in Chicago daily  (Quality Magazine, 1991).

In my view, for the airplane , it could be 100%.

  Related sources :

Buss 522 Course Material

Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 11, 2009.  pg. B.1

http://proquest.umi.com/pqdweb?did=1918984271&sid=1&Fmt=3&clientId=77083&RQT=309&VName=PQD

1. Economic Conditions
2. Political conditions
3. Legal environment
4. Technology
5.   Competition
6.    Markets

Real world example :  Dell

From news “Dell Inc. plans to reorganize its business groups to launch a bigger push into mobile devices”

“. Dell will create a new communications division to develop products such as mobile phones and other portable devices, a spokesman said Friday,” 

“The shifts are part of an effort by Chief Executive Michael Dell to transform his company from a build-to-order computer maker to a vendor of a wide range of technology equipment and services.”

 My view and analysis :

   In my view, the main reasons  that push Dell try to shift from a build-to-order computer maker to a technology equipment and services vendor, are the burden from external factors. Economic conditions, that is still not recover, and directly affects to the marketing conditions.  Target customer sizes are stable or smaller, the demand for new PC  is decrease. While the trend of technology equipment seems to be better. Moreover, in PCs maker market, Dell is at the third rank , lower than 2 core competitors, HP and Acer.  The question is how long the shift work ? I think what Dell do, is what rivals can also do. Maybe the sunk costs make Dell deny to turn back.

Related sources :

Stevenson, W. J. (2009). Operation Management. New York: McGraw-Hill Irwin.

Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 5, 2009.  pg. B.6

 http://proquest.umi.com/pqdweb?index=15&did=1915145271&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1260158613&clientId=77083

      Just in time = A highly coordinated processing system in which goods move through the system

and services are performed, just as they are needed

     Total quality management = A philosophy that involves everyone in an organization in continual

effort to improve quality and achieve customer satisfaction.

     Kaizen = Continueous improvement of the system.

Real world example :  Toyota

       From proquest publication abstract “ Recently, the authors have worked out a new management

principle named New JIT based on TMS, TDS, TPS and TQM-S to strengthen Toyota’s global production

strategy. This paper verifies the effectiveness of the proposed Advancing TPS as the key to New JIT at

Toyota. Toward enabling simultaneous production start-up (the same quality and production at optimal

locations), an integrated network system that utilises QCIS (Quality Control Information System), ARIM

(Availability Reliability Information Administration Monitor), AWD6P/J (Aging & Work Development 6

Project) and V-IOS (Virtual – Intelligence Operator System) by using AOL (Advanced Operator Levels) rank

model, the next-generation, production quality management model TPS-QAS (Toyota Production System-

Quality Assurance System) is proposed. In cases of application, we take up examples for systematic

development of quality assurance technologies to test the validity of TPS-QAS as a new global production

quality management system at Toyota ”

My view and analysis :

     Although Toyota  is success in the lean operation,  they have never stop improving their production, which make

the others cannot catch them.To invent or develop new operation management concept is the way to support

 and enhance their strength.  If their new concepts can pass the validity test , it is not only make the better operation

for more efficiency, but  also strengthen a professional and leader image of the car manufacturing company which is

positive to the product positioning.  Who knows, in the future , TPS- QAS may be  accepted and be  widely applied in

many companies and industries as JIT.

Related sources :

Stevenson, W. J. (2009). Operation Management. New York: McGraw-Hill Irwin.

http://proquest.umi.com/pqdweb?did=1830006491&sid=1&Fmt=2&clientId=77083&RQT=309&VName=PQD

International Journal of Manufacturing Technology and Management. Geneva: 2009. Vol. 18, Iss. 4;  pg. 409

Real World Example : Heart Hospital, Narayana Hrudayalaya Hospital

   From news  ”When I told patients the cost, they would disappear. They literally didn’t even ask about lowering the price,” he says.  “ Dr. Shetty, who entered the limelight in the early 1990s as Mother Teresa’s cardiac surgeon, offers cutting-edge medical care in India at a fraction of what it costs elsewhere in the world. His flagship heart hospital charges $2,000, on average, for open-heart surgery, compared with hospitals in the U.S. that are paid between $20,000 and $100,000, depending on the complexity of the surgery”And  “At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a capacity virtually unheard of in the U.S., where the average hospital has 160 beds, according to the American Hospital Association.Narayana’s 42 cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008, more than double the 1,367 the Cleveland Clinic, a U.S. leader, did in the same year. His surgeons operated on 2,777 pediatric patients, more than double the 1,026 surgeries performed at Children’s Hospital Boston”

