lecture 1 - intro to om - handout

8/9/2019 Lecture 1 - Intro to OM - Handout

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DSC 2006

Operations Management

Semester II 2013/2014

1

Lecturer: Lucy G. Chen

Office: BIZ 1, #08-60

Phone: 6516-3013

Email: [email protected]

Consultation: Wed, 4 - 6pm,

or by appointment

DSC 2006, Operations Management, Lucy Chen


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Course Administration

!

Be punctual!! Five-minute break.

! Cell phones should be turned off or silenced.

!

Zero tolerance for chit chatting.

! Laptops are generally not allowed in class.

! Class participation attitude, comments, attendance

! Exams

! Closed book, one double sided A4 sheet is allowed

! Midterm no make-up exam. Please make sure there is no

time conflict. 2DSC 2006, Operations Management, Lucy Chen


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DSC 2006, Operations Management, Lucy Chen 3


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Introduction to Operations

Management! What is operations management?

! Why is operations important?

! How does operations contribute to a firm?

! How does operations relate to your interests?

4DSC 2006, Operations Management, Lucy Chen


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Management! What is operations management?


! How does operations contribute to a firm?




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Common Response

6


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Airplane Boarding Strategies

!

Boarding strategies normally used! First class -> Business class -> Coach class

! Coach class in groups

! back to front (Northwest Airlines)

!

window to aisle (United Airlines)! first come, first board (Southwest Airlines)



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!

Why does boarding strategy matter?! For an airplane, cutting ground time between flights

from an hour to 40 minutes creates one or two moreflights a day!

!

Four to five minutes boarding time savings generate$1 million per year (United Airlines).



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!

Reverse pyramid byAmerican West

! Saves boarding time by over2 minutes (20% saving)

! OM tools applied:

! Process Analysis

! Capacity Planning

!

Queuing Analysis! Linear Programming

Reverse pyramid



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What is Operations Management?

!

Management of systems or processes thatcreate goods and/or provide services.

!

Manage processes to bettermatch supply and

demand

! Restructure operations to improveperformance and

remain competitive in the face of ever changing

business conditions

!

Find the rightbalance between multiple measures ofperformance



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The Process View

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Value-addingTransformation Process

Inputs Outputs

Feedback

(Raw materialsCustomers,

Resources, etc.)

(Goods,Services)


Value-added: Thedifference betweenthe cost of inputsand the value orprice of outputs.

ControlFeedback

Feedback


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Example: Food Processor

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Inputs Processing Outputs

Cannedvegetables

Raw vegetables

Metal sheets

WaterEnergy

Labor

Building

Equipment

Cleaning

Makingcans

CuttingCooking

Packing

Labeling



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Example: Hospital


Inputs Processing Outputs

Healthy

patients

Doctors, nurses

HospitalMedical supplies

Equipment

Laboratories

Examination

SurgeryMonitoring

Medication

Therapy


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Goods vs. Service

Characteristic Goods Service

Output Tangible Intangible

Uniformity of output High Low

Uniformity of input High Low

Labor content Low HighMeasurement of productivity Easy Difficult

Customer contact Low High

Opportunity to correct quality

problems before delivery High LowInventory Much Little

Evaluation Easy Difficult

Patentable Usually Not Usually14DSC 2006, Operations Management, Lucy Chen


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Management

! What is operations management?


! What is the role of operations within a firm?




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Why is Operations Important?

! Importance as a leading economic indicator!

Purchasing managers index (PMI)! Durable goods orders

! 50% or more of the jobs in industry are operations-related:

! Customer Service!

Quality Assurance!

Production Planning! Scheduling! Inventory Management! Logistics

!

In every company, there is usually an underlying value-addingproduct transformation that needs to be well-managed

! Operations activities are at the core of all businessorganizations.



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Why is Operations Important?



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Management



!

How does operations contribute to a firm?




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The Strategic Role of Ops

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A companys operationsfunction is

either a competitive we pon

ora

corpor te millstone.

It is seldom neutral.

---- C. Wickham Skinner



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The Cold Hard Facts -- Competition

Thosewhounderstandhowtoplaythegamewillsucceed;thosewhodontweredoomedtofail!

Dontthinkthegameisjustcom

paniescompeting

witheachother.In

companieswithmultiple

factoriesordivisionsproducingthesamegoodsor

services,factories ordivisionsf

indthemselves

competingwitheachother!



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Dimensions of Competitiveness

!

Price

! Quality

!

Time

!Flexibility

!

...!



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Order Winners vs. Order Qualifiers

!

