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DSC 2006 Operations Management Semester II, 2012/2013
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Lecturer: Lucy G. Chen Office: BIZ 1, #08-60 Phone: 6516-3013 Email: [email protected] Consultation: Thu, 4 - 6pm, or by appointment
DSC 2006, Operations Management, Lucy Chen
Course Administration Be punctual!
Five-minute break.
Cell phones should be turned off or silent.
Laptops are generally not allowed in class.
Class participation – attitude, comments, attendance
Exams Closed book, one double sided A4 sheet is allowed Midterm – no make-up exam. Please make sure there is no
time conflict.
2 DSC 2006, Operations Management, Lucy Chen
Pointers for Success Communication – feel free to talk to me about any issues
that may come up
Foresight and Planning – job interview, other courses, etc.
Respect – policies, people, time
Course as a Package – course has a number of dimensions which are expected to accentuate learning
Think Big Picture – beyond this semester
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Introduction to Operations Management
What is operations management?
Why is operations important?
How does operations contribute to a firm?
How does operations relate to your interests?
4 DSC 2006, Operations Management, Lucy Chen
Introduction to Operations Management
What is operations management?
Why is operations important?
How does operations contribute to a firm?
How does operations relate to your interests?
5 DSC 2006, Operations Management, Lucy Chen
Common Response
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Airplane Boarding Strategies
Boarding strategies normally used First class -> Business class -> Coach class Coach class in groups back to front (Northwest Airlines) window to aisle (United Airlines) first come, first board (Southwest Airlines)
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DSC 2006, Operations Management, Lucy Chen
Airplane Boarding Strategies
Why does boarding strategy matter? For an airplane, cutting ground time between flights
from an hour to 40 minutes creates one or two more flights a day!
Four to five minutes boarding time savings generate $1 million per year (United Airlines).
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DSC 2006, Operations Management, Lucy Chen
Airplane Boarding Strategies
Reverse pyramid by America West Saves boarding time by over
2 minutes (20% saving)
OM tools applied: Process Analysis Capacity Planning Queuing Analysis Linear Programming
“Reverse pyramid”
9 DSC 2006, Operations Management, Lucy Chen
What is Operations Management? Management of systems or processes that
create goods and/or provide services. Manage processes to better match supply and
demand
Restructure operations to improve performance and remain competitive in the face of ever changing business conditions
Find the right balance between multiple measures of performance
10 DSC 2006, Operations Management, Lucy Chen
The Process View
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Value-adding Transformation Process
Inputs Outputs
Feedback
(Raw materials Customers, Resources, etc.)
(Goods, Services)
DSC 2006, Operations Management, Lucy Chen
Value-added: The difference between the cost of inputs and the value or price of outputs.
Control Feedback
Feedback
Example: Food Processor
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Inputs Processing Outputs
Canned vegetables
Raw vegetables Metal sheets Water Energy Labor Building Equipment
Cleaning Making cans Cutting Cooking Packing Labeling
DSC 2006, Operations Management, Lucy Chen
Example: Hospital
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Inputs Processing Outputs
Healthy patients
Doctors, nurses Hospital Medical supplies Equipment Laboratories
Examination Surgery Monitoring Medication Therapy
Goods vs. Service Characteristic Goods Service Output Tangible Intangible Uniformity of output High Low Uniformity of input High Low Labor content Low High Measurement of productivity Easy Difficult Customer contact Low High Opportunity to correct quality problems before delivery High Low Inventory Much Little Evaluation Easy Difficult Patentable Usually Not Usually
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Introduction to Operations Management
What is operations management?
Why is operations important?
What is the role of operations within a firm?
How does operations relate to your interests?
17 DSC 2006, Operations Management, Lucy Chen
Why is Operations Important? Importance as a leading economic indicator Purchasing managers’ index (PMI) Durable goods orders
50% or more of the jobs in industry are operations-related: Customer Service Quality Assurance Production Planning Scheduling Inventory Management Logistics
In every company, there is usually an underlying value-adding product transformation that needs to be well-managed
Operations activities are at the core of all business organizations.
18 DSC 2006, Operations Management, Lucy Chen
Three Major Business Functions
Operations
Finance Marketing
• Budgeting • Economic analysis of
investment proposals • Provision of funds … …
• Competitor • Customer preference • Trend of technology …
…
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• Fulfillment lead time • Judgment of
manufacturability
• Financial indicators
Why is Operations Important?
20 DSC 2006, Operations Management, Lucy Chen
Introduction to Operations Management
What is operations management?
Why is operations important?
How does operations contribute to a firm?
How does operations relate to your interests?
21 DSC 2006, Operations Management, Lucy Chen
The Strategic Role of Ops
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A company’s “operations” function is
either a competitive weapon or
a corporate millstone. It is seldom neutral.
