Operations Management Introduction www.ePowerPoint.com

Agenda Self-introduction Introduce Yourself Quick Introduction of OM Four Dimensions of Performance Efficient Frontier Course Logistics

Personal Introduction Research Interests: Operations Management, focus on Scheduling, Optimization and Data Mining MBA core course: Data, Model and Decision Global MBA course: Management Analytics Shijin Wang shijinwang0223@aliyun.com Associate Prof., PhD Dept. of Management Science & Engineering School of Economics & Management Tongji University Office: Room 1407, Tongji Building, Block A

Introducing Yourself Name A Brief Background Schooling Work Experience General Academic Interests

The Industrial Revolution is NOT over Manufacturing today is caught between the effects of the continuing Industrial Revolution and the beginning of the Information and Knowledge Revolution. The Industrial Revolution was the transition to new manufacturing processes in the period from about 1760 to sometime between 1820 and 1840. This transition included going from hand production methods to machines, new chemical manufacturing and iron production processes, improved efficiency of water power, the increasing use of steam power and the development of machine tools. It also included the change from wood and other bio-fuels to coal. Information and Knowledge Revolution mainly computer, internet, MIS. Recently, in China, mobile terminal; combination of internet and finances. For example, if I put 10,000RMB in bank, the interest rate is 3.25%/year; but if I put the money in the internet bank, the interest rate is around 4-6%/year. www.ePowerPoint.com

Evolution of the Industrial Revolution Standardization Specialization Coordination Mass production Volume and flexibility Time-based competition Mass customization

Background: Manufacturing in 21st Century Fewer manufacturing workers More physical output More service provision More demanding customers Ever-increasing competition

Background: Service in the 21st Century Increasing productivity More newer technology More service provision More demanding customers Ever-increasing competition

The Economic Sectors: 1. Agriculture and Mining 2. Manufacturing and Industry 3. Service

Workforce in China by Sector 1980 1990 2000 2005 2010 2011 2012 2013 Agriculture & Mining(%) 69 60 50 45 36.7 34.8 33.6 31.4 Manufacturing & Industry(%) 18 21 22 24 28.7 29.5 30.3 30.1 Service(%) 13 19 28 31 34.6 35.7 36.1 38.5 Workforce (million) 423.6 647.5 720.8 758.3 761.05 764.2 767 769.8 Source: China Statistical Yearbook, 2014

Sector GDP Source: China Statistical Yearbook, 2014 1980 1990 2000 2005 2010 2011 2012 2013 Agriculture & Mining 30% 27% 15% 12.2% 10.1% 10% Manufacturing & Industry 48% 41% 46% 47.7% 46.8% 46.6% 45.3% 43.9% Service 22% 32% 39% 40.1% 43.1% 43.4% 44.6% 46.1% Source: China Statistical Yearbook, 2014

Operations Management Key to improved efficiency through management of process Video Clip1 Video Clip 2 Video Clip 3

EVOLUTION Scientific Management Factory Management Industrial Management Production Management Operations Management

Operations management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. OM is concerned with the management of the entire system that produces a good or delivers a service. Source: Operations Management for Competitive Advantage, by Richard B. Chase, F.Robert Jacobs, Nicholas J. Aquilano, 11th Edition. Publisher:  McGraw-Hill (ISBN #0-07-111552-8)

Management Decisions Within the operations functions, management decisions can be divided into three broad areas: Strategic (long-term) decisions Tactical (intermediate-term) decisions Operational Planning and control (short-term) decisions How will we make the product? Where do we locate the facility or facilities? How much capacity do we need? When should we add more capacity? The time frame of the decisions is typically long- usually several years or more, depending on the specific industry. Affect the company’s long-range effectiveness in terms of how it can address its customers’ needs. How to efficiently schedule material and labor within the constraints of previously made strategic decision. How many workers do we need? When should we have material deliveried? Should we have a finished goods inventory? What jobs do we work on today or this week? Whom do we assign to what tasks? What jobs have priority? Source: Operations Management for Competitive Advantage, by Richard B. Chase, F.Robert Jacobs, Nicholas J. Aquilano, 11th Edition. Publisher:  McGraw-Hill (ISBN #0-07-111552-8) www.ePowerPoint.com

