1. © 2006 Prentice Hall, Inc.2 – 1 Operations Management Chapter 2 – Fundamentals of Operations Chapter 2 – Fundamentals of Operations © 2006 Prentice Hall, Inc. Heizer/Render Operations Management, 8e

2. © 2006 Prentice Hall, Inc.2 – 2 Learning Objectives  Specific approaches used by OM to achieve strategies  Differentiation  Low cost  Response When you complete this chapter, you should be able to: Describe or Explain:

3. © 2006 Prentice Hall, Inc.2 – 3 Questions How did the book define mission? What is a strategy? What does competitive advantage mean? What does differentiation mean? How do firms compete on response? What is a global firm?

4. © 2006 Prentice Hall, Inc.2 – 4 Global Strategies  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  Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

5. © 2006 Prentice Hall, Inc.2 – 5 Reasons to Globalize  Reduce costs (labor, taxes, tariffs, etc.)  Improve supply chain  Provide better goods and services  Understand markets  Learn to improve operations  Attract and retain global talent Tangible Reasons Intangible Reasons Figure 2.1

6. © 2006 Prentice Hall, Inc.2 – 6 Risks: You May Wish To Consider  National literacy rate  Rate of innovation  Rate of technology change  Number of skilled workers  Political stability  Product liability laws  Export restrictions  Variations in language  Work ethic  Tax rates  Inflation  Availability of raw materials  Interest rates  Population  Number of miles of highway  Phone system

7. © 2006 Prentice Hall, Inc.2 – 7 Developing Missions and Strategies Mission statements tell an organization where it is going The Strategy tells the organization how to get there

8. © 2006 Prentice Hall, Inc.2 – 8 Mission  Mission – Who are we? What is our business? Where are you going?  Organization’s purpose for being  Focus is on value-added or business focus not on a product or services.

9. © 2006 Prentice Hall, Inc.2 – 9 Mission Statements FedEx exists to provide total reliable, competitively superior, global air-ground transportation of high priority goods and documents that require rapid, time-certain delivery. Merck exists to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return Figure 2.2

10. © 2006 Prentice Hall, Inc.2 – 10 Mission Statements Create a mission statement for Boston Medical Hospital or Wal-Mart? http://www.bmc.org/about/mission.html Wal-Mart Retail Stores: http://walmartstores.com/GlobalWMStoresWe b/navigate.do?catg=1 http://walmartstores.com/GlobalWMStoresWe b/navigate.do?catg=1 http://walmartstores.com/GlobalWMStoresWe b/navigate.do?catg=1 Figure 2.2

11. © 2006 Prentice Hall, Inc.2 – 11 Hard Rock Café Our Mission: To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. Arnold Palmer Hospital is a healing environment providing family-centered care with compassion, comfort and respect… when it matters the most. Figure 2.2

12. © 2006 Prentice Hall, Inc.2 – 12 Mission Statements Create mission statements for any of the following: - For a store providing breakfasts for clients. - For a Laundromat - For an auto repair shop Figure 2.2

13. © 2006 Prentice Hall, Inc.2 – 13 Mission Statements Sample mission statements: - delivering healthy and time-saving morning food service. - providing access to high end laundry equipments and services at lowest price. - providing trustworthy staff, services and solutions for retaining and restoring life span and reliability of vehicles. Mission statements have consequences for the formulation of strategies! Figure 2.2

14. © 2006 Prentice Hall, Inc.2 – 14 Strategy Types The purpose of strategy is to gain competitive advantage. Assume that a new businessman is entering into the bus transportation business. He wants to be transporting passengers from Boston to New York. What one strategy should he have in order to take market share away from the train and existing bus businesses? Figure 2.2

15. © 2006 Prentice Hall, Inc.2 – 15 Generic Strategy Types Assume that a new businessman is entering into the bus transportation business. He wants to be transporting passengers from Boston to New York. What one strategy should he have to take market share away from the train and existing busses? Competitive advantage opportunities: -Have more comfortable busses -Have more transportation pickup points -Have more frequent departures -Have competitive fares -Have multiple fare classes in busses -Focus on high-end business customer -Have punctual arrivals and departures -More experienced drivers Figure 2.2

16. © 2006 Prentice Hall, Inc.2 – 16 Generic Strategy Types Competitive advantage and Strategic types: -Have more comfortable buses [Differentiation] -Have more transportation pickup points [Response] -Have more frequent departures [Response] -Have punctual arrivals and departures [Response] -Have competitive fares [Cost] -Have multiple fare classes in buses [Differentiation] -Focus on high-end business customer [Differentiation] -More experienced drivers [Differentiation] Figure 2.2

