POM as Competitive Weapon1

8/8/2019 POM as Competitive Weapon1

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Operations as aCompetitive Weapon


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So, what is management?

Classic definition: Getting thingsdone through people. This assumes you are managing people.

How about one person overseeing anautomated production line. There are no people to manage.

An operations manager manages people,resources and/or processes.


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Production Management

What is Production?

The act of producing To bring into existence

To create something having exchangevalue


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Definition of Operations Mgt.

Previous Edition: The direction and control of theprocesses that transform inputs into products andservices.

Our Text: The systematic design, direction, andcontrol of processes thattransform inputs into servicesand products for internal, as well as externalcustomers.

My Definition:The systematic design, direction, andcontrol of processes thatcreate or add value to services

and products for internal, as well as external customers

InputsTransformation Processes

(Adding value)Outputs


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Operations Management versusProduction Management

Production managementwastraditionally associated with goodsproduction.

Operations managementwas created forthe management of production of services.

Operations Management is now used for

both goods and services production.


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Exchange Value

Exchange

Value

Production

Management

Operations

Management

Goods

Services

Operations

Management

Services

and Goods

Exchange

Value

Current View

Traditional View


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ManufacturingInputs and Outputs

INPUTS

Raw Materials

Employees

Plant

Equipment

Financing

OUTPUTS

Consumer Goods

Materials forpurchase by otherfirms

Services

Payments toemployees


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UniversityInputs and Outputs

INPUTS Students

Faculty and Staff Facilities Equipment and

Supplies

Financing

OUTPUTS

Educated citizens

Research Public service

Payments to

employees


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Grocery StoreInputs and Outputs

INPUTS

Items for resale

Customers

Employees

Facilities and

Equipment Financing

OUTPUTS

SatisfiedCustomers

Service

Payments to

employees


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FedEx Why are they successful?

Fast

On-time deliveries

Relatively low cost

Technology in shipment tracking

O ti


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Operations as aManagement Function


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Processes

Processes should add value.

Processes can be broken down into sub-

processes, which in turn can be broken

down further.

Any process that is part of a larger process

is considered a nested process.

Each process and each nested process hasinputs and outputs.


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Examples of Processes

Manufacturing something Warehousing of raw materials Processing insurance claims Teaching a class Getting a product to the customer Taking inventory The supply chain Staff scheduling


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Nested Processes Example

Advertisement Design and Planning Process

Creative design process Receive work request Assemble team Prepare several designs Receive inputs from

Account Executive

Prepare final concept Revise concept per

clients inputs

Creative design process Receive work request Assemble team Prepare several designs Receive inputs from

Account Executive

Prepare final concept Revise concept perclients inputs

Media planning process Receive work request Prepare several media

plans Receive inputs from

Account Executive

Prepare final plan Revise plan per clients

inputs

Media planning process Receive work request Prepare several media

plans Receive inputs from

Account Executive

Prepare final plan Revise plan per clientsinputs


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Process Viewof an Ad Agency

Inpu

ts

Accounting process

Production process Prepare ad for publication

and deliver to mediaoutlets

Advertisementdesign and

planning process Create the ad to the

needs of the clientand prepare a planfor media exposure

Output interfaceprocess

Communicate withclient, get needs, andcoordinate progress

Clien

ts


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External Vs. Internal Customers

External Customers are those whopurchase the goods and services

Internal Customers are those who receivethe output of others within the firm. Theyare part of the transformation process.

Inputs fromotherprocesses

Transformation Processes(Adding value)

OutputstoExternal

orInternal

customers


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External Vs. Internal Suppliers

External Suppliers: The businesses or individuals

who provide the resources, services, products, and

materials for the firms short-term and long-term

needs. Internal Suppliers: The employees or processes

that supply important information or materials to a

firms processes.

External &

Internal

Suppliers

Transformation Process(Adding value)

Outputs toinside orto outsidecustomers


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Service Processes VersusManufacturing Processes

Manufacturing processes change materialsin one or more of the following dimensions: Physical properties

Shape Fixed dimensions

Surface finish

Joining parts and materials

If a process isnt doing at least one of these, then it isa service process (non-manufacturing) .


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Manufacturingand Service

Goods Production Tangible

Can be inventoried Low customer contact Longer response time Capital Intensive

Quality easilymeasured Goods can be shipped

Service Production Intangible

Cant be inventoried High customer contact Shorter response time Labor Intensive Quality hard to

measure Locate near customers

Most firms provide both goods and services.


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Shared Problems byManufacturing & Service

Both have to match capacity withdemand. Harder to do for service providers

Both have to worry about quality. Easier to change a service than a

product.

Both have to deal with internal andexternal customers


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Value Chains

Value chains are an interrelated seriesof processes that produce a service orproduct to the satisfaction of

customers. Any process / value chain does two

things.

Produces or adds value Consumes resources


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Core Processes and SupportProcesses

Value chains may have coreprocesses, support processes, orboth.