---- C. Wickham Skinner
DSC 2006, Operations Management, Lucy Chen
The Cold Hard Facts -- Competition
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Dimensions of Competitiveness
Price
Quality
Time
Flexibility
... …
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Order Winners vs. Order Qualifiers
Order Qualifiers Characteristics that potential customers perceive
as minimum standards
Order Winners Characteristics of an organizations’ goods or
services that cause them to be perceived better than the competition
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Order Winners vs. Operational Capability
Price
Quality
Delivery Lead Time
Flexibility
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Low cost process
High quality process
Fast process
Flexible process
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A Strategic Framework for Ops
Business Strategy
Desired Capabilities
Processes Resources Operations Structure
DSC 2006, Operations Management, Lucy Chen
Strong as always… as of 2009 $405.6 Billion Revenue (7% increase from 2008)
$95 Billion Gross Profit (8% increase from 2008)
Competitive Success through Operations: Wal-Mart
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Order Winner
Paris Hilton on Wal-Mart:
"I went to Wal-Mart for the first time. I always thought they sold wallpaper. I didn’t realize it has everything. You can get anything you want there for really, really cheap."
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Wal-Mart K-Mart Target
Price 84% 6% 11% Selection of products 70% 5% 25% In-stock merchandise 66% 5% 28% Convenience 57% 14% 29% Parking 48% 14% 38% Service 48% 6% 46%
Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics north America, July 23, 2003
“Which store is the best at each of the following aspects?”
Order Winner
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Wal-Mart Business Strategy
(Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices
Operations Strategy/Capability
– Short flow times – Low inventory levels
Operations Structure – EDLP (everyday low prices) – Fast transportation system
– Hub & Spoke distribution – Cross docking
– Supplier management, use of technology (e.g., EDI, RFID)
– Big stores offer economy of scale and variety
DSC 2006, Operations Management, Lucy Chen
Order Winners – Low price – Variety – Convenience
Compatible!
The Romance of
$16.82 $9.94
$24.96
Business Strategy
Operational Strategies
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More Success through Ops
Southwest Airlines
Dell Inc.
McDonald’s
… …
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Tradeoff of Priorities
Wal-Mart K-Mart Target
Quality of products 44% 5% 51%
Cleanliness 30% 3% 67%
Checkout 40% 10% 50%
“Which store is the best at each of the following aspects?”
Can’t Be Good At Everything.
Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics north America, July 23, 2003
34 DSC 2006, Operations Management, Lucy Chen
Low price
Quality
Strategic Tradeoffs
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Low price
Quality
Tradeoffs and Efficient Frontier
World class
Improvement
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Low price
Quality
Tradeoffs and Efficient Frontier
Improvement
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World class
Introduction to Operations Management
What is operations management?
Why is operations important?
How does operations contribute to a firm?
How does operations relate to your interests?
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How Does Ops Relate to your Interests?
Consulting Analyzing and improving business processes SCM and use of ERP systems to achieve SC efficiency is a hot topic Problem solving – modeling and analysis
Finance How healthy is that company? Balance the upside versus the downside – risk analysis How do financial objectives relate to operational measures
Marketing Sales promotions and their impact on operational performance Level of customization – how to achieve it at low cost Order qualifiers and winners
Accounting What is the cost of making this product – Activity based or time
based Are inventories assets or liabilities?
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Salary of Executives
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Medium Annual Pay (base salary + bonus+ benefit, in USD)
www.salary.com, Jan 2013, New York City
Chief Executive Officer $1,442,640 Chief Operating Officer $812,646 Chief Financial Officer $591,634 Chief HR Executive $343,501 Chief Marketing Executive $333,883 Chief Purchasing Executive $261,012
DSC 2006, Operations Management, Lucy Chen
Today’s Takeaways What is Operations Management about? Design operations to better match supply with demand. A set of quantitative models and qualitative strategies.
Why is operations important? Contribute to a company’s bottom line Relationship between Ops and marketing, Ops and Finance.
Order winners and order qualifiers
Strategic tradeoffs and operations frontier
Operational capabilities and structures have to be compatible with firm strategy
DSC 2006, Operations Management, Lucy Chen 41
Assignments Readings: Chapters 1 & 2 (excluding pages 50-56)
Tutorial Questions: Please see IVLE.
Experiential Exercises: Select two stores that you shop at regularly and identify their order winners.
Quiz of the Day: Assume Walmart decides to enter the Singapore market. What will be the challenges for Walmart as well as the incumbent firms such as NTUC Fairprice, Cold Storage, Sheng Siong, and Giant? Do you think Wal-mart will succeed?
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