Order Qualifiers! Characteristics that potential customers perceive

as minimum standards

!

Order Winners! Characteristics of an organizations goods or

services that cause them to be perceived betterthan the competition



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Order Winners vs. Operational

Capability

! Price

!

Quality

! Delivery Lead Time

! Flexibility

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! Low cost process

! High quality process

! Fast process

! Flexible process



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A Strategic Framework for Ops

BusinessStrategy

DesiredCapabilities

Processes ResourcesOperationsStructure



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!Strong as always!as of 2009

! $405.6 Billion Revenue (7% increase from 2008)

! $95 Billion Gross Profit (8% increase from 2008)

Competitive Success through

Operations: Wal-Mart



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Order Winner

Paris Hilton

on Wal-Mart:

"I went to Wal-Mart for the first time. I alwaysthought they sold wallpaper. I didnt realize ithas everything. You can get anything you wantthere for really, really cheap."



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Wal-Mart K-Mart Target

Price 84% 6% 11%Selection of products 70% 5% 25%

In-stock merchandise 66% 5% 28%

Convenience 57% 14% 29%

Parking 48% 14% 38%

Service 48% 6% 46%

Source: Shoppers Rank Wal-Mart, Target And Kmart, ConsumerTechnographics north America, July 23, 2003

Which store is the best at each of the

following aspects?

Order Winner



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Wal-Mart

Business Strategy

(Gain competitive advantage by) providing customers access toquality goods, when and where needed, at competitive prices

Operations Strategy/Capability

Short flow times

Low inventory levels

Operations Structure

EDLP (everyday low prices)

Fast transportation system

Hub & Spoke distribution

Cross docking

Supplier management, use oftechnology (e.g., EDI, RFID)

Big stores offer economy ofscale and variety


Order Winners

Low price

Variety

Convenience

Compatible!


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The Romance of

$16.82

$9.94

$24.96

Business Strategy

Operational Strategies



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More Success through Ops

! Southwest Airlines

! Dell Inc.

! McDonalds

!!!



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Tradeoff of Priorities

Wal-Mart K-Mart Target

Quality of products 44% 5% 51%

Cleanliness 30% 3% 67%

Checkout 40% 10% 50%

Which store is the best at each of the following aspects?

Cant Be Good At Everything.

Source: Shoppers Rank Wal-Mart, Target And Kmart, ConsumerTechnographics north America, July 23, 2003



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Low price

Quality

Strategic Tradeoffs



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Low price

Quality

Tradeoffs and Efficient Frontier

World class

Improvement



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Low price

Quality

Tradeoffs and Efficient Frontier

Improvement

35DSC2006, Operations Management, Lucy Chen

World class


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Management



!

How does operations contribute to a firm?




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How Does Ops Relate to your

Interests?!

Consulting! Analyzing and improving business processes! SCM and use of ERP systems to achieve SC efficiency is a hot topic! Problem solving modeling and analysis

! Finance! How healthy is that company?!

Balance the upside versus the downside risk analysis! How do financial objectives relate to operational measures

! Marketing! Sales promotions and their impact on operational performance! Level of customization how to achieve it at low cost! Order qualifiers and winners

! Accounting! What is the cost of making this product Activity based or time

based! Are inventories assets or liabilities?



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Salary of Executives

38

Medium Annual Pay

(base salary + bonus+ benefit, in USD)www.salary.com, Jan 2014, New York City

*For Chicago

Chief Executive Officer $1,583,567

Chief Operating Officer $869,449

Chief Financial Officer $599,209

Chief HR Executive $399,281

Chief Marketing Executive $383,100

Chief Purchasing Executive $279,472*



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Todays Takeaways

!

What is Operations Management about?! Design operations to better match supply with demand.

! A set of quantitative models and qualitative strategies.

!

Why is operations important?

! Contribute to a companys bottom line

! Relationship between Ops and marketing, Ops and Finance.

! Order winners and order qualifiers

!

Strategic tradeoffs and operations frontier

! Operational capabilities and structures have to becompatible with firm strategy

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Assignments

!

Readings: Chapters 1 & 2 (excluding pages 51-57)! Tutorial Questions: Please see IVLE.

! Experiential Exercises: Select two stores that you shop atregularly and identify their order winners.

!

Quiz of the Day: Assume Walmart decides to enter theSingapore market. What will be the challenges for Walmartas well as the incumbent firms such as NTUC Fairprice,Cold Storage, Sheng Siong, and Giant? Do you think Wal-

mart will succeed?

lecture 1 - intro to om - handout

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