Operations As a Competitive Weapon

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Operations As a Competitive Weapon
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Processes and Operations
Internal and external customers

• Inputs
• Workers
• Managers
• Equipment
• Facilities
• Materials
• Services
• Land
• Energy

• Outputs
• Services
• Goods

Information on performance
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Describe Input-Process-Output

• An airline
• Inputs passengers
• Components planes, crews, equipment, terminals
• Primary functions transportation
• Output satisfied, safe customers
• A state penitentiary
• Inputs criminals
• Components legal system, physical plant
  (prison), guards and support staff
• Primary functions segregation of prisoners from
  society, punishment, rehabilitation
• Output reformed society members
• A branch office of a bank
• Inputs customers
• Components tellers, bank officers, teller
  windows, systems
• Primary functions deposit and withdrawal
  handling, loan initiation, storing money and
  valuables
• Output satisfied customers, positive return on
  loan ratios
• The home office of a major banking firm
• Inputs paperwork from customers and other
  institutions
• Components loan underwriters, clerks, computer
  systems
• Primary function record-keeping, loan
  processing, coordinating cash flows

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Nested Processes at Chase Manhattan Bank
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Operations Management

• Operations management (OM) is defined as the
  design, operation, and improvement of the systems
  that create and deliver the firms primary
  products and services
• Each part of the organization, not just
  operations, must design and operate processes and
  deal with quality, technology and staffing
  issues.

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Types of OM Decisions

• Strategic choices how to best design processes
  for competitive priorities.
• Process improvement, one-time projects,
  technologies
• Quality SPC, improvement
• Capacity, Location,Layout - global
• Operating Decisions SCM, forecasting, staffing
  levels, scheduling, resource planning

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Operations Management as a Function
Functions
Types of Organizations
Accounting Distribution Engineering
Operations Finance Human resources
Marketing
Types of Organizations
Manufacturing Construction Transportation Healt
h care
Wholesale Retailing Bank Government
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Goods vs. Services

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

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Continuum of Characteristics
More like a manufacturing organization
More like a service organization

• Physical, durable product
• Output that can be inventoried
• Low customer contact
• Long response time
• Regional, national, or international markets
• Large facilities
• Capital intensive
• Quality easily measured

• Intangible, perishable product
• Output that cannot be inventoried
• High customer contact
• Short response time
• Local markets
• Small facilities
• Labor intensive
• Quality not easily measured

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Service Sector Jobs
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Productivity
Productivity is the value of outputs (goods and
services) produced divided by the values of input
resources.
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Productivity
An index of the output per person or hour worked.
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Productivity
Labor productivity 5 policies/hour
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Productivity
Multifactor productivity is an index of the
output provided by more than one of the resources
used in production. We have to convert the
measure into a common unit of measure, usually
dollars.
Multifactor productivity
Quantity at standard cost Labor cost Materials
cost Overhead cost
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Productivity
A team of workers make 400 units of a product
which is valued by its standard cost of 10 each.
The reported costs for this product are 400 for
labor, 1000 materials, and 300 overhead
Multifactor productivity
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Productivity

• The productivity measures are compared with
  measures from prior periods. If the ratios are
  not improved, the processes should be
  investigated.
• Our challenge is to increase the value of the
  output relative to the cost of the input. If
  processes can generate more output or output of
  better quality using the same amount if input,
  productivity increases. If they can maintain the
  same level of output while reducing the use of
  resources, productivity also increases.

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Productivity Measures

• OM Explorer
• Tutor 1.1Productivity Measures
• The state ferry service charges 18 per ticket
  plus a 3 surcharge to fund planned equipment
  upgrades. It expects to sell 4,700 tickets during
  the eight-week summer season. During that period,
  the ferry service will experience 110,000 in
  labor costs. Materials required for each passage
  sold (tickets, a tourist-information sheet, and
  the like) cost 1.30. Overhead during the period
  comes to 79,000.
• What is the multifactor productivity ratio?
• If ferry-support staff work an average of 310
  person-hours per week for the 8 weeks of the
  summer season, what is the labor productivity
  ratio? Calculate labor productivity on an hourly
  basis.

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Productivity Measures

• Tutor 1.1Productivity Measures
• Enter data in yellow areas. Use Tab to advance
  from one input cell to the next.
• a. Multifactor productivity is the ratio of the
  value of output to the value of input.
• Step 1. Enter the number of tickets sold during a
  season, the price per ticket, and the surcharge
  per ticket. To compute value of output, multiply
  tickets sold by the sum of price and surcharge.
• Tickets sold 4,700 Value of output
• Price 18
• Surcharge 3
• Step 2. Enter labor costs, materials costs per
  passenger, and overhead cost. For value of input,
  add together labor costs, materials costs times
  number of passengers, and overhead costs.
• Labor costs 110,000 Materials
  costs 1.30 Overhead 79,000
• Value of input
• Step 3. To calculate multifactor productivity,
  divide value of output by value of input.