System Perspective and OM in the Organization Chart Operations Plant Manager Manager Director Manufacturing, Production control, Quality assurance, Engineering, Purchasing, Maintenance, etc Finance Marketing

Operations in a Restaurant

Operations in an Emergency Room Bank

Four Dimensions of Performance Quality Product quality (how good?) Process quality (as good as promised?) Cost Efficiency Variety Customer heterogeneity Time Responsiveness to demand Important for Performance measurement Defining a business strategy

Four Dimensions of Performance: Measurements for a Restaurant Cost Efficiency Time Responsiveness to demand Quality Product quality (how good?) Process quality (as good as promised?) Variety Customer heterogeneity

Introduction Efficient Frontier

Four Dimensions of Performance: Trade-offs Quality Product quality (how good?) => Price Process quality (as good as promised?) => Defect rate Cost Efficiency Measured by: - cost per unit - utilization Variety (Flexibility) Customer heterogeneity Measured by: - number of options - flexibility / set-ups - make-to-order Time Responsiveness to demand Measured by: - customer lead time - flow time

What Can Ops Management (This Course) Do to Help What Can Ops Management (This Course) Do to Help? Step 1: Help Making Operational Trade-Offs Responsiveness High Very short waiting times, Comes at the expense of Frequent operator idle time Trade-off Long waiting times, yet operators are almost fully utilized Low Low labor productivity High labor productivity Labor Productivity (e.g. $/call) Example: Call center of a large retail bank - objective: 80% of incoming calls wait less than 20 seconds - starting point: 30% of incoming calls wait less than 20 seconds - Problem: staffing levels of call centers / impact on efficiency OM helps: Provides tools to support strategic trade-offs

The photo shows employees at China-based company Ctrip in the call center of their headquarters in Shanghai. The one-stop China travel service Ctrip.com specialises in discount hotel reservations, cheap airline tickets and package tours

What Can Ops Management (This Course) Do to Help What Can Ops Management (This Course) Do to Help? Step 2: Overcome Inefficiencies Responsiveness High Current frontier In the industry Competitor A Eliminate inefficiencies Competitor C Low Competitor B Low labor productivity High labor productivity Labor Productivity (e.g. $/call) Example: Benchmarking shows the pattern above Don’t just manage the current system… Change it! Provides tools to identify and eliminate inefficiencies => Define Efficient Frontier

What Can Ops Management (This Course) Do to Help What Can Ops Management (This Course) Do to Help? Step 3: Evaluate Proposed Redesigns/New Technologies Responsiveness Low High Redesign process Current frontier In the industry Labor Productivity (e.g. $/call) Low labor productivity High labor New frontier Example: What will happen if we develop / purchase technology X? Better technologies are always (?) nice to have, but will they pay? OM helps: Evaluates system designs before they occur

What is behind the Acronyms? TQM ISO 9000 MA SPC 6σ CPFR OEM EOQ MC SCM LP ROP BPR MRP I ERP MRP II Collaborative Planning Forecasting and Replenishment JIT www.ePowerPoint.com

Process Analysis & Design Quality Management Supply Chain Strategy Operations Planning, Scheduling & Coordination Forecasting Inventory Control Project Management

Introduction Format of the course

Percentage of final grade Course Outline / Grading Objective of the course: Understanding and improving business processes Performance measures How-to Mix of industries: healthcare, restaurants, automotive, computers, call centers, banking, etc Course Outline Introduction(1 session) 1. Process analysis (3 sessions) 2. Productivity (3 sessions) 3. Product variety (2 sessions) 4. Responsiveness (2 sessions) 5. Quality (3 sessions) 6. Supply Chain (1 session) 7. Operations Scheduling (1 session) Components Percentage of final grade Class participation 10% Group work (Case Study) 60% Individual work Final report 30% Others (Please specify)

Teams and Team Projects Group Work is important Organize with student no. 4-6 persons/team Cases will be assigned after I have group names.

