INTRO-OM

7/28/2019 INTRO-OM

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Operat ions Management

Operat ions and Product iv i ty

Dr. Vaidy Jayaraman Univ o f Miam i, FL , USA

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What Is Operat ion s

Management?

Product ion is the creat ion of

goods and serv ices Operat ions management (OM) is the set of act iv i t ies that c reates

value in the form of goods and serv ices by trans form ing inpu ts into outputs

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Cost

Flexibi l i ty

Service

Quali ty

MY COMPANY

Compet i tors

Market

Response

S

U

P

P

L

I

E

R

S

C

U

S T

O

M

E R

S

Inputs

Inputs

Demand Share

Demand Share

Performance Preferences

Market Size

Outputs

Outputs

A Competi t ive Framework fo r Operat ions

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Why Study Operat ions Management?

Bus iness Educat ion

Systematic Approach to Org. Processes

Career Opportu nit ies

Cross-Funct ional

Appl icat ions

Operat ions

Management

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Organ izing to Produce

Goods and Services

Essent ial funct ion s:

Marketing – generates demand

Product ion/operat ions – creates the product

Finance/accounting – t racks how wel l the organization is d oing , pays bi l ls , col lects the m oney

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Westside’s compet i t ive strategy?

6

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Toyota t imel ine 2008: #1 carmaker in the world .2009-2010: 8.5 mill io n vehic les recalled

Graphs from nytimes.com

Toyota’s competitive strategy?

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A l ign ing operat ions w ith strategic object ives

9

• Quick respon se @Westside

– Capacity (Servic e level) vs Cost

– Manageria l choices: Capaci ty planning? Demand planning?

• Low pr ice @Staples

– Inventory co sts vs cus tomer sat isfact ion

– Manageria l cho ices: Inventory planning ? Produc t var iety?

• High qual ity @Toyota

– Qual ity vs cost, Quali ty vs growth

– Internal re-work c os ts vs External recal l cost s

– Managerial cho ices: Process con trol, speed, qual i ty

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Strategic f i t

Corporate strategy

Operationsstrategy

Operationsstructure

CORPORATE

Make it easy for customers to buy awide range of officesuppliers at low cost

OPERATIONSSTRATEGY

Low inventory levels

Large variety

Convenient delivery

OPERATIONSSTRUCTURE

Smart sourcing

Efficient transportation

Local warehouses

Inter-store

communication

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11

When you can

measure what you

are speaking about,

and express i t in numbers, you know someth ing about i t .

Lo rd Kelvin (1824-

1907)

“ “

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Trade-offs in c ompeti t ive strategy

Operat ions fro nt ier in healthcare

Best-in-class

emergency

room

Best-in-class non-

emergency

hospi tal

Operations

front ier

Low

Low

High

High

Cos t eff ic ienc y

R e s p o

n s

i v

e n e

s s

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Balanc ing trade-o ffs

• How to m odel and opt imal ly resolve trade-offs?

– Bu i ld mathemat ica l models

– Analyze and solve model – Recover solut ion

– Supp lement w ith managerial judgement

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Organ izat ional Charts

Operat ions

Ground s uppor t equipment

Maintenance

Ground Operat ions

Facil i ty maintenance

Catering

Fl igh t Operat ion s Crew schedul ing Flying Communica t ions Dispatch ing

Management sc ience

Finance/ account ing

Account ing

Payables Receivables General Ledger

Finance

Cash contro l

International exchange

Air l ine

Marketing

Traffic administrat ion

Reservat ions Schedules Tariffs (pric ing )

Sales

Adver t is ing

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Marketing

Sales promot ion

Advert is ing

Sales Market research

Organ izational Charts

Operat ions

Facil i t ies Construct ion; m aintenance

Product ion and inventory contro l

Schedul ing; mater ials c ontro l Qual ity assurance and contro l

Supply chain management

Manufactur ing Tool ing ; fabrication ; assemb ly

Design

Product development and design Detai led prod uct speci f ic at ions

Indus tr ial engineering Eff icient use of machin es, space,and personnel

Process analysis Development and ins tal lat ion of produc t ion tools and equipment

Finance/ account ing

Disbursements/ credits

Receivables Payables General ledger

Funds Management

Money market International exchange

Capital requirements

Stock issue Bond issue and recal l

Manufactur ing

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Why Study OM?

