Operations Management BUSN 6110 Fall 2, 2010

Syllabus Class 1 (Oct 27): chap 1; chap 2, case study (Introduction, Strategy)Class 1 (Oct 27): chap 1; chap 2, case study (Introduction, Strategy) Class 2: (Nov 3):Decision Making, Chap 6, Chap 8 (Product and Service Design; Processes and Technologies)Class 2: (Nov 3):Decision Making, Chap 6, Chap 8 (Product and Service Design; Processes and Technologies) Class 3: (Nov 10): chap 10, chap 11, Chap 17(Take home exam) (Facility Planning, Project Management)Class 3: (Nov 10): chap 10, chap 11, Chap 17(Take home exam) (Facility Planning, Project Management) Class 4: (Nov 17): Chap 9, Chap 12 (Capacity and Aggregate Planning, Inventory Management)Class 4: (Nov 17): Chap 9, Chap 12 (Capacity and Aggregate Planning, Inventory Management) Nov 25: no class ThanksgivingNov 25: no class Thanksgiving Class 5: (Dec 1): Chap 5, Chap 7 (Supply Chain Management and Forecasting); Chap 15, Reverse Logistics – need “The Forklifts Have Nothing To Do!” Available in the Lewis and Clark BookstoreClass 5: (Dec 1): Chap 5, Chap 7 (Supply Chain Management and Forecasting); Chap 15, Reverse Logistics – need “The Forklifts Have Nothing To Do!” Available in the Lewis and Clark Bookstore Class 7: (Dec 8): Chap 13; Chap 16, Chap 4 (Resource planning, scheduling, quality)Class 7: (Dec 8): Chap 13; Chap 16, Chap 4 (Resource planning, scheduling, quality) Other requirements:Other requirements: →visit Harley-Davidson Plant in Kansas City to see operations management in practice and write a 3-5 page paper comparing the class slides and readings to the Harley operations → Home Work → Home Work

Additional Text The # 2 Selling Warehousing and Distribution Book and #1Non-text book Warehousing Book Book on of Sep 1, 2010

Grades Homework – 10%Homework – 10% Mid Term – 40%Mid Term – 40% Final Exam – 45%Final Exam – 45% Harley Paper – 5%Harley Paper – 5%

Contact Information (760) (760) Personal backgroundPersonal background

Class Slides and Information Slides will be posted/updated week prior to class – therefore the slides currently on the website may change as new materials come availableSlides will be posted/updated week prior to class – therefore the slides currently on the website may change as new materials come available

Chapter 1 Introduction to Operations Management

Operations as a transformation process Operations as a transformation process Operations as a basic function Operations as a basic function Operations as the technical core Operations as the technical core The Operations Function

Operations as a Transformation Process INPUT Material Machines Labor Management Capital

Operations as a Transformation Process INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS

Operations as a Transformation Process INPUT Material Machines Labor Management Capital OUTPUT Goods Services TRANSFORMATION PROCESS

Operations as a Transformation Process Feedback INPUT Material Machines Labor Management Capital OUTPUT Goods Services TRANSFORMATION PROCESS

Transformation Processes Physical(manufacturing) Physical(manufacturing) Locational(transportation/ warehouse) Locational(transportation/ warehouse) Exchange(retail) Exchange(retail) Physiological(health care) Physiological(health care) Psychological(entertainment) Psychological(entertainment) Informational(communications) Informational(communications)

Impacts on Operations Management Industrial Revolution Industrial Revolution Scientific Management Scientific Management Human Relations or the lack thereof Human Relations or the lack thereof Advent of Management Science Advent of Management Science Quality Emphasis Quality Emphasis Globalization of Supply Chains Globalization of Supply Chains Information Age/Internet Revolution Information Age/Internet Revolution

Key Events Industrial Revolution Steam engine1769James Watt Division of labor1776Adam Smith Interchangeable parts1790Eli Whitney Scientific Management Principles Frederick W. Taylor 1911 Activity scheduling chart Henry Gantt 1912 Moving assembly lineHenry Ford 1913

Human Relations Hawthorne studies1930Elton Mayo Motivation theories1940sAbraham Maslow 1950sFrederick Hertzberg 1960sDouglas McGregor Management Science Linear programming1947George Dantzig Digital computer1951Remington Rand Simulation, PERT/CPM, 1950sOperations research Waiting line theory groups MRP1960sJoseph Orlicky, IBM Key Events

