operations and competitiveness. 1-2 what do operations managers do? what is operations? a function...

Operations and CompetitivenessOperations and Competitiveness

1-1-22

What Do Operations What Do Operations Managers Do?Managers Do?

What is Operations?What is Operations? a function or system that transforms inputs into outputs of a function or system that transforms inputs into outputs of

greater valuegreater value What is a Transformation Process?What is a Transformation Process?

a series of activities along a a series of activities along a value chain value chain extending from extending from supplier to customersupplier to customer

activities that do not add value are superfluous and activities that do not add value are superfluous and should be eliminatedshould be eliminated

What is Operations Management?What is Operations Management? design, operation, and improvement of productive design, operation, and improvement of productive

systemssystems

1-1-33

Physical: Physical: as in manufacturing operationsas in manufacturing operations Locational: Locational: as in transportation operationsas in transportation operations Exchange: Exchange: as in retail operationsas in retail operations Physiological: Physiological: as in health careas in health care Psychological: Psychological: as in entertainmentas in entertainment Informational: Informational: as in communicationas in communication

Transformation ProcessTransformation Process

1-1-44

INPUT •Material•Machines•Labor•Management•Capital

TRANSFORMATIONPROCESS

OUTPUT •Goods•Services

FeedbackFeedback

Operations as a Operations as a Transformation ProcessTransformation Process

1-1-55

Operations FunctionOperations Function

OperationsOperations MarketingMarketing Finance and Finance and

AccountingAccounting Human Human

ResourcesResources Outside Outside

SuppliersSuppliers

1-1-66

How is Operations Relevant to my How is Operations Relevant to my Major?Major?

AccountingAccounting

Information Information TechnologyTechnology

ManagementManagement

““As an auditor you must As an auditor you must understand the fundamentals of understand the fundamentals of operations management.”operations management.”

““IT is a tool, and there’s no better IT is a tool, and there’s no better place to apply it than in operations.” place to apply it than in operations.”

““We use so many things you learn We use so many things you learn in an operations class—scheduling, in an operations class—scheduling, lean production, theory of lean production, theory of constraints, and tons of quality constraints, and tons of quality tools.”tools.”

1-1-77

How is Operations Relevant to my How is Operations Relevant to my Major?Major?

EconomicsEconomics

MarketingMarketing

FinanceFinance

““It’s all about processes. I live It’s all about processes. I live by flowcharts and Pareto by flowcharts and Pareto analysis.”analysis.”

““How can you do a good job How can you do a good job marketing a product if you’re marketing a product if you’re unsure of its quality or delivery unsure of its quality or delivery status?”status?”

““Most of our capital budgeting Most of our capital budgeting requests are from operations, requests are from operations, and most of our cost savings, and most of our cost savings, too.”too.”

1-1-88

Evolution of Operations Evolution of Operations ManagementManagement

Craft productionCraft production process of handcrafting products or process of handcrafting products or

services for individual customersservices for individual customers Division of laborDivision of labor

dividing a job into a series of small tasks dividing a job into a series of small tasks each performed by a different workereach performed by a different worker

Interchangeable partsInterchangeable parts standardization of parts initially as standardization of parts initially as

replacement parts; enabled mass replacement parts; enabled mass productionproduction

1-1-99

Scientific managementScientific management systematic analysis of work methodssystematic analysis of work methods

Mass productionMass production high-volume production of a standardized high-volume production of a standardized

product for a mass marketproduct for a mass market

Lean productionLean production adaptation of mass production that prizes adaptation of mass production that prizes

quality and flexibilityquality and flexibility

Evolution of Operations Evolution of Operations Management (cont.)Management (cont.)

1-1-1010

Historical Events in Historical Events in Operations ManagementOperations Management

Era Events/Concepts Dates Originator

Industrial

Revolution

Steam engine 1769 James Watt

Division of labor 1776 Adam Smith

Interchangeable parts 1790 Eli Whitney

Scientific Management

Principles of scientific

management1911 Frederick W. Taylor

Time and motion studies 1911Frank and Lillian Gilbreth

Activity scheduling chart 1912 Henry Gantt

Moving assembly line 1913 Henry Ford

1-1-1111

Historical Events in Historical Events in Operations Management Operations Management (cont.)(cont.)