Cases Help to learn from each other and “real” world Expect that you be prepared each week to discuss case Cold-call will be made Be considerate to your fellow students (especially when you strongly disagree) Try to discuss cases as a group outside of class Sometimes a case presentation is required Summarize major issues Your Recommendations

• Individual Preparation and Commitment How to Learn from Cases • Individual Preparation and Commitment • Small Group Discussion (pre-class) – Test ideas – Not to get a consensus • Large Group Discussion (in-class) – Vigorous Debate and Friendly Argument – Commitment to Various Alternatives – Persuasion of Peers • Reflection and Personal Generalization Source: my personal HBS case study learning

Cases Case 1: Operations strategy at Galanz Case 2: New England Feed Supply Case 3: Two Chinese food restaurant Case 4: Strategic Sourcing at Whirlpool China

Text Book Course book Cachon, Gerard, Christian Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, 2nd edition, Irwin - McGraw Hill, 2009 (ISBN 978-0071263313, 500 pages) Reference Book Operations Management for Competitive Advantage, by Richard B. Chase, F.Robert Jacobs, Nicholas J. Aquilano, 11th Edition. Publisher:  McGraw-Hill (ISBN #0-07-111552-8)

Historical Development of OM (cont’d) 1990s, Business Process Reengineering. Supply Chain Management. Electronic Commerce. Eliminating non-value-added steps and computerizing the remaining ones to achieve the desired outcome Total system approach to managing the flows (outsourcing, mass customization). Taobao, Change the way of shopper and operations managers BPR: takes a fresh look at what the organization is trying to do in all its business processes, and then eliminating non-value-added steps and computerizing the remaining ones to achieve the desired outcome. SCM: apply a total system approach to managing the flow of information, materials, and services from raw material suppliers through factories and warehouses to the end customer. (outsourcing, mass customization) E-commerce refers to the use of the internet as an essential element of business activity. Source: Operations Management for Competitive Advantage, by Richard B. Chase, F.Robert Jacobs, Nicholas J. Aquilano, 11th Edition. Publisher:  McGraw-Hill (ISBN #0-07-111552-8) www.ePowerPoint.com 15

Optimizing global supplier, production, and distribution network. Current Issues in OM Coordinating the relationships between mutually supportive but separate organizations (contract manufacturer). Optimizing global supplier, production, and distribution network. Increased co-production of goods and services. Recently there has been a dramatic surge in the outsourcing of parts and services that had previously been produced internally. This has been encouraged by the availability of fast, inexpensive communications. A whole new breed of contract manufacturers that specialize in performing focused manufacturing activities now exists. The ability to coordinate these activities is a significant challenge for the operations manager of the future. global ERP leads to large companies, has challenged managers to use all of this information. This requires a careful understanding of where control should be centralized and where autonomy is important, among other issues. Can only survive by using all information from these systems, such as inventory, transportation, and production equipment. information sharing, intelligent use of information technology will allow the shedding of entire layers of inefficient customer-oriented functions within a firm Source: Operations Management for Competitive Advantage, by Richard B. Chase, F.Robert Jacobs, Nicholas J. Aquilano, 11th Edition. Publisher:  McGraw-Hill (ISBN #0-07-111552-8) www.ePowerPoint.com 14

Current Issues in OM (cont’d) Managing customer touch points. Raising senior management awareness of operations as a significant competitive weapon (1) As companies strive to become superefficient, they often scrimp on customer support personnel (and training) required to efficiently staff service departments, help lines, and checkout counters Source: Operations Management for Competitive Advantage, by Richard B. Chase, F.Robert Jacobs, Nicholas J. Aquilano, 11th Edition. Publisher:  McGraw-Hill (ISBN #0-07-111552-8) www.ePowerPoint.com 15