Mr. Munyao-Mulwa Department of Management Science

UoN, School of Business

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In managing any business, gaining competitive advantage is of prime importance.

CA is achieved by excelling in meeting needs of specific customer segment irrespective of discipline i.e finance, marketing etc

Serving customer well means in a timely fashion, with exceptional quality & at lowest cost possible (efficient)

Organizations need to design & operate processes that are quick, accurate & inexpensive

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To deliver value to customers, organizations should craft efficient & effective operations

Value = Quality/Price (People, processes & technology integrate to create value)

How can one increase value to customers?

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The operations function is central to the organization because it produces the goods and services which are its reason for existing, but it is neither the only nor necessarily the mostIt is, however, one of the three core functions of any organization; the marketing (including sales) function – which is

responsible for communicating the organization’s products and services to its markets in order to generate customer requests for service

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The product/service development function – which is responsible for creating new and modified products and services in order to generate future customer requests for service

The operations function – which is responsible for fulfilling customer requests for service throughout the production and delivery of products and services.

In addition, there are the support functions which enable the core functions to operate effectively. Give examples ..

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OperationsManagement

Business Education( Students need exposure)

Systematic Approachto Org. Processes( Analytical thinking)

Career Opportunities

Cross-FunctionalApplications

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Operations management may be defined as the design, operation, and improvement of the production system that creates the firm’s primary products and services.It is the science & art of ensuring that goods & services are created & delivered successfully to customers.

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Understanding the needs of customers, measuring customer satisfaction & using information to develop new & improved goods & servicesUsing information about customers, goods and services, operations, employees etc to make better decisions.Exploiting technology to design goods, services, manufacturing & service delivery processes that respond to customer requirements & improve productivity

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Marketplace

Corporate Strategy

Operations Strategy

Operations Management

Marketing StrategyFinance Strategy

People Plants Parts Processes

Planning and Control

Production System

Materials &Customers

Input

Products &Services

Output

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Service Uniqueness

Intangible

Direct customer involvement

Location of service facility

Can not be stored for future use

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Operations whether in manufacturing or in a service organization

can be treated as service. The core services customer want;

Quality

Flexibility

Delivery Speed

Price (or production cost)

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Value-added services

These make external or internal customer’s life easier

Information – ability to furnish critical data on product performance,

process parameters & cost

Problem Solving – especially in quality

Sales Support – By demonstrating the technology, equipment or

production systems the company is trying to sell.

Field Support – Ability to replace defective parts quickly

Industrial Revolution Scientific Management Human Relations Management Science Quality Revolution Globalization Information Age/Internet Revolution

Industrial RevolutionSteam engine 1769 James WattDivision of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney

Scientific ManagementPrinciples 1911 Frederick W. TaylorTime and motion studies 1911 Frank & Lillian

GilbrethActivity scheduling chart 1912 Henry GantMoving assembly line 1913 Henry Ford

Human RelationsHawthorne studies 1930 Elton Mayo

Motivation theories 1940s Abraham Maslow

1950s Frederick Hertzberg

1960s Douglas McGregor

Management ScienceLinear programming 1947 George Dantzig

Digital computer 1951 Remington Rand

Simulation, PERT/CPM, 1950s Operations research

Waiting line theory groups

MRP 1960s Joseph Orlicky, IBM

Quality RevolutionJIT 1970s Taiichi Ohno, ToyotaTQM 1980s W. Edwards Deming,

Joseph Juran, et. al.Strategy and operations Skinner, HayesReengineering 1990s Hammer, ChampyWorld Trade Organization 1990s Numerous countries

and companies

GlobalizationEuropean Union and 1970s IBM and othersother trade agreementsEDI, EFT, CIM 1980s

Information Age/Internet Revolution

Internet, WWW, ERP 1990s ARPANET, TimSupply chain Berners-Lee, SAP,

i2management, Technologies,

ORACLE,E-commerce PeopleSoft,

Amazon,Yahoo, eBay,and others

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People Plants Parts Processes Planning and Control