Quality Emphasis JIT1970sTaiichi Ohno, Toyota TQM1980sW. Edwards Deming, Joseph Juran, et. al. Strategy and operationsSkinner, Hayes Reengineering1990sHammer, Champy World Trade Organization1990sNumerous countries and companies Globalization European Union and1970sIBM and others other trade agreements EDI, EFT, CIM1980s Key Events

Information Age/ Internet Revolution Internet, WWW, ERP1990s Supply chainSAP, i2 management,Technologies, ORACLE, E-commercePeopleSoft, Amazon, Yahoo, eBay, and others Key Events

Categories of E-Commerce Business ConsumerBusinessConsumer B2B Commerceone.com B2C Amazon.com C2B Priceline.com C2C eBay.com

Types of B2B Transactions BuyerSeller Buyers Sellers Buyer Sellers BuyersSellers (a) Electronic Storefront(b) Seller’s Auction (c) Buyer’s Auction(d) Exchange or E-Marketplace

E-Business Promotes: Better customer relations Better customer relations More efficient processes More efficient processes Lower cost of materials Lower cost of materials Information technology synergy Information technology synergy Better and faster decision making Better and faster decision making

E-Business Promotes: New forms of organizations New forms of organizations Expanded supply chain Expanded supply chain Higher customer expectations Higher customer expectations New ways of doing business New ways of doing business Globalization Globalization

Globalization and Competitiveness Favorable costFavorable cost Access to international marketsAccess to international markets Response to changes in demandResponse to changes in demand Reliable sources of supplyReliable sources of supply 14 major trade agreements in 1990s14 major trade agreements in 1990s Peak: 26% in 2000Peak: 26% in 2000 World Trade Compared to World GDP Source: “Real GDP and Trade Growth of OECD Countries, 2001–03,” International Trade Statistics 2003, World Trade Organization, Copyright, 2006, John Wiley and Sons

Globalization and Competitiveness (cont.) Hourly Wage Rates for Selected Countries Source: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, Germany: $26.18 USA: $21.33 Taiwan: $5.41 Mexico: $2.38 China: $0.50 Copyright, 2006, John Wiley and Sons

Multinational Corporations CountryForeign Sales Companyof Originas % of Total NestléSwitzerland98.2 NokiaFinland97.6 PhilipsNetherlands94.0 BayerGermany89.8 ABBGermany87.2 SAPGermany80.0 Exxon MobilUnited States79.6 Royal Dutch/ShellNetherlands73.3 IBMUnited States62.7 McDonald’sUnited States61.5

Competitiveness The degree to which a nation can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens.

Productivity Productivity = OutputInput

Productivity Become more efficient Become more efficient Downsize Downsize Expand Expand Retrench Retrench Achieve breakthroughs Achieve breakthroughs Productivity = OutputInput Productivity improves when firms:

Changes in Productivity for Select Countries Internet-enabled productivity - Dot com bust - 9/11 terrorist attacks - Dot com bust - 9/11 terrorist attacks Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September U.S. figures for 2002–2003 from “Major Sector Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004 Copyright, 2006, John Wiley and Sons

Measures of Competitiveness Productivity Productivity GDP (Gross domestic product) growth GDP (Gross domestic product) growth Market capitalization Market capitalization Technological infrastructure Technological infrastructure Quality of education Quality of education Efficiency of government Efficiency of government

Barriers to Entry Economies of scale Economies of scale Capital investment Capital investment Access to supply and distribution channels Access to supply and distribution channels Learning curves Learning curves

Competition Within Industries Increases When Firms are relatively equal in size and resources Firms are relatively equal in size and resources Products and services are standardized Products and services are standardized Industry growth is slow or exponential Industry growth is slow or exponential

Chapter 2 Operations Strategy To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

The Importance of Clearly Stated Missions/Visions ‘The Grand Duke said “one who is confused in purpose cannot respond to his enemy” Sun Tzu, The Art of War (III.23) ‘The Grand Duke said “one who is confused in purpose cannot respond to his enemy” Sun Tzu, The Art of War (III.23) To know the purpose – there must be a clearly stated mission and vision.To know the purpose – there must be a clearly stated mission and vision.

Clearly Stated Mission??? “When you come to a fork in the road, take it.”

