OPERATIONS MANAGEMENT

OPERATIONS MANAGEMENT
Adi Djoko Guritno PROGRAM MAGISTER MANAJEMEN UNIVERSITAS GADJAH MADA

Objectives Introducing the cross functional decision making within operations management’s strategy context Discussing some new concepts in operations management Creating ideas in operation management research Problem-solving in case studies

R e f e r e n c e s 1 - Jacobs, F.B., Chase, R.B., and N.J. Aquilano, 2009, Operations and Supply Chain Management, McGraw Hill. 2 - Heizer, J. and B. Render, 2008, Operations Management, Prentice Hall. 3 - Finch, B.J Operations Now: Profitability, Processes, Performance. McGraw Hill. 4 - Beckman, S.L. and D.B. Rosenfield, Operations Strategy. McGraw Hill.

Syllabi ….

Quiz / Case Quiz / Case Material Lecture Discussion Case / Journal

Sintesa Jurnal * Resume artikel utama
Tambahkan artikle pendukung / kontra Diskusi Kesimpulan Referensi * Dikerjakan setiap kelompok yg dibentuk (dalam soft copy). Presentasi dilakukan oleh kelompok yg mendapat giliran (hard + soft copy)

Big Paper * Abstrak I. Pendahuluan: Latar Belakang; Rumusan Masalah;
Batasan Penelitian; Tujuan Penelitian II. Landasan Teori: Teori; Model Penelitian; Hipotesis III. Metodologi: Objek; Populasi dan Sampel Penelitian; Uji Hipotesis (Formula dan Cara Uji Hipotesis); Flow Chart Penelitian Referensi * Dikerjakan setiap kelompok yg dibentuk (abstrak dibagikan, hard copy dan soft copy paper). Urutan presentasi ditentukan saat pengumpulan paper.

Evaluation * Case & Quiz : 10% Group Presentation : 15%
Big paper : 15% Class Participation + Discussion : 10% Mid Examination : 25% Final Examination : 25% * Negotiable

Member of CSCMP, POMS, APICS, EurOMA, IKAI, PATPI, BCMI
Lecturer in Supply Chain Management and Operations Management (Master of Management), Management Science and Management of Technology (Doctoral Program) Lecturer in Advanced Operations Management - Post Graduate Program FE-UGM Vice Dean of Finance, and Human Resources, Faculty of Agricultural Technology, UGM (2004 to present) Permanent Lecturer at Department of Agro-Industrial Technology, Faculty of Agricultural Technology, UGM (1988 to present) Temporary Lecturer in Supply Chain, Post Graduate Program of Industrial Engineering UII, UPN (private university), Jogjakarta Audit Committee Member of PT Timah Tbk (State Owned Company-Mining), Jakarta (2000 to 2007) Head of Risk Management and Investment Committee of PT Timah (Persero) Tbk (2007-present) Permanent Consultant in Business Development, PT MG Consult (Geological Survey) Certified Professional in Risk Management (CPRM) ; Business Continuity Certified Planner (BCCP) Member of CSCMP, POMS, APICS, EurOMA, IKAI, PATPI, BCMI Journal Reviewer: International Journal of Business (IJB), Industrial Progress, Industrial Research, Agritech, Teknoin Research interest: Industrial Management, Supply Chain Management and Strategic Management Affiliation of research institutions: Green Symbiosis Japan, CIRDAI, PPA-UGM, PPE-UGM, ISTMI Training experiences: PT. Combiphar, PT Pegadaian, PT BNI 1946, PT Geo Dipa Energi, PT Quick Tractors, PT Sari Husada, PT Pfizer-PCH, PT Timah, PT Telkom, PT Sriboga Raturaya, Department of Agriculture, Department of Trade and Industry, PT. Samator Group, PT. Perkebunan Nusantara Chairman of ISTMI ; Chairman of RISPESCIA (Riset dan Pengembangan Supply Chain Indonesia) Awards: Freezailah Research Award ITTO (Yokohama) ; Robert S McNamara Research Award (Washington) ; ; Blog : Adi Djoko Guritno

Operations Management: Content, history, and current issues

Definition of Operations Management
Operations is responsible for supplying the product or service of the organization. Operations managers make decisions regarding the operations function and its connection with other functions. The operations managers plan and control the production system and its interfaces within the organization and with the external environment.