17. © 2006 Prentice Hall, Inc.2 – 17 Strategy Types Four Strategic types (there are other forms of strategic types): Differentiation leadership: providing offerings to which customers perceive as adding value to them because the services are faster, better and more appropriate for their needs than offerings of competitors (not all service differences constitute a competitive advantage). Cost leadership: providing offerings to customers at the best value to cost ratio (Cost leadership is not necessarily cheapest price). Response leadership: providing offerings that rapidly, flexibly and reliably adapt to customer diversity, needs and demands. Not all “good” ideas are strategies, e.g. funding roads. The best strategies are those which directly add value to the customer. Most strategies have implications for the design and management of a company’s operations!! Figure 2.2

18. © 2006 Prentice Hall, Inc.2 – 18 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 Figure 2.4 OperationsSpecificCompetitive DecisionsExamplesStrategy UsedAdvantage Response (Faster) Cost leadership (Cost effective) Differentiation (Better)

19. © 2006 Prentice Hall, Inc.2 – 19 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. Figure 2.6

20. © 2006 Prentice Hall, Inc.2 – 20 Strategic Process Marketing factors Operations factors Finance/ Accounting factors Strategic choices Organization’s Mission

21. © 2006 Prentice Hall, Inc.2 – 21 Service Production Flows Development/Factory Concept Creating factory concept for your mission statement: Basic concept will consist of a list of activities and where they will be done. Figure 2.2 Get materials Transport Process Inspect Assemble

22. © 2006 Prentice Hall, Inc.2 – 22 Activity 1 A student is starting a business. Her mission is to help workers save breakfast preparation time in the mornings. She is set up at the T-Station. She timed the breakfast activities at home as: To boil or fry one egg: 160 secs To toast one slice of bread: 120 secs To make one cup of coffee: 150 secs Q. How long will it take to serve one customer one boiled egg, one toast and a cup of coffee? Note: Ignore other activities such as tasting and inspecting for now. Figure 2.2

23. © 2006 Prentice Hall, Inc.2 – 23 Activity 1 Worst answer is 160 s + 120 s + 150 s = 430 secs Activity flow diagram introduction: -What should she do first ? Bottleneck activity. - When can the next activity begin? - When can the latest action begin? -Better answer is: Lessons: Until we draw the process flow, it is difficult to judge a process. Parallel flows are more efficient than serial ones. Figure 2.2

24. © 2006 Prentice Hall, Inc.2 – 24 Activity 2 We still have the one-woman breakfast factory. But now we will include all the needed activities. We hope to see how long it will take to serve a customer one egg, one cup of coffees and one toast? Figure 2.2

25. © 2006 Prentice Hall, Inc.2 – 25 Service Production Flow (1) [Single Staff] Business Activity flow for Breakfast Factory [ I ] Get Eggs Eggs In pot Boil Eggs in pot Remove Eggs Assemble on tray Preparebread Put in toaster Make Coffee Remove toast Assemble on tray Toast waiting Preparecoffee Coffee waiting PourCoffee Assemble on tray Toaster Start End Sub-process 2 Sub-process 3 Sub-process 1 Key Attributes of Process (I) -3 different flow units, I.e. eggs, coffee, toast - 3 independent sub-processes, I.e. parallel sub-processes - standardized activity duration for each unit Eggs waiting Toast waiting

26. © 2006 Prentice Hall, Inc.2 – 26 Activity 2 b We still have the one-woman breakfast factory. But now we will include all the needed activities. Which measures would tell us how good the factory process is working? Figure 2.2

27. © 2006 Prentice Hall, Inc.2 – 27 Productivity & Other Measures of Production Flow (1) [Single worker] Business Activity flow for Breakfast Factory [ I ] Get Eggs Eggs In pot Boil Eggs in pot Remove inspect Assemble on tray Preparebread Put in toaster Make Coffee Remove inspect Assemble on tray Toast waiting Preparecoffee Coffee waiting PourCoffee Assemble on tray Toaster Start End Sub-process 2 Sub-process 3 Sub-process 1 Which measures could be used to evaluate this process? - Time from beginning to end of process [minutes] (input measure) - Quality of items [hotness of coffee, hardness of eggs] (output measure) - Max. number of eggs that can be boiled per batch or hour (productivity measure) - Max number of toasts that can be made per hour or batch (productivity measure) - Max. volume of coffee that can be made per batch or hour (productivity measure) - Worker resources needed to make full plate [hours per plate] (productivity measure) Eggs waiting Toast waiting 2 mins 5 mins 3 mins 2 min 6 mins 2 mins