Input OutputTransformation

Process

(Value Adding)

Transformation is enabled by The 5 Ps of OM:

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Physical--manufacturing

Locational--transportation

Exchange--retailing

Storage--warehousing

Physiological--health care

Informational--telecommunications

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System Primary Inputs

Resources Primary transformation functions

Typical desired Output

Hospital Patients MDs, nurses, medical supplies, equipment

Health care Healthy individuals

Resturant Hungry customers

Food, chef, wait-staff, environment

Well-prepared, well-served food; agreeable environment ( physical & exchange)

Satisfied customers

College or University

High school graduates

Teachers, books, lecture halls

imparting knowledge & skills ( Informational)

Educated individuals

Automobile factory

sheet steel, engine parts

Tools, equipment, workers

Fabrication & assembly of cars (physical)

High-quality cars

Airline Travellers Airplanes, Crew, scheduling /ticketing systems

Move to destination

On-time , safe delivery to destination

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Although all operations are similar in that they all transform input resources into output products and services, they do differ in a number of ways, four of which are particularly important: Volume of their output; Variety of their output; Variation in the demand for their output; The degree of visibility which customers have

of the production of the product or service.

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All four dimensions have implications for the cost of creating the products or services. High volume, low variety, low variation and

low customer contact all help to keep down processing costs.

Low volume, high variety, high variation and high customer contact generally carry some kind of cost penalty for the operation.

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Speeding up the time it takes to get new products into production.

Developing flexible production systems to enable mass customization of products and services.

Managing global production networks.

Developing and integrating new production technologies into existing production systems.

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Achieving high quality quickly and keeping it up in the face of restructuring.

Managing a diverse workforce.

Conforming to environmental constraints, ethical standards, and government regulations.

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It can reduce the costs of producing products and services and being efficient;

It can increase revenue by increasing customer satisfaction through good quality and service;

It can reduce the amount of investment (sometimes called capital employed) that is necessary by increasing the effective capacity of the operation and by being innovative in how it uses its physical resources

It can provide the basis for future innovation by building a solid base of operations skills and knowledge within the business.

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The degree to which a firm can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the wealth of its shareholders.

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Cost Quality Delivery Flexibility Delivery Speed / Time based competition Delivery Reliability Coping with Changes in Demand Flexibility and New Product Introduction

Speed

Eliminate all wasteEliminate all waste Invest inInvest in

Updated facilities & equipmentUpdated facilities & equipment Streamlining operationsStreamlining operations Training & developmentTraining & development

Please the customer by doing Please the customer by doing things rightthings right

Understand customer attitudes Understand customer attitudes toward and expectations of quality toward and expectations of quality

Quality reduces costs of output Quality reduces costs of output Quality Increases dependability Quality Increases dependability

Produce wide variety of Produce wide variety of productsproducts

Introduce new productsIntroduce new products Modify existing Modify existing

products quicklyproducts quickly Respond to customer Respond to customer

needsneeds

Time Based Competition (TBC) Speed means the elapsed time between

customers requesting products or services and their receipt of them. Provide the most value to the customer at the

lowest cost in the least amount of time Aimed at minimizing the time it takes to

deliver a product or service to the customer Rapid response enables companies to quickly

redirect their value-delivery systems to the most attractive customers

Fast movesFast moves Fast adaptationsFast adaptations Tight linkagesTight linkages

What Competitive priorities can you infer from the photograph?

Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital)

The objective is to improve The objective is to improve productivity!productivity!

Become more efficient Downsize Expand Retrench

Productivity =Productivity =OutputOutput

InputInput

Productivity improves when firms:Productivity improves when firms:

© 2011 Pearson Education, Inc. publishing as Prentice Hall

IMPROVING PRODUCTIVITY AT IMPROVING PRODUCTIVITY AT STARBUCKS STARBUCKS

A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to save time. Some to save time. Some improvements:improvements:

Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

© 2011 Pearson Education, Inc. publishing as Prentice Hall

IMPROVING PRODUCTIVITY AT IMPROVING PRODUCTIVITY AT STARBUCKSSTARBUCKS

A team of 10 analysts A team of 10 analysts continually look for ways continually look for ways to shave time. Some to shave time. Some improvements:improvements:

Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years.

