Operations Management D efinition

1. 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. 2

2. Systematic Approach to Org. Processes Business Education/ Career Opportunities Increase Competitive Advantage/Survival Cross-Functional Applications Why Study Operations Management? Operations Management 3

3. 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

4. External Economic/Political Environmental/social exchange rates environmental protection transportation costs trade barriers health costs logistics resources capital costs labor unions labor supply, capabilities inflation education system training resources capital availability consumer tastes communications social costs/legal retailing capabilities public infrastructure funds flows employee savings rate interest rates minimum wage Corporate Technological Operations Suppliers strategy R&D costs/productivity abilities risk avoidance engineering quality coordination role of functions product development delivery cycle location Fin-Mktg-Mfg-Eng-R&D process development delivery reliability competition balance sheet new products flexibility for prod change cooperation financial capacity development process flexibility for vol. change marketing policies New product introduction export sales competencies inventory mgt. Technological sophistication of mgt Prod. Planning Control Equip. & process tech #, size, location of facilities logistics customer service information technology Factors Affecting a Firm's Ability to Ward off Imports and/or Export WS6 **Wickham Skinner: The Role of the Industrial Managers in the Massive U.S. Negative Trade Balance, April 2000

5. Marketplace Corporate Strategy Finance Strategy Operations Strategy Marketing Strategy Operations Management People Plants Parts Processes Products & Services Materials & Customers Planning and Control Input Output Operations Decision Making The Transformation Process (value adding) 4

6. 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 8

7. Transformations • Physical--manufacturing • Locational--transportation • Exchange--retailing • Storage--warehousing • Physiological--health care • Informational--telecommunications 5

8. Examples of Production Systems 6

9. 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?) 7

10. What about McDonald’s? • Service or Manufacturing? • The company certainly manufactures tangible products • Why then would we consider McDonald’s a service business? 8

11. Front and Back Office Back Office Service Provider Front Office Customer 9

12. Core “Factory Services” Core Services are basic things that customers want from products that they purchase. • Quality • Flexibility • Speed • Price (or production cost) 10

13. 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 11

14. History of Operations TIME <1700 • Cottage System • Industrial Revolution 1700 - 1800 1850s • Civil War 1890s • Scientific Management • Moving Assembly Line 1910s • Hawthorne Studies 1930s • Operations Research 1940s • Global Competition 1970s • Service Revolution 1980s • Mass Customization 1990s 12

15. Scientific Management Moving Assembly Line Hawthorne Studies Operations Research OM’s Emergence as a Field Historical Underpinnings Development of OM as a Field – The Names and Emphasis Change, but the Elements Remain Basically the Same! Manufacturing Strategy TQM & Six Sigma JIT/Lean Manufacturing Business Process Reengineering Manufacturing Resources Planning Electronic Enterprise Service Quality and Productivity Global Supply Chain Mgt. 13

16. 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 14

17. 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 15

18. 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) 15

19. Purchasing Managers Index

20. Operations Management - Overview Process Analysis and Design Process Control and Improvement Supply Chain Management Project Management Quality Management Operations Strategy Supply Chain Strategy Just in Time Process Analysis Statistical Process Control Planning for Production Job Design Consulting and Reengineering Capacity Management Manufacturing Aggregate Planning Facility Layout Services Inventory Control Waiting Line Analysis and Simulation Materials Requirement Planning

21. Operations Strategy Strategy Process Example Customer Needs More Product Corporate Strategy Increase Org. Size Operations Strategy Increase Production Capacity Decisions on Processes and Infrastructure Build New Factory

22. Competitive Dimensions • Cost • Quality and Reliability • Delivery • Flexibility • Speed • Reliability • Coping with Changes in Demand • New Product Introduction • Speed • Flexibility

23. Cost Flexibility Delivery Quality Dealing with Trade-offs For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. 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.

24. 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

25. 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?

26. 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

27. 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

28. 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

29. 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.

30. Productivity • Partial measures • output/(single input) • Multi-factor measures • output/(multiple inputs) • Total measure • output/(total inputs)

31. Example 10,000 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?

32. Example--Labor Productivity 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

33. 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?

34. Balanced Scorecard • Financial perspective • Internal perspective • Customer perspective • Innovation and learning perspective