Operations Management6630Concepts Strategy Principles Methods Class 3 Aug 31,2015

Course Objectives / Requirements / AssignmentsObjective of the course: Understanding and improving business processesPerformance measuresHow-toMix of industries: healthcare, restaurants, automotive, computers, call centers, banking, etc

Requirements : EngagementParticipation

Assignments:Project assignmentFinal exam????

Overview

The Goal by Eliyahu Goldratt and Jeff Fox Process Improvement Principles by C. Dennis PegdenOperations Management for MBAs by Jack Meredith and Scott SchaferSelected Articles The Four Things a Service Business Must Get Righthttp://hbr.org/2008/04/the-four-things-a-service-business-must-get-rightKnow What Your Customers Want Before They Dohttp://hbr.org/2011/12/know-what-your-customers-want-before-they-do

OverviewObjectives:Make Money $$$$$$Satisfy CustomersRespect employees

OperationsProductsServices

Forms of Transformation SystemsTransformation system design considers alternative transformation forms and selects best one given characteristics of desired outputs.Layout analysis seeks to maximize the efficiency or effectiveness of operations.

Basic Forms of Transformation SystemsContinuous processFlow shopJob shopCellularProjectSlide on each of theseParallel ServersFlow LineJob Shop

Continuous ProcessHighly standardized products in large volumesOften these products have become commoditiesTypically these processes operate 24 hours/day seven days/weekObjective is to spread fixed cost over as large a volume as possibleStarting and stopping a continuous process can be prohibitively expensiveHighly automated and specialized equipment usedLayout follows the processing stagesOutput rate controlled through equipment capacity and flow mixture ratesLow labor requirementsOften one primary inputInitial setup of equipment and procedures very complex

Flow ShopSimilar to continuous process except discrete product is producedHeavily automated special purpose equipmentHigh volume - low variety Both services and products can use flow shop form of processing

A Generalized Flow Shop Operation

Advantages of the Flow ShopLow unit costSpecialized high volume equipmentBulk purchasingLower labor ratesLow in-process inventoriesLess skilled operators usedFewer supervisors are neededSimplified managerial control

Layout of the Flow ShopObjective is to assign tasks to groupsThe work assigned to each group should take about the same amount of time to completeFinal assembly operations with more labor input often subdivided easierPaced versus unpaced lines

Job ShopEach output, or small batch of outputs is processed differentlyHigh variety - low volumeConsiderable amount of transport of staff, material, or recipientsLarge variations in system flow timesEquipment and staff grouped based on function

A Generalized Job Shop Operation

Advantages of the Job ShopFlexibility to respond to individual demandsLess expensive general purpose equipment usedMaintenance and installation of general purpose equipment easierGeneral purpose equipment easier to modify and therefore less susceptible to becoming obsoleteDangerous activities can be segregated from other operationsHigher skilled work leading to pride of workmanshipExperience and expertise concentratedPace of work not dictated by moving lineLess vulnerable to equipment breakdowns

Cellular ProductionCombines flexibility of job shop with low costs and short response times of flow shopBased on group technologyFirst identify part familiesThen form machine cells to produce part families

Conversion of a Job Shop Layout to a Cellular Layout

Organization of Miscellaneous Parts into Families

Advantages of Cellular ProductionReduced machine setup timesIncreased capacityEconomical to produce in smaller batch sizesSmaller batch sizes result in less WIPLess WIP leads to shorter lead timesShorter lead times increase forecast accuracy and provide a competitive advantageParts produced in one cellCapitalize on benefits of using worker teamsMinimal cost to move from job shop to cellular production (e.g. EHC)Can move from cellular production to mini-plants

Project OperationsLarge scaleFinite durationNon-repetitiveMultiple interdependent activitiesOffers extremely short reaction times

Selection of a Transformation SystemThe systems are simplified extremes of what is observed in practiceFew firms use one of the five forms in a pure senseMost use a hybridServices are typically job shopsRecent focus on mass production of serviceProblem is to decide what processing form is best for the organization long term

Considerations of Volume and VarietyHigh volume indicate automated mass productionHigh variety implies use of skilled labor and general purpose equipmentMake-to-stock versus make-to-order

