Operations Management Definition

Operations management is defined

as the design, operation, and

improvement of the systems that

create and deliver the firms primary

products and services.

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Why Study Operations Management?

Systematic Approach to Org. Processes

Business Education/ Career Opportunities

Operations Management

Increase Competitive Advantage/Survival

Cross-Functional Applications
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Current Trends
96 of the top 100 industries in the U.S. have large $

worth of exports. Exporting industries are characterized by early ongoing investments in advanced product and process technologies.
Productivity is increasing and has become a basis

for competition. Success domestically and globally is dependent on the ability to compete on many fronts, including operations (e.g., internet - easy to find potential customers, but hard to deliver)
Outsourcing of manufacturing and services (e.g.,

India and China) is accelerating.

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

Economic/Political
exchange rates trade barriers capital costs inflation capital availability social costs/legal funds flows savings rate interest rates minimum wage

Environmental/social
environmental protection health costs labor unions education system consumer tastes retailing capabilities employee

External
transportation costs logistics resources labor supply, capabilities training resources communications public infrastructure

Corporate

Technological

Operations
costs/productivity quality delivery cycle delivery reliability flexibility for prod change flexibility for vol. change New product introduction inventory mgt. Prod. Planning Control Equip. & process tech #, size, location of facilities logistics customer service information technology

Suppliers
abilities coordination location competition cooperation

strategy R&D risk avoidance engineering role of functions product development Fin-Mktg-Mfg-Eng-R&D process development balance sheet new products financial capacity development process marketing policies export sales competencies Technological sophistication of mgt

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

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Operations Decision Making

Marketplace

Corporate Strategy

Finance Strategy

Operations Strategy

Marketing Strategy

Operations Management

People Materials & Customers

Plants

Parts

Processes Products & Services

Planning and Control

Input
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Output

The Transformation Process (value adding)

Key OM Concepts

Efficiency - Doing something at the lowest possible cost Effectiveness - Doing the right things to create 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 Hospital Inputs Patients MDs, Nurses Medical Supplies Equipment Conversion Health Care Output (desired) Healthy Individuals

Restaurant

Hungry Customers Prepare Food Food, Chef Serve Food Servers Atmosphere Sheet Steel Engine Parts Tools, Equipment Workers

Satisfied Customers

Automobile Plant

Fabrication High Quality and Assembly Automobiles of Cars Educated Individuals

University

High School Grads Transferring Teachers, Books of Knowledge Classroom and Skills

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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 or false?)

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What about McDonalds?

Service or Manufacturing?

The company certainly manufactures tangible products Why then would we consider McDonalds a service business?

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Front and Back Office

Back Office

Service Provider
Front Office

Customer
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Core Factory Services

Core Services are basic things that customers want from products that they purchase.

Quality Flexibility Speed

Price (or production cost)

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Value-Added Services
Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way.

Information
Problem Solving and Field Support

Sales Support
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History of Operations

Cottage System <1700 Industrial Revolution 1700 - 1800 1850s Civil War Scientific Management 1890s Moving Assembly Line 1910s Hawthorne Studies 1930s Operations Research 1940s
Global Competition 1970s Service Revolution 1980s Mass Customization 1990s

TIME

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Development of OM as a Field The Names and Emphasis Change, but the Elements Remain Basically the Same!
Scientific Management Moving Assembly Line Hawthorne Studies Operations Research

Manufacturing Strategy
JIT/Lean Manufacturing Manufacturing Resources Planning Service Quality and Productivity

TQM & Six Sigma

Business Process Reengineering Electronic Enterprise Global Supply Chain Mgt.

Historical Underpinnings
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OMs Emergence as a Field

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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 distribution networks Outsourcing
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Purchasing Managers Index

Began 1931 Measures:

New Manufacturing Orders Production Volume Deliveries Inventory Levels Employment >50.0% Expanding <42.7% Contracting
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Index Measures Economic Activity

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Purchasing Managers Index

A Leading Indicator since: - Manufacturing must order materials in advance of production - The indicator is based on plans of supply management (purchasing) executives Source: Institute for Supply Management (ISM) ism.org (previously National Association of Purchasing Management)
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Purchasing Managers Index

Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 55.6 54.8 56.7 55.2 57.3 54.4 53.8 54.7 54.5 52.9 51.2 49.5 42.7 42.7 42.7 42.7 42.7 42.7 42.7 42.7 42.7 42.7 42.7 42.7 50 50 50 50 50 50 50 50 50 50 50 50

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Operations Management - Overview

Process Analysis and Design Process Control and Improvement Quality Management
Statistical Process Control

Supply Chain Management

Project Management

Operations Strategy
Process Analysis
Job Design

Supply Chain Strategy

Just in Time Planning for Production

Manufacturing
Facility Layout

Consulting and Reengineering

Capacity Management Aggregate Planning

Services
Waiting Line Analysis and Simulation

Inventory Control
Materials Requirement Planning

Operations Strategy
Strategy Process
Customer Needs

Example
More Product

Corporate Strategy

Increase Org. Size

Operations Strategy

Increase Production Capacity

Decisions on Processes and Infrastructure

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Build New Factory

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

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.
Example II, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.
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Cost
Flexibility Delivery

Quality

Order Qualifiers and Winners

Order Qualifiers: Screening criterion that permits a firms products or services to be considered as possible candidates for purchase Order Winners: Criterion that differentiates the products or services of one firm from another
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Strategy Begins with Priorities

Consider the personal computer assembler

1. How would we segment the market according to product group? 2. How would we identify product requirements, demand patterns, and profit margins for each group? 3. How do we identify order winners and order qualifiers for each group? 4. How do we convert order winners into specific performance requirements?

Competition (Them)

Us Differentiation (Core competencies)

Manufacturings Role in Corporate Strategy

Stage I--Internally Neutral - minimize potential manufacturing negative

Stage II--Externally Neutral - achieve parity with 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 WIP, space, tool costs, and human effort
borrowed from Japanese Keiretsu strong, independent boards of directors

Waste Reduction (JIT Philosophy)

Improved Customer-Supplier Relationships

Improved Leadership

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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 objective means nothing if you implement it badly. (Fareed Zakaria) You cannot have an execution culture without robust dialogue - one that brings reality to the surface through openness, candor, and informality. Robust dialogue starts when people go in with open minds. You cannot set realistic goals until youve debated the assumptions behind them.

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Productivity
Outputs Productivi ty = Inputs

Partial measures

output/(single input)

Multi-factor measures

output/(multiple inputs)
output/(total inputs)

Total measure

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Example
10,000 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
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What is the labor productivity?

Example--Labor Productivity
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

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Example: Productivity Measurement

You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 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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