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 versusProduction 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 ManufacturingInputs and Outputs: Manufacturing Inputs and Outputs INPUTS
Materials for purchase by other firms
Payments to employees UniversityInputs and Outputs: University Inputs and Outputs INPUTS
Faculty and Staff
Equipment and Supplies
Payments to employees Grocery StoreInputs and Outputs: Grocery Store Inputs and Outputs INPUTS
Items for resale
Facilities and Equipment
Payments to employees FedEx: FedEx Why are they successful?
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
The supply chain
Staff scheduling Nested Processes Example: Nested Processes Example Advertisement Design and Planning Process Creative design process
Receive work request
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:
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
Can be inventoried
Low customer contact
Longer response time
Quality easily measured
Goods can be shipped Service Production
Can’t be inventoried
High customer contact
Shorter response time
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
Combines two or more single-factor methods
EG: Cost per hour to produce widgets.
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
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 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.
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
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
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