Irwin/McGraw-Hill Operations Management Definition Operations management is defined as the design,...
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Transcript of Irwin/McGraw-Hill Operations Management Definition Operations management is defined as the design,...
Irwin/McGraw-Hill
Operations Management Definition
Operations management is defined
as the design, operation, and
improvement of the systems that
create and deliver the firm’s primary
products and services.
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Why Study Operations Management?
OperationsManagement
Business Education/Career Opportunities
Systematic Approachto Org. Processes
Increase Competitive Advantage/Survival
Cross-FunctionalApplications
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Current Trends
96 of the top 100 industries in the U.S. have large $ worth of exports. Exporting industries are characterized by early ongoing investments in advanced product and process technologies.
Productivity is increasing and has become a basis for competition. Success domestically and globally is dependent on the ability to compete on many fronts, including operations (e.g., internet - easy to find potential customers, but hard to deliver)
Outsourcing of manufacturing and services (e.g., India and China) is accelerating.
WS8
**Wickham Skinner: The Role of the Industrial Managers in the Massive U.S. Negative Trade Balance, April 2000
Factors Affecting a Firm's Ability to Ward off Imports and/or Export
Externaltransportation costslogistics resourceslabor supply, capabilitiestraining resourcescommunicationspublic infrastructure
Environmental/socialenvironmental protectionhealth costslabor unionseducation systemconsumer tastesretailing capabilitiesemployee
Economic/Politicalexchange ratestrade barrierscapital costsinflationcapital availabilitysocial costs/legalfunds flowssavings rateinterest ratesminimum wage
Suppliersabilitiescoordinationlocationcompetitioncooperation
TechnologicalR&Dengineeringproduct developmentprocess developmentnew productsdevelopment process
Corporatestrategyrisk avoidancerole of functionsFin-Mktg-Mfg-Eng-R&Dbalance sheetfinancial capacitymarketing policiesexport sales competenciesTechnological sophistication of mgt
Operationscosts/productivityqualitydelivery cycledelivery reliabilityflexibility for prod changeflexibility for vol. changeNew product introductioninventory mgt.Prod. Planning ControlEquip. & process tech#, size, location of facilitieslogisticscustomer serviceinformation technology
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Operations Decision Making
People Plants Parts Processes
Planning and Control
Materials &Customers
Products &Services
Input Output
Operations Management
Marketing Strategy
Finance Strategy
Marketplace
Corporate Strategy
Operations Strategy
The Transformation Process (value adding) 4
Irwin/McGraw-Hill
Key OM Concepts
Efficiency - Doing something at the lowest possible cost
Effectiveness - Doing the right things to create the most value for the organization
Value - Quality divided by price
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Transformations
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications
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Examples of Production SystemsSystem Inputs Conversion Output
(desired)
Hospital PatientsMDs, NursesMedical SuppliesEquipment
Health Care HealthyIndividuals
Restaurant Hungry CustomersFood, ChefServersAtmosphere
Prepare FoodServe Food
SatisfiedCustomers
AutomobilePlant
Sheet SteelEngine PartsTools, EquipmentWorkers
Fabricationand Assemblyof Cars
High QualityAutomobiles
University High School GradsTeachers, BooksClassroom
Transferringof Knowledgeand Skills
EducatedIndividuals
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Service or Good?
“If you drop it on your foot, it won’t hurt you.” (Good or service?)
“Services never include goods and goods never include services.” (True or false?)
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What about McDonald’s?
Service or Manufacturing?
The company certainly manufactures tangible products
Why then would we consider McDonald’s a service business?
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Core “Factory Services”
Core Services are basic things that customers want from products that they purchase.
Quality Flexibility Speed Price (or production cost)
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Value-Added Services
Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way.
Information Problem Solving and Field Support Sales Support
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History of Operations
Cottage System TIME<1700
1700 - 18001850s
1890s
1910s
1930s
1940s
1970s
1980s
1990s
Industrial Revolution Civil War Scientific Management
Hawthorne Studies
Mass Customization
Service Revolution
Global Competition
Operations Research
Moving Assembly Line
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Development of OM as a Field – The Names and Emphasis Change, but the Elements Remain Basically the Same!
ScientificManagement
Moving AssemblyLine
HawthorneStudies
OperationsResearch
HistoricalUnderpinnings
Manufacturing Strategy
TQM & Six Sigma
JIT/Lean Manufacturing
Business ProcessReengineering
ManufacturingResources Planning
ElectronicEnterprise
Service Qualityand Productivity
Global SupplyChain Mgt.
