MGMT 3370 TEST 1 ppt slides SHSU

Overview of Quantitative Approaches

Time-series models 1.Naive approach 2.Moving averages 3.Exponential smoothing Associative model 4.Trend projection 5.Linear regression

3 Measures Productivity

Single Factor Productivity= "Output (units/time) " /"Input (units/time) " Multi-Factor Productivity= "Output (units/time) " /"Input ($/time) " Unit-less Productivity= "Output ($/time) " /"Input ($/time) "

Order Qualifiers

those competitive characteristics that a firm must exhibit to be a viable competitor in the marketplace

Productivity =

Units produced/ Input used ▶Measure of process improvement ▶Represents output relative to input ▶Only through productivity increases can our standard of living improve

Key Success Factors (KSFs)

activities or factors that are key to achieving competitive advantage

Subcontracting

contract manufacturing

Strategic Process

Organization's Mission Functional Area Missions 1.Marketing 2.Operations 3.Finance/accounting

Labor Productivity

Single Factor Productivity = Units produced/ Labor-hours used =1,000/250 = 4 units/labor-hour

Moving Average Method

►MA is a series of arithmetic means ►Used if little or no trend ►Used often for smoothing ►Provides overall impression of data over time

Two Important Aspects of Demand Forecasts

▶Expected level of demand ▶The level of demand may be a function of some structural variation such as trend or seasonal variation ▶Accuracy ▶Related to the potential size of forecast error

Theory of Comparative Advantage

▶If an external provider can perform activities more productively than the purchasing firm, then the external provider should do the work

▶Outsourcing is accelerating due to

▶Increased technological expertise ▶More reliable and cheaper transportation ▶Rapid development and deployment of advancements in telecommunications and computers

Rating Outsourcing Providers

▶Insufficient analysis most common reason for failure ▶Factor rating method ▶Points and weights assigned for each factor to each

Operations for Goods and Services

▶Manufacturers produce tangible product, services often intangible ▶Operations activities often very similar ▶Distinction not always clear ▶Few pure services

Quality Function Deployment (QFD)

▶QFD - A process for determining customer requirements (customers "wants") and translating them into the attributes (the "hows") that each functional area can understand and act on. ▶A formal method to document customer requirements and how the product will meet those wants.

Goals

▶The mission statement serves as the basis for organizational goals ▶Goals ▶Provide detail and the scope of the mission ▶Goals tells the organization when it gets there ▶Goals can be viewed as organizational destinations ▶Goals serve as the basis for organizational strategies

Core Competencies

▶the special attributes or abilities that give an organization a competitive edge

Order Winners

▶those competitive characteristics that cause a firm's customers to choose that firm's goods and services over those of its competitors. Order winners can be considered to be competitive advantages for the firm. Order winners usually focus on one (rarely more than two) of the following strategic initiatives: price/cost, quality, delivery speed, delivery reliability, product design, flexibility, after-market service, and image

Engineering Change Notice (ECN)

►A correction or modification to a product's definition or documentation ►Engineering drawings ►Bill of material Quite common with long product life cycles, long manufacturing lead times, or rapidly changing technologies

Documents for Production

►Assembly drawing ►Assembly chart ►Route sheet ►Work order ►Engineering change notices (ECNs)

Outsourcing

transferring activities that traditionally been internal to external suppliers

Mission

where is the organization going? ►Organization's purpose for being ►Answers 'What do we contribute to society?' ►Provides boundaries and focus

Certifications

▶ASCM, the Association of Supply Chain Management (APICS, the Association for Operations Management) ▶Institute for Supply Management (ISM) ▶Project Management Institute (PMI) ▶Council of Supply Chain Management Professionals ▶Charter Institute of Purchasing and Supply (CIPS)

Naive Approach

►Assumes demand in next period is the same as demand in most recent period ►e.g., If January sales were 68, then February sales will be 68 F_t=A_(t-1) The forecast for time period 6 (t=6) is the actual demand of time period 5 F_6=A_(6-1)=A_5 ►Sometimes cost effective and efficient Can be good starting point Ft - Forecast for time period t At-1 - Actual demand for time period t-1 t - time period

