QSO 600 Operations Management

Winter 2011

Manchester, Tuesdays 6PM – 9:15PM

Instructor
Suman Seethamraju

Welcome !!!
 QSO 600 Operations Management
Winter 2011

Email id: s.seethamraju@snhu.edu

Office hours: 5 – 6 PM Tuesdays or by
appointment

Text: Krajewski, Ritzman & Malhotra,

Operations Management,
Pearson Prentice Hall, Ninth
Edition, 2010
ISBN: 0-13-606576-X
Website: www.blackboard.com
QSO 600 Operations Management
Winter 2011

Competing with Operations

Text book Ref: Chapter 1

 QSO 600 Operations Management

Operations :

Transformation Processes
Inputs Outputs
(Adding value)

Operations Management:
“The systematic design, direction and control
of processes that transform inputs into
outputs for internal, as well as external,
customers.”
 Operations
External environment

Internal and external

customers

Inputs Outputs
Processes and
• Workers • Goods
operations
• Managers • Services
• Equipment 1 3
• Facilities
5
• Materials
• Land 2 4
• Energy

Information on
performance
 Process View
Manufacturing vs. Service Processes
Key differences:
(1) Nature of output (2) Degree of customer contact

Goods Production Service Production

■ Tangible
■ Can be inventoried
■ Low customer contact
■ Capital Intensive
■ Quality easily measured
■ Intangible
■ Can’t be inventoried
■ High customer contact
■ Labor Intensive
■ Quality hard to measure

Most firms provide both goods and services.

 The Supply Chain View
Supply chain – interrelated processes within a firm and across different firms that
produce a service or product to the satisfaction of the customers. All the parties
involved directly or indirectly are members of the supply chain.

Support Processes

New
Customer

External customers
service/
External suppliers

product relationship
development management

Supplier Order
relationship fulfillment
process process
 Core Processes & Support Processes
■ Core processes deliver value to external customers.

■ Support processes provide vital inputs for the core

processes.
 Core Processes vs. Support Processes

Sales &
Order Arrives
Marketing

Order Entry Support Processes: Accounts

Receivable
Cycle Capital Acquisition Cycle
Budgeting
Recruitment & hiring
Human Resource Support
& development
Procurement Distribution
Information Systems
Cycle Cycle

Packing &
Production
Shipping
Cycle
Cycle
 The Supply Chain View

■ Value chains : Core processes + Support Processes

together form the value chain.

■ Role of a successful operations manager lies in identifying

the processes that add value to the firm
 Competitive Advantage

Transformation Processes
Inputs Outputs
(Adding value)

Effective & Efficient

How to measure effectiveness of operations?

– Productivity
• It is the value of outputs (services and products)
produced, divided by the value of input
resources(wages, costs of equipment, etc.)
Output
Productivity =
Input
 Establishing Competitive Advantage - Strategy
■ Differentiate your products.

■ No, nothing's unique anymore; just slash your costs.

■ Sorry, everyone's doing that. Invent new markets

instead.

■ Get real, -- it all comes down to squashing your

competitors like bugs

■ Hug your customers, that's the ticket!

 Real World Examples
■Niche in the market
Dell (online PCs), Wal-Mart, Intel (chip technology), Home-Depot
Microsoft (software applications) , e-bay (online auctions)
Hoover (vacuum cleaners), Google (No.1 search engine)
■Product Quality
–IBM, Microsoft, Toyota, Google, Starbucks

■Product Cost
–Dell, Wal-Mart, Costco, BJs

■Customized Product
–Build-a-bear, Dell, Land’s End

■ Customer satisfaction
Caterpillar (No.1 in the heavy equipment business)
•Will ship spare parts to customers anywhere in the world in just 24 hours
FedEx (fast, on time deliveries, low cost, online shipment tracking)
 Progressive Insurance

■ Grew from $1.3 billion to $11 billion in 13 years.

■ How did they do it?
■ Operational Innovation (Designing new processes)
– Immediate Response Claims Handling (24 hours a day).
– Streamlined claims processing, from 7-10 days to 9 hours.
– Web site for agents only.
– Web site for customer information, inquiries and routine processing.
– Agents quickly go to scene of accident.
 Corporate Strategy & Operations Strategy
■ Corporate Strategy is concerned with a firm’s choice of
business, markets and activities.
It defines the overall scope and direction of business

■ Operations Strategy can be defined as a set of

strategic & tactical decisions that support Corporate
Strategy.
 Strategic & Tactical Decisions
Strategic Decisions
Strategic decisions are macro oriented with an emphasis on the big
picture, long term goals and objectives, usually in 3 to 5 year
increments
■ Development of new capabilities
■ Maintenance of existing capabilities
■ Design of new processes
■ Development and organization of value chains
■ Key performance measures

Tactical Decisions
Tactical decisions are micro oriented with a focus on short term goals, usually
in 1 to 18 month time frames
– Process improvement and performance measures
– Management and planning of projects
– Generation of production and staffing plans
– Inventory management
– Resource scheduling
 Corporate Objective/ Mission Statement
Establish Starbucks as the premier purveyor of the
finest coffee in the world
Operations Strategy
Choice of exotic coffees, lattes, cappuccino or espresso
Started as a 17 store Seattle Chain
Had 9571 outlets in 28 countries in 2005
A variety of specialized products and services, such as Internet access, phone
ahead ordering, and CD burning, all in a socially interactive atmosphere.
Cluster stores in a good market to increase total revenue & market share (124
Starbucks stores in 24 sq. miles of Manhattan !)