OM is one of three major funct ions (market ing , f inance, and operat ion s) of any organizat ion

We want ( and need ) to know how goods and serv ices are produced

We want to understand what

operat ions managers do

OM is such a cost ly part of an organizat ion

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Init ial Cost: the cost of acquir ing the produ ct whic h is direct ly related to the pr ice the custom er pays (usual ly relevant in everyday use consum er products)

Li fecyc le Cost : the cost of acquir ing, maintain ing and dispos ing the produc t (relevant in industr ia l

equipment markets)

Design Qual i ty : features, styl ing and other produc t attr ibutes that enhance fi tness for use

(typical ly impo rtant in luxury produ cts)

Conform ance Qual i ty : the product conforms to set standards dur ing the product ion process

( important for almos t al l product m arkets)

Delivery Speed: abi l i ty to produc e and del iver the product in a short no tice(character ist ic

environments of t ime based competi t ion)

Delivery Reliabi l i ty : abi l i ty to produc e and del iver consist ent ly product s according to contractual ly

prespeci f ied time intervals

New Produc t Flex ibi l i ty : abi l i ty to introduc e in an effect ive and timely manner new products (again

character ist ic of t ime based com peti t ion)

Customizat ion: abi l i ty to produce a large var iety of produc ts that match th e needs of a high ly

segmented market (mass cus tomization)

Product Mix Flex ibi l i ty : abi l i ty to eff ic ient ly and effect ively adjust the produc tion mix in response to

demand fluctuations of var ious produc ts (cycl ical demand markets)

COST

QUALITY

SERVICE

FLEXIBILITY

{

{

{

{

Winning versus Quali fy ing Cri ter ia

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Geographic

Functional

RESOURCES ORIENTED OPERATIONS

• Rational ization of Resources

• Economies of Scale

• Supply Chain Coordinat ion

• Financial Flexibi l i ty (e.g., Tax Incent ives)

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Geographic

Sectorial

INFORMATION ORIENTED OPERATIONS

• Rational ization of Resou rces

• Economies of Scope

• Netwo rk Optimizat ion

• Operational Flexibi l i ty

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Sectorial Functional

USER ORIENTED OPERATIONS

• Rational ization of Resou rces

• Technolog y Development and R&D

• Customer Service (Winning , Maintain)

• Responsiveness Flexibi l i ty

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OPERATIONAL ORIENTATION

FOR COMPANIES

Resou rces Inform ation User Oriented Oriented Oriented

• Cost • Util ization

• Efficiency

• Speed of Exchange

• Extent o f Communicat ion

• Customer

Service

• Bargaining

Power

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Core serv ices are basic th ings that

cus tomers want from products they pu rchase

Core Serv ices

Defined

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Core Services Perfo rmance Object ives

Operat ions

Management Flexibi l i ty

Quali ty

Speed

Price (or co st

Reduct ion)

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Value-added serv ices dif ferent iate the organizat ion from compet itors and bu i ld relat ionships that bind

customers to the fi rm in a posi tive way

Value-Added Serv ices

Defined

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Value-Added Service Categories

Operat ions

Management Information

Problem Solving

Sales Supp ort

Field Support

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What Operat ions

Managers Do

Planning

Organizing

Staff ing

Leading

Contro l l ing

Basic Management Funct ions

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Ten Cri t ical Dec isions

Ten Decision A reas

Design o f good s and services

Managing quali ty

Process and capaci ty design

Locat ion strategy Layou t strategy

Human resources and job des ign

Supply ch ain management

Inventory management

Schedul ing

Maintenance

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Where are the OM Jobs?