 Source: Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 21, 2009.  pg. A.1

My view and analysis :

    In my view, when the heart hospital aims to offer more chances to patients who cannot pay with the high fee, the hospital has to charge at the lower fee , that  means the higher volumn of patients in order to meet break even point and the target profit. Therefore, the next problems is the ability of the hospital to serve the higher demand of patient. To build more bed, is a key part that would help the operation system more flows. The reason is that the patient has no need to wait for surgery or cannot surgery from none available bed. This can reduce the waste time to waiting for surgery and can provide the higher quality of patient because the current patient can stay longer in the hospital, since the hospital has enough bed for the new patient, thus, the current patient can be treated and cured for their health for longer time. The heart hospital can serves more patient. Moreover, hospital will gain from lower cost of medical equipment and material supplies such as medicines from buying in the higher volumn. However, the hospital also need to provide sufficient doctors, nurses, staffs, equipments and material supplies , if not, the quality will lower, the operation flows will stuck and the higher numbers of bed will be useless.

Related sources :

Bus 501 ,Course materials

 Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 21, 2009.  pg. A.1 

Key elements of supply chain management

• Customers = What products/services customers want.

• Forecasting = Predicting the quantity and timing of customer demand.

• Design = Incorporating customers, wants, manufacturability and time to market.

• Capacity planning = Matching supply and demand.

• Processing = Controlling quality, scheduling work.

 • Inventory =Meeting demand requirements while managing the cost of holding inventory.

• Purchasing = Evaluating potential suppliers, supporting the needs of operations on purchased goods and services.

• Suppliers = Monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations.

• Location = Determining the location of facilities.

• Logistic = Deciding how to best move information and materials.

Real World Example : Wal-mart

    From news, “Wal-Mart Profit Rises Despite Slowing Sales — Retailer Offers Muted Holiday Sales View, but Raises Profit Forecast on Lower Inventory, Better Productivity” .. The pressure of rising unemployment and shoppers’ fiscal restraint was a theme echoed by Wal-Mart Chief Executive Michael Duke, who said in a statement: “The economy remains challenging for customers and Wal-Mart sales, but we are encouraged by increased traffic and our market share gains.”

Source : Ann Zimmerman. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 13, 2009. pg. B.3

My view and analysis :

       Wal-mart applies multiple elements of supply chain management to serve the operation strategy ,low cost and organization strategy, low price. Under the decline economics, Wal-mart focuses on low cost that make more market share from the efficiency in manage supply chain. Wal-mart tries to operate better productivity which means the effective uses of resource. Moreover, Wal-mart keeps lower inventory, which can reduce cost of holding inventory. To lower inventory level, it needs quite precisely of the capacity planning, processing and forecasting at what products, when to launch and how much quantity to provide. Moreover, the purchasing and supplier need to be qualified, flexible and reliable timing , and these need to be suit with facilities location and good logistic.

Related sources :

Bus 501 ,Course materials

 Ann Zimmerman. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 13, 2009. pg. B.3 http://proquest.umi.com/pqdweb?index=16&did=1899837061&SrchMode=1&sid=4&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1258156640&clientId=77083

  Why aren’t no- dividend stocks selling at zero ?  Because, a firm with many growth opportunities faces a dilemma. The firm can pay out dividend now, or it can forgo  dividend now so that it can make investment that will generate even greater dividends in the future.The actual application of the dividend discount model is difficult for the firms of this type. Cleary the model for constant growth of dividends does not apply

Real World Example :  eBay ,

 From news,  “EBay Inc. announced a legal settlement with the co-founders of Skype, allowing a planned $2 billion deal to sell a majority share in the Internet communications company to proceed.” ..,”Skype will be well positioned to move forward under new owners with ownership and control over its core technology,” said eBay Chief Executive John Donahoe. .. “ Under the new terms, private-equity firm Silver Lake, venture-capital firm Andreessen Horowitz and the Canada Pension Plan Investment Board will together own 56% of Skype, while eBay will retain 30%”

Source : Geoffrey A. Fowler. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 7, 2009. pg. B.5

My view and analysis  :  

     eBay has no need to pay a dividend to motivate investor, because the company has many positive growth opportunities . Therefore, anything that effect to the positive growth opportunities, will effect to eBay stock price.  At first, eBay tried to growth from buying Skype, however,  it was not success . Thus, eBay solves the problem by trying to sell Skype. Right now, after passing many problems about the legal of co-founder and other investors, eBay can sell Skype stock majority and hold stock for only 30 %. That means the major risk of eBay negative growth from Skype has been transferred, and the rest is minor risk which depend on the new control from new owner of Skype.  

