Operations Management Final

8/9/2019 Operations Management Final

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Operations ManagementOperations Management

Systematic direction, control, and evaluation ofSystematic direction, control, and evaluation ofthe entire range of processes that transformthe entire range of processes that transform

inputs into finished goods or services.inputs into finished goods or services.

Environmental factors-culture, political, andEnvironmental factors-culture, political, andmarket influencesmarket influences

Inputs-HR, capital, materials, land, energy,Inputs-HR, capital, materials, land, energy,information, customerinformation, customer

Transformations-convert inputs into outputsTransformations-convert inputs into outputs


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O.M. (cont)O.M. (cont)

Outputs-goods or services, and wasteOutputs-goods or services, and waste

Customer Contact-customers activelyCustomer Contact-customers activelyparticipate in transformationparticipate in transformationprocesses, self-serviceprocesses, self-service

Performance Feedback-repairPerformance Feedback-repair

records, customer commentsrecords, customer comments


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Operations ManagementOperations ManagementOperations ManagementOperations Management

Refers to the management of the productionRefers to the management of the production

system that transforms inputs into finishedsystem that transforms inputs into finished

goods and services.goods and services.

Production system:Production system: the way a firm acquiresthe way a firm acquiresinputs then converts and disposes outputs.inputs then converts and disposes outputs.

Operations managers:Operations managers: responsible for theresponsible for thetransformation process from inputs to outputs.transformation process from inputs to outputs.

Operations management seeks to increaseOperations management seeks to increasethe quality, efficiency, and responsivenessthe quality, efficiency, and responsiveness

of the firm.of the firm.

Seeks to provide a competitive advantage.Seeks to provide a competitive advantage.


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ConceptsConcepts


ConceptsConcepts QualityQuality:: goods and services that are reliablegoods and services that are reliableand perform correctly.and perform correctly.

Quality allows customers to receive theQuality allows customers to receive theperformance that they expect.performance that they expect.

EfficiencyEfficiency:: the amount of input to produce athe amount of input to produce a

given output.given output.

Less input required lowers cost and waste.Less input required lowers cost and waste.

Responsiveness to customersResponsiveness to customers::

actionsactionstaken to respond to customer needs.taken to respond to customer needs.

Firm can react quickly and correctly to customerFirm can react quickly and correctly to customerneeds as they arise.needs as they arise.


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Differences BetweenDifferences Between

Services and GoodsServices and Goods Information AsymmetryInformation Asymmetry

IntangibleIntangible

InventoryInventory

Customer ContactCustomer Contact

Response TimeResponse Time

Labor IntensityLabor Intensity


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Typical Characteristics of Services andTypical Characteristics of Services and

Goods ProducersGoods Producers

Primarily ServicePrimarily ServiceProducersProducers

PrimarilyPrimarily

GoodsGoodsProducersProducers

Continuum ofContinuum ofCharacteristicsCharacteristics

Intangible, nondurable

Output cant beinventoried

High customer contact

Short response time

Labor intensive

Tangible, durable

Output can beinventoried

Low customer contact

Long response time

Capital intensive

MixedMixed


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Positioning Strategies-Positioning Strategies-

approach selected forapproach selected for

transformational processestransformational processes Process Focus-layout of plant andProcess Focus-layout of plant and

equipment around eachequipment around each

production unitproduction unit

custom madecustom made Low VolumeLow Volume

Norwegian Ship BuildingNorwegian Ship Building

Product Focus-arranging plantProduct Focus-arranging plantand equipment around one or aand equipment around one or a

few output typesfew output types

many of one productmany of one product

high-volume, highlyhigh-volume, highly

automatedautomated

low flexibilitylow flexibility

Factory LinesFactory Lines

Intermediate Strategy-plantIntermediate Strategy-plantand equipment layout reflectsand equipment layout reflects

some of both strategiessome of both strategies

batches of productsbatches of products

Kinko's, Ball HomesKinko's, Ball Homes

Agile Strategy-massAgile Strategy-masscustomizationcustomization


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FlexibilityFlexibility

Product Flexibility-speed with which products are created,Product Flexibility-speed with which products are created,ability to customize, ability to modify products for specialability to customize, ability to modify products for specialneedsneeds

Volume Flexibility-ability to respond to sudden changes inVolume Flexibility-ability to respond to sudden changes indemand, change from small to full scaledemand, change from small to full scale

Process Flexibility-ability to manufacture a variety ofProcess Flexibility-ability to manufacture a variety ofgoods in a short time, adjust to product mix over time,goods in a short time, adjust to product mix over time,

ability to accommodate changes in raw materialsability to accommodate changes in raw materials


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Core Positioning StrategiesCore Positioning Strategies

Process focus

Space shuttle

Legal practice

Product focus

Auto assembly

plant

Mail processingIntermediate

Garment

industry

Branch banks

Product volumeProduct volume

Custom products,low volume

Standard products,high volume

Mixture of custom and standardproducts, moderate volume

Continuous

process(stable)

Resour

ceflo

ws

Resou r

ceflows

Massproduction

Largebatch

Sporadic(unstable)


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Improving Responsiveness toImproving Responsiveness to

CustomersCustomersImproving Responsiveness toImproving Responsiveness to

CustomersCustomers Without customers, organizations cease to exist.Without customers, organizations cease to exist.

