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Welcome MGT329

Operations Management:
MGT329

Lecture: Monday and Wednesday


9:30 AM - 10:45 AM
11:00 AM – 12:15 PM

Professor: Jeff Street

Office: BA 434
Phone: X4184
Cell: (770) 654-2056
e-mail: strejeff@isu.edu
Course Books
 Operations Management For
Competitive Advantage, 11th Edition,
by Richard B. Chase, F. Robert Jacobs
and Nicholas J. Aquilano.

 The Goal, by Eliyahu M. Goldratt and


Jeff Cox
Grading

The grade received in the course will be


based on:

Participation/Homework (25%)
Exam I (25%)
Exam II (25%)
Final Exam (25%)
Some questions to be addressed
in this course include:
 How does the customer fit into
operations strategy?
 How is globalization affecting
business and operations strategies?
 What effect are new technologies
having on the utilization of an
organization’s resources?
Some questions to be addressed
in this course include:
 How has the concept of quality
management changed, and how does
it affect operations?
 Why is continuous improvement in
the operations management function
necessary for an organization to
remain competitive?
Why Study Operations
Management?
Systematic Approach
to Organizational
Processes

Operations
Business Education Career Opportunities
Management

Cross-Functional
Applications
Development of OM as a Field

Scientific Computers TQM & Quality


Management (MRP) Certification

Moving Assembly JIT/TQC & Business Process


Line Automation Reengineering

Hawthorne Manufacturing Electronic


Studies Strategy Enterprise

Operations Service Quality Global Supply


Research and Productivity Chain Mgmt.

Historical OM's Emergence


Underpinnings as a Field
Current Issues
 Speeding up the time it takes to get new
products and services into production.
 Developing flexible production systems to
enable mass customization of products and
services.
 Managing global production/supply networks.
 Developing and integrating new production
technologies into existing production systems.
Current Issues
 Achieving high quality quickly and
keeping it up in the face of restructuring.

 Managing a diverse workforce.

 Conforming to environmental constraints,


ethical standards, and government
regulations.
Overview:
Introduction to Operations Management
 What is Operations Management
 Why Study Operations Management?
 Operations Decision Making
 Managing Transformations
 Service or Good?
 Closed vs. Open System Perspectives
 Development of OM as a Field
 Current Issues

2
What is Operations Management?
Operations Management is a functional area
of business devoted to the management of
an organization's resources to create
products or services.

The set of resources includes an


organization's know-how, facilities, work-
force, materials, and equipment.

Operations Management issues permeate all


levels of an organization's decision making
from the long-term strategic to the tactical to
the day to day operations.
Operations management is concerned
with the design, operation, and
improvement of the production system
that creates the firm’s primary products
and services.
[Even Elmer’s, ISU, and Portneuf Medical
Center are production systems]
Operations Decision Making
Marketplace

Corporate Strategy

Finance Strategy Operations Strategy Marketing Strategy

Operations Management

People Plants Parts Processes


Materials & Products &
Customers Services
Planning and Control

Input Output
Production System
Managing Transformations
“The Production System”
Micro View
Input Transformation Output
Process
(Value Adding)
 People
Transformation is  Plants
enabled by The 5 Ps of OM:  Parts
 Processes
[A.K.A. The 5 Ms…Man,
 Planning and
Machines, Materials, Methods,
And Management] Control
Transformations
 Physical--manufacturing
 Locational--transportation
 Exchange--retailing
 Storage--warehousing
 Physiological--health care
 Informational--telecommunications
Competitive Priorities
 Quality (including Service)

 Price (or production cost)

 Delivery (speed) f (Q,T)


V=
 Flexibility C
Our Value Equation
Core Services Definition

Core services are basic things


that customers want from
products (or services) they
purchase.
Core Services Performance Objectives
(Competitive Priorities)
Quality
“made correctly”

Flexibility Operations Delivery Speed


“customized” Management “on-time”

Price (or cost


Reduction)
“Competitively”
Value-Added Services Defined
Value-added services (or features)
differentiate the organization from
competitors and build relationships
that bind customers to the firm in a
positive way.

(i.e. increase “switching costs”)


Value-Added Service Categories
Problem Solving
“close gaps”

Information Operations Sales Support


“educate customer” Management “flex to demands”

Field Support
“grow utility”
Value-Added Factory Services
 Information - provide critical data to market

 Problem Solving – troubleshooting ability

 Sales Support – demonstrate the offering

 Field Support – replace/replenish stock, spares


Service or Good?
 “If you drop it on your foot, it won’t
hurt you.” (Good or service?)

 “Services never include goods and


goods never include services.”
(True or false?)
What about McDonald’s?
 Service or Manufacturing?

