PPT

Operations Management
Systematic direction, control, and evaluation of
the entire range of processes that transform
inputs into finished goods or services.
Environmental factors-culture, political, and
market influences
Inputs-HR, capital, materials, land, energy,
information, customer
Transformations-convert inputs into outputs

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MANAGEMENT, 8E
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 PPT

O.M. (cont)
Outputs-goods or services, and waste
Customer Contact-customers actively
participate in transformation processes, self-
service
Performance Feedback-repair records,
customer comments

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Operations Management

Refers to the management of the production system

that transforms inputs into finished goods and services.
Production system: the way a firm acquires inputs then
converts and disposes outputs.
Operations managers: responsible for the transformation
process from inputs to outputs.
Operations management seeks to increase the quality,
efficiency, and responsiveness of the firm.
Seeks to provide a competitive advantage.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Operations Management Concepts

Quality: goods and services that are reliable and
perform correctly.
Quality allows customers to receive the performance that they
expect.
Efficiency: the amount of input to produce a given
output.
Less input required lowers cost and waste.
Responsiveness to customers: actions taken to
respond to customer needs.
Firm can react quickly and correctly to customer needs as they
arise.

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MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Differences Between Services and

Goods
Information Asymmetry
Intangible
Inventory
Customer Contact
Response Time
Labor Intensity

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT 21.3

Typical Characteristics of Services and Goods Producers

Primarily
Primarily Service Continuum of Goods
Producers Characteristics Producers

Mixed
Intangible, nondurable Tangible, durable

Output cant be Output can be

inventoried inventoried

High customer contact Low customer contact

Short response time Long response time

Labor intensive Capital intensive

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E Adapted from Table 21.1
South-Western College Publishing
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 PPT

Positioning Strategies-approach
selected for transformational
processes many of one product
high-volume, highly
Process Focus-layout of
automated
plant and equipment
low flexibility
around each production
Factory Lines
unit
custom made
Intermediate Strategy-
Low Volume
plant and equipment
Norwegian Ship Building
layout reflects some of
both strategies
Product Focus-arranging
batches of products
plant and equipment
Kinkos, Ball Homes
around one or a few
output types Agile Strategy-mass
Hellriegel, Jackson, and Slocum customization
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 PPT

Flexibility
Product Flexibility-speed with which products
are created, ability to customize, ability to
modify products for special needs
Volume Flexibility-ability to respond to sudden
changes in demand, change from small to full
scale
Process Flexibility-ability to manufacture a
variety of goods in a short time, adjust to
product mix over time, ability to accommodate
changes in raw materials
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT 21.5

Core Positioning Strategies

Continuous
process Product focus
(stable)
Auto assembly
Resource flows

Mass plant
production
Intermediate Mail processing
Garment
Large industry
batch
Process focus
Branch banks
Space shuttle
Legal practice
Sporadic
(unstable)
Custom products,
Mixture of custom and standard Standard products,
low volume products, moderate volume high volume
Product volume
Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A.,
and Wheelwright, S.C. The Perpetual Enterprise Machine: Seven
Keys to Corporate Renewal Through Successful Product and
Hellriegel, Jackson, and Slocum Process Development. New York: Oxford University Press, 1994;
MANAGEMENT, 8E Upton, D.M. The management of manufacturing flexibility. Adapted from Figure 21.2
South-Western College Publishing California Management Review, Winter 1994, 7289.
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 PPT

Improving Responsiveness to Customers

Without customers, organizations cease to exist.
Non-profit and for-profit firms all have customers.
Managers need to identify who the customer is and their
needs.
What do customers want? Usually customers prefer:
A lower price to a higher price.
High quality over low quality.
Fast service over slow service.
Also good after sale support.
Many features over few features.
Products tailored to their specific needs.