Example of A Clearly Understood Mission COL Rusling on General Grant: “He made certain his subordinates knew exactly what he wanted, and why and when he wanted it.”

Example of A Clearly Understood Mission “We endeavor to go to the moon and return safely before the end of this decade.” - John F. Kennedy

VISION ® Vital to the OrganizationVital to the Organization Integrated throughout the OrganizationIntegrated throughout the Organization Sustainable and AchievableSustainable and Achievable Important from the viewpoint of the employeesImportant from the viewpoint of the employees Organization GoalsOrganization Goals Not necessarily a one size fits all visionNot necessarily a one size fits all vision Velocity Management in Logistics and Distribution, 2005, Walden

Strategy Formulation Define a primary taskDefine a primary task Assess core competenciesAssess core competencies Determine order winners & order qualifiersDetermine order winners & order qualifiers Positioning the firmPositioning the firm

Core Competencies Also known as core capabilitiesAlso known as core capabilities Skills that differentiate the service or manufacturing firm from competitorsSkills that differentiate the service or manufacturing firm from competitors Those things that the company does bestThose things that the company does best

Strategy Formulation Define a primary taskDefine a primary task Assess core competenciesAssess core competencies Determine order winners & order qualifiersDetermine order winners & order qualifiers Positioning the firmPositioning the firm

Competing on Cost Eliminate all waste Eliminate all waste Invest in Invest in Updated facilities & equipment Updated facilities & equipment Streamlining operations Streamlining operations Training & development Training & development

Competitive Priorities: Cost Southwest AirlinesSouthwest Airlines –one type of airplane facilitates crew changes, record-keeping, maintenance, and inventory costs –direct flights mean no baggage transfers –$30 million annual savings in travel agent commissions by requiring customers to contact the airline directly Copyright, 2006, John Wiley and Sons

Competing on Quality Please the customer Please the customer Understand customer attitudes toward and expectations of quality Understand customer attitudes toward and expectations of quality Example: Ritz Carlton

Competing on Flexibility Produce wide variety of products Produce wide variety of products Introduce new products Introduce new products Modify existing products quickly Modify existing products quickly Respond to customer needs Respond to customer needs

Competing on Speed Fast moves Fast moves Fast adaptations Fast adaptations Tight linkages Tight linkages Example: FEDEX, UPS, DHL

Competitive Priorities: Speed CiticorpCiticorp –advertises a 15-minute mortgage approval L.L. BeanL.L. Bean –ships orders the day they are received Wal-MartWal-Mart –replenishes its stock twice a week General ElectricGeneral Electric –reduces time to manufacture circuit-breaker boxes into three days and dishwashers into 18 hours MotorolaMotorola –needs less than 30 minutes to build to order pagers Copyright, 2006, John Wiley and Sons

Operations Role in Corporate Strategy Provide support for overall strategy of a firm Provide support for overall strategy of a firm Serve as firm’s distinctive competence Serve as firm’s distinctive competence Must be consistent Must be consistent Must be consistent with overall strategy Must be consistent with overall strategy

Operations and Wall Street Comparing operations at a firm with competitorsComparing operations at a firm with competitors ExampleExample income per employee revenue per employee inventory turnover customer turnover

Operations Strategy at Wal-Mart Provide value for our customers Low prices, everyday Low inventory levels Linked communications between stores Short flow times Fast transportation system Cross-docking Focused locations EDI/satellites Wal-MartMission Competitive Priority Operations Strategy Operations Structure Enabling Process and Technologies

Strategy and the Internet Create a distinctive business strategy Create a distinctive business strategy Strengthen existing competitive advantages Strengthen existing competitive advantages Integrate new and traditional activities Integrate new and traditional activities Must provide a unique value to the customer Must provide a unique value to the customer

Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services Operating Systems Figure 2.2

Products & Services Make-to-order Make-to-order Made to customer specifications after order received Made to customer specifications after order received Make-to-stock Make-to-stock Made in anticipation of demand Made in anticipation of demand Assemble-to-order Assemble-to-order Add options according to customer specification Add options according to customer specification

Processes & Technology Project Project One-time production of product to customer order One-time production of product to customer order Batch production Batch production Process many jobs at same time in batch Process many jobs at same time in batch Mass production Mass production Produce large volumes of standard product for mass market Produce large volumes of standard product for mass market Continuous production Continuous production Very high volume commodity product Very high volume commodity product