 Thecompany certainly manufactures


tangible products

 Why
then would we consider
McDonald’s a service business?
Front and Back Office

Back Office

Service Provider

Front Office

Customer
How would an Operations
Management focus apply
here?
Standard Verbalize Prepare
Enter Order Collect
execution time 2 Order Food payment
minutes

30 seconds 15 seconds 60 seconds 15 seconds


Fail
Front Office point
Correct Materials
Order (e.g., food, paper)
20 seconds

Line of Not seen by customer


visibility but necessary to
Select and
performance
purchase supplies

Back Office
Operations Strategy and
Competitiveness

Chapter 2
Operations Strategy and
Competitiveness - Overview
 Operations Strategy

 A Framework for Operations Strategy in


Manufacturing

 Operations Strategy in Services

 Meeting the Competitive Challenge

 Productivity Measurement
Operations Strategy

Customer Needs Corporate Strategy

Alignment

Operations Strategy Core


Competitors Competencies

Decisions

Processes, Infrastructure, and Capabilities


Strategy Process
Forced-Choice Model
Environmental Assessment Organization’s Position

Broad economic assumptions Statement of mission

Key government Interrelated set of financial


and regulatory issues and nonfinancial objectives

Major technological forces Statement of strengths and


weaknesses
Significant market
opportunities and threats Forecast of operational needs

Explicit strategies of competitors Major future programs

Strategic options
Requirements for implementing options
Contingency plans
Strategy Process Example
Customer Needs More Product

Corporate Strategy Increase Org. Size

SBU Operations Strategy Increase Production Capacity

Decisions on Processes
and Infrastructure Build New Factory
Hierarchy of Strategy Process
Customers
Environment

Corporate Strategic
Planning
Vision
Type of Value delivered
Specific Market Capabilities
Corporate Values Progress
Core competencies
Performance metrics Potential Problems/Changes
Strategic
Business SBU #1 SBU #2 SBU #3
Units

Marketing Engineering

Functional
Areas
Finance Operations
Mgt
Operations Strategy --
Formulation
Customers
 Get to know; team up with next and
final customer.
 Continual, rapid improvement in
lead time, quality, cost, flexibility
and variability.
Operations Strategy --
Formulation
Company
 Achieve unified purpose via
information;
team involvement in planning and
implementing change.
Operations Strategy --
Formulation
Competitors
 Getto know the competition and
world-class leaders.
Operations Priorities
 Cost
 Quality Traditional
 Delivery Speed Competitive Priorities
 Flexibility
 Service
 Delivery Reliability
 Coping with Changes in Demand
 Flexibility and New Product Introduction Speed
A Framework for Manufacturing Strategy
Customer Needs

New product : Old product

Competitive
dimensions & requirements

Quality, Cost, Delivery, Flexibility, and Service

Enterprise capabilities
Operations
Operationsand Suppliercapabilities
& Supplier Capabilities
R&DR&D Technology SystemsSystems
Technology People
People Distribution
Distribution

Support Platforms
Financial management Human resource management Information management
Operations Strategy

Customer Needs Corporate Strategy

Alignment

Operations Strategy Core


Competitors Competencies

Decisions

Processes, Infrastructure, and Capabilities


Customer Needs

New Products Current Products

New Product Performance priorities Order fulfillment


Development and requirements after sales service

Quality Delivery Flexibility


Price Service

Capabilities:Enterprise, Operations, Suppliers


Technology Systems People
R&D Distribution
CIM JIT TQM

Finance Human Resources Information


MGT
competitive priorities

Quality
Flexibility
Service

Cost
Lead Times
Variability
Dealing with Trade-offs
For example, if we reduce costs by reducing product
quality inspections, we might reduce product quality.

For example, if we Cost


improve customer
service problem solving
by cross-training Flexibility Delivery
personnel to deal with a
wider-range of Quality
problems, they may
become less effective at
dealing with commonly
occurring problems.
World-Class Manufacturing
World-class manufacturers [i.e. operations] no
longer view cost, quality, speed of delivery, and
even flexibility as tradeoffs.

They have become order qualifiers.

What are the order winners in


today’s market?

Distinctive Competency
Distinctive competency
“A strength that sets a business
apart from its competition”

 McDonald’s
 Disney World or Disney Land
 Delta Airlines
 Intel Corporation
 UPS
Strategy Begins with Priorities
 Consider the case of a personal computer
manufacturer.
1. How would we segment the market according
to product group?
 Personal use
 Small business
 Large Corporations
2. How would we identify product requirements,
demand patterns, and profit margins for each
group?
How do we identify order winner and
order qualifiers for each group?
 quality
 cost
 delivery
 flexibility
 service

What would be the winner for each market group?