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Sign if ican t Events in OM

G d S i

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Goods vs Serv ice

Characteristic Goods Service

Customer contact Low High

Uniformity of input High Low

Labor content Low High

Uniformity of output High Low

Output Tangible Intangible

Measurement of productivity Easy Difficult

Opportunity to correct problems High LowInventory Much Little

Evaluation Easier Difficult

Patentable Usually Not usual

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Goods Versus Services

Can be resold

Can be invento r ied

Some aspects of qual ity

measurable Sel l ing is dist inc t from product ion

Product is transpor tab le

Site of faci l i ty impo rtant for cost

Often easy to automate

Revenue generated prim ari ly from tangib le produ ct

Att r ibutes of Goods

(Tangib le Produc t)

Attr ib utes of Services

(Intangib le Product)

Resel l ing unus ual

Dif f icul t to inventory

Qual ity di f f icul t to m easure

Sel l ing is part of s ervice

Provider, not prod uct, is often transp ortable

Site of faci l i ty important for customer con tact

Often dif f icul t to automate

Revenue generated prim ari ly from the intangible service

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New Trends in OM

Local or

national

focus

Rel iable worldw ide commun icat ion and transportat ion network s

Global focu s,mov ing product ion of fshore

Batch (large) sh ipments Short prod uct l i fe cycles and cost o f capi tal put pressure on reduc ing inventory

Just- in- t ime performance

Low-b id purchasing

Supply chain competit ion requires that su ppl iers be

engaged in a focus o n the end customer

Supply chain partners,

col laborat ion,all iances,outsourc ing

Past Causes Future

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New Trends in OM

Lengthy

produc t

development

Short er l ife cycles,Internet, rapid in ternational commun icat ion, computer- aided design , and international co l laboration

Rapid prod uct development,al l iances,col laborat ive designs

Standardized products

Aff luence and worldw ide markets; inc reasingly f lexib le produc t ion processes

Mass customizat ion with added emphasis on qual i ty

Job

special ization

Changing sociocu l ture

mi l ieu; increasingly a knowledge and inform ation society

Empowered

employees,teams , and lean product ion

Past Causes Future

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New Trends in OM

Low-cost

focus

Enviro nmental issu es, ISO 14000, increasing disposal costs

Environmental ly sensi t ive product ion , green manufactur ing,recycled

materials,remanufactur ing

Eth ics n ot

at forefront

Bus inesses op erate more openly; pub l ic and g lobal review o f ethics; oppo si t ion to ch i ld labor, brib ery,

pol lut ion

High ethical standards and socia l responsib i l i ty

expected

Past Causes Future

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New Trends in OM

Global focus

Just-in-t ime performance

Supply chain partnering

Rapid product development

Mass cus tom izat ion

Empowered employees

Envi ronmentally sensi t ive product ion

Ethics

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Strategy

•

Mission – The reason for existence fo r an o rganizat ion

• Mission Statement

–States the purpose of an o rganizat ion

• Goals

–Provide detai l and scope of m iss ion

• Strategies

–Plans for achieving organizat ional goals

• Tactics

– The methods and act ions taken to accompl ish strategies

Examples of Operat ions

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Banks, ATMs Convenience Location

Disneyland

Nordstroms

Super ior customer

service Service

Burger King

Supermarkets

Variety

Volume Flexibility

Express Mail , Fedex,

One-hour photo, UPS Rapid delivery

On-time delivery Time

Sony TV

Lexus, Cadillac

Pepsi, Kodak, Motorola

H igh-performance design

or high quali ty Consistent

quality

Quality

U.S. first-class postage Motel-6, Red Roof I nns

Low Cost Price

Examples of Operat ions Strategies

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St t F l t i

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Strategy Formu lat ion

•

Dist inc t ive competenc ies • Environmental scann ing

• SWOT

• Order quali f iers

• Order w inners

St t F l t i

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Strategy Formu lat ion

• Order qual i f iers – Character is t ics that cus tomers perceive as m inimum standards o f acceptabi li ty to be con sidered as a po tent ia l pu rchase

• Order w inners

– Characteristics of an organization’s goodsor serv ices that cause i t to b e perceived

as better than the com pet i t ion

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Product iv i ty Chal lenge

Product iv i ty is the rat io of outpu ts (goods and serv ices) div ided by the inputs

(resources such as labo r and capi tal )

The object ive is to imp rove produc t iv ity !

