Operations and Competitiveness What Do Operations Managers

Operations and Competitiveness

What Do Operations Managers Do? w What is Operations? n a function or system that transforms inputs into outputs of greater value w What is a Transformation Process? n n a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated w What is Operations Management? n design, operation, and improvement of productive systems 1 -2

Transformation Process w w w Physical: as in manufacturing operations Locational: as in transportation operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication 1 -3

Operations as a Transformation Process INPUT • Material • Machines • Labor • Management • Capital TRANSFORMATION PROCESS OUTPUT • Goods • Services Feedback 1 -4

Operations Function w Operations w Marketing w Finance and Accounting w Human Resources w Outside Suppliers 1 -5

How is Operations Relevant to my Major? w Accounting w Information Technology w Management w “As an auditor you must understand the fundamentals of operations management. ” w “IT is a tool, and there’s no better place to apply it than in operations. ” w “We use so many things you learn in an operations class— scheduling, lean production, theory of constraints, and tons of quality tools. ” 1 -6

How is Operations Relevant to my Major? w Economics w Marketing w Finance w “It’s all about processes. I live by flowcharts and Pareto analysis. ” w “How can you do a good job marketing a product if you’re unsure of its quality or delivery status? ” w “Most of our capital budgeting requests are from operations, and most of our cost savings, too. ” 1 -7

Evolution of Operations Management w Craft production n process of handcrafting products or services for individual customers w Division of labor n dividing a job into a series of small tasks each performed by a different worker w Interchangeable parts n standardization of parts initially as replacement parts; enabled mass production 1 -8

Evolution of Operations Management (cont. ) w Scientific management n systematic analysis of work methods w Mass production n high-volume production of a standardized product for a mass market w Lean production n adaptation of mass production that prizes quality and flexibility 1 -9

Historical Events in Operations Management Era Industrial Revolution Events/Concepts Dates Originator Steam engine Division of labor Interchangeable parts Principles of scientific management 1769 1776 1790 James Watt 1911 Frederick W. Taylor 1911 Frank and Lillian Gilbreth Henry Gantt Time and motion studies Scientific Management Activity scheduling chart Moving assembly line 1912 1913 Adam Smith Eli Whitney Henry Ford 1 -10

Historical Events in Operations Management (cont. ) Era Operations Research Dates Originator Hawthorne studies Human Relations Events/Concepts 1930 1940 s 1950 s 1960 s 1947 1951 Elton Mayo Abraham Maslow Frederick Herzberg Douglas Mc. Gregor George Dantzig Remington Rand 1950 s Operations research groups 1960 s, 1970 s Joseph Orlicky, IBM and others Motivation theories Linear programming Digital computer Simulation, waiting line theory, decision theory, PERT/CPM MRP, EDI, EFT, CIM 1 -11

Historical Events in Operations Management (cont. ) Era Events/Concepts Dates Originator JIT (just-in-time) TQM (total quality management) Quality Strategy and Revolution operations Business process reengineering 1970 s 1980 s 1990 s Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy 1 -12

Historical Events in Operations Management (cont. ) Era Events/Concepts Dates Originator Globalization WTO, European Union, and other trade agreements Internet, WWW, ERP, supply chain management 1990 s 2000 s Numerous countries and companies 1990 s E-commerce 2000 s ARPANET, Tim Berners-Lee SAP, i 2 Technologies, ORACLE, People. Soft Amazon, Yahoo, e. Bay, and others Internet Revolution 1 -13

Continuum from Goods to Services Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p. 11. 1 -14

Business Consumer Business B 2 B Commerceone. com B 2 C Amazon. com Consumer Operations Management and E-Business C 2 B Priceline. com C 2 C e. Bay. com Categories of E-Commerce 1 -15

An Integrated Value Chain w Value chain: set of activities that create and deliver products to customer Customer Manufacturer Supplier Flow of information (customer order) Flow of product (order fulfillment) 1 -16

Impact of E-Business on Operations Management Benefits of E-Business w Comparison shopping by customers w Direct contact with customers w Business processes conducted online Impact on Operations w Customer expectations escalate; quality must be maintained and costs lowered w No more guessing about demand is necessary; inventory costs go down; product and service design improves; build to-order products and services is made possible w Transaction costs are lower; customer support costs decrease; e-procurement saves big bucks 1 -17

