Welcome MGT329

Operations Management: MGT329 Lecture: Monday and Wednesday 9:30 AM - 10:45 AM 11:00 AM – 12:15 PM Professor: Jeff Street Office: BA 434 Phone: X4184 Cell: (770) 654-2056 e-mail: strejeff@isu.edu

Course Books Operations 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? Systematic Approach to Organizational Processes Operations Business Education Career Opportunities Management Cross-Functional Applications 3

Development of OM as a Field Scientific Management Moving Assembly Line Hawthorne Studies Operations Research Historical Underpinnings Computers (MRP) JIT/TQC & Automation Manufacturing Strategy Service Quality and Productivity TQM & Quality Certification Business Process Reengineering Electronic Enterprise Global Supply Chain Mgmt. OM's Emergence as a Field 13

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. 14

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. 15

Overview: Introduction to Operations Management What is Operations Management Why Study Operations Management? Operations Decision Making Managing Transformations Service or Good? Closed vs. Open System Perspectives Development of OM as a Field Current Issues 2 2

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 Making Marketplace Corporate Strategy Finance Strategy Operations Strategy Marketing Strategy Operations Management People Plants Parts Processes Materials & Customers Input Products & Services Output Planning and Control Production System 5

Managing Transformations “The Production System” Micro View Input Transformation Process (Value Adding) Output People Plants Parts Processes Planning and Control Transformation is enabled by The 5 Ps of OM: [A.K.A. The 5 Ms…Man, Machines, Materials, Methods, And Management] 6

Transformations Physical--manufacturing Locational--transportation Exchange--retailing Storage--warehousing Physiological--health care Informational--telecommunications 7

Competitive Priorities Quality (including Service) Price (or production cost) Delivery (speed) Flexibility V = f (Q,T) C Our Value Equation 11

Core Services Definition Core services are basic things that customers want from products (or services) they purchase. 11

Core Services Performance Objectives (Competitive Priorities) Quality “made correctly” Operations Flexibility “customized” Delivery Speed “on-time” Management Price (or cost Reduction) “Competitively”

Value-Added Services Defined 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”) 12

Value-Added Service Categories Problem Solving “close gaps” Operations Information “educate customer” Sales Support “flex to demands” Management 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 12

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?) 8

What about McDonald’s? Service or Manufacturing? The company certainly manufactures tangible products Why then would we consider McDonald’s a service business? 9

Front and Back Office Service Provider Customer Back Office Front Office Customer 10

Standard execution time 2 minutes                       How would an Operations Management focus apply here? Standard execution time 2 minutes Verbalize Order Enter Order Prepare Food Collect payment 30 seconds 15 seconds 60 seconds 15 seconds Fail point Front Office Correct Order Materials (e.g., food, paper) 20 seconds Line of visibility Not seen by customer but necessary to performance Select and purchase supplies Back Office

Operations Strategy and Competitiveness Chapter 2

Operations Strategy and Competitiveness - Overview A Framework for Operations Strategy in Manufacturing Operations Strategy in Services Meeting the Competitive Challenge Productivity Measurement 2

Processes, Infrastructure, and Capabilities Operations Strategy Customer Needs Corporate Strategy Alignment Competitors Core Competencies Operations Strategy Decisions Processes, Infrastructure, and Capabilities 3

Strategy Process Forced-Choice Model Environmental Assessment Organization’s Position Broad economic assumptions Statement of mission Key government and regulatory issues Interrelated set of financial and nonfinancial objectives Major technological forces Statement of strengths and weaknesses Significant market opportunities and threats Forecast of operational needs Explicit strategies of competitors Major future programs Strategic options Requirements for implementing options Contingency plans

Strategy Process Example Customer Needs More Product Corporate Strategy Increase Org. Size SBU Operations Strategy Increase Production Capacity Decisions on Processes and Infrastructure Build New Factory

Hierarchy of Strategy Process Customers Environment Corporate Strategic Planning SBU #1 SBU #2 SBU #3 Marketing Operations Mgt Engineering Capabilities Progress Potential Problems/Changes Vision Type of Value delivered Specific Market Corporate Values Core competencies Performance metrics Strategic Business Units Functional Areas 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 Company Achieve 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 Traditional Competitive Priorities 4

A Framework for Manufacturing Strategy Customer Needs New product : Old product Competitive dimensions & requirements Quality, Cost, Delivery, Flexibility, and Service Enterprise capabilities Operations and Supplier Capabilities Operations & Supplier capabilities R&D Technology Systems People Distribution R&D Technology Systems People Distribution Support Platforms Financial management Human resource management Information management 8

Processes, Infrastructure, and Capabilities Operations Strategy Customer Needs Corporate Strategy Alignment Competitors Core Competencies Operations Strategy Decisions Processes, Infrastructure, and Capabilities 3

Capabilities:Enterprise, Operations, Suppliers Customer Needs New Products Current Products New Product Development Performance priorities and requirements Order fulfillment after sales service Quality Delivery Flexibility Price Service Technology Systems People R & D Distribution CIM JIT TQM Finance Human Resources Information MGT Capabilities:Enterprise, Operations, Suppliers

competitive priorities Quality Flexibility Service Cost Lead Times Variability

Dealing with Trade-offs For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. 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. Cost Quality Delivery Flexibility 5

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. What are the order winners in today’s market? Distinctive Competency 6

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? 9

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 10

Service can be an “order winner” Travel Planning Warranty Leases Roadside Assistance Loaner Vehicles Car Dealership 7 7

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 methods capital quality training technology management

What methods can be used to improve productivity? develop productivity measures measurement is necessary to control the operation look at overall productivity develop methods for achieving productivity improvements establish reasonable goals for improvement measure 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] 17

Partial Measure Productivity Partial measures of productivity = Output or Output or Output or Output Labor Capital Materials Energy

Multifactor Measure Productivity Multifactor measures of productivity = Output . Labor + Capital + Energy or Labor + Capital + Materials

Example of Productivity Measurement You 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 What is the labor productivity? 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? 18

Example--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? = $22.22 19

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? 20

Productivity measures need to be tracked over time need to include all possible inputs are difficult to compare between companies or industries do not (directly) include measures of timeliness or quality [th********] [sc*** and re****]

Solution for Problem #1 Labor Productivity – dollars Model Output in Dollars Input 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

Solution to Problem #2

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