using operations to compete
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1 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
USING OPERATIONS
TO COMPETE 1
1 – 2
Operations Management
The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, customers
Processes can be linked together to form a supply chain – interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers
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Across the Organization
Material & Service Inputs
Sales Revenue
Product & Service Outputs
Finance
Acquires financial resources and capital
for inputs
Marketing
Generates sales of outputs
Operations
Translates materials and service into
outputs
Support Functions
• Accounting • Information Systems • Human Resources • Engineering
Figure 1.1
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A Process View
External environment
Information on performance
Internal and external customers
Processes and operations
1
2
3
4
5
Inputs
• Workers
• Managers
• Equipment
• Facilities
• Materials
• Land
• Energy
Outputs
• Goods
• Services
Figure 1.2
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A Process View
• Physical, durable output
• Output can be inventoried
• Low customer contact
• Long response time
• Capital intensive
• Quality easily measured
• Intangible, perishable output
• Output cannot be inventoried
• High customer contact
• Short response time
• Labor intensive
• Quality not easily measured
More like a manufacturing
process
More like a service process
Figure 1.3
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The Supply Chain View
Support Processes
Ex
tern
al s
up
pli
ers
Ex
tern
al c
us
tom
ers
Supplier relationship process
New service/ product development
Order fulfillment process
Customer relationship management
Figure 1.4
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The Supply Chain View
Core processes are sets of activities that deliver value to external customers
1. Supplier relationship process
2. New service/product development process
3. Order fulfillment process
4. Customer relationship process
Support processes provide vital resources and inputs to the core processes
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Support Processes
TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES
Capital acquisition The provision of financial resources for the organization to do its work and to execute its strategy
Budgeting The process of deciding how funds will be allocated over a period of time
Recruitment and hiring The acquisition of people to do the work of the organization
Evaluation and compensation The assessment and payment of people for the work and value they provide to the company
Human resource support and development The preparation of people for their current jobs and future skills and knowledge needs
Regulatory compliance The processes that ensure that the company is meeting all laws and legal obligations
Information systems The movement and processing of data and information to expedite business operations and decisions
Enterprise and functional management The systems and activities that provide strategic direction and ensure effective execution of the work of the business
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Operations Strategy
Specifies the means by which operations implements corporate strategy and helps build a customer-driven firm
Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization's functions
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Operations Strategy
Figure 1.5
Corporate Strategy
• Environmental scanning
• Core competencies
• Core processes
• Global strategies
Market Analysis
• Market segmentation
• Needs assessment
Competitive Priorities
• Cost
• Quality
• Time
• Flexibility
New Service/
Product Development
• Design
• Analysis
• Development
• Full launch
Operations Strategy
Decisions
• Managing processes
• Managing supply chains
Competitive Capabilities
• Current
• Needed
• Planned
Performance
Gap?
No
Yes
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Corporate Strategy
Environmental scanning
Developing core competencies
1. Workforce
2. Facilities
3. Market and financial know-how
4. Systems and technologies
Developing core processes
Global strategies
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Market Analysis
Market segmentation
Needs assessment
Service or product needs
Delivery system needs
Volume needs
Other needs
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Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES
COST Definition Process Considerations Example
1. Low-cost operations
Delivering a service or a product at the lowest possible cost
Processes must be designed and operated to make them efficient
Costco
QUALITY
2. Top quality Delivering an outstanding service or product
May require a high level of customer contact and may require superior product features
Ferrari
3. Consistent quality
Producing services or products that meet design specifications on a consistent basis
Processes designed and monitored to reduce errors and prevent defects
McDonald’s
TIME
4. Delivery speed Quickly filling a customer’s order
Design processes to reduce lead time
Dell
5. On-time delivery
Meeting delivery-time promises
Planning processes to increase percent of customer orders shipped when promised
United Parcel Service (UPS)
6. Development speed
Quickly introducing a new science or a product
Cross-functional integration and involvement of critical external suppliers
Li & Fung
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Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES
FLEXIBILITY Definition Process Considerations Example
7. Customization Satisfying the unique needs of each customer by changing service or products designs
Low volume, close customer contact, and easily reconfigured
Ritz Carlton
8. Variety Handling a wide assortment of services or products efficiently
Capable of larger volumes than processes supporting customization
Amazon.com
9. Volume flexibility
Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand
Processes must be designed for excess capacity
The United States Postal Service (USPS)
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Order Winners and Qualifiers S
ale
s (
$)
Achievement of competitive priority
Low High
Order Winner
Figure 1.6
Sa
les
($
)
Achievement of competitive priority
Low High
Order Qualifier
Threshold
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Using Competitive Priorities
Customer relationship
Top quality
Consistent quality
Delivery speed
Variety
New service development
Development speed
Customization
Top quality
At an airline
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Using Competitive Priorities
Order fulfillment
Low-cost operations
Top quality
Consistent quality
On-time delivery
Variety
At an airline
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Using Competitive Priorities
Supplier relationship
Low-cost operations
Consistent quality
On-time delivery
Variety
Volume flexibility
At an airline
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Operations Strategy
TABLE 1.3 | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS
Competitive Priority Measure Capability Gap Action
Low-cost operations Cost per billing statement
$0.0813 Target is $0.06
Eliminate microfilming and storage of billing statements
Weekly postage
$17,000 Target is $14,000
Develop Web-base process for posting bills
Consistent quality Percent errors in bill information
0.90% Acceptable No action
Percent errors in posting payments
0.74% Acceptable No action
Delivery speed Lead time to process merchant payments
48 hours Acceptable No action
Volume flexibility Utilization 98% Too high to support rapid increase in volumes
Acquire temporary employees
Improve work methods
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Trends in Operations Management
Productivity improvement
Global competition
Ethical, workforce, and environmental issues
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Productivity Improvement
Value of Input resources : wages, cost of equipment, and so on…
Value of Outputs : Services and Products
Labor productivity
Output per person or per hour worked
Machine productivity
Output per number of machine
Multifactor productivity
Output provided by more than one of the resources
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Productivity Improvement
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Productivity Improvement
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OM as a Set of Decisions
In practice, managers make strategic and tactical decisions
1. Each part of the organization designs and operates processes
2. Each function is connected through shared resources
Using Operations to Compete Managing Effective Projects
COMPETING WITH OPERATIONS
Developing a Process Strategy Analyzing Processes
Managing Quality Planning Capacity
Managing Process Constraints Designing Lean Systems
DESIGNING AND MANAGING PROCESSES
Designing Effective Supply Chains Integrating the Supply Chain
Locating Facilities Managing Inventories Forecasting Demand
Planning and Scheduling Operations Planning Sufficient Resources
DESIGNING AND MANAGING SUPLY CHAINS
Figure 1.7
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Challenges in OM
Part 1: Competing with operations
Part 2: Designing and managing processes
Part 3: Designing and managing supply chains
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Solved Problem 1
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Solved Problem 1
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Solved Problem 2
Natalie Attire makes fashionable garments. During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that they were flawed).
Seconds are sold for $90 each at Attire’s Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each.
What is the labor productivity ratio of this manufacturing process?
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Solved Problem 2
SOLUTION
Labor productivity = = $20,680
360 hours
Output
Input
Labor hours of input = 360 hours
Value of output = (52 defective 90/defective)
+ (80 garments 200/garment)
= $20,680
= $57.44 in sales per hour
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