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8/8/2019 6.Introduction to OM
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Operation Management
Overview
What is Operations Management?
The business function responsible for
planning,coordinating, and controlling
the resourcesneeded to produce a
companys products and services
Operation Management Scope Operations strategy
Production/Service process
Production/Service Technology
Quality management
Project Management
Supply Chain Management
Inventory Management
Lean Production
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Where is OM?
What is Operation?Thebusi ss functi n t
t
r
i
s
s& s
r
ic
s
tr
sf
r
i
i
ts fr
s
li
rs i
t
t
ts f
r c
st
rs.
r
ti
s is
t t
c
r
fanybusi
ss.
Operations in services:
Health careInputs Processes Outputs
Doctors, nurses Examination Healthypatients
Hospital Surgery
Medi cal Supp lies Monitoring
Equipment Medication
Laboratories Therapy
Question: What are Inputs, Processes and Outputs in education?
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Operations are everywhere !
Operations ExamplesGoods
producing
Farming, mining, construction
Storage/
transportation
Warehousing, trucking, mail, taxis,
buses, hotels
Exchange Trade, retailing, wholesaling, renting,
leasing, loans
Entertainment Radio, movies, TV, concerts, recording
Communication Newspapers, journals, radio, TV,
telephones, satellite
Marketing-OM-Finance should
work together
Operations
FinanceMarketing
Accounting
Industrial
Engineering
Operations
Maintenance
Public
Relations
PersonnelPurchasing
Distribution
Manufacturing vs. Service Operations
Production of goods
Tangible products
Automobiles,Refrigerators,Aircrafts, Coats, Books, Sodas
Services
Repairs, Improvements, Transportation, Regulation
Regulatory bodies:Government, Judicial system, FAA, FDA
Entertainment services: Theaters, Sport activities
Exchange services: Wholesale/retail
Appraisal services: Valuation, House appraisal
Security services: Police force, Army
Financial services: Banks
Education: Universities,K-12 schools
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Manufacturing vs. Services
Characteristic Manufacturing ServiceOutput Tangible Intangible
Customer contact Low High
Uniformity of output High Low
Labor content Low High
Uniformity of input High Low
Measurement of productivity Easy Difficult
Opportunity to correct qualityproblems
Easy Difficult
Steel productionAutomobile fabrication
Home remodelingRetail sales
Auto RepairAppliance
repair
Maid ServiceManual car wash
TeachingLawn mowing
High percentage goods Low percentage goods
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ProjectConstruction of the aircraft carrier USS Nimitz was a huge project that
took almost 10 years to complete.
Batch ProductionAt Martin Guitars bindings on the guitar frame are installed
by hand and are wrapped with a cloth webbing until glue isdried.
Mass ProductionHere in a clean room a worker performs quality
checks on a com puter assembly line.
Continuous ProductionA paper manufacturer produces a
continuous sheet paper from woo d pulpslurry, which is mixed, pressed, dried, and
wound onto reels.
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Professional ServiceA doctor provides personal service to each patient based on
extensive training in medicine.
Service ShopAlthough a lecture may be prepared in advance, its
delivery is affected by students in each class.
Mass ServiceA retail store provides a standard array of
products from which customers may choose.
Service FactoryElectricity is a commodity available
continuously to cu stomers.
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IV.Continuous
Flow
III.Assembly
Line
II.Batch
I.Job
Shop
LowVolume
One of a
Kind
MultipleProducts,
Low
Volume
FewMajor
Products,
HigherVolume
HighVolume,
High
Standard-ization
Commercial
Printer
Tailor and Boutique
Heavy
Equipment
Coffee Shop
Automobile
Assembly
Burger King
Sugar
Refinery
Flexibility (High)
Unit Cost (High)
Flexibility (Low)
Unit Cost (Low)
Source:Modified fromRobertHayes andStevenWheelwright, Restoring Our Competitive Edge: Competing through Manufacturing(New
York:John Wiley& Sons, 1984). p. 209. 13
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Four Steps for Strategy
Formulation Defining a primary task
What is the firm in the business of doing?
Assessing core competencies
What does the firm do better than anyone else?
Determining order winners and order qualifiers
What wins the order? What qualifies an i tem to be considered for purchase?
Positioning the firm
How will the firm compete?
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Competitive Priorities Cost
Quality
Flexibility
Speed
Service
Technology
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Quality Management
Quality Management is the processes thatinsure the project will meet the needs via:
Quality Planning, Quality Assurance, andQuality Control
Clearly Defined Quality Performance Standards
How those Quality and Performance Standards are
measured and satisfied
How Testing and Quality Assurance Processes will
ensure standards are satisfied
Continuous ongoing quality control
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Operations Strategy: Quality
What types of systems will be set up to
ensure quality?
How will quality awareness be
maintained?
How will quality efforts be evaluated?
How will customer perceptions of quality
be determined?
How will decisions in other functional
areas affect qual ity?
