1. Operations and Service Management Chapter 21

2. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 2 Operations and Service Management Strategic success depends on efficient operations Operational concerns take on even greater importance in today’s competitive environment where consumers often want customized products and services delivered immediately Manager’s Challenge: Donnelley

3. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 3 Operations and Service Management Management and control of production operations Define operations management How to bring operations into strategic decision making Overview of integrated operations activities Specific operations design issues How managers measure and improve productivity Topics Chapter 21

4. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 4 Operations Management The field of management that specializes in the physical production of goods or services and uses quantitative techniques for solving manufacturing problems Technical core = heart of the organization’s production of its product or service

5. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 5 The Organization as an Operations Management System Products & Facilities Product design Facilities layout Capacity planning Facilities location Structure Reporting relationships Teams Control Processes Inventory management Productivity Quality Operations Management Inputs Raw materials Human resources Land, buildings Information Technology Inputs Raw materials Human resources Land, buildings Information Technology Outputs Products Services Outputs Products Services Operations Strategy The Technical Core Feedback

6. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 6 Manufacturing and Service Organizations Source: Based on Richard L. Daft, Organization Theory and Design (Cincinnati, OH: South-Western College Publishing, 1998), 130; and Byron J. Finch and Richard L. Luebbe, Operations Management (Fort Worth, Texas: The Dryden Press, 1995), 50.

7. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 7 Operational Concerns for Manufacturing and Service Organizations Scheduling Must obtain materials and supplies Both must be concerned with quality and productivity

8. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 8 Four Stages of Operations Strategy Stage 4 Initiates Competitive Advantage Advanced capabilities developed and significant input to strategic process provided Concerns: New products New services New technologies International Stage 3 Organizationally Supportive Organization’s competitive strategy closely followed and supported Concerns: Advanced process technologies New plants What to make for the United States Stage 2 Industry Current Goals set according to industry practice Concerns: Capital investment Quality control Inventory management Capacity Stage 1 No Involvement No positive contribution to strategy formulation Concerns: Cost Labor efficiency Source: Based on R.H. Hayes and S.C. Wheelwright, Restoring Our Competitive Edge: Competing through Manufacturing (New York: Wiley, 1984).

9. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 9 The Integrated Enterprise Supply chain management = managing the sequence of suppliers and purchasers, covering all stages of processing from obtaining raw materials to distributing finished goods to final consumers

10. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 10 The E-Supply Chain Retail Chain Retail Store Intranet Data Exchange Customer Extranet Data Exchange Manufacturer Extranet Data Exchange Supplier Partnership approach to the supply chain optimizes inventory levels and enables rapid response to customer needs

11. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 11 How to Win Customers? Better price Quality Performance Delivery Responsiveness to customer demand

12. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 12 Design for Manufacturability and Assembly - DFMA Often requires – Restructuring operations – Creating teams of designers, manufacturers, and assemblers to meet objectives of design

13. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 13 Product Design Objectives 1 Producibility Cost Quality Reliability 2 3 4

14. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 14 Service Design Objectives 1 Producibility Cost Quality Reliability 2 3 4 Timing 5 Ethical Dilemma: A Friend for Life?

15. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 15 Procurement Purchasing supplies, services, and raw materials for use in the production process

16. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 16 Facilities Layout Process Layout Product Layout Cellular Layout Fixed-position Layout

17. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 17 Technology Automation Service Technology  Restaurants – calculate exact cost and ingredient needs for each menu item  Banking – ATMs  Gas stations – pay-at-pump systems  Retailing = RFID – radio-frequency identification (high-tech barcode)

18. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 18 Technology Automation Flexible Manufacturing Systems, the use of automated production lines that can be quickly adapted to produce more than one kind of product CAD/CAM ● CAD = computer aided design ● CAM = computer aided manufacturing ● PLM = Product-life cycle management

19. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 19 Facility Location Cost-benefit analysis – most common approach to selecting a site for a new location New location scouting software is helping managers turn facilities location into a science

20. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 20 Capacity Planning Determination and adjustment of the organization’s ability to produce products and services to match customer demand

21. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 21 Inventory Management Finished goods inventory Work-in-process inventory Raw materials inventory

22. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 22 Techniques for Inventory Management Economic order quantity Material requirements planning Just-in-Time inventory systems Logistics & Distribution management

23. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 23 Logistics and Distribution Management Logistics = activities required to physically move materials into the company’s operations facility and to move finished products to customers Distribution = moving finished products to customers (order fulfillment)

24. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 24 Material Requirements Planning - MRP Dependent demand inventory planning and control system Schedules exact materials required Is computer based Based on precise estimates of future needs for production

25. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 25 Lean Manufacturing and Productivity Lean manufacturing = process using highly trained employees at every stage of the production process to cut waste and improve quality – employee involvement is key

26. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 26 Measuring Productivity Productivity = organization’s output of products and services divided by its inputs Total factor Productivity Labor Productivity Output Labor + Capital + Materials + Energy = = Output Labor dollars

27. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 27 Improving Productivity 1. Technological productivity 2. Employee productivity 3. Managerial productivity Experiential Exercise: What Is Your Attitude Toward Productivity?