Impact of E-Business on Operations Management (cont. ) Benefits of E-Business Impact on Operations w Access to customers w Demand increases; order fulfillment and logistics become major issues; worldwide production moves overseas w Middlemen are eliminated w Access to suppliers worldwide w Logistics change from delivering to a store or distribution center to delivering to individual homes; consumer demand is more erratic and unpredictable than business demand w Outsourcing increases; more alliances and partnerships among firms are formed; supply is less certain; global supply chain issues arise 1 -18

Impact of E-Business on Operations Management (cont. ) Benefits of E-Business Impact on Operations w Online auctions and emarketplaces w Better and faster decision making w Competitive bidding lowers cost of materials; supply needs can be found in one location w More timely information is available with immediate access by all stakeholders in decisionmaking process; customer orders and product designs can be clarified electronically; electronic meetings can be held; collaborative planning is facilitated 1 -19

Impact of E-Business on Operations Management (cont. ) Benefits of E-Business w IT synergy w Expanded supply chains Impact on Operations w Productivity increases as information can be shared more efficiently internally and between trading partners w Order fulfillment, logistics, warehousing, transportation and delivery become focus of operations management; risk is spread out; trade barriers fall 1 -20

Globalization and Competitiveness w Favorable cost w Access to international markets w Response to changes in demand w Reliable sources of supply w 14 major trade agreements in 1990 s w Peak: 26% in 2000 World Trade Compared to World GDP Source: “Real GDP and Trade Growth of OECD Countries, 2001– 03, ” International Trade Statistics 2003, World Trade Organization, www. wto. org 1 -21

Globalization and Competitiveness (cont. ) Germany: $26. 18 USA: $21. 33 Taiwan: $5. 41 Mexico: $2. 38 Hourly Wage Rates for Selected Countries Source: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing, ” Bureau of Labor Statistics, U. S. Department of Labor, Updated September 30, 2003. China: $0. 50 1 -22

Globalization and Competitiveness (cont. ) Trade with China: Percent of each country‘s trade Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002, ” International Trade Statistics 2003, World Trade Organization, www. wto. org 1 -23

Risks of Globalization w Cultural differences w Supply chain logistics w Safety, security, and stability w Quality problems w Corporate image w Loss of capabilities 1 -24

Competitiveness and Productivity w Competitiveness n degree to which a nation can produce goods and services that meet the test of international markets w Productivity n ratio of output to input w Output n sales made, products produced, customers served, meals delivered, or calls answered w Input n labor hours, investment in equipment, material usage, or square footage 1 -25

Competitiveness and Productivity (cont. ) Measures of Productivity 1 -26

Changes in Productivity for Select Countries Internet-enabled productivity - Dot com bust - 9/11 terrorist attacks Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, ” Bureau of Labor Statistics, U. S. Department of Labor, September 2003. U. S. figures for 2002– 2003 from “Major Sector Productivity and Costs Index, ” Bureau of Labor Statistics, U. S. Department of Labor, March 2004 1 -27

Productivity Increase w Become efficient n output increases with little or no increase in input w Expand n both output and input grow with output growing more rapidly w Achieve breakthroughs n output increases while input decreases w Downsize n output remains the same and input is reduced w Retrench n both output and input decrease, with input decreasing at a faster rate 1 -28

Competitiveness and Productivity Breakthrough Performance More Efficient Retrench Productivity as a Function of Inputs and Outputs, 2001– 2002 Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, ” Bureau of Labor Statistics, U. S. Department of Labor, September 2003 1 -29

Global Competitiveness Ranking 1. Switzerland 2. Singapore 3. Sweden 4. Finland 5. United States 6. Germany 7. Netherlands 8. Denmark 9. Japan 10. United Kingdom Source: Global Competitiveness Report 2011 -2012, World Economic Forum, www. weforum. org 1 -30

Operations–Oriented Barriers to Entry w Economies of Scale w Capital Investment w Access to Supply and Distribution Channels w Learning Curve 1 -31

