1. 1 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. C OMPETING WITH O PERATIONS 1 For Operations Management, 9e by Krajewski/Ritzman/Malhotra © 2010 Pearson Education PowerPoint Slides by Jeff Heyl

2. 1 – 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Operations Management The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, customers Processes can be linked together to form a supply chain – interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers

3. 1 – 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Across the Organization Material & Service Inputs Sales Revenue Product & Service Outputs Finance Acquires financial resources and capital for inputs Marketing Generates sales of outputs Operations Translates materials and service into outputs Support Functions Accounting Information Systems Human Resources Engineering Figure 1.1

4. 1 – 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Process View External environment Information on performance Internal and external customers Processes and operations 1 2 3 4 5 Inputs Workers Managers Equipment Facilities Materials Land Energy Outputs Goods Services Figure 1.2

5. 1 – 5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Process View Physical, durable output Output can be inventoried Low customer contact Long response time Capital intensive Quality easily measured Intangible, perishable output Output cannot be inventoried High customer contact Short response time Labor intensive Quality not easily measured More like a manufacturing process More like a service process Figure 1.3

6. 1 – 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. The Supply Chain View Support Processes External suppliers External customers Supplier relationship process New service/ product development Order fulfillment process Customer relationship management Figure 1.4

7. 1 – 7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. The Supply Chain View Core processes are sets of activities that deliver value to external customers 1.Supplier relationship process 2.New service/product development process 3.Order fulfillment process 4.Customer relationship process Support processes provide vital resources and inputs to the core processes

8. 1 – 8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Support Processes TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES Capital acquisitionThe provision of financial resources for the organization to do its work and to execute its strategy BudgetingThe process of deciding how funds will be allocated over a period of time Recruitment and hiringThe acquisition of people to do the work of the organization Evaluation and compensationThe assessment and payment of people for the work and value they provide to the company Human resource support and developmentThe preparation of people for their current jobs and future skills and knowledge needs Regulatory complianceThe processes that ensure that the company is meeting all laws and legal obligations Information systemsThe movement and processing of data and information to expedite business operations and decisions Enterprise and functional managementThe systems and activities that provide strategic direction and ensure effective execution of the work of the business

9. 1 – 9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Operations Strategy Specifies the means by which operations implements corporate strategy and helps build a customer-driven firm Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization's functions

10. 1 – 10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Operations Strategy Figure 1.5 Corporate Strategy Environmental scanning Core competencies Core processes Global strategies Market Analysis Market segmentation Needs assessment Competitive Priorities Cost Quality Time Flexibility New Service/ Product Development Design Analysis Development Full launch Operations Strategy Decisions Managing processes Managing supply chains Competitive Capabilities Current Needed Planned Performance Gap? No Yes

11. 1 – 11 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Corporate Strategy Environmental scanning Developing core competencies 1.Workforce 2.Facilities 3.Market and financial know-how 4.Systems and technologies Developing core processes Global strategies

12. 1 – 12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Market Analysis Market segmentation Needs assessment  Service or product needs  Delivery system needs  Volume needs  Other needs

13. 1 – 13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Competitive Priorities TABLE 1.2 |DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES COSTDefinitionProcess ConsiderationsExample 1.Low-cost operations Delivering a service or a product at the lowest possible cost Processes must be designed and operated to make them efficient Costco QUALITY 2.Top qualityDelivering an outstanding service or product May require a high level of customer contact and may require superior product features Ferrari 3.Consistent quality Producing services or products that meet design specifications on a consistent basis Processes designed and monitored to reduce errors and prevent defects McDonald’s TIME 4.Delivery speedQuickly filling a customer’s order Design processes to reduce lead time Dell 5.On-time delivery Meeting delivery-time promises Planning processes to increase percent of customer orders shipped when promised United Parcel Service (UPS) 6.Development speed Quickly introducing a new science or a product Cross-functional integration and involvement of critical external suppliers Li & Fung

14. 1 – 14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Competitive Priorities TABLE 1.2 |DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES FLEXIBILITYDefinitionProcess ConsiderationsExample 7.CustomizationSatisfying the unique needs of each customer by changing service or products designs Low volume, close customer contact, and easily reconfigured Ritz Carlton 8.VarietyHandling a wide assortment of services or products efficiently Capable of larger volumes than processes supporting customization Amazon.com 9.Volume flexibility Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand Processes must be designed for excess capacity The United States Postal Service (USPS)

15. 1 – 15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Order Winners and Qualifiers Sales ($) Achievement of competitive priority LowHigh Order Winner Figure 1.6 Sales ($) Achievement of competitive priority LowHigh Order Qualifier Threshold

16. 1 – 16 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Using Competitive Priorities Customer relationship  Top quality  Consistent quality  Delivery speed  Variety New service development  Development speed  Customization  Top quality At an airline

