Operations Management Midterm

Five Basic Forms of Transformation Systems/Processes

1. Continuous Process 2. Repetitive/Flow Shop 3. Batch Shop 4. Job Shop 5. Project

Finance and Operations

Budgeting: Budgets must be periodically prepared to plan financial requirements. Budgets must sometimes be adjusted, and performance relative to a budget must be evaluated. Economic analysis of investment proposals: Evaluation of alternative investments in plant and equipment requires inputs from both operations and finance people. Provision of Funds: The necessary funding of operations and the amount and timing of funding can be important and even critical when funds are tight. Careful planning can help avoid cash-flow problems.

American/Traditional Perspective (Trade-offs)

Cost and Quality are at odds, and delivery and flexibility are at odds. If I want higher quality, I will have to pay more costs. If I want to customize my products, I many not be able to maintain my delivery speed

Flexibility of Design/Product

Customizing the product based on the features that the customer wants. ex) You can easily customize your order for eye glasses, but not gasoline

Infrastructural Decisions

Decisions related to the running of the facility and operations

Technology/Process Decisions

Do I want line, batch, job shop, etc.?

Japanese/Cumulative Competence Perspective

Don't focus only on low cost. Focus on quality of conformance (stick to the specifications and do it right the first time). If you do it right the first time, there will be no product recalls, nothing will be rejected, there will be no scrap or rework, which will in turn bring costs down. Quality-->Flexibility&Delivery-->Low Cost

Service Operations

Economic activities that produce a place, time, form, or psychological utility for the consumer.

Manufacturing Operations

Economic activities that produce physical items that include raw materials, parts, subassemblies, and final products

Advantages of Batch Shop

Flexibility; easy to add or change products or services

Example of a Total Productivity Measure

Goods or services produced/all inputs used to produce them

Quality of Performance

How well the product functions or service performs when put to use. It talks about evaluation of product or service performance with respect to certain specific functions and determine how well it performs from customer's perspective. ex) My car was able to take me to point A to point B without breaking down

Workforce Decisions

What type of skills are needed for the job? What type of training is needed? How many workers with which kind of skill?

Performance Measures Decisions

What will you use to incentivize your workers? How will you provide feedback and reward your workers?

Location Decisions

Where do I locate my plan, so I get a competitive priority of delivery speed?

Quality of Design/Product

how good that design will translate into durability reliability, etc. ex) my desk is sturdy and works well for me, never lets me down

Process Management

management of one or more actions that transform inputs into outputs (the central role of all management)

Supply Chain Management

managing a sequence of activities and organizations involved in producing and delivering a good or service ex) suppliers' suppliers --> Direct Suppliers-->Producer-->Distributor-->Final Customers

Multifactor Measures of Productivity

output/multiple inputs

Partial Measures of Productivity

output/single input

Total Measure of Productivity

output/total inputs

Delivery Speed

quickly filling a customer's order ex) FedEx was the first to deliver overnight packages

Capacity Decisions

What size plant do we want?

Services

Activities that provide some combination of time, location, form or psychological value

Quality Decisions

What do you need to do to manage quality, so quality management is right there?

Three Perspectives on Competitive Priorities

American/Traditional Perspective (Trade-offs), Japanese/Cumulative Competence Perspective, The Sand Cone Model

Productivity

-A measure of the effective use of resources, usually expressed as the ratio of output to input •These measures are useful for -Tracking an operating unit's performance over time -Judging the performance of an entire industry or country .an index that measures output (goods and services) relative to the input (labor, materials, energy, and other resources) used to produce it. .a broader concept that pertains to effective use of overall resources Ex) This perspective on mowing a lawn with a hand mower would include the possibility of using a power mower.

Strategy

-A plan for achieving organizational goals •Serves as a roadmap for reaching the organizational destinations -Organizations have •Organizational (term) -Overall (term) that relate to the entire organization -Support the achievement of organizational goals and mission -guide the organization by providing direction for, and alignment of, the goals and strategies of the functional units -are major success/failure factors •Functional level (term) -(Term) that relate to each of the functional areas and that support achievement of the organizational strategy ex) Amazon offers low-cost and quick, reliable deliveries, it also excels in customer service.

