DOM 511 :Operations Management Practice 1- Overview

DOM 511 :Operations Management Practice

1- Overview

By: Munyao-mulwa

UON School of BusinessDept of Management Science

What is Operation Management?Manufacturing: Getting the products a company makes to an agreed specification, in due time

Transport: Ensuring the transport runs to an agreed schedule

Retailing: Pushing the merchandise through the store to the consumer

Service: Providing satisfactory, according to an agreed schedule, the service to the customer

Operations Manager: The supplier of products or services required by the market place

Utilises the organization resources to meet the product or service

specifications efficiently & effectively

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Operations ManagementDefinition

Operations management may be defined as the

design, operation, and improvement of the

production system that creates the firm’s primary

products and services.

Analysis of definition;-

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OM is the science & art of ensuring that goods & services are created & delivered successfully to customers.

Applying the principles of OM entails a solid understanding of people, processes, & how they are integrated within a business to create value

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From General Management To Operations Management

Traditional Management paradigm revolves around planning, organizing, directing & controlling

OM is the only means by which managers can directly affect the value provided to all stakeholders – customers, employees, investors & society

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Key activities for OM discipline; Understanding the needs of customers, measuring

customer satisfaction & using the information to develop new & improved goods & services

Building quality into goods, services & processes & continually improving them to reduce errors, defects & waste

Using information about customers, goods/services, operations, suppliers, employees etc to make better decisions

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Key activities for OM discipline; Exploiting technology to design goods & services

that respond rapidly & flexibly to customer requirements & improve productivity

Creating a high-performance workplace thro’ training, rewards etc

Continually learning from co-workers, competitors & customers & adapting the organization to global & environmental changes

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OM DisciplineOM principles are not complicated for they

constitute the “basics” of everyday life eg

Respect for customer experience

Focus on the dynamics of demand

Recognition that experience is delivered by people etc

>>The fundamental purpose of OM is to deliver ever-improving value to customers through the continuous improvement of overall company performance & capabilities

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Operations Decision MakingMarketplace

Corporate Strategy

Operations Strategy

Operations Management

Marketing StrategyFinance Strategy

People Plants Parts Processes

Planning and Control

Production System

Materials &Customers

Input

Products &Services

Output

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OM Involves Managing Transformations

People Plants Parts Processes Planning and Control

Input OutputTransformation

Process

(Value Adding)

Transformation is enabled by The 5 Ps of OM:

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Value = quality / price How can an organization increase customer

value?

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OM’s Transformation Role

To add value

Increase product value at each stage

Value added is the net increase between output

product value and input material value

Provide an efficient transformation

Efficiency – perform activities well at lowest

possible cost

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Transformations

Physical--manufacturing

Locational--transportation

Exchange--retailing

Storage--warehousing

Physiological--health care

Informational--telecommunications

Systemic Approach

Inputs•Material•Machines•Labor•Management•Capital

TransformationProcess

Outputs•Goods•Services

Requirements

Feedback Feedback

Push or Pull?

Greater value than

inputs

SIPOC Model

Suppliers Process(+ Owner)

Clients

Responsible for “smooth” operation

Inputs Outputs

Interfaces Management

The output has higher value than the input:VALUE CHAIN

Operations Function & its Environment

PhysicalTransformation

Activity

Production Technical Core

Other functions (Purchasing, Distribution, R&D…)

FinanceM

arketing H

um

an

Resou

rcesSales

Order

Investments in Equipment

LaborForce

SuppliersProduct / Services

Operations as the Technical Core

Operations

Finance/Accounting

Human Resources

Marketin

gSu

pp

lier

s

Production andInventory data

Capital budgeting requestsCapacity expansion and

Technology plans

BudgetsCost analysisCapital investmentsStockholder requirements

Orders for materialsProduction and delivery

Schedules QualityRequirements Design/

Performance specs

Material availabilityQuality data

Delivery schedulesDesigns

Product/ServiceAvailability

Lead-time estimatesStatus of order

Delivery schedules

Sales forecastsCustomer orders

Customer feedbackPromotions

Personnel needsSkill sets

Performance evaluationsJob design/work

measurement

Hiring/firingTrainingLegal requirementsUnion contract negotiations

Trends in OM

Service sector growing to 50-80%

Global competitiveness

Demands for higher quality

Huge technology changes

Time based competition

Work force diversity

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Why OM?

For long-run success companies must place much importance on their operations The 1950-1960 era was the U.S. golden era where

primary opportunities were marketing The 1970-1980 U.S. companies experienced a large

decline in productivity growth – international firms began to challenge in many markets

The 1970-1980 era saw U. S. firms lagging behind in methods and processes

The resurgence of American business in the 1990’s capitalized on improved operations

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Today’s OM Environment

Customers demand better quality, greater speed, and lower costs

Companies implementing lean systems concepts – a total systems approach to efficient operations

Recognized need to better manage information using ERP and CRM systems

Increased cross-functional decision making

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OM in Practice

OM is the most diverse organizational functionManages the transformation processOM has many faces and names such as; Chief Operating Officer, V. P. operations, Director of

supply chain, Manufacturing manager Plant manger, Quality specialist, etc.

