PPT

Operations Management

Systematic direction, control, and evaluation of the entire range of processes that transform inputs into finished goods or services. Environmental factors-culture, political, and market influences Inputs-HR, capital, materials, land, energy, information, customer Transformations-convert inputs into outputs

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

O.M. (cont)

Outputs-goods or services, and waste Customer Contact-customers actively participate in transformation processes, selfservice Performance Feedback-repair records, customer comments

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Operations Management

Refers to the management of the production system that transforms inputs into finished goods and services.

Production system: the way a firm acquires inputs then converts and disposes outputs. Operations managers: responsible for the transformation process from inputs to outputs.

Operations management seeks to increase the quality, efficiency, and responsiveness of the firm.

Seeks to provide a competitive advantage.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Operations Management Concepts

Quality: goods and services that are reliable and perform correctly.

Quality allows customers to receive the performance that they expect.

Efficiency: the amount of input to produce a given output.

Less input required lowers cost and waste.

Responsiveness to customers: actions taken to respond to customer needs.

Firm can react quickly and correctly to customer needs as they arise.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Differences Between Services and Goods

Information Asymmetry Intangible Inventory Customer Contact Response Time Labor Intensity

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

21.3

Typical Characteristics of Services and Goods Producers

Primarily Service Producers Continuum of Characteristics

Primarily Goods Producers

Mixed
Intangible, nondurable Output cant be inventoried High customer contact Short response time Labor intensive
Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

Tangible, durable Output can be inventoried Low customer contact Long response time Capital intensive

Adapted from Table 21.1

Positioning Strategies-approach selected for transformational processes many of one product

PPT

Process Focus-layout of plant and equipment around each production unit

high-volume, highly automated low flexibility Factory Lines

custom made Low Volume Norwegian Ship Building

Product Focus-arranging plant and equipment around one or a few output types

Intermediate Strategyplant and equipment layout reflects some of both strategies

batches of products Kinkos, Ball Homes

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

Agile Strategy-mass customization

PPT

Flexibility

Product Flexibility-speed with which products are created, ability to customize, ability to modify products for special needs Volume Flexibility-ability to respond to sudden changes in demand, change from small to full scale Process Flexibility-ability to manufacture a variety of goods in a short time, adjust to product mix over time, ability to accommodate changes in raw materials

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

21.5

Core Positioning Strategies

Continuous process (stable)

Product focus

Auto assembly
Intermediate
plant Mail processing

Resource flows

Mass production

Garment
Large batch

Process focus

industry Branch banks

Sporadic (unstable)

Space shuttle Legal practice

Custom products, Mixture of custom and standard low volume products, moderate volume Standard products, high volume

Product volume
Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999 Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A., and Wheelwright, S.C. The Perpetual Enterprise Machine: Seven Keys to Corporate Renewal Through Successful Product and Process Development. New York: Oxford University Press, 1994; Upton, D.M. The management of manufacturing flexibility. California Management Review, Winter 1994, 7289.

Adapted from Figure 21.2

PPT

Improving Responsiveness to Customers

Without customers, organizations cease to exist.

Non-profit and for-profit firms all have customers. Managers need to identify who the customer is and their needs. A lower price to a higher price. High quality over low quality. Fast service over slow service.

What do customers want? Usually customers prefer:

Also good after sale support.

Many features over few features. Products tailored to their specific needs.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Quality-how well a product does what the customer expects

Internal View-within the organization External View-value customers expect Value-the relationship between quality and price

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

21.7

Competitiveness Value Map

Higher
Poor value Premium value

Relative Price

Average value Economy value

Outstanding value

Lower

Source: Adapted from Gale, B.T., and Buzzell, R.D. Market perceived quality: Key strategic concept. Planning Review, March-April, 1989, 10.

Inferior

Superior

Relative Quality
Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

Adapted from Figure 21.3

PPT

Price v. Attributes

Firms offering high quality, fast service and other customer desires, often must raise price. Customers must tradeoff price for attributes. Operations management tries to push the price/attribute curve to the right with better production.

Provides more attributes at the same cost.

By enhancing the price/attribute relationship, the firm can increase its competitive position.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Customer Responsive Production Systems

An outputs attributes is determined by the production system.

Firms must strike a balance between cost and attributes

Improving Quality: can apply to firms producing goods and services.

A firm that provides higher quality than others at the same price is more responsive to customers. Higher quality can also lead to better efficiency.

Lowers waste levels and operating costs.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Total Quality Management

The continuous process of ensuring every aspect of production builds in product quality Traditional Quality-product inspection during or at the end of the transformation process

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

21.11

Total Versus Traditional Quality

Total Quality Management

Traditional Quality Control

Quality is a strategic issue Plan for quality Quality is everybodys responsibility Strive for zero defects Quality means conformance to requirements that meet or exceed customers expectations Scrap and reworking are only a small part of the costs of nonconformance

Quality is a tactical issue Screen for quality Quality is the responsibility of the quality control department Some mistakes are inevitable Quality means inspection

Scrap and reworking are the major costs of poor quality

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

Adapted from Table 21.3

PPT

Improving Efficiency

Labor productivity allows labor comparisons between organizations.

Improved efficiency leads to lower costs and better performance.

TQM and Efficiency: TQM can lead to much higher labor productivity.

When quality rises, less time is wasted on scrap.

Flexible manufacturing and efficiency: reduces the set-up costs for production systems.
Facilities layout: seeks to design the machine-worker interface to increase production efficiency.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Efficient Manufacturing

Most firms face major expense when setting up to produce a product.

These costs must be paid before production begins.

The more often products to be built change, the higher setup costs become.

Flexible Manufacturing reduces setup costs.

Just-in-Time (JIT) inventory, while developed for TQM, also adds to efficient production.

Many costs are reduced including warehousing, holding costs and inventory tracking.

Firm does not have a supply of parts, but can be vulnerable to strikes or supply problems.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Efficient Manufacturing

Self-managed teams boost efficiency by allowing for a flatter organization structure.

The team takes the role of the supervisor. Teams working together often become very skilled at enhancing productivity.

Kaizen: Japanese term for a management philosophy the stresses the need for continuous improvement.

Better operations can come from many, small, continuous improvements. Focus on what adds value to the product and try to eliminate steps that do not add value (such as inspection for defects).

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Reengineering

Process Reengineering: the fundamental rethinking and radical redesign of the business process.

Can boost efficiency by directing efforts to activities that add value to the good or service produced. While Kaizen focuses on continuous enhancements, process reengineering considers wholesale change.

Top managers must support operations enhancement tools for them to be accepted by workers.

Usually, a successful operations change means a complete change in the organizational culture. Without a supporting culture, change will not succeed.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

21.4

Nine Categories of Operations Management Decisions

Product plans Competitive Priorities Positioning Strategies Location Technological Choices Quality management and control Inventory management and control Materials Management Master production scheduling

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Inventory Costs

What contributes to inventory costs? TOTAL COST = ORDERING + CARRYING

Carrying Costs

Warehouse Insurance Obsolescence taxes breakage

Ordering Costs

Placing the order Transportation Shortage Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

Inventory Terms

Lead Time

Elapsed time between placing and receiving an order optimum order quantity yielding the lowest total inventory cost

EOQ-economic order cost

Just-in-time
finished goods to sell sub assemblies to be assembled purchases of raw materials to be transformed

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

PPT

21.13

Cost Trade-Offs in Determining Inventory Levels

High

Average annual cost ($)

Total cost

Carrying cost

Order cost
Large
Adapted from Figure 21.5

Low Small
Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright 1999

Q1

Quantity (Q)