1 competitive weapon

7/30/2019 1 Competitive Weapon

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2012 Lew Hofmann

WHAT IS MANAGEMENT?


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2012 Lew Hofmann

So, really

What is management?

Classic definition: Getting things donethrough people.

This assumes you are managing people.

How about one person overseeing anautomated production line.

There are no people to manage.

An operations manager manages people,resources and/or processes.


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2012 Lew Hofmann

Production

What is Production?

The dictionary says it is the act of producing.

to bring into existence.

to create something having exchangevalue.


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2012 Lew Hofmann

Definition of Operations Mgt.

Thedesign, direction and control of theprocessesthatcreate or add exchange

valueto services and/or products forcustomers.

Customers may be internal or external to

the organization.

InputsTransformation Processes

(Adding value)Outputs


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2012 Lew Hofmann

Operations Management

Operations is a subset of the broader

management concepts that are presented in

a basic management course.

The subset is the activity of producing

something having exchange value.

The something being produced may be a

good or a service.

Most companies produce both services and

goods.


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2012 Lew Hofmann

Operations as aManagement Function


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2012 Lew Hofmann

Operations Management versusProduction Management

Production managementwas traditionallyassociated with goodsproduction.

Operations managementreferred to the theproduction ofservices.

The term Operations Management is now

used for production ofboth goods andservices.

However, many companies still make a distinction.


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2012 Lew Hofmann

Exchange Value

Exchange

Value

Production

Management

Operation

Management

Goods

Services

Traditional View

Operation

Management

Services

and Goods

Exchange

Value

Current View


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2012 Lew Hofmann

ManufacturingInputs and Outputs

INPUTS

Raw Materials Employees

Plant

Equipment Financing

OUTPUTS

Consumer Goods Materials for purchase

by other firms

Services

Payments toemployees


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2012 Lew Hofmann

TCNJInputs and Outputs

INPUTS

Students

Faculty and Staff Facilities

Equipment andSupplies

Financing

OUTPUTS

Educated people

Research

Public service

Payments to

employees


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2012 Lew Hofmann

SupermarketInputs and Outputs

INPUTS

Items for resale

Customers

Employees

Facilities andEquipment

Financing

OUTPUTS

Satisfied Customers Service

Payments toemployees


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2012 Lew Hofmann

Operations as a

competitive weapon

Why is FedEx so successful?

Fast service

On-time deliveries

Relatively low cost

Technology in shipment tracking


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2012 Lew Hofmann

Harry Potter and Scholastic

Scholastic is the worlds largest publisher and

distributor of childrens books and educational

materials.

Operates in 16 countries with over 2 billion inrevenues.

Scholastic started planning early in 2007 forthe worldwide release of Harry Potter and the

Deathly Hallows.90% of sales of such books occur in the first week,

so they get special treatment.


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2012 Lew Hofmann

Scholastic bypassed its own warehouses and required

its truckers to ship directly to its large retailers.

The trucks, if parked end-to-end, would be 15 miles.

GPS transponders were used to alert Scholastic by e-mail if a driver veered off designated routes.

Scholastic had to customize, coordinate, andsynchronize its operations and supply chain processes

across multiple partners at the printing, warehousing,distribution and retail locations.

They delivered 12 million books to final customerswithin a few hours prior to the scheduled release date.

Harry Potter and Scholastic


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2012 Lew Hofmann

Processes

Processes should add value.

Processes can be broken down into sub-

processes, which in turn can be broken down

further.

Any process that is part of a larger process is

considered a nested process.

Eg: Registration advisement

Each process and each nested process has

inputs and outputs.


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2012 Lew Hofmann

Examples of Processes

Manufacturing something

Warehousing of raw materials

Processing insurance claimsTeaching a class

Getting a product to the customer

Taking inventoryThe supply chain

Staff scheduling


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2012 Lew Hofmann

Customer Focused

Being customer oriented

Serving customer needs

Designing process that best add value for both

the customer and the business.All processes have inputs and outputs.

Outputs are what the customer gets.

Most processes dont involve end products or

services.They involve other workers, departments, or

plants receiving value-added goods and orservices.


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2012 Lew Hofmann

External Vs. InternalCustomers

External Customers: Those that are externalto the organization and purchase orotherwise receive the goods and services

Internal Customers are those who receivethe output of others within the firm. They arepart of the transformation process.

Inputs fromother

processes

Transformation Processes(Adding value)

Outputs toExternal orInternal

customers


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2012 Lew Hofmann

External Vs. InternalSuppliers

External Suppliers: The businesses or individuals

who provide the resources, services, products, and

materials for the firms short-term and long-term

needs. Internal Suppliers: The employees or processes

that supply important information or materials to a

firms processes.

External &InternalSuppliers

Transformation Process(Adding value)

Outputs toinside orto outsidecustomers


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2012 Lew Hofmann

Service ProcessesVersusManufacturing Processes

Manufacturing processes change materials inone or more of the following dimensions:

Physical propertiesShape

Fixed dimensions

Surface finish

Joining parts and materialsIf a process isnt doing at least one ofthe above, then itis a service process rather than a manufacturingprocess.


