1. BSAD 102 Mike’s Bikes Business Simulation
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2. Introduction The importance of Operations Management
OM is one of the three major functions of any organization
OM is central to the production of goods and services
OM is a costly part of an organization
OM is a key organizational link to a firm’s supply chain
The aim of Operations Management is to be efficient and effective
Faster, cheaper, better
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3. Objectives OM is central to the production of goods and services
Developing an understanding of effective and efficient production in your companies
OM is a costly part of an organization
Developing an understanding of the drivers of costs (capacity utilization, wastage, idle time, quality orientation, inventory) in your companies
Finding relevant operations management reports
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4. Decision Scenario
Your design team has announced that they are now only one year away from releasing three new bike designs, an improved Mountain bike, and one design each for the Road and Youth bike segments.  
Your main challenge for this year is to create a capacity and quality management plan that takes into account that you will have new products available for launch next year.
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5. Concepts Capacity Relevant Mike’s Bikes Concepts
Amount of output a system is capable of achieving over a specified period of time or the amount of a good that a firm can produce under normal conditions
Determines the maximum number of bikes that can be produced in your factory and your ability to satisfy demand
Depends on the number, skill level, and productivity of people working, the size and layout of facilities, quantity and quality of equipment, availability of inputs, and overall scheduling of operations
Relevant Mike’s Bikes Concepts
Capacity – maximum capable output of bikes
Wastage – time spent on activities such as setting up and maintenance of machines
Idle time – non-production time
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6. Decisions Capacity re: Mike’s Bikes (see “The Year Ahead”)
How is capacity measured?
What is your capacity situation?
How can you change your capacity? What impact does a change in capacity have on your firm?
Should you increase, maintain or decrease your capacity?
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7. Decisions Capacity re: Mike’s Bikes How is capacity measured?
Standard Capacity Unit (SCU) is the amount of production resources required to manufacture one bike
Varies by type of bike
Mountain bike = 0.5 SCU
Road bike = 1.0 SCU
Youth bike = 0.25 SCU
What is your capacity situation?
Refer to “Production Planner”
20,000 SCUs means at full capacity you can produce 30,000 mountain bikes with .5 SCU – with 5,000 SCUs wastage
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8. Decisions Capacity re: Mike’s Bikes How can you change your capacity?
Two ways to increase capacity
Buy capacity (Asset on B/S and accounted on I/S) – this is adding to or expanding your current production system
Reduce wastage (COGS) – this is a method to improve the efficiency of your current production system
Sell capacity
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9. Decisions Capacity re: Mike’s Bikes
Should you increase, maintain or decrease your capacity?
Are you launching a new bike?
Do you have enough capacity? Do you have too much?
Idle time
You have too little if your idle time is 0%
You have the right amount if your idle time is 1-10%
You have too much capacity if your idle time is more than 10%
Forecast(s)
Maintain Mountain Bike? Adjust forecasts?
Demand for new bike?
Competition?
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10. Concepts
Capacity
Key input to your firm’s costs, production speed, and ability to generate a quality product
Production incurs direct and indirect outlays of labour, materials and machine hours – see COGM and Gross Margin Report
Production efficiency improvements cost the firm and lead to cost reductions – see Factory Overhead Allocation Rates
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11. Concepts
Quality
“The totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs” American Society for Quality
“Quality refers to the satisfaction experienced by customers from a product and is an important determinant of demand” Mike’s Bikes Handbook
Implications re: company reputation, customer satisfaction, future growth, product liability, competitiveness, marketing mix, manufacturing strategy (faster, cheaper, better)
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12. Quality Assurance Tools
Benchmarking
ISO 9000
Re-engineering
Competitive product analysis
Value-added analysis
Statistical process control
Quality/cost studies
Quality improvement teams
Control charts
Adding value through supply chains
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Discussed on pages
Quality Control: Ensuring goods meet the firm’s quality standards. Quality control requires attention to both efficiency (quantity produced) and quality (the ability of the product to deliver the consumers’ expectations)

13. Decisions Quality re: Mike’s Bikes
There are three basic quality targets:
Low quality 0.50
Medium quality is 0.75
High quality is a rating of 0.95
Do you have the quality rating your current market demands?
Market Scenario Report and Product Dimension Sensitivities
Are you launching a new bike? Do you have the quality rating for your future market demands?
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14. Decisions Quality re: Mike’s Bikes
Implementing Quality Decisions – Capacity Planner
How much quality can you afford given the price of your bike and your other functional decisions (marketing, ops)?
Accounted as COGS
Quality effectiveness improvements cost the firm but should lead to fewer warranty returns (the measure of quality in Mike’s Bikes) – see Factory Overhead Allocation Rates and All Product Details
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15. Concepts Physical Distribution
Those activities needed to move a product from the manufacturer to the end customer, including warehousing (storage of goods) and transportation (delivery of goods)
Warehousing costs include space rental or mortgage payments, insurance, wages, inventory control
Transportation costs include speed of delivery (timeliness), weight of product, insurance, ease of handling, and distance, as well as cross-border considerations
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16. Next Class Have your decisions input by 4 pm Tuesday
Wednesday’s class will focus on the Beothic case – please read and prepare questions
Mike’s Bikes Report II due today or tommorrow by 3:00pm
Mike Bikes’ Report III due March 21st and available on-line next class
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