http://www.mhhe.com/business/management/thompson/11e/case/starbucks.htm
l
Corporate Objective/ Mission Statement
Be the most successful computer company in the world at delivering the
best customer experience in markets we serve

 Customer experience: reliable, inexpensive product & short lead times

Operations Strategy
 Cost savings by eliminating retailers & supplying directly to customers

 Redesigned the customer relationship process with the use of

Information Technology (online order placement/ entry & tracking)
 Redesigned the supplier relationship process (close physical proximity
& immediate access to information)
 Highly customized product
Corporate Objective/ Mission Statement
Give ordinary people a chance to buy the same thing as rich people

 Reputation for value for money, convenience and a wide range of products all in
one store

Operations Strategy
 Dedicated international logistics system supported by Information
Technology (for example, it can see how individual products are performing
country wide, store by store at a glance)
 Efficient procurement process supported by IT
 A focused strategy in place for human resource management &
development
 Developing a Corporate Strategy
■ Developing a corporate strategy involves four considerations:

1. Environmental scanning:
Monitoring and adapting to the environment (i.e. industry,
the market place and society)
Example: car manufacturers design cars that use hydrogen or
electric power considering dwindling oil reserves

2. Identifying and developing core competencies:

Core competencies are unique resources and strengths of
an organization which include
– A well-trained and flexible Workforce
– Having well-located & flexible Facilities
– Having Market and Financial Know-How.
– Expertise in Systems and Technology.
 Developing a Corporate Strategy Contd…

3. Developing the firm’s core processes:

The core competencies should determine the firm’s core
processes.
– These can include customer relations, new service/product development,
order fulfillment, and supplier relationships.
– A firm may have all of these or focus on a subset of them, as determined by
its core competencies.
Example: In the credit card business, some companies
specialize in finding customers and maintaining relationships
with them

4. Global Strategies:
Includes buying services or entering foreign markets
– Strategic alliances: Collaborative efforts, Joint ventures, Technology
licensing
– Locating abroad
Arriving at Competitive priorities

Corporate Strategy
• environmental scanning
• core competencies
• core processes
• global strategies

Market analysis
• segmentation
• needs analysis

Competitive priorities
• cost
• quality
• time
• flexibility
 Competitive Priorities
The critical dimensions that a process or value chain
must possess to satisfy its internal or external customers,
both now and in future

Cost 1. Low-cost operations

Quality 2. Top quality
3. Consistent quality
Time 4. Delivery speed
5. On-time delivery
6. Development speed
Flexibility 7. Customization
8. Variety
9. Volume flexibility
 Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE
PRIORITIES
COST Definition Process Considerations Example
1. Low-cost Delivering a service or a Processes must be designed and Costco
operations product at the lowest possible operated to make them efficient
cost
QUALITY
2. Top quality Delivering an outstanding May require a high level of customer Ferrari
service or product contact and may require superior
product features
3. Consistent quality Producing services or products Processes designed and monitored to McDonald’s
that meet design specifications reduce errors and prevent defects
on a consistent basis

TIME
4. Delivery speed Quickly filling a customer’s Design processes to reduce lead time Dell
order
5. On-time delivery Meeting delivery-time promises Planning processes to increase percent of United Parcel Service
customer orders shipped when promised (UPS)

6. Development speed Quickly introducing a new Cross-functional integration and Li & Fung
science or a product involvement of critical external suppliers
 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 Low volume, close customer contact, and Ritz Carlton
each customer by changing easily reconfigured
service or products designs

8. Variety Handling a wide assortment of Capable of larger volumes than Amazon.com

services or products efficiently processes supporting customization

9. Volume flexibility Accelerating or decelerating Processes must be designed for excess The United States
the rate of production of capacity Postal Service (USPS)
service or products quickly to
handle large fluctuations in
demand
Competing on Capabilities
■ In today's dynamic business environment, strategy too
must become dynamic.
■ The essence of strategy is not the structure of a company's
products but the dynamics of its behavior.
■ To succeed, a company must weave its key business
processes into hard-to-imitate strategic capabilities that
distinguish it from its competitors.
■ A capability is a set of business processes understood
strategically. While such capabilities are collective and
cross-functional, they must be built and managed by the
CEO.
 Corporate Strategy and Key Operations
Management Decisions
Corporate strategy

Market analysis

Competitive priorities

No

Performance
Gap?
Yes
Operations strategy

Decisions Capabilities
• Managing Processes
• Managing Value Chains
 Matching Capabilities to Priorities
The table below shows how a credit card division matched their
capabilities to their priorities and uncovered gaps in their
operating strategy.
 Challenges in Operations Management

■ Global Competition

■ Rapid Technological changes

■ Work force diversity

■ Environmental impact issues

 Productivity Calculation
Example 1.1

1. Single factor
Three employees process 600 insurance
policies in a week. They work 8 hours per day,
5 days per week. Calculate the productivity in
policies per hour.

Policies Processed
Labor productivity =
Employee Hours

600 Policies
= (3 Employees) (40 hours/employee) = 5 policies/hr
 Productivity Calculation
Example 1.1 Continued…

2. Multifactor
A team of workers makes 400 units of a product,
valued by its standard cost of $10 each (before
markups for other expenses and profit). The
accounting department reports that the actual costs
are $400 for labor, $1,000 for materials, and $300 for
overhead. Calculate the productivity.

Quality at standard cost

Multifactor productivity = Labor cost + Materials Cost + Overhead cost

(400 units) ($10/unit) $4,000

= = = 2.35
$400 + $1000 + $300 1,700
Learning activity for the week

■ Read the case at the end of Chapter 1

– Chad’s Creative Concepts

■ Open discussion on the questions next week

■ No report or presentation required !