Welcome MGT329

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Welcome MGT329

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Operations ManagementMGT329

• Lecture Monday and Wednesday
• 930 AM - 1045 AM
• Professor Jeff Street
• Office BA 434
• Phone X4184
• Cell [phone]
• e-mail strejeff_at_isu.edu

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Course Books

• Operations Management For Competitive Advantage,
  11th Edition, by Richard B. Chase, F. Robert
  Jacobs and Nicholas J. Aquilano.
• The Goal, by Eliyahu M. Goldratt and Jeff Cox

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Grading

• The grade received in the course will be based
  on
• Participation/Homework (25)
• Exam I (30)
• Exam II (25)
• Final Exam (20)

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Some questions to be addressed in this course
include

• How does the customer fit into operations
  strategy?
• How is globalization affecting business and
  operations strategies?
• What effect are new technologies having on the
  utilization of an organizations resources?

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Some questions to be addressed in this course
include

• How has the concept of quality management
  changed, and how does it affect operations?
• Why is continuous improvement in the operations
  management function necessary for an organization
  to remain competitive?

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Why Study Operations Management?
Systematic Approach
to Organizational Processes
Operations
Business Education
Career Opportunities
Management
Cross-Functional
Applications
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Development of OM as a Field
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Current Issues

• Speeding up the time it takes to get new products
  and services into production.
• Developing flexible production systems to enable
  mass customization of products and services.
• Managing global production/supply networks.
• Developing and integrating new production
  technologies into existing production systems.

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Current Issues

• Achieving high quality quickly and keeping it up
  in the face of restructuring.
• Managing a diverse workforce.
• Conforming to environmental constraints, ethical
  standards, and government regulations.

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OverviewIntroduction to Operations Management

• What is Operations Management
• Why Study Operations Management?
• Operations Decision Making
• Managing Transformations
• Service or Good?
• Closed vs. Open System Perspectives
• Development of OM as a Field
• Current Issues

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What is Operations Management?

• Operations Management is a functional area of
  business devoted to the management of an
  organization's resources to create products or
  services.
• The set of resources includes an organization's
  know-how, facilities, work-force, materials, and
  equipment.
• Operations Management issues permeate all levels
  of an organization's decision making from the
  long-term strategic to the tactical to the day to
  day operations.

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• Operations management is concerned with the
  design, operation, and improvement of the
  production system that creates the firms primary
  products and services.
• Even Starbucks and Portneuf Medical Center are
  production systems

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Operations Decision Making
Marketplace
Corporate Strategy
Operations Strategy
Marketing Strategy
Finance Strategy
Operations Management
People
Plants
Parts
Processes
Planning and Control
Production System
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Managing TransformationsThe Production System

• People
• Plants
• Parts
• Processes
• Planning and Control

Transformation is enabled by The 5 Ps of
OM A.K.A. The 5 MsMan, Machines, Materials,
Methods, And Management
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Transformations

• Physical--manufacturing
• Locational--transportation
• Exchange--retailing
• Storage--warehousing
• Physiological--health care
• Informational--telecommunications

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Competitive Priorities

• Quality (including Service)
• Price (or production cost)
• Delivery (speed)
• Flexibility

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Core services are basic things that customers
want from products (or services) they purchase.
Core Services Definition
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Core Services Performance Objectives(Competitive
Priorities)
Quality made correctly
Operations
Flexibility customized
Delivery Speed on-time
Management
Price (or cost Reduction) Competitively
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Value-added services differentiate the
organization from competitors and build
relationships that bind customers to the firm in
a positive way.
Value-Added Services Defined
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Value-Added Service Categories
Problem Solving
Operations
Information
Sales Support
Management
Field Support
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Value-Added Factory Services

• Information - provide critical data to market
• Problem Solving troubleshooting ability
• Sales Support demonstrate the offering
• Field Support replace/replenish stock, spares

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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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How would an Operations Management focus apply
here?
Verbalize Order
Collect payment
Enter Order
Prepare Food
Standard execution time 2 minutes
15 seconds
60 seconds
30 seconds
15 seconds
Fail point
Front Office
Correct Order
Materials (e.g., food, paper)
20 seconds
Not seen by customer but necessary to performance
Line of visibility
Select and purchase supplies
Back Office
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Operations Strategy and Competitiveness

• Chapter 2

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Operations Strategy and Competitiveness - Overview

• Operations Strategy
• A Framework for Operations Strategy in
  Manufacturing
• Operations Strategy in Services
• Meeting the Competitive Challenge
• Productivity Measurement

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Operations Strategy
Customer Needs
Corporate Strategy
Operations Strategy
Processes, Infrastructure, and Capabilities
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Strategy Process
Forced-Choice Model
Environmental Assessment
Organizations Position
Broad economic assumptions
Statement of mission
Interrelated set of financial and nonfinancial
objectives
Key government and regulatory issues
Statement of strengths and weaknesses
Major technological forces
Significant market opportunities and
threats
Forecast of operational needs
Major future programs
Explicit strategies of competitors
Strategic options Requirements for implementing
options Contingency plans
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Strategy Process
Example
Customer Needs
More Product
Corporate Strategy
Increase Org. Size
SBU Operations Strategy
Increase Production Capacity
Decisions on Processes and Infrastructure
Build New Factory
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Hierarchy of Strategy Process
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Operations Strategy --Formulation

• Customers
• Get to know team up with next and
• final customer.
• Continual, rapid improvement in
• lead time, quality, cost, flexibility
• and variability.