Human Relations

Hawthorne studies 1930 Elton Mayo

Motivation theories1940s Abraham Maslow1950s Frederick Herzberg1960s Douglas McGregor

Operations Research

Linear programming 1947 George DantzigDigital computer 1951 Remington RandSimulation, waiting

line theory, decision

theory, PERT/CPM

1950sOperations research groups

MRP, EDI, EFT, CIM1960s, 1970s

Joseph Orlicky, IBM

and others

1-1-1212



Quality

Revolution

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)TQM (total quality

management)1980s

W. Edwards Deming,

Joseph JuranStrategy and

operations1990s

Wickham Skinner,

Robert HayesBusiness process

reengineering1990s

Michael Hammer,

James Champy

1-1-1313


Era Events/Concepts Dates OriginatorGlobalization WTO, European Union,

and other trade agreements

1990s

2000s

Numerous countries

and companies

Internet Revolution

Internet, WWW, ERP, supply chain management

1990s ARPANET, Tim

Berners-Lee SAP,

i2 Technologies,

ORACLE,

PeopleSoftE-commerce 2000s Amazon, Yahoo,

eBay, and others

1-1-1414

Continuum from Goods Continuum from Goods to Servicesto Services

Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.

1-1-1515

Operations Management Operations Management and E-Businessand E-Business

Categories of E-Commerce

Bu

sin

ess

Bu

sin

ess

Co

nsu

mer

Co

nsu

mer

BusinessBusiness ConsumerConsumer

B2BCommerceone.com

B2CAmazon.com

C2BPriceline.com

C2CeBay.com

1-1-1616

An Integrated Value ChainAn Integrated Value Chain

Value chain: Value chain: set of activities that create and deliver set of activities that create and deliver products to customerproducts to customer

Manufacturer SupplierCustomer

Flow of information (customer order)Flow of information (customer order)

Manufacturer SupplierCustomer

Flow of information (customer order)Flow of information (customer order)

Flow of product (order fulfillment)Flow of product (order fulfillment)

1-1-1717

Impact of E-Business on Impact of E-Business on Operations ManagementOperations Management

Comparison shopping by customers

Direct contact with customers

Business processes conducted online

Customer expectations escalate; quality must be maintained and costs lowered

No more guessing about demand is necessary; inventory costs go down; product and service design improves; build to-order products and services is made possible

Transaction costs are lower; customer support costs decrease; e-procurement saves big bucks

Benefits of E-Business Impact on Operations

1-1-1818

Impact of E-Business on Impact of E-Business on Operations Management (cont.)Operations Management (cont.)

Access to customers worldwide

Middlemen are eliminated

Access to suppliers worldwide

Demand increases; order fulfillment and logistics become major issues; production moves overseas

Logistics change from delivering to a store or distribution center to delivering to individual homes; consumer demand is more erratic and unpredictable than business demand

Outsourcing increases; more alliances and partnerships among firms are formed; supply is less certain; global supply chain issues arise


1-1-1919


Online auctions and e-marketplaces

Better and faster decision making

Competitive bidding lowers cost of materials; supply needs can be found in one location

More timely information is available with immediate access by all stakeholders in decision-making process; customer orders and product designs can be clarified electronically; electronic meetings can be held; collaborative planning is facilitated


1-1-2020


IT synergy

Expanded supply chains

Productivity increases as information can be shared more efficiently internally and between trading partners

Order fulfillment, logistics, warehousing, transportation and delivery become focus of operations management; risk is spread out; trade barriers fall


1-1-2121

Globalization and Globalization and CompetitivenessCompetitiveness

Favorable costFavorable cost Access to international Access to international

marketsmarkets Response to changes in Response to changes in

demanddemand Reliable sources of Reliable sources of

supplysupply 14 major trade 14 major trade

agreements in 1990sagreements in 1990s Peak: 26% in 2000Peak: 26% in 2000

World Trade Compared to World GDPSource: “Real GDP and Trade Growth of OECD Countries, 2001–03,” International Trade Statistics 2003, World Trade Organization, www.wto.org

1-1-2222

Globalization and Globalization and Competitiveness (cont.)Competitiveness (cont.)

Hourly Wage Rates for Selected CountriesSource: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.

