OPNS Savaskan -Ebert 2 Class Material & Grading Course Pack 1 (Cases & Readings) Course Pack 2 (Slides) The Goal Managing Business Process Flows (MBPF) The Course Web-Page Group Assignments 20%, Midterm 30%, Final 40%, Class Participation 10%
OPNS Savaskan -Ebert Student Liaison Responsibilities The objective of having Student Liaisons is to facilitate greater two-way communication between the faculty and students Professors will ask for a voluntary Student Liaison at the beginning of the first class of the term Responsibilities include: Be a sounding board for the faculty member on student related issues Communicating any scheduling conflicts regarding assignments, classes, or exams to professors Organizing dates for lunches with professors and students Collecting TCEs and turning them in to Student Affairs during the last class Responsibilities will be very similar to Academic Rep responsibilities in 1 st quarter core classes Time commitment for the student should be no more than an aggregate of 2 hours of the term 3
OPNS Savaskan -Ebert 4 Please turn off your cell phones Close your computers, except in the last row (computer use only for note taking purpose) Be on time (1:30) No in-out traffic during class As a courtesy to those around you
OPNS Savaskan -Ebert 5 Objective of this Course familiarize you with the problems and issues confronting operations managers. provide you with language, concepts, insights and tools to deal with these issues in order to gain competitive advantage through operations. at the end of this course, you will be able to identify, evaluate and make improvements.
8 A companys operations function is either a competitive weapon or a corporate millstone. It is seldom neutral. [Skinner 69] 1. Strategic View of Operations Key Principle of the Course
OPNS Savaskan -Ebert An Example of Strategic Fit between Operations and Business Strategy 9 6 million shipments /day 3.2 million /day2.8 million /day How are these two companies positioned in the competitive market space? What operational capabilities are critical for their success? On the operational front, how are they structured?
OPNS Savaskan -Ebert Operations as a Strategic Weapon 10 Bitter rivals Airbus and Boeing Co. don't agree on much, but these days their production gurus chant a common mantra: Let's copy Toyota, the company that reinvented car making. The giant jet makers and their suppliers are going back to school to learn about efficient production from companies that churn out vehicles that are just a fraction of a plane's size and complexity. Cutting production costs and speeding assembly is a vital step in the Airbus Boeing duel to stay competitive.. -- WSJ April 1, versus
OPNS Savaskan -Ebert Competing Through Services 11 What are the service positioning of these companies? What do they do differently on the operations front to sustain the competitive position? What are the service positioning of these companies?
OPNS Savaskan -Ebert 12 By rethinking the IBM Austin assembly plant and introducing cells, –distance traveled by a card was cut from 1.5 miles to 200 yards –floor space was reduced to half –production tripled with about the same number of workers. 2. Process View of Operations Key Principle of the Course
OPNS Savaskan -Ebert 13 Operations & The Process View What is a Process? Inputs Outputs Goods Services Labor & Capital Information Structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Resources Process Management
OPNS Savaskan -Ebert 14 What defines a good process performance? Absolute measures: –revenues, costs, operating income, net income –Net Present Value (NPV) = Relative measures: –ROI, ROE –ROA = Survival measure: –cash flow Financial Measures
OPNS Savaskan -Ebert 15 Define Operations Management as … Management of business processes How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs. What is appropriate?
OPNS Savaskan -Ebert 16 Firms compete on Product Attributes Price (Cost) P Quality Q –Customer service –Product quality Time T –Rapid, reliable delivery –New product development Variety V –Degree of customization order winners To deliver we need capabilities This requires process capabilities
OPNS Savaskan -Ebert 17 Inputs Outputs Goods Services Labor & Capital Information Structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Process Management Process Capability Affected by : Inputs, Structure, Resources, Information Management
OPNS Savaskan -Ebert 18 Linking the Strategic role & Process view: Strategic Operational Audit Desired Business Strategy Operations Strategy Desired Capabilities Marketing, …, Financial Strategy Desired Operl Structure: Processes & Infrastructure Product Attributes P, T, Q, V Process Attributes C, T, Q, Flex Existing Capabilities Operational Structure: Processes & Infrastructure ExistingDesired Feasible Business Strategies Strategy Gap? Measures Capability Gap? Process Gap?
OPNS Savaskan -Ebert 19 Wal-Mart Focused Retailing Corporate Strategy (Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices Operations Capability Short flow times Low inventory levels Operations Structure Cross docking * (Video)Video EDI * Fast transportation system Focused locations Communication between retail stores * RFID
OPNS Savaskan -Ebert 20 Wal-Mart (Benefits of Focused Strategy) Inventory at retail stores turned over twice a week (Industry averages once every two weeks) Improved targeting of products to markets, better forecasting. Sales per square foot increased to $455 in 2002 (Industry average were $224 in 2002) In 2002, Wal-Mart has the biggest single day sales in history: $1.43 billion on the day after Thanksgiving.