Non-profit and for-profit firms all have customers.Non-profit and for-profit firms all have customers.

Managers need to identify who the customer is and their needs.Managers need to identify who the customer is and their needs.

What do customers want? Usually customers prefer:What do customers want? Usually customers prefer:

AA lower pricelower price to a higher price.to a higher price.

High qualityHigh quality over low quality.over low quality.Fast serviceFast service over slow service.over slow service.

Also good after sale support.Also good after sale support.

Many featuresMany features over few features.over few features.

Products tailoredProducts tailored to their specific needs.to their specific needs.


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Quality-how well a productQuality-how well a product

does what the customerdoes what the customer

expectsexpects Internal View-within the organizationInternal View-within the organization

External View-value customersExternal View-value customersexpectexpect

Value-the relationship betweenValue-the relationship betweenquality and pricequality and price


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Competitiveness Value MapCompetitiveness Value Map

Relative QualityRelative QualitySuperiorInferior

Higher

Lower

Poorvalue

Relati

ve

Price

Relative

Pri

ce

Economy

value Outstanding

value

Premium

value

Average

value


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PricePrice v.v. AttributesAttributesPricePrice v.v. AttributesAttributes

Firms offering high quality, fast service and otherFirms offering high quality, fast service and other

customer desires, often must raise price.customer desires, often must raise price.

Customers mustCustomers must tradeoff price for attributestradeoff price for attributes..

Operations management tries toOperations management tries to push thepush theprice/attribute curve to the rightprice/attribute curve to the right with betterwith better

production.production.

Provides more attributes at the same cost.Provides more attributes at the same cost.

By enhancing the price/attribute relationship, the firm canBy enhancing the price/attribute relationship, the firm canincrease its competitive position.increase its competitive position.


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Customer Responsive ProductionCustomer Responsive Production

SystemsSystemsCustomer Responsive ProductionCustomer Responsive Production

SystemsSystems

An outputs attributes is determined byAn outputs attributes is determined by

the production system.the production system.

Firms must strike a balance between costFirms must strike a balance between cost

and attributesand attributes Improving QualityImproving Quality:: can apply to firmscan apply to firms

producing goods and services.producing goods and services.

A firm that provides higher quality thanA firm that provides higher quality than

others at the same price is more responsiveothers at the same price is more responsiveto customers.to customers.

Higher quality can also lead to betterHigher quality can also lead to betterefficiency.efficiency.

Lowers waste levels and operating costs.Lowers waste levels and operating costs.


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Total Quality ManagementTotal Quality Management

The continuous process of ensuringThe continuous process of ensuringevery aspect of production builds inevery aspect of production builds in

product qualityproduct qualityTraditional Quality-product inspectionTraditional Quality-product inspection

during or at the end of theduring or at the end of the

transformation processtransformation process


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Total Versus TraditionalTotal Versus Traditional

QualityQualitys Quality is a strategic issue

s Plan for quality

s Quality is everybodys responsibility

s Strive for zero defects

s Quality means conformance to

requirements that meet or exceed

customers expectations

s

Scrap and reworking are only a smallpart of the costs of nonconformance

Traditional Quality ControlTraditional Quality ControlTotal Quality ManagementTotal Quality Management

s Quality is a tactical issue

s Screen for quality

s Quality is the responsibility of the

quality control department

s Some mistakes are inevitable

s Quality means inspection

s Scrap and reworking are the major

costs of poor quality


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Improving EfficiencyImproving EfficiencyImproving EfficiencyImproving Efficiency

Labor productivityLabor productivity allows labor comparisonsallows labor comparisons

between organizations.between organizations.

Improved efficiency leads to lower costs and betterImproved efficiency leads to lower costs and betterperformance.performance.

TQM and EfficiencyTQM and Efficiency::TQM can lead to much higherTQM can lead to much higherlabor productivity.labor productivity.

When quality rises, less time is wasted on scrap.When quality rises, less time is wasted on scrap.

Flexible manufacturing and efficiencyFlexible manufacturing and efficiency:: reducesreduces

the set-up costs for production systems.the set-up costs for production systems.

