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. 14
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 15
A Process View External environment Internal and external customers Inputs Workers Managers Equipment Facilities Materials Land Energy
Outputs Goods Services
Processes and operations 1
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Information on performance Figure 1.2 16
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 17
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 18
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 19
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 1 11
Market Analysis Market segmentation Needs assessment Competitive Priorities Cost Quality Time Flexibility New Service/ Product Development Design Analysis Development Full launch
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 1 14
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 1 18
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.
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 =
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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