Operations Management Definition Operations management is defined as

Operations Management Definition Operations management is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. Irwin/Mc. Graw-Hill 2

Why Study Operations Management? Systematic Approach to Org. Processes Business Education/ Career Opportunities Operations Management Increase Competitive Advantage/Survival Cross-Functional Applications Irwin/Mc. Graw-Hill 3

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. Irwin/Mc. Graw-Hill WS 8

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 Corporate Environmental/social environmental protection health costs labor unions education system consumer tastes retailing capabilities employee Technological 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 External transportation costs logistics resources labor supply, capabilities training resources communications public infrastructure Operations Suppliers 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 abilities coordination location competition cooperation **Wickham Skinner: The Role of the Industrial Managers in the Massive U. S. Negative Trade Balance, April 2000 WS 6

Operations Decision Making Marketplace Corporate Strategy Finance Strategy Operations Strategy Marketing Strategy Operations Management People Materials & Customers Input Irwin/Mc. Graw-Hill Plants Parts Planning and Control Processes Products & Services Output The Transformation Process (value adding) 4

Key OM Concepts n n n 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 Irwin/Mc. Graw-Hill 8

Transformations n Physical--manufacturing n Locational--transportation n Exchange--retailing n Storage--warehousing n Physiological--health care n Informational--telecommunications Irwin/Mc. Graw-Hill 5

Examples of Production Systems Irwin/Mc. Graw-Hill 6

Service or Good? n n “If you drop it on your foot, it won’t hurt you. ” (Good or service? ) “Services never include goods and goods never include services. ” (True or false? ) Irwin/Mc. Graw-Hill 7

What about Mc. Donald’s? n n n Service or Manufacturing? The company certainly manufactures tangible products Why then would we consider Mc. Donald’s a service business? Irwin/Mc. Graw-Hill 8

Front and Back Office Service Provider Front Office Customer Irwin/Mc. Graw-Hill 9

Core “Factory Services” Core Services are basic things that customers want from products that they purchase. n n Flexibility n Speed n Irwin/Mc. Graw-Hill Quality Price (or production cost) 10

Value-Added Services Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way. n n Problem Solving and Field Support n Irwin/Mc. Graw-Hill Information Sales Support 11

History of Operations n n n n n Cottage System <1700 Industrial Revolution 1700 - 1800 1850 s Civil War Scientific Management 1890 s Moving Assembly Line 1910 s Hawthorne Studies 1930 s Operations Research 1940 s Global Competition 1970 s Service Revolution 1980 s Mass Customization 1990 s Irwin/Mc. Graw-Hill TIME 12

Development of OM as a Field – The Names and Emphasis Change, but the Elements Remain Basically the Same! Scientific Management Manufacturing Strategy TQM & Six Sigma Moving Assembly Line JIT/Lean Manufacturing Business Process Reengineering Hawthorne Studies Manufacturing Resources Planning Electronic Enterprise Operations Research Service Quality and Productivity Global Supply Chain Mgt. Historical Underpinnings Irwin/Mc. Graw-Hill OM’s Emergence as a Field 13

Some Current Issues n Implementing/sustaining Quality Management initiatives n Consolidating operations resulting from mergers n Speeding up the time to get new products to market n n 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 Irwin/Mc. Graw-Hill 14

Purchasing Managers Index n n Began 1931 Measures: n n n Index Measures Economic Activity n n Irwin/Mc. Graw-Hill New Manufacturing Orders Production Volume Deliveries Inventory Levels Employment >50. 0% Expanding <42. 7% Contracting 15

Purchasing Managers Index n n Irwin/Mc. Graw-Hill 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) 15

Purchasing Managers Index Irwin/Mc. Graw-Hill

Operations Management - Overview Process Analysis and Design Process Control and Improvement Operations Strategy Quality Management Process Analysis Statistical Process Control Project Management Supply Chain Strategy Just in Time Planning for Production Job Design Manufacturing Supply Chain Management Consulting and Reengineering Facility Layout Services Waiting Line Analysis and Simulation Capacity Management Aggregate Planning Inventory Control Materials Requirement Planning

Operations Strategy Process Example Customer Needs More Product Corporate Strategy Increase Org. Size Operations Strategy Increase Production Capacity Decisions on Processes and Infrastructure Build New Factory Irwin/Mc. Graw-Hill

Competitive Dimensions n Cost Quality and Reliability n Delivery n n n Coping with Changes in Demand New Product Introduction n n Irwin/Mc. Graw-Hill Flexibility Speed Reliability Speed Flexibility

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. Irwin/Mc. Graw-Hill Cost Flexibility Delivery Quality

Order Qualifiers and Winners Order Qualifiers: Screening criterion that permits a firm’s 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 Irwin/Mc. Graw-Hill

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?

Manufacturing’s Role in Corporate Strategy n n Irwin/Mc. Graw-Hill 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

Four Stages of Service Firm Competitiveness n Stage I. Available for Service n Stage II. Journeyman n Stage III. Distinctive Competence Achieved n Stage IV. World Class Service Delivery Irwin/Mc. Graw-Hill

U. S. Competitiveness Drivers n Product Development n n Waste Reduction (JIT Philosophy) n n WIP, space, tool costs, and human effort Improved Customer-Supplier Relationships n n speed development & enhance manufacturability borrowed from Japanese Keiretsu Improved Leadership n strong, independent boards of directors Irwin/Mc. Graw-Hill

Execution!! • • Irwin/Mc. Graw-Hill Unless you translate big thoughts into concrete steps for action, they’re 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 you’ve debated the assumptions behind them.

Productivity n Partial measures n n Multi-factor measures n n output/(multiple inputs) Total measure n Irwin/Mc. Graw-Hill output/(single input) output/(total inputs)

Example 10, 000 Units Produced Sold for $10/unit 500 labor hours What is the labor productivity? Labor rate: $9/hr Cost of raw material: $5, 000 Cost of purchased material: $25, 000 Irwin/Mc. Graw-Hill

Example--Labor Productivity 10, 000 units/500 hrs = 20 units/hour. . . or we can arrive at a unitless figure (10, 000 unit*$10/unit)/(500 hrs*$9/hr) = 22. 22 Irwin/Mc. Graw-Hill

Example: Productivity Measurement n n 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? Irwin/Mc. Graw-Hill

Balanced Scorecard 1. Financial perspective 2. Internal perspective 3. Customer perspective 4. Innovation and learning perspective Irwin/Mc. Graw-Hill