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Operations Management

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Title: Operations Management


1
Operations Management
  • International Ph.D.
  • 2009

2
What is OM
  • McDonalds was considering a switch to a
    hamburger bun not requiring toasting
  • In trial test customers seemed to prefer the new
    buns taste and texture
  • Not toasting buns should translate into
    substantial cost savings due to reduced
    preparations time and elimination of toasting
    equipments

3
What is OM
  • Kmart was clearly dominating the discount chain
    race in the 80s with sales of 26 billion/year,
    while Wal-Mart had 16
  • By 91 Wal-Mart had overtaken Kmart
  • By 2000 Wal-Mart sales was 188 bn, Kmart had 36
  • Kmart initiated a marketing campaign with Jaclyn
    Smith (Charlies Angel)
  • While Wal-Mart reorganized its supply chain

4
What is OM
  • Sleep Inns to minimize the size of the
    housekeeping staff, nightstands are attached to
    the wall, so there are no legs to be vacuumed
    around
  • Closets have no doors to open and close, rounded
    shower stalls are used to eliminate corners
  • Advanced security system logs the time a maid
    insers her card and enters a room and is used to
    track the maids time
  • The system permits guests to use their credit
    cards to enter the room
  • To clean a room takes 20 minutes vs 30, the
    industry standard, the 92 rooms is operated by
    the equivalent of 11 full time worker

5
What is OM
  • Operations is concerned with transforming inputs
    into useful outputs and thereby adding value to
    some entity
  • People too must operate productively, adding
    value to inputs and producing quality outputs,
    whether those outputs are information, reports,
    services, products, or even personal
    accomplishments

6
What is OM
  • OM IS DEFINED AS THE MANAGEMENT OF DIRECT
    RESOURCES REQUIRED TO PRODUCE THE GOODS AND
    SERVICES
  • MANAGEMENT OF PROCESSES CREATING GOODS AND/OR
    SERVICES

7
Types of inputs
  • Transforming inputs facilities, tools,
    knowledge, workforce
  • Inputs to transform raw materials, parts,
    subassemblies, customers, supplies
  • Operations functions quite frequently fails in
    its task because it can not complete the
    transformations activities within the required
    time limit

8
Transformation
  • The transformation system is the part of the
    system that adds value to the inputs. Value can
    be added to an entity in a number of ways, for
    example
  • Alter physical, sensual, psychological
    alterations
  • Transport
  • Store
  • Inspect

9
Outputs
  • Facilitating goods any physical entity
    accompanying a transformation that adds value
  • Pure services transformations process is not
    accompanied by facilitating good
  • Services bundles of benefits providing value for
    customer, maybe tangible or intangible

10
Products and services
  • Tangible
  • Minimal contact with customer
  • Minimal participation by customer in the delivery
  • Delayed consumption
  • Equipment intense production
  • Quality easily measured
  • Intangible
  • Extensive contact with customer
  • Extensive participation by customer in the
    delivery
  • Immediate consumption
  • Labor intense production
  • Quality difficult to measure

11
Physical and information outputs
  • Seller no longer owns when sold
  • Replication requires manufacturing
  • Output exists in single location
  • Subject to dinimishing returns
  • Wears out
  • Seller continues to possess after sale and can
    sell again
  • Replication at negliable cost and without limit
  • Output can exist in multiple locations
    simultaneously
  • Subject to perfectly increasing returns
  • Does not wear out

12
Experience economy
  • commodities

customization
goods
services
experience
commoditization
13
Experience economy
  • Only few cents for each sup of coffee sold to the
    grower
  • After grinding and packing the manufacturer
    receives between five and 25 cents per cup
  • In a fast food restaurant or convenience store
    brewer receives around 1
  • In a five-star, specialized coffee restaurant
    2-5!

14
NEED FOR OM
  • 1. COMPETITION HAS CHANGED JAPAN
  • 2. NEW OPERATIONS TECHNOLOGIES AFFECTS THE WAYS
    FIRMS CONDUCT THEIR BUSINESS
  • 3. FORTUNE 500
  • 4. MANAGERS SHOULD KNOW THEIR BUSINESS
  • 5. CONCEPTS OF OM CAN BE USED IN MANAGING OTHER
    FUNCTIONAL AREAS
  • 6. CARRIER

15
JAPAN
  • 1. IMPROVE THE QUALITY OF PRODUCT/SERVICE
  • 2. INCREASE PRODUCTIVITY
  • 3. DECREASE COSTS IN 1 AND 2
  • 4. INCREASE MARKET SHARE BASED ON THE ABOVES
  • 5. ENTER FINANCIAL MARKETS AND FINANCE NEW
    PRODUCTS/SERVICES

