Operations Management PART V: Controlling 14 Chapter 14 Operations Management Copyright © 2005 Prentice Hall, Inc. All rights reserved.

The Importance Of Operations Management Operations management defined The study and application of the transformation process OM is important because it: Encompasses processes in all organizations—services as well as manufacturing. Is important in effectively and efficiently managing productivity. Plays a strategic role in an organization’s competitive success. In its purest form, technology is how an organization transforms its inputs into outputs. Operations management is the study and application of the process of transformation. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Transformation and Organizations Transformation process The process through which an organization creates value by turning inputs (people, capital, equipment, materials) into outputs (goods or services) Manufacturing organization Organizations that produce physical goods Service organization An organization that produces nonphysical outputs such as educational, medical or transportation services Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Productivity Productivity defined Benefits of high productivity The overall output of goods and services produced divided by the inputs needed to generate that output. Productivity is the name of the game! It is technology’s ability to significantly increase productivity that is driving the technology bandwagon. In its most simple form, productivity can be expressed in the following ratio: Productivity = Outputs/(Labor+Capital+Materials). This formula can be applied in its total form or broken into subcategories. Because technology is the means by which inputs are turned into outputs, it is the primary focus of any management’s efforts to improve productivity. Work process engineering is causing increased worker productivity, and the redesign of work processes is achieving higher output with fewer workers. Reengineered jobs will require self-motivated, computer-literate employees with excellent communication skills. Benefits of high productivity Fosters economic growth and development Increases individual wages without inflation Lowers costs and makes firms more competitive Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Value and the Value Chain The performance characteristics, features and attributes, or any other aspects of goods and services for which customers are willing to give up resources. Value chain The entire series of organizational work activities that add value at each step beginning with the processing or raw materials and ending with a finished product in the hands of end users. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Value Chain Management versus Supply Chain Management A method of improving the process of creating and transferring documents by automating the flow of information Supply chain management Management of the facilities, functions, and activities involved in producing and delivering a product or service, from suppliers to customers. Supply chain management refers to the facilities, functions, and activities involved in producing and delivering a product or service, from suppliers (and their suppliers) to customers (and their customers). It includes all activities from product planning to delivery. So, supply chain management is contingent upon effective communications between suppliers and organizations. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

