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USING OPERATIONS TO COMPETE

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

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Operations Management
The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, customers

Processes can be linked together to form a supply chain interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers

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Across the Organization

Finance
Acquires financial resources and capital for inputs

Material & Service Inputs Support Functions Accounting Information Systems Human Resources Engineering

Sales Revenue

Operations
Translates materials and service into outputs
Figure 1.1

Marketing
Generates sales of outputs

Product & Service Outputs

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A Process View
External environment
Internal and external customers

Inputs Workers Managers Equipment Facilities Materials Land Energy

Processes and operations 1 3 5

Outputs Goods Services

Information on performance
Figure 1.2
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A Process View

More like a manufacturing process

More like a service process

Physical, durable output Output can be inventoried Low customer contact Long response time Capital intensive Quality easily measured

Intangible, perishable output Output cannot be inventoried High customer contact Short response time Labor intensive Quality not easily measured

Figure 1.3
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The Supply Chain View

Support Processes

External suppliers

New service/ product development

Customer relationship management

External customers

Supplier relationship process

Order fulfillment process

Figure 1.4
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The Supply Chain View

Core processes are sets of activities that deliver value to external customers
1. Supplier relationship process 2. New service/product development process

3. Order fulfillment process

4. Customer relationship process

Support processes provide vital resources and inputs to the core processes

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Support Processes
TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES
The provision of financial resources for the organization to do its work and to execute its strategy The process of deciding how funds will be allocated over a period of time The acquisition of people to do the work of the organization The assessment and payment of people for the work and value they provide to the company The preparation of people for their current jobs and future skills and knowledge needs The processes that ensure that the company is meeting all laws and legal obligations The movement and processing of data and information to expedite business operations and decisions The systems and activities that provide strategic direction and ensure effective execution of the work of the business Capital acquisition

Budgeting Recruitment and hiring Evaluation and compensation

Human resource support and development Regulatory compliance Information systems

Enterprise and functional management

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Operations Strategy
Specifies the means by which operations implements corporate strategy and helps build a customer-driven firm Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization's functions

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Operations Strategy
Corporate Strategy Environmental scanning Core competencies Core processes Global strategies
Market Analysis Market segmentation Needs assessment Competitive Priorities Cost Quality Time Flexibility New Service/ Product Development Design Analysis Development Full launch Yes Operations Strategy Competitive Capabilities Current Needed Planned
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No Performance Gap?

Decisions Managing processes Managing supply chains

Figure 1.5

Corporate Strategy
Environmental scanning

Developing core competencies

1. Workforce 2. Facilities

3. Market and financial know-how

4. Systems and technologies

Developing core processes Global strategies

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Market Analysis
Market segmentation Needs assessment
Service

or product needs

Delivery Volume Other

system needs

needs

needs

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Competitive Priorities
TABLE 1.2 COST 1. Low-cost operations QUALITY 2. Top quality Delivering an outstanding service or product Producing services or products that meet design specifications on a consistent basis Quickly filling a customers order Meeting delivery-time promises Quickly introducing a new science or a product May require a high level of customer contact and may require superior product features Processes designed and monitored to reduce errors and prevent defects Ferrari | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES Definition Delivering a service or a product at the lowest possible cost Process Considerations Processes must be designed and operated to make them efficient Example Costco

3. Consistent quality

McDonalds

TIME 4. Delivery speed 5. On-time delivery 6. Development speed Design processes to reduce lead time Planning processes to increase percent of customer orders shipped when promised Cross-functional integration and involvement of critical external suppliers Dell United Parcel Service (UPS) Li & Fung

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Competitive Priorities
TABLE 1.2 FLEXIBILITY 7. Customization | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES Definition Satisfying the unique needs of each customer by changing service or products designs Handling a wide assortment of services or products efficiently Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand Process Considerations Low volume, close customer contact, and easily reconfigured Example Ritz Carlton

8. Variety

Capable of larger volumes than processes supporting customization Processes must be designed for excess capacity

Amazon.com

9. Volume flexibility

The United States Postal Service (USPS)

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Order Winners and Qualifiers

Order Winner

Sales ($)

Order Qualifier

Low

High

Achievement of competitive priority

Sales ($) Low

Threshold

High

Achievement of competitive priority Figure 1.6

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Using Competitive Priorities

At an airline
Customer relationship
Top

quality

Consistent
Delivery Variety

quality

speed

New service development

Development

speed

Customization Top

quality
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Using Competitive Priorities

At an airline
Order fulfillment
Low-cost

operations Top quality Consistent quality On-time delivery Variety

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Using Competitive Priorities

At an airline
Supplier relationship
Low-cost

operations Consistent quality On-time delivery Variety Volume flexibility

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Operations Strategy
TABLE 1.3 | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS Measure Capability Gap Action Competitive Priority Low-cost operations

Cost per billing statement Weekly postage Percent errors in bill information Percent errors in posting payments Lead time to process merchant payments Utilization

$0.0813

Target is $0.06 Target is $14,000 Acceptable

Eliminate microfilming and storage of billing statements Develop Web-base process for posting bills No action

$17,000 0.90%

Consistent quality

0.74%

Acceptable

No action

Delivery speed

48 hours

Acceptable

No action

Volume flexibility

98%

Too high to support rapid increase in volumes

Acquire temporary employees

Improve work methods

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Trends in Operations Management

Productivity improvement Global competition Ethical, workforce, and environmental issues

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Productivity Improvement

Value of Input resources : wages, cost of equipment, and so on Value of Outputs : Services and Products

Labor productivity

Output per person or per hour worked

Machine productivity

Output per number of machine

Multifactor productivity

Output provided by more than one of the resources

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Productivity Improvement

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Productivity Improvement

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OM as a Set of Decisions
COMPETING WITH OPERATIONS

In practice, managers make strategic and tactical decisions

1. Each part of the organization designs and operates processes 2. Each function is connected through shared resources

Using Operations to Compete Managing Effective Projects

DESIGNING AND MANAGING PROCESSES

Developing a Process Strategy Analyzing Processes Managing Quality Planning Capacity Managing Process Constraints Designing Lean Systems DESIGNING AND MANAGING SUPLY CHAINS

Designing Effective Supply Chains Integrating the Supply Chain Locating Facilities Managing Inventories Forecasting Demand Planning and Scheduling Operations Planning Sufficient Resources

Figure 1.7
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Challenges in OM
Part 1: Competing with operations Part 2: Designing and managing processes Part 3: Designing and managing supply chains

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Solved Problem 1

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Solved Problem 1

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Solved Problem 2
Natalie Attire makes fashionable garments. During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were seconds (meaning that they were flawed).

Seconds are sold for $90 each at Attires Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each.
What is the labor productivity ratio of this manufacturing process?

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Solved Problem 2
SOLUTION
Value of output = (52 defective 90/defective) + (80 garments 200/garment)
= $20,680

Labor hours of input = 360 hours

Labor productivity = Output = $20,680 360 hours

Input

= $57.44 in sales per hour

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