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Introduction to OperationsAnd Challenges ahead

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Lecture Outline

• What Operations and Supply Chain Managers Do• Operations Function• Evolution of Operations and Supply Chain

Management• Globalization and Competitiveness• Operations• Strategy and Organization of the Text• Learning Objectives for This Course

Copyright 2011 John Wiley & Sons, Inc.

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What Operations and Supply Chain Managers Do

• What is Operations Management?• Design, operation, and improvement of productive systems that

creates and delivers the firm’s primary products and services

• What is Operations?• a function or system that transforms inputs into outputs of greater

value• What is a Transformation Process?

• a series of activities along a value chain extending from supplier to customer

• activities that do not add value are superfluous and should be eliminated

Copyright 2011 John Wiley & Sons, Inc.

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Transformation Process

• Physical: as in manufacturing operations• Locational: as in transportation or warehouse

operations• Exchange: as in retail operations• Physiological: as in health care• Psychological: as in entertainment• Informational: as in communication

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Operations as a Transformation Process

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INPUT • Material• Machines• Labor• Management• Capital

TRANSFORMATIONPROCESS

OUTPUT • Goods• Services

Feedback & Requirements

Operations Function

• Operations• Marketing• Finance and

Accounting• Human

Resources• Outside

Suppliers

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How is Operations Relevant to your job?

• Accounting

• Information Technology

• Management

• “As an auditor you must understand the fundamentals of operations management.”

• “IT is a tool, and there’s no better place to apply it than in operations.”

• “We use so many things you learn in an operations class—scheduling, lean production, theory of constraints, and tons of quality tools.”

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How is Operations Relevant to job career?

• Economics

• Marketing

• Finance

• “It’s all about processes. I live by flowcharts and Pareto analysis.”

• “How can you do a good job marketing a product if you’re unsure of its quality or delivery status?”

• “Most of our capital budgeting requests are from operations, and most of our cost savings, too.”

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Evolution of Operations and Supply Chain Management

• Craft production• process of handcrafting products or services for

individual customers• Division of labor

• dividing a job into a series of small tasks each performed by a different worker

• Interchangeable parts• standardization of parts initially as replacement parts;

enabled mass production

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Evolution of Operations and Supply Chain Management

• Scientific management• systematic analysis of work methods

• Mass production• high-volume production of a standardized product for

a mass market• Lean production

• adaptation of mass production that prizes quality and flexibility

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Historical Events in Operations Management

Era Events/Concepts Dates Originator

IndustrialRevolution

Steam engine 1769 James Watt

Division of labor 1776 Adam Smith

Interchangeable parts 1790 Eli Whitney

Scientific Management

Principles of scientificmanagement

1911 Frederick W. Taylor

Time and motion studies 1911 Frank and Lillian Gilbreth

Activity scheduling chart 1912 Henry Gantt

Moving assembly line 1913 Henry Ford

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Historical Events in Operations Management

Era Events/Concepts Dates Originator

Human Relations

Hawthorne studies 1930 Elton Mayo

Motivation theories1940s Abraham Maslow1950s Frederick Herzberg1960s Douglas McGregor

Operations Research

Linear programming 1947 George DantzigDigital computer 1951 Remington RandSimulation, waitingline theory, decisiontheory, PERT/CPM

1950s Operations research groups

MRP, EDI, EFT, CIM 1960s, 1970s

Joseph Orlicky, IBMand others

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Historical Events in Operations Management

Era Events/Concepts Dates Originator

QualityRevolution

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)TQM (total qualitymanagement)

1980sW. Edwards Deming, Joseph Juran

Strategy andoperations

1980sWickham Skinner, Robert Hayes

Reengineering 1990sMichael Hammer,James Champy

Six Sigma 1990s GE, Motorola

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Historical Events in Operations Management

Era Events/Concepts Dates OriginatorInternet Revolution

Internet, WWW, ERP, supply chain management

1990s ARPANET, TimBerners-Lee SAP,i2 Technologies,ORACLE, Dell

E-commerce 2000s Amazon, Yahoo, eBay, Google, and others

Globalization WTO, European Union, Global supply chains, Outsourcing, Service Science

1990s2000s

China, India, emerging economies

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Historical Events in Operations Management

Era Events/Concepts Dates OriginatorGreen Revolution

Global warming, An Inconvenient Truth, Kyoto

Today Numerous scientists, statesmen and governments

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Evolution of Operations and Supply Chain Management

• Supply chain management– management of the flow of information, products, and services across a

network of customers, enterprises, and supply chain partners

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Globalization

• Why “go global”?– favorable cost– access to international markets– response to changes in demand– reliable sources of supply– latest trends and technologies

• Increased globalization– results from the Internet and falling trade barriers

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Hourly Compensation

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GDP per Capita

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Trade in Goods, % of GDP

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Productivity and Competitiveness

• Competitiveness• degree to which a nation can produce goods and

services that meet the test of international markets• Productivity

• ratio of output to input• Output

• sales made, products produced, customers served, meals delivered, or calls answered

• Input• labor hours, investment in equipment, material usage,

or square footage

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Measures of Productivity

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Osborne Industries

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C6*C8

C7*C9

C5/C6

C5/C7

C5/C13

Productivity Growth

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Percent Change in Input and Output

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Strategy and Operations

• How the mission of a company is accomplished• Provides direction for achieving a mission• Unites the organization• Provides consistency in decisions• Keeps organization moving in the right direction

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Strategy Formulation

1. Defining a primary task• What is the firm in the business of doing?

2. Assessing core competencies• What does the firm do better than anyone else?

3. Determining order winners and order qualifiers• What qualifies an item to be considered for

purchase?• What wins the order?