16
Questions discussed
  • 1. PRODUCTIVITY
  • 2. QUALITY
  • 3. COMPETITIVENESS
  • 4. CUSTOMER SATISFACTION

17
Brief definitations
  • PRODUCTIVITY A MEASURE OF THE EFFECTIVE USE OF
    RESOURCES
  • QUALITY THE ABILITY OF PRODUCT OR SERVICE TO
    CONSISTENTLY MEET OR EXCEED CUSTOMER EXPECTATION
  • COMPETITIVENESS HOW EFFECTIVELY AN ORGANIZATION
    USES IT RESOURCES COMPARED TO OTHERS THAT OFFER
    SIMILAR PRODUCTS OR SERVICES
  • CUSTOMER SATISFACTION VALUE

18
Topics to discuss
  • Operations strategy
  • Product and process design
  • Capacity planning
  • Facility location and layout
  • Production planning
  • Inventory management
  • Project management
  • Supply chain management
  • Quality control and management

19
Trends
  • GLOBAL MARKETPLACE
  • INCREASED ROLE OF OM STRATEGY
  • TQM
  • FLEXIBILITY
  • TIME BASED COMPETITION
  • INCREASED ROLE OF EMPLOYEES EMPOWERMENT

20
Vision statement
  • Are used to express the organizations values and
    aspirations
  • MISSION STATEMENT expresses organizations
    purpose or reason for existence
  • WHAT BUSINESS WE ARE? WHERE SHOULD WE BE SOME
    YEARS FROM NOW
  • WHO ARE OUR CUSTOMERS
  • WHAT ARE OUR BASIC BELIEFS?
  • WHAT ARE THE BASIC PERFORMANCE OBJECTIVES?

21
ELCOTEQ
  • ELCOTEQS MISSION IS TO CONTINUOUSLY IMPROVE THE
    PERFORMANCE AND COMPETITIVENESS OF THE ENTIRE
    VALUE CHAINS IN WHICH IT PARTICIPATES, THROUGH
    CO-EVOLUTION WITH ITS CUSTOMERS AND SUPPLIERS, IN
    ORDER TO INCREASE THE VALUE OF THESE VALUE CHAINS
    TO ALL STAKEHOLDERS

22
CIA vision and mission
  • Our vision is to be the keystone of a US
    Intelligence Community that is preeminent in the
    world, known for both the high quality of our
    work and the excellence of our people
  • Our mission is that we support the President, the
    National Security Council, and all who make and
    execute US national security policy by
  • Providing accurate, evidence based, comprehensive
    and timely foreign intelligence related to
    national security, and
  • Conducting counterintelligence activities,
    special activities, and other functions related
    to foreign intelligence and national security as
    directed by the President

23
Core competencies
  • Are the collective knowledge and skills an
    organization has that distinguish it from
    competition
  • These core competencies are the building blocks
    for organizational practices and business
    processes, referred to as core capabilities

24
MARKET ANALYZIS
  • MARKET SEGMENTATION IDENTIFICATION OF GROUPS OF
    CUSTOMERS WITH ENOUGH CHARACTERISTICS IN COMMON
    AND IDENTIFICATION OF CLEARLY DIFFERENTIATING
    FACTORS
  • FACTORS DETERMINING CHARACTERISTICS
  • INDUSTRY
  • DEMOGRAPHIC
  • PSYCHOLOGICAL

25
NEEDS ASSESMENT
  • IDENTIFYING THE NEEDS OF EACH SEGMENTS AND THE
    ASSESSMENT OF HOW WELL COMPETITORS ADDRESS THOSE
    NEEDS
  • CUSTOMER BENEFIT PACKAGE
  • MARKET NEEDS CAN BE GROUPED
  • PRODUCT/SERVICE ATTRIBUTES OF P/S - PRICE, Q,
    CUSTOMIZATION
  • DELIVERY SYSTEM ATTRIBUTES OF PROCESS TO DELIVER
    THE P/S
  • VOLUME ATTRIBUTES OF DEMAND FOR P/S -
    PREDICTABILITY, SEASONS
  • OTHER AFTER SALE SUPPORT, RELIABLE BILLING

26
ENVIRONMENT SCANNING
  • ECONOMIC TRENDS
  • SOCIAL CHANGES
  • POLITICAL CONDITIONS
  • POWER OF SUPPLIERS AND CUSTOMERS

