Session 1 Student

7/21/2019 Session 1 Student

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April 2015

April 2015

Session 1

Business Operations and Logistics:

Introduction to operations managementOperations strategy

Assistant Professor Sakda Siriphattrasophon, Ph.D.


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1 - 2 2014 Pearson Education, Inc.

Activity - Session 1


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Outline What Is Operations Management?

Organizing to Produce Goods and Services

Why Study OM?

The Heritage of Operations Management

Operations for Goods and Services

The Productivity Challenge

Productivity Measurement Productivity Variables

Productivity and the Service Sector


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Outline - Continued Strategy and Strategic Process

Strategies for Competitive Advantage

OMs Contribution to Strategy

New Challenges in OperationsManagement

Ethics, Social Responsibility, and

Sustainability


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Learning ObjectivesWhen you complete this session

you should be able to:

1. Define operations management

2. Understand and explain OMs ten strategic

decisions3. Explain the distinction between goods and

services

4. Explain the difference between productionand productivity

5. Identify and explain three strategicapproaches to competitive advantage


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What Is OperationsManagement?

Production is the creation ofgoods and services

Operations management (OM) isthe set of activities that createvalue in the form of goods and

services by transforming inputsinto outputs


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Organizing to ProduceGoods and Services

Essential functions:

1. Marketing generates demand

2. Production/operations createsthe product

3. Finance/accounting tracks how

well the organization is doing, paysbills, collects the money


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Organizational ChartsFigure 1.1

strong room


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The Supply ChainA global network of organizations and

activities that supply a firm with goods andservices

Members of the supply chain collaborate

to achieve high levels of customersatisfaction, efficiency and competitiveadvantage. Figure 1.2

Farmer Syrup Bottler Distributor Retailer producer


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Why Study OM?1. OM is one of three major functions of any

organization, we want to study how peopleorganize themselves for productiveenterprise

2. We want (and need) to know how goodsand services are produced

3. We want to understand what operations

managers do4. OM is such a costly part of an organization


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Options for IncreasingContribution

TABLE 1.1

MARKETINGOPTION

FINANCE/ACCOUNTING

OPTION OM OPTION

CURRENT

INCREASESALES

REVENUE 50%

REDUCEFINANCE

COSTS 50%

REDUCEPRODUCTIONCOSTS 20%

Sales $100,000 $150,000 $100,000 $100,000

Cost of goods 80,000 120,000 80,000 64,000

Gross margin 20,000 30,000 20,000 36,000

Finance costs 6,000 6,000 3,000 6,000

Subtotal 14,000 24,000 17,000 30,000Taxes at 25% 3,500 6,000 4,200 7,500

Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

Increases71%

Increases21%

Increases114%


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Ten Strategic OM DecisionsTABLE1.2

DECISION CHAPTER(S)

1.

Designof

goods

and

services 5,

Supplement

5

2. Managingquality 6,Supplement6

3. Processandcapacity design 7,Supplement7

4. Locationstrategy 8

5. Layoutstrategy 9

6. Humanresourcesand jobdesign 10

7. Supplychainmanagement 11,Supplement11

8.

Inventory management 12,

14,

169. Scheduling 13,15

10.Maintenance 17

What Operations Managers Do


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The Strategic Decisions1. Design of goods and services

What good or service should we offer?

How should we design these productsand services?

2. Managing quality (session 5)

How do we define quality?

Who is responsible for quality?

Table 1.2 (cont.)


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The Strategic Decisions3. Process and capacity design (S.2-4)

What process and what capacity will theseproducts require?

What equipment and technology is necessary

for these processes?4. Location strategy

Where should we put the facility?

On what criteria should we base the locationdecision?

Table 1.2 (cont.)


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The Strategic Decisions5. Layout strategy

How should we arrange the facility and materialflow?

How large must the facility be to meet our plan?

6. Human resources and job design How do we provide a reasonable work

environment?

How much can we expect our employees to

produce?

Table 1.2 (cont.)


