1 Operations Management, Competitiveness, and Operations Strategy Lecture 1

2 Operations Function Transformation from inputs to outputs Operations Outputs Products Services Inputs Labour Materials Capital

3 Operations Function Interfaces Operations Personnel Purchasing Finance Marketing

4 Operations Manager Manages the transformation process –setup the processes –monitors the process –makes key decisions –develops strategy to manage changes –objective: system runs on its own Employs bulk of the staff Great opportunities to cut costs and beat competition

5 Operations Management Body of knowledge to help Operations Managers Modern history –Taylor, Gantt, Hawthorne studies, Henry Ford 80’s –realization mass production not flexible –insufficient quality control 90’s –TQM revolution –Adoption of modern IE techniques –Globalization, –Growth of Service Sector –Increased competition

6 Increased Globalization Falling trade barriers and protected markets More export business Table 1.3 Internet and e-commerce Remaining bottlenecks: –distribution channels and infrastructure –political stability Downside: regional problems affect all

7 Increased Service Sector Overtakes manufacturing Employs ~80% labour worldwide 75% of US GDP Sole source of net employment gain Same OM techniques being applied

8 Increased Competitiveness Defined as –degree to which a nation can, under demanding and rapidly changing market conditions, produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens. Effect of Globalization –more customers –more competitors Effect of Service Sector –more eagerness to please –increased customer focus

9 Competitiveness Measures GDP Import/Export Ratio Output/Input Ratio (Productivity) Fig 1.8

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11 Trends and Issues in OM Operational Strategies needed to address 1. Industrial Competition 2. Distances 3. Partnership and Alliances 4. Mass Customization 5. Services 6. Quality 7. Flexibility 8. Technology 9. Human Resources concerns 10. Environment

12 Operational Strategy Formulation Must Determine: 1. Primary task of firm 2. Core competencies 3. Order qualifiers and winners 4. Position of the firm in the marketplace

13 Primary Task of Firm Beyond Vision and mission statements –HR tools for aligning staff on common course –Vision statement: general future direction –Mission statement: current state Exploit current –competencies for customers –internal competencies Consider new –products and services –competencies –markets

14 Core Competencies What are we best at? What competency beats the competition? What process (not product) are we good at? –Requires change in focus from What to How

15 Order Qualifiers and Winners Order Qualifiers –how do we get the customer’s attention Order Winners –how do we get the purchase from the customer

16 Positioning the Firm How Do We Compete? Minimize Cost –within quality limits Maximize Quality (e.g. customer satisfaction) –within cost limits Maximize Flexibility (e.g. mass customization) –within cost and quality limits Maximize Speed of Delivery –within cost and quality limits

17 Operational Strategy Must address decisions related to: 1. Products and services 2. Process and Technology 3. Capacity and Facilities 4. Human Resources 5. Quality 6. Sourcing 7. Operating Systems

18 Products and Services Make-to-order vs. Make-to-stock vs. Assemble-to-order

19 Process and Technology Products –Projects –Batch Production –Mass Production –Continuous Production Based on –Volume –Standardization Services –Professional Service –Service Shop –Mass Service –Service Factory Based on –Labour Intensity –Customization

20 Capacity and Facilities Demand: All, Average or Given Granularity: Large or small Excess: Overtime, extra shift or subcontract Centralized vs. Distributed General vs. specialized Location: labour, market or supply Globalization: where and how.

21 Human Resources Skill levels Training Compensation Incentives Profit Sharing Management style Levels of management

22 Quality Targets Measures Conformance Areas of focus

23 Sourcing Vertical integration vs.. Outsourcing Supply management

24 Operating Systems IT Support for –customers –workers –management Planning and Control Systems Inventory Systems Training in Decision Analysis