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Operations Management Chapter 1 Operations and Productivity.

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Presentation on theme: "Operations Management Chapter 1 Operations and Productivity."— Presentation transcript:

1 Operations Management Chapter 1 Operations and Productivity

2 Outline Global Company Profile: Hard Rock Cafe Global Company Profile: Hard Rock Cafe What Is Operations Management? What Is Operations Management? Organizing To Produce Goods And Services Organizing To Produce Goods And Services Why Study OM? Why Study OM? What Operations Managers Do What Operations Managers Do

3 Outline - Continued The Heritage Of Operations Management The Heritage Of Operations Management Operations In The Service Sector Operations In The Service Sector Differences Between Goods And Services Differences Between Goods And Services Exciting New Trends In Operations Exciting New Trends In Operations Ethics And Social Responsibility Management Ethics And Social Responsibility Management

4 What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

5 Organizing to Produce Goods and Services Essential functions: Essential functions: Marketing – generates demand Marketing – generates demand Production/operations – creates the product Production/operations – creates the product Finance/accounting – tracks how well the organization is doing, pays bills, collects the money Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

6 Operations Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department Commercial Bank

7 Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Airline Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

8 Marketing Sales promotion Advertising Sales Market research Operations Facilities Construction; maintenance Production and inventory control Scheduling; materials control Quality assurance and control Supply-chain management Manufacturing Tooling; fabrication; assembly Design Product development and design Detailed product specifications Industrial engineering Efficient use of machines, space, and personnel Process analysis Development and installation of production tools and equipment Finance/ accounting Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall Manufacturing

9 Why Study OM? OM is one of three major functions (marketing, finance, and operations) of any organization OM is one of three major functions (marketing, finance, and operations) of any organization We want to know how goods and services are produced We want to know how goods and services are produced We want to understand what operations managers do We want to understand what operations managers do OM is such a costly part of an organization OM is such a costly part of an organization

10 Options for Increasing Contribution Sales$100,000$150,000$100,000$100,000 Cost of Goods – 80,000– 120,000– 80,000– 64,000 Gross Margin20,00030,00020,00036,000 Finance Costs– 6,000 – 6,000– 3,000– 6,000 Subtotal14,00024,00017,00030,000 Taxes at 25%– 3,500– 6,000– 4,250– 7,500 Contribution$ 10,500$ 18,000$ 12,750$ 22,500 Finance/ MarketingAccountingOM OptionOptionOption IncreaseReduceReduce SalesFinanceProduction CurrentRevenue 50%Costs 50%Costs 20%

11 What Operations Managers Do Planning Planning Organizing Organizing Staffing Staffing Leading Leading Controlling Controlling Basic Management Functions

12 Ten Critical Decisions Ten Decision AreasChapter(s) Service and product design5 Service and product design5 Quality management6 6 Supplement Quality management6 6 Supplement Process and capacity 7 design 7 Supplement Process and capacity 7 design 7 Supplement Location8 Location8 Layout design9 Layout design9 Human resources, 10 job design 10 Supplement Human resources, 10 job design 10 Supplement Supply-chain 11 management11 Supplement Supply-chain 11 management11 Supplement Inventory management12, 14, 16 Inventory management12, 14, 16 Scheduling13, 15 Scheduling13, 15 Maintenance17 Maintenance17

13 Where are the OM Jobs?

14 Technology/methods Technology/methods Facilities/space utilization Facilities/space utilization Strategic issues Strategic issues Response time Response time People/team development People/team development Customer service Customer service Quality Quality Cost reduction Cost reduction Inventory reduction Inventory reduction Productivity improvement Productivity improvement

15 Significant Events in OM

16 Characteristics of Goods Tangible product Tangible product Consistent product definition Consistent product definition Production usually separate from consumption Production usually separate from consumption Can be inventoried Can be inventoried Low customer interaction Low customer interaction

17 Characteristics of Service Intangible product Intangible product Produced and consumed at same time Produced and consumed at same time Often unique Often unique High customer interaction High customer interaction Inconsistent product definition Inconsistent product definition Often knowledge-based Often knowledge-based Frequently dispersed Frequently dispersed

18 Goods and Services Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a GoodPercent of Product that is a Service 100% % |||||||||