New Paradigm Business Goal Setting Business Goal Getting

Competitive Dimension
• Cost Efficiency • Quality • Delivery • Flexibility Competitive Dimension

Eli Whitney Just In Time Taichi Ohno Standardization Gilbreth Quality Assessment Baldrige Motion Study Goldratt Theory of Constraints

The Hard Rock Cafe First opened in 1971
Now – 110 restaurants in over 40 countries Rock music memorabilia Creates value in the form of good food and entertainment 3,500+ custom meals per day How does an item get on the menu? Role of the Operations Manager

Significant Events in Operations Management
You should stress that the time-based historical perspective is only one way to look at the development of Operations Management, outcome focus is another.

Major Decisions at Pizza USA A Framework for OM
Process Quality Capacity Inventory

Cross-Functional Decision Making
Operations as the primary function Other primary functions: Marketing Finance Supporting functions Major cross-functional decisions

Operations as a System Transformation (Conversion) Process Energy
Materials Goods or Services Labor Capital Information Feedback information for control of process inputs and process technology

Relation of Operations to its Environment
SOCIETY GOVERNMENT External Environment CUSTOMERS COMPETITORS Human Resources Marketing Accounting Finance MIS Engineering Operations transformation system Suppliers

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

Changing Challenges for the Operations Manager
Past Causes Future Local or national focus Low - cost, reliable worldwide communication and transportation networks Global Focus Batch (large) shipments Cost of capital puts pressure on reducing investment in inventory Just in time bid purchasing Quality emphasis requires that suppliers be engaged in product improvement Supply chain partners Lengthy product development Shorter life cycles, rapid international communication, computer aided design, and international collaboration Rapid product development, alliances, collaborative designs

Changing Challenges for the Operations Manager

New Challenges in OM From To Global focus Local or national focus
Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization Global focus Just-in-time Supply chain partnering Rapid product development, alliances Mass customization Empowered employees, teams Use this and the subsequent slide to get students thinking about some of the changes taking place in OM. Try to help them understand both the causes of the changes and the implications. In particular, have them consider the role of information and of information technology.

The Economic System Transforms Inputs to Outputs
Process Outputs Land, Labor, Capital, Management The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%) Goods and Services Ask your students to consider why the rate of growth of productivity in the U.S. is so low. As they identify factors, have them link these factors to the resources of capital, labor, and management. This may also be a good point at which to introduce the notions of efficiency (doing a job well), and effectiveness (doing the right job). It may be especially helpful to discuss the conditions under which efficiency or effectiveness becomes the more important. Feedback loop

Comparison of Productivity

Fig. Ownership is family-based in Asia, except in Japan where it is widely held
control over companies is seen today as a domain of professional managers, not owners.

Fig. Asian firm have varied ways of maintaining control.

Measurement Problems Quality may change while the quantity of inputs and outputs remains constant External elements may cause an increase or decrease in productivity Precise units of measure may be lacking Ask the students to think about why productivity is so difficult to measure. Have them identify several tasks or jobs, and help them identify some possible productivity measures. Ask them how they would go about making these measurements. Student and faculty productivity certainly provide examples that can generate discussion! You might ask your students if they believe “grades” measure student productivity.

On theory in operations management
Article: On theory in operations management

The terminology of the philosophy of science in OM
Law of variability Law of bottlenecks Law of science methods Law of quality Law of factory focus

Law of variability The greater the random variability, either demanded of the process or inherent in the process itself or in the processed, the less productive the process is

Law of bottleneck An operation’s productivity is improved by eliminating or by better managing its bottlenecks. If a bottleneck cannot be eliminated in some way, say by adding capacity, productivity can be augmented by maintaining consistent production through it.