Core Competencies

-Collective knowledge and skills that distinguish a company from the competition. -The special attributes or abilities that give an organization a competitive edge .To be effective (term) and strategies need to be aligned ex) Walmart has been very successful in managing its supply chain, which has contributed to its competitive advantage.

Order Qualifiers

-Gain entry to a market -Maintain a company's position within a market But, DO NOT win orders -Have order-losing not order-winning characteristics -Those characteristics that potential customers perceive as minimum standards of acceptability for a product to be considered for purchase. However, that may not be sufficient to get a potential customer to purchase from the organization. Ex) You are deciding on a car to buy. You have narrowed it down to three because they have both have the price, style, and gas mileage you want. But you pick the second one because it has impressive safety ratings. The price, style, and gas mileage are this term.

Strategic Decisions made at the SBU Level

-How to compete decisions -Brand/image -What product categories to offer? -Market expansion decisions -Structure and management system (HR) -Main technology (IT and/or manufacturing) -Meet targets of the corporate level -Develop the SBU strategic plan

Operations Strategy

-The approach, consistent with organization strategy, that is used to guide the operations function. -Set of goals and policies that guide operations/ manufacturing decisions in the structural and infrastructural areas. ex) relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling

Strategic Decisions made at the Functional Level

-Marketing mix decisions -Promotional campaigns -Individual product decisions -Implementation of tactics -Meet strategic plan targets -Develop the marketing (or other function) plan

Examples of Multifactor Productivity Measures

-Output/(Labor + Machine) -Output/(Labor + Capital + Energy)

Strategic Decisions Made at the Corporate Level

-Overall mission and values -What businesses (SBUs) should we be in? -Acquisitions, mergers, divestments -What SBUs should we invest in? -What SBUs should we milk (maximize profits)? -Overall financial structure and capital raising -Goals for the entire corporation -Set targets for individual SBUs

Functional Strategy

-Strategies that relate to each of the functional areas and that support achievement of the organizational strategy •Marketing, Finance and Operations Strategy... •This strategy should support the business strategy (competitive advantage) and the corporate strategy (Vertical Alignment) •This strategy should compliment other functional strategies (Horizontal Alignment)

Focus

-Stressing one or two key business values or areas of strength. -Some organizations (term) on a single strategy, while others employ a combination of strategies Ex) One company that has multiple strategies is Amazon.com. Not only does it offer low-cost and quick, reliable deliveries, it also excels in customer service.

The Sand Cone Model

-The priorities are built on top of another and mutually supportive -Quality at the bottom, then dependability, then speed, then cost

Mission

-The reason for an organization's existence •Mission statement -States the purpose of the organization -The mission statement should answer the question of "What business are we in?" ex) Chapman exists to train global leaders with a broad mindset that can handle diverse situations and diverse audiences.

Vertical Alignment

-When I am making myself consistent with the direction, consistent with the goals and objectives of the business unit and the corporation as a whole. -when your competitive priorities or your strategy and operations is (term) with business strategy and in corporate strategy

Horizontal Alignment

-When we are compatible with when our roadmap is consistent with other departments at the same level as ours other departments. -What I'm thinking is consistent with finance departments thinking and what finances thinking is consistent with marketing's thinking -Different departments can be at odds because of their goals. Their local departmental goals are apparently different apparently contradictory. But we got to be on the same page.

Advantages of Project

-Your team is brought together under a single strategy. -You have early notification of potential problems. -Everyone has ongoing visibility into the current status. -Estimates for activity duration and completion dates are highly accurate. -Your risk management efforts are consistent and effective.

