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Outlines for Introducing Operations Management What is OM? Why Study OM?What is OM? Why Study OM? Philosophy and New Trends in OMPhilosophy and New Trends in OM Operations in the Service SectorOperations in the Service Sector How would OM affect other functions in a firm?How would OM affect other functions in a firm? Ten Decisions of OMTen Decisions of OM Achieving Competitive Advantage through OperationsAchieving Competitive Advantage through Operations Defining Global OperationsDefining Global Operations Why Global Operations are ImportantWhy Global Operations are Important Achieving Global OperationsAchieving Global Operations

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Background: Steve PengEDUCATIONEDUCATION

Ph.D.Ph.D. York University, Toronto,York University, Toronto, Operations Management, 2001 Operations Management, 2001

M.ScM.Sc National Tsinghua University, Taiwan,National Tsinghua University, Taiwan, Electrical Engineering, 1992 Electrical Engineering, 1992

B.ScB.Sc National Tsinghua University, Taiwan,National Tsinghua University, Taiwan, Electrical Engineering, 1990 Electrical Engineering, 1990

  RESEARCH INTERESTSRESEARCH INTERESTS

                Risk control and financing mechanism design for new aircraft projectsRisk control and financing mechanism design for new aircraft projects

                Contract design for risk sharing and coordination in supply networksContract design for risk sharing and coordination in supply networks

                Stochastic models for supply chain managementStochastic models for supply chain management

INDUSTRIAL EXPERIANCEINDUSTRIAL EXPERIANCE

Consultant, Bombardier Aerospace,Consultant, Bombardier Aerospace, Toronto, 3/2001 – 6/1999 Toronto, 3/2001 – 6/1999

Risk management in new aircraft projectRisk management in new aircraft project

R&D Engineer, S-Tech Inc,R&D Engineer, S-Tech Inc, Toronto, 3/1994 – 6/1996 Toronto, 3/1994 – 6/1996

Design and manufacturing of industrial gas detecting systemDesign and manufacturing of industrial gas detecting system

Project Engineer, General Instrument,Project Engineer, General Instrument, 9/1992 – 12/1993 9/1992 – 12/1993

CATV system design and manufacturingCATV system design and manufacturing

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What is Operations Management

Managing the activities that creates goods Managing the activities that creates goods and services through the transformation of and services through the transformation of inputs into outputsinputs into outputs

Focusing on both manufacturing and Focusing on both manufacturing and service operationsservice operations

Modern OM often across organizational Modern OM often across organizational and geographical boundariesand geographical boundaries

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Operations Management

INPUTS_____________

LaborMaterials

TechnologyCapacity

VALUE-ADDING ACTIVITIES

_________________Performed with tools, machines, techniques,

and human skills

OUTPUTS____________Goods and/or

services

Management Process (planning, organizing, staffing, leading, and controlling) embedded in IT infrastructures

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Consumer

Retailer

Manufacturing

Material Flow

VISA®

Credit Flow

Supplier

Supplier Wholesaler

Retailer

CashFlow

OrderFlowSchedules

Operations in Manufacturing Firm

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Operations in Different Firms

United AirlinesUnited Airlines

Dell ComputerDell Computer

Bank of AmericaBank of America

OracleOracle

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Organizational ChartsAirline

OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science

Finance & Accounting

AccountingPayablesReceivablesGeneral LedgerFinanceCash controlInternational exchange rates

MarketingTraffic administrationReservationsSchedulesTariffs (pricing)SalesAdvertising

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Organizational ChartsManufacturing

OperationsFacilities: Construction:maintenanceProduction & inventory control Scheduling: materials control

Supply-chain managementManufacturing Tooling, fabrication,assemblyDesign Product development and design Detailed product specificationsIndustrial engineering Efficient use of machines, space, and personnelProcess analysis Development and installation of production tools and equipment

Finance & Accounting

Disbursements/credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issues and recall

