1. Operations and Competitiveness

2. What Do Operations Managers Do?
What is Operations?
a function or system that transforms inputs into outputs of greater value
What is a Transformation Process?
a series of activities along a value chain extending from supplier to customer
activities that do not add value are superfluous and should be eliminated
What is Operations Management?
design, operation, and improvement of productive systems

3. Transformation Process
Physical: as in manufacturing operations
Locational: as in transportation operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication

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

5. Operations Function Operations Marketing Finance and Accounting
Human Resources
Outside Suppliers

6. How is Operations Relevant to my Major?
“As an auditor you must understand the fundamentals of operations management.”
“IT is a tool, and there’s no better place to apply it than in operations.”
“We use so many things you learn in an operations class—scheduling, lean production, theory of constraints, and tons of quality tools.”
Accounting
Information Technology
Management

7. How is Operations Relevant to my Major?
“It’s all about processes. I live by flowcharts and Pareto analysis.”
“How can you do a good job marketing a product if you’re unsure of its quality or delivery status?”
“Most of our capital budgeting requests are from operations, and most of our cost savings, too.”
Economics
Marketing
Finance

8. Evolution of Operations Management
Craft production
process of handcrafting products or services for individual customers
Division of labor
dividing a job into a series of small tasks each performed by a different worker
Interchangeable parts
standardization of parts initially as replacement parts; enabled mass production

9. Evolution of Operations Management (cont.)
Scientific management
systematic analysis of work methods
Mass production
high-volume production of a standardized product for a mass market
Lean production
adaptation of mass production that prizes quality and flexibility

10. Historical Events in Operations Management
Events/Concepts
Dates
Originator
Industrial
Revolution
Steam engine
1769
James Watt
Division of labor
1776
Adam Smith
Interchangeable parts
1790
Eli Whitney
Scientific Management
Principles of scientific
management
1911
Frederick W. Taylor
Time and motion studies
Frank and Lillian Gilbreth
Activity scheduling chart
1912
Henry Gantt
Moving assembly line
1913
Henry Ford

11. Historical Events in Operations Management (cont.)
Events/Concepts
Dates
Originator
Human Relations
Hawthorne studies
1930
Elton Mayo
Motivation theories
1940s
Abraham Maslow
1950s
Frederick Herzberg
1960s
Douglas McGregor
Operations Research
Linear programming
1947
George Dantzig
Digital computer
1951
Remington Rand
Simulation, waiting
line theory, decision
theory, PERT/CPM
Operations research groups
MRP, EDI, EFT, CIM
1960s, 1970s
Joseph Orlicky, IBM
and others

12. Historical Events in Operations Management (cont.)
Events/Concepts
Dates
Originator
Quality
Revolution
JIT (just-in-time)
1970s
Taiichi Ohno (Toyota)
TQM (total quality
management)
1980s
W. Edwards Deming,
Joseph Juran
Strategy and
operations
1990s
Wickham Skinner,
Robert Hayes
Business process
reengineering
Michael Hammer,
James Champy

13. Historical Events in Operations Management (cont.)
Events/Concepts
Dates
Originator
Globalization
WTO, European Union, and other trade agreements
1990s
2000s
Numerous countries
and companies
Internet Revolution
Internet, WWW, ERP, supply chain management
ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE,
PeopleSoft
E-commerce
Amazon, Yahoo,
eBay, and others

14. Continuum from Goods to Services
Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.

15. Operations Management and E-Business
Categories of E-Commerce
Business
Consumer
B2B
Commerceone.com
B2C
Amazon.com
C2B
Priceline.com
C2C
eBay.com

16. An Integrated Value Chain
Value chain: set of activities that create and deliver products to customer
Manufacturer
Supplier
Customer
Flow of information (customer order)
Flow of product (order fulfillment)
Manufacturer
Supplier
Customer
Flow of information (customer order)

