1 Introduction to Operations and Competitiveness

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Operation Management:

Operation Management 1

A Preview of Operations Management:

2 A Preview of Operations Management Operations management: “The effective management of value-adding transformation processes to efficiently integrate resources and achieve specified performance measures toward product/service, product technology, and market goals.” -- Peter Stonebraker (Northeastern)& G. Keong Leong (Ohio State), Operations Strategy (Prentice-Hall, 1994, Upper Saddle River, NJ) p. 10

A Preview of Operations Management:

3 A Preview of Operations Management Strategic Operations Management Global Competition Technological Change Demanding Customers Government / Societal Concerns Economic & Cultural Changes Business Downsizing Time-Based Competition Outsourcing Corporate Alliances Total Quality Management Business Reengineering Just-in-Time Mass Customization Empowered Work Teams Electronic Commerce Green Manufacturing Operations

An Integrated Value Chain:

4 An Integrated Value Chain Manufacturer Supplier Customer Flow of information (customer order) Flow of product (order fulfillment)


5 Productivity Become more efficient Downsize Expand Retrench Achieve breakthroughs Productivity = Output Input Productivity improves when firms:

Measures of Competitiveness:

6 Measures of Competitiveness Productivity GDP (Gross domestic product) growth Market capitalization Technological infrastructure Quality of education Efficiency of government

Barriers to Entry:

7 Barriers to Entry Economies of scale Capital investment Access to supply and distribution channels Learning curves

Competition Within Industries Increases When:

8 Competition Within Industries Increases When Firms are relatively equal in size and resources Products and services are standardized Industry growth is slow or exponential

Organization of the Text:

9 Organization of the Text The Strategic Designing the Importance of Operating Managing the Ensuring Operations System Supply Chain Quality Introduction to Operations and Competitiveness Operations Strategy Products and Services Processes and Technologies Facilities Project Management Supply Chain Management Forecasting Capacity and Aggregate Planning Inventory Management Just-in-Time and Lean Production Enterprise Resource Planning Scheduling Quality Management Statistical Process Control Waiting Line Models for Service Improvement Human Resources in Operations Management

Processes and Operations:

Processes and Operations Outputs Services Goods Internal and external customers Information on performance Processes and operations 5 1 2 3 4 Inputs Workers Managers Equipment Facilities Materials Services Land Energy

Competitive Priorities:

Competitive Priorities Corporate strategy goals core competencies environmental responses new products/services global strategies Market analysis segmentation needs assessment Cost 1. Low-cost operations Quality 2. High-performance design 3. Consistent quality Time 4. Fast delivery 5. On-time delivery 6. Development speed Flexibility 7. Customization 8. Volume flexibility

Competitive Priorities:

Competitive Priorities Capabilities current needed plans Corporate strategy goals core competencies environmental responses new products/services global strategies Market analysis segmentation needs assessment Competitive priorities Operations Marketing cost quality Finance time flexibility Others Functional area strategies finance marketing operations others

Competitive Priorities: Cost:

13 Competitive Priorities: Cost Lincoln Electric reduced costs by $10 million a year for 10 years skilled machine operators save the company millions that would have been spent on automated equipment Southwest Airlines one type of airplane (Boeing 737) facilitates crew changes, record-keeping, maintenance, and inventory costs Quick airport turnarounds enables the airline to add customer value at a higher rate $30 million annual savings in travel agent commissions by requiring customers to contact the airline directly

Competitive Priorities: Quality:

14 Competitive Priorities: Quality Ritz-Carlton - one customer at a time Every employee is empowered to satisfy a guest’s wish Teams at all levels set objectives and devise quality action plans Each hotel has a quality leader Quality reports tracks guest room preventive maintenance cycles percentage of check-ins with no waiting time spent to achieve industry-best clean room appearance Guest Preference Reports are recorded in a database

Competitive Priorities: Time:

15 Competitive Priorities: Time Citicorp advertises a 15-minute mortgage approval L.L. Bean ships orders the day they are received Wal-Mart replenishes its stock twice a week Hewlett-Packard produces electronic testing equipment in five days General Electric reduces time to manufacture circuit-breaker boxes into three days and dishwashers into 18 hours Dell ships custom-built computers in two days Motorola needs less than 30 minutes to build to order pagers

Competitive Priorities: Flexibility:

16 Competitive Priorities: Flexibility Andersen Windows number of products offered grew from 28,000 to 86,000 number of errors are down to 1 per 200 truckloads Custom Foot Shoe Store: customer’s feet are scanned electronically to capture measurements custom shoes are mailed to the customer’s home in weeks prices are comparable to off-the-shelf shoes National Bicycle Industrial Company offers 11,231,862 variations delivers within two weeks at costs only 10% above standard models

Automobile Assembly Process:

Automobile Assembly Process A: Front-end body-to-chassis assembly H: Hood attachment F: Fluid filling S: Start-up testing Midsized 6 cylinder Compact 4 cylinder A S H F Midsized 6 cylinder Compact 4 cylinder

Strategy and Decisions:

Strategy and Decisions Operations strategy Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions Market analysis Competitive priorities Corporate strategy Services Manufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order Capabilities

Competitive Priorities:

Functional area strategies finance • operations marketing • others New Service/ Product Design design analysis development full launch Competitive Priorities Capabilities current needed planned Corporate strategy environmental scanning core competencies core processes global strategies Market analysis segmentation needs analysis Competitive priorities cost quality time flexibility

New Service or Product Development Process:

Post-launch review Full Launch Market promotions Sales personnel briefed Distribution processes activated Old services or products withdrawn Production of new offering and ramp-up Need to rethink the new offering or production processes Development Detailed specifications Process design Marketing program design Personnel training Testing and pilot runs Service or product not profitable Analysis Detailed review of market potential and production costs New Service or Product Development Process Design Development strategy Idea generation and screening Service package or product architecture formulation Production feasibility

Corporate Strategy and Key Operations Management Decisions:

Corporate Strategy and Key Operations Management Decisions Capabilities Performance Gap? No Yes Operations strategy Decisions Designing and Improving Processes Planning and Managing Projects Designing Value Chains Operating Value Chains New Service/ Product Design Market analysis Competitive priorities Corporate strategy

Strategies at a hospital and a steel plant:

Strategies at a hospital and a steel plant Decision Area Hospital Steel Plant Business Low-volume, High-volume strategy customized services standardized products made to stock Competitive Customized services, Low-cost, fast delivery, priorities consistent quality, and consistent quality and volume flexibility Process Labor intensive Capital intensive design