Om intro and strategy pgdm

OPERATIONS MANAGEMENT

Why Study Operations Management?

OperationsManagement

Business Education

Systematic Approach to Org. Processes

Career Opportunities

Cross-Functional Applications

Importance of Operations Management

• During the past couple of decades, many domestic companies saw their market share decline due to their inability to compete with foreign firms in terms of product design, cost, or quality.

• Theories to explain this development:– Cultural differences– Government policies– Merger mania– Neglect of human resources– Insufficient investment in technology– An excess of lawyers and/or MBAs.

• Worldclass performance by operations in delivering highquality, costcompetitive products and services is essential to survival in today's global economy.

• Of late Auto components, pharma, IT and ITES sectors are showing signs of global competitiveness.

OPERATIONS MANAGEMENTINTRODUCTION

PRODUCTION SCENARIO IN INDIA• 50”s• NEHRUVIAN SOCIALISM• COMMANDING HEIGHTS FOR PUBLIC

SECTOR

• GOVT DECIDES “ WHAT IS GOOD”• TEMPLES OF MODERN INDIA. • WHATEVER IS PRODUCED IS SOLD


PRODUCTION SCENARIO IN INDIA contd..

• 60s and 70s ... INDIRA GANDHI ”s SLOGAN “ GHARIBHI HATAO “

• PRINCES BECOME PAUPERS ,TOTAL SELF SUFFICIENCY, BANK DEPOSITS ARE AT THE DISPOSAL OF COMMON MAN

• 80s RAJIV GANDHI”s VISION OF “ A NEW INDIA “ , DISMANTLING OF CONTROLS...


PRODUCTION SCENARIO IN INDIA…• 90”s LPG IN FULL FLOW, THROTTLED BY

SCAMS/SCANDLES• NOW… TRANSITION PHASE TO OPEN

ECONOMY, CONSUMER IS THE KING/EMPEROR, MANY CHOICES, ECONOMIC/PRODN PSYCHE AT A LOW EBB...

OPERATIONS MANAGEMENT COMPETITIVENESS IN MFG - FACTORS

THE DRAGON VS THE ELEPHENT • INDIA FACTOR CHINA

• 1947 ECONOMIC RACE STARTED 1947• 1991 LIBERALISATION INITIATED 1978• 5-6 % GDP GROWTH 9-10%• 100 Cr + POPULATION 130 Cr

• 22% SAVINGS RATE 41%

• $100 PER CAPITA INCOME $450• $165bn FOREIGN RESERVES $500bn• $ 5-10 bn F D I $ 45-60 bn

• 09-11% BANK LENDING RATE 4-5%

• Rs 4/unit ELETRIC POWER Rs 2/unit

• 100units PRODUCTIVITY 300units • 10Lakhs TOURIST ARRIVAL 60Lakhs

• V.strong TRADE UNIONS NO TU rights

OPERATIONS MANAGEMENT COMPETITIVENESS IN MFG - FACTORS

THE DRAGON VS THE ELEPHENT

INDIA FACTOR CHINA

10 million No of TV sets produced 40 million

30 m tons Steel production 300 m tons

$30 bn Textiles production $ 145 bn

$ 15 bn Textiles exports $ 80 bn

1.6 million Automobiles production 5.5 million

OPERATIONS MANAGEMENT World Manufacturing-Share of ASIA

Country 1980 2010

China 3,3 5.8

Korea 0.7 2.5

Taiwan 0.6 1.6

Indonesia 0.4 1.0

Thailand 0.3 0.8

Malaysia 0.2 0.5

Singapore 0.1 0.4

INDIA 1.1 1.1

Definition of Operations Management

• Management of business (transformation) processes

• How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs (transformation process).– What is appropriate?

Inputs Outputs

GoodsServices

Labor & Capital

Feedbackfor control

Transformation:Transformation:Network of activities

Flow Units(Material, Information,Knowledge, etc.)

Resources


Operations as a Transformation Process

Transformation Processes-Types

• Physical manufacturing

• Locational transport/storage

• Exchange retail

• Physiological healthcare

• Psychological entertainment

• Informational communications

TransformationInput Output

What is a Service and What is a Good?

• “If you drop it on your foot, it won’t hurt you.” (Good or service?)

• “Services never include goods and goods never include services.” (True or false?)

Core services are basic things that customers want from products they

purchase.