Product-Process Matrix Volume Low LowHighHigh Projects Batch Production Mass Production Continuous Production Standardization Figure 2.3

Service-Process Matrix Volume Low LowHighHigh Professional Service Service Shop Mass Service Service Factory Standardization Figure 2.4

Capacity & Facilities How much capacity to provide How much capacity to provide Size of capacity changes Size of capacity changes Handling excess demand Handling excess demand Hiring/firing workers Hiring/firing workers Need for new facilities Need for new facilities

Facilities Best size for facility? Best size for facility? Large or small facilities Large or small facilities Facility focus Facility focus Facility location Facility location Global facility Global facility

Human Resources Skill levels required Skill levels required Degree of autonomy Degree of autonomy Policies Policies Profit sharing Profit sharing Individual or team work Individual or team work Supervision methods Supervision methods Levels of management Levels of management Training Training

Quality Target level Target level Measurement Measurement Employee involvement Employee involvement Training Training Systems needed to ensure quality Systems needed to ensure quality Maintaining quality awareness Maintaining quality awareness Evaluating quality efforts Evaluating quality efforts Determining customer perceptions Determining customer perceptions

Sourcing Degree of vertical integration Degree of vertical integration Supplier selection Supplier selection Supplier relationship Supplier relationship Supplier quality Supplier quality Supplier cooperation Supplier cooperation

Operating Systems Execute strategy daily Execute strategy daily Information technology support Information technology support Effective planning & control systems Effective planning & control systems Alignment of inventory levels, scheduling priorities, & reward systems Alignment of inventory levels, scheduling priorities, & reward systems

Policy Deployment Focuses employees on common goals & priorities Focuses employees on common goals & priorities Translates strategy into measurable objectives Translates strategy into measurable objectives Aligns day-to-day decisions with strategic plan Aligns day-to-day decisions with strategic plan

Balanced Scorecard Finance — How should we look to our shareholders? Finance — How should we look to our shareholders? Customer — How should we look to our customers? Customer — How should we look to our customers? Processes — At which business processes must we excel? Processes — At which business processes must we excel? Learning and Growing — How will we sustain our ability to change and improve? Learning and Growing — How will we sustain our ability to change and improve?

Issues and Trends Global markets, sourcing, operations Global markets, sourcing, operations Virtual companies Virtual companies Greater choice Greater choice Emphasis on service Emphasis on service Speed and flexibility Speed and flexibility Supply chains Supply chains Collaboration Collaboration Technological advances Technological advances Knowledge Knowledge Environment and social responsibilities Environment and social responsibilities

The Dilbert (Dogbert) Solution – Change the Name of the Old Program

Intro to Decision Making

Decision Analysis Payoff Table - craps tablesPayoff Table - craps tables Maximax - maximum of maximum payoffs - optimistic - “hard ways”Maximax - maximum of maximum payoffs - optimistic - “hard ways” Maximin - maximum of minimum payoffs - safe bets or even odds betsMaximin - maximum of minimum payoffs - safe bets or even odds bets Minimax regret - minimum of maximum regrets or opportunity costsMinimax regret - minimum of maximum regrets or opportunity costs

Decision Trees Graphical method of analyzing a decision - similar to Theory of ConstraintsGraphical method of analyzing a decision - similar to Theory of Constraints Payoff table can be translated to a Decision TreePayoff table can be translated to a Decision Tree

The Payoff Table A method of organizing & illustrating the payoffs from different decisions given various states of nature A method of organizing & illustrating the payoffs from different decisions given various states of nature A payoff is the outcome of the decision – a Craps table pay off chart is an example of a payoff chart A payoff is the outcome of the decision – a Craps table pay off chart is an example of a payoff chart

Payoff Table States Of Nature (Alternatives) Decisionab 1Payoff 1/aPayoff 1/b 2Payoff 2/aPayoff 2/b

STATES OF NATURE Good ForeignPoor Foreign DECISION Competitive ConditionsCompetitive Conditions Expand$ 800,000$ 500,000 Maintain status quo1,300, ,000 Sell now320,000320,000 1,300,000 Maximums: 1,300,000; 500, ,000 Minimums: 500,000; 320,000; -150,000

Homework Motel 6 case study – one page analysisMotel 6 case study – one page analysis Chap 6, 8Chap 6, 8