Operations strategy is …. . “… the decisions which shape the longterm capabilities of the company’s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources …” 1 -32

Demand Time scale Short-term for example, capacity decisions 1 -12 months Operations strategy Long-term for example, capacity decisions Demand Operations management 1 -10 years Micro level of the process Macro level of the total operation Level of aggregation Detailed For example “Can we give tax services to the small business market in Antwerp? ” Aggregated For example “What is our overall business advice capability compared with other capabilities? ” Level of abstraction Concrete For example “How do we improve our purchasing procedures? ” Philosophical For example “Should we develop strategic alliances with suppliers? ” Level of analysis Operations strategy is different to operations management

Corporate strategy Business strategy Operations strategy Emergent sense of what the strategy should be Operational experience Top-down and bottom-up perspectives of strategy

CUSTOMERS Segmentation on: • Age - youth • Purpose - general PERFORMANCE OBJECTIVES • Dependability • Speed of delivery • Product mix flexibility • Speed to market MARKET POSITION Differentiation on: • Innovative products • Time to market • Product range • Coordinated launches COMPETITORS Traditionally weak in: • promotion • design innovation The market perspective analysis of the garment company

Customer Needs Performance Objectives Market Positioning Competitors’ Actions Required performance Understanding markets The market perspective on operations strategy

Resources Tangible • Equipment • Staff Intangible • Reputation • Relationships (internal and external) • Experience Capabilities • Application of leadingedge lighting and sound technology • Articulation of client requirements Operations Strategy Decisions • Location • Virtual reality technology • Supplier development • Equipment tracking system • Organizational structure • Staff meetings Processes • Integration of equipment supply and client requirements • Design process • Supplier liaison process The operations resource perspective analysis of the lighting company

Tangible and Intangible Resources Operations Capabilities Operations Strategy Decision Areas Operations Processes Understanding resources and processes Strategic decisions The operations resource perspective on operations strategy

Tangible and Intangible Resources Operations Capabilities Customer Needs Operations Strategy Decision Areas Performance Objectives Operations Processes Understanding resources and processes Market Positioning Competitors’ Actions Strategic decisions Required performance Understanding markets Operations strategy is the strategic reconciliation of market requirements with operations resources

Operations has to cope with the clash between the nature of external markets and the nature of internal resources Operations Resources are…. Difficult to change Technically constrained Complex Market Requirements are…. Dynamic Heterogeneous Ambiguous

Operations strategy is the strategic reconciliation of market requirements with operations resources Operations Resources Strategic Reconciliation Market Requirements Market Segmentation Operations Resources Operations Competences Operations Strategy Decisions Performance Objectives Competitor Activity Operations Processes Understanding Resources and Processes Market Positioning Strategic Decisions Capacity Supply networks Process technology Development and organization Required Performance Quality Speed Dependability Flexibility Cost Understanding Markets

Market Requirements Operations Resources What you HAVE What you DO in terms of operations capabilities to maintain your capabilities and satisfy markets What you WANT What you NEED from your operations to help you “compete” to “compete” In the market Strategic Reconciliation

Operations can kick-start two virtuous cycles Internal and External Understanding of the processes Competitiveness Competencies embedded in the operation Strong marketing World Class Operations Capabilities enhance innovation and improvement Developing the resources which let the operation’s performance stay ahead of the competition High margin Investment Developing customers’ competitors’ and stockholders; perceptions and expectations

Lafage Cosmetics’ requirements Existing ‘effective’ capability Store delivery narrow Variety of items per order wide Existing ‘effective’ capability Catalogue customers small Number of items per order large Hagen Style – Comparison of new demands placed on the order fulfilment processes by potential new business opportunities

Operations Resources • 2 x distribution centers • State-of-art packing and Market Requirements • Cost efficiency • Fast delivery information technology • Processes ‘fine tuned’ to traditional ‘representative’ sales channels • Good at what it does • cost efficient • fast throughput • As above plus • wider range of requirements • more demand fluctuations? • Traditional ‘representative’ sales channels declining in popularity • New channels • catalogue • Internet • discount Hagen Style – Operations resources and market requirements stores