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MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Quality-how well a product does

what the customer expects
Internal View-within the organization

External View-value customers expect

Value-the relationship between quality and price

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MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT 21.7

Competitiveness Value Map

Higher Premium
Poor value
value
Relative Price

Average
value

Economy
value Outstanding
Source: Adapted from Gale,
value B.T., and Buzzell, R.D. Market
perceived quality: Key strategic
Lower concept. Planning
Review, March-April, 1989, 10.
Inferior Superior
Relative Quality
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E Adapted from Figure 21.3
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 PPT

Price v. Attributes

Firms offering high quality, fast service and other

customer desires, often must raise price.
Customers must tradeoff price for attributes.
Operations management tries to push the
price/attribute curve to the right with better production.
Provides more attributes at the same cost.
By enhancing the price/attribute relationship, the firm can
increase its competitive position.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Customer Responsive Production Systems

An outputs attributes is determined by the

production system.
Firms must strike a balance between cost and attributes
Improving Quality: can apply to firms producing
goods and services.
A firm that provides higher quality than others at the
same price is more responsive to customers.
Higher quality can also lead to better efficiency.
Lowers waste levels and operating costs.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Total Quality Management

The continuous process of ensuring every
aspect of production builds in product quality
Traditional Quality-product inspection during or
at the end of the transformation process

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MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

Total Versus Traditional Quality
Total Quality Management
Quality is a strategic issue
Plan for quality
Quality is everybodys responsibility
Strive for zero defects
Quality means conformance to
requirements that meet or exceed
customers expectations
Scrap and reworking are only a small
part of the costs of nonconformance
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
PPT 21.11
Traditional Quality Control
Quality is a tactical issue
Screen for quality
Quality is the responsibility of the
quality control department
Some mistakes are inevitable
Quality means inspection
Scrap and reworking are the major
costs of poor quality
Adapted from Table 21.3
 PPT

Improving Efficiency
Labor productivity allows labor comparisons between
organizations.
Improved efficiency leads to lower costs and better
performance.
TQM and Efficiency: TQM can lead to much higher
labor productivity.
When quality rises, less time is wasted on scrap.
Flexible manufacturing and efficiency: reduces the
set-up costs for production systems.
Facilities layout: seeks to design the machine-worker interface
to increase production efficiency.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Efficient Manufacturing
Most firms face major expense when setting up to
produce a product.
These costs must be paid before production begins.
The more often products to be built change, the higher setup
costs become.
Flexible Manufacturing reduces setup costs.
Just-in-Time (JIT) inventory, while developed for
TQM, also adds to efficient production.
Many costs are reduced including warehousing, holding costs
and inventory tracking.
Firm does not have a supply of parts, but can be vulnerable to
strikes or supply problems.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Efficient Manufacturing
Self-managed teams boost efficiency by allowing for a
flatter organization structure.
The team takes the role of the supervisor.
Teams working together often become very skilled at enhancing
productivity.
Kaizen: Japanese term for a management philosophy
the stresses the need for continuous improvement.
Better operations can come from many, small, continuous
improvements.
Focus on what adds value to the product and try to eliminate
steps that do not add value (such as inspection for defects).

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Reengineering
Process Reengineering: the fundamental rethinking
and radical redesign of the business process.
Can boost efficiency by directing efforts to activities that add
value to the good or service produced.
While Kaizen focuses on continuous enhancements, process
reengineering considers wholesale change.
Top managers must support operations enhancement
tools for them to be accepted by workers.
Usually, a successful operations change means a complete
change in the organizational culture.
Without a supporting culture, change will not succeed.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT 21.4

Nine Categories of Operations Management Decisions

Product plans
Competitive Priorities
Positioning Strategies
Location
Technological Choices
Quality management and control
Inventory management and control
Materials Management
Master production scheduling

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Inventory Costs
What contributes to inventory costs?
TOTAL COST = ORDERING + CARRYING
Carrying Costs
Warehouse
Insurance
Obsolescence
taxes
breakage
Ordering Costs
Placing the order
Transportation

Shortage
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT

Inventory Terms
Lead Time
Elapsed time between placing and receiving an order
EOQ-economic order cost
optimum order quantity yielding the lowest total
inventory cost
Just-in-time
finished goods to sell
sub assemblies to be assembled
purchases of raw materials to be transformed

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999
 PPT 21.13

Cost Trade-Offs in Determining Inventory Levels

High

Average annual cost ($) Total cost

Carrying cost

Order cost

Low
Small Q1 Large
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
Quantity (Q) Adapted from Figure 21.5
South-Western College Publishing
Copyright 1999