OPSM 301 Operations Management Fall 2011 Zeynep Akşin

The operations function  The role of the operations function may be defined as the design, operation, and improvement of the production system that creates the firm’s primary products and services  We will study how organisations “actually do things”

Key Principle of course: 1. The Strategic Role of Ops “A company’s operations function is either a competitive weapon or a corporate millstone. It is seldom neutral.” [Skinner ‘69]

Operations as a Competitive Weapon  Dell Computers Innovative Supply Chain Strategy (direct model)  Southwest Airlines Leader in lowfare flights, by elimination of all waste  Zara Speed and fashion combined. More on this later..  Vestel manufaturing flexibility

Key Principle of Course: 2. The Process View of Ops UL Sup. WH WH Sub. WH KA Ind. Markets GroceriesMarkets Sana KA: 64 days Groceries:132 days Shelf life: 120 days! 76 days collection time Sales cost: 4% Trade rebate: 12% Logistics: complex 1997: 35000/76000 tons Sana and Aymar collected

Consumer centric-efficient SC UL Distributors GroceriesMarketKA Consumer Sana KA: 2 weeks 36 days collection time Warehouse stock level 12% -  8% Sales cost: 6% Trade rebate: 5.2% Logistics: simple / outlets Make-to-order

Global processes: i-phone 4 production  Product design: USA  Final Assembly: Shenzen China  Chips: Korea, Germany, USA  Monitor: Taiwan  More than 100 suppliers  Distribution: globally  Costs: labor %7, bill of materials: 187,51 dolars  Price: 600 dolars

Operations & the Process View: What is a Process? Inputs Outputs Goods Services Labor & Capital Information structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Resources Process Management

Organization Chart

Process customer suppliers

What is Operations Management?  Management of business processes  How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs. –What is appropriate?

All Managers are Operations Managers  All managers must transform inputs into outputs  Example: Accounting Manager –Inputs: data, information, labor –Transformation: application of accounting principles and knowledge –Outputs: accounting reports, knowledge of performance,...  All managers have an “operation” to run

What defines a “good process”? Performance: Financial Measures  Absolute measures: –revenues, costs, operating income, net income –Net Present Value (NPV) =  Relative measures: –ROI, ROE –ROA =  Survival measure: –cash flow

Firms compete on product attributes. This requires process capabilities.  Price (Cost) P  Quality Q –Customer service –Product quality  Time T –Rapid, reliable delivery –New product development  Variety V –Degree of customization “order winners” To deliver we need “capabilities”

80% of calls answered in less than 20 seconds

Competing on variety requires flexibility  Vestel Elektronik – Manisa  Europe’s number 1, world’s number 2. OEM TV producer! 6% of World TV production.  Daily capacity: TVs (average production /day)  20 parallel assembly lines  Flexibility to produce 40 different brands- models in a day  60% of orders for quantities less than 200  Direct deliveries to some chain stores in Europe  Esnekliğin yönetimi

Performance Measures Performance Objective Some typical Measures CostMinimum delivery time/average delivery time, utilization of resources, labor productivity, added value, efficiency, cost per operation hour QualityNumber of defects per unit, level of customer complaints, scrap level, mean time between failures, customer satisfaction scores SpeedCustomer query time, Order lead time, frequency of delivery, actual versus theoretical throughput time, cycle time FlexibilityTime needed to develop new products/services, range of products/services, machine change-over time, average batch size, time to increase activity rate, average capacity/maximum capacity, time to change schedules

Process Capabilities are affected by Process Structure and Management  Process structure or architecture: –(1) inputs and outputs –(2) flow unit (“jobs”) –(3) network of activities & buffers quantity & location precedence relationships –(4) resource allocation capacity & throughput –(5) information structure  Operations Planning & Control  Organization

Significant Events in Operations Management