Law of scientific methods
The productivity of labor can be augmented in most instances by applying methods such as those identified by the scientific management movement

Law of quality Productivity can frequently be improved as quality is improved and as waste declines, either by changes in product design, or by changes in materials or processing. Various techniques of the quality movement can be responsible for these improvements

Law of factory focus Factories that focus on a limited set of tasks will be more productive than similar factories with a broader array of tasks.

The Theory of Swift, Even Flow
Productivity for any process - be it labor productivity, machine productivity, materials productivity, or total factor productivity - rises with the speed by which material flow through the process, and it falls with increases in the variability associated with the demand on the process or with steps in the process itself.

Fig. A variant on the product-process matrix
DEMAND VARIABILITY High demand variability Low demand variability Low speed of materials through the process Job shops Batch operations SPEED OF FLOW Assembly lines High speed of materials through the process Highly productive continuous flow process Fig. A variant on the product-process matrix

Law of Cumulative Capabilities
Law of Trade-offs A manufacturing plant cannot simultaneously provide the highest levels among all competitors of product quality, flexibility, and delivery, at the lowest manufactured cost Law of Cumulative Capabilities Improvements in certain manufacturing capabilities e.g., quality are basic and enable improvements to be made more easily in other manufacturing capabilities e.g., flexibility.

The Theory of Performance Frontiers
A production frontiers is defined as the maximum output that can be produced from any given set of inputs, given technical considerations.

Fig. Operating and asset frontiers
Operating Frontier for B COST A B Operating Frontier for A Asset Frontier PERFORMANCE Fig. Operating and asset frontiers

Fig. Three operating states for a manufacturing plant
Bettered Operating Frontier COST A Operating Frontier A1 A2 Asset Frontier PERFORMANCE Fig. Three operating states for a manufacturing plant

Law of Diminishing Returns
As improvement moves a manufacturing plant nearer and nearer to its operating frontier or its asset frontier, more and more resources must be expended in order to achieve each additional increment of benefit. Law of Diminishing Synergy The strength of the synergistic effects predicted by the law of cumulative capabilities diminishes as a manufacturing plant approaches its asset frontier.

Case 1 Mark's Ceramics spent $4000 on a new kiln last year, in the belief that it would cut energy usage 25% over the old kiln. This kiln is an oven that turns "greenware" into finished pottery. Mark is concerned that the new kiln requires extra labor hours for its operation. Mark wants to check the energy savings of the new oven, and also to look over other measures of their productivity to see if the change really was beneficial. Mark has the following data to work with: Were the modifications beneficial? Last Year This Year Production (finished units) 4000 Greenware (pounds) 5000 Labor (hrs) 350 375 Capital ($) 15000 19000 Energy (kWh) 3000 2600

Case 2 A firm cleans chemical tank cars in the Bay St. Louis area. With standard equipment, the firm typically cleaned 70 chemical tank cars per month. They utilized 10 gallons of solvent, and two employees worked 20 days per month, 8 hours a day. The company decided to switch to a larger cleaning machine. Last April, they cleaned 60 tank cars in only 15 days. They utilized 12 gallons of solvent, and the two employees worked 6 hours a day. 1. What was their productivity with the standard equipment? 2. What is their productivity with the larger machine? 3. What is the change in productivity?

Operations Strategy and Competitiveness

Examples of Global Strategies
Boeing – both sales and production are worldwide. Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution Sony – purchases components from suppliers in Thailand, Malaysia, and around the world GM is building four similar plants in Argentina, Poland, China, and Thailand

Boeing Suppliers (777) Firm Country Parts Alenia Italy Wing flaps
AeroSpace Technologies Australia Rudder CASA Spain Ailerons doors, wing section Fuji Japan Landing gear GEC Avionics United Kingdom Flight computers Korean Air Korea Flap supports Menasco Aerospace Canada Landing gears Short Brothers Ireland Landing gear doors Singapore This slide can be used to begin a discussion of the benefits and risks of “going global.” Students should be asked how risk is affected when there is a localized economic downturn such as that in Asia (particularly Japan) in early 1998. Students should also be asked to discuss the role of “paperless” design in such a global arrangement.