Product Strategy Options

►Differentiation ►Shouldice Hospital ►Low cost ►Taco Bell ►Rapid response ►Toyota

Product Documents

►Engineering drawing ►Shows dimensions, tolerances, and materials ►Shows codes for Group Technology ►Bill of Material ►Lists components, quantities and where used Shows product structure

Exponential Smoothing

►Form of weighted moving average ►Weights decline exponentially ►Most recent data weighted most ►Requires smoothing constant (a) ►Ranges from 0 to 1 ►Subjectively chosen ►Involves little record keeping of past data

Goods and Services Selection

►Goods or services are the basis for an organization's existence ►Limited and predicable life cycles requires constantly looking for, designing, and developing new products ►New products generate substantial revenue The higher the percentage of sales from the last 5 years, the more likely the firm is to be a leader.

Potential Problems With Moving Average

►Increasing n smooths the forecast but makes it less sensitive to changes ▶Fewer data points used-- more responsive ▶More data points used-- less responsive ►Does not forecast trends well ►Requires extensive historical data

A formal way to document customer requirements is:

A.Quality function deployment (QFD)

Ten Strategic Decisions

1. Design of goods and services 2. Managing quality 3. Process and capacity design 4. Location strategy 5. Layout strategy 6. Human resources and job design 7. Supply-chain management 8. Inventory management 9. Scheduling 10. Maintenance

Seven Steps in Forecasting

1. Determine the use of the forecast 2. Select the items to be forecasted 3. Determine the time horizon of the forecast 4. Select the forecasting model(s) 5. Gather the data needed to make the forecast 6. Make the forecast 7. Validate and implement results

The Economic System(Operations Management)

1. Inputs Labor,capital,management 2. Transformation The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. The productivity increase is the result of a mix of capital (38% of 2.5%), labor (10% of 2.5%), and management (52% of 2.5%). 3. Outputs Goods andservices

Organizing to Produce Goods and Services ▶Essential functions:

1. Marketing- generates demand 2. Production/operations - creates the produce 3. Finance/accounting - tracks how well the organization is doing, pays bills, collects the money

Manufacturing vs. Service

1.Degree of customer contact 2.Uniformity of input 3.Labor content of jobs 4.Uniformity of output 5.Measurement of productivity 6.Production and delivery 7.Quality assurance 8.Amount of inventory 9.Evaluation of work 10.Ability to patent design

Strategies for Competitive Advantage

1.Differentiation - better, or at least different 2.Cost leadership - cheaper 3.Response - more responsive

Quality Function Deployment

1.Identify customer wants 2.Identify how the good/service will satisfy customer wants 3.Relate customer wants to product hows 4.Identify relationships between the firm's hows 5.Develop customer importance ratings 6.Evaluate competing products 7.Compare performance to desirable technical attributes

Reasons to globalization

1.Improve the supply chain 2.Reduce costs (labor, taxes, tariffs, etc.) 3.Improve operations 4.Understand markets 5.Improve products 6.Attract and retain global talent

Managing Services is Challenging

1.Jobs in services are often less structured than in manufacturing 2.Customer contact is generally much higher in services compared to manufacturing 3.In many services, worker skill levels are low compared to those of manufacturing employees 4.Services are adding many new workers in low-skill, entry-level positions 5.Employee turnover is high in services, especially in low-skill jobs 6.Input variability tends to be higher in many service environments than in manufacturing 7.Service performance can be adversely affected by many factors outside of the manager's control (e.g., employee and customer attitudes)

Overview of Qualitative Methods

1.Jury of executive opinion ►Pool opinions of high-level experts, sometimes augment by statistical models 2.Delphi method ►Panel of experts, queried iteratively 3.Sales force composite ►Estimates from individual salespersons are reviewed for reasonableness, then aggregated 4.Market Survey Ask the customer

Why Study OM(operations management)?

