1. © 2006 Prentice Hall, Inc.2 – 1 Operations Management Chapter 2 – Fundamentals of Operations Chapter 2 – Fundamentals of Operations © 2006 Prentice Hall, Inc. Heizer/Render Operations Management, 8e

2. © 2006 Prentice Hall, Inc.2 – 2 Learning Objectives  Specific approaches used by OM to achieve strategies  Differentiation  Low cost  Response When you complete this chapter, you should be able to: Describe or Explain:

3. © 2006 Prentice Hall, Inc.2 – 3 Global Strategies  Boeing – sales and production are worldwide  Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution  Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

4. © 2006 Prentice Hall, Inc.2 – 4 Reasons to Globalize  Reduce costs (labor, taxes, tariffs, etc.)  Improve supply chain  Provide better goods and services  Understand markets  Learn to improve operations  Attract and retain global talent Tangible Reasons Intangible Reasons Figure 2.1

5. © 2006 Prentice Hall, Inc.2 – 5 Risks: You May Wish To Consider  National literacy rate  Rate of innovation  Rate of technology change  Number of skilled workers  Political stability  Product liability laws  Export restrictions  Variations in language  Work ethic  Tax rates  Inflation  Availability of raw materials  Interest rates  Population  Number of miles of highway  Phone system

6. © 2006 Prentice Hall, Inc.2 – 6 Developing Missions and Strategies Mission statements tell an organization where it is going The Strategy tells the organization how to get there

7. © 2006 Prentice Hall, Inc.2 – 7 Mission  Mission – Who are we? What is our business? Where are you going?  Organization’s purpose for being  Focus is on value-added or business focus not on a product or services.

8. © 2006 Prentice Hall, Inc.2 – 8 Mission Statements FedEx exists to provide total reliable, competitively superior, global air-ground transportation of high priority goods and documents that require rapid, time-certain delivery. Merck exists to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return Figure 2.2

9. © 2006 Prentice Hall, Inc.2 – 9 Hard Rock Café Our Mission: To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. Arnold Palmer Hospital is a healing environment providing family-centered care with compassion, comfort and respect… when it matters the most. Figure 2.2

10. © 2006 Prentice Hall, Inc.2 – 10 Mission Statements Create mission statements for any of the following: - For a store providing breakfasts for clients. - For a laundromat - For an auto repair shop Figure 2.2

11. © 2006 Prentice Hall, Inc.2 – 11 Mission Statements Create mission statements for any of the following: - delivering healthy and time-saving morning food service. - providing access to high end laundry equipments and services at lowest price. - providing trustworthy staff, services and solutions for retaining and restoring life span and reliability of vehicles. Figure 2.2

12. © 2006 Prentice Hall, Inc.2 – 12 Service Production Flows Development/Factory Concept Create factory concept for your mission statement: Basic concept will consist of a list of activities and where they will be done. Figure 2.2 Get materials Transport Process Inspect Assemble

13. © 2006 Prentice Hall, Inc.2 – 13 Service Production Flow (1) [Single Staff] Business Activity flow for Breakfast Factory [ I ] Get Eggs Eggs In pot Boil Eggs in pot Remove Eggs Assemble on tray Preparebread Put in toaster Make Coffee Remove toast Assemble on tray Toast waiting Preparecoffee Coffee waiting PourCoffee Assemble on tray Toaster Start End Sub-process 2 Sub-process 3 Sub-process 1 Key Attributes of Process (I) -3 different flow units, I.e. eggs, coffee, toast - 3 independent sub-processes, I.e. parallel sub-processes - standardized activity duration for each unit Eggs waiting Toast waiting

14. © 2006 Prentice Hall, Inc.2 – 14 Productivity & Other Measures of Production Flow (1) [Single worker] Business Activity flow for Breakfast Factory [ I ] Get Eggs Eggs In pot Boil Eggs in pot Remove Eggs Assemble on tray Preparebread Put in toaster Make Coffee Remove toast Assemble on tray Toast waiting Preparecoffee Coffee waiting PourCoffee Assemble on tray Toaster Start End Sub-process 2 Sub-process 3 Sub-process 1 Which measures could be used to evaluate this process? - Time from beginning to end of process [minutes] (input measure) - Quality of items [hotness of coffee, hardness of eggs] (output measure) - Max. number of eggs that can be boiled per batch or hour (productivity measure) - Max number of toasts that can be made per hour or batch (productivity measure) - Max. volume of coffee that can be made per batch or hour (productivity measure) - Worker resources needed to make full plate [hours per plate] (productivity measure) Eggs waiting Toast waiting