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The Strategic Decisions7. Supply-chain management (Session 7)

Should we make or buy this component?

Who are our suppliers and who can integrate intoour e-commerce program?

8. Inventory management (Session 6) How much inventory of each item should we have?

When do we re-order?

Table 1.2 (cont.)


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The Strategic Decisions9. Scheduling (Session 9)

Are we better off keeping people on the payrollduring slowdowns?

Which jobs do we perform next?

10. Maintenance Who is responsible for maintenance?

When do we do maintenance?

Table 1.2 (cont.)


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Significant Events in OM

Figure 1.4


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Operations forGoods and Services

Manufacturers produce tangible product,services often intangible

Operations activities often very similar Distinction not always clear

Few pure services


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Characteristics of Goods Tangible product

Consistent productdefinition

Production usually

separate fromconsumption

Can be inventoried

Low customerinteraction


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Characteristics of Service Intangible product

Produced and consumedat same time

Often unique

High customer interaction Inconsistent product

definition

Often knowledge-based

Frequently dispersed


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Goods and Services

Automobile

Computer

Installed carpetingFast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/investment management

Consulting service/teaching

Counseling

Percent of Product that is a Good Percent of Product that is a Service

100% 75 50 25 0 25 50 75 100%| | | | | | | | |


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Differences Between Goods and

ServicesTABLE1.3

CHARACTERISTICSOFSERVICES CHARACTERISTICSOFGOODS

Intangible:Rideinanairlineseat Tangible:Theseatitself

Producedandconsumedsimultaneously:Beautysalon

producesahaircutthatisconsumedasitisproduced

Productcanusuallybekeptininventory(beautycare

products)

Unique:Yourinvestmentsandmedicalcareareunique Similarproductsproduced(iPods)

Highcustomerinteraction:Oftenwhatthecustomeris

payingfor(consulting,education)

Limitedcustomerinvolvementinproduction

Inconsistentproductdefinition:AutoInsurance

changeswithageandtypeofcar

Productstandardized(iPhone)

Oftenknowledgebased:Legal,education,andmedical

servicesarehardtoautomate

Standardtangibleproducttendstomakeautomation

feasible

Servicesdispersed:Servicemayoccuratretailstore,

localoffice,housecall,orviainternet.

Producttypicallyproducedatafixedfacility

Qualitymaybehardtoevaluate:Consulting,

education,andmedicalservices

Manyaspectsofqualityfortangibleproductsareeasy

toevaluate(strengthofabolt)

Resellingisunusual:Musicalconcertormedicalcare Productoftenhassomeresidualvalue


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U.S. Agriculture, Manufacturing, and Service Employment

Figure 1.5100

80

60

40

20

0

PercentofWorkforce

18001825

18501875

19001925

19501975

20002025 (est.)

| | | | | | | | |

Agriculture Services Manufacturing

Growth of Services


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Productivity ChallengeProductivity is the ratio of outputs (goods

and services) divided by the inputs(resources such as labor and capital)

The objective is to improve productivity!

Productivity is important because it determines ourstandard of living


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Feedback loop

Outputs

Goodsand

services

Transformation

The U.S. economic systemtransforms inputs to outputs atabout an annual 2.5% increase

in productivity per year.The productivity increase is the

result of a mix of (i) capital(38% of 2.5%), (ii) labor (10%

of 2.5%), and (iii)

management (52% of 2.5%).

The Economic SystemInputs

Labor,capital,

management

Figure 1.6


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Improving Productivity atStarbucks

A team of 10 analystscontinually look for waysto shave time. Someimprovements:

Stop requiring signatureson credit card purchasesunder $25

Saved 8 secondsper transaction

Change the size of the icescoop

Saved 14 secondsper drink

New espresso machines Saved 12 seconds

per shot, , Syn. lower, reduce,


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Improving Productivity atStarbucks

A team of 10 analystscontinually look for waysto shave time. Someimprovements:

Stop requiring signatureson credit card purchasesunder $25

Saved 8 secondsper transaction

Change the size of the icescoop

Saved 14 secondsper drink

New espresso machines Saved 12 seconds

per shot

Operations improvements havehelped Starbucks increase yearlyrevenue per outlet by $250,000 to$1,000,000 in seven years.

