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Operations Management, Competitiveness, and Operations Strategy

Lecture 1

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Operations FunctionTransformation from inputs to outputs

OperationsOutputs

ProductsServices

InputsLabourMaterialsCapital

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Operations FunctionInterfaces

Operations

Personnel

Purchasing

Finance

Marketing

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Operations Manager

• Manages the transformation process– setup the processes

– monitors the process

– makes key decisions

– develops strategy to manage changes

– objective: system runs on its own

• Employs bulk of the staff• Great opportunities to cut costs and beat

competition

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Operations ManagementBody of knowledge to help Operations Managers

• Modern history – Taylor, Gantt, Hawthorne studies, Henry Ford

• 80’s – realization mass production not flexible

– insufficient quality control

• 90’s – TQM revolution

– Adoption of modern IE techniques

– Globalization,

– Growth of Service Sector

– Increased competition

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Increased Globalization

• Falling trade barriers and protected markets

• More export business

• Table 1.3

• Internet and e-commerce

• Remaining bottlenecks:– distribution channels and infrastructure– political stability

• Downside: regional problems affect all

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Increased Service Sector

• Overtakes manufacturing

• Employs ~80% labour worldwide

• 75% of US GDP

• Sole source of net employment gain

• Same OM techniques being applied

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Increased Competitiveness• Defined as

– degree to which a nation can, under demanding and rapidly changing market conditions, produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens.

• Effect of Globalization– more customers

– more competitors

• Effect of Service Sector– more eagerness to please

– increased customer focus

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Competitiveness Measures

• GDP

• Import/Export Ratio

• Output/Input Ratio (Productivity)

• Fig 1.8

10Ch 1 - 25© 2000 by Prentice-Hall Inc

Russell/Taylor Oper Mgt 3/e

Changes In Input and Output

. .

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Trends and Issues in OMOperational Strategies needed to address

1. Industrial Competition

2. Distances

3. Partnership and Alliances

4. Mass Customization

5. Services

6. Quality

7. Flexibility

8. Technology

9. Human Resources concerns

10. Environment

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Operational StrategyFormulation Must Determine:

1. Primary task of firm

2. Core competencies

3. Order qualifiers and winners

4. Position of the firm in the marketplace

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Primary Task of Firm• Beyond Vision and mission statements

– HR tools for aligning staff on common course

– Vision statement: general future direction

– Mission statement: current state

• Exploit current – competencies for customers

– internal competencies

• Consider new – products and services

– competencies

– markets

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Core Competencies

• What are we best at?

• What competency beats the competition?

• What process (not product) are we good at?– Requires change in focus from What to How

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Order Qualifiers and Winners

• Order Qualifiers– how do we get the customer’s attention

• Order Winners– how do we get the purchase from the customer

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Positioning the FirmHow Do We Compete?

• Minimize Cost– within quality limits

• Maximize Quality (e.g. customer satisfaction)

– within cost limits

• Maximize Flexibility (e.g. mass customization)

– within cost and quality limits

• Maximize Speed of Delivery– within cost and quality limits

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Operational StrategyMust address decisions related to:

1. Products and services

2. Process and Technology

3. Capacity and Facilities

4. Human Resources

5. Quality

6. Sourcing

7. Operating Systems

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Products and Services

• Make-to-order vs.

• Make-to-stock vs.

• Assemble-to-order

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Process and Technology

• Products– Projects

– Batch Production

– Mass Production

– Continuous Production

• Based on – Volume

– Standardization

• Services– Professional Service

– Service Shop

– Mass Service

– Service Factory

• Based on– Labour Intensity

– Customization

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Capacity and Facilities

• Demand: All, Average or Given

• Granularity: Large or small

• Excess: Overtime, extra shift or subcontract

• Centralized vs. Distributed

• General vs. specialized

• Location: labour, market or supply

• Globalization: where and how.

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Human Resources

• Skill levels

• Training

• Compensation

• Incentives

• Profit Sharing

• Management style

• Levels of management

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Quality

• Targets

• Measures

• Conformance

• Areas of focus

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Sourcing

• Vertical integration vs.. Outsourcing

• Supply management

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Operating Systems

• IT Support for – customers– workers– management

• Planning and Control Systems

• Inventory Systems

• Training in Decision Analysis