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Operations as a Competitive Weapon

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Presentation on theme: "Operations as a Competitive Weapon"— Presentation transcript:

1 Operations as a Competitive Weapon
Chapter 1

2 Learning Objectives Meaning of Operations Management
Meaning of Process Differences and Similarities of Manufacturing and Services Trends in Operations Management Operations Management across the Organization

3 Operations Management
Operation include activities directly related to producing goods and services. Operation is a function or system that transforms inputs into outputs of greater value. Management involves planning, organizing, staffing, directing and improving people to achieve the goal.

4 Operations Management
Operations Management can be defined as planning, organizing, staffing, controlling and directing the production system and also designing operating and improvement of the production systems. Operations Management deals with processes that produces goods and services that people use every day.

5 Operations Management
Operations management is an area of business that is concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient and effective. It is the management of resources, the distribution of goods and services to customers, and the analysis of queue systems.

6 Operations Management
Operations Management is the management of systems or processes that create goods or/and provide services. Operations Management is the business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s products and services.

7 Operations Management
Operations Management refers to the direction and control of the process that transform inputs into products and services. 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.

8 Why Study Operations Management?
Systematic Approach to Org. Processes Operations Management Business Education Career Opportunities Cross-Functional Applications

9 Reasons for Studying Operations Management
A business education is incomplete without an understanding of modern approaches to managing operations. Every organization produces some product or service so students must be exposed to modern approaches for doing this effectively. Operations management provides a systematic way of looking at organizational process. Operations management uses analytical thinking to deal with real-world problems. It sharpness our understanding of the world around us.

10 Reasons for Studying Operations Management
Operations management presents interesting career opportunities. These can be in direct supervision of operations or in staff position in operations management specialties such as supply chain management and quality assurance. The concepts and tools of operations management are widely used in managing other functions of a business. All managers have to plan work, control quality, and ensure productivity of individuals under their supervision.

11 How is operations relevant to my major?
Accounting Information Technology Management “As an auditor you must understand the fundamentals of operations management.” “IT is a tool, and there’s no better place to apply it than in operations.” “We use so many things you learn in an operations class—scheduling, lean production, theory of constraints, and tons of quality tools.”

12 How is operations relevant to my major?
Economics Marketing Finance “It’s all about processes. I live by flowcharts and Pareto analysis.” “How can you do a good job marketing a product if you’re unsure of its quality or delivery status?” “Most of our capital budgeting requests are from operations, and most of our cost savings, too.”

13 OM Across the Organization
Most businesses are supported by the functions of operations, marketing, and finance The major functional areas must interact to achieve the organization goals Marketing is not fully capable of meeting customer needs if they do not understand what operations can produce Human resources must understand job requirements and worker skills

14 OM Across the Organization
Finance cannot judge the need for capital investments if they do not understand operations concepts and needs. Information systems enables the information flow throughout the organization. Accounting needs to consider inventory management, capacity information, and labor standards.

15 Operations Decision Making
Marketplace Corporate Strategy Operations Strategy Operations Management Marketing Strategy Finance Strategy People Plants Parts Processes Planning and Control Production System Materials & Customers Input Products & Services Output 5

16 OM Responsibilities Line management Responsibilities
Management Decisions can be divided into three broad areas: 1. Strategic (long-term) decisions 2. Tactical (intermediate-term) decisions 3. Operational planning and control (short-term) decisions.

17 Responsibilities of Operations Management
Planning Organizing – Capacity – Degree of centralization – Location – Process selection – Products & services Staffing – Make or buy – Hiring/laying off – Layout – Use of Overtime – Projects Directing – Scheduling – Incentive plans Controlling/Improving – Issuance of work orders – Inventory – Job assignments – Quality – Costs – Productivity

18 Key Decisions of Operations Managers
What What resources/what amounts When Needed/scheduled/ordered Where Work to be done How Designed Who To do the work

19 Operations as a Transformation Process
INPUT Material Machines Labor Management Capital OUTPUT Goods Services TRANSFORMATION PROCESS Feedback & Requirements 1-19

20 Types of Transformation
Physical--manufacturing Locational--transportation Exchange--retailing Storage--warehousing Physiological--health care Informational--telecommunications 7

21 Five P’s of Transformation Process
People Plants Parts Process Planning and Controlling

22 Input – Transformation – Output Relationships for Typical Systems
Primary Inputs Resources Primary Transformation function (s) Typical Desired Output Hospital Patients Doctors, Nurses, Medical Supplies, Equipment Health Care (Physiological) Healthy individuals Restaurant Hungry customers Food, chef, wait-staff, environment Well-prepared, well-served food; agreeable environment (Physical and exchange) Satisfied customers

