DSC 2006 Operations Management Semester II, 2012/2013

Lecturer: Lucy G. Chen Office: BIZ 1, #08-60 Phone: 6516-3013 Email: bizcg@nus.edu.sg Consultation: Thu, 4 - 6pm, or by appointment
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Course Administration
Be punctual! Five-minute break. Cell phones should be turned off or silent. Laptops are generally not allowed in class. Class participation attitude, comments, attendance Exams
Closed book, one double sided A4 sheet is allowed Midterm no make-up exam. Please make sure there is no
time conflict.
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Pointers for Success

Communication feel free to talk to me about any issues
that may come up

Foresight and Planning job interview, other courses, etc. Respect policies, people, time Course as a Package course has a number of
dimensions which are expected to accentuate learning

Think Big Picture beyond this semester

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Introduction to Operations Management

What is operations management? Why is operations important? How does operations contribute to a firm? How does operations relate to your interests?

DSC 2006, Operations Management, Lucy Chen

Introduction to Operations Management

What is operations management? Why is operations important? How does operations contribute to a firm? How does operations relate to your interests?

DSC 2006, Operations Management, Lucy Chen

Common Response

Airplane Boarding Strategies

Boarding strategies normally used

First class -> Business class -> Coach class Coach class in groups
back to front (Northwest Airlines) window to aisle (United Airlines) first come, first board (Southwest Airlines)

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Airplane Boarding Strategies

Why does boarding strategy matter?

For an airplane, cutting ground time between flights
from an hour to 40 minutes creates one or two more flights a day! Four to five minutes boarding time savings generate $1 million per year (United Airlines).

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Airplane Boarding Strategies

Reverse pyramid by
America West
Saves boarding time by over
2 minutes (20% saving)

Reverse pyramid

OM tools applied:

Process Analysis Capacity Planning Queuing Analysis Linear Programming

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What is Operations Management?

Management of systems or processes that
create goods and/or provide services.
Manage processes to better match supply and
demand

Restructure operations to improve performance and

remain competitive in the face of ever changing business conditions

Find the right balance between multiple measures of

performance

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The Process View

Value-adding Transformation Process Inputs
(Raw materials
Customers, Resources, etc.) Feedback Feedback

Outputs
(Goods,
Services)

Control

Feedback

Value-added: The difference between the cost of inputs and the value or price of outputs.
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Example: Food Processor

Inputs Raw vegetables Metal sheets Water Energy Labor Building Equipment Processing Cleaning Making cans Cutting Cooking Packing Labeling Outputs Canned vegetables

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Example: Hospital
Inputs Doctors, nurses Hospital Medical supplies Equipment Laboratories Processing Examination Surgery Monitoring Medication Therapy Outputs Healthy patients

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Goods vs. Service

Characteristic
Output Uniformity of output Uniformity of input Labor content Measurement of productivity Customer contact Opportunity to correct quality problems before delivery Inventory Evaluation Patentable

Goods
Tangible High High Low Easy Low High Much Easy Usually

Service
Intangible Low Low High Difficult High Low Little Difficult Not Usually
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Introduction to Operations Management

What is operations management? Why is operations important? What is the role of operations within a firm? How does operations relate to your interests?

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Why is Operations Important?

Importance as a leading economic indicator
Purchasing managers index (PMI) Durable goods orders

50% or more of the jobs in industry are operations-related:

Customer Service Quality Assurance Production Planning Scheduling Inventory Management Logistics

In every company, there is usually an underlying value-adding

product transformation that needs to be well-managed

Operations activities are at the core of all business

organizations.
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Three Major Business Functions

Fulfillment lead time Judgment of manufacturability Financial indicators

Operations

Marketing
Competitor Customer preference Trend of technology

Finance
Budgeting Economic analysis of investment proposals Provision of funds
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Why is Operations Important?

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Introduction to Operations Management

What is operations management? Why is operations important? How does operations contribute to a firm? How does operations relate to your interests?

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The Strategic Role of Ops

A companys operations function is either a competitive weapon or a corporate millstone. It is seldom neutral.
---- C. Wickham Skinner

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The Cold Hard Facts -- Competition

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Dimensions of Competitiveness
Price Quality Time

Flexibility ...