27
COMPETITION AND COMPETITORS
  • DISTINCTIVE COMPETENCIES
  • WORK FORCE
  • FACILITIES
  • MARKET AND FINANCIAL KNOWLEDGE
  • TECHNOLOGICAL KNOWLEDGE

28
COMPETETIVE PRIORITIES
  • COST
  • QUALITY HIGH PERFORMANCE, CONSISTENCY,
    RELIABILITY
  • TIME FAST, ON TIME DELIVERY, DEVELOPMENT
    SPEED
  • FLEXIBILITY CUSTOMIZATION, VOLUME FLEXIBILITY

29
MARKETING
  • INTERPRETING CUSTOMERS NEEDS
  • BUILDING CUSTOMERS EXPECTATION
  • PRICE
  • INFLUENCING DEMAND

30
FINANCE
  • BUDGETING
  • ECONOMIC ANALYSIS OF INVESTMENT PROPOSALS
  • PROVISION OF FUNDS

31
OM
  • IS THE FUNCTION THAT ENABLES ORGANIZATIONS TO
    ACHIEVE THEIR GOALS THROUGH EFFICIENT ACQUISITION
    AND UTILIZATION OF RESOURCES
  • REFERS TO THE DIRECTION AND CONTROL OF THE
    PROCESSES THAT TRANSFORM INPUTS INTO FINISHED
    GOODS AND SERVICES

32
OM COVERAGE
  • CROSS FUNCTIONAL CONNECTIONS
  • CUSTOMER DRIVEN OM STRATEGY
  • PROCESS CHOICE
  • TQM
  • CURRENT DEVELOPMENT IN OM
  • INVENTORY MANAGEMENT
  • SERVICE OPERATIONS
  • DECISION MAKING
  • QUANTITATIVE METHODS
  • CASES

33
Internal value chain
Support processes
External customers
External suppliers
New serv/product development process
Cusotmer relationship process
Order fulfillment process
Supplier relationship process
34
Internal Value-Chain Linkages Showing Work and
Information Flows
Figure 1.3
35
Business strategies
  • Utilize organizations core competencies/capabilit
    ies to create and maintain a unique strength or
    focus that leads to a sustainable competitive
    advantage

36
Business strategies
  • Successful companies are the ones that have
    demonstrated a continuous, single minded
    determination to achieve one or both of the
    following competitive positions within their
    industries

37
Business strategies
  • Have the lowest cost compared with the
    competition. If the quality of the output is
    acceptable, then the firm can adopt a very
    competitive pricing policy that will gain
    profitable volume and increase market share
  • Have an outstanding strength (short lead time,
    advanced technology, high quality,) that
    differentiate a firm from competition, and valued
    in the marketplace

38
Areas of organizational focus
  • Innovation Sony
  • Customization National bycicle
  • Flexibility Casio
  • Performance a Lexus SUV
  • Quality a bottle Gere cab. Sav. Wine from
    Kopar dulo
  • Reliability of the product/service Mazda
  • Reliability of delivery UPS
  • Response offering very short lead time
  • After sale service life time warranty
  • Price having the lowest price

39
environment
customers
Core competencies and capabilities
Vision/mission
competitors
Business strategy
Competitive priorities
Functional strategies
40
Competitive Priorities
  • Capabilities
  • current
  • needed
  • planned

Figure 2.1
41
Categories of business strategies
  • First to market to have products available
    before the competition
  • Second to market try to quickly imitate
    successful outputs
  • Cost minimization or late-to-market wait until a
    product becomes fairly standardized and is
    demanded in large volumes
  • Market segmentation serving niche markets with
    specific needs

42
Operations strategy
  • Is the creation of operations system that helps
    achieve business strategy

43
Operations system is determined by
  • The type of product design customized or
    standardized
  • The type of process process or product focused
  • The type of inventory policy make to stock, or
    make to order
  • The degree of customer contact

44
Product-Process Matrix for Processes
Figure 3.6
45
Different Dimensions of Customer Contact in
Service Processes
Figure 3.2
46
Customer-Contact Model for Processes
Figure 3.3
47
Decision Patterns for Manufacturing Processes
High Volume Customer Contact Low Volume
Figure 3.11
48
Decision Patterns for Service Processes
High Contact Customer Contact Low Contact
Figure 3.11
49
PRODUCT AND PROCESS DESIGN
  • OBVIOUS LINK BETWEEN THE DESIGN OF A
    PRODUCT/SERVICE
  • AND
  • THE SUCCESS OF THE ORGANIZATION
  • ORGANIZATIONS PRODUCTS/SERVICES ARE THE ULTIMATE
    BASIS FOR JUDGING THE ORGANIZATION