Flexibility of Volume

-ability to respond to changes in demand -ability to make small and large quantities and switch gears quickly ex) McDonalds has room for large parties, while some hole in the wall place may not

Quality of Conformance

-consistency/walking the talk -doing things, making things as per specifications what it says in my manual. I deliver what it says on my menu. I actually make that. ex) McDonald's says their fries are crisp and they actually do make crispy fries no matter what time of day

Vertical Integration Decisions

-how much of these activities in the supply chain you do yourself? -And what percentage are done are outsourced? If you do all of them by yourself or most of them by yourself, you are highly vertically integrated

Characteristics of Services

-intangible output -high customer contact -high labor content -low uniformity of input -Difficult measure of productivity -Low opportunity to correct problems before delivery -Little inventory -Wide range wages -Not usually patentable -Inconsistent product definition -produced and consumed at same time

External Factors

-opportunities and threats -typically evaluated by marketing people Ex) 1.Economic conditions 2.Political conditions 3.Legal environment 4.Technology 5.Competition 6.Markets

Internal Factors

-strengths and weaknesses -typically evaluated by operations people Ex)1.Human Resources 2.Facilities and equipment 3.Financial resources 4.Customers 5.Products and services 6.Technology 7.Suppliers 8.Other

SWOT

-strengths, weaknesses, opportunities, threats -part of scanning the environment -critically examine other factors that could have either positive or negative effects -often regarded as the link between organizational strategy and operations strategy.

Characteristics of Goods

-tangible output -low customer contact -low labor content -high uniformity of input -easy measurement of productivity -high opportunity to correct problems before delivery -high inventory -narrow range of wages -usually patentable -consistent product definition -production usually separate from consumption

Characteristics of Project

.A nonrepetitive set of activities directed toward a unique goal within a limited time frame. One of a kind. -Cost estimation: Simple to Complex -Cost per unit: Very High -Equipment used: Varied -Fixed costs: Varied -Variable costs: High -Labor skills: Low to High -Marketing: Promote Capabilities -Scheduling: Complex, subject to change -Work-in-process inventory: Varied

Characteristics of Job Shop

.Usually operates on a relatively small scale. It is used when a low volume of high-variety goods or services will be needed. Processing is intermittent; work includes small jobs, each with somewhat different processing requirements. -Cost estimation: Difficult -Cost per unit: High -Equipment used: General Purpose -Fixed costs: Low -Variable costs: High -Labor skills: High -Marketing: Promote Capabilities -Scheduling: Complex -Work-in-process inventory: High

Characteristics of Continuous Process

.When a very high volume of nondiscrete, highly standardized output is desired, this system is used -Cost estimation: Routine -Cost per unit: Low -Equipment used: Special Purpose -Fixed costs: Very high -Variable costs: Very low -Labor skills: Low to High -Marketing: Promote standardized goods/services -Scheduling: Routine -Work-in-process inventory: Low

Characteristics of Repetitive/Flow Shop

.When higher volumes of more standardized goods or services are needed and mass customization is an option -Cost estimation: Routine -Cost per unit: Low -Equipment used: Special Purpose -Fixed costs: High -Variable costs: Low -Labor skills: Low -Marketing: Promote standardized goods/services -Scheduling: Routine -Work-in-process inventory: Low

Characteristics of Batch Shop

.is used when a moderate volume of goods or services is desired, and it can handle a moderate variety in products or services. -Cost estimation: Somewhat Routine -Cost per unit: Moderate -Equipment used: General Purpose -Fixed costs: Moderate -Variable costs: Moderate -Labor skills: Moderate -Marketing: Promote capabilities and semi-standardized goods and services -Scheduling: Moderately Complex -Work-in-process inventory: High

Layout

.the configuration of departments, work centers, and equipment, with particular emphasis on movement of work (customers or materials) through the system .Facilities layout decisions arise when: Designing new facilities Re-designing existing facilities

Four Types of Utility Providers

1. Form: Monthly statement sent by the bank or a broker in a form that is understandable and useful. (how well a product or service meets the customer's needs) 2.Time: Jiffy-Lube provides people with time that they would have otherwise spent maintaining the car. (maximizing the availability of a product/service so that customers can buy it during the times that are most convenient or desirable for them) 3. Place: Kmart or Wal-Mart provides a place for purchasing. (refers primarily to making goods/services physically available or accessible to potential customers) 4. Psychological Benefit: Psychological benefit from attending a concert, event, or a movie. (amount of usefulness or perceived value)

Four Types of Competitive Priorities

1. Price 2. Quality -quality of conformance -quality of design -quality of performance 3. Delivery -delivery speed -delivery reliability 4. Flexibility -flexibility of design/product -flexibility of volume

