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Operations ManagementOperations Management
Systematic direction, control, and evaluation ofSystematic direction, control, and evaluation ofthe entire range of processes that transformthe entire range of processes that transform
inputs into finished goods or services.inputs into finished goods or services.
Environmental factors-culture, political, andEnvironmental factors-culture, political, andmarket influencesmarket influences
Inputs-HR, capital, materials, land, energy,Inputs-HR, capital, materials, land, energy,information, customerinformation, customer
Transformations-convert inputs into outputsTransformations-convert inputs into outputs
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O.M. (cont)O.M. (cont)
Outputs-goods or services, and wasteOutputs-goods or services, and waste
Customer Contact-customers activelyCustomer Contact-customers activelyparticipate in transformationparticipate in transformationprocesses, self-serviceprocesses, self-service
Performance Feedback-repairPerformance Feedback-repair
records, customer commentsrecords, customer comments
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Operations ManagementOperations ManagementOperations ManagementOperations Management
Refers to the management of the productionRefers to the management of the production
system that transforms inputs into finishedsystem that transforms inputs into finished
goods and services.goods and services.
Production system:Production system: the way a firm acquiresthe way a firm acquiresinputs then converts and disposes outputs.inputs then converts and disposes outputs.
Operations managers:Operations managers: responsible for theresponsible for thetransformation process from inputs to outputs.transformation process from inputs to outputs.
Operations management seeks to increaseOperations management seeks to increasethe quality, efficiency, and responsivenessthe quality, efficiency, and responsiveness
of the firm.of the firm.
Seeks to provide a competitive advantage.Seeks to provide a competitive advantage.
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Operations ManagementOperations Management
ConceptsConcepts
Operations ManagementOperations Management
ConceptsConcepts QualityQuality:: goods and services that are reliablegoods and services that are reliableand perform correctly.and perform correctly.
Quality allows customers to receive theQuality allows customers to receive theperformance that they expect.performance that they expect.
EfficiencyEfficiency:: the amount of input to produce athe amount of input to produce a
given output.given output.
Less input required lowers cost and waste.Less input required lowers cost and waste.
Responsiveness to customersResponsiveness to customers::
actionsactionstaken to respond to customer needs.taken to respond to customer needs.
Firm can react quickly and correctly to customerFirm can react quickly and correctly to customerneeds as they arise.needs as they arise.
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Differences BetweenDifferences Between
Services and GoodsServices and Goods Information AsymmetryInformation Asymmetry
IntangibleIntangible
InventoryInventory
Customer ContactCustomer Contact
Response TimeResponse Time
Labor IntensityLabor Intensity
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Typical Characteristics of Services andTypical Characteristics of Services and
Goods ProducersGoods Producers
Primarily ServicePrimarily ServiceProducersProducers
PrimarilyPrimarily
GoodsGoodsProducersProducers
Continuum ofContinuum ofCharacteristicsCharacteristics
Intangible, nondurable
Output cant beinventoried
High customer contact
Short response time
Labor intensive
Tangible, durable
Output can beinventoried
Low customer contact
Long response time
Capital intensive
MixedMixed
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Positioning Strategies-Positioning Strategies-
approach selected forapproach selected for
transformational processestransformational processes Process Focus-layout of plant andProcess Focus-layout of plant and
equipment around eachequipment around each
production unitproduction unit
custom madecustom made Low VolumeLow Volume
Norwegian Ship BuildingNorwegian Ship Building
Product Focus-arranging plantProduct Focus-arranging plantand equipment around one or aand equipment around one or a
few output typesfew output types
many of one productmany of one product
high-volume, highlyhigh-volume, highly
automatedautomated
low flexibilitylow flexibility
Factory LinesFactory Lines
Intermediate Strategy-plantIntermediate Strategy-plantand equipment layout reflectsand equipment layout reflects
some of both strategiessome of both strategies
batches of productsbatches of products
Kinko's, Ball HomesKinko's, Ball Homes
Agile Strategy-massAgile Strategy-masscustomizationcustomization
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FlexibilityFlexibility
Product Flexibility-speed with which products are created,Product Flexibility-speed with which products are created,ability to customize, ability to modify products for specialability to customize, ability to modify products for specialneedsneeds
Volume Flexibility-ability to respond to sudden changes inVolume Flexibility-ability to respond to sudden changes indemand, change from small to full scaledemand, change from small to full scale
Process Flexibility-ability to manufacture a variety ofProcess Flexibility-ability to manufacture a variety ofgoods in a short time, adjust to product mix over time,goods in a short time, adjust to product mix over time,
ability to accommodate changes in raw materialsability to accommodate changes in raw materials
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Core Positioning StrategiesCore Positioning Strategies
Process focus
Space shuttle
Legal practice
Product focus
Auto assembly
plant
Mail processingIntermediate
Garment
industry
Branch banks
Product volumeProduct volume
Custom products,low volume
Standard products,high volume
Mixture of custom and standardproducts, moderate volume
Continuous
process(stable)
Resour
ceflo
ws
Resou r
ceflows
Massproduction
Largebatch
Sporadic(unstable)
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Improving Responsiveness toImproving Responsiveness to
CustomersCustomersImproving Responsiveness toImproving Responsiveness to
CustomersCustomers Without customers, organizations cease to exist.Without customers, organizations cease to exist.
