Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-1 Operations Management 10

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-2 Operations Management Operations Management deals with managing the production of goods and services

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-3 Defining Operations Management Operations Management : is the performance of managerial activities entailed in: Selecting Designing Operating Controlling Updating production systems Categories of Operations Management Activities (based on frequency of performance): 1. Periodic: performed from time to time 2. Continual: performed without interruption

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-4 Operations Management

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-5 Operations Management Considerations Operations Management: is the systematic direction and control of operations processes that transform resources into finished goods and services. (Another definition) Involves managers Takes place within the context of objectives and policies that are derived and drive the organization’s strategic plan Standards for effectiveness and efficiency are the criteria for judging the actions

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-6 Operations Management Considerations Effectiveness: the degree to which managers attain organizational objectives “ doing the right things ” Efficiency: the degree to which organizational resources contribute to productivity “ doing things right ” (doing things in the right way) A review of organizational performance based on these standards is essential to enhancing the success of any organization.

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-7 Operations Management Considerations Operation strategies: are specific plans of actions designed to ensure that resources are obtained and used effectively and efficiently The Six Operation Strategies are: 1. Capacity Strategy 2. Location Strategy 1. Product Strategy 2. Process Strategy 3. Layout Strategy 4. Human Resources Strategy

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-8 Operations Strategies: 1- Capacity Strategy 1. Capacity Strategy: is the plan of action aimed at providing the organization with the right facilities to produce the needed output at the right time. The output capacity of the organization determines its ability to meet future demands for goods and services. Insufficient Capacity → Loss of ↓ sales & ↓ profit Optimal Capacity → ↓ cost, ↑profit Excess Capacity → ↑ production cost Quantity & timing are in balance

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall 22-9 Operations Strategies: 1- Capacity Strategy Capacity Flexibility : enables the company to deliver its goods and services to its customers in a shorter time than its competitors. This involves having: Flexible plants and processes Broadly trained employees Easy and economical access to external capacity (e.g. suppliers) Why managers use Capacity Strategy? To balance the cost of overcapacity and undercapacity

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 1- Capacity Strategy Five Steps in Capacity Decisions: 1. Measure the capacity of currently available facilities 2. Estimate future capacity needs on the basis of demand forecasts 3. Compare future capacity needs and available capacity to determine whether capacity must be increased or decreased 4. Identify ways to accommodate long-range capacity changes (expansion or reduction) 5. Select best alternative based on quantitative and qualitative evaluation

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 2- Location Strategy 2- Location Strategy : is a plan of action that provides the organization with a competitive location for its headquarters, manufacturing, services, and distribution activities. Why? A competitive location result in lower transportation and communication cost, which are as high as 20%-30% of a product price! This will affect the volume of sales and amount of profit

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 2- Location Strategy Factors in a Good Location: Nearness to market and distribution centers Nearness to vendors and resources Requirements of federal, state, and local governments The character of direct competition The degree of interaction with the rest of the corporation The quality and quantity of labor pools The environmental attractiveness of the area Taxes and financing requirements Existing and potential transportation The quality of utilities and services Because these factors are dynamic (change a lot), a competitive location today might be an undesirable location after 5 years.

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 3- Product Strategy 3- Product Strategy: is an operational plan of action outlining which goods and services an organization will produce and market. It is the main operation strategy, Why? Because it is the link between operations strategies and other functional strategies (e.g. marketing, and Research & Development R&D). How?(book) Advantages: Sophisticated products can be designed & produced simply Reduce the number of units that must be scrapped (throw) or reworked (fix), or the need for highly trained and highly paid employees. Lower production cost → Increase competitive pricing (lower selling price), or ↑ profit, or both.

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 4- Process Strategy 4- Process Strategy: is a plan of action outlining the means and methods the organization will use to transform resources into goods and services. Resources e.g.: material, labor, information, equipment, managerial skills

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 4- Process Strategy Types of Processes: 1) Continuous process : a product-oriented, high volume, low variety process (used in: e.g. producing chemicals, & petroleum products) 2) Repetitive process (Mass-Production / Assembly-Line process): a product-oriented, production process that uses modules to produce items in large lots. (used in: e.g. auto & appliance industries) 3) Job-shop process : a high-variety, low-volume process (used to produce small lots of custom-designed products e.g. furniture) (also used for one-of-a-kind items & unit production e.g. Spaceship & weapons) Organizations usually use more than one type of manufacturing process

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 4- Process Strategy Process strategy is directly linked to product strategy. First decide what to produce (product strategy), then select how to produce it (process strategy). The function of process strategy is to determine: What equipment will be used What maintenance will be necessary What level of automation Type of employees level of employee skills

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 5- Layout Strategy 5- Layout Strategy: is a plan of action that outlines the location and flow of all organizational resources around, into, and within production and service facilities. Cost-Effective & Cost-Efficient layout strategy is the one that minimizes the expenses of processing, transporting, & storing materials. Layout strategy is the last part of operations strategy formulation ( last strategy to be done ), because it depends on all other strategies (capacity, location, product, process, & human resources)

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 5- Layout Strategy Layout: is the overall arrangement of equipment, work areas, service areas, and storage areas within a facility that produces goods or provides services. Three basic types of layouts: (see figure) 1. Product layout : for high production volumes, highly specialized equipment, & narrow employee skills. (used for: organizations with limited number of different products, NOT for those with constantly changing products) 2. Process (functional) layout : groups together similar types of equipment. (used for: large number of different tasks / low production volume / equipment is multipurpose / broad employee skills) 3. Fixed-position layout : the product is stationary while resources flow. (used for: large number of different tasks with low volumes, multi purpose equipment, & broad employee skills)

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 5- Layout Strategy Most manufacturing facilities are a combination of two or more different types of layouts. Group Technology Layout : is a product layout cell within (inside) larger process layout Used for organizations that require both types of layout.

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall Operations Strategies: 6- Human Resources Strategy 6- Human Resources Strategy : is an operational plan to use the organization’s human resources effectively and efficiently while maintaining or improving the quality of work life. Human resource imperatives (musts/requirements): 1. Optimize individual, group, and organizational effectiveness 2. Enhance the quality of organizational life