19 New Trends in OM Local or national focus Low-cost, reliable worldwide communication and transportation networks Global focus Batch (large) shipments Short product life cycles and cost of capital put pressure on reducing inventory Just-in-time shipments Low-bid purchasing Quality emphasis requires that suppliers be engaged in product improvement Supply- chain partners, Enterprise Resource Planning, e-commerce PastCausesFuture

20 New Trends in OM Lengthy product development Shorter life cycles, Internet, rapid international communication, computer- aided design, and international collaboration Rapid product development, alliances, collaborative designs Standardized products Affluence and worldwide markets; increasingly flexible production processes Mass customization with added emphasis on quality Job specialization Changing socioculture milieu; increasingly a knowledge and information society Empowered employees, teams, and lean production PastCausesFuture

21 New Trends in OM Low-cost focus Environmental issues, ISO 14000, increasing disposal costs Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing PastCausesFuture

22 Ethics and Social Responsibility Challenges facing operations managers: Developing safe quality products Developing safe quality products Maintaining a clean environment Maintaining a clean environment Providing a safe workplace Providing a safe workplace Honouring community commitments Honouring community commitments

23 Operations Management Chapter 1 – Operations and Productivity11 Chapter 2 Operations Strategy in a Global Environment

24 Outline Global Company Profile: Boeing Global Company Profile: Boeing A Global View of Operations A Global View of Operations Cultural and Ethical Issues Cultural and Ethical Issues Developing Missions And Strategies Developing Missions And Strategies Mission Mission Strategy Strategy

25 Outline – Continued Achieving Competitive Advantage Through Operations Achieving Competitive Advantage Through Operations Competing On Differentiation Competing On Differentiation Competing On Cost Competing On Cost Competing On Response Competing On Response Ten Strategic OM Decisions Ten Strategic OM Decisions Global Operations Strategy Options Global Operations Strategy Options

26 Global Strategies Boeing – sales and production are worldwide Boeing – sales and production are worldwide Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution Sony – purchases components from suppliers in Thailand, Malaysia, and around the world Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

27 Global Strategies Volvo – considered a Swedish company but it is controlled by an American company, Ford. The current Volvo S40 is built in Belgium and shares its platform with the Mazda 3 built in Japan and the Ford Focus built in Europe. Volvo – considered a Swedish company but it is controlled by an American company, Ford. The current Volvo S40 is built in Belgium and shares its platform with the Mazda 3 built in Japan and the Ford Focus built in Europe. Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina

28 Reasons to Globalize Reduce costs (labor, taxes, tariffs, etc.) Reduce costs (labor, taxes, tariffs, etc.) Improve supply chain Improve supply chain Provide better goods and services Provide better goods and services Understand markets Understand markets Learn to improve operations Learn to improve operations Attract and retain global talent Attract and retain global talent Tangible Reasons Intangible Reasons

29 Reduce Costs Foreign locations with lower wage rates can lower direct and indirect costs Foreign locations with lower wage rates can lower direct and indirect costs World Trade Organization (WTC) World Trade Organization (WTC) North American Free Trade Agreement (NAFTA) North American Free Trade Agreement (NAFTA) APEC, SEATO, MERCOSUR APEC, SEATO, MERCOSUR European Union (EU) European Union (EU)

30 Improve the Supply Chain Locating facilities closer to unique resources Locating facilities closer to unique resources Auto design to California Auto design to California Athletic shoe production to China Athletic shoe production to China Perfume manufacturing in France Perfume manufacturing in France

31 Provide Better Goods and Services Objective and subjective characteristics of goods and services Objective and subjective characteristics of goods and services On-time deliveries On-time deliveries Cultural variables Cultural variables Improved customer service Improved customer service

32 Understand Markets Interacting with foreign customer and suppliers can lead to new opportunities Interacting with foreign customer and suppliers can lead to new opportunities

33 Learn to Improve Operations Remain open to the free flow of ideas Remain open to the free flow of ideas General Motors partnered with a Japanese auto manufacturer to learn General Motors partnered with a Japanese auto manufacturer to learn

34 Attract and Retain Global Talent Offer better employment opportunities Offer better employment opportunities Better growth opportunities and insulation against unemployment Better growth opportunities and insulation against unemployment Relocate unneeded personnel to more prosperous locations Relocate unneeded personnel to more prosperous locations Incentives for people who like to travel Incentives for people who like to travel

