Using Operations to Compete Chapter 1 TRA 3151, FGCU Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 01-01

Learning Objectives When you complete this chapter you should be able to: Define Operations Management Explain the distinction between Goods and Services Describe Process view Describe Supply Chain View Explain Operations Strategy Define Trends in OM Measure Productivity

Why Study OM? OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise We want (and need) to know how goods and services are produced We want to understand what operations managers do OM is such a costly part of an organization

Options for Increasing Contribution Sales $100,000 $150,000 $100,000 $100,000 Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000 Gross Margin 20,000 30,000 20,000 36,000 Finance Costs – 6,000 – 6,000 – 3,000 – 6,000 Subtotal 14,000 24,000 17,000 30,000 Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500 Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500 Finance/ Marketing Accounting OM Option Option Option Increase Reduce Reduce Sales Finance Production/Operation Current Revenue 50% Costs 50% Costs 20%

What is Operations Management? The systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external, customers. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall A Process View Process Any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Where are the OM Jobs? Technology/methods Facilities/space utilization Strategic issues People/team development Customer service Quality Cost reduction Inventory reduction Productivity improvement

Opportunities

Certifications APICS, the American Production and Inventory Control Society American Society of Quality (ASQ) Institute for Supply Management (ISM) Project Management Institute (PMI) Council of Supply Chain Management Professionals Charter Institute of Purchasing and Supply (CIPS)

The Role of Operations in the Organization Integration between Different Functional Areas of a Business Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Relationship of Operations w/ other functions, fig_01_02 Operation interacts with other business functions.

Service and Manufacturing Processes Differ Across Nature of Output and Degree of Customer Contact More like a manufacturing process More like a service process Physical, durable output Output can be inventoried Low customer contact Long response time Capital intensive Quality easily measured Intangible, perishable output Output cannot be inventoried High customer contact Short response time Labor intensive Quality not easily measured Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

A CONTINUUM FROM GOODS TO SERVICES fig_05_03 A CONTINUUM FROM GOODS TO SERVICES Automobile manufacturing

The Hard Rock Cafe First opened in 1971 Rock music memorabilia Now – 129 restaurants in over 40 countries Rock music memorabilia Creates value in the form of good food and entertainment 3,500+ custom meals per day in Orlando How does an item get on the menu? Role of the Operations Manager

What is Supply Chain Management? The synchronization of a firm’s processes with those of its suppliers and customers to match the flow of materials, services, and information with customer demand. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Supply Chain View Each activity in a process should add value to the preceding activities; waste and unnecessary cost should be eliminated. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Supply Chain View Support Processes - Processes like Accounting, Human Resources, Engineering, and Information Systems that provides vital resources and inputs to the core processes Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

CHALLENGES / TRENDS IN OM From Local or national focus In-house Traditional trade/market Batch shipments Mass production Low bid purchasing Lengthy product development Standard products Job specialization Environmental concerns To Global focus Outsourcing / off-shoring/ Insourcing E-business Just-in-time Lean production Supply chain partnering Rapid product development Mass customization Empowered employees Sustainable and Ethical “From” represent the challenges we faced from the beginning of 1980 to 1995, in some cases until 2002. “To” represent what trends we began implementing in the last decade and where we go to.. 30

Operations Strategy Corporate Strategy Environmental scanning Core competencies Core processes Global strategies Market Analysis Market segmentation Needs assessment Competitive Priorities Cost Quality Time Flexibility New Service/ Product Development Design Analysis Development Full launch Operations Strategy Decisions Managing processes Managing supply chains Competitive Capabilities Current Needed Planned Performance Gap? No Yes Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Examples COST Definition Process Considerations Example Low-cost operations Delivering a service or a product at the lowest possible cost Processes must be designed and operated to make them efficient Costco QUALITY Top quality Delivering an outstanding service or product May require a high level of customer contact and may require superior product features Rolex Consistent quality Producing services or products that meet design specifications on a consistent basis Processes designed and monitored to reduce errors and prevent defects McDonald’s Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Examples TIME Definition Process Considerations Example Delivery speed Quickly filling a customer’s order Design processes to reduce lead time Dell On-time delivery Meeting delivery-time promises Planning processes to increase percent of customer orders shipped when promised United Parcel Service (UPS) Development speed Quickly introducing a new service or a product Cross-functional integration and involvement of critical external suppliers Zara Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Examples FLEXIBILITY Definition Process Considerations Example Customization Satisfying the unique needs of each customer by changing service or products designs Low volume, close customer contact, and easily reconfigured Ritz Carlton Variety Handling a wide assortment of services or products efficiently Capable of larger volumes than processes supporting customization Amazon.com Volume flexibility Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand Processes must be designed for excess capacity The United States Postal Service (USPS) Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Order Winners and Qualifiers The criterion customers use to differentiate the services or products of one firm from those of another. Order Qualifiers The minimum level required from a set of criteria for a firm to do business in a particular market segment. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS Competitive Priority Measure Capability Gap Action Low-cost operations Cost per billing statement $0.0813 Target is $0.06 Eliminate microfilming and storage of billing statements Weekly postage $17,000 Target is $14,000 Develop Web-base process for posting bills Consistent quality Percent errors in bill information 0.90% Acceptable No action Percent errors in posting payments 0.74% Delivery speed Lead time to process merchant payments 48 hours Volume flexibility Utilization 98% Too high to support rapid increase in volumes Acquire temporary employees Improve work methods Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Trends in Operations Management Productivity The value of outputs (services and products) produced divided by the values of input resources (wages, costs of equipment, etc.) Productivity = Output Input Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

(3 employees)(40 hours/employee) Example 1.1 Calculate the Labor Productivity: a. Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. Labor productivity = Policies processed Employee hours = = 5 policies/hour 600 policies (3 employees)(40 hours/employee) Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Trends in Operations Management Global Competition Advantages: Increased market penetration Comparative cost advantages Disadvantages: Political risks Lower skilled workers Vulnerability to supply chain disruptions Japanese Earthquake in March 2011 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Trends in Operations Management Ethical, Workforce Diversity, and Environmental Issues Ethical decision-making in different countries Environmental concerns Sustainability initiatives Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall