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Operations ManagementDefinition

Operations management is defined

as the design, operat ion, andimprovementof the systems that

create and deliver the firms primary

productsand services.

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Why Study Operations Management?

OperationsManagement

Business Education/Career Opportunities

Systematic Approachto Org. Processes

Increase CompetitiveAdvantage/Survival

Cross-FunctionalApplications

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Current Trends

96 of the top 100 industries in the U.S. have large $worth of exports. Exporting industries arecharacterized by early ongoing investments in

advanced product and process technologies. Productivity is increasing and has become a basis

for competition. Success domestically and globallyis dependent on the ability to compete on many

fronts, including operations (e.g., internet - easy tofind potential customers, but hard to deliver)

Outsourcing of manufacturing and services (e.g.,India and China) is accelerating.

WS8

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**Wickham Skinner: The Role of the Industrial Managers in the Massive U.S. Negative Trade Balance, April 2000

Factors Affecting a Firm's Ability to Ward off Imports and/or Export

Externaltransportation costslogistics resourceslabor supply, capabilities

training resourcescommunicationspublic infrastructure

Environmental/socialenvironmental protectionhealth costslabor unions

education systemconsumer tastesretailing capabilitiesemployee

Economic/Politicalexchange ratestrade barrierscapital costs

inflationcapital availabilitysocial costs/legalfunds flowssavings rateinterest ratesminimum wage

Suppliersabilitiescoordinationlocationcompetitioncooperation

TechnologicalR&Dengineeringproduct developmentprocess developmentnew products

development process

Corporatestrategyrisk avoidancerole of functionsFin-Mktg-Mfg-Eng-R&Dbalance sheet

financial capacitymarketing policiesexport sales competenciesTechnological sophistication of mgt

Operationscosts/productivityqualitydelivery cycledelivery reliabilityflexibility for prod change

flexibility for vol. changeNew product introductioninventory mgt.Prod. Planning ControlEquip. & process tech#, size, location of facilitieslogisticscustomer service

information technologyWS6

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Operations Decision Making

People Plants Parts Processes

Planning and Control

Materials &

Customers

Products &

Services

Input Output

Operations Management

Marketing StrategyFinance Strategy

Marketplace

Corporate Strategy

Operations Strategy

The Transformation Process (value adding) 4

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Key OM Concepts

Efficiency - Doing something at the lowestpossible cost

Effectiveness - Doing the right things tocreate the most value for the organization

Value - Quality divided by price

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Transformations

Physical--manufacturing

Locational--transportation

Exchange--retailing

Storage--warehousing

Physiological--health care

Informational--telecommunications

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Examples of Production Systems

System Inputs Conversion Output(desired)

Hospital PatientsMDs, NursesMedical Supplies

Equipment

Health Care HealthyIndividuals

Restaurant Hungry CustomersFood, ChefServersAtmosphere

Prepare FoodServe Food

SatisfiedCustomers

Automobile

Plant

Sheet Steel

Engine PartsTools, EquipmentWorkers

Fabrication

and Assemblyof Cars

High Quality

Automobiles

University High School GradsTeachers, BooksClassroom

Transferringof Knowledgeand Skills

EducatedIndividuals

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Service or Good?

If you drop it on your foot, it wont hurt

you. (Good or service?)

Services never include goods and

goods never include services. (True orfalse?)

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What about McDonalds?

Service or Manufacturing?

The company certainly manufactures tangibleproducts

Why then would we consider McDonalds aservice business?

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Front and Back Office

Front Office

Customer

Service Provider

Back Office

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Core Factory Services

Core Servicesare basic things thatcustomers want from products that they

purchase. Quality

Flexibility

Speed

Price (or production cost)

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Value-Added Services

Value-added servicesdifferentiate theorganization from competitors and build

relationships that bind customers to the firmin a positive way.

Information

Problem Solving and Field Support

Sales Support

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History of Operations

Cottage System TIME

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Development of OM as a FieldThe Namesand Emphasis Change, but the ElementsRemain Basically the Same!

ScientificManagement

Moving AssemblyLine

HawthorneStudies

OperationsResearch

Historical

Underpinnings

ManufacturingStrategy

TQM &Six Sigma

JIT/LeanManufacturing

Business ProcessReengineering

ManufacturingResources Planning

ElectronicEnterprise

Service Qualityand Productivity

Global SupplyChain Mgt.

