1. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–1 CHAPTER 17 OPERATIONS MANAGEMENT

2. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–2 Lecture Outline Introduction to operations management Developing operations strategy Designing operations processes Technology in operations Developing operational systems Linking operations to the environment Operations improvement

3. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–3 Introduction to Operations Management Definition: function or field of expertise primarily responsible for managing production and delivery of an organisation’s products and services. A development of production- operations management since the 1980s Factory management, inventory management, scheduling

4. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–4 Productivity To assess efficiency - the ratio of inputs to outputs Total-factor productivity Goods and services (outputs) Labour + capital + energy + technology + material (inputs) Partial-factor productivity - eg. Labour Goods and services (outputs) Labour hours (inputs)

5. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–5 Manufacturing and service organisations The continuum of goods and services

6. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–6 The Operations Management Process

7. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–7 Developing Operations Strategy: Stages

8. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–8 Designing operational processes Considerations: How will it operate? Interaction with the operator? Interaction with the customer? Location? Physical organisation? Integration with process technology? Operations Job Design Process Mapping (Current and future states) (Example: Figure 17.5, p.648)

9. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–9 Facilities (Physical Assets) Expansion and contraction decisions Current capacity, future demand Facilities Layout: Fixed position Process Product Cellular Facilities Location (single, multiple, retail outlets, emergency services)

10. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–10 Technology in operations Service applications Production applications Computer-integrated manufacturing (CIM) Computer-aided design (CAD) Computer-aided manufacturing (CAM) Flexible manufacturing systems (FMI)

11. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–11 Developing and implementing operational systems (1) To apply an operational strategy, operating systems must be appropriately designed and implemented. Forecasting: Predicting future conditions or events that can affect the organisation. Demand for goods and services Short term/Long term Quantitative or judgemental

12. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–12 Developing and implementing operational systems (2) Capacity Planning - Capacity = unit’s maximum output in a given time period. - Planning: numbers of people, machines and physical resources needed to meet goals. - time horizons: long, medium and short range. - Capacity-requirements planning (technique for meeting short-term objectives (what personnel and equipment are needed).

13. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–13 Developing and implementing operational systems (3) Aggregate-production planning: - Matches supply and demand over a year or so - ‘Aggregate” deals in total units (e.g. number of cars produced) - Two assumptions: Capacity of facilities can’t change quickly; Demand will fluctuate because of seasonal and market factors.

14. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–14 Developing and implementing operational systems (4) Master Production Schedules (MPS) Translates aggregate plan into formal production plan for a set period (involves trail and error work) Timing: ranges over a few weeks to a year or more Usually broken down by weeks Advantages: Helps assess different schedules (computer simulation) Helps determine immediate labour and material needs Helps information sharing

15. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–15 Developing and implementing operational systems (5) Materials-requirements planning (MRP) - computer-based inventory system for getting materials listed in the master schedule Demand-dependent inventory (raw materials and components for producing an end product or service) Independent-demand inventory (end products, parts for repairs or servicing) - related to market issues and difficult to forecast

16. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–16 Developing and implementing operational systems (6) Inputs into the Materials-requirement planning system: Bill of Materials - list of all components needed to make an end product (part numbers, quantities) Arranged in hierarchy to show timing, sub- assemblies For service production - Bill of Activities MRP system outputs: triggers material orders; gives data to master production schedulers; gives data to capacity planning manager; provides data on costs, quality and suppliers.

17. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–17 Developing and implementing operational systems (7) Manufacturing-resource planning MRP II - a computer-based information system to integrate the basic Materials-requirement planning system with financial, accounting, personnel, engineering and marketing information. Expensive, time-consuming to set up, but can give good results, allow operations managers to coordinate operational efforts. Examples in aerospace, pharmaceuticals, defence, automotive industries, but also in services (if a physical item is offered e.g. McDonalds).

18. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–18 Inventory control Inventory = stock of materials to help production or satisfy customer demand. Raw materials inventory = parts, materials, ingredients and other inputs to the product or service. Work-in-process inventory = items being made into a final product or service, but unfinished. Finished-goods inventory = stock of items awaiting sale or delivery to customers. Can help organisations deal with fluctuations in supply and demand, cope with short-term interruptions, serve customers quicker, and allow bulk purchasing.

19. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–19 Inventory costs Inventory is costly for organisations: Item cost Ordering cost Carrying (Holding) cost Stockout cost Economic Order Quantity (EOQ) Uses equations to minimise ordering and holding costs and avoid stockouts

20. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–20 Just-in-time inventory control JIT: materials arrive at the work station, machine or person just as they are needed (cuts holding costs) Involves workers - gives them responsibility for improvements and production processes Based on eliminating waste: the right part in the right place at the right time Japanese “Kanban” (card) system using cards and containers to pull parts from one work centre to another Needs high quality,and good relations and trust with suppliers

21. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–21 Linking operations and the external environment The supply chain or value chain view - (Original Equipment Manufacturers OEM and Original Service Providers OSP) - links to suppliers and customers. Operational improvements will be wasted if supply and distribution systems are not well managed Purchasing: needs identified, suppliers, sources quality and prices checked. Increasingly important because of: rising costs, advancing technology, focus on quality, innovation and short lead times.

22. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–22 Service Delivery Systems Recall essential differences between producers of goods and services Service provision: Maximising customer benefits relative to service delivery costs. Related to differences in service industry characteristics: complexity and customisation. (Set out in the next slide)

23. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–23 Service characteristics

24. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–24 Managing Customer Contact Service efficiency can be affected by the frequency and level of customer contact (Examples: internet shopping - not much, restaurants - moderate level, specialist medical care - extremely high). Efficiency can be improved by avoiding customer contact for those who don’t need it - Back office functions. Can be out of customer view, inexpensive, centralised or standardised. Front office or ‘customer facing’ staff. Examples set out in Table 17.3

25. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–25 Operations Improvement: TQM Total Quality Management: Developed by W Edwards Deming in post-war Japan, based on statistical control methods, and popularised during the 1980s. Based on a “philosophy of continuous improvement”. Principles Focus on work processes Analyse and understand variability Manage by fact Emphasise continuous learning and improvement Often implemented by Quality Improvement Teams.

26. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–26 Garvin’s dimensions of quality Performance (primary operating characteristics) Features (supplements,options, bonuses) Reliability Conformance (meeting relevant standards) Durability (lasting qualities, hardiness) Serviceability (promptness, courtesy, ease of repair) Aesthetics (beauty, look, feel …personal tastes) Perceived Quality (a person’s subjective assessment)

27. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–27 Improving Quality Benchmarking Comparison of key business processes with other high performing or best practice organisations. Collection of data on productivity or specific processes Increasingly common in 1990s Still used by excellent companies Business Process Re-engineering (BPR) Analysis and radical redesign of existing business processes. Focus: costs, quality, service, speed.

28. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–28 Improving Quality (continued) Statistical Process Control (SPC) A concurrent control system (while operations are in progress) Collection and measurement of data to ensure quality standards are being met Six Sigma A modern technique based on SPC -use of small project team on specific business process Steps: Define, Measure, Analyse, Improve, Control

29. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–29 World-Class Operations Some examples of companies with world-class operations management: Totota, GE, Singapore Airlines, Toshiba, Sony, Hilton. When core operations are excellent, the rest of the organisation can follow. If core operations are not excellent, other supporting functions can’t lead the way. Emerging trends: Move away from “factory operations management” to a broader range of operational concerns: Forecasting, quality, layout, new technology.

30. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma Slides prepared by Rob Lawrence, Victoria University (Australia) 17–30 Lecture Summary Importance of core operational role Different operational strategies: where to locate, technology used, employee skills, control systems Operational layout is critical Different approaches to operational control: inventory, scheduling, movements Operational excellence tends to gain organisations an excellent reputation - worldwide recognition of high product quality and first-class service.