Non-profit and for-profit firms all have customers.Non-profit and for-profit firms all have customers.
Managers need to identify who the customer is and their needs.Managers need to identify who the customer is and their needs.
What do customers want? Usually customers prefer:What do customers want? Usually customers prefer:
AA lower pricelower price to a higher price.to a higher price.
High qualityHigh quality over low quality.over low quality.Fast serviceFast service over slow service.over slow service.
Also good after sale support.Also good after sale support.
Many featuresMany features over few features.over few features.
Products tailoredProducts tailored to their specific needs.to their specific needs.
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Quality-how well a productQuality-how well a product
does what the customerdoes what the customer
expectsexpects Internal View-within the organizationInternal View-within the organization
External View-value customersExternal View-value customersexpectexpect
Value-the relationship betweenValue-the relationship betweenquality and pricequality and price
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Competitiveness Value MapCompetitiveness Value Map
Relative QualityRelative QualitySuperiorInferior
Higher
Lower
Poorvalue
Relati
ve
Price
Relative
Pri
ce
Economy
value Outstanding
value
Premium
value
Average
value
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PricePrice v.v. AttributesAttributesPricePrice v.v. AttributesAttributes
Firms offering high quality, fast service and otherFirms offering high quality, fast service and other
customer desires, often must raise price.customer desires, often must raise price.
Customers mustCustomers must tradeoff price for attributestradeoff price for attributes..
Operations management tries toOperations management tries to push thepush theprice/attribute curve to the rightprice/attribute curve to the right with betterwith better
production.production.
Provides more attributes at the same cost.Provides more attributes at the same cost.
By enhancing the price/attribute relationship, the firm canBy enhancing the price/attribute relationship, the firm canincrease its competitive position.increase its competitive position.
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Customer Responsive ProductionCustomer Responsive Production
SystemsSystemsCustomer Responsive ProductionCustomer Responsive Production
SystemsSystems
An outputs attributes is determined byAn outputs attributes is determined by
the production system.the production system.
Firms must strike a balance between costFirms must strike a balance between cost
and attributesand attributes Improving QualityImproving Quality:: can apply to firmscan apply to firms
producing goods and services.producing goods and services.
A firm that provides higher quality thanA firm that provides higher quality than
others at the same price is more responsiveothers at the same price is more responsiveto customers.to customers.
Higher quality can also lead to betterHigher quality can also lead to betterefficiency.efficiency.
Lowers waste levels and operating costs.Lowers waste levels and operating costs.
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Total Quality ManagementTotal Quality Management
The continuous process of ensuringThe continuous process of ensuringevery aspect of production builds inevery aspect of production builds in
product qualityproduct qualityTraditional Quality-product inspectionTraditional Quality-product inspection
during or at the end of theduring or at the end of the
transformation processtransformation process
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Total Versus TraditionalTotal Versus Traditional
QualityQualitys Quality is a strategic issue
s Plan for quality
s Quality is everybodys responsibility
s Strive for zero defects
s Quality means conformance to
requirements that meet or exceed
customers expectations
s
Scrap and reworking are only a smallpart of the costs of nonconformance
Traditional Quality ControlTraditional Quality ControlTotal Quality ManagementTotal Quality Management
s Quality is a tactical issue
s Screen for quality
s Quality is the responsibility of the
quality control department
s Some mistakes are inevitable
s Quality means inspection
s Scrap and reworking are the major
costs of poor quality
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Improving EfficiencyImproving EfficiencyImproving EfficiencyImproving Efficiency
Labor productivityLabor productivity allows labor comparisonsallows labor comparisons
between organizations.between organizations.
Improved efficiency leads to lower costs and betterImproved efficiency leads to lower costs and betterperformance.performance.
TQM and EfficiencyTQM and Efficiency::TQM can lead to much higherTQM can lead to much higherlabor productivity.labor productivity.
When quality rises, less time is wasted on scrap.When quality rises, less time is wasted on scrap.
