OPNS 430 Professor Wuqin Lin Lin/Operations/Strategy

Class Material + Grading Course Pack 1 (Cases & Readings) Course Pack 2 (Slides) The Goal Managing Business Process Flows (MBPF) The Course Web-Page Group Assignments 20%, Midterm 30%, Final 40%, Class Participation 10% Lin/Operations/Strategy

Topics – 6 Modules Module 1 : Operations Strategy (Shouldice, Wriston) Module 2 : Process Analysis (CRU-Pizza Pazza, NCC) Module 3 : Lean Operations (Toyota) Module 4 : Supply Chain Management (Palu Gear) Module 5 : Services (The BAT case) Module 6 : Quality (Quality Wireless, FlyRock) Lin/Operations/Strategy

Introduction & Strategy Module Goals and Key Paradigms of Course Strategic role of Ops Process view of Ops A Strategic Framework for Ops Strategy: Product attributes and the Competitive Product Space Ops: Capabilities and Processes Aligning strategy and operations: Focus Relationship between process choice and strategy Shouldice Hospital Wriston Manufacturing Notes: Lin/Operations/Strategy Lin/Operations/Strategy

What do you mean by “Operations”? Lin/Operations/Strategy

What Is Meant by “Operations”? “New York-based Merrill, the world's largest brokerage firm and a major investment bank, has been overhauling operations …” “Microsoft splits into five groups in reorganization” Microsoft announced a long-awaited reorganization, dividing the company to five major groups and naming two veteran executives to head its online operations. Lin/Operations/Strategy

Goals of this course Introduction to operations as a managerial integration function Evaluation and Improvement We will adopt two paradigms Lin/Operations/Strategy

Key Paradigm of Course: 1. The Strategic Role of Ops “A company’s operations function is either a competitive weapon or a corporate millstone. It is seldom neutral.” [Skinner ’69] Lin/Operations/Strategy Lin/Operations/Strategy

The Strategic Role of Ops… Most operational decisions have strategic impact IT at Walmart Strategic decisions impact operations FedEx-USPS Lin/Operations/Strategy Lin/Operations/Strategy

Key Principle of Course: 2. The Process View of Ops Chicago Tribune reported: By rethinking the IBM Austin assembly plant and introducing cells, distance traveled by a card was cut from 1.5 miles to 200 yards floor space was reduced to half production tripled with about the same number of workers. [Chicago Tribune, July 1992.] Lin/Operations/Strategy Lin/Operations/Strategy

1. What is a Process? Lin/Operations/Strategy

Operations & the Process View: What is a Process? Inputs Outputs Goods Services Labor & Capital Information structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Resources Process Management Lin/Operations/Strategy Lin/Operations/Strategy

Advantages of Adopting a Process View of Organizations Properties: Applies to any organization Service operations (health care), manufacturing operations Applies at any level 1 activity, 1 clinical service group, 1 hospital, 1 health care supply chain Is always “customer aware” and focused on outcomes Key Property: focus on flows rather than snapshots Lin/Operations/Strategy Lin/Operations/Strategy

What is Operations Management? Management of business processes How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs. What is appropriate? Lin/Operations/Strategy Lin/Operations/Strategy

2. What is a “good” Process? Lin/Operations/Strategy

What defines a “good process”? Performance: Financial Measures Absolute measures: revenues, costs, operating income, net income Net Present Value (NPV) = Relative measures: ROI, ROE ROA = Survival measure: cash flow Lin/Operations/Strategy Lin/Operations/Strategy

What defines a “good process” What defines a “good process”? All organizations compete on delivered value Delivered value of process = benefit to process customers – total process cost Benefit driven by customer value Variety V (flexibility) Quality Q: of product or outcome of service Time T: Rapid, reliable delivery New product development Price p (Cost) Example: patient value priorities for Emergency care Lin/Operations/Strategy Lin/Operations/Strategy

A Strategic Framework for Process Design and Improvement:Three questions competitive strategy What is our strategic position: how do we compete & provide value in the market? What is the value proposition to our customers? Rank (p, T, Q, V) Given our strategic position, what must operations do particularly well? Which competencies must ops develop? Rank (c, T, Q, Flex) Given needed competencies, how should operations processes be structured to develop competencies that support strategy? Process choice (structure) and management operations strategy Process structure & mgt Lin/Operations/Strategy Lin/Operations/Strategy

Representation of Strategy: Current Position and Strategic Directions of Movement in the competitive product space Price Responsiveness B A High Low Lin/Operations/Strategy Lin/Operations/Strategy

Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry Responsiveness operations frontier A B C Price High Low Lin/Operations/Strategy Lin/Operations/Strategy

Shouldice Hospital Lin/Operations/Strategy Lin/Operations/Strategy

Question 1: Representation of Strategy: Strategic Position in customer value space Price Variety in care B A High Low Lin/Operations/Strategy Lin/Operations/Strategy

Question 2: Need competencies to deliver value proposition Customer value proposition Price Variety Shouldice High Low Cost Flexibility B A Needed Process Competencies Lin/Operations/Strategy Lin/Operations/Strategy

Question 3: what is the best process design that has the right process competencies to deliver customer value proposition? Cost efficiency Flexibility (responsiveness) World-class Emergency Room specialty non-emergency Shouldice Hospital One general hospital Productivity frontier = current state of best practice Needed competencies for a given patient type/segment A focused process attempts to deliver one specific and narrow customer value proposition (i.e., its priority ranking is clear and constant for all patients) It is optimized to deliver the needed competencies for one narrow patient segment Focus does not imply standardization: ER is focused on providing timeliness and flexibility to patient needing emergency care Lin/Operations/Strategy Lin/Operations/Strategy

Wriston Manufacturing Lin/Operations/Strategy Lin/Operations/Strategy

Wriston’s HED Division Plant Network Exhibit 2A Total Burden Rates (total overhead cost / direct labor cost) 1 2 3 4 5 6 7 Free capacity and Throughput $0 $50 $100 $150 $200 Sandusky, OH Essex, Canada Detroit, MI Saginaw, Lima, Lebanon, PA Tiffin, Fremont, Maysville, KY Lin/Operations/Strategy Lin/Operations/Strategy

Classification of Processes by process architecture Project Job Shop Batch Line Flow Continuous Flow Job Shop Flow Shop Lin/Operations/Strategy Lin/Operations/Strategy

Characteristics of Processes: Comparison of Process Types Q: what are the typical managerial challenges in JS vs FS? Lin/Operations/Strategy Lin/Operations/Strategy

Matching Process Choice with Strategy: Product-Process Matrix Flexibility Jumbled Flow. Process segments loosely linked. Disconnected Line Flow/Jumbled Flow but a dominant flow exists. JOB SHOP (Commercial Printer, Architecture firm) BATCH (Heavy Equipment, Auto Repair) LINE FLOWS (Auto Assembly, Car lubrication shop) CONTINUOUS FLOW (Oil Refinery) Product Variety Low Low Standardization One of a kind Low Volume Many Products Few Major Products High volume High Standardization Commodity Products Connected Line Flow (assembly line) Continuous, automated, rigid line flow. Process segments tightly linked. Opportunity Costs Out-of-pocket High Lin/Operations/Strategy Lin/Operations/Strategy

Learning Objectives Operations & Strategy What is operations? What makes a good operations? Two key paradigms of course Link between business strategy, operations strategy, and operations structure Product Attributes / Operational Capabilities/Operations structure Strategy vs. Operational Effectiveness Trade-offs: Operational Focus Process Classification and Relationship with strategy Lin/Operations/Strategy Lin/Operations/Strategy