Operations as a Competitive Weapon

1
Operations as aCompetitive Weapon
Chapter 1
2
Learning Objectives

• Meaning of Operations Management
• Meaning of Process
• Differences and Similarities of Manufacturing and
  Services
• Trends in Operations Management
• Operations Management across the Organization

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Operations Management

• Operation include activities directly related to
  producing goods and services.
• Operation is a function or system that transforms
  inputs into outputs of greater value.
• Management involves planning, organizing,
  staffing, directing and improving people to
  achieve the goal.

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Operations Management

• Operations Management can be defined as planning,
  organizing, staffing, controlling and directing
  the production system and also designing
  operating and improvement of the production
  systems.
• Operations Management deals with processes that
  produces goods and services that people use every
  day.

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Operations Management

• Operations management is an area of business that
  is concerned with the production of goods and
  services, and involves the responsibility of
  ensuring that business operations are efficient
  and effective. It is the management of resources,
  the distribution of goods and services to
  customers, and the analysis of queue systems.

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Operations Management

• Operations Management is the management of
  systems or processes that create goods or/and
  provide services.
• Operations Management is the business function
  responsible for planning, coordinating, and
  controlling the resources needed to produce a
  companys products and services.

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Operations Management

• Operations Management refers to the direction and
  control of the process that transform inputs into
  products and services.
• Operations management (OM) is defined as the
  design, operation, and improvement of the systems
  that create and deliver the firms primary
  products and services.

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Why Study Operations Management?
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Reasons for Studying Operations Management

• A business education is incomplete without an
  understanding of modern approaches to managing
  operations. Every organization produces some
  product or service so students must be exposed to
  modern approaches for doing this effectively.
• Operations management provides a systematic way
  of looking at organizational process. Operations
  management uses analytical thinking to deal with
  real-world problems. It sharpness our
  understanding of the world around us.

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Reasons for Studying Operations Management

• Operations management presents interesting career
  opportunities. These can be in direct supervision
  of operations or in staff position in operations
  management specialties such as supply chain
  management and quality assurance.
• The concepts and tools of operations management
  are widely used in managing other functions of a
  business. All managers have to plan work, control
  quality, and ensure productivity of individuals
  under their supervision.

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How is operations relevant to my major?

• As an auditor you must understand the
  fundamentals of operations management.
• IT is a tool, and theres no better place to
  apply it than in operations.
• We use so many things you learn in an operations
  classscheduling, lean production, theory of
  constraints, and tons of quality tools.

• Accounting
• Information Technology
• Management

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How is operations relevant to my major?

• Its all about processes. I live by flowcharts
  and Pareto analysis.
• How can you do a good job marketing a product if
  youre unsure of its quality or delivery status?
• Most of our capital budgeting requests are from
  operations, and most of our cost savings, too.

• Economics
• Marketing
• Finance

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OM Across the Organization

• Most businesses are supported by the functions of
  operations, marketing, and finance
• The major functional areas must interact to
  achieve the organization goals
• Marketing is not fully capable of meeting
  customer needs if they do not understand what
  operations can produce
• Human resources must understand job requirements
  and worker skills

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OM Across the Organization

• Finance cannot judge the need for capital
  investments if they do not understand operations
  concepts and needs.
• Information systems enables the information flow
  throughout the organization.
• Accounting needs to consider inventory
  management, capacity information, and labor
  standards.

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Operations Decision Making
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OM Responsibilities

• Line management Responsibilities
• Management Decisions can be divided into three
  broad areas
• 1. Strategic (long-term) decisions
• 2. Tactical (intermediate-term) decisions
• 3. Operational planning and control (short-term)
  decisions.

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Responsibilities of Operations Management
Planning
Organizing
Capacity
Degree of centralization


Location
Process selection


Products services
Staffing

Make or buy

Hiring/laying off

Layout

Use of Overtime

Projects

Directing
Scheduling

Incentive plans

Controlling/Improving
Issuance of work orders

Inventory

Job assignments

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Key Decisions of Operations Managers

• What
• What resources/what amounts
• When
• Needed/scheduled/ordered
• Where
• Work to be done
• How
• Designed
• Who
• To do the work

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Operations as a Transformation Process
Feedback Requirements

• 1-19

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Types of Transformation

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

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Five Ps of Transformation Process