MarketingSales promotionsAdvertisingSalesMarket research

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Organizational Charts

Commercial Bank

OperationsTeller SchedulingCheck ClearingTransactions processingFacilities design/layoutVault operationsMaintenanceSecurity

FinanceInvestmentsSecurityReal Estate

Accounting

Auditing

MarketingLoans Commercial Industrial Financial Personal Mortgage

Trust Department

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Characteristics of Service Operations Intangible productIntangible product Produced & consumed at same time Produced & consumed at same time Often uniqueOften unique High customer interactionHigh customer interaction Inconsistent demandInconsistent demand Difficult to inventoryDifficult to inventory Quality is difficult to measureQuality is difficult to measure Site of facility is important for customer contactSite of facility is important for customer contact Often difficult to automateOften difficult to automate

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Why Study OM?

OM is one of three major functions (marketing, finance, OM is one of three major functions (marketing, finance, and operations) of any organizationand operations) of any organization

OM plays a crucial role in managing organizations OM plays a crucial role in managing organizations effectively and efficiently, improving quality, increasing effectively and efficiently, improving quality, increasing productivity, and reducing costsproductivity, and reducing costs

We want (and need) to know how goods and services are We want (and need) to know how goods and services are produced and managedproduced and managed

OM will help you to better understand and manage other OM will help you to better understand and manage other functions in organizations (marketing, finance, accounting, functions in organizations (marketing, finance, accounting, sales, human resources, purchasing, etc.)sales, human resources, purchasing, etc.)

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The Role of OM during Business Turbulence

TOTAL MANAGEMENT PIE

OperationsMgmt.

Marketing Mgmt.

FinanceMgmt.

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The Hard Rock Cafe

First opened in 1971First opened in 1971 Now – 110 restaurants in over 40 countriesNow – 110 restaurants in over 40 countries

Rock music memorabiliaRock music memorabilia Creates value in the form of good food and Creates value in the form of good food and

entertainmententertainment 3,5003,500++ custom meals per day custom meals per day How does an item get on the menu?How does an item get on the menu? Role of the Operations ManagerRole of the Operations Manager

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Business Mission and Operations Strategy Operations strategy is derived from the Operations strategy is derived from the

organization mission.organization mission. Mission - where you are goingMission - where you are going

Provides boundaries & focus for a company’s Provides boundaries & focus for a company’s vision and represents the direction for the whole vision and represents the direction for the whole company to satisfy customer's needscompany to satisfy customer's needs

Strategy - how you can get thereStrategy - how you can get thereAction plans to achieve the missionAction plans to achieve the missionCompany has overall business strategies and each Company has overall business strategies and each functional area also has strategies functional area also has strategies

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Sample Mission - Merck

The mission of Merck is to provide society with The mission of Merck is to provide society with superior products and services - innovations and superior products and services - innovations and

solutions that improve the quality of life and satisfy solutions that improve the quality of life and satisfy customer needs - to provide employees with customer needs - to provide employees with

meaningful work and advancement opportunities meaningful work and advancement opportunities and investors with a superior rate of returnand investors with a superior rate of return

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Mission of the Hard Rock Café

To spread the spirit of Rock ‘n’ Roll by delivering an To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. exceptional entertainment and dining experience.

We are committed to being an important, We are committed to being an important, contributing member of our community and contributing member of our community and

offering the Hard Rock family a fun, healthy, and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our nurturing work environment while ensuring our

long-term success.long-term success.