OM’s Emergenceas a Field
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Some Current Issues Implementing/sustaining Quality Management initiatives
Consolidating operations resulting from mergers
Speeding up the time to get new products to market
Developing flexible production systems to enable mass customization of products and services
Developing and integrating new technologies
Managing global supplier, production and distribution networks
Outsourcing
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Purchasing Managers Index
Began 1931 Measures:
New Manufacturing Orders Production Volume Deliveries Inventory Levels Employment
Index Measures Economic Activity >50.0% Expanding <42.7% Contracting
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Purchasing Managers Index
A “Leading Indicator” since:- Manufacturing must order materials in advance of production- The indicator is based on plans of supply management (purchasing) executives
Source: Institute for Supply Management (ISM) – ism.org (previously National Association of Purchasing Management)
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Purchasing Managers IndexDec-05 55.6 42.7 50Jan-06 54.8 42.7 50Feb-06 56.7 42.7 50Mar-06 55.2 42.7 50Apr-06 57.3 42.7 50
May-06 54.4 42.7 50Jun-06 53.8 42.7 50Jul-06 54.7 42.7 50
Aug-06 54.5 42.7 50Sep-06 52.9 42.7 50Oct-06 51.2 42.7 50Nov-06 49.5 42.7 50
QualityManagement
StatisticalProcess Control
Just in Time
Materials Requirement Planning
Inventory Control
AggregatePlanning
Operations Management - Overview
ProjectManagement
Supply Chain Management
Process Analysisand Design
Process Controland Improvement
Waiting Line Analysis and Simulation
Services
Manufacturing
OperationsStrategy
Facility Layout
Consulting andReengineering
Process Analysis
Job Design
Capacity Management
Planning for Production
Supply ChainStrategy
Irwin/McGraw-Hill
Operations Strategy
Customer Needs
Corporate Strategy
Operations Strategy
Decisions on Processes and Infrastructure
ExampleStrategy Process
More Product
Increase Org. Size
Increase Production Capacity
Build New Factory
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Competitive Dimensions Cost Quality and Reliability Delivery
Flexibility Speed Reliability
Coping with Changes in Demand New Product Introduction
Speed Flexibility
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Dealing with Trade-offs
Cost
Quality
DeliveryFlexibility
Example II, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.
Example II, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.
Irwin/McGraw-Hill
Order Qualifiers and Winners
Order Qualifiers: Screening criterion that permits a firm’s products or services to be considered as possible candidates for purchase Order Winners: Criterion that differentiates the products or services of one firm from another
Strategy Begins with Priorities Consider the personal computer assembler
1. How would we segment the market according to product group?
2. How would we identify product requirements, demand patterns, and profit margins for each group?
3. How do we identify order winners and order qualifiers for each group?
4. How do we convert order winners into specific performance requirements?
Us(Core competencies)
Competition(Them) Differentiation
Irwin/McGraw-Hill
Manufacturing’s Role in Corporate Strategy
Stage I--Internally Neutral - minimize potential manufacturing negative
Stage II--Externally Neutral - achieve parity with competitors
Stage III--Internally Supportive - support business strategy
Stage IV--Externally Supportive - manufacturing based competitive strategy
Irwin/McGraw-Hill
Four Stages of Service Firm Competitiveness
Stage I. Available for Service
Stage II. Journeyman
Stage III. Distinctive Competence Achieved
Stage IV. World Class Service Delivery
Irwin/McGraw-Hill
U. S. Competitiveness Drivers
Product Development speed development & enhance
manufacturability Waste Reduction (JIT Philosophy)
WIP, space, tool costs, and human effort Improved Customer-Supplier Relationships
borrowed from Japanese Keiretsu Improved Leadership
strong, independent boards of directors
Irwin/McGraw-Hill
Execution!!• Unless you translate big thoughts into concrete steps for action, they’re
pointless. (Larry Bossidy)
• Strategy is execution. (Louis Gerstner)
• In the business world, having a good objective means nothing if you implement it badly. (Fareed Zakaria)
• You cannot have an execution culture without robust dialogue - one that brings reality to the surface through openness, candor, and informality. Robust dialogue starts when people go in with open minds. You cannot set realistic goals until you’ve debated the assumptions behind them.
Irwin/McGraw-Hill
Productivity
Partial measures output/(single input)
Multi-factor measures output/(multiple inputs)
Total measure output/(total inputs)
Inputs
Outputs =ty Productivi
Irwin/McGraw-Hill
Example10,000 Units Produced
Sold for $10/unit
500 labor hours
Labor rate: $9/hr
Cost of raw material: $5,000
Cost of purchased material: $25,000
What is the labor productivity?
Irwin/McGraw-Hill
10,000 units/500hrs = 20 units/hour ...
... or we can arrive at a unitless figure
(10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22
Example--Labor Productivity
Irwin/McGraw-Hill
Example:Productivity Measurement
You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms.
Is productivity increasing or decreasing?