1. OPERATIONS MANAGEMENT 430 Professor Canan Savaskan-Ebert

2. Class Material & Grading
Course Pack 1 (Cases & Readings)
Course Pack 2 (Slides)
The Goal
Managing Business Process Flows (MBPF)
The Course Web-Page
Group Assignments 20%, Midterm 30%, Final 40%, Class Participation 10%

3. Student Liaison Responsibilities
The objective of having Student Liaisons is to facilitate greater two-way communication between the faculty and students
Professors will ask for a voluntary Student Liaison at the beginning of the first class of the term
Responsibilities include:
Be a sounding board for the faculty member on student related issues
Communicating any scheduling conflicts regarding assignments, classes, or exams to professors
Organizing dates for lunches with professors and students
Collecting TCE’s and turning them in to Student Affairs during the last class
Responsibilities will be very similar to Academic Rep responsibilities in 1st quarter core classes
Time commitment for the student should be no more than an aggregate of 2 hours of the term

4. As a courtesy to those around you
Please turn off your cell phones Close your computers, except in the last row (computer use only for note taking purpose) Be on time (1:30) No in-out traffic during class

5. Objective of this Course
familiarize you with the problems and issues confronting operations managers.
provide you with language, concepts, insights and tools to deal with these issues in order to gain competitive advantage through operations.
at the end of this course, you will be able to identify, evaluate and make improvements.

6. A Road Map Module 1 : Operations Strategy (Wriston / Shouldice)
Module 2 : Process Analysis (CRU / Pizza Pazza / NCC)
Module 3 : Lean Operations (Toyota)
Module 4 : Supply Chain Management (Shape up ship out)
Module 5 : Services (The BAT Case)
Module 6 : Quality (FlyRock)

8. Key Principle of the Course
1. Strategic View of Operations
“A company’s operations function is
either a competitive weapon or
a corporate millstone.
It is seldom neutral.” [Skinner ‘69]

9. An Example of Strategic Fit between Operations and Business Strategy
6 million shipments /day
3.2 million /day
2.8 million /day
How are these two companies positioned in the competitive market space?
What operational capabilities are critical for their success? On the operational front, how are they structured?

10. Operations as a Strategic Weapon
versus
“Bitter rivals Airbus and Boeing Co. don't agree on much, but these days their production gurus chant a common mantra: Let's copy Toyota, the company that reinvented car making. The giant jet makers and their suppliers are going back to school to learn about efficient production from companies that churn out vehicles that are just a fraction of a plane's size and complexity. Cutting production costs and speeding assembly is a vital step in the Airbus Boeing duel to stay competitive..”
-- WSJ April 1, 2005.

11. Competing Through Services
What are the service positioning of these companies?
What are the service positioning of these companies?
What do they do differently on the operations front to sustain the competitive position?

12. Key Principle of the Course
2. Process View of Operations
Key Principle of the Course
By rethinking the IBM Austin assembly plant and introducing cells,
distance traveled by a card was cut from 1.5 miles to 200 yards
floor space was reduced to half
production tripled with about the same number of workers.

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

14. 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

15. Define Operations Management as …
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?

16. 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”

17. Activities and Buffers
Process Capability Affected by : Inputs, Structure, Resources, Information Management
Process
Management
Information
Structure
Network of
Activities and Buffers
Inputs
Outputs
Goods
Services
Flow units
(customers, data,
material, cash, etc.)
Labor & Capital

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

19. Operations Capability
Wal-Mart
“Focused” Retailing
Corporate Strategy
(Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices
Operations Structure
Cross docking * (Video)
EDI *
Fast transportation system
Focused locations
Communication between retail stores *
RFID
Operations Capability
Short flow times
Low inventory levels

20. (Benefits of Focused Strategy)
Wal-Mart
(Benefits of Focused Strategy)
Inventory at retail stores turned over twice a week (Industry averages once every two weeks)
Improved targeting of products to markets, better forecasting.
Sales per square foot increased to $455 in 2002 (Industry average were $224 in 2002)
In 2002, Wal-Mart has the biggest single day sales in history: $1.43 billion on the day after Thanksgiving.

