Welcome MGT329

Operations Management:MGT329

Lecture: Monday and Wednesday9:30 AM - 10:45 AM

11:00 AM – 12:15 PM

Professor: Jeff Street

Office: BA 434Phone: X4184

Cell: (770) 654-2056 e-mail: strejeff@isu.edu

Course BooksOperations 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?

OperationsManagement

Business Education

Systematic Approachto Organizational

Processes

Career Opportunities

Cross-FunctionalApplications

ScientificManagement

Moving AssemblyLine

HawthorneStudies

OperationsResearch

HistoricalUnderpinnings

Computers(MRP)

JIT/TQC &Automation

ManufacturingStrategy

Service Qualityand Productivity

TQM & QualityCertification

Business ProcessReengineering

ElectronicEnterprise

Global SupplyChain Mgmt.

OM's Emergenceas a Field

Development of OM 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.

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 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

Managing Transformations“The Production System”

Input Output

People Plants Parts Processes Planning and

Control

TransformationProcess

(Value Adding)

Transformation is enabled by The 5 Ps of OM:

[A.K.A. The 5 Ms…Man, Machines, Materials, Methods,And Management]

Micro View

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)

FlexibilityV =

f (Q,T)C

Our Value Equation

Core services are basic things that customers want from products (or services) they purchase.

Core Services Definition

Core Services Performance Objectives(Competitive Priorities)

OperationsManagement

Flexibility“customized”

Quality “made correctly”

Delivery Speed “on-time”

Price (or cost Reduction)

“Competitively”

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 Services Defined

Value-Added Service Categories

OperationsManagement

Information“educate customer”

Problem Solving“close gaps”

Sales Support“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?

The company certainly manufactures tangible products

Why then would we consider McDonald’s a service business?

Verbalize Order

Verbalize Order

Collectpayment

CollectpaymentEnter OrderEnter Order Prepare

Food

PrepareFood

15 seconds60 seconds

Correct Order

Correct Order

Failpoint

Failpoint

Standard execution time 2

minutes

30 seconds 15 seconds

20 seconds

                     How would an Operations Management focus apply here?

Materials(e.g., food, paper)

Materials(e.g., food, paper)

Select and purchase supplies

Select and purchase supplies

Not seen by customerbut necessary to

performance

Line of visibility

Back Office

Front Office

Operations Strategy and Competitiveness

Chapter 2

Operations Strategy

Customer Needs Corporate Strategy

Operations Strategy CoreCompetencies

Decisions

Processes, Infrastructure, and Capabilities

Alignment

Competitors

Strategy ProcessStrategy Process

Forced-Choice Model

Environmental AssessmentEnvironmental Assessment Organization’s PositionOrganization’s Position

Strategic options

Requirements for implementing options

Contingency plans

Statement of mission

Interrelated set of financial and nonfinancial objectives

Statement of strengths and weaknesses

Forecast of operational needs

Major future programs

Broad economic assumptions

Key government and regulatory issues

Major technological forces

Significant market opportunities and threats

Explicit strategies of competitors

Customer Needs

Corporate Strategy

SBU Operations Strategy

Decisions on Processes and Infrastructure

ExampleStrategy Process

More Product

Increase Org. Size

Increase Production Capacity

Build New Factory

Hierarchy of Strategy Process

CustomersEnvironment

Corporate StrategicPlanning

SBU #1 SBU #2 SBU #3

Marketing

OperationsMgt

Engineering

Capabilities

Progress

Potential Problems/Changes

VisionType of Value delivered

Specific MarketCorporate Values

Core competenciesPerformance metrics

Strategic

BusinessUnits

FunctionalAreas

Finance

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

CompanyAchieve unified purpose via

information;

team involvement in planning and

implementing change.

Operations Strategy --Formulation

Competitors

Get to know the competition and

world-class leaders.

Operations Priorities Cost Quality Delivery Speed Flexibility Service Delivery Reliability Coping with Changes in Demand Flexibility and New Product Introduction Speed

TraditionalCompetitive Priorities

A Framework for Manufacturing Strategy

Customer Needs

New product : Old product

Competitivedimensions & requirements

Quality, Cost, Delivery, Flexibility, and Service

Operations & Supplier capabilities

R&D Technology Systems People Distribution

Support Platforms

Financial management Human resource management Information management

Enterprise capabilities

Operations and Supplier Capabilities

R&D Technology Systems People Distribution

Operations Strategy

Customer Needs Corporate Strategy

Operations Strategy CoreCompetencies

Decisions

Processes, Infrastructure, and Capabilities

Alignment

Competitors

competitive priorities

Quality

FlexibilityService

CostLead TimesVariability

Dealing with Trade-offs

Cost

Quality

DeliveryFlexibility

For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less effective at dealing with commonly occurring problems.

For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less effective at dealing with commonly occurring problems.

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.

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.

Distinctive Competency

What are the order winners in

today’s market?

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

•Personal use•Small business•Large Corporations

What would be the winner for each market group?

How do we convert order winners into specific performance requirements?

Us(Distinctive

Competencies)

Competition(Them) Differentiation

7

Service can be an “order winner”

Warranty

RoadsideAssistance

TravelPlanning

LoanerVehicles

Leases

Car Dealership

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 methodscapitalqualitytrainingtechnologymanagement

What methods can be used to improve productivity?

develop productivity measures measurement is necessary to control the operation

look at overall productivitydevelop methods for achieving productivity

improvementsestablish reasonable goals for improvementmeasure 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 measures of productivity =

Output or Output or Output or Output Labor Capital Materials Energy

Partial Measure Productivity

Multifactor measures of productivity =

Output . Labor + Capital + Energy

or

Output . Labor + Capital + Materials

Multifactor Measure Productivity

Example of Productivity MeasurementYou 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

Labor rate: $9/hr

Cost of raw material: $5,000

Cost of purchased material: $25,000

What is the labor productivity?

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

(10,000 unit*$10/unit)

(500hrs*$9/hr)

What do these calculations tell us?More importantly -- What don’t they tell us?

Example--Labor Productivity

= $22.22

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 measuresneed to be tracked over timeneed to include all possible inputsare difficult to compare between

companies or industriesdo not (directly) include measures of

timeliness or quality

[th********] [sc*** and re****]

Solution for Problem #1

Labor Productivity – units/hour

Model Output in Units

Input in Labor Hours

Productivity(Output/Input)

Deluxe Car 4,000 20,000 0.20

Limited Car 6,000 30,000 0.20

Labor Productivity – dollars

Model Output in Dollars

Input in Dollars

Productivity(Output/Input)

Deluxe Car 4,000($8000)=$32,000,000

20,000($12.00)=$240,000

133.33

Limited Car 6,000($9500)=$57,000,000

30,000($14.00)=$420,000

135.71

Solution to Problem #2

Labor Productivity

Country Output in Units

Input in Hours

Productivity(Output/Input)

U.S. 100,000 20,000 5.00

LDC 20,000 15,000 1.33

Capital Equipment Productivity

Country Output in Units

Input in Hours

Productivity(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 in Units

Input in Hours

Productivity(Output/Input)

U.S. 100,000 20,000 + 60,000=80,000

1.25

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

1.00

Raw Material Productivity

Country Output in Units

Input in Dollars

Productivity(Output/Input)

U.S. 100,000 $20,000 5.00

LDC 20,000 FC $20,000/10=$2,000

10.00

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?

What repercussions, 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