Germany: $26.18Germany: $26.18

USA: $21.33USA: $21.33

Taiwan: $5.41Taiwan: $5.41

Mexico: $2.38Mexico: $2.38

China: $0.50China: $0.50

1-1-2323

Globalization and Globalization and Competitiveness (cont.)Competitiveness (cont.)

Trade with China: Percent of each country‘s trade Trade with China: Percent of each country‘s trade Source: Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002,” “Share of China in Exports and Imports of Major Traders, 2000 and 2002,”

International Trade Statistics 2003, World Trade Organization, www.wto.orgInternational Trade Statistics 2003, World Trade Organization, www.wto.org

1-1-2424

Risks of GlobalizationRisks of Globalization

Cultural differencesCultural differences Supply chain logisticsSupply chain logistics Safety, security, and Safety, security, and

stabilitystability Quality problemsQuality problems Corporate image Corporate image Loss of capabilitiesLoss of capabilities

1-1-2525

Competitiveness and Competitiveness and ProductivityProductivity

CompetitivenessCompetitiveness degree to which a nation can produce goods and degree to which a nation can produce goods and

services that meet the test of international services that meet the test of international marketsmarkets

ProductivityProductivity ratio of output to inputratio of output to input

OutputOutput sales made, products produced, customers sales made, products produced, customers

served, meals delivered, or calls answeredserved, meals delivered, or calls answered InputInput

labor hours, investment in equipment, material labor hours, investment in equipment, material usage, or square footageusage, or square footage

1-1-2626

Measures of Productivity

Competitiveness and Competitiveness and Productivity (cont.)Productivity (cont.)

1-1-2727

Changes in Productivity Changes in Productivity for Select Countriesfor Select Countries

Internet-enabled productivityInternet-enabled productivity

- Dot com bust- 9/11 terrorist attacks- Dot com bust- 9/11 terrorist attacks

Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003. U.S. figures for 2002–2003 from “Major Sector Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004

1-1-2828

Become efficientBecome efficient output increases with little or no increase in inputoutput increases with little or no increase in input

ExpandExpand both output and input grow with output growing both output and input grow with output growing

more rapidlymore rapidly Achieve breakthroughsAchieve breakthroughs

output increases while input decreasesoutput increases while input decreases DownsizeDownsize

output remains the same and input is reducedoutput remains the same and input is reduced RetrenchRetrench

both output and input decrease, with input both output and input decrease, with input decreasing at a faster ratedecreasing at a faster rate

Productivity IncreaseProductivity Increase

1-1-2929

Competitiveness and Competitiveness and ProductivityProductivity

Productivity as a Function of Inputs and Outputs, 2001–2002Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003

Breakthrough Performance

Breakthrough Performance

More EfficientMore Efficient

RetrenchRetrench

1-1-3030

Global Competitiveness Global Competitiveness RankingRanking

1.1. SwitzerlandSwitzerland2.2. SingaporeSingapore3.3. SwedenSweden4.4. FinlandFinland5.5. United StatesUnited States6.6. GermanyGermany7.7. NetherlandsNetherlands8.8. DenmarkDenmark9.9. JapanJapan10.10. United KingdomUnited Kingdom

Source: Global Competitiveness Report 2011-2012, World Economic Forum, www.weforum.org

1-1-3131

Economies of ScaleEconomies of Scale Capital InvestmentCapital Investment Access to Supply and Distribution Access to Supply and Distribution

ChannelsChannels Learning CurveLearning Curve

Operations–Oriented Operations–Oriented Barriers to EntryBarriers to Entry

“… “… the decisions which shape the long-the decisions which shape the long-

term capabilities ofterm capabilities of the company’s the company’s

operationoperationss and their contribution to overall and their contribution to overall

strategy through the on-going strategy through the on-going

reconciliation of market requirements and reconciliation of market requirements and

operations resources operations resources ……””

1-1-3232

Operations strategy is …..Operations strategy is …..

Microlevel of the process

Macrolevel of the total operation

Level of analysis

Time scale

Short-termfor example, capacity

decisions

1-12 months

Dem

and

1-10 years

Dem

and

Long-termfor example, capacity

decisions

Level of aggregation

DetailedFor example

“Can we give tax services to the small business market in

Antwerp?”

AggregatedFor example

“What is our overall business advice capability compared

with other capabilities?”