50
OBJECTIVES OF P/S DESIGN
  • TO SATISFY CUSTOMERS NEED WHILE MAKING
    PROFIT
  • TO BE FIRST IN MARKET
  • DESIGN FOR MANUFACTURABILITY
  • INCREASE QUALITY
  • DECREASE COST

51
MOTIVATIONS FOR DESIGN
  • TO ACHIEVE THE GOALS OF THE ORGANIZATION
  • APPEARANCE OF NEW TECHNOLOGY
  • CUSTOMERS
  • IDEAS
  • RD
  • REVERSE ENGINEERING
  • MANUFACTURABILITY

52
BASIC RESEARCH
  • ADVANCING THE STATE OF KNOWLEDGE WITHOUT ANY
    NEAR-TERM COMMERCIAL APPLICATION
  • APPLIED RESEARCH ACHIEVING COMMERCIAL
    APPLICATION
  • DEVELOPMENT CONVERTING APPLIED RESEARCH INTO
    USEFUL COMMERCIAL APPLICATION

53
TRENDS IN P/S DESIGN
  • INCREASED EMPHASIS ON CUSTOMER SATISFACTION,
    TQM
  • REDUCED TIME FOR INTRODUCING NEW PRODUCTS
  • REDUCED TIME TO PRODUCE THE PRODUCTS
  • GREATER ATTENTION ON THE CAPABILITIES OF THE
    ORGANIZATIONS TO PRODUCE AND DELIVER THE
    ITEM
  • P/S THAT ARE USER-FRIENDLY

54
DIFFERENCES BETWEEN SERVICE AND PRODUCT DESIGN
  • SERVICE DESIGN OFTEN FOCUSES MORE ON INTANGIBLE
    FACTORS
  • LESS LATITUDE IN FINDING AND CORRECTING
    ERRORS
  • SERVICES CANNOT BE INVENTORIED. CAPACITY DESIGN
  • SERVICES ARE HIGHLY VISIBLE
  • LOW ENTRY BARRIERS FOR SERVICES - INNOVATION
  • LOCATION - CONVENIENCE FOR CUSTOMERS

55
PROCESS MANAGEMENT
  • SELECTION OF INPUTS, OPERATIONS, WORK FLOW,
    METHODS FOR PRODUCING P/S
  • MUST BE MADE WHEN
  • NEW P/S IS ON OFFER
  • Q TO BE IMPROVED
  • COMPETITIVE PRIORITIES CHANGES
  • DEMAND CHANGES
  • NEW TECHNOLOGY IS USED BY COMPETITION
  • COST OF INPUTS CHANGES
  • PERFORMANCE IS IN TROUBLE

56
MAJOR PROCESS DECISIONS
  • PROCESS STRUCTURE
  • DETERMINATION OF DESIRED AMOUNT AND TYPE OF
    CUSTOMER CONTACT AND COMPETITIVE PRIORITIES
    PROCESS MUST ACHIEVE
  • DETERMINATION OF VOLUME LEVEL AND AMOUNT OF
    CUSTOMIZATION AND COMPETITIVE PRIORITIES PROCESS
    MUST ACHIEVE
  • THE CONSEQUENCE IS THE
  • PROCESS CHOICE PROJECTS, BATCH, LINE, CONTINUOUS

57
Major Decisions for Effective Process Design
Figure 3.1
58
VERTICAL INTEGRATION
  • FORWARD
  • BACKWARD
  • HOLLOW CORPORATIONS
  • VIRTUAL CORPORATIONS

59
MAKE OR BUY
  • - AVAILABLE CAPACITY
  • - EXPERTISE
  • - QUALITY CONSIDERATIONS
  • - THE NATURE OF DEMAND
  • -COST

60
RESOURCE FLEXIBILITY
  • WORK FORCE
  • EQUIPMENT
  • CUSTOMER INVOLVEMENT
  • SELF-SERVICE
  • PRODUCT SELECTION/DESIGN
  • TIME AND LOCATION

61
CAPITAL INTENSITY
  • MIX OF EQUIPMENT AND HUMAN SKILLS IN THE PROCESS
  • FIXED AUTOMATION
  • FLEXIBLE AUTOMATION

62
HIGH VOLUMES TIPICALLY MEANS
  • LINE OR CONT. FLOW
  • MORE VERTICAL INTEGRATION
  • LESS RESOURCE FLEXIBILITY
  • LESS CUSTOMER INVOLVEMENT
  • MORE CAPITAL INTENSITY
  • HOWEVER SEE
  • JAPAN FOR INTEGRATION, FLEXIBILITY
  • ECONOMIES OF SCOPE
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