Productivity has improved by 27%, or about 4.5% per year.

© 2011 Pearson Education, Inc. publishing as Prentice Hall

Measure of process improvement Represents output relative to

input Only through productivity

increases can our standard of living improve

PRODUCTIVITYPRODUCTIVITY

Productivity =Units produced

Input used

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Partial measures output/(single input)

Multi-factor measures output/(multiple inputs)

Total measure (All Factor) output/(total inputs)

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• Labor Productivity– Quantity (or value) of output / labor hrs

– Quantity (or value) of output / shift

• Machine Productivity– Quantity (or value) of output / machine

hrs

• Energy Productivity– Quantity (or value of output) / kwh

• Capital Productivity

– Quantity (or value) of output / value of

input

Some Partial Factor Measurements

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000

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Labor ProductivityLabor Productivity

One resource input single-factor productivity

Japan has the greatest labour productivity at 7.6 out of a score of 10

Kenya’s labour productivity is at 2.2 Kenyans are among the most skilled

and educated in the region The greatest challenge is the negative

attitude and perception towards work Demand for pay rise is pegged on

inflation

© 2011 Pearson Education, Inc. publishing as Prentice Hall

MULTI-FACTOR MEASUREMULTI-FACTOR MEASURE

OutputLabor + Material + Energy + Capital +

Miscellaneous

Productivity =

Multiple resource inputs multi-factor productivity

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Units Produced – 10,000

Unit Price - $10

Labor hours – 500 hours

Labor rate: $9/hr

Cost of raw material: $5,000

Cost of purchased material: $25,000

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Productivity = Units Produced x Unit Price Labour Hours x Labour Rate = 10,000 Units*$10

500hrs x $9/hr = 22.22

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All-factors Goods or Services produced measure = All inputs used to produce them

If we produce only one product, the numerator can be either the total units of product or total shilling value of the product

If we produce several products, the numerator is the total Shilling value of all products

TOTAL MEASURETOTAL MEASURE

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10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $30,000

Overhead: $15,500

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OutputLabor + Materials +

Overhead (10,000 units) * ($10)

(500)*($9) + ($30,000) + ($15,500)

= 2.0

Productivity =

=

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Training Methods

Technology Management

What are the factors that affect productivity?

© 2011 Pearson Education, Inc. publishing as Prentice Hall

PRODUCTIVITY VARIABLESPRODUCTIVITY VARIABLES

1.1. LaborLabor - contributes about 10% of the annual increase

2.2. CapitalCapital - contributes about 38% of the annual increase

3.3. ManagementManagement - contributes about 52% of the annual increase

© 2011 Pearson Education, Inc. publishing as Prentice Hall

SERVICE PRODUCTIVITYSERVICE PRODUCTIVITY

1. Typically labor intensive

2. Frequently focused on unique individual attributes or desires

3. Often an intellectual task performed by professionals

4. Often difficult to mechanize

5. Often difficult to evaluate for quality

© 2011 Pearson Education, Inc. publishing as Prentice Hall

MEASUREMENT PROBLEMSMEASUREMENT PROBLEMS

1.1. QualityQuality may change while the quantity of inputs and outputs remains constant

2.2. External elementsExternal elements may cause an increase or decrease in productivity Precise unitsPrecise units of measure may be

lacking

Competition Intensity is high when Firms equal in size Resources, products &

services standardized Slow industry growth

(battle for market shares, the global market remaining constant)

Industry growth exponential (you must have a foothold in the market)

Consequences Price wars Relentless advertising High Frequency of

introduction of new products & services

Free trials Low profit margins Purchasing incentives Switching bonuses Financial packages;

cheap credit

Economies of Scale Fixed & variable costs Unit cost decreases when capacity increases Newcomers: insufficient orders to justify large capacities => higher

costs Initial Capital Investment

May be prohibitive (service to community, hospital, robotized mega plant)