17. 1 – 17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Using Competitive Priorities Order fulfillment  Low-cost operations  Top quality  Consistent quality  On-time delivery  Variety At an airline

18. 1 – 18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Using Competitive Priorities Supplier relationship  Low-cost operations  Consistent quality  On-time delivery  Variety  Volume flexibility At an airline

19. 1 – 19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Operations Strategy TABLE 1.3 | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS Competitive PriorityMeasureCapabilityGapAction Low-cost operations  Cost per billing statement  $0.0813  Target is $0.06  Eliminate microfilming and storage of billing statements  Weekly postage  $17,000  Target is $14,000  Develop Web-base process for posting bills Consistent quality  Percent errors in bill information  0.90%  Acceptable  No action  Percent errors in posting payments  0.74%  Acceptable  No action Delivery speed  Lead time to process merchant payments  48 hours  Acceptable  No action Volume flexibility  Utilization  98%  Too high to support rapid increase in volumes  Acquire temporary employees  Improve work methods

20. 1 – 20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Trends in Operations Management Productivity improvement Global competition Ethical, workforce, and environmental issues

21. 1 – 21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Productivity Improvement EXAMPLE 1.1 Calculate the productivity for the following operations: a.Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. SOLUTION a.Labor productivity = Policies processed Employee hours = = 5 policies/hour 600 policies (3 employees)(40 hours/employee)

22. 1 – 22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Productivity Improvement EXAMPLE 1.1 Calculate the productivity for the following operations: b.A team of workers makes 400 units of a product, which is sold in the market for $10 each. The accounting department reports that for this job the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead. SOLUTION a.Multifactor productivity = Value of output Labor cost + Materials cost + Overhead cost = = = 2.35 (400 units)($10/unit) $400 + $1,000 + $300 $4,000 $1,700

23. 1 – 23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application  Calculate the year-to-date labor productivity:  Calculate the multifactor productivity: This YearLast YearYear Before Last Factory unit sales ($)2,762,1032,475,7382,175,447 Employment (hrs)112,000113,000115,00 Sales of manufactured products ($) $49,363$40,831 — Total manufacturing cost of sales ($) $39,000$33,000 — factory unit sales employment This Year 2,762,103 = 24.66/hr 112,000 Last Year 2,475,738 = 21.91/hr 113,000 Year Before Last 2,175,447 = $18.91/hr 115,000 sales of mfg products total mfg cost This Year $49,363 = 1.27 $39,000 Last Year $40,831 = 1.24 $33,000

24. 1 – 24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. OM as a Set of Decisions In practice, managers make strategic and tactical decisions 1.Each part of the organization designs and operates processes 2.Each function is connected through shared resources Competing with Operations Project Management USING OPERATIONS TO COMPETE Process Strategy Process Analysis Quality and Performance Capacity Planning Lean Systems MANAGING PROCESSES Supply Chain Design Supply Chain Integration Location Inventory Management Forecasting Operations Planning and Scheduling Resource Planning MANAGING SUPLY CHAINS Figure 1.7

25. 1 – 25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Challenges in OM Part 1:Using operations to compete Part 2:Managing processes Part 3:Managing supply chains

26. 1 – 26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 Student tuition at Boehring University is $150 per semester credit hour. The state supplements school revenue by $100 per semester credit hour. Average class size for a typical 3-credit course is 50 students. Labor costs are $4,000 per class, material costs are $20 per student per class, and overhead costs are $25,000 per class. a.What is the multifactor productivity ratio for this course process? b.If instructors work an average of 14 hours per week for 16 weeks for each 3-credit class of 50 students, what is the labor productivity ratio?

27. 1 – 27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 SOLUTION a.Multifactor productivity is the ratio of the value of output to the value of input resources. Value of output = 50 student class $150 tuition + $100 state support credit hour 3 credit hours student Value of inputs= Labor + Materials + Overhead Multifactor productivity = = = 1.25 $37,500/class $30,000/class Output Input = $37,500/class = $4,000 + ($20/student  50 students/class) + $25,000 = $30,000/class

28. 1 – 28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 SOLUTION b.Labor productivity is the ratio of the value of output to labor hours. The value of output is the same as in part (a), or $45,000, so Labor hours of input = 14 hours week 16 weeks class Labor productivity= = $45,000/class 224 hours/class Output Input = 224 hours/class = $200.89/hour

29. 1 – 29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 Natalie Attire makes fashionable garments. During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that they were flawed). Seconds are sold for $90 each at Attire’s Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each. What is the labor productivity ratio of this manufacturing process?

30. 1 – 30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 SOLUTION Labor productivity= = $20,680 360 hours Output Input Labor hours of input = 360 hours Value of output= (52 defective  90/defective) + (80 garments  200/garment) = $20,680 = $57.44 in sales per hour

31. 1 – 31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.