360 ch1e8 Competitive Weapon

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Operations as a Competitive Weapon: 

Operations as a Competitive Weapon Chapter 1

So, what is management?: 

So, what is management? Classic definition: Getting things done through people. This assumes you are managing people. How about one person overseeing an automated production line. There are no people to manage. An operations manager manages people, resources and/or processes.

Production Management: 

Production Management What is “Production?” The act of producing To bring into existence To create something having exchange value

Definition of Operations Mgt.: 

Definition of Operations Mgt. Previous Edition: The direction and control of the processes that transform inputs into products and services. Our Text: “The systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external customers.” My Definition:“The systematic design, direction, and control of processes that create or add value to services and products for internal, as well as external customers.”

Operations Management versus Production Management : 

Operations Management versus Production Management Production management was traditionally associated with goods production. Operations management was created for the management of production of services. Operations Management is now used for both goods and services production.

Exchange Value: 

Exchange Value Traditional View Current View

Manufacturing Inputs and Outputs: 

Manufacturing Inputs and Outputs INPUTS Raw Materials Employees Plant Equipment Financing OUTPUTS Consumer Goods Materials for purchase by other firms Services Payments to employees

University Inputs and Outputs: 

University Inputs and Outputs INPUTS Students Faculty and Staff Facilities Equipment and Supplies Financing OUTPUTS Educated citizens Research Public service Payments to employees

Grocery Store Inputs and Outputs: 

Grocery Store Inputs and Outputs INPUTS Items for resale Customers Employees Facilities and Equipment Financing OUTPUTS Satisfied Customers Service Payments to employees

FedEx: 

FedEx Why are they successful? Fast On-time deliveries Relatively low cost Technology in shipment tracking

Slide11: 

Operations as a Management Function

Processes: 

Processes Processes should add value. Processes can be broken down into sub-processes, which in turn can be broken down further. Any process that is part of a larger process is considered a “nested process.” Each process and each nested process has inputs and outputs.

Examples of Processes: 

Examples of Processes Manufacturing something Warehousing of raw materials Processing insurance claims Teaching a class Getting a product to the customer Taking inventory The supply chain Staff scheduling

Nested Processes Example: 

Nested Processes Example Advertisement Design and Planning Process Creative design process Receive work request Assemble team Prepare several designs Receive inputs from Account Executive Prepare final concept Revise concept per client’s inputs Media planning process Receive work request Prepare several media plans Receive inputs from Account Executive Prepare final plan Revise plan per client’s inputs

Process View of an Ad Agency: 

Process View of an Ad Agency Accounting process Production process Prepare ad for publication and deliver to media outlets Advertisement design and planning process Create the ad to the needs of the client and prepare a plan for media exposure Output interface process Communicate with client, get needs, and coordinate progress Inputs Clients

External Vs. Internal Customers: 

External Vs. Internal Customers External Customers are those who purchase the goods and services Internal Customers are those who receive the output of others within the firm. They are part of the transformation process.

External Vs. Internal Suppliers: 

External Vs. Internal Suppliers External Suppliers: The businesses or individuals who provide the resources, services, products, and materials for the firm’s short-term and long-term needs. Internal Suppliers: The employees or processes that supply important information or materials to a firm’s processes.

Service Processes Versus Manufacturing Processes: 

Service Processes Versus Manufacturing Processes Manufacturing processes change materials in one or more of the following dimensions: Physical properties Shape Fixed dimensions Surface finish Joining parts and materials If a process isn’t doing at least one of these, then it is a service process (non-manufacturing) .

Manufacturing and Service: 

Manufacturing and Service Goods Production Tangible Can be inventoried Low customer contact Longer response time Capital Intensive Quality easily measured Goods can be shipped Service Production Intangible Can’t be inventoried High customer contact Shorter response time Labor Intensive Quality hard to measure Locate near customers Most firms provide both goods and services.

Shared Problems by Manufacturing & Service: 

Shared Problems by Manufacturing & Service Both have to match capacity with demand. Harder to do for service providers Both have to worry about quality. Easier to change a service than a product. Both have to deal with internal and external customers.

Value Chains: 

Value Chains Value chains are an interrelated series of processes that produce a service or product to the satisfaction of customers. Any process / value chain does two things. Produces or adds value Consumes resources

Core Processes and Support Processes: 

Core Processes and Support Processes Value chains may have core processes, support processes, or both. Core processes deliver value to external customers. Support processes provide vital inputs for the core processes

4 Core Processes: 

4 Core Processes Customer relationship processes Identify, attract, and build relationships with external customers and facilitates the placement of orders. New service/product development processes Designing and developing new services or products from inputs received from external customer specifications. Order fulfillment processes The activities required to produce and deliver the service or product to the external customers. Supplier relationship processes Selecting suppliers of services, materials and information and facilitates the timely and efficient flow of these items into the firm.

Internal Value-Chain Linkages Showing Support Processes: 

Internal Value-Chain Linkages Showing Support Processes Firms have many processes that support the core processes.

Progressive Insurance: 

Progressive Insurance Grew from $1.3 billion to $11 billion in 13 years. How did they do it? Operational Innovation (Designing new processes) Immediate Response Claims Handling (24 hours a day) Agents quickly go to scene of accident. Streamlined claims processing went from 7-10 days to 9 hours Web site for agents only. Web site for customer information, inquiries and routine processing.