• People
• Plants
• Parts
• Process
• Planning and Controlling

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Input Transformation Output Relationships for
Typical Systems
Systems Primary Inputs Resources Primary Transformation function (s) Typical Desired Output
Hospital Patients Doctors, Nurses, Medical Supplies, Equipment Health Care (Physiological) Healthy individuals
Restaurant Hungry customers Food, chef, wait-staff, environment Well-prepared, well-served food agreeable environment (Physical and exchange) Satisfied customers
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Input Transformation Output Relationships for
Typical Systems
Systems Primary Inputs Resources Primary Transformation function (s) Typical Desired Output
Automobile factory Sheet steel, engine parts Tools, equipment, workers Fabrication and assembly of cars (Physical) High-quality cars
College or university High-school graduate Teachers, books, class rooms Imparting knowledge and skills ( informational) Educated individual
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Operations Management as a Function
Figure 1.4
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Operations as technical core

• Operations
• Marketing
• Finance and accounting
• Human resources
• Outside suppliers

• 1-25

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Business Information Flow
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Types of OM Decisions

• Part 1 Strategic Choices Operations managers
  help to determine the companys global strategies
  and competitive priorities and how best to design
  process that fit with its competitive priorities.
• Part 2 Process Process are fundamental to all
  activities that produce goods or services.
  Operations managers make process decisions about
  the types of work to be done in house, the amount
  of automation to use, and methods of improving
  existing systems.

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Types of OM Decisions

• Part 3 Quality Quality issues underlie all
  process and work activity. Operations managers
  help establish quality objectives and seek ways
  to improve the quality of the firms products and
  services.
• Part 4 Capacity, Location, Layout The types
  of decisions in this category often require
  long-term commitments. Operation managers help
  determine the systems capacity (Capacity) the
  location of news facilities including global
  operations (Location) and the organization of
  departments and a facilitys physical layout
  (Layout)

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Types of OM Decisions

• Part 5 Operating Decision Operations manager
  help to coordinate the various parts of the
  internal and external supply chain (Supply-Chain
  Management), forecast demand (Forecasting),
  manage inventory (Inventory Management), and
  control output and staffing levels over time
  (Aggregate Planning).

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Development of OM as a Field
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Historical Events in Operations Management
Era Events/Concepts Dates Originator
Industrial Revolution Steam engine 1769 James Watt
Industrial Revolution Division of labor 1776 Adam Smith
Industrial Revolution Interchangeable parts 1790 Eli Whitney
Scientific Management Principles of scientific management 1911 Frederick W. Taylor
Scientific Management Time and motion studies 1911 Frank and Lillian Gilbreth
Scientific Management Activity scheduling chart 1912 Henry Gantt
Scientific Management Moving assembly line 1913 Henry Ford
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Historical Events in Operations Management (cont.)
Era Events/Concepts Dates Originator
Human Relations Hawthorne studies 1930 Elton Mayo
Human Relations Motivation theories 1940s Abraham Maslow
Human Relations Motivation theories 1950s Frederick Herzberg
Human Relations Motivation theories 1960s Douglas McGregor
Operations Research Linear programming 1947 George Dantzig
Operations Research Digital computer 1951 Remington Rand
Operations Research Simulation, waiting line theory, decision theory, PERT/CPM 1950s Operations research groups
Operations Research MRP, EDI, EFT, CIM 1960s, 1970s Joseph Orlicky, IBM and others
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Historical Events in Operations Management (cont.)
Era Events/Concepts Dates Originator
Quality Revolution JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
Quality Revolution TQM (total quality management) 1980s W. Edwards Deming, Joseph Juran
Quality Revolution Strategy and operations 1980s Wickham Skinner, Robert Hayes
Quality Revolution Business process reengineering 1990s Michael Hammer, James Champy
Quality Revolution Six Sigma 1990s GE, Motorola
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Historical Events in Operations Management (cont.)
Era Events/Concepts Dates Originator
Internet Revolution Internet, WWW, ERP, supply chain management 1990s ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE
Internet Revolution E-commerce 2000s Amazon, Yahoo, eBay, Google, and others
Globalization WTO, European Union, and other trade agreements, global supply chains, outsourcing, BPO, Services Science 1990s 2000s Numerous countries and companies
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Differences between Manufacturing and Service
Organizations

• Services
• Intangible, perishable product
• Service cannot be inventoried
• High customer contact
• Short response time
• Labor intensive

• Manufacturing
• Physical, durable product
• Product can be inventoried
• Low customer contact
• Longer response time
• Capital intensive

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Differences between Manufacturing and Service
Organizations

• Services
• Small Facilities
• Quality not easily measured
• Local Markets

• Manufacturing
• Large facilities
• Quality easily measured
• Regional, national or international markets