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Operations Strategy --Formulation

• Company
• Achieve unified purpose via information
• team involvement in planning and
• implementing change.

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Operations Strategy --Formulation

• Competitors
• Get to know the competition and
• world-class leaders.

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Operations Priorities

• Cost
• Quality
• Delivery Speed
• Flexibility
• Service
• Delivery Reliability
• Coping with Changes in Demand
• Flexibility and New Product Introduction Speed

Traditional Competitive Priorities
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A Framework for Manufacturing Strategy
Customer Needs
New product Old product
Competitive dimensions requirements
Quality, Cost, Delivery, Flexibility, and Service
Enterprise capabilities
Operations and Supplier
Capabilities
Operations Supplier capabilities
RD Technology Systems People Distribution
RD
Technology
Systems
People
Distribution
Support Platforms
Financial management
Human resource management
Information management
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Operations Strategy
Customer Needs
Corporate Strategy
Operations Strategy
Processes, Infrastructure, and Capabilities
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Customer Needs
Performance priorities and requirements
New Product Development
Order fulfillment after sales service
Quality Delivery Flexibility Price
Service
Technology Systems People R D
Distribution CIM
JIT TQM Finance Human Resources
Information
MGT
CapabilitiesEnterprise, Operations, Suppliers
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competitive priorities
Quality Flexibility Service

Cost Lead Times Variability
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Dealing with Trade-offs
For example, if we reduce costs by reducing
product quality inspections, we might reduce
product quality.
For example, if we improve customer service
problem solving by cross-training personnel to
deal with a wider-range of problems, they may
become less effective at dealing with commonly
occurring problems.
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World-Class Manufacturing

• World-class manufacturers i.e. operations no
  longer view cost, quality, speed of delivery, and
  even flexibility as tradeoffs.
• They have become order qualifiers.

• What are the order winners in
• todays market?

Distinctive Competency
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Distinctive competency

• A strength that sets a business apart from
  its competition
• McDonalds
• Disney World or Disney Land
• Delta Airlines
• Intel Corporation
• UPS

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Strategy Begins with Priorities

• Consider the case of a personal computer
  manufacturer.
• 1. How would we segment the market according to
  product group?
• Personal use
• Small business
• Large Corporations
• 2. How would we identify product requirements,
  demand patterns, and profit margins for each
  group?

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How do we identify order winner and order
qualifiers for each group?

• quality
• cost
• delivery
• flexibility
• service

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• How do we convert order winners into specific
  performance requirements?

Us (Distinctive Competencies)
Competition (Them)
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• Service can be an order winner

Travel Planning
Warranty
Leases
Roadside Assistance
Loaner Vehicles
Car Dealership
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Again, What is Operations Management?

• Operations Management is the functional area of
  business devoted to the management of an
  organization's resources to create products or
  services.

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What is Productivity?

• A measure of the effective use of resources,
  usually expressed as the ratio of output to
  input.
• Output
• Productivity Input

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What factors affect the productivity of a
business?

• work methods
• capital
• quality
• training
• technology
• management

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What methods can be used to improve productivity?

• develop productivity measures
• measurement is necessary to control the operation
• look at overall productivity
• develop methods for achieving productivity
  improvements
• establish reasonable goals for improvement
• measure and communicate improvements to both
  customers and employees

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Total Measure Productivity

• Total measure Productivity Outputs
• Inputs
• or
• Goods and services produced
• All resources used

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Partial Measure Productivity
Partial measures of productivity Output or
Output or Output or Output Labor
Capital Materials Energy
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Multifactor Measure Productivity
Multifactor measures of productivity
Output .
Labor Capital Energy
or Output
. Labor Capital
Materials
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Example of 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. Which productivity
measure should be used? Answer Could be
classified as a Total Measure or Partial
Measure. Is productivity increasing or
decreasing? Answer Last weeks productivity
480/2000 0.24, and this weeks productivity is
560/2400 0.23. So, productivity is
decreasing slightly.
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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
What is the labor productivity?
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Example--Labor Productivity

• 10,000 units/500hrs 20 units/hour
• (10,000 unit10/unit)
• (500hrs9/hr) What do these calculations
  tell us?
• More importantly -- What dont they tell us?

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Applying Productivity Figures

• Youve just told your boss that the plant labor
  productivity is better than that of a plant in a
  related business.What does this really mean?

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Productivity measures

• need to be tracked over time
• need to include all possible inputs
• are difficult to compare between companies or
  industries
• do not include measures of timeliness or quality

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Solution for Problem 1
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Solution to Problem 2
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Solution to Problem 2
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• Lasik Vision

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Lasik Vision

• What was Lasik Visions competitive priority?
• High volume low cost
• Other priorities?
• Flexibility?
• Delivery?
• Quality?

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Lasik Vision

• Is this the appropriate approach in this
  industry?
• Is standardization more difficult in health care?
• What repercussions, actual or perceived might
  occur with this priority?

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Lasik Vision

• Given that a company has chosen this priority,
  what needs to be done to achieve success?

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Lasik Vision -- Update

• January 15, 2001 Icon Laser Eye Centers
  proposes takeover of Lasik Vision
• March, 2001 takeover complete
• April 4, 2001 Lasik Vision in bankruptcy
• April 23, 2001 Dr. Hugo Sutton and others
  purchase assets of Lasik Vision. Clinic reopens
  as Lasik Eye Centres