BOH4M

BOH4MCHAPTER 17

Operations management◦ Managing productive systems that transform

resources into finished products, goods, and services for customers.

◦ Typical operations management decisions include: Resource acquisition Inventories Facilities Workflows and technologies Product quality

Management 2e - Chapter 17 2

Productivity• Quantitative measure of the

efficiency with which inputs are transformed into outputs.

• Productivity = Output / Input.Competitive advantage

• A core competency that clearly sets an organization apart from competitors and gives it an advantage over them in the marketplace. Management 2e - Chapter 17 3

Companies may achieve competitive advantage in many ways, including:

Product innovations Customer service Speed to market Manufacturing flexibility Product/service quality


Technology◦ The combination of knowledge, skills,

equipment, computers, and work methods used to transform resource inputs into organization outputs. Manufacturing technology. Service technologies.


Core manufacturing technologies:◦ Small-batch production.

A variety of custom products are tailor-made to order.◦ Mass production.

A large number of uniform products are made in an assembly-line system.

◦ Continuous-process production. A few products are made by continuously feeding raw

materials through a highly automated production system with largely computerized controls.


Manufacturing technology trends◦ Robotics◦ Flexible manufacturing systems◦ Mass customization◦ Cellular layouts◦ Computer-integrated manufacturing◦ Lean production◦ Design for disassembly◦ Remanufacturing


Core service technologies:◦ Intensive technology

Focuses the efforts of many people with special expertise on the needs of patients or clients.

◦ Mediating technology Links together parties seeking a mutually

beneficial exchange of values.◦ Long-linked technology

Functions like mass production, where a client is passed from point to point for various aspects of service delivery.


Value chain◦ Sequence of step-by-step activities resulting in

finished goods or services with customer value.

Supply chain management◦ Supply chain management is the strategic

management of all operations relating to an organization’s resource suppliers.


Figure 17.1 Elements in an organization’s value chain.


Inventory control◦Goal is to ensure that inventory is

just the right size to meet performance needs, thus minimizing the cost.

◦Methods of inventory control: Economic order quantity Just-in-time scheduling


Inventory control◦Economic order quantity

Inventory replenished with fixed quantity order when inventory falls to predetermined level.

◦Just-in-time scheduling Materials arrive at workstation or facility

‘just-in-time’ for use. Virtually eliminates carrying costs of

inventories.


Figure 17.2 Inventory control by economic order quantity (EOQ).


Break-even analysis Determination of the point at which sales revenues are sufficient to cover costs.◦Break-Even Point =

Fixed Costs / (Price – Variable Costs)◦Used in evaluating:

New products New program initiatives


Figure 17.3 Graphical approach to break-even analysis.


Customer relationship management – Establishes and maintains high standards of

customer service in order to strategically build lasting relationships with and add value to customers. • External customers purchase the organization’s

goods or utilize its services.• Internal customers are the persons and groups

within an organization who depend on the results of others' work to do their own jobs.


Customer Relationship Management (CRM)◦ Uses latest technologies for intensive

customer communication and collection of data regarding customer needs and desires.

◦Establishes and maintains high standards of customer service.


Figure 17.4 The importance of external and internal customers.


Total quality management (TQM)◦Quality principles are an integral

part of organization’s strategic objectives. Applying them to all aspects of

operations. Committing to continuous improvement. Striving to meet customers’ needs by

doing things right the first time.Management 2e - Chapter 17 19

ISO (International Standards Organization) certification ◦ Adopted by many countries as quality benchmark.

◦ Companies undergo rigorous audit to determine if ISO requirements are met.

◦ Focus is on customer service and product quality.


Quality and Continuous Improvement◦W. Edwards Deming emphasized:

Constant innovation. Use of Statistical methods. Training in the fundamentals of quality

assurance.◦ Continuous improvement ◦ Quality circles


Continuous improvement• Constant search for new ways to improve current

performance.• Reduce cycle time between order receipt and

delivery.

Quality circle• Small group of workers who meet to improve

quality• Assumes responsibility for quality• Taps into members’ creativity


Statistical quality control◦ Uses rigorous statistical analysis for checking

processes, materials, products, and services to ensure that they meet high standards. Takes random work samples Measures quality in samples Determines acceptability Unacceptable quality results in corrective action “Six Sigma” common example of SQC


Figure 17.5 Sample control chart showing upper and lower control limits.


Process reengineering◦ Systematic and complete analysis of work

processes.◦ Design of new and better work processes.

Work process◦ “A related group of tasks that create a result of

value for the customer.” (Michael Hammer)Workflow

◦ Movement of work from one point to another in the manufacturing or service delivery process.


Process value analysis◦ Core processes are identified and evaluated

for their performance contributions. Each step in workflow is examined Step is eliminated if not found to be

important, useful, and contributing to the value added


Steps in reengineering core processes:◦ Identify core processes.◦ Map core processes in respect to workflows.◦ Evaluate all tasks for core processes.◦ Search for ways to eliminate unnecessary tasks

or work.◦ Search for ways to eliminate delays, errors, and

misunderstandings.◦ Search for efficiencies in how work is shared

and transferred among people and departments.


Figure 17.6 How reengineering can streamline work processes.


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