35 Developing Missions and Strategies Mission statements tell an organization where it is going The Strategy tells the organization how to get there

36 Mission Mission - where are you going? Mission - where are you going? Organization s purpose for being Organization s purpose for being Answers What do we provide society? Answers What do we provide society? Provides boundaries and focus Provides boundaries and focus

37 Hard Rock Caf é Our Mission: To spread the spirit of Rock n Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

38 Benefit to Society Mission Factors Affecting Mission Philosophy and Values Profitability and Growth Environment CustomersPublic Image

39 Strategic Process MarketingOperations Finance/ Accounting Functional Area Missions Organization s Mission

40 Strategy Action plan to achieve mission Action plan to achieve mission Functional areas have strategies Functional areas have strategies Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

41 Strategies for Competitive Advantage Differentiation – better, or at least different Differentiation – better, or at least different Cost leadership – cheaper Cost leadership – cheaper Quick response – more responsive Quick response – more responsive

42 Competing on Differentiation Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer s perception of value Safeskin gloves – leading edge products Safeskin gloves – leading edge products Walt Disney Magic Kingdom – experience differentiation Walt Disney Magic Kingdom – experience differentiation Hard Rock Cafe – theme experience Hard Rock Cafe – theme experience

43 Competing on Cost Provide the maximum value as perceived by customer. Does not imply low quality. Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment Wal-Mart – small overheads, shrinkage, distribution costs Wal-Mart – small overheads, shrinkage, distribution costs Franz Colruyt – no bags, low light, no music, doors on freezers Franz Colruyt – no bags, low light, no music, doors on freezers

44 Competing on Response Flexibility is matching market changes in design innovation and volumes Flexibility is matching market changes in design innovation and volumes Institutionalization at Hewlett-Packard Institutionalization at Hewlett-Packard Reliability is meeting schedules Reliability is meeting schedules German machine industry German machine industry Timeliness is quickness in design, production, and delivery Timeliness is quickness in design, production, and delivery Johnson Electric, Bennigan s, Motorola Johnson Electric, Bennigan s, Motorola

45 OM s Contribution to Strategy Product Quality Process Location Layout Human resource Supply-chain Inventory Scheduling Maintenance FLEXIBILITY Sony s constant innovation of new products ………………………………....Design HP s ability to follow the printer market ……………………………… Volume Southwest Airlines No-frills service …….. …..LOW COST DELIVERY Pizza Hut s five-minute guarantee at lunchtime ………………….. ….. ……..Speed Federal Express s absolutely, positively on time ……………………….. ….Dependability QUALITY Motorola s automotive products ignition systems …………………………......Conformance Motorola s pagers ……………………….. ….Performance IBM s after-sale service on mainframe computers ……....AFTER-SALE SERVICE Fidelity Security s broad line of mutual funds ………….BROAD PRODUCT LINE OperationsSpecificCompetitive DecisionsExamplesStrategy UsedAdvantage Response (Faster) Cost leadership (Cheaper) Differentiation (Better)

46 Strategy Development Process Determine Corporate Mission State the reason for the firm s existence and identify the value it wishes to create. Form a Strategy Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after- sale service, broad product lines. Environmental Analysis Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors.

47 Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Import/export or license existing product Examples U.S. Steel Harley Davidson International Strategy

48 Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson

49 International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Standardized product Economies of scale Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy

50 Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Standardized product Economies of scale Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson

51 Standardized product Economies of scale Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Use existing domestic model globally Franchise, joint ventures, subsidiaries Examples Heinz McDonald s The Body Shop Hard Rock Cafe Multidomestic Strategy

52 Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Standardized product Economies of scale Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries Examples HeinzThe Body Shop McDonald sHard Rock Cafe

53 International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries Examples HeinzThe Body Shop McDonald sHard Rock Cafe Standardized product Economies of scale Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Move material, people, ideas across national boundaries Economies of scale Cross-cultural learning Examples Coca-Cola Nestl é Transnational Strategy

54 Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) Standardized product Economies of scale Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global StrategyTransnational Strategy Move material, people, ideas across national boundaries Economies of scale Cross-cultural learning Examples Coca-Cola Nestl é International Strategy Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy Use existing domestic model globally Franchise, joint ventures, subsidiaries Examples HeinzThe Body Shop McDonald sHard Rock Cafe


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