Classification of Service Operations

1. Service Factory 2. Service Shop 3. Professional Service 4. Mass Service

Ten Decision Areas in Operations

1. Structural -Location -Technology/Process - Capacity -Vertical Integration 2. Infrastructural -Product/Service Design -Quality -Organization -Workforce -Performance Measures -Planning & Control

Process Variation

1. The variety of goods or services being offered: The greater the variety of goods and services, the greater the variation in production or service requirements. 2. Structural variation in demand: These variations, which include trends and seasonal variations, are generally predictable. They are particularly important for capacity planning. 3. Random variation: This natural variability is present to some extent in all processes, as well as in demand for services and products, and it cannot generally be influenced by managers. 4. Assignable variation: These variations are caused by defective inputs, incorrect work methods, out-of-adjustment equipment, and so on. This type of variation can be reduced or eliminated by analysis and corrective action.

Three Categories of Business Processes

1. Upper-management processes: These govern the operation of the entire organization. Examples include organizational governance and organizational strategy. 2. Operational processes: These are the core processes that make up the value stream. Examples include purchasing, production and/or service, marketing, and sales. 3. Supporting processes: These support the core processes. Examples include accounting, human resources, and IT (information technology).

Make-to-order

1.Assemble-to-order: Partially completed before customer's order is received. ex) -Customized Auto -Sandwich Shop -Customized Bike -Irish Pub -Prefab Homes -Fence Installers 2.Manufacture-to-order: Processing starts after customer's oreder is received. ex) -Large Electrical Motors -Repair Shop Health Care 3.Engineer-to-order: Design starts after customer's order is received. ex) -Construction Projects -Interior Decorators -Custom-designed-clothing -Catering -Aerospace Projects -Custom Home Building

Competitive Priorities

A way for businesses to distinguish from, and compete with, others

Make-to-stock

Items made and placed in stock before customer's order is received. ex) -Automobiles -Car Wash -Grocery -Funeral Home -Cosmetics -Scheduled Flight -Entertainment -Banking

Examples of Partial Productivity measures

Labor productivity: units of output/labor hr, units of output/shift, value-added/labor hr, dollar value of output/labor hr Machine productivity: units of output/machine hr, dollar value of output/machine hr. Capital productivity: units of output/dollar input, dollar value of output/dollar input Energy productivity: units of output/kilowatt hr, dollar value of output/dollar input

Characteristics of Fixed-Position Layouts

Layout in which the product or project remains stationary, and workers, materials, and equipment are moved as needed. -compelling reasons bring workers, materials, and equipment to the product's location instead of the other way around. -mostly used for projects

Disadvantages of Repetitive/Flow Shop

Low flexibility, high cost of downtime

Advantages of Repetitive/Flow Shop

Low unit cost, high volume, efficient

Planning & Control Decisions

Managing/determining inventories, scheduling of equipment

Disadvantages of Batch Shop

Moderate cost per unit, moderate scheduling complexity

Back Room within a Service Operation

More like a manufacturing operation (e.g. Check processing, Printing statements) -lower customer contact -Out of sight of customer- -Provider has control of process -offline -locate for efficiency -smooth out the workload

Product/Service Design Decisions

What do you want the basic design of the product to be? How do you develop and upgrade new products? Do you follow a standardized design? A modular design?

Organization Decisions

What is the organization structure? How many workers reporting to a supervisor? How many supervisors and what type of supervisors?

Front Room within a Service Operation

Pure service (e.g. Bank tellers, Loan services) -high customer contact -Direct customer contact -Customer has control of process -online -locate for easy access -Flexibility to respond to customers -Harder to manage - More interaction -less margin

Disadvantages of Job Shop

Slow, high cost per unit, complex planning and scheduling

System Design Decisions

System design •Capacity •Facility location •Facility layout •Product and service planning •Acquisition and placement of equipment These are typically strategic decisions that •usually require long-term commitment of resources •determine parameters of system operation

System Operation Decisions

System operation •These are generally tactical and operational decisions •Management of personnel •Inventory management and control •Scheduling •Project management •Quality assurance Operations managers spend more time on system operation decision than any other decision area They still have a vital stake in system design

Operations Management

The management of systems or processes that create goods and/or provide services ex) For example, if an organization makes furniture, some of the operations management decisions involve the following: purchasing wood and fabric, hiring and training workers, location and layout of the furniture factory, purchase cutting tools and other fabrication equipment. If the organization makes good operations decisions, it will be able to produce affordable, functional, and attractive furniture that customers will purchase at a price that will earn profits for the company.