28. © 2006 Prentice Hall, Inc.2 – 28 Homework Graphing Scale 1 square = 1 minute Draw process on slide 27 in a graph paper, using scale given. Figure 2.2

29. © 2006 Prentice Hall, Inc.2 – 29 Activity 3 Would it be a good idea to hire another worker? Figure 2.2

30. © 2006 Prentice Hall, Inc.2 – 30 Redesigned of Production Flow (1) [Two workers] Business Activity flow for Breakfast Factory [ I ] Improvement of new process: - Time from beginning to end of process [minutes] (input measure) CYCLE TIME HORTENED - Quality of items [hotness of coffee, hardness of eggs] (output measure) WARMER - Max. number of eggs that can be boiled per batch or hour (productivity measure) - Max number of toasts that can be made per hour or batch (productivity measure) - Max. volume of coffee that can be made per batch or hour (productivity measure) - Worker resources needed to make plate [hours per plate] (productivity measure) HIGHER Get Eggs Eggs In pot Boil Eggs in pot Remove Eggs Assemble on tray Preparebread Put in toaster Make Coffee Remove toast Assemble on tray Preparecoffee PourCoffee Toaster Start Old End Sub-process 2 Sub-process 3 Sub-process 1 Process postponement Worker 1 New End Worker 1 Worker 2

31. © 2006 Prentice Hall, Inc.2 – 31 Activity 3 Comments on Solution: Increase in staff by 100% does not cut the total activity time for the process by much. It does reduce waiting time for food elements. Why: To cut total time one has to cut bottle neck or longest time. The most utilized resource must be affected to cut total time, e.g. toaster, coffee maker etc. Figure 2.2

32. © 2006 Prentice Hall, Inc.2 – 32 Activity Create the process flow chart for a Laundromat process: Figure 2.2

33. © 2006 Prentice Hall, Inc.2 – 33 Service Production Flow (2) Load washer Wash clothes Remove clothes Transfer Loaddryer Assemble on tray Start End Business Activity flow for Laundromat [ II ] Add soap Dry clothes Remove Sub-process 2 Sub-process 1 Key Attributes of Process (II) - single flow unit for all sub-processes, I.e. clothes - 2 interdependent sub-processes, I.e. serial sub-processes - standardized activity duration for each unit

34. © 2006 Prentice Hall, Inc.2 – 34 Analysis of Production Flow (2) Load washer Wash clothes Remove clothes Transfer Loaddryer Assemble on tray Start End Business Activity flow for Laundromat [ II ] Add soap Dry clothes Remove Sub-process 2 Sub-process 1 30 minutes 60 minutes Max. capacity 300 Ibs Max. capacity 150 Ibs Q.If you have 300 Ibs of clothes to wash, how long will you need and why? Q. How would you redesign the process to shorten your wait time?

35. © 2006 Prentice Hall, Inc.2 – 35 Bottleneck Types Production Flow (2) Load washer Wash clothes Remove clothes Transfer Loaddryer Assemble on tray Start End Business Activity flow for Laundromat [ II ] Add soap Dry clothes Remove Sub-process 2 Sub-process 1 30 minutes 60 minutes Max. capacity 300 Ibs Types of bottlenecks: -Volume capacity -Critical activity -Longest activity or processing time

36. © 2006 Prentice Hall, Inc.2 – 36 Service Production Flow (3) Business Activity flow for Auto Repair Factory [ III ] Get car Docum ent issues Pay Diagnose Repair car Test Waiting for parts Request parts Start End Sub-process 2 Sub-process 1 Pre- Diagnose Pick-up Key Attributes of Process (III) - same flow units through all sub-processes, I.e. clothes - 2 interdependent sub-processes, I.e. serial sub-processes - irregular/unique activities and different durations for each unit possible

37. © 2006 Prentice Hall, Inc.2 – 37 Key Lessons 1.There are different types of processes 2.Process can be redesigned by exploiting trade-offs -More staff to raise number of units produced -Larger machine capacity to reduce waiting time and improve produced units -Eliminate waiting, errors and rework -Reduce inventory on-hand -Combine activities -Run activities in parallel Figure 2.2

38. © 2006 Prentice Hall, Inc.2 – 38 Process Design Types LowModerateHigh Volume HighModerateLow Variety of Products Process-focused JOB SHOPS (Print shop, emergency room, machine shop, fine dining Repetitive (modular) focus ASSEMBLY LINE (Cars, appliances, TVs, fast-food restaurants) Product focused CONTINUOUS (steel, beer, paper, bread, institutional kitchen) Mass Customization Customization at high Volume (Dell Computer’s PC)