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  • 8/2/2019 Session 1,2,3(1)

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    COMPETINGWITH

    OPERATIONS

    Session 1,2,3

    1OPERATIONS MANAGEMENT

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    Operations Management

    The systematic design, direction, and controlof 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 thatproduce a service or product to the

    satisfaction of the customers

    2OPERATIONS MANAGEMENT

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    Across the Organization

    Material &

    Service Inputs

    Sales

    Revenue

    Product &

    Service Outputs

    Finance

    Acquires financialresources and capitalfor inputs

    MarketingGenerates sales

    of outputs

    OperationsTranslates

    materials andservice into

    outputs

    Support Functions

    Accounting Information Systems Human Resources

    Engineering

    Figure 1.1 3OPERATIONS MANAGEMENT

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    A Process View

    External environment

    Information onperformance

    Internal and externalcustomers

    Processes andoperations

    1

    2

    3

    4

    5

    Inputs

    Workers Managers

    Equipment

    Facilities

    Materials

    Land

    Energy

    Outputs

    Goods Services

    Figure 1.2

    4OPERATIONS MANAGEMENT

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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 amanufacturing

    process

    More like aserviceprocess

    Figure 1.3 5OPERATIONS MANAGEMENT

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    The Supply Chain View

    Support Processes

    Externalsupplier

    s

    E

    xternalcustomers

    Supplierrelationshipprocess

    New

    service/productdevelopment

    Orderfulfillmentprocess

    Customer

    relationshipmanagement

    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

    7OPERATIONS MANAGEMENT

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    Support ProcessesTABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES

    Capital acquisition The provision of financial resources for theorganization to do its work and to execute itsstrategy

    Budgeting The process of deciding how funds will beallocated over a period of time

    Recruitment and hiring The acquisition of people to do the work of

    the organizationEvaluation and compensation The assessment and payment of people for

    the work and value they provide to thecompany

    Human resource support and development The preparation of people for their currentjobs and future skills and knowledge needs

    Regulatory compliance The processes that ensure that the company

    is meeting all laws and legal obligationsInformation systems The movement and processing of data and

    information to expedite business operationsand decisions

    Enterprise and functional management The systems and activities that providestrategic direction and ensure effectiveexecution 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 PrioritiesTABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

    PRIORITIES

    COST Definition Process Considerations Example

    1. Low-costoperations

    Delivering a service or aproduct at the lowestpossible cost

    Processes must be designed andoperated 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 requiresuperior product features

    Ferrari

    3. Consistentquality

    Producing services orproducts that meet designspecifications on aconsistent basis

    Processes designed andmonitored to reduce errors andprevent defects

    McDonalds

    TIME

    4. Delivery speed Quickly filling acustomers order

    Design processes to reduce leadtime

    Dell

    5. On-timedelivery

    Meeting delivery-timepromises

    Planning processes to increasepercent of customer ordersshipped when promised

    United ParcelService (UPS)

    6. Developmentspeed

    Quickly introducing a newscience or a product

    Cross-functional integration andinvolvement of critical externalsuppliers

    Li & Fung

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    Competitive PrioritiesTABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

    PRIORITIES

    FLEXIBILITY Definition Process Considerations Example

    7. Customization Satisfying the uniqueneeds of each customerby changing service orproducts designs

    Low volume, close customercontact, and easily reconfigured

    Ritz Carlton

    8. Variety Handling a wideassortment of services orproducts efficiently

    Capable of larger volumes thanprocesses supportingcustomization

    Amazon.com

    9. Volumeflexibility

    Accelerating ordecelerating the rate ofproduction of service orproducts quickly tohandle large fluctuationsin demand

    Processes must be designed forexcess capacity

    The United StatesPostal Service(USPS)

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    Order Winners and Qualifiers

    S

    ales

    ($)

    Achievement of competitive priority

    Low High

    Order Winner

    Figure 1.6

    Sales

    ($)

    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 PROCESSCompetitive Priority Measure Capability Gap Action

    Low-cost operations Cost perbillingstatement

    $0.0813 Target is$0.06

    Eliminate microfilming andstorage of billing statements

    Weeklypostage

    $17,000 Target is$14,000

    Develop Web-base process forposting bills

    Consistent quality

    Percenterrors inbillinformation

    0.90%

    Acceptable

    No action

    Percenterrors inpostingpayments

    0.74% Acceptable No action

    Delivery speed Lead time

    to processmerchantpayments

    48 hours Acceptable No action

    Volume flexibility Utilization 98% Too high tosupportrapidincrease involumes

    Acquire temporary employees

    Improve work methods

    19OPERATIONS MANAGEMENT

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    Trends in Operations Management

    Productivity improvement

    Global competition

    Ethical, workforce, and environmental issues

    20OPERATIONS MANAGEMENT

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    Productivity Improvement

    EXAMPLE 1.1Calculate the productivity for the following operations:

    a. Three employees process 600 insurance policies in a week. They work8 hours per day, 5 days per week.

