Fundamentals of Operations Management BUS 3 – 140 Jan 29, 2008

Page 2 2 Agenda –Week 1 Review –Product & Service Design –Location Planning –Project Management

How Operations Interacts with Other Organizations

Page 4 4 Key intersections with Sales & Marketing and with Finance FINANCE & ACCOUNTING –Budgeting –Authorizing Capital spending –Authorizing major inventory buys –Cost accounting –Make vs. Buy decisions –Location planning –Managing international trade –Analyzing trade-off decisions

Page 5 5 Key intersections with Sales & Marketing and with Finance SALES & MARKETING –Forecasting Demand –Influencing demand –Committing supply –Negotiating schedules with customers –Providing competitive information –Requesting new products and services –Opening new markets

Page 6 6 Interaction with other Functional Organizations

Product & Service Design

Page 8 8 There are degrees of “Newness” –Modify existing products and services –Expand and existing product line or service offering –Clone a competitor’s product or service –New product or service There is usually some combination taking place simultaneously

Page 9 9 Phases in Product Design & Development Idea Generation Feasibility Analysis Product Specifications Process Specifications Prototype Development Design Review Market Test Follow-up Evaluation Product Introduction Supply Chain  Customers  Suppliers  Employees  Field Service Competitors  “Me too” strategy  Reverse Engineering Research and Development  Applied research has the objective of MAKING MONEY  Development takes the results of the applied research and finds places where they can be used (Applications)

Page Phases in Product Design & Development Feasibility Analysis Process Specifications Prototype Development Design Review Market Test Follow-up Evaluation Product Introduction Idea Generation Product Specs. –Start with the CUSTOMER Understand what the customer wants (or demands) Understand what the customer will PAY for –RESPOND to Opportunities and Threats Customers not buying what you are selling Customers buying what you are not selling –Acknowledge Cost imperatives –Defensive considerations Product liability Availability (possible shortages or cost issues) of Raw Material, components, labor

Page Product Life Cycles Time Introduction Growth Maturity Saturation Decline Deman d Figure 4.1

Page Definitions What the seller is paid for goods and services provided Price The expenses incurred in operating the enterprise, making and buying materials, and converting the materials to finished goods Cost The difference between Price and Cost Value

Page Target Pricing is a Key Element in Product Specifications Cost Profit Sales Price Traditional: + = Sales Price (Market) Profit Cost Target Pricing: - = Instead of adding profit and cost to establish a selling price, the organization starts with the market price and required profit to establish a target cost to achieve the necessary profit.

Page Design Phases leads to Introduction and Volume Feasibility Analysis Process Specifications Prototype Development Design Review Market Test Follow-up Evaluation Product Specifications Idea Generation Product Introduction –Quality and Cost –Target pricing –Capital equipment –Time to market –Time to Volume –Postponement and “Mass Customization”

Page The Standardization Challenge Standard parts are generally lower cost, more abundantly available, provide the largest number of potential suppliers, drive efficiencies in design, and provide other benefits BUT… Unique parts often differentiate products and performance, and can provide competitive advantage to the seller

Page Postponement and Mass Customization –Combine uniqueness and standardization Delayed differentiation –Modular design Many permutations from standard components (e.g Dell computer, Burger King, Subway, magazines) –Inventory Management –Forecasting

Page Other Design and Spec Considerations –Decisions made EARLY affect Dollars spent LATER –Whenever possible it is recommended to re-use existing components when developing new products (rather than creating numerous new components whenever creating a new subassembly) –Partnering among Design, Marketing, Sales, and Suppliers during the Design process is a major opportunity to reduce both Time To Market and Cost –Product Portfolio

Service Design

Page Service Design Start with the Customer Understand what the customer wants (or demands) Understand what the customer will PAY for Respond to Opportunities and Threats Customers not buying what you are selling Customers buying what you are not selling –Service Delivery Systems Facilities Processes Skills Technology Service “blueprint” These concepts also useful for Managing Functions and Departments