All business functions need information from OM in order to perform their tasks

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Historical Events in OM

Industrial Revolution Scientific Management Human Relations Management Science Quality Revolution Globalization Information Age/Internet Revolution

Historical Events in OMIndustrial Revolution

Steam engine 1769 James Watt

Division of labor 1776 Adam Smith

Interchangeable parts 1790 Eli Whitney

Scientific ManagementPrinciples 1911 Frederick W. Taylor

Time and motion studies 1911 Frank & Lillian Gilbreth

Activity scheduling chart 1912 Henry Gant

Moving assembly line 1913 Henry Ford


Human RelationsHawthorne studies 1930 Elton Mayo

Motivation theories 1940s Abraham Maslow

1950s Frederick Hertzberg

1960s Douglas McGregor

Management ScienceLinear programming 1947 George Dantzig

Digital computer 1951 Remington Rand

Simulation, PERT/CPM, 1950s Operations research

Waiting line theory groups

MRP 1960s Joseph Orlicky, IBM


Quality RevolutionJIT 1970s Taiichi Ohno, Toyota

TQM 1980s W. Edwards Deming,

Joseph Juran, et. al.

Strategy and operations 1990s Skinner, Hayes

Reengineering Hammer, Champy

World Trade Organization 1990s Numerous countries

and companies

GlobalizationEuropean Union and 1970s IBM and others

other trade agreements

EDI, EFT, CIM 1980s

Historical Events in OMInformation Age/

Internet Revolution

Internet, WWW, ERP 1990sSupply chain Berners-Lee, SAP,management, ORACLE,E-commerce PeopleSoft,

Historical Development of OM

Time-Based Competition 1990s

Supply chain Management 1990s

Electronic Commerce 2000s

Outsourcing &flattening of the world 2000s

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Objectives of Productive Systems

Volume of output

Cost (materials, labor, delivery, scrap…)

Utilization (labor & equipment)

Quality & product reliability

On-time delivery

Investments (ROI)

Flexibility for product change

Flexibility for Volume change

The Lifecycle of a Productive System

Birth of the System

Product Design & Process Selection

Design of the System

Start-up of the System

The System in steady state

Termination of the System

Key Decisions in the life of a Productive system

Birth of the System What are the goals of the firm? What product or service will be offered?







Birth of the System

Product Design & Process Selection Form & Appearance of Product? Technologically, how should the product be made?






Birth of the SystemProduct Design & Process SelectionDesign of the System Capacity? Location? Lay-out? How to maintain quality? How to determine forecast for demand? What job is each worker to perform? How will the job be performed & measured? How will the workers be rewarded?

Start-up of the SystemThe System in steady stateTermination of the System


Birth of the System



Start-up of the System How do you get the system in operation? How long will it take to reach desired level of output?




Birth of the SystemProduct Design & Process SelectionDesign of the SystemStart-up of the SystemThe System in steady state How do you manage the day to day activities? How do you maintain the system? How can you improve the system? How do you revise the system in light of changes in corporate

strategy?



Birth of the System





Termination of the System How does the system die? What can be done to salvage resources?

Productivity

Become more efficient Downsize Expand Retrench Achieve breakthroughs

Productivity =Productivity =OutputOutput

InputInput

Productivity improves when firms:Productivity improves when firms:

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Productivity

Partial measures output/(single input)

Multi-factor measures output/(multiple inputs)

Total measure output/(total inputs)

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Example

10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $5,000

Cost of purchased material: $25,000

What is the labor productivity?

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Example--Labor Productivity

10,000 units/500hrs = 20 units/hour ...

... or we can arrive at a unitless figure

(10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22

Competitiveness

The degree to which a an organization can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real wealth of its shareholders.

Competitiveness

Competition Intensity is high when Firms equal in size Resources, products &

services standardized Slow industry growth (battle

for market shares, the global market remaining constant)

Industry growth exponential (you must have a foothold in the market)

Consequences Price wars Relentless advertising High Frequency of

introduction of new products & services

Free trials Low profit margins Purchasing incentives Switching bonuses Financial packages; cheap

credit

Entry Barriers

Economies of Scale Fixed & variable costs Unit cost decreases when capacity increases Newcomers: insufficient orders to justify large capacities => higher costs

Initial Capital Investment May be prohibitive (service to community, hospital, robotized mega plant) May be low: e-commerce, consulting…

Access to Supply & Distribution Channels May be controlled by (major) Competitors Bargaining Power (Porter) Exclusivity agreements Largely easier when going to e-commerce (no broker, distributor needed)

Learning curves Lack of experience, skills, expertise can be penalizing (aerospace,

shipbuilding [10% cost reduction for each similar ship built])

DOM 511 :Operations Management Practice 1- Overview

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