1. Chapter 18: OPERATIONS MANAGEMENT
Putting It All Together

2. OPERATIONS MANAGEMENT: IT ISN’T GLAMOROUS, BUT IT MATTERS….
Operations Management – all of the activities involved in creating goods and services and distributing them to customers.
Click the link to visit the virtual production process at Coca-Cola. Click on each process to review with students.

3. GOOD OPERATIONS MANAGEMENT
Most efficient and effective processes
Produce the right goods and services
Produce the right quantities
Distribute products to the right customers at the right time

4. The cost of goods for sale
Unit cost
the cost to make one sensor (car, computer, cup of coffee, etc.)
Material cost … plus …
the cost of the “stuff” you use to make your sensor
smaller, faster, more reliable = higher cost
Labor cost
the cost to assemble your product

5. Material Cost Low tech High tech Bigger size Slower performance
Position size= performance= 6.8
MTBF = 20,000
High tech
Position size= 10.2
performance= 9.8
MTBF = 23,000
Bigger size
Slower performance
Lower reliability
Lower material cost
Smaller size
Faster performance
Higher reliability
Higher material cost

6. Positioning Impact on Material Costs
The higher the technology, the higher the material costs
… therefore, for Low Tech sensors, less aggressive positioning will reduce costs

7. Labor costs
Everything is based on How Many sensors you want to make (now and in the future)
Capacity
how many sensors you can make - one shift at regular hours
how “big” your factory is
Overtime
workers work extra hours at a higher wage
Automation
mix between machines and human labor

8. GOODS VS. SERVICES GOODS SERVICES
Tangible, physical form, can be touched, seen, handled
Intangible, they can be “experienced”, no physical form
Can be stored and inventoried
Must be consumed when they are produced
Can be shipped
Must be consumed, where they are provided
Are produced independently of the consumer
Often require customer involvement
Can measure some aspects of quality
Quality is based on customer perceptions
Note that many purchases are mixed goods and services. When you buy a car you also purchase a warranty. Ask for more examples.

9. EFFECTIVENESS VS. EFFICIENCY
producing output
or achieving
a goal at the
lowest cost.
Effectiveness –
completing tasks
and producing
products that
create the
greatest value.
“There is nothing so useless as doing efficiently that which should not be done at all”
- Peter Drucker

10. WHAT DO OPERATIONS MANAGERS DO?
Facility Location
Process Selection and Facility Layout
Inventory Control
Scheduling

11. FACILITY LOCATION

12. GOING OVERSEAS
Low-wage labor is a key reason firms focus overseas but, low wages do not always translate into low cost
There are a variety of opportunities in rapidly growing foreign markets
Key to balance advantages with drawbacks:
Different laws and customs
Inadequate infrastructure
Inexperienced workers
Political instability

13. PROCESS SELECTION AND FACILITY LAYOUT
Flow Shops
Produce Large Batches
Standardized Products
Specialized Machinery
Standardized Tasks
Assembly Line is a Flow Shop Process
Job Shops
Produce Small Batches
Variety of Products
General-purpose Machinery
Flexible Processes

14. MANAGING PROJECTS Production of some products are projects
Projects are usually complex and expensive
New House/Building
Filming a Movie
Managers use Gantt charts and critical path method to manage projects

15. INVENTORY CONTROL: DON’T JUST SIT THERE
Why hold inventories…
Smooth out production schedules
Meet demand increases
Reduce switching costs
Compensate for forecast errors
Why not…
Unsold inventory ties up funds
Inventory must be warehoused and managed
Risk of losses due to spoilage, obsolescence and pilferage

16. PROJECT SCHEDULING
Operations Managers must manage and schedule projects
Scheduling starts with identifying the required activities, the time required and the order in which they must happen
Click the link to view development jobs at Microsoft and the process in which they make software at Microsoft. Note that many new products are “projects” and the process in which products are created by a software company is unique compared to manufacturing other goods.

17. GANTT CHART

18. CRITICAL PATH METHOD

19. AUTOMATION: LET THE MACHINES DO IT
Automation – replacing
human operations and
control of machinery
and equipment with some
form of programmed control.
Robot – a
programmable machine that
is capable of manipulating
materials in order
to perform tasks.
Click the link to view the production processes that produce a BMW. Note the technologies that they discuss.

20. ROBOTS
Robots are well suited for dangerous, tedious, dirty and physically demanding tasks.
Robots don’t get tired
Robots are flexible
Note the RoboRounds callout and discuss robots in the service industry.