1.OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise 2.We want (and need) to know how goods and services are produced 3.We want to understand what operations managers do 4.OM is such a costly part of an organization

Differences between Service and Product Design

1.Products are generally tangible, services intangible 2.Services are created and delivered at the same time 3.Services cannot be inventoried 4.Services are highly visible to consumers 5.Some services have low barriers to entry and exit 6.Location is often important to service design, with convenience as a major factor 7.Service systems range from those with little or no customer contact to those that have a very high degree of customer contact 8.Demand variability alternately creates waiting lines or idle service resources

Forecasting Time Horizons

1.Short-range forecast ►Up to 1 year, generally less than 3 months ►Purchasing, job scheduling, workforce levels, job assignments, production levels 2.Medium-range forecast ►3 months to 3 years ►Sales and production planning, budgeting 3.Long-range forecast ►3+ years ►New product planning, facility location, research and development

Features Common to All Forecasts

1.Techniques assume some underlying causal system that existed in the past will persist into the future 2.Forecasts are not perfect 3.Forecasts for groups of items are more accurate than those for individual items 4.Forecast accuracy decreases as the forecasting horizon increases

Three Rules to Forecasting

1.The forecast is always wrong. 2.The longer the forecast horizon, the worse the forecast. 3.Aggregate forecasts are more accurate

Generating New Products

1.Understanding the customer 2.Economic change 3.Sociological and demographic change 4.Technological change 5.Political and legal change 6.Market practice, professional standards, suppliers, distributors

Risks of Outsourcing

ADVANTAGES Cost savings Gaining outside expertise Improving operations and service Maintaining a focus on core competencies Accessing outside technology DISADVANTAGES Increased logistics and inventory costs Loss of control (quality, delivery, etc.) Potential creation of future competition Negative impact on employees Risks may not manifest themselves for years

Factor Rating

An operations manager is performing a factor-rating analysis to help him choose an outsourcing provider. He is focusing on two factors: A and B, using a weight of 75% for factor A and 25% for factor B. He has scored five different potential providers on both factors, using a scale of 1-5, with 1 representing the BEST score. Based on the scores provided in the table below, which provider should be chosen?

Strategy Development Process

Analyze the Environment Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors Determine the 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.

Which of the following nets the largest productivity improvement?

B. 1/((1-0.15))=1/0.85=1.176 A.Decrease input by 15%

What Operations Managers Do

Basic Management Functions ▶Planning ▶Organizing ▶Staffing ▶Leading ▶Controlling

Product Development Stages

Concept Feasibility Customer Requirements Functional Specifications Product Specifications Design Review Test Market Introduction Evaluation

Types of problems to know ch 1,2,4,5

Exponential Smoothing (CH4) Weighted Moving Average (CH4) Determine mad (CH4)

Work Order

Instructions to produce a given quantity of a particular item, usually to a schedule

CHARACTERISTICS OF SERVICES

Intangible: Ride in an airline seat Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced Unique: Your investments and medical care are unique High customer interaction: Often what the customer is paying for (consulting, education) Inconsistent product definition: Auto Insurance changes with age and type of car Often knowledge based: Legal, education, and medical services are hard to automate Services dispersed: Service may occur at retail store, local office, house call, or via internet. Quality may be hard to evaluate: Consulting, education, and medical services Reselling is unusual: Musical concert or medical care

Route Sheet

Lists the operations and times required to produce a component

Common Measures of Error

Mean Absolute Deviation (MAD)

Mean Squared Error (MSE)

Mean Squared Error (MSE)

Unit-Less Productivity

Output ($/time) Input ($/time) Compute the unit-less multifactor productivity measure for an eight-hour day in which the usable output was 300 units, produced by three workers who used 600 pounds of materials. Workers have an hourly wage of $20, material cost is $1 per pound, and the selling price for a unit is $8. Overhead is 1.5 times labor cost. Output = 300 units * $8/units = $2400 Input = Labor + Material + Overhead = 3 workers * 8 hours/worker * $20/hour + 600 pounds * $1/pound + 1.5*(3 workers * 8 hours/worker * $20/hour) = $480 + $600 + $720 = $1800 Productivity = Output/Input = $2400/$1800=1.333