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Productivity Measures

• Tutor 1.1Productivity Measures
• Enter data in yellow areas. Use Tab to advance
  from one input cell to the next.
• b. Labor productivity is the ratio of the value
  of output to labor hours The value of output is
  computed in part a, step 1.
• Step 1. Enter person-hours per week and the
  number of weeks in the season multiply the two
  together to calculate labor hours of input.
• Hours per week 310 Weeks 8
• Labor hours of input
• Step 2. To calculate labor productivity, divide
  value of output by labor hours of input.
• Labor productivity

Figure 1.6b
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Productivity Measures

• Tutor 1.1Productivity Measures
• Place cell pointer on green shaded areas to
  examine formulas.
• a. Multifactor productivity is the ratio of the
  value of output to the value of input.
• Step 1. Enter the number of tickets sold during a
  season, the price per ticket, and the surcharge
  per ticket. To compute value of output, multiply
  tickets sold by the sum of price and surcharge.
• Tickets sold 4,700 Value of output 98,700
• Price 18
• Surcharge 3
• Step 2. Enter labor costs, materials costs per
  passenger, and overhead cost. For value of input,
  add together labor costs, materials costs times
  number of passengers, and overhead costs.
• Labor costs 110,000 Materials
  costs 1.30 Overhead 79,000
• Value of input 195,110
• Step 3. To calculate multifactor productivity,
  divide value of output by value of input.

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Productivity Measures

• Tutor 1.1Productivity Measures
• Place cell pointer on green shaded areas to
  examine formulas.
• b. Labor productivity is the ratio of the value
  of output to labor hours The value of output is
  computed in part a, step 1.
• Step 1. Enter person-hours per week and the
  number of weeks in the season multiply the two
  together to calculate labor hours of input.
• Hours per week 310 Weeks 8
• Labor hours of input 2,480
• Step 2. To calculate labor productivity, divide
  value of output by labor hours of input.
• Labor productivity 39.80

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Productivity Measures

• Management believes that sales will grow next
  season to 5500 tickets. If labor costs grow to
  140,000 and everything else remains unchanged,
  what will be the new multifactor productivity
  ratio? Labor productivity ratio?

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Productivity Measures

• At the national level, productivity is measured
  as the dollar value of output per unit of labor.
  Productivity is a prime determinant of the
  nations standard of living. If the value of
  output per hour goes up, the nation benefits from
  higher overall income levels, because the
  productivity of human resources determines
  employee wages. Wage or price increases not
  accompanied by productivity increases lead to
  inflationary pressures rather than real increases
  in the standard of living.

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Productivity Growth
Average annual growth in productivity
3 2 1 0
2.8 2.8
2.0
1.9
1.4
Percent
1950s 1960s 1970s 1980s 1990s
Figure 1.7(a)
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Productivity Growth
Value added per hour worked
Whole economy Manufacturing
100 80 60 40 20 0
Percent
United States
Japan
Britain
France
Germany
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Productivity Growth

• The biggest problem associated with the
  measurement of service productivity is the
  definition of output. There is a lack of
  agreement among economists on the best definition
  of output. Another difficulty in measuring
  services outputs is the role of the consumer. One
  of the basic distinctions between manufacturing
  and services is that the consumer in services
  often supplies an essential input. For example
  how do you define the output of a music
  performance? Is it the same regardless of the
  number of people in the audience? Does it matter
  whether the audience enjoyed the performance or
  not? There is no widely accepted model for
  including the consumer in the measurement of
  service outputs.

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Productivity Growth

• Compare the productivity trends in manufacturing
  with the unit labor costs of manufacturing.
• While the productivity of the manufacturing
  sector based on output per hour is showing a
  positive growth, the unit labor costs have
  generally trended downwards. This implies that
  manufacturing is able to get an increase in
  output while reducing the number of people
  employed to deliver that output. The
  manufacturing sector has become more capital
  intensive, which implies more use of automation
  and less people. Also the quality of the output
  has improved considerably in the 90's, so there
  is less cost of poor quality.

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Competing Today

• Globalization
• Quality, time, and technology
• Ethical, workforce diversity, environmental
  issues
• What choices and decisions should be made to gain
  and sustain a competitive advantage?
• How do we manage cross-functional
  responsibilities?

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Current Trends in OM

• Effectively consolidating the operations
  resulting from mergers.
• Developing flexible supply chains to enable mass
  customization of products and services.
• Managing global supplier, production and
  distribution networks.
• Achieving the Service Factory.
• Achieving good service from service firms.

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Current Trends in OM

• JIT and TQC.
• Manufacturing Strategy Paradigm.
• Service Quality and Productivity.
• Total Quality Management and Quality
  Certification.
• Business Process Reengineering.
• Supply Chain Management.
• Electronic Commerce