Brainpower Weighs In PRODUCT PRICE WEIGHT in pounds PRICE per pound
PC microprocessor 851 $42,893.00 Viagra (tablet) 8 $11,766.00 Gold (ounce) 301.7 0.0625 $4,827.20 Hermès scarf 275 0.14 $1,964.29 Palm V 449 0.26 $1,726.92 Saving Private Ryan on DVD 34.99 0.04 874.75 Cigarettes (20) 4 100 Who Moved My Cheese? by Spencer Johnson 19.99 0.49 40.8 Mercedes-Benz E-class four-door sedan $78,445.00 4,134.00 18.98 The Competitive Advantage of Nations by Michael Porter 40 2.99 13.38 Chevrolet Cavalier four-door sedan $17,770.00 2,630.00 6.76 Hot-rolled steel (ton) 370 2,000.00 0.19

Fig. Flow of Supply Chain Strategy
Corporate Strategy Supply Chain Strategy Service Strategy Manufacture Strategy Distribution & Retailing Risk Management Monitoring K P I Fig. Flow of Supply Chain Strategy

A strategy must Fit the existing and potential environment
Provide a linkage mechanism Incorporate the activities of all major line functions Extend into staff activities Specify the performance required Promote a culture of continual improvement

Steps in Developing a Manufacturing Strategy
1. Segment the market according to the product group 2. Identify product requirements, demand patterns, and profit margins of each group 3. Determine order qualifiers and winners for each group 4. Convert order winners into specific performance requirements

Operations Strategy A plan for being competitive
Its not what you say, its what you do… Successful strategy ??? The firm Customers

Competitive Dimension
• Cost Efficiency • Quality • Delivery • Flexibility Competitive Dimension

Operational excellence
Market Leadership Product Leadership Competitors Focus Customer Intimacy Customer Focus Operational excellence Company Focus Fig. Strategic Triangle

Corporate Strategy Mission Distinctive Competence Objectives Policies
Cross Functional Int. & Ext. Analysis Objectives Cost Quality Delivery Flexibility Policies Process Capacity Inventory Consistent Pattern of Decision

Mission of FedEx FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing total reliable, competitively superior, global air-ground transportation of high priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained using real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional to each other and the public. We will strive to have a completely satisfied customer at the end of each transaction.

Mission of the Hard Rock Café
To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

Distinctive competencies of Japanese manufacturing
Example: Distinctive competencies of Japanese manufacturing Low labour cost strategy – shortly after the war; Scale-based strategy – high productivity and low unit cost; Focused factory strategy – specialization for higher quality; Flexible factory strategy – high quality with increased variety; Lean production – reducing all waste

Table. Typical Operation Objectives (Example)

Examples of Important Policies in Operations
Policy Type Policy Area Strategic Choices Process Span of process Automation Process flow Job specialization Supervision Make or buy Handmade or machine –made Flexible or hard automation Project, batch, line, or continuous Highly decentralized or centralized Quality Systems Approach Training Suppliers Prevention or inspection Technical or managerial training Selected on quality or cost Capacity Facility size Location Investment One large or several small facilities Near markets, low cost, or foreign Permanent or temporary Inventory Amount Distr. Control Systems High levels or low levels of inventory Centralized or decentralized warehouses Control in great detail or less detail

Order Qualifiers and Winners Defined
Order qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers Order winners are the criteria that differentiates the products and services of one firm from another

Table Strategic Alternatives
Strategy A Strategy B Business Strategy Product Imitator Product Innovator Market Price sensitive Product features conditions Mature market Emerging market - sensitive High volume Low volume Standardization Customized products Operation Emphasiz e low cost for Emphasize flexibility to introduce mission mature products new products Distinctive Low cost through superior Fast and reliable new product competence process technology and introduction through product operations vertical integration teams and fle xible automation Superior processes Superior products Operations Dedicated automation Flexible automation policies Slow reaction to change Fast reaction to changes Economy of scale Economies of scope Workforce involvement Use product development teams Mass distribution Selective distribution Ma rketing Repeat sales New - market development strategies Maximizing of sales Product design opportunities Sales made through agents National salesforce Finance Low risk Higher risk strategies Low profit margin Higher profit margins