23 Input – Transformation – Output Relationships for Typical Systems
Primary Inputs Resources Primary Transformation function (s) Typical Desired Output Automobile factory Sheet steel, engine parts Tools, equipment, workers Fabrication and assembly of cars (Physical) High-quality cars College or university High-school graduate Teachers, books, class rooms Imparting knowledge and skills ( informational) Educated individual

24 Operations Management as a Function
• Accounting • Distribution • Engineering • Operations • Finance • Human resources • Marketing Functions Bank Construction Government Health care Manufacturing Retailing Transportation Wholesaling • Types of Organizations To improve legibility Figure 1.3 has been split into two parts. This first slide shows the position of Operations in the overall scheme of the organization. Figure 1.4

25 Operations as technical core
Marketing Finance and accounting Human resources Outside suppliers 1-25

26 Business Information Flow

27 Types of OM Decisions Part 1 : Strategic Choices: Operations managers help to determine the company’s global strategies and competitive priorities and how best to design process that fit with its competitive priorities. Part 2 : Process: Process are fundamental to all activities that produce goods or services. Operations managers make process decisions about the types of work to be done in house, the amount of automation to use, and methods of improving existing systems.

28 Types of OM Decisions Part 3 : Quality : Quality issues underlie all process and work activity. Operations managers help establish quality objectives and seek ways to improve the quality of the firm’s products and services. Part 4 : Capacity, Location, Layout: The types of decisions in this category often require long-term commitments. Operation managers help determine the system’s capacity (Capacity); the location of news facilities including global operations (Location); and the organization of departments and a facility’s physical layout (Layout)

29 Types of OM Decisions Part 5: Operating Decision: Operations manager help to coordinate the various parts of the internal and external supply chain (Supply-Chain Management), forecast demand (Forecasting), manage inventory (Inventory Management), and control output and staffing levels over time (Aggregate Planning).

30 Development of OM as a Field
Scientific Management Moving Assembly Line Hawthorne Studies Operations Research Historical Underpinnings Computers (MRP) JIT/TQC & Automation Manufacturing Strategy Service Quality and Productivity TQM & Quality Certification Business Process Reengineering Electronic Enterprise Global Supply Chain Mgmt. OM's Emergence as a Field 13

31 Historical Events in Operations Management
Events/Concepts Dates Originator Industrial Revolution Steam engine 1769 James Watt Division of labor 1776 Adam Smith Interchangeable parts 1790 Eli Whitney Scientific Management Principles of scientific management 1911 Frederick W. Taylor Time and motion studies Frank and Lillian Gilbreth Activity scheduling chart 1912 Henry Gantt Moving assembly line 1913 Henry Ford

32 Historical Events in Operations Management (cont.)
Events/Concepts Dates Originator Human Relations Hawthorne studies 1930 Elton Mayo Motivation theories 1940s Abraham Maslow 1950s Frederick Herzberg 1960s Douglas McGregor Operations Research Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, waiting line theory, decision theory, PERT/CPM Operations research groups MRP, EDI, EFT, CIM 1960s, 1970s Joseph Orlicky, IBM and others

33 Historical Events in Operations Management (cont.)
Events/Concepts Dates Originator Quality Revolution JIT (just-in-time) 1970s Taiichi Ohno (Toyota) TQM (total quality management) 1980s W. Edwards Deming, Joseph Juran Strategy and operations Wickham Skinner, Robert Hayes Business process reengineering 1990s Michael Hammer, James Champy Six Sigma GE, Motorola

34 Historical Events in Operations Management (cont.)
Events/Concepts Dates Originator Internet Revolution Internet, WWW, ERP, supply chain management 1990s ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE E-commerce 2000s Amazon, Yahoo, eBay, Google, and others Globalization WTO, European Union, and other trade agreements, global supply chains, outsourcing, BPO, Services Science Numerous countries and companies

35 Differences between Manufacturing and Service Organizations
Services Intangible, perishable product Service cannot be inventoried High customer contact Short response time Labor intensive Manufacturing Physical, durable product Product can be inventoried Low customer contact Longer response time Capital intensive

36 Differences between Manufacturing and Service Organizations
Services Small Facilities Quality not easily measured Local Markets Manufacturing Large facilities Quality easily measured Regional, national or international markets

37 The Range From Services to Products

38 Similarities between Services and Manufacturing
All use technology Both have quality, productivity, & response issues All must forecast demand Each will have capacity, layout, and location issues All have customers, suppliers, scheduling and staffing issues

39 Service - Manufacturing
Manufacturing often provides services Services often provides tangible goods Some organizations are a blend of service/ manufacturing/ quasi-manufacturing (QM) organizations QM characteristics include Low customer contact & Capital Intensive

40 Trends in OM Several business trends are currently having a great impact on operations management. These are Growth of the service sector Productivity Changes Global Competitiveness Quality, time and technological change Environmental, ethical and diversity issues

41 Trends in OM Service sector growth: The service sector of the economy is significant. Services may be divided into three main groups. These are Government Wholesale and retail sales Other services (transportation, public utilities, communication, health etc) The share of the workforce in service jobs is well above 60 percent in Britain, Canada, France and Japan.