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Strategy Process

MarketingDecisions

OperationsDecisions

Fin./Acct.Decisions

CompanyMission

BusinessStrategy

Functional AreaFunctional AreaStrategies

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Webvan’s Mission and Operations Strategies Mission: Change the way how people do Mission: Change the way how people do

grocery shopping in the Internet eragrocery shopping in the Internet era Operations strategies: introduce the service Operations strategies: introduce the service

to 200 cities in 30 states within 3 years.to 200 cities in 30 states within 3 years. In retrospect : Understand how to evaluate In retrospect : Understand how to evaluate

the consistency between a company’s the consistency between a company’s mission and operations strategies is mission and operations strategies is importantimportant

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Concepts for Developing Operations Strategies Exploit external opportunities and internal Exploit external opportunities and internal

strengthsstrengths Neutralize threat from competitors and avoid Neutralize threat from competitors and avoid

existing weaknessesexisting weaknesses Three concepts or options:Three concepts or options:

DifferentiationDifferentiation (unique or better) (unique or better)

Cost leadershipCost leadership (cheaper) (cheaper)

Quick responseQuick response (flexible or responsive) (flexible or responsive)

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Combination of Three Concepts

Sound OM strategies usually include more Sound OM strategies usually include more than one strategic concept or option.than one strategic concept or option.

The key is to make sure the secondary The key is to make sure the secondary concept in the strategies will not conflict concept in the strategies will not conflict with the primary conceptwith the primary concept

Achieve Achieve DifferentiationDifferentiation, , Low CostLow Cost, and , and ResponseResponse via 10 OM decisions via 10 OM decisions

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Ten Critical Decisions Service, product design……………..Service, product design…………….. Quality management…………………Quality management………………… Process, capacity design…………..Process, capacity design………….. Location ………….…………………Location ………….………………… Layout design ………………………..Layout design ……………………….. Human resources, job design……..Human resources, job design…….. Supply-chain management…………Supply-chain management………… Inventory managementInventory management ……………. ……………. Scheduling ………………………Scheduling ……………………… Maintenance …………………….Maintenance …………………….

Ch. 5Ch. 6, 6SCh. 7, 7SCh. 8Ch. 9Ch. 10, 10SCh. 11,11sCh. 12, 14, 16Ch. 3, 13, 15Ch. 17

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Strategic Decisions in OM (Designing Operations) Design of Goods and ServicesDesign of Goods and Services (from new aircraft to

wrapping paper for Taco) What product or service should we offer?What product or service should we offer?How to design these products and services?How to design these products and services?

QualityQualityWho is responsible for quality?Who is responsible for quality?How do we define and improve quality?How do we define and improve quality?

Design Process and Capacity Design Process and Capacity What processes will the products require and in what What processes will the products require and in what order?order?What equipment and technology is best for the processes?What equipment and technology is best for the processes?

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Strategic Decisions in OM (Designing Operations) Location Location

Where should we put the facilities (in a global view)Where should we put the facilities (in a global view)

On what criteria should we base for location decisionOn what criteria should we base for location decision Layout DesignLayout Design (e.g. semiconductor fab)

How should we arrange the facility?How should we arrange the facility?

How large a facility is required?How large a facility is required? Human Resources and Job DesignHuman Resources and Job Design (e.g. design course)

How do we provide a reasonable work environment?How do we provide a reasonable work environment?

How much can we expect our employees to produce?How much can we expect our employees to produce?

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Strategic Decisions in OM (Managing Operations) Supply Chain Management Supply Chain Management

Should we make or buy this item?Should we make or buy this item?

Who are our good suppliers and how many should we Who are our good suppliers and how many should we have? How to develop and deliver a product on-time?have? How to develop and deliver a product on-time?

Inventory, Material Requirements Planning, Just-in-Inventory, Material Requirements Planning, Just-in-TimeTime

How much inventory of each item should we have?How much inventory of each item should we have?

When do we re-order? What’s the tradeoffs?When do we re-order? What’s the tradeoffs?

What is the best inventory schedule?What is the best inventory schedule?

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Strategic Decisions in OM (Managing Operations) Immediate, short term, and master schedulingImmediate, short term, and master scheduling

How many employees do we need to schedule on a daily How many employees do we need to schedule on a daily basis?basis?

What is best way to complete a job or project?What is best way to complete a job or project?