Facilities layoutFacilities layout: seeks to design the: seeks to design the

machine-worker interface to increasemachine-worker interface to increase

production efficiency.production efficiency.


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Efficient ManufacturingEfficient ManufacturingEfficient ManufacturingEfficient Manufacturing Most firms face major expense when setting up toMost firms face major expense when setting up to

produce a product.produce a product.

These costs must be paid before production begins.These costs must be paid before production begins. The more often products to be built change, the higher setupThe more often products to be built change, the higher setup

costs become.costs become.

Flexible Manufacturing reduces setup costs.Flexible Manufacturing reduces setup costs.Just-in-Time (JIT) inventoryJust-in-Time (JIT) inventory,, while developed forwhile developed for

TQM, also adds to efficient production.TQM, also adds to efficient production.

Many costs are reduced including warehousing, holdingMany costs are reduced including warehousing, holding

costs and inventory tracking.costs and inventory tracking. Firm does not have a supply of parts, but can be vulnerable toFirm does not have a supply of parts, but can be vulnerable tostrikes or supply problems.strikes or supply problems.


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Efficient ManufacturingEfficient ManufacturingEfficient ManufacturingEfficient Manufacturing Self-managed teamsSelf-managed teams boost efficiency by allowing forboost efficiency by allowing fora flatter organization structure.a flatter organization structure.

The team takes the role of the supervisor.The team takes the role of the supervisor.

Teams working together often become very skilled atTeams working together often become very skilled atenhancing productivity.enhancing productivity.

KaizenKaizen:: Japanese term for a management philosophyJapanese term for a management philosophythe stresses the need for continuous improvement.the stresses the need for continuous improvement.

Better operations can come from many, small, continuousBetter operations can come from many, small, continuousimprovements.improvements.

Focus on what adds value to the product and try to eliminateFocus on what adds value to the product and try to eliminatesteps that do not add value (such as inspection for defects).steps that do not add value (such as inspection for defects).


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ReengineeringReengineeringReengineeringReengineering Process ReengineeringProcess Reengineering::the fundamental rethinking andthe fundamental rethinking and

radical redesign of the business process.radical redesign of the business process.Can boost efficiency by directing efforts to activities that addCan boost efficiency by directing efforts to activities that add

value to the good or service produced.value to the good or service produced.

While Kaizen focuses on continuous enhancements, processWhile Kaizen focuses on continuous enhancements, processreengineering considers wholesale change.reengineering considers wholesale change.

Top managers must support operations enhancement toolsTop managers must support operations enhancement toolsfor them to be accepted by workers.for them to be accepted by workers.

Usually, a successful operations change means a completeUsually, a successful operations change means a completechange in the organizational culture.change in the organizational culture.

Without a supporting culture, change will not succeed.Without a supporting culture, change will not succeed.


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Nine Categories of OperationsNine Categories of Operations

Management DecisionsManagement Decisions

Product plansProduct plans Competitive PrioritiesCompetitive Priorities

Positioning StrategiesPositioning Strategies

LocationLocation

Technological ChoicesTechnological Choices Quality management and controlQuality management and control

Inventory management and controlInventory management and control

Materials ManagementMaterials Management

Master production schedulingMaster production scheduling


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Inventory CostsInventory Costs What contributes to inventory costs?What contributes to inventory costs?

TOTAL COST = ORDERING + CARRYINGTOTAL COST = ORDERING + CARRYING Carrying CostsCarrying Costs

WarehouseWarehouse

InsuranceInsurance

ObsolescenceObsolescence

taxestaxes

breakagebreakage

Ordering CostsOrdering Costs

Placing the orderPlacing the order

TransportationTransportation

ShortageShortage


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Inventory TermsInventory Terms

Lead TimeLead Time Elapsed time between placing and receiving an orderElapsed time between placing and receiving an order

EOQ-economic order costEOQ-economic order cost

optimum order quantity yielding the lowest totaloptimum order quantity yielding the lowest total

inventory costinventory cost

Just-in-timeJust-in-timefinished goods to sellfinished goods to sell

sub assemblies to be assembledsub assemblies to be assembled

purchases of raw materials to be transformedpurchases of raw materials to be transformed


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Quantity (Q)Quantity (Q)

HighHigh

LowLow

Ave

ragean

nual

cost($

)

Ave

ragean

nual

cost($

) Total cost

Carrying cost

Order cost

SmallSmall LargeLargeQ1

Cost Trade-Offs in DeterminingCost Trade-Offs in Determining

Inventory LevelsInventory Levels


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THANK YOUTHANK YOU

Documents

Operations Management Final