Productivity has improved by 27%, orabout 4.5% per year.


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Measure of process improvement Represents output relative to input

Only through productivity increasescan our standard of living improve

Productivity Measurement

Productivity =Units produced

Input used


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Productivity Calculations

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000

250

Labor Productivity

One resource input single-factor productivity

Example: if units produced = 1,000 and labor-hours used is 250, then:


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Multi-Factor ProductivityOutput

Labor + Material + Energy +Capital + Miscellaneous

Productivity =

Also known as total factor productivity Output and inputs are often expressed in

dollars

Multiple resource inputs multi-factor productivity


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Collins Title (Labor) Productivity

Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day

Old System:

=Old labor

productivity

8 titles/day

32 labor-hrs


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Collins Title Productivity


Old System:

8 titles/day

32 labor-hrs=

Old laborproductivity = .25 titles/labor-hr


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Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labor-hrs=

Old laborproductivity

=New laborproductivity

= .25 titles/labor-hr

14 titles/day

32 labor-hrs


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Old System:


New System:

8 titles/day

32 labor-hrs=

Old laborproductivity = .25 titles/labor-hr

14 titles/day

32 labor-hrs=

New laborproductivity

= .4375 titles/labor-hr


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Collins Title (Multifactor) Productivity


Old System:


New System:

=Old multifactor

productivity

8 titles/day

$640 + 400


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Old System:


New System:

8 titles/day

$640 + 400=

Old multifactorproductivity

= .0077 titles/dollar


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Old System:


New System:

8 titles/day

$640 + 400=

Old multifactorproductivity

=New multifactor

productivity


14 titles/day

$640 + 800


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Old System:


New System:

8 titles/day

$640 + 400

14 titles/day

$640 + 800

=Old multifactor

productivity

=New multifactor

productivity




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ConclusionLabor Productivity:

Multifactor Productivity:

Labor productivity has increased from .25

to .4375. The change is (.4375-.25) /.25 = 0.75, or

75% increase in labor productivity.

Multifactor productivity has increased from.0077 to .0097.

The change is (.0097-..0077) /.0077 = 0.26or 26% increase in multifactor productivity.

The computerized system can improve the companys productivity. Which measure can provide a better solution of the increase? Why?


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Productivity and theService Sector

1. Typically labor intensive (counseling, teaching)2. Frequently focused on unique individual

attributes or desires (investment advice)

3. Often an intellectual task performed byprofessionals (medical diagnosis)

4. Often difficult to mechanize and automate

(haircut)

5. Often difficult to evaluate for quality(performance of a law firm)


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Strategy Action plan to

achieve mission Functional areas have

strategies

Strategies exploitopportunities andstrengths, neutralize

threats, and avoidweaknesses


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Strategic Process

Marketing Operations Finance/Accounting

Functional Area

Missions

OrganizationsMission

Functional areas have their own missions and strategies, which usually

are based on higher-level missions and strategies in the organization.


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Strategies for CompetitiveAdvantage

1. Differentiation better, or at leastdifferent

2. Cost leadership cheaper

3. Response more responsive


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Competing on Differentiation

Uniqueness can go beyond both thephysical characteristics and service

attributes to encompass everything thatimpacts customers perception of value

Walt Disney Magic Kingdom experience differentiation

Hard Rock Cafe dining experience


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Competing on Cost

Provide the maximum value as perceivedby customer. Does not imply low quality.