May be low: e-commerce, consulting… Access to Supply & Distribution Channels

May be controlled by (major) Competitors Bargaining Power (Porter) Exclusivity agreements (credit cards & banks) Largely easier when going to e-commerce (no broker, distributor

needed) Learning curves

Lack of experience, skills, expertise can be penalizing (aerospace, shipbuilding [10% cost reduction for each similar ship built]

Volume of output Cost (materials, labor, delivery, scrap…) Utilization (labor & equipment) Quality & product reliability On-time delivery Investments (ROI) Flexibility for product change Flexibility for Volume change

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Cost

Quality

DeliveryFlexibility

FOCUS FOCUS

FOCUSFOCUS

Plant within a Plant (PWP)

TraditionalApproach

Advanced Approaches

World Class Manufacturing

Trade-offs

©The McGraw-Hill Companies, Inc., 1998

Irwin/McGraw-Hill

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World-class manufacturers no longer view cost, quality, speed of delivery, and even flexibility as tradeoffs. They are order qualifiers & order winners.

Order qualifiers - a screening criterion that permits a firm’s products to be considered as possible candidates of purchase e.g on time delivery

Order winners – A criterion that differentiates the products or services of one firm from another e.g price, quality & reliability

Birth of the System Product Design & Process Selection Design of the System Start-up of the System The System in steady state Termination of the System

Birth of the System What are the goals of the firm? What product or service will be offered?

Product Design & Process Selection Design of the System Start-up of the System The System in steady state Termination of the System

Birth of the System Product Design & Process Selection

Form & Appearance of Product? Technologically, how should the product be made?

Design of the System Start-up of the System The System in steady state Termination of the System

Birth of the System Product Design & Process Selection Design of the System

Capacity? Location? Lay-out? How to maintain quality? How to determine forecast for demand? What job is each worker to perform? How will the job be performed & measured? How will the workers be rewarded?

Start-up of the System The System in steady state Termination of the System

Birth of the System Product Design & Process Selection Design of the System Start-up of the System

How do you get the system in operation? How long will it take to reach desired level of output?

The System in steady state Termination of the System

Birth of the System Product Design & Process Selection Design of the System Start-up of the System The System in steady state

How do you manage the day to day activities? How do you maintain the system? How can you improve the system? How do you revise the system in light of changes in

corporate strategy? Termination of the System

Birth of the System Product Design & Process Selection Design of the System Start-up of the System The System in steady state Termination of the System

How does the system die? What can be done to salvage resources?

As the era of globalization & liberalization dawned on organizations, leading companies began to adopt surprisingly similar new practices in OM.

New practices were aimed at serving the customers better so as to achieve a competitive hedge in the global front.

Principles of OM by Schonberger; Get to know the customer & the competition Cut: work in process (waiting lines), throughput times, flow

distances & space Cut set up & changeover times Produce & deliver at the customer’s usage rate

Principles of OM by Schonberger; Cut the number of suppliers to a few good ones Cut the number of components in a product or service Make it easy to make or provide goods or services without error

the first time Arrange the workplace to eliminate search time Cross-train for mastery of multiple skills Record & retain output volume, quality & problem data at the

workplace Ensure that line people first crack at problem solving before

experts Maintain & improve present equipment & human work before

thinking about new equipment Look for simple, cheap & movable equipment

Principles of OM by Schonberger; Automate incrementally when process variability can not

otherwise be reduced Seek to have plural rather than singular work stations,

machines, cells & flow lines for each product, service or customer

Become dedicated to continual rapid improvement

Principles of OM by Schonberger; Automate incrementally when process variability can not

otherwise be reduced Seek to have plural rather than singular work stations,

machines, cells & flow lines for each product, service or customer

Become dedicated to continual rapid improvement

Principles of OM by Schonberger; Automate incrementally when process variability can not

otherwise be reduced Seek to have plural rather than singular work stations,

machines, cells & flow lines for each product, service or customer

Become dedicated to continual rapid improvement