Level of abstraction

ConcreteFor example

“How do we improve our purchasing procedures?”

PhilosophicalFor example

“Should we develop strategic alliances with suppliers?”

Operations management Operations strategy

Operations strategy is different to operations management

Corporate strategy

Business strategy

Emergent sense of what the strategy

should be

Operational experience

Operations strategy

Top-down and bottom-up perspectives of strategy

PERFORMANCE OBJECTIVES

•Dependability•Speed of delivery

•Product mix flexibility•Speed to market

MARKET POSITION

•Innovative products•Time to market•Product range

•Coordinated launches

Differentiation on:

CUSTOMERS Segmentation on:

•Age - youth•Purpose - general

COMPETITORS

Traditionally weak in:

The market perspective analysis of the garment company

•promotion•design innovation

Performance Objectives

Market Positioning

Customer Needs

Competitors’ Actions

The market perspective on operations strategy

Required performance

Understanding markets

Resources

The operations resource perspective analysis of the lighting company

Tangible•Equipment

•StaffIntangible

•Reputation•Relationships

(internal and external)•Experience

•Application of leading-edge lighting and sound technology

•Articulation of client requirements

Capabilities

• Integration of equipment supply and client

requirements

•Design process

•Supplier liaison process

Processes

•Location•Virtual reality technology

•Supplier development•Equipment tracking system

•Organizational structure•Staff meetings

Operations Strategy Decisions

Operations Strategy

Decision Areas

The operations resource perspective on operations

strategy

Tangible and Intangible Resources

Operations Capabilities

Operations Processes

Understanding resources and

processes

Strategic decisions

Operations strategy is the strategic reconciliation of market requirements with

operations resources


Market Positioning

Customer Needs

Competitors’ Actions

Required performance

Understanding markets

Operations Strategy

Decision Areas

Tangible and Intangible Resources

Operations Capabilities


Understanding resources and

processes

Strategic decisions

Operations has to cope with the clash between the nature of external markets and

the nature of internal resources

Operations Resources are….

Difficult to change

Technically constrained

Complex

Market Requirements are….

Dynamic

Heterogeneous

Ambiguous

Strategic Reconciliation Market Requirements

Understanding Markets

Operations Resources

Understanding Resources and

Processes

Operations strategy is the strategic reconciliation of market requirements with operations resources

CapacitySupply networks

Process technologyDevelopment and

organization

QualitySpeed

DependabilityFlexibility

Cost



Operations Competences

Market Positioning

Market Segmentation

Competitor Activity

Strategic Decisions

Operations Strategy

Decisions

Required Performance


What you HAVE

in terms of operations capabilities

What you NEED

to “compete”

In the market

Market Requirements


What you WANT

from your operations to help you “compete”

What you DO

to maintain your

capabilities and satisfy

markets

Strategic

Reconciliation

Operations can kick-start two virtuous cycles

World Class Operations

Understanding of the processes

Competencies embedded in the

operation

Capabilities enhance innovation and improvement

Developing the resources which let the operation’s

performance stay ahead of the competition

Internal and

Competitiveness Strong marketing

High margin

Investment

Developing customers’ competitors’ and

stockholders; perceptions and expectations

External

nar

row

wid

e

Var

iety

of

item

s p

er o

rder

small largeNumber of items per order

Existing ‘effective’ capability

Existing ‘effective’ capability

Lafage Cosmetics’

requirements

Catalogue customers

Store delivery

Hagen Style – Comparison of new demands placed on the order fulfilment processes by potential new

business opportunities

•2 x distribution centers

•State-of-art packing and information technology

•Processes ‘fine tuned’ to traditional ‘representative’

sales channels

•Good at what it does• cost efficient

• fast throughput

• Cost efficiency• Fast delivery

• As above plus• wider range

of requirements• more demand

fluctuations?

•Traditional ‘representative’ sales channels declining in

popularity

Operations Resources Market Requirements

Hagen Style – Operations resources and market requirements

•New channels• catalogue• Internet • discount

stores

operations and competitiveness. 1-2 what do operations managers do? what is operations? a function...

Documents

operations relevant

operations classscheduling

fundamentals of operations

operations managers

operations management

historical events

mass production1

tons of quality tools