    SOLUTION

    a. Labor productivity =Policies processed

    Employee hours

    = = 5 policies/hour600 policies

    (3 employees)(40 hours/employee)

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    Productivity Improvement

    EXAMPLE 1.1Calculate the productivity for the following operations:

    b. A team of workers makes 400 units of a product, which is sold in themarket for $10 each. The accounting department reports that for this

    job the actual costs are $400 for labor, $1,000 for materials, and $300for overhead.

    SOLUTION

    a. Multifactor productivity =

    Value of output

    Labor cost + Materials cost+ Overhead cost

    = = = 2.35(400 units)($10/unit)

    $400 + $1,000 + $300

    $4,000

    $1,700

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    Application

    Calculate the year-to-date labor productivity:

    Calculate the multifactor productivity:

    This Year Last Year Year Before Last

    Factory unit sales ($) 2,762,103 2,475,738 2,175,447

    Employment (hrs) 112,000 113,000 115,00

    Sales of manufacturedproducts ($)

    $49,363 $40,831

    Total manufacturingcost of sales ($)

    $39,000 $33,000

    factory unit sales

    employment

    This Year

    2,762,103= 24.66/hr

    112,000

    Last Year

    2,475,738= 21.91/hr

    113,000

    Year Before Last

    2,175,447= $18.91/hr

    115,000

    sales of mfg products

    total mfg cost

    This Year

    $49,363= 1.27

    $39,000

    Last Year

    $40,831= 1.24

    $33,000

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    OM as a Set of Decisions

    In practice, managersmake strategic andtactical decisions

    1. Each part of theorganization designsand operatesprocesses

    2. Each function isconnected throughshared resources

    Competing with OperationsProject Management

    USING OPERATIONS TO COMPETE

    Process StrategyProcess Analysis

    Quality and PerformanceCapacity Planning

    Lean Systems

    MANAGING PROCESSES

    Supply Chain DesignSupply Chain Integration

    LocationInventory Management

    ForecastingOperations Planning and Scheduling

    Resource Planning

    MANAGING SUPLY CHAINS

    Figure 1.724OPERATIONS MANAGEMENT

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    Challenges in OM

    Part 1: Using operations to compete

    Part 2: Managing processes

    Part 3: Managing supply chains

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    Solved Problem 1

    Student tuition at Boehring University is $150 per semester credit hour.The state supplements school revenue by $100 per semester credit hour.

    Average class size for a typical 3-credit course is 50 students. Labor costs

    are $4,000 per class, material costs are $20 per student per class, and

    overhead costs are $25,000 per class.

    a. What is the multifactorproductivity ratio for this course process?

    b. If instructors work an average of 14 hours per week for 16 weeks foreach 3-credit class of 50 students, what is the laborproductivityratio?

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    Solved Problem 1

    SOLUTION

    a. Multifactor productivity is the ratio of the value of output tothe value of input resources.

    Value of output =50 student

    class

    $150 tuition +$100 state support

    credit hour

    3 credit hours

    student

    Value of inputs = Labor + Materials + Overhead

    Multifactor productivity = = = 1.25$37,500/class

    $30,000/class

    Output

    Input

    = $37,500/class

    = $4,000 + ($20/student

    50 students/class) + $25,000= $30,000/class

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    Solved Problem 1

    SOLUTION

    b. Labor productivity is the ratio of the value of output tolabor hours. The value of output is the same as in part (a),or $45,000, so

    Labor hours of input =14 hours

    week

    16 weeks

    class

    Labor productivity = = $45,000/class224 hours/class

    OutputInput

    = 224 hours/class

    = $200.89/hour

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    Solved Problem 2

    Natalie Attire makes fashionable garments. During a particular weekemployees 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 Attires 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

    30OPERATIONS MANAGEMENT