21. Shouldice Hospital

22. Strategic Operational Audit Shouldice Hospital
Operations Strategy
Process Capabilities
Service Positioning

23. Assembly Line of Simple Hernias
Process Structure:
Assembly Line of Simple Hernias
Questionaire
Diagnosis
Waiting List
Waiting Room
30 days max. wait
20 min
Examinations
5/10 minutes
Billing
Less than 10 min.
ROOM
Orientation
Dinner
Tea & cookie
Socialization
Potential Patients
REJECTS

24. In the health-care sector
Focus and the Frontier
In the health-care sector
Responsiveness
Shouldice
high
operations frontier
One general
facility
World-class
General
Hospital
low
Low
High
Variety

25. WRISTON MANUFACTURING
(to be distributed in class)

26. Classification of Processes by Process Architecture
Project
Job Shop
Batch
Line Flow
Continuous Flow
Job Shop
Flow Shop

27. Characteristics of Processes: Job Shop vs. Batch vs. Flow Shop

28. Product-Process Matrix
Flexibility
Jumbled Flow.
Process segments
loosely linked.
Disconnected Line
Flow/Jumbled Flow
but a dominant flow
exists.
JOB SHOP
(Commercial Printer,
Architecture firm)
BATCH
(Heavy Equipment,
Auto Repari)
LINE FLOWS
(Auto Assembly,
Car lubrication shop)
CONTINUOUS
FLOW
(Oil Refinery)
Product
Variety
Low
Low Standardization
One of a kind
Low Volume
Many Products
Few
Major Products
High volume
High Standardization
Commodity Products
Connected Line
Flow (assembly line)
Continuous, automated,
rigid line flow.
Process segments tightly
linked.
Opportunity
Costs
Out-of-pocket
High

29. Wriston Manufacturing Corp. using Product-Process Matrix
Volume
Low volume
Low Standardization
One of a kind
Low volume
Many Products
Higher volume
Few Major Products
High volume
High Standardization
Commodity Products
Process
Flexibility
(Designed Dollar) Volume per family
1.0
10.0
100.0
100
Jumbled Flow.
Process segments
loosely linked.
Job Shop
Detroit
Disconnected Line
Flow/Jumbled Flow
but a dominant flow
exists.
Batch
Fremont
# routes (product families) 10
Saginaw
Tiffin
Connected Line
Flow (assembly line)
Line Flow
Sandusky
Essex
Lima
Lebanon
Maysville
Continuous, automated,
rigid line flow.
Process segments tightly
linked.
Continuous Flow 1

30. Classification of Processes:
by Customer Interface
Make to Stock
Product /Service
Delivery Process
Make to Order

31. US Furniture Market A $23 billion market with very low concentration.
Top 3 players (Furniture Brands, Life Style Furnishings, La-Z-Boy) account for 20% of the market.
Big 3 automakers have over 50% of market.
Over 1000 other players.
Very low barriers to entry.
Not capital intensive.
Furniture Brands spends only 2.2% of sales on capital spending.
Ford spends about 6.6%.

32. A Typical Player Century Furniture Industries (Hickory, NC).
$200 million in annual sales.
Offers 3,500 different frames for sofas and chairs.
With options for fabric, springs etc leads to 1.7 billion variants.
What are implications for the bundle of attributes they can offer customers on process capabilities?
Within Century’s factory parts can travel 14 miles within the factory.

33. A Different Way to Compete
Mitchell Gold (Taylorsville, N.C)
$70 million in sales.
Lower price than goods of comparable quality but limited selection.
Selling through Pottery Barn, Crate & Barrel, Restoration Hardware.
Production takes place in one large modern factory (400,000 sq ft including warehouse space).
97% of shipments are on time.
Productivity at Gold at $168,000 per employee, compared with an industry average of $105,000.

34. Another Player England, Inc. of New Tazewell, TN.
A division of La-Z-Boy.
“Make to order in 30 days or we pay you.”
Offers more than 40,000 variants.
85 frames and 550 fabrics.
Sofas are priced from $500 to $1,500.
Production spread over several older buildings.
Schedule production weekly to gain efficiencies in cutting fabric and wood.
Have own trucking fleet and search for backhaul business.
Have trimmed fabric suppliers to four to have some power over them.

35. Take-Aways Focused Operations & Strategic Fit Process View:
Process View
We need to see operations as a transformation process of inputs into outputs.
Strategic View
Align operational decisions with the overall company goals.
Develop Operational Capabilities that support the positioning of a company.
Identify what you should be good at. Link between business strategy, operations strategy, and operations structure.
Capabilities defined by operational structure.
Apply strategic operational audit to evaluate fit and areas for improvement
Look for operational performance measures (time, inventory, throughput, flexibility) which are leading indicators of financial performance. .