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COMPETING WITH
OPERATIONS

Dr. Asil Oztekin


UMass Lowell
Manning School of Business
Operations & Information Systems
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 internal, as
well as external customers

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Processes vs. operations


Process: any activity or group of activities
that takes one or more inputs, transforms
them, and provide one or more outputs for
its customers.
Operation: a group of resources
performing all or part of one or more
processes.

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Supply Chain & Supply Chain


Management (SCM)
Processes can be linked together to form a
supply chain interrelated processes
within a firm and across different firms that
produce a service or product to the
satisfaction of the customers (also value
chain)

SCM: supply chain management is the


synchronization of a firms processes with
those of its suppliers and customers to
match the flow of materials, services, and
information with the customer demand.
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Across the Organization


Finance
Acquires financial
resources and capital
for inputs

Material &
Service Inputs

Sales
Revenue
Support Functions

Operations

Accounting
Information Systems
Human Resources
Engineering

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

Outputs
Goods
Services

Processes and
operations
1

3
5

Information on
performance
Figure 1.2
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Service vs. Manufacturing Processes


Nature of the outputs
The degree of customer contact

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

Figure 1.3

1.
2.
3.
4.
5.

Intangible, perishable output


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

Physical properties
Shape
Size
Surface finish
Joining parts and materials
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The Supply Chain View

New
service/
product
development

Supplier
relationship
process

Customer
relationship
management

Order
fulfillment
process

External customers

External suppliers

Support Processes

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

Capital acquisition

The provision of financial resources for the


organization to do its work and to execute its
strategy

Budgeting

The process of deciding how funds will be


allocated over a period of time

Recruitment and hiring

The acquisition of people to do the work of


the organization

Evaluation and compensation

The assessment and payment of people for


the work and value they provide to the
company

Human resource support and development

The preparation of people for their current


jobs and future skills and knowledge needs

Regulatory compliance

The processes that ensure that the company


is meeting all laws and legal obligations

Information systems

The movement and processing of data and


information to expedite business operations
and decisions

Enterprise and functional management

The systems and activities that provide


strategic direction and ensure effective
execution of the work of the business

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Operations Strategy
Specifies the means by which operations
implements corporate strategy and helps
build a customer-driven firm

It links long- and short-term operations


decisions to corporate strategy and
develops the capabilities firm needs to be
competitive
OS is the linchpin supply chain-beyond
the walls of the firm
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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

No

Yes

Performance
Gap?

Operations Strategy

Decisions
Managing processes
Managing supply chains

Competitive Capabilities
Current
Needed
Planned

Figure 1.5
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Corporate Strategy

Corporate strategy provides an overall direction


that serves as the framework for carrying out all
the organization's functions

Environmental scanning: monitoring and


adjusting to changes in business world

Developing core competencies: unique


resources/strengths

1.

Workforce: well-trained and flexible quick response in service

2.

Facilities: well-located, volume- and variety-flexible, less lead time

3.

Market and financial know-how

4.

Systems and technologies: IS, internet tech, patents,

Developing core processes: competitiveness?

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Corporate Strategy-contd.
Global strategies: strategic alliance or
locating abroad
Strategic alliances:
1. Collaborative effort: one firm has core
competencies that other one is unable to
do (buyer-supplier)

2. Joint venture: agree to produce jointly e.g.


GM an VW did with SAIC in China
3. Technology licensing: license production
methods to another company
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Market Analysis
1st step: Market segmentation:
-identify

groups of customers with


enough in common to warrant the design
of products

-the

characteristics to differentiate each


segment

-sound

marketing and OS to support

2nd step: Needs assessment


Service

or product needs: price, quality

Delivery
Volume
Other

system needs: speed, safety

needs: variability, predictability

needs: reputation, after-sale suport


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Competitive Priorities&Capabilities
TABLE 1.2

DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE


PRIORITIES

COST

Definition

Process Considerations

Example

1. Low-cost
operations

Delivering a service or a
product at the lowest
possible cost

Processes must be designed and


operated to make them efficient

Costco

2. Top quality

Delivering an outstanding
service or product

May require a high level of


customer contact and may require
superior product features

Ferrari

3. Consistent
quality

Producing services or
products that meet design
specifications on a
consistent basis

Processes designed and


monitored to reduce errors and
prevent defects

McDonalds

4. Delivery speed

Quickly filling a
customers order

Design processes to reduce lead


time

Dell

5. On-time
delivery

Meeting delivery-time
promises

Planning processes to increase


percent of customer orders
shipped when promised

United Parcel
Service (UPS)

6. Development
speed

Quickly introducing a new


science or a product

Cross-functional integration and


involvement of critical external
suppliers

Li & Fung

QUALITY

TIME

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Competitive Priorities
TABLE 1.2

DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE


PRIORITIES

FLEXIBILITY

Definition

Process Considerations

Example

7. Customization

Satisfying the unique


needs of each customer
by changing service or
products designs

Low volume, close customer


contact, and easily reconfigured

Ritz Carlton

8. Variety

Handling a wide
assortment of services or
products efficiently

Capable of larger volumes than


processes supporting
customization

Amazon.com

9. Volume
flexibility

Accelerating or
decelerating the rate of
production of service or
products quickly to
handle large fluctuations
in demand

Processes must be designed for


excess capacity

The United States


Postal Service
(USPS)

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Order Winners and Qualifiers

Sales ($)

Order Winner

Low

High

Achievement of competitive priority

Sales ($)

Order Qualifier

Low

Threshold

High

Achievement of competitive priority


Figure 1.6
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Operations Strategy
TABLE 1.3

OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS

Competitive Priority

Measure

Capability

Gap

Action

Low-cost operations

$0.0813

$17,000

0.90%

Acceptable

No action

0.74%

Acceptable

No action

48 hours

Acceptable

No action

98%

Consistent quality

Delivery speed

Volume flexibility

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

Target is
$0.06
Target is
$14,000

Too high to
support
rapid
increase in
volumes

Eliminate microfilming and


storage of billing statements
Develop Web-base process for
posting bills

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 types
Labor productivity: An index of the output
per person or per hour worked aka
machine productivity
Multifactor productivity: an index of the
output provided by more than one of the
resources used in the production e.g. the
value of the output divided by the sum of
labor, materials, overhead costs.

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Productivity Improvement
EXAMPLE 1.1

Calculate the productivity for the following operations:


a. Three employees process 600 insurance policies in a week.
They work 8 hours per day, 5 days per week.

SOLUTION

Policies processed
a. Labor productivity =
Employee hours
600 policies
=
= 5 policies/hour
(3 employees)(40 hours/employee)

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Productivity Improvement
EXAMPLE 1.1

Calculate the productivity for the following operations:


b. A team of workers makes 400 units of a product, which is
sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.
SOLUTION
Value of output
a. Multifactor productivity =
Labor cost + Materials cost
+ Overhead cost
=

(400 units)($10/unit)
$4,000
=
= 2.35
$400 + $1,000 + $300
$1,700
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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

Output
$20,680
Labor productivity =
=
Input
360 hours
= $57.44 in sales per hour

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