Page Challenges of Service Design –Variable requirements –Difficult to describe –High customer contact –The customer is a PARTICIPANT in the process

Page Characteristics of Well Designed Service Systems –Consistent with the organization mission –User friendly Robust –Easy to sustain –Cost effective –Value to customers –Effective linkages between back operations –Single unifying theme Ensure reliability and high quality

Page Guidelines for Successful Service Design Define the service package Focus on customer’s perspective Consider image of the service package Recognize that designer’s perspective is different from the customer’s perspective Make sure that managers are involved Define quality for tangible and intangibles Make sure that recruitment, training and rewards are consistent with service expectations Establish procedures to handle exceptions Establish systems to monitor service

Page Components of the “Service Package” –Physical Resources –Accompanying goods that are purchased or consumed by the customer, or provided with the service Bundling of like products Service contracts Insurance plans Package deals –Explicit services –Implicit services

Page Key Elements of Service Operations Management Tangible – intangible Services are created and delivered at the same time Services cannot be inventoried Services highly visible to customers Services have low barrier to entry Location important to service Range of service systems Demand variability There is FUNGIBLE CAPACITY – you “use it or lose it” Difficult to leverage and scale when people intensive Turnover and attendance can be critical factors

Location Planning

Page Objectives of Location Planning –Strategic Reduce costs Add revenue Both –Tactical Explosive growth Dramatic decline –Key customers –Mergers and acquisitions

Page Four Location Options –Expand existing facilities –Add new –Leave existing and find new –Do nothing

Page Regional Factors when making Location decisions –Raw materials and components –New Markets –Labor –Tax relief and other incentives

Page Characteristics of Service and Retail Locations Heavier emphasis on REVENUE than Manufacturing locations Traffic volume and convenience most important Demographics Age Income Education Location is CRITICAL Good transportation Customer safety

Page Comparing Manufacturing vs. Service Locations Manufacturing/DistributionService/Retail Cost Focus EmphasisRevenue focus Emphasis Transportation modes/costsDemographics: age,income,etc Energy availability, costsPopulation/drawing area Labor cost/availability/skillsCompetition Building/leasing costsTraffic volume/patterns Customer access/parking

Project Management

Page The Nature of Projects This Course and Semester are PROJECTS! Unique, one-time operations designed to accomplish a specific set of objectives in a limited time frame. Build A A Done Build B B Done Build C C Done Build D Ship JANFEBMARAPRMAYJUN On time!

Page Overview of Project Management (from Table 17-1) How is it different? Limited time frame Narrow focus, specific objectives Less bureaucratic Why is it used? Special needs Pressures for new or improves products or services What are the Key Metrics? Time Cost Performance objectives What are the Key Success Factors? Top-down commitment Having a capable project manager Having time to plan Careful tracking and control Good communications

Page Overview of Project Management (from Table 17-1, continued) What are the Major Administrative Issues? Executive responsibilities Project selection Project manager selection Organizational structure Organizational alternatives Manage within functional unit Assign a coordinator Use a matrix organization with a project leader What are the tools? Work breakdown structure Network diagram Gantt charts Risk management

Page The Work of the Project Manager Responsible for RESULTS achieved through: Work Human Resources Communication Schedule Cost Risk Management Project Managers often must INFLUENCE team members and others WITHOUT formal (Organizational Chart) authority

Page Gantt Charts MARAPRMAYJUNJULAUGSEPOCTNOVDEC Locate new facilities Interview staff Hire and train staff Select and order furniture Remodel and install phones Move in/startup Gantt Chart

Page An example of a Gantt Chart for this Class In this example, you would know that you should start reading by Feb 25 to complete the assignment by Apr 1 Complete Final Draft Write First Draft Compare Book to Course Read Book 25-Feb4-Mar11-Mar18-Mar25-Mar01-Apr

Page A Project Work Plan and Project Life Cycle Concept Feasibility Planning Execution Termination Management The Key is to COMPLETE the work, achieve the RESULTS, and Move On