Related sources 

:  Bus 501 ,Course materials     

: Geoffrey A. Fowler. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 7, 2009. pg. B.5

http://proquest.umi.com/pqdweb?index=7&did=1895500291&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1257649733&clientId=77083

Valuation of different types of stocks

1. Zero Growth : Assume that  dividends will stay the same level forever

           P₀ = Div / R

1. Constant Growth : Assume that dividends will grow at constant rate forever

          P₀ = Div ₁ / (R – G)

1. Differential Growth : Assume that dividends will grow at different rates in the foreseeable future,and then grow at a constant rate thereafter.

          P = {( C / (R – G₁ )) * [ 1- ((1+G₁ )^T  /(1+R )^T ]}+  {(Div _N+1 /R- G₂ )/(1+R)^N}         

Real World Example :  From news, 

“Corporate Office Properties Trust (OFC), which is a real estate investment trust (REIT) that engages in the acquisition, development, ownership, management, and leasing of suburban office properties., increased its quarterly dividend by 5.4% to 39.25 cents per share. Corporate Office Properties Trust is a dividend achiever, which has increased its quarterly dividend in each of the past thirteen years, which it has more than doubled since 2004. The stock currently yields 4.10%.”   20 Sept 09

Source : www.dividendgrowthinvestor.com

My view and analysis  :  

    The stock issued by Corporate Office Properties Trust , with the continuous increase quarterly dividend for 13 years, is the stock with dividend growth at the  different growth rates, obviously seen in 2004.The latest rate increase is 5.4%, with annual dividend per share is  4.10% of price per share.

   I wonder how can the company keep the increasing during global economics crisis and remain the continuous growth of dividends for 13 years !.  Or actually, if decide in term of present value by calculate back to present value of the first date, it may not continuous increase for 13 years ?!?

Related sources 

:  Bus 501 ,Course materials     

: http://www.dividendgrowthinvestor.com/2009/09/eight-dividend-increases-in-news.html

•   Relation ship between interest rate and bond price -  A level of coupon bond sells in the following ways :

1. At the face value of the coupon rate is  = the market wide interest rate
2. At  a discount of the coupon rate is < the market wikde interest rate
3.  At a premium of the coupon rate is > the market wide interest rate

•    Yield to maturity   - what the return is a bondholder receiving , or yield to maturity is a discount rate that equates the price of the bond with the discounted value of the coupons and face value.

 Real word example :      

 Source - WWW. cxa.marketwatch.com

My view and analysis  :  

     The above is the Bond issued by COCA COLA BOTTLING CO CONS , with the fixed coupon rate at 5% until 15.11.2012  , and the last sells  at 23.10.09, with the  price at 104.055 $ with Yield to maturity 3.582% , and it also the highest price per day. When comparing to the offer price at the original issue which is 98.734 $ , the price is obviously higher, that means as at 23.10.09, the  bond can sales at a premium, because the coupon rate is higher than the market wide interest rate.

Related sources 

:  Bus 501 ,Course materials     

: http://cxa.marketwatch.com/finra/BondCenter/BondDetail.aspx?ID=MTkxMDk4QUUy

PV   =  C / ( 1+R )

NPV =  – Investment + PV of Future cash flows

Perpetuity (  A constant steam of cash flows  that lasts forever)    PV = C/R

Annuity ( A stream of constant cash flows that lasts for a fixed number of period )   PV =  (C/R ) *( 1 – ( 1/( 1+R)^t )

Note :

• C = Cashflows
• R = Expected return = Risk free rate + Risk adjusted
• T = time period

Real word example :  To calculate the apartment rental return such as

3450 Crittendon   St. Louis, MO 63118  $655 per month  ( Source : http://apartments.rentals.com )

 My view and analysis  :  

For the owner , the return is 655 per month. If a person rent for  this  house at the fixed rate for 3 years.  ( Assume that expected return is  5 % per year )

The owner will receive the total money as present value  by  Annuity formula

PV  =  (C/R) * ( 1 – ( 1/( 1+R)^t )

⁼ (655/(0.05/12))*(1-(1/((1+(0.05/12))³⁶)))

           = 21,855 $

That means for 3 years, total money the owner will get  ( 655*36) = 23,580 $  and its value at present = 21,855 $

 Moreover, if the owner would like to know roughly that  how many years the return will cover for the investment ( if invest today ) , the owner can also use with the NPV formula  to figure out  by solve the equation with the investment .

