USING OPERATIONS TO COMPETE

1 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

USING OPERATIONS

TO COMPETE 1

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Operations Management

The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, 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 to the satisfaction of the customers

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Across the Organization

Material & Service Inputs

Sales Revenue

Product & Service Outputs

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

Figure 1.1

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A Process View

External environment

Information on performance

Internal and external customers

Processes and operations

1

2

3

4

5

Inputs

• Workers

• Managers

• Equipment

• Facilities

• Materials

• Land

• Energy

Outputs

• Goods

• Services

Figure 1.2

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A Process View

• 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

More like a manufacturing

process

More like a service process

Figure 1.3

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The Supply Chain View

Support Processes

Ex

tern

al s

up

pli

ers

Ex

tern

al c

us

tom

ers

Supplier relationship process

New service/ product development

Order fulfillment process

Customer relationship management

Figure 1.4

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The Supply Chain View

Core processes are sets of activities that deliver value to external customers

1. Supplier relationship process

2. New service/product development process

3. Order fulfillment process

4. Customer relationship process

Support processes provide vital resources and inputs to the core processes

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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

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Operations Strategy

Specifies the means by which operations implements corporate strategy and helps build a customer-driven firm

Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization's functions

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Operations Strategy

Figure 1.5

Corporate Strategy

• Environmental scanning

• Core competencies

• Core processes

• Global strategies

Market Analysis

• Market segmentation

• Needs assessment

Competitive Priorities

• Cost

• Quality

• Time

• Flexibility

New Service/

Product Development

• Design

• Analysis

• Development

• Full launch

Operations Strategy

Decisions

• Managing processes

• Managing supply chains

Competitive Capabilities

• Current

• Needed

• Planned

Performance

Gap?

No

Yes

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Corporate Strategy

Environmental scanning

Developing core competencies

1. Workforce

2. Facilities

3. Market and financial know-how

4. Systems and technologies

Developing core processes

Global strategies

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Market Analysis

Market segmentation

Needs assessment

Service or product needs

Delivery system needs

Volume needs

Other needs

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TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES

COST Definition Process Considerations Example

1. 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

2. Top quality Delivering an outstanding service or product

May require a high level of customer contact and may require superior product features

Ferrari

3. 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

4. Delivery speed Quickly filling a customer’s order

Design processes to reduce lead time

Dell

5. On-time delivery

Meeting delivery-time promises

Planning processes to increase percent of customer orders shipped when promised

United Parcel Service (UPS)

6. Development speed

Quickly introducing a new science or a product

Cross-functional integration and involvement of critical external suppliers

Li & Fung

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TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES

FLEXIBILITY Definition Process Considerations Example

7. Customization Satisfying the unique needs of each customer by changing service or products designs

Low volume, close customer contact, and easily reconfigured

Ritz Carlton

8. Variety Handling a wide assortment of services or products efficiently

Capable of larger volumes than processes supporting customization

Amazon.com

9. 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)

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Order Winners and Qualifiers S

ale

s (

$)

Achievement of competitive priority

Low High

Order Winner

Figure 1.6

Sa

les

($

)

Achievement of competitive priority

Low High

Order Qualifier

Threshold

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Using Competitive Priorities

Customer relationship

Top quality

Consistent quality

Delivery speed

Variety

New service development

Development speed

Customization

Top quality

At an airline

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Order fulfillment

Low-cost operations

Top quality

Consistent quality

On-time delivery

Variety

At an airline

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Supplier relationship

Low-cost operations

Consistent quality

On-time delivery

Variety

Volume flexibility

At an airline

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Operations Strategy

TABLE 1.3 | 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% Acceptable No action

Delivery speed Lead time to process merchant payments

48 hours Acceptable No action

Volume flexibility Utilization 98% Too high to support rapid increase in volumes

Acquire temporary employees

Improve work methods

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Trends in Operations Management

Productivity improvement

Global competition

Ethical, workforce, and environmental issues

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Productivity Improvement

Value of Input resources : wages, cost of equipment, and so on…

Value of Outputs : Services and Products

Labor productivity

Output per person or per hour worked

Machine productivity

Output per number of machine

Multifactor productivity

Output provided by more than one of the resources

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OM as a Set of Decisions

In practice, managers make strategic and tactical decisions

1. Each part of the organization designs and operates processes

2. Each function is connected through shared resources

Using Operations to Compete Managing Effective Projects

COMPETING WITH OPERATIONS

Developing a Process Strategy Analyzing Processes

Managing Quality Planning Capacity

Managing Process Constraints Designing Lean Systems

DESIGNING AND MANAGING PROCESSES

Designing Effective Supply Chains Integrating the Supply Chain

Locating Facilities Managing Inventories Forecasting Demand

Planning and Scheduling Operations Planning Sufficient Resources

DESIGNING AND MANAGING SUPLY CHAINS

Figure 1.7

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Challenges in OM

Part 1: Competing with operations

Part 2: Designing and managing processes

Part 3: Designing and managing supply chains

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Solved Problem 1

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Solved Problem 1

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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?

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Solved Problem 2

SOLUTION

Labor productivity = = $20,680

360 hours

Output

Input

Labor hours of input = 360 hours

Value of output = (52 defective 90/defective)

+ (80 garments 200/garment)

= $20,680

= $57.44 in sales per hour

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USING OPERATIONS TO COMPETE