Operations &

Competitiveness

Operations Management Operations Management

Learnings….

Introduction

Transformation process

Evolution of operations management

Integrated value chain

Operations management and e–business

Globalization and competitiveness

conclusion

Introduction

What is operations?a function or system that transforms inputs

into outputs of greater value

What is a transformation process?a series of activities along a value chain

extending from supplier to customeractivities that do not add value are

superfluous and should be eliminated

What is operations management?Systematic direction, control, and evaluation

of the entire range of processes that transform inputs into finished goods or services.

All operations produce products and services by changing inputs into outputs. They do this by using the ‘input-transformation-‘input-transformation-output' process.output' process.

There are two categories of inputs in any operation's processes:

1) Transformed and

2) Transforming resources

Transformed resources are the resources that are treated, transformed or converted in the process, that include

Materials

Information

Customers

The other set of inputs to any operations process are Transforming Resources. These are the resources which act on or carry out the transformation process. There are two main types of transforming resources:

Facilities Staff

Buildings, Equipment, Plant and

Technology of the operation.

All The People Involved In The

Operations Process.

How is operations relevant to my major?

Accounting

Information Technology

Management

“As an auditor you must understand the fundamentals of operations management.”

“IT is a tool, and there’s no better place to apply it than in operations.”

“We use so many things you learn in an operations class—scheduling, lean production, theory of constraints, and tons of quality tools.”

How is operations relevant to my major?

Economics

Marketing

Finance

“It’s all about processes. It helps in analysis of investment plant.”

“How can you do a good job marketing a product if you’re unsure of its quality or delivery status?”

“Most of our capital budgeting requests are from operations, and most of our cost savings, too.”

Evolution of Operations Management

Craft productionprocess of handcrafting products or

services for individual customers

Division of labordividing a job into a series of small

tasks each performed by a different worker

Interchangeable partsstandardization of parts initially as

replacement parts; enabled mass production

Evolution of Operations Management (cont.)

Scientific managementsystematic analysis of work methods

Mass productionhigh-volume production of a

standardized product for a mass market

Lean productionadaptation of mass production that

prizes quality and flexibility

Industrial revolution Late 1700s Scientific management Early 1900s Hawthorne Effect

1930s Human relations movement 1930s Management science 1940s Computer age 1960s Environmental Issues 1970s JIT & TQM* 1980s

*JIT= Just in Time, TQM= Total Quality Management

Historical developement of OM

Reengineering 1990- Global competition 1980- Flexibility

1990- Time-Based Competition 1990- Supply chain Management 1990- Electronic Commerce

2000- Outsourcing & flattening of world

2000-

Operations Management and E-Business

Categories of E-Commerce

Bu

sin

ess

Bu

sin

ess

Co

nsu

mer

Co

nsu

mer

BusinessBusiness ConsumerConsumer

B2Btradeindia.com

B2Cflipkart.com

C2BPriceline.com

C2CeBay.com

An Integrated Value Chain

The concept comes from business management and was first described and popularized by Michael porter in 1985

A level model of how businesses receive raw materials through various processes, and sell finished products to customers.

Value chain: set of activities that create and deliver products to customer

SupplierCustomer

Flow of information (customer order)Flow of information (customer order)

Flow of product (order fulfillment)Flow of product (order fulfillment)

manufacture

product passes through activities of a chain in order, and each activity the product gain some value.

Chain of activities gives the product more added value than sum of the independent activities values.

The value chain concept has been extended beyond individual firm. It can apply to whole supply chain and distribution network.

Distinct stage in value chain may include

Receiving raw material

Converting raw material into finished product

Identified customer and distributing the product

Providing customer support

Impact of E-Business on Operations Management

Comparison shopping by customers

Direct contact with customers

Business processes conducted online

Customer expectations escalate; quality must be maintained and costs lowered

No more guessing about demand is necessary; inventory costs go down; product and service design improves; build to-order products and services is made possible

Transaction costs are lower; customer support costs decrease; e-procurement saves big bucks

Benefits of E-Business Impact on Operations

Impact of E-Business on Operations Management (cont.)

Access to customers worldwide

Middlemen are eliminated

Access to suppliers worldwide

Demand increases; order fulfillment and logistics become major issues; production moves overseas

Logistics change from delivering to a store or distribution center to delivering to individual homes; consumer demand is more erratic and unpredictable than business demand

Outsourcing increases; more alliances and partnerships among firms are formed; supply is less certain; global supply chain issues arise

Benefits of E-Business Impact on Operations

Impact of E-Business on Operations Management (cont.)

Online auctions and e-marketplaces

Better and faster decision making

Competitive bidding lowers cost of materials; supply needs can be found in one location

More timely information is available with immediate access by all stakeholders in decision-making process; customer orders and product designs can be clarified electronically; electronic meetings can be held; collaborative planning is facilitated

Benefits of E-Business Impact on Operations

Globalization and Competitiveness

Favorable cost

Access to international markets

Response to changes in demand

Reliable sources of supply

14 major trade agreements in 1990s

Peak: 26% in 2000

World Trade Compared to World GDPSource: “Real GDP and Trade Growth of OECD Countries, 2001–03,” International Trade Statistics 2003, World Trade Organization, www.wto.org

Globalization and Competitiveness (cont.)

Hourly Wage Rates for Selected CountriesSource: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.

Germany: $26.18Germany: $26.18

USA: $21.33USA: $21.33

Taiwan: $5.41Taiwan: $5.41

Mexico: $2.38Mexico: $2.38

China: $0.50China: $0.50

Globalization and Competitiveness (cont.)

Trade with China: Percent of each country‘s trade Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002,”

International Trade Statistics 2003, World Trade Organization, www.wto.org

Risks of Globalization

Cultural differences

Supply chain issues

Safety, security, and stability

Quality problems

Corporate image

Loss of capabilities

Competitiveness and Productivity

Competitiveness degree to which a nation can produce goods

and services that meet the test of international markets

Productivity ratio of output to input

Output sales made, products produced, customers

served, meals delivered, or calls answered Input

labor hours, investment in equipment, material usage, or square footage

Measures of Productivity

Competitiveness and Productivity (cont.)

Productivity Increase

Become efficient output increases with little or no increase in

input

Expand both output and input grow with output

growing more rapidly

Achieve breakthroughs output increases while input decreases

Downsize output remains the same and input is

reduced

Retrench both output and input decrease, with input

decreasing at a faster rate

Global Competitiveness Ranking

1.1. FinlandFinland

2.2. United StatesUnited States

3.3. SwedenSweden

4.4. DenmarkDenmark

5.5. TaiwanTaiwan

6.6. SingaporeSingapore

7.7. SwitzerlandSwitzerland

8.8. IcelandIceland

9.9. NorwayNorway

10.10.AustraliaAustralia

conclusion

Gain an appreciation of strategic importance of operations in a global business environment

Understand how operations relates to other business functions

Develop a working knowledge of concepts and methods related to designing and managing operations

Develop a skill set for quality and process improvement