1. COMPETING WITH OPERATIONS1
COMPETING WITH OPERATIONS
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

2. Operations Management
The systematic design, direction, and control of processes that transform inputs into services and products for customers
Processes can be linked together to form a supply chain – interrelated processes within a firms and across different firms that produce a service or product.

3. Across the Organization
Finance
Acquires financial resources and capital for inputs
Marketing
Generates sales of outputs
Operations
Translates materials and service into outputs
Support Functions
Accounting
Information Systems
Human Resources
Engineering
Material & Service Inputs
Sales Revenue
Product & Service Outputs

4. A Process View External environment Internal and external customers
Processes and operations 1 2 3 4 5
Inputs
Workers
Managers
Equipment
Facilities
Materials
Land
Energy
Outputs
Goods
Services
Information on performance

5. More like a manufacturing process More like a service process
A Process View
More like a manufacturing process
More like a service process
Physical, durable output
Output can be inventoried
Low customer contact
Long response time
Capital intensive
Quality easily measured
Intangible, perishable output
Output cannot be inventoried
High customer contact
Short response time
Labor intensive
Quality not easily measured

6. The Supply Chain View Support Processes External suppliers
External customers
Supplier relationship process
New
service/ product development
Order fulfillment process
Customer relationship management

7. The Supply Chain View
Core processes are sets of activities that deliver value to external customers
Supplier relationship process
New service/product development process
Order fulfillment process
Customer relationship process
Support processes provide vital resources and inputs to the core processes

8. Support Processes TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES
Capital acquisition
The provision of financial resources for the organization to do its work and to execute its strategy
Budgeting
The process of deciding how funds will be allocated over a period of time
Recruitment and hiring
The acquisition of people to do the work of the organization
Evaluation and compensation
The assessment and payment of people for the work and value they provide to the company
Human resource support and development
The preparation of people for their current jobs and future skills and knowledge needs
Regulatory compliance
The processes that ensure that the company is meeting all laws and legal obligations
Information systems
The movement and processing of data and information to expedite business operations and decisions
Enterprise and functional management
The systems and activities that provide strategic direction and ensure effective execution of the work of the business

9. Competitive Priorities
TABLE | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES
COST
Definition
Process Considerations
Example
Low-cost operations
Delivering a service or a product at the lowest possible cost
Processes must be designed and operated to make them efficient
Costco
QUALITY
Top quality
Delivering an outstanding service or product
May require a high level of customer contact and may require superior product features
Ferrari
Consistent quality
Producing services or products that meet design specifications on a consistent basis
Processes designed and monitored to reduce errors and prevent defects
McDonald’s
TIME
Delivery speed
Quickly filling a customer’s order
Design processes to reduce lead time
Dell
On-time delivery
Meeting delivery-time promises
Planning processes to increase percent of customer orders shipped when promised
United Parcel Service (UPS)
Development speed
Quickly introducing a new science or a product
Cross-functional integration and involvement of critical external suppliers
Li & Fung

10. Competitive Priorities
TABLE | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES
FLEXIBILITY
Definition
Process Considerations
Example
Customization
Satisfying the unique needs of each customer by changing service or products designs
Low volume, close customer contact, and easily reconfigured
Ritz Carlton
Variety
Handling a wide assortment of services or products efficiently
Capable of larger volumes than processes supporting customization
Amazon.com
Volume flexibility
Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand
Processes must be designed for excess capacity
The United States Postal Service (USPS)

11. Order Winners and Qualifiers
Sales ($)
Achievement of competitive priority
Low
High
Order Winner
Sales ($)
Achievement of competitive priority
Low
High
Order Qualifier
Threshold

12. Operations Strategy
TABLE | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS
Competitive Priority
Measure
Capability
Gap
Action
Low-cost operations
Cost per billing statement
$0.0813
Target is $0.06
Eliminate microfilming and storage of billing statements
Weekly postage
$17,000
Target is $14,000
Develop Web-base process for posting bills
Consistent quality
Percent errors in bill information
0.90%
Acceptable
No action
Percent errors in posting payments
0.74%
Delivery speed
Lead time to process merchant payments
48 hours
Volume flexibility
Utilization
98%
Too high to support rapid increase in volumes
Acquire temporary employees
Improve work methods