Southwest Airl ines secondaryairports, no frills service, efficientutilization of equipment

Walmart small overhead, shrinkage,and distribution costs => superstoresopen 24 hours


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Competing on Response Flexibility is matching market changes in

design innovation and volumes

A way of life at Hewlett-Packard

Reliability is meeting schedules

German machine industry Timeliness is quickness

in design, production,

and delivery Johnson Electric,

Pizza Hut

OMs Contribution to Strategy


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OM s Contribution to Strategy

Product

Quality

Process

Location

Layout

Humanresource

Supply chain

Inventory

Scheduling

Maintenance

DIFFERENTIATION:Innovative design Safeskins innovative glovesBroad product line Fidelity Securitys mutual fundsAf ter-sales service Caterpillar s heavy equipment

serviceExperience Hard Rock Cafs diningexperience

COST LEADERSHIP:Low overhead Franz-Colruyts warehouse-type

storesEffective capacity Southwest Airlines

use aircraft utilization

Inventory Walmarts sophist icatedmanagement distribution system

RESPONSE:

Flexibility Hewlett-Packards response tovolatile world marketReliability FedExs absolutely, positively,

on timeQuickness Pizza Huts 5-minute guarantee

at lunchtimeFigure 2.4

10 Operations CompetitiveDecisions Strategy Example Advantage

Response(faster)

Costleadership

(cheaper)

Differentiation(better)


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New Challenges in OM Global focus

Supply-chain partnering Sustainability

Rapid product development

Mass customization

Just-in-time performance

Empowered employees

N T d i OM


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New Trends in OM

Local or

national focus

Low-cost, reliable worldwide

communication andtransportation networks

Global focus

Batch (large)shipments

Short product life cycles andcost of capital put pressure on

reducing inventory

Just-in-timeperformance

Low-bidpurchasing

Quality emphasis requiresthat suppliers be engaged inproduct improvement

Supply-chainpartners,EnterpriseResourcePlanning,e-commerce

Figure 1.6

Past Causes Future

N T d i OM


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New Trends in OM

Lengthy

productdevelopment

Shorter life cycles, Internet,

rapid internationalcommunication, computer-aided design, andinternational collaboration

Rapid product

development,alliances,collaborativedesigns

Standardized

products

Affluence and worldwide

markets; increasingly flexibleproduction processes

Mass

customizationwith addedemphasis onquality

Jobspecialization Changing socioculturemilieu; increasingly aknowledge and informationsociety

Empoweredemployees,teams, andlean production

Figure 1.6

Past Causes Future

N T d i OM


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New Trends in OM

Low-cost

focus

Environmental issues, ISO

14000, increasing disposalcosts

Sustainability:

environmentallysensitiveproduction, greenmanufacturing,recycled

materials,remanufacturing

Figure 1.6

Past Causes Future


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Ethics, Social Responsibility,and Sustainability

Challenges facing operations managers: Develop and produce safe, high-quality

green products Train, retrain, and motivate employees

in a safe workplace Honor stakeholder commitments


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VDO Case Study Frito-Lay: OM in manufacturing

Hard Rock Cafe: OM in services

Identi fy how each of 10 OM strategy decisions is applied at

Frito-Lay and Hard Rock Caf. How are they different?

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Hard Rock Cafe:


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Hard Rock Cafe:

OM in services


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Suggested Reflective Report Select one business that you are familiar

with. Summarize the business operations.

Identify how each of 10 OM strategy

decisions is applied at selectedcompany.

750 words for each report.

pp.59-60

S ggested Gro p Case St d


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Suggested Group Case Study

1. Document current profile and operations in one selected organization

2. Detail OM activities

Carefully and in depth, tell how the operations activities are performed in the firm. You shouldexplain the operations activities and technology for the firm. Specifically, the various inputs,transformation processes, and several outputs must be identified.

3. Identify a problem

For each of the activities discussed in 2, identify at least one operating problem in the firm.

Document this problem. Describe the problem as you best understand it as which you want tosolve it or improve it.

4. Propose a solution with the analysis (before/after comparison)

Suggest one or more tentative solutions to the problem. Provide enough explanation that a readerwill gain a basic understanding of what you are proposing. Supporting with the relevant

literature of operation theories , concepts and models .

5. Prepare a written report with recommendations

Report your findings (2,500 words for each report).

Documents

Session 1 Student