Operations

The part of a business organization that is responsible for producing goods or services ex) These activities include machining, milling, sandblasting, painting, and assembling materials. All of these activities add value to the product and the company overall.

Advantages of Continuous Process

Very efficient, very high volume

Disadvantages of Project

Very high cost per unit, complex planning and scheduling that can change anytime, lack of creativity, communication overheard

Disadvantages of Continuous Process

Very rigid, lack of variety, costly to change, very high cost of downtime

Price

We compete on the basis of low price. We buy certain things because they are better priced in one location in by one business. ex) Walmart is lower priced than Target

Efficiency

a narrower concept that pertains to getting the most out of a fixed set of resources Ex) This perspective on mowing a lawn with a hand mower would focus on the best way to use the hand mower

Delivery Reliability

a performance dimension that refers to the ability to deliver products or services when promised ex) If I say I will deliver next day by 10am, how often am I delivering by 10am?

Primary factors for both production of goods and providing services

a. Forecasting and capacity planning to match supply and demand b. Process management c. Managing variations d. Monitoring and controlling costs and productivity e. Supply chain management f. Location planning, inventory management, quality control, and scheduling

Advantages of Job Shop

able to handle a wide variety of work

Structural Decisions

decisions related to the structure of the facility

Marketing and Operations

demand data: operations needs information about demand over the short to intermediate term so that it can plan accordingly (e.g., purchase materials or schedule work) product and service design: operations can supply information about capacities and judge the manufacturability of designs. Operations will also have advance warning if new equipment or skills will be needed for new products or services. competitor analysis: Marketing can provide valuable insight on what competitors are doing. Marketing also can supply information on consumer preferences so that design will know the kinds of products and features needed; operations can supply information about capacities and judge the manufacturability of designs. lead time data: One important piece of information marketing needs from operations is the manufacturing or service lead time (the time between ordering a good or service and receiving it) in order to give customers realistic estimates of how long it will take to fill their orders.

Order Winners

•-Characteristics that will win the bid or the purchase. -They become qualifiers as products mature -Not all of them are manufacturing related (e.g. Design, technical support, after-sale service) -Those characteristics of an organization's goods or services that cause them to be perceived as better than the competition. Ex) You are deciding on a car to buy. You have narrowed it down to three because they have both have the price, style, and gas mileage you want. But you pick the second one because it has impressive safety ratings. The safety ratings would be this term.

Corporate Strategy

•Business in which a corporation/company will (will not) participate. •Acquisition of corporate resources and their commitment to each of those businesses.

Systems Perspective

•Emphasizes interrelationships among subsystems •Main theme is that the whole is greater than the sum of its parts •The output and objectives of the organization take precedence over those of any one subsystem

Professional Service

•High labor intensity, high customer contact Ex. Physicians, lawyers, accountants

Mass Service

•High labor intensity, low customer contact Ex. retailing

Why Productivity Matters

•High productivity is linked to higher standards of living -As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to maintain high standards of living •Higher productivity relative to the competition leads to competitive advantage in the marketplace -Pricing and profit effects •For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry

Service Shop

•Loew labor intensity, high customer contact Ex. Hospitals, repair services

Service Factory

•Low labor intensity, low customer contact Ex. Airlines, trucking, hotels

Management

•Management of an organization's production system -Production system converts inputs into goods & services Management Activities •Planning •Organizing •Staffing •Leading (Directing) •Controlling The Operations function consists of all activities directly related to producing goods or providing services. A primary function of the operations manager is to guide the system by decision making. •System design decisions System operation decisions

Business Strategy

•Scope (Boundaries of each business). •Product/Market/Service subsegments to be addressed by each division. •Basis on which a Strategic Business Unit (SBU) will achieve and maintain a competitive advantage.