13. Trends in Operations Management
Productivity improvement
Global competition
Ethical, workforce, and environmental issues

14. Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:
Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week.
SOLUTION
Labor productivity =
Policies processed
Employee hours
= = 5 policies/hour
600 policies
(3 employees)(40 hours/employee)

15. Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:
A team of workers makes 400 units of a product, which is sold in the market for $10 each. The accounting department reports that for this job the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead.
SOLUTION
Multifactor productivity =
Value of output
Labor cost + Materials cost
+ Overhead cost
= = = 2.35
(400 units)($10/unit)
$400 + $1,000 + $300
$4,000
$1,700

16. Application Calculate the year-to-date labor productivity:
This Year
Last Year
Year Before Last
Factory unit sales ($)
2,762,103
2,475,738
2,175,447
Employment (hrs)
112,000
113,000
115,00
Sales of manufactured products ($)
$49,363
$40,831 —
Total manufacturing cost of sales ($)
$39,000
$33,000
Calculate the year-to-date labor productivity:
factory unit sales
employment
This Year
2,762,103
= 24.66/hr
112,000
Last Year
2,475,738
= 21.91/hr
113,000
Year Before Last
2,175,447
= $18.91/hr
115,000
Calculate the multifactor productivity:
sales of mfg products
total mfg cost
This Year
$49,363
= 1.27
$39,000
Last Year
$40,831
= 1.24
$33,000

17. OM as a Set of Decisions
Competing with Operations
Project Management
USING OPERATIONS TO COMPETE
In practice, managers make strategic and tactical decisions
Each part of the organization designs and operates processes
Each function is connected through shared resources
Process Strategy
Process Analysis
Quality and Performance
Capacity Planning
Lean Systems
MANAGING PROCESSES
Supply Chain Design
Supply Chain Integration
Location
Inventory Management
Forecasting
Operations Planning and Scheduling
Resource Planning
MANAGING SUPLY CHAINS
Figure 1.7

18. Solved Problem 1
Student tuition at Boehring University is $150 per semester credit hour. The state supplements school revenue by $100 per semester credit hour. Average class size for a typical 3-credit course is 50 students. Labor costs are $4,000 per class, material costs are $20 per student per class, and overhead costs are $25,000 per class.
What is the multifactor productivity ratio for this course process?
If instructors work an average of 14 hours per week for 16 weeks for each 3-credit class of 50 students, what is the labor productivity ratio?

19. Solved Problem 1 SOLUTION
Multifactor productivity is the ratio of the value of output to the value of input resources.
Value of output =
50 student
class
$150 tuition +
$100 state support
credit hour
3 credit hours
student
= $37,500/class
Value of inputs = Labor + Materials + Overhead
= $4,000 + ($20/student  50 students/class) + $25,000
= $30,000/class
Multifactor productivity = = = 1.25
$37,500/class
$30,000/class
Output
Input

20. Solved Problem 1 SOLUTION
Labor productivity is the ratio of the value of output to labor hours. The value of output is the same as in part (a), or $45,000, so
Labor hours of input =
14 hours
week
16 weeks
class
= 224 hours/class
Labor productivity = =
$45,000/class
224 hours/class
Output
Input
= $200.89/hour

21. Solved Problem 2
Natalie Attire makes fashionable garments. During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that they were flawed). Seconds are sold for $90 each at Attire’s Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each. What is the labor productivity ratio of this manufacturing process?

22. Solved Problem 2 SOLUTION
Value of output = (52 defective  90/defective)
+ (80 garments  200/garment)
= $20,680
Labor hours of input = 360 hours
Labor productivity = =
$20,680
360 hours
Output
Input
= $57.44 in sales per hour