Operations Management

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Operations Management

• International Ph.D.
• 2009

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Experience economy

• commodities

customization
goods
services
experience
commoditization
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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!

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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

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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

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Questions discussed

• 1. PRODUCTIVITY
• 2. QUALITY
• 3. COMPETITIVENESS
• 4. CUSTOMER SATISFACTION

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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

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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

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Trends

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

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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?

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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

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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

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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

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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

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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

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ENVIRONMENT SCANNING

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

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COMPETITION AND COMPETITORS

• DISTINCTIVE COMPETENCIES
• WORK FORCE
• FACILITIES
• MARKET AND FINANCIAL KNOWLEDGE
• TECHNOLOGICAL KNOWLEDGE

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COMPETETIVE PRIORITIES

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

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MARKETING

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

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FINANCE

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

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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

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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

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Internal value chain
Support processes
External customers
External suppliers
New serv/product development process
Cusotmer relationship process
Order fulfillment process
Supplier relationship process
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Internal Value-Chain Linkages Showing Work and
Information Flows
Figure 1.3
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Business strategies

• Utilize organizations core competencies/capabilit
  ies to create and maintain a unique strength or
  focus that leads to a sustainable competitive
  advantage

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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

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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

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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

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environment
customers
Core competencies and capabilities
Vision/mission
competitors
Business strategy
Competitive priorities
Functional strategies
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Competitive Priorities

• Capabilities
• current
• needed
• planned

Figure 2.1
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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

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Operations strategy

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

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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

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Product-Process Matrix for Processes
Figure 3.6
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Different Dimensions of Customer Contact in
Service Processes
Figure 3.2
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Customer-Contact Model for Processes
Figure 3.3
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Decision Patterns for Manufacturing Processes
High Volume Customer Contact Low Volume
Figure 3.11
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Decision Patterns for Service Processes
High Contact Customer Contact Low Contact
Figure 3.11
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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

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OBJECTIVES OF P/S DESIGN

• TO SATISFY CUSTOMERS NEED WHILE MAKING
  PROFIT
• TO BE FIRST IN MARKET
• DESIGN FOR MANUFACTURABILITY
• INCREASE QUALITY
• DECREASE COST

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MOTIVATIONS FOR DESIGN

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

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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

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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

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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

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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

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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

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Major Decisions for Effective Process Design
Figure 3.1
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VERTICAL INTEGRATION

• FORWARD
• BACKWARD
• HOLLOW CORPORATIONS
• VIRTUAL CORPORATIONS

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MAKE OR BUY

• - AVAILABLE CAPACITY
• - EXPERTISE
• - QUALITY CONSIDERATIONS
• - THE NATURE OF DEMAND
• -COST

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RESOURCE FLEXIBILITY

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

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CAPITAL INTENSITY

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

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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