OPNS Savaskan -Ebert 21 Shouldice Hospital
OPNS Savaskan -Ebert 22 Strategic Operational Audit Shouldice Hospital Service Positioning Operations Strategy Process Capabilities
OPNS Savaskan -Ebert 23 Process Structure: Assembly Line of Simple Hernias Questionaire Diagnosis Waiting List Waiting Room 30 days max. wait 20 min Examinations Waiting Room 5/10 minutes Billing Less than 10 min. ROOM OrientationDinner Tea & cookie Socialization Potential Patients REJECTS
OPNS Savaskan -Ebert 24 Focus and the Frontier In the health-care sector Variety Responsiveness Shouldice World-class General Hospital One general facility operations frontier LowHigh low high
OPNS Savaskan -Ebert 25 WRISTON MANUFACTURING (to be distributed in class)
OPNS Savaskan -Ebert 26 Classification of Processes by Process Architecture Project Job Shop Batch Line Flow Continuous Flow Job Shop Flow Shop
OPNS Savaskan -Ebert 27 Characteristics of Processes: Job Shop vs. Batch vs. Flow Shop
OPNS Savaskan -Ebert 28 Product-Process Matrix Process Flexibility Jumbled Flow. Process segments loosely linked. Disconnected Line Flow/Jumbled Flow but a dominant flow exists. JOB SHOP (Commercial Printer, Architecture firm) BATCH (Heavy Equipment, Auto Repari ) LINE FLOWS (Auto Assembly, Car lubrication shop ) CONTINUOUS FLOW ( Oil Refinery ) Product Variety Low Low Standardization One of a kind Low Volume Many Products Few Major Products High volume High Standardization Commodity Products Connected Line Flow (assembly line) Continuous, automated, rigid line flow. Process segments tightly linked. Opportunity Costs Out-of-pocket Costs High Low High
OPNS Savaskan -Ebert 29 Wriston Manufacturing Corp. using Product-Process Matrix Product Volume Process Flexibility Jumbled Flow. Process segments loosely linked. Job Shop Disconnected Line Flow/Jumbled Flow but a dominant flow exists. Batch Low volume Low Standardization One of a kind Low volume Many Products Higher volume Few Major Products High volume High Standardization Commodity Products Connected Line Flow (assembly line) Line Flow Continuous, automated, rigid line flow. Process segments tightly linked. Continuous Flow (Designed Dollar) Volume per family # routes (product families) Detroit Lima Essex Sagina w Sandusk y Tiffin Fremont Lebanon Maysville
OPNS Savaskan -Ebert 30 Classification of Processes: by Customer Interface Product /Service Delivery Process Make to Stock Make to Order
OPNS Savaskan -Ebert US Furniture Market A $23 billion market with very low concentration. Top 3 players (Furniture Brands, Life Style Furnishings, La-Z-Boy) account for 20% of the market. Big 3 automakers have over 50% of market. Over 1000 other players. Very low barriers to entry. Not capital intensive. Furniture Brands spends only 2.2% of sales on capital spending. Ford spends about 6.6%. 31
OPNS Savaskan -Ebert A Typical Player Century Furniture Industries (Hickory, NC). $200 million in annual sales. Offers 3,500 different frames for sofas and chairs. With options for fabric, springs etc leads to 1.7 billion variants. What are implications for the bundle of attributes they can offer customers on process capabilities? 32
OPNS Savaskan -Ebert A Different Way to Compete Mitchell Gold (Taylorsville, N.C) $70 million in sales. Lower price than goods of comparable quality but limited selection. Selling through Pottery Barn, Crate & Barrel, Restoration Hardware. Production takes place in one large modern factory (400,000 sq ft including warehouse space). 97% of shipments are on time. Productivity at Gold at $168,000 per employee, compared with an industry average of $105,
OPNS Savaskan -Ebert Another Player England, Inc. of New Tazewell, TN. A division of La-Z-Boy. Make to order in 30 days or we pay you. Offers more than 40,000 variants. 85 frames and 550 fabrics. Sofas are priced from $500 to $1,500. Production spread over several older buildings. Schedule production weekly to gain efficiencies in cutting fabric and wood. Have own trucking fleet and search for backhaul business. Have trimmed fabric suppliers to four to have some power over them. 34
OPNS Savaskan -Ebert 35 Take-Aways : Focused Operations & Strategic Fit Process View We need to see operations as a transformation process of inputs into outputs. Strategic View Align operational decisions with the overall company goals. Develop Operational Capabilities that support the positioning of a company. Identify what you should be good at. Link between business strategy, operations strategy, and operations structure. Capabilities defined by operational structure. Apply strategic operational audit to evaluate fit and areas for improvement Look for operational performance measures (time, inventory, throughput, flexibility) which are leading indicators of financial performance..