17. Impact of E-Business on Operations Management
Benefits of E-Business
Impact on Operations
Comparison shopping by customers
Direct contact with customers
Business processes conducted online
Customer expectations escalate; quality must be maintained and costs lowered
No more guessing about demand is necessary; inventory costs go down; product and service design improves; build to-order products and services is made possible
Transaction costs are lower; customer support costs decrease; e-procurement saves big bucks

18. Impact of E-Business on Operations Management (cont.)
Benefits of E-Business
Impact on Operations
Access to customers worldwide
Middlemen are eliminated
Access to suppliers worldwide
Demand increases; order fulfillment and logistics become major issues; production moves overseas
Logistics change from delivering to a store or distribution center to delivering to individual homes; consumer demand is more erratic and unpredictable than business demand
Outsourcing increases; more alliances and partnerships among firms are formed; supply is less certain; global supply chain issues arise

19. Impact of E-Business on Operations Management (cont.)
Benefits of E-Business
Impact on Operations
Online auctions and e-marketplaces
Better and faster decision making
Competitive bidding lowers cost of materials; supply needs can be found in one location
More timely information is available with immediate access by all stakeholders in decision-making process; customer orders and product designs can be clarified electronically; electronic meetings can be held; collaborative planning is facilitated

20. Impact of E-Business on Operations Management (cont.)
Benefits of E-Business
Impact on Operations
IT synergy
Expanded supply chains
Productivity increases as information can be shared more efficiently internally and between trading partners
Order fulfillment, logistics, warehousing, transportation and delivery become focus of operations management; risk is spread out; trade barriers fall

21. Globalization and Competitiveness
Favorable cost
Access to international markets
Response to changes in demand
Reliable sources of supply
14 major trade agreements in 1990s
Peak: 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,

22. 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, 2003.
Germany: $26.18
USA: $21.33
Taiwan: $5.41
Mexico: $2.38
China: $0.50

23. Globalization and Competitiveness (cont.)
Trade with China: Percent of each country‘s trade
Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002,” International Trade Statistics 2003, World Trade Organization,

24. Risks of Globalization
Cultural differences
Supply chain logistics
Safety, security, and stability
Quality problems
Corporate image
Loss of capabilities

25. Competitiveness and Productivity
degree to which a nation can produce goods and services that meet the test of international markets
Productivity
ratio of output to input
Output
sales made, products produced, customers served, meals delivered, or calls answered
Input
labor hours, investment in equipment, material usage, or square footage

26. Competitiveness and Productivity (cont.)
Measures of Productivity

27. Changes in Productivity for Select Countries
Internet-enabled productivity
- 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

28. Productivity Increase
Become efficient
output increases with little or no increase in input
Expand
both output and input grow with output growing more rapidly
Achieve breakthroughs
output increases while input decreases
Downsize
output remains the same and input is reduced
Retrench
both output and input decrease, with input decreasing at a faster rate

29. Competitiveness and Productivity
Productivity as a Function of Inputs and Outputs, 2001–2002
Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003
Breakthrough Performance
More Efficient
Retrench

30. Global Competitiveness Ranking
Switzerland
Singapore
Sweden
Finland
United States
Germany
Netherlands
Denmark
Japan
United Kingdom
Source: Global Competitiveness Report , World Economic Forum,

31. Operations–Oriented Barriers to Entry
Economies of Scale
Capital Investment
Access to Supply and Distribution Channels
Learning Curve

32. Operations strategy is …..
“… the decisions which shape the long-term capabilities of the company’s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources …”

33. Time scale Operations strategy is different to operations management
Short-term
Long-term
for example, capacity decisions
for example, capacity decisions
Time scale
Demand
Demand
1-12 months
1-10 years
Micro
level of the process
Macro
level of the total operation
Level of analysis
Detailed
Aggregated
Level of aggregation
For example
For example
“Can we give tax services to the small business market in Antwerp?”
“What is our overall business advice capability compared with other capabilities?”
Concrete
Philosophical
Level of abstraction
For example
For example
“How do we improve our purchasing procedures?”
“Should we develop strategic alliances with suppliers?”
Operations strategy is different to operations management