Flexible manufacturing and efficiencyFlexible manufacturing and efficiency:: reducesreduces
the set-up costs for production systems.the set-up costs for production systems.
Facilities layoutFacilities layout: seeks to design the: seeks to design the
machine-worker interface to increasemachine-worker interface to increase
production efficiency.production efficiency.
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Efficient ManufacturingEfficient ManufacturingEfficient ManufacturingEfficient Manufacturing Most firms face major expense when setting up toMost firms face major expense when setting up to
produce a product.produce a product.
These costs must be paid before production begins.These costs must be paid before production begins. The more often products to be built change, the higher setupThe more often products to be built change, the higher setup
costs become.costs become.
Flexible Manufacturing reduces setup costs.Flexible Manufacturing reduces setup costs.Just-in-Time (JIT) inventoryJust-in-Time (JIT) inventory,, while developed forwhile developed for
TQM, also adds to efficient production.TQM, also adds to efficient production.
Many costs are reduced including warehousing, holdingMany costs are reduced including warehousing, holding
costs and inventory tracking.costs and inventory tracking. Firm does not have a supply of parts, but can be vulnerable toFirm does not have a supply of parts, but can be vulnerable tostrikes or supply problems.strikes or supply problems.
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Efficient ManufacturingEfficient ManufacturingEfficient ManufacturingEfficient Manufacturing Self-managed teamsSelf-managed teams boost efficiency by allowing forboost efficiency by allowing fora flatter organization structure.a flatter organization structure.
The team takes the role of the supervisor.The team takes the role of the supervisor.
Teams working together often become very skilled atTeams working together often become very skilled atenhancing productivity.enhancing productivity.
KaizenKaizen:: Japanese term for a management philosophyJapanese term for a management philosophythe stresses the need for continuous improvement.the stresses the need for continuous improvement.
Better operations can come from many, small, continuousBetter operations can come from many, small, continuousimprovements.improvements.
Focus on what adds value to the product and try to eliminateFocus on what adds value to the product and try to eliminatesteps that do not add value (such as inspection for defects).steps that do not add value (such as inspection for defects).
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ReengineeringReengineeringReengineeringReengineering Process ReengineeringProcess Reengineering::the fundamental rethinking andthe fundamental rethinking and
radical redesign of the business process.radical redesign of the business process.Can boost efficiency by directing efforts to activities that addCan boost efficiency by directing efforts to activities that add
value to the good or service produced.value to the good or service produced.
While Kaizen focuses on continuous enhancements, processWhile Kaizen focuses on continuous enhancements, processreengineering considers wholesale change.reengineering considers wholesale change.
Top managers must support operations enhancement toolsTop managers must support operations enhancement toolsfor them to be accepted by workers.for them to be accepted by workers.
Usually, a successful operations change means a completeUsually, a successful operations change means a completechange in the organizational culture.change in the organizational culture.
Without a supporting culture, change will not succeed.Without a supporting culture, change will not succeed.
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Nine Categories of OperationsNine Categories of Operations
Management DecisionsManagement Decisions
Product plansProduct plans Competitive PrioritiesCompetitive Priorities
Positioning StrategiesPositioning Strategies
LocationLocation
Technological ChoicesTechnological Choices Quality management and controlQuality management and control
Inventory management and controlInventory management and control
Materials ManagementMaterials Management
Master production schedulingMaster production scheduling
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Inventory CostsInventory Costs What contributes to inventory costs?What contributes to inventory costs?
TOTAL COST = ORDERING + CARRYINGTOTAL COST = ORDERING + CARRYING Carrying CostsCarrying Costs
WarehouseWarehouse
InsuranceInsurance
ObsolescenceObsolescence
taxestaxes
breakagebreakage
Ordering CostsOrdering Costs
Placing the orderPlacing the order
TransportationTransportation
ShortageShortage
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Inventory TermsInventory Terms
Lead TimeLead Time Elapsed time between placing and receiving an orderElapsed time between placing and receiving an order
EOQ-economic order costEOQ-economic order cost
optimum order quantity yielding the lowest totaloptimum order quantity yielding the lowest total
inventory costinventory cost
Just-in-timeJust-in-timefinished goods to sellfinished goods to sell
sub assemblies to be assembledsub assemblies to be assembled
purchases of raw materials to be transformedpurchases of raw materials to be transformed
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Quantity (Q)Quantity (Q)
HighHigh
LowLow
Ave
ragean
nual
cost($
)
Ave
ragean
nual
cost($
) Total cost
Carrying cost
Order cost
SmallSmall LargeLargeQ1
Cost Trade-Offs in DeterminingCost Trade-Offs in Determining
Inventory LevelsInventory Levels
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THANK YOUTHANK YOU