Department of MSIS Xiaowei XuRutgers 1 Welcometo Production and Operations Management

Department of MSIS Xiaowei XuRutgers 2 Every company needs a strategy, so the employees will know what they do and what they don’t do… Business Strategy

Department of MSIS Xiaowei XuRutgers 3 A business strategy is composed of several elements, including: Marketing: generates the demand in the market, in which the business is to compete. Finance/accounting: pays the bills, collects the money, tracks how well the organization is doing, and decides where to invest. Production/operations: creates goods and services through transformation of inputs into outputs. We are going to study the production and operations strategy in this class.

Department of MSIS Xiaowei XuRutgers 4 Marketing and Sales Finance and Accounting CFO Operations COO Business Organization CEO American companies place more (less) emphasis on marketing and finance (operations) than their Japanese and Asian competitors do. Business Organization

Department of MSIS Xiaowei XuRutgers 5 Operations Matters On 5/9/2001, Cisco stock price was down $1.25, or 6 percent, to $19.13 by market close. What happened? On 5/8/2001, Cisco announced $2.25B inventory write-off after the market was closed. Causes: 1.Dot-com implosion and economy down-turn. 2.Too much custom-built inventories, such as flash-memory chips, optimal modulators and digital signal processors, which were depreciated quickly. Operations Strategy may significantly affect the financial performance of a company.

Department of MSIS Xiaowei XuRutgers 6 Operations Matters (cont.) Worldwide out-of-stock rates in the retail industry fall in the range of 5%-10%. For fashion and seasonal products, such as toys, apparel and Christmas gifts, the situation is even worse. Why do not retailers purchase more inventories in advance? Answers: 1.High demand volatility makes forecasting extremely hard. 2.If the product turns out to be an underdog, then retailers have to markdown heavily, which hurts margins. We will see some operations strategies to solve this puzzle in this class.

Department of MSIS Xiaowei XuRutgers 7 The Transformation Process Output Input POM processes Performance Measurement

Department of MSIS Xiaowei XuRutgers 8 Input : materials, land, human resources, facilities, energy, and information Output: goods and services Performance measurements: profitability, cost, productivity, and quality The Transformation Process (cont.)

Department of MSIS Xiaowei XuRutgers 9 Goods vs. Services

Department of MSIS Xiaowei XuRutgers 10 Characteristics of Goods  Tangible product  Consistent product definition  Production usually separate from consumption  Can be inventoried  Low customer interaction

Department of MSIS Xiaowei XuRutgers 11 Characteristics of Service  Intangible product  Inconsistent product definition  Produced and consumed at same time  High customer interaction  Often knowledge-based

Department of MSIS Xiaowei XuRutgers 12 Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Revenue generated primarily from tangible product Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, is often transportable Site of facility important for customer contact Revenue generated primarily from the intangible service

Department of MSIS Xiaowei XuRutgers 13 Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a GoodPercent of Product that is a Service 100% % |||||||||