Multi-Factor Productivity

Productivity =Output/ Labor + Material + Energy + Capital + Miscellaneous ►Also known as total factor productivity ►Output and inputs are often expressed in dollars Multiple resource inputs ð multi-factor productivity

Productivity Challenge

Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency

Forecasting Approaches

Qualitative Methods ►Used when situation is vague and little data exist ►New products ►New technology ►Involves intuition, experience ►e.g., forecasting sales on Internet Quantitative Methods ►Used when situation is 'stable' and historical data exist ►Existing products ►Current technology ►Involves mathematical techniques ►e.g., forecasting sales of color televisions

SMART

Specific, State exactly what you wan to accomplish (who what where why) Measurable, How will you demonstrate and evaluate the extent to which the goal has been met? Attainable, Stretch and challenging goals within ability to achieve outcome. What is the action-oriented verb? Realistic, How does the goal tie into your key responsibilities? How is it aligned to objectives? Time-bound set 1 or more target dates, the "by when" to guide your gioal to succecful and timely completion

CHARACTERISTICS OF GOODS

Tangible: The seat itself Product can usually be kept in inventory (beauty care products) Similar products produced (iPods) Limited customer involvement in production Product standardized (iPhone) Standard tangible product tends to make automation feasible Product typically produced at a fixed facility Many aspects of quality for tangible products are easy to evaluate (strength of a bolt) Product often has some residual value

Strategy

The Strategy tells the organization how to get there ►Action plan to achieve mission ►Functional areas have strategies ►Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

Choosing Forecasting Method (n,weights,a)

The objective is to obtain the most accurate forecast no matter the technique We generally do this by selecting the model that gives us the lowest forecast error Forecast error = Actual demand - Forecast value = At - Ft

Product Decision

The objective of the product decision is to develop and implement a product strategy that meets the demands of the marketplace with a competitive advantage

In the area of product and service design, the acronym CAD refers to:

computer-aided design.

Production

is the creation of goods and services

Operations management (OM)

is the set of activities that create value in the form of goods and services by transforming inputs into outputs

Product Life Cycles

►May be any length from a few days to decades ►The operations function must be able to introduce new products successfully Introductory Phase ►Fine tuning may warrant unusual expenses for 1)Research 2)Product development 3)Process modification and enhancement 4)Supplier development Growth Phase ►Product design begins to stabilize ►Effective forecasting of capacity becomes necessary ►Adding or enhancing capacity may be necessary Maturity Phase ►Competitors now established ►High volume, innovative production may be needed ►Improved cost control, reduction in options, paring down of product line Decline Phase ►Unless product makes a special contribution to the organization, must plan to terminate offering

Application of Decision Trees to Product Design

►Particularly useful when there are a series of decisions and outcomes which lead to other decisions and outcomes ► ►A schematic representation of alternatives Procedure 1.Include all possible alternatives and states of nature - including "doing nothing" 2.Enter payoffs at end of branch 3.Determine the expected monetary value (EMV) of each branch and "prune" the tree to find the alternative with the best expected value

Forecasting

►Process of predicting a future event ►Forecast - a statement about the future value of a variable of interest ►Underlying basis of all business decisions ►Production ►Inventory ►Personnel Facilities

Robust Design

►Product is designed so that small variations in production or assembly do not adversely affect the product ►Typically results in lower cost and higher quality

Modular Design

►Products designed in easily segmented components ►Adds flexibility to both production and marketing ►Improved ability to satisfy customer requirements

Time-Series Forecasting

►Set of evenly spaced numerical data ►Obtained by observing response variable at regular time periods ►Forecast based only on past values, no other variables important ►Assumes that factors influencing past and present will continue influence in future

Assembly Drawing

►Shows exploded view of product ►Details relative locations to show how to assemble the product

Weighted Moving Average

►Used when some trend might be present ►Older data usually less important ►Weights based on experience and intuition

Computer Aided Design (CAD)

►Using computers to design products and prepare engineering documentation ►Shorter development cycles, improved accuracy, lower cost ►Information and designs can be deployed worldwide