About the Lecturer Dr. Qing Lu (Henry)

Grew up in Shanghai, China Lived in Singapore from 1994 to 2014 Came to IEU last September

• Contact informationo Office: C-808, Tel: 448-8295o e-mail: lu.qing@ieu.edu.tro Course materials will be posted online every week

• Warning ahead• No plagiarism (from other students or Internet)• Keep classroom order

• Two-way communication vital, let me know• whether you understand or not• anything concerned

CHAPTER 1 Strategy & Competition

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Manufacturing processes are combined to form a manufacturing system

Manufacturing system takes inputs and produces products for the customer

Production system includes people, money, equipment, materials and supplies, markets, management and the manufacturing system

Football ~ manufacturing

Anology of football to manufacturing and production system terminology

Footbal Manufacturing

Football players Manufacturing processes or machine tools

Operations(run, pass, block, catch, etc.)

Operations(drilling, boring, turning, etc.)

Offensive and defensive plays Manufacturing systems(job shop, flow shop, project shop, cont. processes, cellular)

Designing the plays or formations Design or layout of manufacturing system

Athletic department (coach, recruit, maintain field, sell tickets, print programs, training)

Production system (design, personnel, accounting, sales, marketing, quality control, maintenance)

Product type vs. Manufacturing SystemLow-volume custom-differentiated products

High-volume differentiated products

Project shop

Job shop

Flow shop

Dedicated flow shop

Continuous process

AerospaceShipbuilding*

Industrial machinery*Apparel*

Machine tools*

Drugs*Motorcycles*

Speciality chemicalsElectrical & electronic*

AUtomobile*Tire&rubber

Steel producsMajor chemicals

PaperContainers

Oil SteelForest

Products

Type of industry by product

Typ

e of

man

ufa

ctur

ing

syst

em

Typical plant layout

Job Shop

Flow Shop

Project Shop

Topic Areas in Operations Analysis Forecasting Aggregate Planning Inventory Control: Deterministic Environments Inventory Control: Stochastic Environments Supply Chain Management Production Control Systems: MRP and JIT Operations Scheduling Project Scheduling Facilities Planning Quality and Assurance Maintenance and Reliability

1-10

Operations

Finance

Marketing

Functional Areas of the Firm

1-11

Time Horizons for Strategic Decisions1. Long Term Decisions

Locating and Sizing New Facilities Finding New Markets for Products Mission Statement: meeting quality objectives

2. Intermediate Term Decisions Forecasting Product Demand Determining Manpower Needs Setting Channels of Distribution Equipment Purchases and Maintenance

3. Short Term Decisions Purchasing Shift Scheduling Inventory Control

1-12

The Elements of Strategy

Time Horizon Short Term Intermediate Long Term

Evaluation Cost Quality Profitability Customer satisfaction

Focus Process Technology Market Issues Volume Quality Tasks

Consistency Professionalism Proliferation Changes in the task Explicit goals

1-13

The Elements of Production and Operations Strategy

1-14

History of POM Major Thrust of the Industrial Revolution 1850-

1890. Factories tended to be small. Boss had total control.

Little regard for workers safety or workers rights.

Production Manager Position. 1890-1920. Frederick Taylor champions the idea of “scientific

management”.

As complexity grows specializations take hold. Inventory Control Manager Purchasing Manager Scheduling Supervisor Quality Control Manager etc.

Start to move from specialization to integration

1-15

Global Competition

Global competition is heating up to an unprecedented degree. It appears that several factors favor the success of some industries in some countries: For example:

Germany: printing presses, luxury cars, chemicals Switzerland: pharmaceuticals, chocolate Sweden: heavy trucks, mining equipment United States: personal computers, software,

entertainment Japan: automobiles, consumer electronics

1-16

How Do Firms Differentiate Themselves from Competitors? Low Cost Leaders: Some examples include

WalMart and Costco in Retailing Korean automakers (Hyundai, Kia, etc.) Personal computers, Chinese high-tech firms

High Quality (and price) Leaders. Ex: Mercedes Benz automobiles Rolex Watches (some firms do both: Chevrolet and Cadillac)

1-17

Along What Other Dimensions Do Firms Compete?

Delivery Speed, Delivery Reliability Federal Express, United Parcel Service

Flexibility Solectron: provides manufacturing services to

many different companies.

Service Nordstrom bases its reputation on providing a

high quality of service to customers

1-18

The Product Life-Cycle Curve1-19

Break-even Curves for the Make or Buy Problem

Cost to Buy = c1x

Cost to make=K+c2x

K

Break-even quantity

1-20

Capacity Strategy

Fundamental issues: Amount. When adding capacity, what is the optimal

amount to add? Too little means that more capacity will have to be added

shortly afterwards.

Too much means that capital will be wasted.

Timing. What is the optimal time between adding new capacity?

Type. Level of flexibility, automation, layout, process, level of customization, outsourcing, etc.

1-21

Three Approaches to Capacity Strategy

Policy A: Try not to run short. Here capacity must lead demand, so on average there will be excess capacity.

Policy B: Build to forecast. Capacity additions should be timed so that the firm has excess capacity half the time and is short half the time.

Policy C: Maximize capacity utilization. Capacity additions lag demand, so that average demand is never met.

1-22

Capacity Leading and Lagging Demand

1-23

Determinants of Capacity Strategy

Highly competitive industries (commodities, large number of suppliers, limited functional difference in products, time sensitive customers) – here shortages are very costly. Use Type A Policy.

Monopolistic environment where manufacturer has power over the industry: Use Type C Policy. (Intel, Lockheed/Martin).

Products that obsolete quickly, such as computer products. Want type C policy, but in competitive industry, such as computers, you will be gone if you cannot meet customer demand. Need best of both worlds: Dell Computer.

1-24

Textbook

2

Nahmias, S. 2007. Production and Operations Analysis. McGraw-Hill/Irwin, 6th (Sixth) Edition

Course Objectives and Overview

• Equip the students on basic modelling skills solving simple quantitative problems

• Four sections in this course Forecasting (ch2) Aggregate planning (Ch3) Inventory management (Ch4 &5) Scheduling and facility layout (Ch8 &

10)

Course Evaluation• 10% attendance

– Attend lectures as many as you can• 10% homework

– Submit homework on time and understand them• 20% in-class quizzes

– Understand lessons and review homework before the quiz• 30% mid-exam at the middle of the course

– Get familiar with the context during the lesson. Ask questions if you don’t understand.

– It is too late for a student to contact lecturer after the exam!

• 30% final exam at the end of the course– The last chance for you to catch upo catch up