Why Some Organizations Fail
Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Neglecting operations strategy Too much emphasis in product and service design and not enough on improvement Neglecting investments in capital and human resources Failing to establish good internal communications Failing to consider customer wants and needs

Strategy : Hard Rock Café Regal Marine

OM’s Contribution to Strategy
Operation Decisions Specific Strategy Used Examples Quality Product Process Location Layout Human Resources Supply Chain Inventory Scheduling Maintenance Sony - constant innovation ……..……. FLEXIBILITY Compact - PC market ……...……....… FLEXIBILITY Southwest Airlines - no frills service.... LOW PRICE Pizza Hut - five minutes guarantee … DELIVERY FedEx - on time ………………….……… DELIVERY Motorola pagers - performance ……. QUALITY IBM - after sales ………………………… AFTER SALES

Brand Name Drugs vs Generic Drugs

Operations Strategies for Two Drug Companies
Here it may be helpful to point out that although the strategies are significantly different for the two companies, both successful. If possible, you should have students consider what the missions of the two companies might be.

Operations Strategies for Two Drug Companies (Continued)

Strategy and Issues During a Product’s Life
This slide can be useful in summarizing strategy changes over the lifecycle of the product.

Types of Focus Product focus Process type Technology Volume of sales
Make-to-stock and make-to-order New products and mature products

Some Multinational Corporations
Workforce Company Home Country % Sales Outside % Assets % Foreign ICI Britain 78 50 NA Nestlé Switzerland 98 95 97 Philips Netherlands 94 85 82 Siemens Germany 51 38 Electronics Unilever Britain & Netherlands 70 64 This slide can be used to further explore the characteristics of multinational companies

Four International Operations Strategies

SOME GLOBAL STRATEGIES International Strategy : Global markets are penetrated using exports and licenses Multi-domestic Strategy: Operating decisions are decentralized to each country to enhance local responsiveness Global Strategy: Operating decisions are centralized and headquarters coordinates the standardization and learning between facilities Transnational Strategies : Combines the benefits of global-scale efficiencies with the benefits of local responsiveness

Mass Customization and Strategic Process Choices

Retaining A Consistent Position
Case: Retaining A Consistent Position

CS: Retaining A Consistent Position
A local chain of fast food restaurants wants to extend its performance in the flexibility characteristic and is considering broadening its menu to offer chicken, fish, or veal platters in addition to its normal, limited-menu sandwich items. The new platters will not be ordered in large volume as are its standard items, and the company is therefore evaluating alternative decisions regarding whether or not the platters will be prepared ahead of time. If the company chooses not to prepare platters ahead of demand, it will move away from the delivery-service characteristic for these items. If these items are prepared ahead and held, the platters might not appear so fresh and be so tasty. This option would cause the company to move away from a high-quality emphasis. If the items are prepared at some rate of reasonable expected demand and thrown away if not demanded, the company's cost performance will suffer. (Adapted from: James B. Dilworth, Production and Operations Management: Manufacturing and Non-manufacturing, 3rd ed, p.60, 1986, Random House-NY)

If the company chooses not to prepare platters ahead of demand
delivery-service high-quality problems If these items are prepared ahead and held If the items are prepared at some rate of reasonable expected demand Cost performance problems

Chris Voss, Kate Blackmon
Differences in manufacturing strategy decision between Japanese and Western manufacturing plants: the role of strategic time orientation Chris Voss, Kate Blackmon

Innovation and Managing the renewal of the business
Next : Innovation and Managing the renewal of the business

Pun, Kit Fai, “A conceptual synergy model of strategy formulation for manufacturing “. International Journal of Operation and Production Management Vol. 24 No. 9:

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