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Transcript of Mba 8155 Slides 1
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.
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**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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Irwin/McGraw-Hill
Operations Decision Making
People Plants Parts Processes
Planning and Control
Materials &Customers
Products &Services
Input Output
Operations Management
Marketing StrategyFinance 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 Patients
MDs, 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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Front and Back Office
Front Office
Customer
Service Provider
Back Office
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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
1890s1910s
1930s1940s
1970s1980s1990s
Industrial Revolution Civil War Scientific Management
Hawthorne Studies
Mass Customization Service Revolution Global Competition
Operations Research
Moving Assembly Line
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Irwin/McGraw-Hill
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 13
Irwin/McGraw-Hill
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.
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.
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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
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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
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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
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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)
InputsOutputs =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?
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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?
Irwin/McGraw-Hill
Balanced Scorecard1. Financial perspective
2. Internal perspective
3. Customer perspective
4. Innovation and learning perspective