OMs Emergence

as a Field 13

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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 distributionnetworks

Outsourcing

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Purchasing Managers Index

Began 1931

Measures: New Manufacturing Orders

Production Volume

Deliveries

Inventory Levels

Employment

Index Measures Economic Activity >50.0% Expanding

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A Leading Indicator since:

- Manufacturing must order materials in

advance of production- The indicator is based on plans of supplymanagement (purchasing) executives

Source: Institute for Supply Management(ISM)ism.org (previously National

Association of Purchasing Management)

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Dec-05 55.6 42.7 50

Jan-06 54.8 42.7 50

Feb-06 56.7 42.7 50

Mar-06 55.2 42.7 50

Apr-06 57.3 42.7 50

May-06 54.4 42.7 50Jun-06 53.8 42.7 50

Jul-06 54.7 42.7 50

Aug-06 54.5 42.7 50

Sep-06 52.9 42.7 50

Oct-06 51.2 42.7 50

Nov-06 49.5 42.7 50

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QualityManagement

Statistical

Process Control

Just in Time

Materials Requirement Planning

Inventory Control

AggregatePlanning

Operations Management - Overview

Project

Management

Supply Chain

Management

Process Analysis

and Design

Process Control

and Improvement

Waiting Line Analysis andSimulation

Services

Manufacturing

OperationsStrategy

Facility Layout

Consulting andReengineering

Process Analysis

Job Design

Capacity Management

Planning for Production

Supply ChainStrategy

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Operations Strategy

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processesand Infrastructure

ExampleStrategy ProcessMore Product

Increase Org. Size

Increase Production Capacity

Build New Factory

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Competitive Dimensions

Cost

Quality and Reliability

Delivery Flexibility Speed Reliability

Coping with Changes in Demand New Product Introduction

Speed Flexibility

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Dealing with Trade-offs

Cost

Quality

DeliveryFlexibility

Example II,if we improvecustomer service problemsolving by cross-trainingpersonnel to deal with awider-range of problems,

they may become lessefficient at dealing withcommonly occurringproblems.

For example,if we reduce costs by reducing productquality inspections, we might reduce product quality.

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Order Qualifiers and Winners

Order Qual i f iers : Screening cr i ter ion

that permits a firms products orservices to be cons idered as poss ible

candidates for pu rchase

Order Winners:Cri ter ion that

di f ferent iates the products o r services

of one f i rm from ano ther

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Strategy Begins with Priorities Consider the personal computer assembler

1. How would we segment the market according toproduct group?

2. How would we identify product requirements,demand patterns, and profit margins for each group?

3. How do we identify order winners and orderqualifiers for each group?

4. How do we convert order winners into specificperformance requirements?

Us

(Core competenc ies)

Competition

(Them) Differentiation

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Manufacturings Role in

Corporate Strategy Stage I--Internally Neutral - minimize

potential manufacturing negative

Stage II--Externally Neutral - achieve paritywith competitors

Stage III--Internally Supportive - support

business strategy

Stage IV--Externally Supportive -manufacturing based competitive strategy

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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

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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

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Execution!! Unless you translate big thoughts into concrete

steps for action, theyre pointless. (Larry Bossidy)

Strategy is execution. (Louis Gerstner)

In the business world, having a good objectivemeans nothing if you implement it badly. (FareedZakaria)

You cannot have an execution culture withoutrobust dialogue - one that brings reality to thesurface through openness, candor, and informality.Robust dialogue starts when people go in withopen minds. You cannot set realistic goals until

youve debated the assumptions behind them.

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Productivity

Partial measures output/(single input)

Multi-factor measures output/(multiple inputs)

Total measure output/(total inputs)

Inputs

Outputs=tyProductivi

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Example10,000 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 thelabo r produ ct iv ity?

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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

Example--Labor Productivity

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Example:

Productivity Measurement

You have just determined that your service

employees have used a total of 2400 hoursof labor this week to process 560 insuranceforms. Last week the same crew used only2000 hours of labor to process 480 forms.

Is productivity increasing or decreasing?

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Balanced Scorecard

1. Financial perspective

2. Internal perspective

3. Customer perspective

4. Innovation and learning perspective

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