What is the shortest time and lowest cost to accomplish a What is the shortest time and lowest cost to accomplish a job? (e.g. staff scheduling for check in counters)job? (e.g. staff scheduling for check in counters)

Maintenance Maintenance (machine and other resources)

Who is responsible for maintenance?Who is responsible for maintenance?

How to organize, schedule, and control maintenance?How to organize, schedule, and control maintenance?

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Jobs in Operations Management

Technology/methodsTechnology/methods Facilities/space utilizationFacilities/space utilization Strategic issues (e.g. technology selection)Strategic issues (e.g. technology selection) Response timeResponse time People/team developmentPeople/team development Customer serviceCustomer service QualityQuality Cost reductionCost reduction Inventory reductionInventory reduction Productivity improvement (e.g. Six Sigma)Productivity improvement (e.g. Six Sigma)

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Significant Events in Operations Management

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The Heritage of Operations Management

Division of labor (Adam Smith 1776 and Charles Babbage 1852)

Standardized parts (Whitney 1800)

Scientific Management (Taylor 1881)

Coordinated assembly line (Ford/Sorenson/Avery 1913)

Gantt charts (Gantt 1916)

Motion study (Frank and Lillian Gilbreth 1922

Quality control (Shewhart 1924; Deming 1950)

Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957)

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The Heritage of Operations Management - Continued

Material requirements planning (Orlicky 1960)

Computer aided design (CAD 1970)

Flexible manufacturing system (FMS 1975)

Baldrige Quality Awards (1980)

Computer integrated manufacturing (1990)

Globalization(1992)

Internet (1995)

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Productivity Measurement

Measure of process improvement Measure of process improvement Represents output relative to inputRepresents output relative to input Labor ProductivityLabor Productivity Overall productivity (efficiency):Overall productivity (efficiency): Productivity growth improves standards of living Productivity growth improves standards of living Productivity increased in U.S. at a 2.5% annual Productivity increased in U.S. at a 2.5% annual

rate between 1994 and 2004.rate between 1994 and 2004.

usedInput

produced UnitstyProductivi

Input Labor of Units

OutputtyProductivi

etc.) Capital, Energy, Material,(Labor, ResourcesTotal

OutputtyProductivi

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Reasons for Operating Globally

TANGIBLETANGIBLE Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.) Reduce risks (foreign exchange, etc.)Reduce risks (foreign exchange, etc.) Improve supply chainImprove supply chain Provide better goods and servicesProvide better goods and services Attract new marketsAttract new markets Learn to improve operationsLearn to improve operations Attract and retain global talentAttract and retain global talent

INTANGIBLEINTANGIBLE

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Examples of Global Operations

Boeing - both its sales and subsystem production Boeing - both its sales and subsystem production are world-wide are world-wide

Benetton - moves inventory to stores around the Benetton - moves inventory to stores around the world faster than its competitors world faster than its competitors

Sony - purchases components from suppliers in Sony - purchases components from suppliers in Thailand, Malaysia, etc. Thailand, Malaysia, etc.

General Motors - simultaneously building four General Motors - simultaneously building four similar plants in Argentine, Poland, China, and similar plants in Argentine, Poland, China, and Thailand so that they can learn from each other Thailand so that they can learn from each other and drive down cost while increasing qualityand drive down cost while increasing quality

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Evolution of Komatsu’s Global Strategy 1960s – use international licensing to augment 1960s – use international licensing to augment

product line and improve qualityproduct line and improve quality 1970s – build export market, reduce cost, and set 1970s – build export market, reduce cost, and set

global service departmentsglobal service departments 1980s – start to manufacture outside of Japan due 1980s – start to manufacture outside of Japan due

to strong yento strong yen 1990s – improve quality, reduce cost, use new 1990s – improve quality, reduce cost, use new

technologiestechnologies 2000s – use joint ventures to extend global OM2000s – use joint ventures to extend global OM