21. Machinery: Automation
Level of robotics: from 1 – 10
Automation level of 1
Labor cost of $11.20 per unit

22. Machinery: Automation
Level of robotics: from 1 – 10
Automation level of 1- $11.20 per unit
Automation level of 2
Labor cost is 10% ($1.12) lower… $10.08

23. Machinery: Automation
Level of robotics: from 1 – 10
Automation level of 1 $11.20 per unit
Automation level of 2 $10.08 per unit
Automation level of 3 $8.96 per unit

24. Labor Cost Per Unit Question: 1….. $11.20 2…. ($1.12) $10.08
1….. $11.20
2…. ($1.12) $10.08
3…. ($1.12) $_____
4…. ($1.12) $_____
5…. ($1.12) $_____
6…. ($1.12) $_____
7…. ($1.12) $_____
8…. ($1.12) $_____
9…. ($1.12) $_____
10. ($1.12) $ 1.12
Question:
If you invest into bring automation to Level 5, what will your labor cost per unit be?
a. $8.96
b. $7.84
c. $6.72
d. $5.60
e. $4.48

25. Labor Cost Per Unit Question: 1….. $11.20 2…. ($1.12) $10.08
1….. $11.20
2…. ($1.12) $10.08
3…. ($1.12) $ 8.96
4…. ($1.12) $ 7.84
5…. ($1.12) $ 6.72
6…. ($1.12) $ 5.60
7…. ($1.12) $ 4.48
8…. ($1.12) $ 3.36
9…. ($1.12) $ 2.24
10. ($1.12) $ 1.12
Question:
If you invest into bring automation to Level 5, what will your labor cost per unit be?
a. $8.96
b. $7.84
c. $6.72
d. $5.60
e. $4.48

26. MANAGING SUPPLY CHAINS
Supply chains can be complex
Wide range of functions
Involve many firms
Heavy use of technology

27. TRADE-OFF BETWEEN VERTICAL INTEGRATION AND OUTSOURCING
Gain control over supply chain
Begin producing its own parts
Buying suppliers
Outsourcing
Use outside firm for producing supplies
Focus on key production areas
Cost savings
The link on the left will provide insight into some of the outrage of outsourcing while the link on the right will detail ten myths about outsourcing. The links together should prompt engaging class discussion. Also discuss how vertical integration provides cost savings and should be balanced with outsourcing.
The trend has been to rely more on outsourcing which has become a controversial issue.

28. ENTERPRISE RESOURCE PLANNING (ERP) : CREATING ONE BIG SYSTEM
The goal of ERP is to integrate the flow of information
ERP systems can be costly and challenging to implement
Most firms that complete implementation of ERP systems, report being satisfied with the results

29. FOCUS ON QUALITY Quality improves effectiveness and efficiency
Quality helps achieve competitive advantage
Lower costs, increases value
Poor quality costs

30. DEMING CHAIN REACTION Improve Quality
Costs decrease because of less rework,
fewer mistakes, fewer delays and snags,
and better use of time and materials
W. Edwards Deming, viewed as the father of the quality movement, first proposed the relationship between quality and business in the early 1950s.
Productivity Improves
Capture the market with better
quality and lower price
Stay in business
Provide jobs and more jobs

31. HOW AMERICAN FIRMS RESPONDED TO THE QUALITY CHALLENGE
A broad concept of quality: Total Quality Management:
Customer Focus
Build quality throughout the organization
Empowerment of employees
Focus on prevention of errors
Long-run commitment to continuous improvement

32. POKA-YOKES Japanese term for Procedures built “mistake proofing”
into the production
process that prevent
workers from
making mistakes…
…or catch and
correct mistakes
Click the link to view examples of poka-yokes.

33. SIX SIGMA Focus on quality improvement and commitment
Standard is no more that one error (defect) per 3.4 million opportunities
Requires a high level of expertise
Focus on employee training

34. INTERNATIONAL ORGANIZATION FOR STANDARDIZATION
Founded in 1947
Network of national standards institutes in 150 nations
ISO 9000 Certification
Generic quality standards
Updated and modified, latest version is ISO 9000:2005
Environmental management focused standards: ISO

35. THE BALDRIGE NATIONAL QUALITY PROGRAM
Created by Congress in 1987 to encourage global competition
Participating firms are extensively evaluated
Detailed reports of company strengths and weaknesses

36. LEAN PRODUCTION:CUTTING WASTE TO IMPROVE PERFORMANCE
Strategies and practices to eliminate waste
Remove activities that don’t contribute value

37. VALUE STREAM MAPPING
A tool used to show the flows of materials and information in the production process to identify waste.

38. REDUCING INVESTMENT IN INVENTORY: JUST-IN-TIME TO THE RESCUE
Produce goods and services to meet actual demand. Minimize inventories
at all stages of the supply chain through coordination.

39. LEAN THINKING IN THE SERVICE SECTOR
Standardize
Minimize costs
High utilization
Simplified processes
Discuss Southwest Airlines example from the text.