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2012 Lew Hofmann

Manufacturingand Service

Goods ProductionTangible

Can be inventoriedLow customer contact

Longer response time

Capital Intensive

Quality easily measuredGoods can be shipped

Service Production Intangible

Cant be inventoriedHigh customer contact

Shorter response time

Labor Intensive

Quality hard to measureLocate near customers

Most firms provide both goods and services.


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2012 Lew Hofmann

Shared Problems byManufacturing & Service

Both manufacturing and serviceproviders have to match capacity with

demand.Harder to do for service providers

Both have to worry about quality.

Easier to change the quality of a service.

Both service & manufacturing have to

deal with internal & external customers.


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2012 Lew Hofmann

Value Chains

Processes add value. When two or moreprocesses are linked, it is called a value chain.

A Value chain is an interrelated series of

processesthat produce or add value to aservice or product, or both.

An organizations supply chain is a value chain that

is external to the organization.

A value chain (or a single process) producesvalue or adds value and consumes resources.

The secret is that the value added must exceed

the cost of resources consumed in the process.


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2012 Lew Hofmann

Core ProcessesandSupport Processes

Core processes deliver value to externalcustomers.

Teaching classes is a core processSupport processes provide vital inputs that

support the core processes.

The Course/Curriculum approval process is a

support process.Value chains may consist of core processes

or support processes, or both.


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2012 Lew Hofmann

Four, Core Processesthat most organizations have.

1. Customer relationship processes Identify, attract, and build relationships with external

customers and facilitates the placement of orders.

2. New service/product development processes Designing and developing new services or products from

inputs received from external customer specifications.

3. Order fulfillment processes The activities required to produce and deliver the service

or product to the external customers.4. Supplier relationship processes Selecting suppliers of services, materials and

information and facilitates the timely and efficient flow ofthese items into the firm.


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2012 Lew Hofmann

Progressive Insurance

Grew from $1.3 billion to $11 billion in 13 years.

How did they do it?

Operational Innovation (Designing new processes)

Immediate Response Claims Handling (24 hours a day)

Agents quickly go to scene of accident.

Streamlined claims processing went from 7-10 days to 9 hours

Web site for agents only.

Web site for customer information, inquiries and routine

processing.


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2012 Lew Hofmann

Productivity

Productivityis the value of outputs (services and

products) produced, divided by the value of inputresources (wages, costs of equipment, etc.)

Production is the process of creating something havingexchange value.

Value of OutputsValue of Inputs

Productivity =

Productivity has to have value! Efficiency doesnt

OutputsInputs

Efficiency =


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2012 Lew Hofmann

Measuring Productivity

Single Factor methods measure the time or cost toproduce a good or a service.

Man hours to produce a car or the cost to produce a car

Multi-Factor methods

Combines two or more single-factor methods

EG: Cost per hour to produce cars.

Multiple methods

Several separate single-factor and/or multi-factor methods

Using two or more methods is the best way to

measure productivity


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2012 Lew Hofmann

Single-factorCalculation

Three employees process 600 insurance policies ina week. They work 8 hours per day, 5 days perweek. Calculate the efficiency in policies per hour.

Labor efficiency =Policies ProcessedEmployee Hours

600 Policies

(3 Employees) (40 hours/employee)= = 5 policies/hr

Note: This is not a productivity calculation since there isno value considered. It is a measure of efficiency, not

productivity.


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2012 Lew Hofmann

Multi-factorProductivity Calculation

A company makes 400 units of a product, valued by itsstandard cost of$10 each (before markups for otherexpenses and profit). The accounting department reportsthat the actual costs are $400 for labor, $1,000 for

materials, and $300 for overhead. Calculate theproductivity. (value of output / value of input)

Multifactor productivity =Value of Output at standard cost

Labor cost + Material Cost + Overhead cost

(400 units) ($10/unit)

$400 + $1000 + $300= = 2.35

$4,000

$1,700=

These types of productivity figures must be compared with performancelevels in prior periods and with future goals in order to have meaning.


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2012 Lew Hofmann

How We ImproveProductivity

Decrease inputs relative to outputs

Producing the same output with fewer inputsEG: Same number of graduates but fewer faculty.

Speed up the through-put

Doing it faster

EG: Graduating you in 7 semesters instead of 8.

Increase output relative to inputProducing more with the same input.

EG: Upping freshman admittance with same faculty.

Improve Quality

Inputs Transformation Outputs


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2012 Lew Hofmann

Productivity &Standard of Living

High Productivity does not insure a highstandard of living.

Increasing the standard of living comesfrom producing more than you need.

Production Capacity per Capita is the key.The U.S. produces more per person than

most countries, so we have a higher standardof living.


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2012 Lew Hofmann

History of ProductivityGrowth in U.S.