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Trade and Tariffs

Maquiladoras - Mexican factories located along the Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff U.S.-Mexico border that receive preferential tariff treatment treatment

WTO – World trade Organization has helped reduce WTO – World trade Organization has helped reduce tariffs from 40% in 1940 to 3% in 1995tariffs from 40% in 1940 to 3% in 1995

NAFTA - a free trade agreement between Canada, NAFTA - a free trade agreement between Canada, Mexico, and the United StatesMexico, and the United States

GATT, APEC, SEATO, MERCOSUR -international GATT, APEC, SEATO, MERCOSUR -international treaties that help promote world trade by lowering treaties that help promote world trade by lowering barriers to the free flow of goods across borders barriers to the free flow of goods across borders

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Global Integration of Operations

International strategy - engages in cross-border International strategy - engages in cross-border transactionstransactions

Multidomestic strategy- has extensive Multidomestic strategy- has extensive involvement in international business, owning or involvement in international business, owning or controlling facilities in more than one countrycontrolling facilities in more than one country

Global strategy - integrates operations from Global strategy - integrates operations from different countries, and views world as a single different countries, and views world as a single marketplacemarketplace

Transnational strategy - seeks to combine the Transnational strategy - seeks to combine the benefits of global scale efficiencies with the benefits of global scale efficiencies with the benefits of local responsivenessbenefits of local responsiveness

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Considerations in Global Operations Global product designGlobal product design

Integrate different technology and expertiseIntegrate different technology and expertise

Overcome social and cultural differences that affect Overcome social and cultural differences that affect customer’s needscustomer’s needs

Use modularized design to defer the differentiationUse modularized design to defer the differentiation Global process design and technologyGlobal process design and technology

Information technology enables management of Information technology enables management of integrated, globally dispersed operation integrated, globally dispersed operation

Production, purchasing, human resource, and financial Production, purchasing, human resource, and financial planningplanning

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Considerations in Global Operations Global factory location analysis (long term planning)Global factory location analysis (long term planning)

Cost advantage and risk control (e.g. exchange rates)Cost advantage and risk control (e.g. exchange rates)

Incentives or import restrictions from foreign governmentIncentives or import restrictions from foreign government

Productivity of workers and product liability laws Productivity of workers and product liability laws

Availability of raw materials and reduces time-to-market Availability of raw materials and reduces time-to-market Impact of culture and ethicsImpact of culture and ethics

Concerns about globalization including third-world debt, Concerns about globalization including third-world debt, environment damage, child labor, sweat factory, and so onenvironment damage, child labor, sweat factory, and so on

Underlying question: Who will benefit from globalization?Underlying question: Who will benefit from globalization?

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Minit-Lube Inc

QuestionsQuestions

1. What constitutes the mission of Minit-Lube.1. What constitutes the mission of Minit-Lube.

2. How does the Minit-Lube operations strategy provide 2. How does the Minit-Lube operations strategy provide competitive advantage? Answer this question by competitive advantage? Answer this question by evaluating how Minit-Lube’s traditional competitors evaluating how Minit-Lube’s traditional competitors perform the 10 decisions of operations management vs. perform the 10 decisions of operations management vs. how Minute-Lube performs them.how Minute-Lube performs them.

3. Is it likely that Minit-Lube has increased productivity over 3. Is it likely that Minit-Lube has increased productivity over their more traditional competitors? Why? How would you their more traditional competitors? Why? How would you measure productivity in this industry?measure productivity in this industry?

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Issues in Minit-Lube Inc

Type of product: goods vs. serviceType of product: goods vs. service Mission statementMission statement What’s Minit-lube’s operations strategy?What’s Minit-lube’s operations strategy? How to create or maintain the sustainable How to create or maintain the sustainable

advantage through the 10 OM decisionsadvantage through the 10 OM decisions What are the competitors’ possible What are the competitors’ possible

missions, advantages, and missions, advantages, and strategies/decisionsstrategies/decisions

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Competition Analysis

Who are direct competitors? Who are Who are direct competitors? Who are potential entrants?potential entrants?