Impo rtant Note! Produc t ion is a measure of output

on ly and not a measure of ef f ic iency

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Improv ing Produc t iv i ty at Starbucks

A team of 10 analysts cont inually look for ways to shave t ime. Some

improvements :

Stop requir ing s ignatures on c redi t card purchases under $25

Saved 8 seconds per transact ion

Change the size of the ice scoop

Saved 14 seconds per dr ink

New espresso machines Saved 12 seconds per shot

7/28/2019 INTRO-OM


Improv ing Produc t iv i ty at Starbucks

A team of 10 analysts cont inually look for ways to shave t ime. Some

improvements :

Stop requir ing s ignatures on c redi t card purchases under $25

Saved 8 seconds per transact ion

Change the size of the ice scoop

Saved 14 seconds per dr ink

New espresso machines Saved 12 seconds per shot

Operat ions imp rovements have helped Starbu ck s inc rease yearly revenue per out let by $200,000 to $940,000 in s ix years.

Produc t iv i ty has imp roved by 27%,or about 4.5% per year.

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Measu re of p rocess improvement

Represents output relat ive to inpu t

Only through p roduc t iv i ty inc reases can ou r standard of l iv ing imp rove

Product iv i ty

Product iv i ty = Uni ts produced

Input used

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Produc t iv i ty Calcu lat ions

Produ ct iv i ty = Uni ts produced

Labor-hours used

= = 4 uni ts/ labor-hour

1,000

250

Labor Produc t iv i ty

One resou rce input sing le-facto r product iv i ty

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Mult i -Facto r Produc t iv i ty

Output

Labor + Material + Energy + Cap ital + Miscellaneous

Produc t iv i ty =

Also known as tota l factor produc t iv ity

Output and inputs are often exp ressed in dol lars

Mult ip le resource inputs mult i -factor product iv i ty

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Col l ins Ti t le Product iv i ty

Staff o f 4 works 8 hrs/day 8 t i t les/day

Payrol l co st = $640 /day Overhead = $400 /d ay

Old System :

= Old labo r

product iv i ty

8 t i t les/day

32 labor-hrs

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Old System :

8 t i t les/day

32 labor-hrs =

Old labo r

product iv i ty = .25 t i t les/labor-hr

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Old System :

14 t i t les/day Overhead = $800 /d ay New System:

8 t i t les/day

32 labor-hrs =

Old labo r

product iv i ty

= New labo r product iv i ty

= .25 tit l es/labo r-hr

14 t i t les/day

32 labor-hrs

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Old System :

14 t i t les/day Overhead = $800 /d ay New System:

8 t i t les/day

32 labor-hrs =

Old labo r

product iv i ty = .25 t i t les/labor-hr

14 t i t les/day

32 labor-hrs =

New labo r product iv i ty

= .4375 t i t les/labor-hr

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Old System :

14 t i t les/day Overhead = $800 /d ay

New System:

= Old mu lt i factor

product iv i ty

8 t i t les/day

$640 + 400

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Old System :


New System:

8 t i t les/day

$640 + 400


product iv i ty

= .0077 t i t les/dol lar

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Old System :


New System:

8 t i t les/day

$640 + 400


product iv i ty

= New mult i factor product iv i ty


14 t i t les/day

$640 + 800

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Old System :


New System:

8 t i t les/day

$640 + 400

14 t i t les/day

$640 + 800


product iv i ty

= New mult i factor product iv i ty



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INTRO-OM