Core ServicesDefinition

Product/Services Performance Objectives


Flexibility

Quality

Speed

Price (or cost Reduction)

Valueadded services differentiate the organization from competitors and build

relationships that bind customers to the firm in a positive way.

Value-Added ServicesDefined

ValueAdded Service Categories


Information

Problem Solving

Sales Support

Field Support

How do Firms Add Value?• Greater productivity

– Lower costs and expenses– Lower prices for the customer

• Higher quality– Better performance– Greater durability, reliability, aesthetics.

• Better timeliness– Faster response and turnaround– Ontime delivery, meet promises

• Greater flexibility– greater variety– customization for customer needs / desires

• Operations - Strategy• Product/Service Design• Process Selection• Site Selection• Facility Layout Capacity Planning

• Demand Management MRP/ERP

• Production Planning and Scheduling

• Inventory Management

• Quality control

OM Deals With

OM and Other Business Functions - Marketing

• What operations can do relative to meeting due dates, product customization, new product introduction.

• In service industries, marketing and production take place simultaneously.

OM and Other Business Functions - Finance

• Understand inventory management, capacity utilization and labor standards to develop accurate cost data, perform audits, and prepare financial reports.

• Cost accountants must be aware of how JIT works.

• Need for capital investments.• Forecast cash flows.• Make-or-buy decision.• Plant expansion and/or relocation.

OM and Other Business Functions - Human Resources

• How jobs are designed?

• Compensation and incentive programs.

• Skills of work force.

OM and Other Business Functions - IT

• Design and develop software.

• Major business applications of computers is in production control.

OM and Other Business Functions - Entrepreneurs

• Often fail because they run out of working capital.

• Poor production, planning and inventory management.

Current Issues in OM

• Effectively consolidating the operations resulting from mergers.

• Developing flexible supply chains to enable mass customization of products and services.

• Managing global supplier, production and distribution networks.

Current Issues in OM (cont’d)

• Increased “commoditization” of suppliers.

• Achieving the “Service Factory”.

• Achieving good service from service firms.

Operations Strategy

Today’s competitive market• Buyer’s market

• Buyer wants it faster, better, and cheaper/customised

• Competitors are global

• Increasing short Life-cycles

Car choices in 1980

• Ambassador

• Premier

• Standard-Herald

In 2004 what are the choices?

• Maruti

• Fiat- Palio

• Mitsubishi

• TATA- Indica

• Ambassador• Daewoo• BMW

• Ford

• GM

• Hyundai

• Honda

• Mercedes

• Rover

• Toyota

What is the impact of this global competition?

• Operations must achieve simultaneous improvement of price, quality, and delivery speed.

What is a strategy?• “Strategy is the determination of the

basic long-term goals and the objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”

Strategy

� Strategic goals are common throughout an organization

� What set of business should we be in ?

� How should we compete in XYZ business ?

� How can a specific area contribute to the competitive advantage of a business ?

An organization therefore, requires a strategy hierarchy

Operations Strategy

An operations strategy is defined by a pattern of decisions , both structural and infra-structural, which determine the capability of a manufacturing/Service system and specifyhow it will operate in order to meet a set of operations objectives which are consistent with overall business objectives.

Operations Role In Corporate Strategy

• Provide support for overall strategy of a firm

• Serve as firm’s distinctive competence

• Must be consistent with overall strategy

Operations Strategy

Customer Needs Corporate Strategy

Operations Strategy

Alignment

CoreCompetencies

Decisions

Processes, Infrastructure, and Capabilities

Linking the Strategic Role & Process View

Business Strategy

Operations Strategy

Desired Capabilities

Marketing Strategy Financial Strategy. . .

p, Q, t, flexibility

compatible?

Operations Structure:

Processes & Resources

Dealing with Trade-Offs

Cost

Quality

DeliveryFlexibility

Operations Strategy - Wal-Mart(USA)

Corporate Strategy

(Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices

Operations Strategy– Short flow times

– Low inventory levels

Operations Structure– Cross docking

– EDI

– Fast transportation system

– Focused locations

– Communication between retail stores

Wal-Mart – Operations Strategy

• Inventory at retail stores turned over twice a week (Industry averages once every two weeks)

• Improved targeting of products to markets• Sourcing of Products – World-wide• Sales per square foot increased from $140 in 1991

to $200 in 2004 (Industry average increased from $110 to $150)

Core Competence• Competitiveness Competitiveness derives from an ability to build, at lower cost

and more speedily than competitors, the core competenciescore competencies that spawn unanticipated products.– Core competencies are the collective learningcollective learning in the

organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.