Identify all competitor’s competitive Identify all competitor’s competitive advantagesadvantages

Analyze competitor’s operations strategies Analyze competitor’s operations strategies and 10 OM decisionsand 10 OM decisions

Verify that Minit-Lube’s strategies are Verify that Minit-Lube’s strategies are sustainable and can support its missionsustainable and can support its mission

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Strength and Opportunity vs. Weakness and Threat Focused product lineFocused product line Economies of scale Economies of scale

(achieved by franchise (achieved by franchise chain) on training and chain) on training and material purchasingmaterial purchasing

Lower overhead Lower overhead investment than investment than traditional garagestraditional garages

Clean, friendly, and Clean, friendly, and unified product imageunified product image

Imitation due to low entry Imitation due to low entry barrierbarrier

Inventory and technique Inventory and technique challenges for serving challenges for serving multi-brands and modelsmulti-brands and models

Limits (e.g.warrantee) Limits (e.g.warrantee) imposed by dealerimposed by dealer

Operations are run by Operations are run by individual participantindividual participant

Certain parts are Certain parts are controlled by competitorscontrolled by competitors

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Mission Statement and Potential Competitive Advantage For a franchise chain, it is important to use For a franchise chain, it is important to use

mission statement to communicate parent mission statement to communicate parent company’s vision and to highlight the company’s vision and to highlight the direction for the whole organizationdirection for the whole organization

Minit-Lube may need to compete on all Minit-Lube may need to compete on all three dimensions but with different weights three dimensions but with different weights ((e.g. differentiation > response/flexibility > e.g. differentiation > response/flexibility > costcost))

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10 Strategic Operations Decisions in Minit-Lube Inc Goods and service designGoods and service design: define product line : define product line

based on the competitive advantagebased on the competitive advantage QualityQuality: set detail operations guide lines and : set detail operations guide lines and

standards to ensure the customer’s satisfactionstandards to ensure the customer’s satisfaction Process and capacity designProcess and capacity design: select technology to : select technology to

optimize efficiency and cost; arrange resources optimize efficiency and cost; arrange resources and capital commitments with participantsand capital commitments with participants

Layout designLayout design: to maximize throughput, minimize : to maximize throughput, minimize customer’s waiting, remove bottleneckcustomer’s waiting, remove bottleneck

Location selectionLocation selection: convenience vs. rent : convenience vs. rent

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10 Strategic Operations Decisions in Minit-Lube Inc Human resources and job designHuman resources and job design: develop : develop

training and evaluation system to unify the product training and evaluation system to unify the product quality delivered by each franchise quality delivered by each franchise

Supply chain managementSupply chain management: make or buy : make or buy decisions; focus on quality and JITdecisions; focus on quality and JIT

InventoryInventory: different policies for common parts and : different policies for common parts and genuine partsgenuine parts

SchedulingScheduling: identify demand patterns to optimize : identify demand patterns to optimize human resource and facility utilizationhuman resource and facility utilization

MaintenanceMaintenance: for equipment and environment: for equipment and environment

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Mission, Strategy and Ten OM Decisions in Kaiser Permanent’s New Facility Mission statementMission statement Define Kaiser’s overall strategy when Define Kaiser’s overall strategy when

establish new facilityestablish new facility Develop and address 10 OM decision for Develop and address 10 OM decision for

Kaiser’s decision makersKaiser’s decision makers

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10 Strategic OM Decisions in Kaiser’s New Hospital Goods and service designGoods and service design QualityQuality Process and capacity designProcess and capacity design Layout designLayout design Location selectionLocation selection Human resources and job designHuman resources and job design Supply chain managementSupply chain management InventoryInventory SchedulingScheduling MaintenanceMaintenance