4. Positioning the firm• How will the firm compete?

5. Deploying the strategy

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Strategic Planning

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Missionand Vision

CorporateStrategy

OperationsStrategy

MarketingStrategy

FinancialStrategy

Voice of theBusinessVoice of the

Customer

Order Winnersand Order Qualifiers

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Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Operations and Process Management, Prentice Hall, 2006, p. 47

Positioning the Firm

• Cost• Speed• Quality• Flexibility

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Positioning the Firm: Cost

• Waste elimination• relentlessly pursuing the removal of all waste

• Examination of cost structure• looking at the entire cost structure for reduction potential

• Lean production• providing low costs through disciplined operations

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Positioning the Firm: Speed

• Fast moves, Fast adaptations, Tight linkages• Internet

• Customers expect immediate responses• Service organizations

• always competed on speed (McDonald’s, LensCrafters, and Federal Express)

• Manufacturers• time-based competition: build-to-order production and efficient

supply chains• Fashion industry

• two-week design-to-rack lead time of Spanish retailer, Zara

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Positioning the Firm: Quality

• Minimizing defect rates or conforming to design specifications

• Ritz-Carlton - one customer at a time• Service system designed to “move heaven and earth”

to satisfy customer• Employees empowered to satisfy a guest’s wish • Teams set objectives and devise quality action plans• Each hotel has a quality leader

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Positioning the Firm: Flexibility

• Ability to adjust to changes in product mix, production volume, or design

• Mass customization: the mass production of customized parts

• National Bicycle Industrial Company• offers 11,231,862 variations• delivers within two weeks at costs only 10% above

standard models

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Policy Deployment

• Policy deployment• translates corporate strategy into measurable

objectives• Hoshins

• action plans generated from the policy deployment process

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Policy Deployment

Derivation of an Action Plan Using Policy Deployment

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Balanced Scorecard

• Balanced scorecard• measuring more than financial performance1. finances2. customers3. processes4. learning and growing

• Key performance indicators• set of measures to help managers evaluate

performance in critical areas

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Balanced Scorecard Worksheet

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Balanced Scorecard

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Radar Chart Dashboard

Operations Strategy

Products

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Services Processand

Technology

Capacity

HumanResources Quality

Facilities Sourcing OperatingSystems

Current Issues in the OM• Effectively consolidating the operations resulting from mergers:

• Offers economies of scale and Operational Efficiency • In reality the difference in culture and technology a challenge

• Hewett Packard and Compaq Computers • TRW and Northampton Computers

• Develop flexible Supply Chain for mass customization • The challenge of producing so many diff products and also

ensure it distribution • Managing global suppliers, production and distribution networks • Increased Commoditization of suppliers:

• Long term supply contracts to switch over “ plug compatible• Achieving the Service factory:

• Developing personalized service for each customer • Enhancing Value added services:

• Advance knowledge of Model Changes required • Making Efficient use of internet technology• Achieving good service from service firms.

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Case Study

NUMMI

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History/Products

• Late 70’s oil crisis• GM closes Fremont, CA plant firing 6000 in 1982• Toyota approaches GM to set up Toyota production system

at a GM plant, United Auto Workers accepts the deal• GM and Toyota put together $400M in 1984. GM owns the

infrastructure, Toyota is the tenant.• Nummi = New United Motor Manufacturing, Inc is born in

1984 as the unique example of a Toyota – GM joint venture• Products: Toyota Corolla, Tacoma Trucks, Pontiac Vibe

(Toyota bottom, GM top) and Toyota Voltz (Toyota bottom, GM top, sold in Japan) , GM Prism until 13/12/01

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Workers

• Nummi has about 4500 unionized workers• Workers are under two types:

– Production, high school graduates– Maintenance

• Workers work in teams of 4-6• Workers in a team rotate the tasks every 1-3 hours• Team leader is responsible for the rotation. • Team leader withdraws parts from the inventory (every 1-

2 hours) and provides the tools as necessary • Workers make $17 per hour

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Capacity

• Nummi has a cycle time of – 60 seconds for Corolla, 1 body– 82 seconds for Tacoma, 3 bodies (only cabin is

produced at Nummi, the bottom and the back are bought from suppliers)

• Nummi works in two shifts– I: 6:00-14:30, II: 16:30-1:00– Each shift has 1 hour lunch/dinner break– Starting the first shift at 6:00 workers avoid heavy

morning traffic– Two hours between shifts I and II is to allow for

overtime after the first shift when necessary

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Work Flow

• Stamping: Forming metal (side, back, front) panels with presses• Body & Weld: Putting panels together• Paint: Paint inspection is the current bottleneck

– Primer body paint applied by robots (chemically hazardous task)

– Door jambs painted manually• Plastics: Making bumpers, inside panels• Assembly: Putting in tires, engine, seats, bumpers, harnessing.

Cars , trucks on 2 km , 0.8 km conveyors• Cars contain Building manifest = BOM = Ingredients list at every

step of these operations

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Just in time

• Kaizen: continuous improvement• Kanban: replenishment every 1-2 hours• Jidoka: Assure 100% quality. Otherwise pull the Andon

chord– 1000 times per shift– 9% of line stops are longer than 30 seconds– Line stops longer than an hour once every month

• Muda: Waste to be eliminated• Genchi Genbutsu: Go to the source to learn and to solve

the problems• This Japanese terminology is all over the boards in the

plant

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Creative Tool / Work Place Design

• Die change at the stamping in 3 hours• Tilted storage bins for ease of access• Collapsing storage boxes when empty

– To reduce the empty box storage requirements in trucks returning to suppliers, say in Indiana

– These boxes save about $10M annually– The worker who suggested the boxes earned several

thousand points. 1 point = $1. • More info www.nummi.com