•Personal use
•Small business
•Large Corporations
How do we convert order winners into
specific performance requirements?

Competition Us
(Them) Differentiation (Distinctive
Competencies)
 Servicecan be
an “order
winner” Travel
Warranty Planning

Leases

Roadside Loaner
Car Dealership Assistance Vehicles

7
Again, What is Operations
Management?

Operations Management is the


functional area of business devoted to
the management of an organization's
resources to create products or
services.
What is Productivity?
A measure of the effective use of
resources, usually expressed as the
ratio of output to input.
Output
Productivity = Input
What factors affect the
productivity of a business?
 work methods
 capital

 quality

 training

 technology

 management
What methods can be used to
improve productivity?
 develop productivity measures
 measurement is necessary to control the operation
 look at overall productivity
 develop methods for achieving productivity
improvements
 establish reasonable goals for improvement
 measure and communicate improvements to
both customers and employees
Total Measure Productivity
Total measure Productivity = Outputs
Inputs
or

= Goods and services produced


All resources used

[Productivity versus Throughput]


Partial Measure Productivity
Partial measures of productivity =

Output or Output or Output or Output


Labor Capital Materials Energy
Multifactor Measure Productivity
Multifactor measures of productivity =

Output .
Labor + Capital + Energy

or

Output .
Labor + Capital + Materials
Example of Productivity Measurement
You have just determined that your service
employees have used a total of 2400 hours of labor
this week to process 560 insurance forms. Last
week the same crew used only 2000 hours of labor to
process 480 forms.

Which productivity measure should be used?


Answer: Could be classified as a Total Measure or
Partial Measure.

Is productivity increasing or decreasing?


Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.
Example
10,000 Units Produced
Sold for $10/unit
500 labor hours What is the
Labor rate: $9/hr labor productivity?
Cost of raw material: $5,000
Cost of purchased material: $25,000
Example--Labor Productivity
10,000 units/500hrs = 20 units/hour

(10,000 unit*$10/unit)
= $22.22
(500hrs*$9/hr)
What do these calculations tell us?
More importantly -- What don’t they tell us?
Applying Productivity Figures
 You’ve just told your boss that the
plant labor productivity is better than
that of a plant in a related business.

What does this really mean?


Productivity measures
 need to be tracked over time
 need to include all possible inputs
 are difficult to compare between
companies or industries
 do not (directly) include measures of
timeliness or quality
[th********] [sc*** and re****]
Solution for Problem #1
Labor Productivity – units/hour

Model Output Input Productivity


in Units in Labor Hours (Output/Input)
Deluxe Car 4,000 20,000 0.20

Limited Car 6,000 30,000 0.20

Labor Productivity – dollars

Model Output Input Productivity


in Dollars in Dollars (Output/Input)
Deluxe Car 4,000($8000)= 20,000($12.00)= 133.33
$32,000,000 $240,000

Limited Car 6,000($9500)= 30,000($14.00)= 135.71


$57,000,000 $420,000
Solution to Problem #2
Labor Productivity

Country Output Input Productivity


in Units in Hours (Output/Input)
U.S. 100,000 20,000 5.00

LDC 20,000 15,000 1.33

Capital Equipment Productivity

Country Output Input Productivity


in Units in Hours (Output/Input)
U.S. 100,000 60,000 1.67

LDC 20,000 5,000 4.00


Solution to Problem #2
Multifactor – Labor and Capital Equipment

Country Output Input Productivity


in Units in Hours (Output/Input)
U.S. 100,000 20,000 + 60,000= 1.25
80,000

LDC 20,000 15,000 + 5,000= 1.00


20,000

Raw Material Productivity

Country Output Input Productivity


in Units in Dollars (Output/Input)
U.S. 100,000 $20,000 5.00

LDC 20,000 FC $20,000/10= 10.00


$2,000
Lasik Vision
Lasik Vision

 What was Lasik Vision’s competitive priority?


 High volume – low cost

 Other priorities?
 Flexibility?
 Delivery?
 Quality?
Lasik Vision
 Is
this the appropriate approach in this
industry?
 Is standardization more difficult in health
care?

 Whatrepercussions, actual or perceived


might occur with this priority?
Lasik Vision
 Given that a company has chosen this
priority, what needs to be done to achieve
success?
Lasik Vision -- Update
 January 15, 2001 – Icon Laser Eye Centers
proposes takeover of Lasik Vision
 March, 2001 – takeover complete
 April 4, 2001 – Lasik Vision in bankruptcy
 April 23, 2001 – Dr. Hugo Sutton and
others purchase assets of Lasik Vision.
Clinic reopens as Lasik Eye Centres