42 Trends in OM Service sector growing to 50-80% of non-farm jobs- See Global competitiveness Demands for higher quality Huge technology changes Time based competition Work force diversity

43 Trends in OM Productivity Changes: Productivity is the value of outputs (goods and services) produced divided by the value of input resources (wages, costs of equipment and the like) used. The value of output can be measured by what the customer pays or simply by the number of units produced or customers served. The value of inputs can be measured by their costs or simply by the number of hours worked.

44 Trends in OM Global Competitiveness: Strong global competition affects industries everywhere. Most products today are global composites of material and services from throughout the world. Polo Shirt is sewn in Hondurus from cloth cut in the United states.

45 Trends in OM Competition based on quality, time and technology: Another important trend is that more firms are competing on the basis of time; filling orders earlier than the competitors, introducing new products and services quickly, and reaching the market first. Another increasing important factor in operations management is accelerating technological change.

46 Trends in OM Ethical, workforce diversity and environmental issues: Business face more ethical quandaries than ever before, intensified by an increasing global presence and global technological change. Environment issues, such as toxic wastes, poisoned drinking water, poverty, air quality and global warming are getting more emphasis.

47 Today’s OM Environment
Customers demand better quality, greater speed, and lower costs Companies implementing lean systems concepts – a total systems approach to efficient operations Recognized need to better manage information using ERP and CRM systems Increased cross-functional decision making

48 Achieving Cross-Functional Coordination
A unified strategy should be developed by management as a starting point, giving each department a vision of what it must do to help fulfill the overall organizational strategy. The organizational structure and management hierarchy can be redesigned to promote cross-functional coordination.

49 Achieving Cross-Functional Coordination
The goal-setting process and reward systems can encourage cross-functional coordination. Improvements to information systems also can boost coordination. Information must in part be tailored to the needs of each functional manger.

50 Achieving Cross-Functional Coordination
Informal social systems are another device that can be used to encourage better understanding across functional lines. Employee selection and promotion also can help foster more cross-functional coordination by encouraging broad perspective and common goals.

51 Productivity Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio: Outputs Inputs

52 Factors Affecting Productivity
Capital Quality Technology Management

53 Measures of Productivity
Partial measures output/(single input) Multi-factor measures output/(multiple inputs) Total measure output/(total inputs)

54 Total Measure Productivity
Total Measure Productivity = Outputs Inputs or = Goods and services produced All resources used 17

55 Partial Measure Productivity
Partial measures of productivity = Output or Output or Output or Output Labor Capital Materials Energy 17

56 Multifactor Measure Productivity
Multifactor measures of productivity = Output Labor Capital Energy or Labor Capital Materials 17

57 Productivity Calculate the productivity for the following operation.
Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. A team of workers make 400 units, which is valued by its standard cost of Tk.10 each (before markups for other expenses and profit). The accounting department reports that for this job the actual costs are Tk.400 for labor, Tk.1000 for materials, and Tk.300 for overhead.

58 (3 employees)(40 hours/employee)
Productivity Labor productivity = Policies processed Employee hours Labor productivity = 600 policies (3 employees)(40 hours/employee) From this point the slides present the insurance policy portion of Example 1.1. Labor productivity = 5 policies/hour

59 Quantity at standard cost Labor cost + Materials cost + Overhead cost
Productivity Labor productivity = 5 policies/hour Multifactor productivity = Quantity at standard cost Labor cost + Materials cost + Overhead cost This series of slides presents the multifactor productivity calculations in Example 1.1. We have used a graphic of carpet installation as this is mentioned in the text as an example of multifactor productivity.

60 Productivity Labor productivity = 5 policies/hour
Multifactor productivity = (400 units)(Tk.10/unit) Tk.4000 Tk Tk Tk.300 Tk.1700 = = 2.35

61 Productivity Growth Productivity Growth =
Current Period Productivity – Previous Period Productivity Previous Period Productivity

62 Productivity Growth Rate
Example: Last week a company produced 150 units using 200 hours of labor This week, the same company produced 180 units using 250 hours of labor

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