34. Top-down and bottom-up perspectives of strategy
Corporate strategy
Business strategy
Operations strategy
Emergent sense of what the strategy should be
Operational experience
Top-down and bottom-up perspectives of strategy

35. The market perspective analysis of the garment company
CUSTOMERS
Segmentation on:
Age - youth
Purpose - general
PERFORMANCE OBJECTIVES
MARKET POSITION
Dependability
Speed of delivery
Product mix flexibility
Speed to market
Differentiation on:
Innovative products
Time to market
Product range
Coordinated launches
COMPETITORS
Traditionally weak in:
promotion
design innovation
The market perspective analysis of the garment company

36. The market perspective on operations strategy
Customer Needs
Market Positioning
Performance Objectives
Competitors’ Actions
Required performance
Understanding markets
The market perspective on operations strategy

37. Processes Capabilities
Resources
Tangible
Equipment
Staff
Intangible
Reputation
Relationships
(internal and external)
Experience
Operations Strategy Decisions
Capabilities
Application of leading- edge lighting and sound technology
Articulation of client requirements
Location
Virtual reality technology
Supplier development
Equipment tracking system
Organizational structure
Staff meetings
Processes
Integration of equipment supply and client requirements
Design process
Supplier liaison process
The operations resource perspective analysis of the lighting company

38. Tangible and Intangible Resources
Operations Capabilities
Operations Strategy Decision Areas
Operations Processes
Understanding resources and processes
Strategic decisions
The operations resource perspective on operations strategy

39. Tangible and Intangible Resources
Customer Needs
Operations Capabilities
Operations Strategy Decision Areas
Market Positioning
Performance Objectives
Operations Processes
Competitors’ Actions
Understanding resources and processes
Strategic decisions
Required performance
Understanding markets
Operations strategy is the strategic reconciliation of market requirements with operations resources

40. Operations has to cope with the clash between the nature of external markets and the nature of internal resources
Operations Resources are….
Market Requirements are….
Difficult to change
Dynamic
Technically constrained
Heterogeneous
Ambiguous
Complex

41. Operations strategy is the strategic reconciliation of market requirements with operations resources
Understanding Resources and Processes
Market Requirements
Understanding Markets
Market Positioning
Market Segmentation
Competitor Activity
Operations Processes
Operations Resources
Operations Competences
Strategic Decisions
Operations Strategy Decisions
Required Performance
Performance Objectives
Quality
Speed
Dependability
Flexibility
Cost
Capacity
Supply networks
Process technology
Development and organization

42. What you HAVE What you DO What you WANT What you NEED
Operations Resources
Market Requirements
Strategic
Reconciliation
What you HAVE
in terms of operations capabilities
What you DO
to maintain your capabilities and satisfy markets
What you WANT
from your operations to help you “compete”
What you NEED
to “compete”
In the market

43. Operations can kick-start two virtuous cycles
Understanding of the processes
Competencies embedded in the operation
Capabilities enhance innovation and improvement
Developing the resources which let the operation’s performance stay ahead of the competition
Internal
and
Competitiveness
Strong marketing
High margin
Investment
Developing customers’ competitors’ and stockholders; perceptions and expectations
External
World Class Operations

44. Existing ‘effective’ capability
Lafage Cosmetics’ requirements
wide
Existing ‘effective’ capability
Variety of items per order
Store delivery
Catalogue customers
narrow
small
large
Number of items per order
Hagen Style – Comparison of new demands placed on the order fulfilment processes by potential new business opportunities

45. Hagen Style – Operations resources and market requirements
Cost efficiency
Fast delivery
Traditional ‘representative’ sales channels declining in popularity
2 x distribution centers
State-of-art packing and information technology
Processes ‘fine tuned’ to traditional ‘representative’ sales channels
Good at what it does
cost efficient
fast throughput
As above plus
wider range of requirements
more demand fluctuations?
New channels
catalogue
Internet
discount stores
Hagen Style – Operations resources and market requirements