Effect of Output Characteristics on Transformation Systems

Service ProcessesOften implemented with little development or pretestingNeed to consider amount of customer contactCustomers may not arrive at smooth and even incrementsIncluding customer in service process provides opportunities to improve service

The Service Matrix

The Service ModelThe offeringThe funding mechanismEmployee management systemCustomer management system

The OfferingCustomer experience versus product characteristicsConvenience, customer service, priceWhat to do well and what not to do wellExamples: Wal-Mart

The Funding MechanismCharge the customer in a palatable way Create a win-win between operational savings and value-added services Spend now to save later Have customer do the work

The Employee Management SystemAble to achieve excellenceMotivated to achieve excellence

The Customer Management SystemAble to achieve excellenceMotivated to achieve excellence

Service GapsIt is useful to inspect the service design for gaps between customer needs and what provider is offeringThis allows provider to control quality, productivity, cost, and performanceCan help identify a competitive advantage

Diagnosing Service Design1. The OfferingWhich service attributes (convenience? friendliness?) does the firm target for excellence?Which ones does it compromise in order to achieve excellence in other areas?How do its service attributes match up with targeted customers priorities?2. The Funding MechanismAre customers paying as palatably as possible?Can operational benefits be reaped from service features?Are there longer-term benefits to current service features?Are customers happily choosing to perform work (without the lure of a discount) or just trying to avoid more-miserable alternatives?

Diagnosing Service Design3. The Employee Management SystemWhat makes employees reasonably able to produce excellence?What makes them reasonably motivated to produce excellence?Have jobs been designed realistically, given employee selection, training, and motivation challenges?4. The Customer Management SystemWhich customers are you incorporating into your operations?What is their job design?What have you done to ensure they have the skills to do the job?What have you done to ensure they want to do the job?How will you manage any gaps in their performance?

Diagnosing Service DesignThe Whole Service ModelAre the decisions you make in one dimension supported by those youve made in the others?Does the service model create long-term value for customers, employees, and shareholders?How well do extensions to your core business fit with your existing service model?Are you trying to be all things to all peopleor specific things to specific people?

Monitoring and ControlMonitoring system is a direct connection between planning and controlMonitor processes, output, and environment to make sure that strategy is appropriate to achieve goalsFirst, identify the key factors to be controlledSecond, identify the relevant information to be collected

Balanced ScorecardIn the past, it was common to rely on financial measuresWhen inadequacies discovered, managers either tried to improve or switched to operational measuresMany organizations now realize no one type of measurement is bestThe purpose of the balanced scorecard it to provide a comprehensive view

Benefits of Balanced ScorecardAn effective way to clarify and gain consensus of the strategyA mechanism for communicating the strategy throughout the entire organizationA mechanism for aligning departmental and personal goals to the strategyA way to ensure that strategic objectives are linked to annual budgetsTimely feedback related to improving the strategy

Areas Measured by Balanced ScorecardFinancial performanceCustomer performanceInternal business process performanceOrganizational learning and growth

ISO CertificationsISO 9000 was developed by International Organization for StandardizationISO 9000 was developed as a guideline for designing, manufacturing, selling, and servicing productsISO 14000 and 14001 Series of standards covering environmental management systems, environmental auditing, evaluation of environmental performance, environmental labeling, and life-cycle assessment

Failure Mode and Effect Analysis (FMEA)List ways a production system might failEvaluate the severity (S) of each failureEstimate the likelihood (L) of each failureEstimate the ability to detect (D) for each causeFind risk priority number RPN=S L DConsider ways to reduce S, L, and D where RPN is high

Characteristics of a Good Control SystemFlexibleCost effectiveSimpleTimelySufficiently preciseEasy to maintainSignal if out of orderCapable of being extendedFully documentedEthical

Statistical Process ControlInspection for variablesMeasuring a variable that can be scaled such as weight, length, temperature, and diameterInspection of characteristic (attribute)Determining the existence of a characteristic such as acceptable-defective, timely-late, and right-wrong

Controlling Service QualityProcess control, strategy maps, and control charts can also be used for quality control in servicesMeasuring service quality is more difficultService is abstract, transient, and psychologicalCustomer satisfaction surveys

Service DefectionsFeedback from defecting customers can be used to identify problem areasDetermine what is needed to win them backChanges in defection rates can be used as early warning signals

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