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Strategic Decisions in
Operations
Products
Services Process
and
Technology
Capacity
Human
Resources Quality
Facilities Sourcing Operating
Systems
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Production Strategy:
Processes and technology
Project one-at-a-time production of a product to customerorder
Batch Production systems process many different j obs at the same time
in groups (or batches)
Mass Production large volumes of a standard product for a mass
market
Continuous Production used for very high volume commodity products
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Operations Strategy: Human
Resources What are the skill levels and degree of autonomy
required to operate production system?
What are the training requirements and selectioncriteria?
What are the policies on performance evaluations,
compensation, and incentives?
Will workers be salaried, paid an hourly rate, or
paid a piece rate?
Will profit sharing be allowed, and if so, on whatcriteria?
Simple Product Supply ChainSimple Product Supply Chain
Supply Ch
i
: A sequence of activities
And organizations involved in producing
And delivering a good or service
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ValueValue--AddedAdded
The difference between the cost of inputs
and the value or price of outputs.
SCM and Value added
Responsibilities of Operations
Management Planning Capacity, utilization
Location
Choosing products orservices
Make or buy
Layout
Projects
Scheduling
Market share
Plan for risk reduction,plan B?
Forecasting
S UP PLY S IDE DEMAND S IDE
Controll ing Inventory Quality Costs
Organization
Degree of standardization Subcontracting Process selection
Staff ing
Hiring/lay off Use of overtime Incentive plans
In a nutshell, the challenge is
Matching the Supply with Demand
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Supply Does Not Naturally Match
Demand
Inventory results from a mismatch between supply and demand
Mismatch can take one of the following two forms Supplywaits for Demand
Inventory = Finished goods and resources
Demand waits for Supply
Inventory is negative or said to be backordered in manufacturing
Inventory = Waiting customers in services
Mismatch happens because
the demand varies
the capacity is rigid and finite.
If the capacity is infinite, products (or services) can be provided at
an infinite rate and instantaneously as the demand happens.Then there is no mismatch.
26
Key
PerformanceIndicators
Source:
Robert Kaplan and David
Norton,Strategy Maps:
Converting Intangible
Assets into Tangible
Outcomes (Boston:
Harvard Business School
Press, 2004), Figure 3-2,
p. 67
27
Balanced Scorecard
Radar Chart
Dashboard
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Measuring Productivity
Productivity is a measure of how efficiently inputs areconverted to outputs
Productivity = output/input Total Productivity Measure
Productivity relative to all inputs
Partial Productivity MeasureProductivity relative to a single input(e.g., labor hours)
Multifactor Productivity MeasureProductivity relative to a subgroup of inputs(e.g., labor
and materials)
Virtual Factory Defined
A virtual factory can be defined as amanufacturing operation where activities are
carried out not in one central plant, but in
multiple locations by suppliers and partner
firms as part of a strategic alliance.
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Issues and Trends in
Operations Global Markets,Global Sourcing, and
Global Operations
Virtual Companies
Greater Choice, More Individualism
Emphasis on Service
Speed and Flexibility
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Issues and Trends in
Operations (cont.)
Supply Chains Collaborative Commerce
Technological Advances
Knowledge and Ability to Learn
Environmental and Social Responsibilities
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Characteristic
20th-Century
Corporation
21st-Century
Corporation
Changing Corporation
Operations
Products
Reach
Financials
Inventories
Strategy
Vertical integration
Mass production
Domestic
Quarter ly
Mon ths Top-down
Virtual integration
Mass customization
Global
Real- time
Hours
Bottom-up
Source:Reprinted from John Byrne, Management by Web,Business Week(August 28, 2000), p. 87by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.
Business Information Flow
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Example:
What will happen if we develop / purchase technology X?
Better technologies are always (?) nice to have, but will they pay for themselves?
OM provides tools to evaluate system designs before implementation
Responsiveness
Low
High
Redesign
process
Current frontier
In the industry
Labor Productivity(e.g. $/call)
Low labor
productivity
High labor
productivity
New frontier
Evaluate Redesigns/New Technologies
Responsiveness
Low
High
Eliminate
inefficiencies
Current frontier
In the industry
Labor Productivity(e.g. $/call)
Low labor
productivity
High labor
productivity
CompetitorA
CompetitorC
CompetitorB
Example:
Benchmarking shows the pattern above
Do not just manage the current system Change it!
OM Provides tools to identify and eliminate inefficiencies
Overcome Inefficiencies
Trends in OM Service sector growing to
80% of non-farm jobs-See Figure 1-4
Global competitiveness
Demands for higher
quality
Huge technology
changes
Time based competition
Work force diversity
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Lean Production
Lean Productioncan be defined as anintegrated set of activities designed toachieve high-volume production usingminimal inventories (raw materials, workin process, and finished goods)
Lean Productionalso involves theelimination of waste in production effort
Lean Productionalso involves the timingof production resources (i.e., parts arriveat the next workstation just in time)
Thank you