OPSM 301 Operations Management Class 2: Operations management strategy and process selection Chapter 2 Koç University Zeynep Aksin

Announcements  Web page available through Courseware link  Please get copies of the course pack from Xerox for case assignments coming up.  Will skip sections on global operations and strategy implementation in Chapter 2  Will cover Ch 7 p today.  OPSM elective course: Operations Strategy

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?

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”

Fit between Strategy and Processes  Processes must fit the operations strategy of the firm: Competing on -Cost (Southwest Airlines) -Quality (Toyota,Arçelik) -Flexibility (HP) -Speed (McDonalds) all require different process designs and different measures to focus on. Corporate Strategy  Key Performance Indicators  Operations Strategy  Process Design& Improvement

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

Linking the strategic role & process view: Strategic Operational Audit Desired Business Strategy Operations Strategy Desired Capabilities Marketing, …, Financial Strategy Desired Oper’l Structure: Processes & Infrastructure Product Attributes P, T, Q, V Process Attributes C, T, Q, Flex Existing Capabilities Operational Structure: Processes & Infrastructure ExistingDesired Feasible Business Strategies Strategy Gap? Measures Capability Gap? Process Gap?

Mission/Strategy  Mission - where you are going  Strategy - how you are going to get there; an action plan

Strategy Process Marketing Decisions Operations Decisions Fin./Acct. Decisions Company Mission Business Strategy Functional Area Strategies

Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry Responsiveness operations frontier A B C Price HighLow

Video  King Soopers Bakery –How is bread made? –How does the pastry production process differ? Customized cakes? –What are the different set-ups in each process?

Classification Scheme for Manufacturing Systems  Organizing production processes: Around the product or process?  Discrete Part Manufacturing –Job Shops –Batch Production –Mass Production  Continuous Processes

A Spectrum of Production Processes Part Quantity Part Variety Job Shop Batch Prod.Mass Prod. (Flow Line) Contin Flow Proce ss

Fit of Process, Volume, and Variety (from Ch. 7) Process focus projects, job shops,(machine, print, carpentry) Standard Register Repetitive (autos, motorcycles) Harley Davidson Product focus (commercial baked goods, steel, glass) Nucor Steel High Variety One or few units per run, high variety (allows customization) Changes in modules Modest runs, standardized modules Changes in attributes (such as grade, quality, size, thickness, etc.) Long runs only Mass Customization (difficult to achieve, but huge rewards) Dell Computer Co. Poor strategy Low-Volume (Intermittent) Repetitive Process (Modular) High-Volume (Continuous)

Process-Focused Strategy Examples Bank © 1995 Corel Corp. Machine Shop © 1995 Corel Corp. Hospital © 1995 Corel Corp.

Repetitive-Focused Strategy - Examples Truck © 1995 Corel Corp. Clothes Dryer © 1995 Corel Corp. Fast Food McDonald’s over 95 billion served © T/Maker Co.

Product-Focused Examples © 1995 Corel Corp. Light Bulbs (Discrete) Paper (Continuous) © T/Maker Co. © 1995 Corel Corp. Soft Drinks (Continuous, then Discrete) Mass Flu Shots (Discrete) © 1995 Corel Corp.

The Job Shop Process  Process Layout  One of a Kind Build –(To Customer Order)  Absence of Rigid Flow Pattern  Usually High Product Mix

Process Layout Lathe#1 Lathe#2 Lathe#3 Lathe#4 Product #1735B: Start of Production Drill Press #1 Drill Press #2 Paint Machine Packaging Machine #1 Packaging Machine #2 Finish Production

The Batch Flow Process  Process Layout  Work Flow in Lots  Absence of Rigid Flow Pattern

The Flow Line Process  Product Layout  Discrete Parts  Rigid Flow Pattern  Product Mix of Standard Products

Product Layout Product #1735B Lathe Start Production Drill Press #2 Paint Machine Drill Press #1 Packaging Machine #2 Finish Production

Impetus for Strategy Change  Changes in the organization  Stages in the product life cycle  Changes in the environment