session 1,2,3(1)
TRANSCRIPT
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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
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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
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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
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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
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Trends in Operations Management
Productivity improvement
Global competition
Ethical, workforce, and environmental issues
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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
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