15. © 2006 Prentice Hall, Inc.2 – 15 Redesigned of Production Flow (1) [Two workers] Business Activity flow for Breakfast Factory [ I ] Get Eggs Eggs In pot Boil Eggs in pot Remove Eggs Assemble on tray Preparebread Put in toaster Make Coffee Remove toast Assemble on tray Preparecoffee PourCoffee Toaster Start Old End Sub-process 2 Sub-process 3 Sub-process 1 Improvement of new process: - Time from beginning to end of process [minutes] (input measure) CYCLE TIME HORTENED - Quality of items [hotness of coffee, hardness of eggs] (output measure) WARMER - Max. number of eggs that can be boiled per batch or hour (productivity measure) - Max number of toasts that can be made per hour or batch (productivity measure) - Max. volume of coffee that can be made per batch or hour (productivity measure) - Worker resources needed to make plate [hours per plate] (productivity measure) HIGHER Process postponement Worker 1 New End Worker 2

16. © 2006 Prentice Hall, Inc.2 – 16 Service Production Flow (2) Load washer Wash clothes Remove clothes Transfer Loaddryer Assemble on tray Start End Business Activity flow for Laundromat [ II ] Add soap Dry clothes Remove Sub-process 2 Sub-process 1 Key Attributes of Process (II) - single flow unit for all sub-processes, I.e. clothes - 2 interdependent sub-processes, I.e. serial sub-processes - standardized activity duration for each unit

17. © 2006 Prentice Hall, Inc.2 – 17 Analysis of Production Flow (2) Load washer Wash clothes Remove clothes Transfer Loaddryer Assemble on tray Start End Business Activity flow for Laundromat [ II ] Add soap Dry clothes Remove Sub-process 2 Sub-process 1 30 minutes 60 minutes Max. capacity 250 Ibs Max. capacity 150 Ibs Q.If you have 300 Ibs of clothes to wash, how long will you need and why? Q. How would you redesign the process to shorten your wait time?

18. © 2006 Prentice Hall, Inc.2 – 18 Bottleneck Types Production Flow (2) Load washer Wash clothes Remove clothes Transfer Loaddryer Assemble on tray Start End Business Activity flow for Laundromat [ II ] Add soap Dry clothes Remove Sub-process 2 Sub-process 1 30 minutes 60 minutes Max. capacity 250 Ibs Max. capacity 300 Ibs Types of bottlenecks: -Volume capacity -Critical activity -Longest activity or processing time

19. © 2006 Prentice Hall, Inc.2 – 19 Service Production Flow (3) Business Activity flow for Auto Repair Factory [ III ] Get car Docum ent issues Pay Diagnose Repair car Test Waiting for parts Request parts Start End Sub-process 2 Sub-process 1 Pre- Diagnose Pick-up Key Attributes of Process (III) - same flow units through all sub-processes, I.e. clothes - 2 interdependent sub-processes, I.e. serial sub-processes - irregular/unique activities and different durations for each unit possible

20. © 2006 Prentice Hall, Inc.2 – 20 Key Lessons 1.There are different types of processes 2.Process can be redesigned by exploiting trade-offs -More staff to raise number of units produced -Larger machine capacity to reduce waiting time and improve produced units -Eliminate waiting, errors and rework -Reduce inventory on-hand -Combine activities -Run activities in parallel Figure 2.2

21. © 2006 Prentice Hall, Inc.2 – 21 Process Design Types LowModerateHigh Volume HighModerateLow Variety of Products Process-focused JOB SHOPS (Print shop, emergency room, machine shop, fine dining Repetitive (modular) focus ASSEMBLY LINE (Cars, appliances, TVs, fast-food restaurants) Product focused CONTINUOUS (steel, beer, paper, bread, institutional kitchen) Mass Customization Customization at high Volume (Dell Computer’s PC)

22. © 2006 Prentice Hall, Inc.2 – 22 Strategic Process MarketingOperations Finance/ Accounting Functional Area Missions Organization’s Mission

23. © 2006 Prentice Hall, Inc.2 – 23 OM’s Contribution to Strategy Product Quality Process Location Layout Human resource Supply-chain Inventory Scheduling Maintenance FLEXIBILITY Sony’s constant innovation of new products………………………………....Design HP’s ability to follow the printer market………………………………Volume Southwest Airlines No-frills service……..…..LOW COST DELIVERY Pizza Hut’s five-minute guarantee at lunchtime…………………..…..……..Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability QUALITY Motorola’s automotive products ignition systems…………………………......Conformance Motorola’s pagers………………………..….Performance IBM’s after-sale service on mainframe computers……....AFTER-SALE SERVICE Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE Figure 2.4 OperationsSpecificCompetitive DecisionsExamplesStrategy UsedAdvantage Response (Faster) Cost leadership (Cheaper) Differentiation (Better)

24. © 2006 Prentice Hall, Inc.2 – 24 Strategy Development Process Determine Corporate Mission State the reason for the firm’s existence and identify the value it wishes to create. Form a Strategy Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after- sale service, broad product lines. Environmental Analysis Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors. Figure 2.6