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2012 Lew Hofmann

The Volatility of Growth


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2012 Lew Hofmann

Determinates ofNational Productivity

LABOR 16%

Healthier, better educated / higher skilled workers

CAPITAL 20%

Capital investment in plant and equipmentCapital investment per employee

Turnover of capital (Net sales Invested capital)

MANAGEMENT 64%

Management takes credit for advances intechnology.

Working smarter, not harder


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2012 Lew Hofmann

Service Sector

The Service Sector now accounts forapproximately 77% of US jobs (non-farm)

Only France, Belgium and Greece are higher.Three approximately equal sectors:

1. Government Sector

2. Wholesale & Retail Sales3. Other Services

(Financial, medical, real estate, etc.)

G D ti


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2012 Lew Hofmann

Gross DomesticProduct sectors

GDP is the market value of all goods and services.

Agriculture 1.8% Industry 22.1% Service: 76.8%

Service Productivity growth accounts forless than1% of the annual growth in productivity.

Productivity in the smallermanufacturing sector hasincreased roughly 3.6% per year.

Thus the lions share of the nations overall

productivity gain was (and increasingly is) fromManufacturing. Even though manufacturing is now only 22% of our

economy.


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2012 Lew Hofmann

Why LowService Productivity?

Harder to automate services

Harder to measure service productivity

Often brain work rather than machine work

Service tends to be more labor intensive

O i


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2012 Lew Hofmann

Operations as acompetitive weapon

Companies use operations to compete invarious ways:

High quality (Mercedes) Consistent quality (New York Times)

Quick delivery (FedEx)

Fast development

High technological efficiency (Google)

Low cost efficiency (Wal-Mart)


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2012 Lew Hofmann

Global Competition

Businesses must accept the fact that, to prosper, theymust view customers, suppliers, facility locations, andcompetitors in global terms.

Most products today are composites of materials andservices from all over the world.

Forces contributing to increased global competition:

Improved transportation and communication technologies

Loosening of regulations on financial institutions. (until lately)

Increased demand for lower cost, imported services and goods

Reduced import quotas and other trade barriers


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2012 Lew Hofmann

Global CompetitionDisadvantages

US Firms are reluctant to relinquish proprietarytechnology.

Political risks of off-shore operations

Alienation of U.S. customers by sending jobs overseas

Lower skill levels in some off-shore areas

Difficulty with global, cross-functional coordination due

to cultural differences and language differences.

Harder to produce products and services here that arecost/price competitive with the lower-cost labor areasoff-shore.

Oth Ch ll f


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2012 Lew Hofmann

Other Challenges forOperations Management

Very Rapid Technological Change

Ethical issues

Increasing diversity of the workforce

Environmental impact issues

Economic volatility


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2012 Lew Hofmann

Adam Smith

Economist and Philosopher

1723 - 1790

"An Inquiry into the Nature &Causes of the Wealth of Nations,"covered such concepts as the role

of self-interest, the division oflabor, the function of markets, andthe international implications of alaissez-faire economy.

Historic Development


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2012 Lew Hofmann


Eli Whitney

Born Dec 8 1765 - Died Jan 8 1825He translated the concept ofinterchangeable parts into amanufacturing system, giving

birth to the American massproduction concept.


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2012 Lew Hofmann


Develop a "science" for every job

Carefully select workers with the rightabilities for the job.

Carefully train these workers to do the job,

and give them proper incentives

Support these workers by planning theirwork and by smoothing the way as theygo about their jobs.

Frederick Winslow TaylorMarch 20, 1856 - March 21, 1915


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2012 Lew Hofmann


Henry Ford

1863-1947

Using a constantly-movingassembly line, subdivision oflabor, and careful coordinationof operations, Ford realizedhuge gains in productivity.

Model T Production
http://www.youtube.com/watch?v=S4KrIMZpwCYhttp://www.youtube.com/watch?v=S4KrIMZpwCY


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2012 Lew Hofmann

Importance of Operations

The two major functions

of business are productionand selling. All otherfunctions are secondary tothese.

-- Peter Drucker


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2012 Lew Hofmann

Addressing the Challengesin Operations Management

Managing Processes

Process Strategy

Process Performance& Quality

Constraint Management

Process Layout

Lean Systems

Process Analysis

Using Operationsto Compete

Operations As aCompetitive Weapon

Operations Strategy

Project Management

Managing Value Chains

Supply Chain Strategy

Inventory Management

Location

Forecasting

Sales & OperationsPlanning

Scheduling

Resource Planning


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Course Components

Operations As a Competitive Weapon

Decision Making

Operations Strategy

Project Management

Process Strategy

Process Analysis

----------------- QUIZ ---------------------

Simulation Process Performance and Quality

Constraint Management

Waiting Lines

Process Layout

Lean Systems

---------------- MID TERM ----------------

Supply Chain Strategy

Location Inventory Management

Special Inventory Models

Forecasting

Sales and Operations Planning

Linear Programming

Resource Planning

Scheduling

Competing with Operations

Managing Processes

Managing Value Chains

1 competitive weapon

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