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The Range From Services to Products
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Similarities between Services and Manufacturing

• All use technology
• Both have quality, productivity, response
  issues
• All must forecast demand
• Each will have capacity, layout, and location
  issues
• All have customers, suppliers, scheduling and
  staffing issues

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Service - Manufacturing

• Manufacturing often provides services
• Services often provides tangible goods
• Some organizations are a blend of service/
  manufacturing/ quasi-manufacturing (QM)
  organizations
• QM characteristics include
• Low customer contact Capital Intensive

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Trends in OM

• Several business trends are currently having a
  great impact on operations management. These are
• Growth of the service sector
• Productivity Changes
• Global Competitiveness
• Quality, time and technological change
• Environmental, ethical and diversity issues

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Trends in OM

• Service sector growth The service sector of the
  economy is significant. Services may be divided
  into three main groups. These are
• Government
• Wholesale and retail sales
• Other services (transportation, public utilities,
  communication, health etc)
• The share of the workforce in service jobs is
  well above 60 percent in Britain, Canada, France
  and Japan.

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Trends in OM

• Service sector growing to 50-80 of non-farm
  jobs- See Global competitiveness
• Demands for higher quality
• Huge technology changes
• Time based competition
• Work force diversity

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Trends in OM

• Productivity Changes Productivity is the value
  of outputs (goods and services) produced divided
  by the value of input resources (wages, costs of
  equipment and the like) used. The value of output
  can be measured by what the customer pays or
  simply by the number of units produced or
  customers served. The value of inputs can be
  measured by their costs or simply by the number
  of hours worked.

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Trends in OM

• Global Competitiveness Strong global competition
  affects industries everywhere. Most products
  today are global composites of material and
  services from throughout the world. Polo Shirt is
  sewn in Hondurus from cloth cut in the United
  states.

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Trends in OM

• Competition based on quality, time and
  technology Another important trend is that more
  firms are competing on the basis of time filling
  orders earlier than the competitors, introducing
  new products and services quickly, and reaching
  the market first. Another increasing important
  factor in operations management is accelerating
  technological change.

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Trends in OM

• Ethical, workforce diversity and environmental
  issues Business face more ethical quandaries
  than ever before, intensified by an increasing
  global presence and global technological change.
  Environment issues, such as toxic wastes,
  poisoned drinking water, poverty, air quality and
  global warming are getting more emphasis.

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Todays OM Environment

• Customers demand better quality, greater speed,
  and lower costs
• Companies implementing lean systems concepts a
  total systems approach to efficient operations
• Recognized need to better manage information
  using ERP and CRM systems
• Increased cross-functional decision making

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Achieving Cross-Functional Coordination

• A unified strategy should be developed by
  management as a starting point, giving each
  department a vision of what it must do to help
  fulfill the overall organizational strategy.
• The organizational structure and management
  hierarchy can be redesigned to promote
  cross-functional coordination.

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Achieving Cross-Functional Coordination

• The goal-setting process and reward systems can
  encourage cross-functional coordination.
• Improvements to information systems also can
  boost coordination. Information must in part be
  tailored to the needs of each functional manger.

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Achieving Cross-Functional Coordination

• Informal social systems are another device that
  can be used to encourage better understanding
  across functional lines.
• Employee selection and promotion also can help
  foster more cross-functional coordination by
  encouraging broad perspective and common goals.

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Productivity

• Productivity is a common measure on how well
  resources are being used. In the broadest sense,
  it can be defined as the following ratio
• Outputs
• Inputs

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Factors Affecting Productivity
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Measures of Productivity

• Partial measures
• output/(single input)
• Multi-factor measures
• output/(multiple inputs)
• Total measure
• output/(total inputs)

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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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Productivity

• Calculate the productivity for the following
  operation.
• Three employees process 600 insurance policies in
  a week. They work 8 hours per day, 5 days per
  week.
• A team of workers make 400 units, which is valued
  by its standard cost of Tk.10 each (before
  markups for other expenses and profit). The
  accounting department reports that for this job
  the actual costs are Tk.400 for labor, Tk.1000
  for materials, and Tk.300 for overhead.

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Productivity
Labor productivity 5 policies/hour
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Productivity
Labor productivity 5 policies/hour
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Productivity
Labor productivity 5 policies/hour
Multifactor productivity
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Productivity Growth
Productivity Growth
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Productivity Growth Rate

• Example
• Last week a company produced 150 units using 200
  hours of labor
• This week, the same company produced 180 units
  using 250 hours of labor