Productivity: 

Productivity Productivity is the value of outputs (services and products) produced, divided by the value of input resources (wages, costs of equipment, etc.) Production is the process of creating something having Exchange value.

Measuring Productivity: 

Measuring Productivity Single Factor methods EG: Time or cost to produce a widget Multi-Factor methods Combines two or more single-factor methods EG: Cost per hour to produce widgets. Multiple methods Several separate single-factor and/or multi-factor methods Best way to measure productivity

Productivity Calculation: 

Productivity Calculation Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. Calculate the productivity in policies per hour.

Productivity Calculation: 

Productivity Calculation A team of workers make 400 units of a product, valued by its standard cost of $10 each (before markups for other expenses and profit). The accounting department reports that the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead. Calculate the productivity. (value of output / value of input) These figures must be compared with performance levels in prior periods and with future goals.

How We Improve Productivity: 

How We Improve Productivity Decrease inputs relative to outputs Speed up the through-put Increase output relative to input Improve Quality

Productivity & Standard of Living: 

Productivity & Standard of Living High Productivity does not insure a high standard of living. Increasing the standard of living comes from producing more than you need. Production Capacity per Capita is the key.

History of U.S. Productivity: 

History of U.S. Productivity 1950s 2.8% annual growth 1960s 2.8% annual growth 1970s 2.0% annual growth 1980s 1.4% annual growth 1990s 1.9% annual growth (Growth is mostly from manufacturing productivity increases)

The Volatility of Growth: 

The Volatility of Growth

Determinates of National Productivity: 

Determinates of National Productivity LABOR16% CAPITAL20% MANAGEMENT64%

Service Sector: 

Service Sector Accounts for approximately 80% of US jobs (non-farm) Three approximately equal sectors: 1. Government Sector 2. Wholesale & Retail Sales 3. Other Services

Sector Productivity in the 90s : 

Sector Productivity in the 90s Productivity in the 80% service sector had less than 1% annual growth. Productivity in the smaller manufacturing sector increased roughly 3.6% per year. Thus the lion’s share of the nation’s overall productivity gain has been from Manufacturing.

Why Low Service Productivity?: 

Why Low Service Productivity? Hard to automate services Often brain work rather than machine work Tend to be more labor intensive Hard to measure service productivity

Operations as a competitive weapon: 

Operations as a competitive weapon Companies use operations to compete in various ways: High quality Consistent quality Quick delivery Fast development High technological efficiency Low cost efficiency

Global Competition: 

Global Competition Businesses must accept the fact that, to prosper, they must view customers, suppliers, facility locations, and competitors in global terms. Most products today are composites of materials and services from all over the world. Forces that created increased global competition: Improved transportation and communication technologies Loosened regulations on financial institutions Increased demand for imported services and goods Reduced import quotas and other trade barriers Comparative cost advantages

Global Competition Disadvantages: 

Global Competition Disadvantages May have to relinquish proprietary technology. Political risks Alienate U.S. customers by sending jobs overseas. Lower skill levels in some areas Difficulty with cross-functional coordination Harder to produce products and services that can compete.

Other Challenges in Operations Management: 

Other Challenges in Operations Management Rapid Technological Change Ethical issues Increasing diversity of the workforce Environmental impact issues

Historic Development: 

Adam Smith
 Economist and Philosopher 1723 - 1790 "An Inquiry into the Nature & Causes of the Wealth of Nations," Covered such concepts as the role of self-interest, the division of labor, the function of markets, and the international implications of a laissez-faire economy. Historic Development

Historic Development: 

Historic Development Eli Whitney Born Dec 8 1765 - Died Jan 8 1825 He translated the concept of interchangeable parts into a manufacturing system, giving birth to the American mass-production concept.

Historic Development: 

Historic Development Develop a "science" for every job… Carefully select workers with the right abilities for the job. Carefully train these workers to do the job, and give them proper incentives Support these workers by planning their work and by smoothing the way as they go about their jobs. Frederick Winslow Taylor March 20, 1856 - March 21, 1915

Historic Development: 

Historic Development Henry Ford 1863-1947 Using a constantly-moving assembly line, subdivision of labor, and careful coordination of operations, Ford realized huge gains in productivity.

Importance of Operations: 

Importance of Operations “The two major functions of business are production and selling. All other functions are secondary to these.” -- Peter Drucker

Addressing the Challenges in Operations Management: 

Addressing the Challenges in Operations Management

Text Components: 

Text Components Chapter 1: Operations As a Competitive Weapon Supplement A: Decision Making Chapter 2: Operations Strategy Chapter 3. Project Management Chapter 4. Process Strategy Chapter 5. Process Analysis ----------------- QUIZ --------------------- Supplement B: Simulation Chapter 6. Process Performance and Quality Chapter 7. Constraint Management Supplement C: Waiting Lines Chapter 8. Process Layout Chapter 9. Lean Systems ---------------- MID TERM ---------------- Chapter 10. Supply Chain Strategy Chapter 11. Location Chapter 12. Inventory Management Supplement D: Special Inventory Models Chapter 13. Forecasting Chapter 14. Sales and Operations Planning Supplement E. Linear Programming Chapter 15. Resource Planning Chapter 16. Scheduling Competing with Operations Managing Processes Managing Value Chains