The Goals Of Value Chain Management Creating customer-defined value by: Providing a unique combination that truly meets customer needs and at a price that can’t be matched by competitors. Having a sequence of participants work together as a team, each adding a component of value to the overall process. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Value Chain Management Business model A strategic design for how a company intends to profit from its broad array of strategies, processes, and activities. Value chain management requirements Coordination and collaboration Technology investment Organizational processes Leadership Employees/human resources management Strong culture and attitudes Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Effect of Value Chain Management on Organizational Processes Better demand forecasting is necessary and possible because of closer ties with customers and suppliers. Selected functions may need to be done collaboratively with partners in the value chain. New measures are needed for evaluating the performance of activities along the value chain. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Implementing Value Chain Management Benefits Improved customer service Cost savings Accelerated delivery times Improved quality Inventory reduction Improved logistics management Increased sales Increased market share Obstacles Organizational barriers Cultural attitudes Required capabilities People Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Contemporary Operations Management Issues Technology How an organization will transform its inputs into outputs. Just-in-time (JIT) inventory systems How to develop systems in which inventory items arrive when needed in the production process instead of being stored in stock. In a Just-in-Time (JIT) system, inventory arrives as needed in the production process instead of being warehoused. (JIT in Japan is called kanban.) The goal is to have only enough inventory on hand to complete the day’s work, thereby reducing a company’s lead time, inventory, and its associated costs to nearly zero. The advantages of JIT are reduced inventories and set-up time, better work flow, shorter manufacturing time, less space consumption, and higher quality. However, with no inventories, there is no slack in the system to absorb defective materials or delays in shipments. So, reliable suppliers are essential. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Quality and Operations Management Quality control Monitoring quality—weight, strength, consistency, color, taste, reliability, finish, or any one of myriad characteristics—to ensure that it meets some preestablished standard. Continuous improvement A comprehensive, customer-focused program to continuously improve the quality of the organization’s processes, products and services. Beginning with the receipt of inputs and continuing with work in process up to the final product, quality control refers to monitoring quality to ensure that it meets some preestablished standard. Continuous improvement, on the other hand, is a comprehensive, customer-oriented program to improve the quality of the organization’s products, processes, and services. Whereas continuous improvement programs emphasize action to prevent mistakes, quality control emphasizes identifying mistakes that may have already occurred. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Managing Projects Project Project management One-time-only set of activities with a definite beginning and ending point in time Project management Task of getting the activities done on time, within budget, and according to specifications A project is a one-time only set of activities with a definite beginning and ending. Project management is the task of getting the activities done on time, within budget, and according to specifications. Project management fits well with a dynamic environment and the need for flexibility and responsiveness. It works particularly well with temporary or unique projects which have specific deadlines and contain complex interrelated tasks that require specialized skills. The temporary nature of projects makes them different from, say, overseeing a production line and preparing a weekly tally of costs on an ongoing basis. The one-shot nature of the work makes project managers the organizational equivalent of hired gunmen. There is a job to be done, and the project manager is responsible for how it is done. In spite of the availability of computerized scheduling programs and other project management tools, the role of project manager remains difficult because he or she is managing people who are still responsible to their permanent department. If you were to observe a group of supervisors or project managers for a few days, you would see them scheduling activities which must be done, the order in which they must be done, who will do them, and when they will be completed. The following slides review some useful scheduling devices. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Popular Scheduling Tools Gantt chart A planning tool that shows in bar graph form when tasks are supposed to be done and compares that with the actual progress on each task. Load chart As modified version of a Gantt Chart, the load chart lists either whole departments or specific resources. This information allows managers to plan and control for capacity utilization in the scheduling of individual work stations. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

PERT Program evaluation and review technique (PERT) network analysis A flowchart-like diagram that depicts the sequence of activities needed to complete a project and the time or costs associated with each activity An acronym for program evaluation and review technique, PERT is widely used for scheduling. It was originally developed in the 1950s to coordinate the contractors and agencies working on the Polaris submarine weapons system. The PERT network diagram depicts the sequence of activities needed to complete a project and the time or costs associated with each activity. Three concepts are associated with a PERT network. Events are endpoints that represent the completion of major activities. Activities represent the time or resources needed to progress from one event to another. The critical path is the longest, most time-consuming sequence of PERT events and activities. The difference between the critical path and all other paths is called slack time. Developing a PERT network requires the following five steps: 1. Identify every significant activity required for project completion. 2. Ascertain the order in which these events must be completed. 3. Diagram the flow of activities from start to finish, identifying each activity and its relationship to all other activities. 4. Compute a time estimate for completing each activity. 5. Determine a schedule for the start and finish dates of each activity and the whole project. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

PERT Components Events Activities Slack time Critical path End points that represent the completion of major activities Activities Actions that take place Slack time The time difference between the critical path and all other paths Critical path The longest or most time-consuming sequence of events and activities required to complete a project in the shortest amount of time Three concepts are associated with a PERT network. Events are endpoints that represent the completion of major activities. Activities represent the time or resources needed to progress from one event to another. The critical path is the longest, most time-consuming sequence of PERT events and activities. The difference between the critical path and all other paths is called slack time. Developing a PERT network requires the following five steps: 1. Identify every significant activity required for project completion. 2. Ascertain the order in which these events must be completed. 3. Diagram the flow of activities from start to finish, identifying each activity and its relationship to all other activities. 4. Compute a time estimate for completing each activity. 5. Determine a schedule for the start and finish dates of each activity and the whole project. Copyright © 2005 Prentice Hall, Inc. All rights reserved.