– Core competence is about harmonizing streams of harmonizing streams of technologytechnology.

– Core competence is about the organization of workorganization of work and the delivery of valuedelivery of value.

– Core competence is communicationcommunication, involvement and a deep commitment to working across organizational across organizational boundariesboundaries.

• Companies need to do a better job of leveraging technologies and offering a wider variety of products on the same technology platform.

.

CORE COMPETANCE….

• HOW TO IDENTIFY ?

• WHAT IT DOES BEST• WHAT IT CAN DO.. OTHERSCAN NOT DO• WHAT WILL PERMIT IT TO ACHIEVE THE BEST

IN THE WORLD• STATUS(GAP) W.R.T . WHAT IT CAN NOT DO• DEVELOP PLANS TO FULLY EXPLOIT

CAPABILITIES

CORE COMPETANCY…. EXAMPLES

• SONY• HONDA• MOTOROLA

• MCDONALD

RELIANCEAMULHLL

Infosys

• MINIATURISATION• MOTORS• WIRELESS

COMMUNICATION• LOCALISATION/

HYGENE

OM Decisions

• Strategic Decisions

• Design Decisions

• Operating Decisions

Strategic Decisions

• Product and Service plans – What products and services?

• Competitive priorities • Excel on cost or flexibility?

• Positioning strategy • Organize around products and processes?

• Quality management • How to get everyone involved?

• Quality control • How to best achieve quality goals?

Design Decisions• Process Design

– What transformation processes? • Technology management

– Should we automate? • Job design

– Should our jobs be specialized or enlarged? • Capacity

– Is our facility too large or small? • Location

– Where is a good store location? • Layout

– What departments should be close?

Operating Decisions • Forecasting

– How do we design the best forecasting system? • Materials management

– Who should be our suppliers? • Inventory

– How should we control our inventory? • Aggregate plans

– How big should our workforce be? • Master production scheduling

– Should we make to stock? • Production control systems

– When should we release new orders?

IV.Continuous

Flow

III.Assembly

Line

II.Batch

I.JobShop

LowVolumeOne of aKind

MultipleProducts,

LowVolume

FewMajor

Products,HigherVolume

HighVolume,High

Standard-ization

CommercialPrinter

French Restaurant

HeavyEquipmentCoffee Shop

AutomobileAssembly

Burger King

SugarRefinery

Flexibility (High)Unit Cost (High)

Flexibility (Low)Unit Cost (Low)

Product/ProcessMatrix

Product/ProcessMatrix

Example• Yamaha announces plans for a new factory, making it the

worlds largest motorcycle manufacturer (1981)• Honda responds “Yamaha wo tsubusu!”

– (“We will crush, squash, slaughter Yamaha”)

• Honda cut prices, increased advertising, flooded distribution channels

• Both firms started with about 60 models– Yamaha introduced 37 product line changes during next 18 months

– Honda introduced 113 new products, including new styles and new technologies (4-valve engines, composite materials, ...)

• Yamaha decimated, despite drastic price cuts, has 12 month inventory of unsold motor cycles

• Yamaha capitulates, Pres. Eguchi publicly apologizes• Honda wins war with superior design, cycle times

Effective Key Success Measures of OM

• Quality as felt by the customer– Warranty

• Flexibility as felt by the customer– Customized Product that exceeds need

• Speed as felt by the customer– On Time Delivery

• Price as felt by the Customer– Internal Profit Margin (Price minus Costs)

supported by the market

Current POM Challenges

• Speeding product development time

• Developing production systems to enable mass customization of products and services

• Managing global production networks

• Developing and integrating new process technologies into existing production systems .

Current POM Challenges

• Achieving high quality quickly and maintaining it in the face of restructuring

• Managing an increasingly diverse workforce

• Conforming to environmental constraints, ethical standards, and government regulations.

GOALS FOR OM EXCELLENCE

• OPERATIONAL EXCELLENCE

• ON-TIME DELIVERY PERFORMANCE• ZERO ERROR• INVENTORY REDUCTION(IN-BOUND)

Questioning The Process

``It is always amazing how many of the things we do will never be missed. And nothing is less productive than to make more efficient what should not be done at all.”

Peter Drucker