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Order Winners vs. Order Qualifiers

Order Qualifiers
Characteristics that potential customers perceive
as minimum standards

Order Winners
Characteristics of an organizations goods or
services that cause them to be perceived better than the competition

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Order Winners vs. Operational Capability

Price Quality Delivery Lead Time Flexibility

Low cost process High quality process Fast process Flexible process

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A Strategic Framework for Ops

Business Strategy

Desired Capabilities

Processes

Operations Structure

Resources

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Competitive Success through Operations: Wal-Mart

Strong as always as of 2009
$405.6 Billion Revenue (7% increase from 2008) $95 Billion Gross Profit (8% increase from 2008)

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Order Winner
Paris Hilton on Wal-Mart:
"I went to Wal-Mart for the first time. I always thought they sold wallpaper. I didnt realize it has everything. You can get anything you want there for really, really cheap."

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Order Winner
Which store is the best at each of the following aspects?
Wal-Mart Price Selection of products In-stock merchandise Convenience Parking Service 84% 70% 66% 57% 48% 48% K-Mart 6% 5% 5% 14% 14% 6% Target 11% 25% 28% 29% 38% 46%

Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics north America, July 23, 2003
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Wal-Mart
Business Strategy
(Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices

Operations Strategy/Capability Short flow times Low inventory levels

Compatible!
Order Winners Low price Variety Convenience

Operations Structure EDLP (everyday low prices) Fast transportation system Hub & Spoke distribution Cross docking Supplier management, use of technology (e.g., EDI, RFID) Big stores offer economy of scale and variety
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The Romance of
Business Strategy $16.82 Operational Strategies $9.94 $24.96

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More Success through Ops

Southwest Airlines Dell Inc. McDonalds

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Tradeoff of Priorities
Cant Be Good At Everything.
Which store is the best at each of the following aspects? Wal-Mart Quality of products Cleanliness Checkout 44% 30% 40% K-Mart 5% 3% 10% Target 51% 67% 50%

Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics north America, July 23, 2003

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Strategic Tradeoffs
Quality

Low price
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Tradeoffs and Efficient Frontier

Quality

World class
Improvement

Low price
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Tradeoffs and Efficient Frontier

Quality

World class
Improvement

Low price
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Introduction to Operations Management

What is operations management? Why is operations important? How does operations contribute to a firm? How does operations relate to your interests?

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How Does Ops Relate to your Interests?

Consulting Analyzing and improving business processes SCM and use of ERP systems to achieve SC efficiency is a hot topic Problem solving modeling and analysis Finance How healthy is that company? Balance the upside versus the downside risk analysis How do financial objectives relate to operational measures Marketing Sales promotions and their impact on operational performance Level of customization how to achieve it at low cost Order qualifiers and winners Accounting What is the cost of making this product Activity based or time
based Are inventories assets or liabilities?
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Salary of Executives
Chief Executive Officer Chief Operating Officer Chief Financial Officer Chief HR Executive Chief Marketing Executive Chief Purchasing Executive $1,442,640 $812,646 $591,634 $343,501 $333,883 $261,012

Medium Annual Pay (base salary + bonus+ benefit, in USD)

www.salary.com, Jan 2013, New York City
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Todays Takeaways
What is Operations Management about?
Design operations to better match supply with demand. A set of quantitative models and qualitative strategies.

Why is operations important?

Contribute to a companys bottom line Relationship between Ops and marketing, Ops and Finance.

Order winners and order qualifiers Strategic tradeoffs and operations frontier Operational capabilities and structures have to be
compatible with firm strategy
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Assignments
Readings: Chapters 1 & 2 (excluding pages 50-56) Tutorial Questions: Please see IVLE. Experiential Exercises: Select two stores that you shop at
regularly and identify their order winners.

Quiz of the Day: Assume Walmart decides to enter the

Singapore market. What will be the challenges for Walmart as well as the incumbent firms such as NTUC Fairprice, Cold Storage, Sheng Siong, and Giant? Do you think Walmart will succeed?

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