Related source 

:  Bus 501 ,Course materials     

:  http://apartments.rentals.com/Home-Rentals/Display.aspx?ListingNumber=979948

Concept

 Liquidity Ratios :

• Current Ratio = CA / CL   -  to show the solvency from current asset against current liability.
• Quick Ratio = (CA – Inventory) / CL  ,  or “acid test”   -  to  specify  whether the company current assets which can be quickly converted into cash are sufficient to cover current liabilities.  ( Note: The Quick Ratio assumes that all assets are of equal liquidity. Receivables are one step closer to liquidity than inventory )
• Cash Ratio = Cash + marketable secuirty / CL    -  to  specify  whether  only cash and high liquidation asset are sufficient to cover current liabilities.

Inventory Turnover :   Cost of sales / inventory   or   Sales / Inventory  – to show the turnover rate , normally use to compute day sales inventory turnover.

Profitability Measures : to show the overall effectiveness of management from returns generated on sales and investment.

• Profit margin = NI / Sales    >> to show that average markup on goods normally cover your expenses.
• Return on Assets ( ROA ) = NI / TA  >> to show how profitable a company’s assets are in generating revenue. ROE is best used to compare companies in the same industry
• Return on Equity ( ROE ) = NI / TE  >>  to show  how much profit a company has earned in comparison to the total amount of shareholder equity found on the balance sheet. ROE is best used to compare companies in the same industry.

Real word example :  Nike, Inc. (NKE )  financial ratio

My view and analysis  :  

 In my view, from the ratio presented in Nasdaq of Nike, Inc.

Liquidity Ratios :

Current ratio  -  Quite good, from 2 reasons, first, the firm has more than twice times of quick asset  to cover the short term debt  and second, the ratio is increase from the prior year.

Quick Ratio –  Quite good , from the total current asset, the current asset which can quickly convert into cash is still quite be the major of total asset.

Cash ratio – Quite good, from 2 reasons, first, just only cash and cash equivalent  can cover the current liability, that means the company has strong potential to paid off current liability immediatly  , secondly, the ratio is improve from the prior year.

Inventory turnover : the turnover is higher, the company can flows quicker of inventory sold from inventory balance, the day sales  inventory turnover ( = 365 / inventory turnover ) in this year is about 45 days while in the prior year is about  48 days. The day sales turnover 45 days means , normally, it would take 45 days for sale of all inventory, if it is match with inventory production rate , it would be not over or under stock, but if it is lower than production rate in significant, the company may have the problem of overstock , on the other hand, if it is higher than production rate in significant, the company will face the shortage stock problem.

Profitability ratio :

Gross margin – the company maintain the gross margin from the prior year, which means there is no significant changes in price and cost structure.

Operation margin – the margin is decline from the prior year, despite the gross margin is the same, that means in this year, the company has significant increase of some operating expense ( S&A/ others ). And these expenses, cannot generate income enough to make higher margin, not even to keep the margin as prior year.

Pre- tax margin – the margin is effect along with the operation margin, which decrease from prior year.

Profit margin -  decrease from the prior year, this is because, in this year, the company have the significant  higher operation expense that cannot generate much more income.

Pre- tax ROE  – is quite decrease from last year, from 2 reasons, firstly,  lower of earning before tax ( EBT) , secondly, the increase of total equity, mainly from capital surplus and retain earnings. ( See the Balance sheet as >>http://www.nasdaq.com/asp/ExtendFund.asp?symbol=NKE&selected=NKE)

After tax ROE – is quite decrease from last year, from 2 reasons, firstly,  lower of earning before tax ( EBT) , secondly, the increase of total equity, mainly from capital surplus and retain earnings. ( See the Balance sheet as >>http://www.nasdaq.com/asp/ExtendFund.asp?symbol=NKE&selected=NKE)

In conclusion :  In overall, I think, the company has better liquidity ratio, but the profitable is decrease from the higher operating expenses that cannot generate much  more higher income. However, actually, it should be consider with others in the same industries. Moreover, this is just the roughly consideration,  there are still many ratios related that does not mentioned, which is significant and related to the company financial performance.

Related source 

:  Bus 501 ,Course materials     

:  http://en.wikipedia.org   

:  http://www.nasdaq.com/asp/ExtendFund.asp?symbol=NKE&selected=NKE