Core processes deliver value toexternal customers.

Support processes provide vital

inputs for the core processes


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4 Core Processes1. Customer relationship processes

Identify, attract, and build relationships with externalcustomers and facilitates the placement of orders.

1. New service/product development processes Designing and developing new services or products from

inputs received from external customer specifications.1. Order fulfillment processes

The activities required to produce and deliver the serviceor product to the external customers.

1. Supplier relationship processes Selecting suppliers of services, materials and information

and facilitates the timely and efficient flow of these itemsinto the firm.


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Productivity

Productivity is the value of outputs(services and products) produced,divided by the value of input resources(wages, costs of equipment, etc.)

Production is the process of creating something havingExchange value.

Value of OutputsValue of Inputs

Productivity =


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Measuring Productivity

Single Factor methods EG: Time or cost to produce a widget

Multi-Factor methods Combines two or more single-factor methods

EG: Cost per hour to produce widgets.

Multiple methods Several separate single-factor and/or multi-factor

methods

Best way to measure productivity


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Productivity Calculation

A team of workers make 400 units of a product, valuedby its standard cost of$10 each (before markups forother expenses and profit). The accounting departmentreports that the actual costs are $400 for labor, $1,000for materials, and $300 for overhead. Calculate theproductivity. (value of output / value of input)

Multifactor productivity =Quality at standard cost

Labor cost + Material Cost + Overhead cost

(400 units) ($10/unit)

$400 + $1000 + $300= = 2.35

$4,000

1,700=

These figures must be compared with performance levels in priorperiods and with future goals.


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How We ImproveProductivity

Decrease inputs relative to outputs

Speed up the through-put

Increase output relative to input

Improve Quality

Inputs Transformation Outputs


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History of U.S.Productivity

1950s 2.8% annual growth





(Growth is mostly from manufacturing productivity increases)


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Determinates ofNational Productivity

LABOR16%

CAPITAL20%

MANAGEMENT64%


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Service Sector

Accounts for approximately 80% of USjobs (non-farm)

Three approximately equal sectors:

1. Government Sector

2. Wholesale & Retail Sales3. Other Services


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Sector Productivityin the 90s

Productivity in the 80% service sector hadless than 1% annual growth.

Productivity in the smaller manufacturingsector increased roughly 3.6% per year.

Thus the lions share of the nations overallproductivity gain has been fromManufacturing.


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Why LowService Productivity?

Hard to automate services

Often brain work rather than machine

work

Tend to be more labor intensive

Hard to measure service productivity


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Operations as acompetitive weapon

Companies use operations to compete invarious ways: High quality Consistent quality Quick delivery Fast development High technological efficiency Low cost efficiency


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Global Competition

Businesses must accept the fact that, to prosper, they mustview customers, suppliers, facility locations, and competitorsin global terms.

Most products today are composites of materials and servicesfrom all over the world.

Forces that created increased global competition: Improved transportation and communication technologies

Loosened regulations on financial institutions

Increased demand for imported services and goods

Reduced import quotas and other trade barriers Comparative cost advantages


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Global CompetitionDisadvantages

May have to relinquish proprietarytechnology.

Political risks

Alienate U.S. customers by sending jobsoverseas.

Lower skill levels in some areas

Difficulty with cross-functional coordination Harder to produce products and services

that can compete.


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Other Challenges in OperationsManagement

Rapid Technological Change

Ethical issues

Increasing diversity of the

workforce Environmental impact issues


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Adam Smith

Economist and Philosopher

1723 - 1790

"An Inquiry into the Nature &

Causes of the Wealth of Nations,"Covered such concepts as the

role of self-interest, the division oflabor, the function of markets, andthe international implications of alaissez-faire economy.

Historic Development


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Eli Whitney

Born Dec 8 1765 - Died Jan 8 1825He translated the concept ofinterchangeable parts into amanufacturing system, giving

birth to the American mass-production concept.


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Develop a "science" for every job

Carefully select workers with the rightabilities for the job.

Carefully train these workers to do the

job, and give them proper incentives

Support these workers by planningtheir work and by smoothing the way

as they go about their jobs.

Frederick Winslow Taylor

March 20, 1856 - March 21, 1915


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Henry Ford

1863-1947

Using a constantly-movingassembly line, subdivision oflabor, and careful coordinationof operations, Ford realizedhuge gains in productivity.


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Importance of Operations

The two major functions

of business areproduction and selling. Allother functions aresecondary to these.

-- PeterDrucker


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Addressing the Challenges inOperations Management

Managing Processes

Process Strategy

Process Performance& Quality

Constraint Management

Process Layout

Lean Systems

Process Analysis

Using Operations

to Compete

Operations As aCompetitive Weapon

Operations Strategy

Project Management

Managing Value Chains

Supply Chain Strategy

Inventory Management

Location

Forecasting

Sales & OperationsPlanning

Scheduling

Resource Planning


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THANK YOU

Documents

POM as Competitive Weapon1