PPT Operations Management n n Systematic direction control

PPT Operations Management n n Systematic direction, control, and evaluation of the entire range of processes that transform inputs into finished goods or services. Environmental factors-culture, political, and market influences Inputs-HR, capital, materials, land, energy, information, customer Transformations-convert inputs into outputs Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT O. M. (cont) n n n Outputs-goods or services, and waste Customer Contact-customers actively participate in transformation processes, self-service Performance Feedback-repair records, customer comments Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Operations Management n Refers to the management of the production system that transforms inputs into finished goods and services. n n n Production system: the way a firm acquires inputs then converts and disposes outputs. Operations managers: responsible for the transformation process from inputs to outputs. Operations management seeks to increase the quality, efficiency, and responsiveness of the firm. n Seeks to provide a competitive advantage. Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Operations Management Concepts n Quality: goods and services that are reliable and perform correctly. n n Efficiency: the amount of input to produce a given output. n n Quality allows customers to receive the performance that they expect. Less input required lowers cost and waste. Responsiveness to customers: actions taken to respond to customer needs. n Firm can react quickly and correctly to customer needs as they arise. Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Differences Between Services and Goods n n n Information Asymmetry Intangible Inventory Customer Contact Response Time Labor Intensity Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT 21. 3 Typical Characteristics of Services and Goods Producers Primarily Service Producers Continuum of Characteristics Primarily Goods Producers Mixed Intangible, nondurable Tangible, durable Output can’t be inventoried Output can be inventoried High customer contact Low customer contact Short response time Long response time Labor intensive Capital intensive Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999 Adapted from Table 21. 1

Positioning Strategies-approach selected for transformational processes many of one product PPT n n Process Focus-layout of plant and equipment around each production unit n n custom made Low Volume Norwegian Ship Building Product Focus-arranging plant and equipment around one or a few output types Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999 n n Intermediate Strategyplant and equipment layout reflects some of both strategies n n n high-volume, highly automated low flexibility Factory Lines batches of products Kinkos, Ball Homes Agile Strategy-mass customization

PPT Flexibility n n n Product Flexibility-speed with which products are created, ability to customize, ability to modify products for special needs Volume Flexibility-ability to respond to sudden changes in demand, change from small to full scale Process Flexibility-ability to manufacture a variety of goods in a short time, adjust to product mix over time, ability to accommodate changes in raw materials Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT 21. 5 Core Positioning Strategies Resource flows Continuous process (stable) Product focus §Auto assembly Mass production Intermediate plant §Mail processing §Garment Large batch Process focus Sporadic (unstable) industry §Branch banks §Space shuttle §Legal practice Custom products, Mixture of custom and standard low volume products, moderate volume Standard products, high volume Product volume Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999 Sources: Adapted from Brown, H. K. , Clark, K. B. , Holloway, C. A. , and Wheelwright, S. C. The Perpetual Enterprise Machine: Seven Keys to Corporate Renewal Through Successful Product and Process Development. New York: Oxford University Press, 1994; Upton, D. M. “The management of manufacturing flexibility. ” California Management Review, Winter 1994, 72– 89. Adapted from Figure 21. 2

PPT Improving Responsiveness to Customers n Without customers, organizations cease to exist. n n n Non-profit and for-profit firms all have customers. Managers need to identify who the customer is and their needs. What do customers want? Usually customers prefer: n n n A lower price to a higher price. High quality over low quality. Fast service over slow service. n n n Also good after sale support. Many features over few features. Products tailored to their specific needs. Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Quality-how well a product does what the customer expects n Internal View-within the organization n External View-value customers expect n Value-the relationship between quality and price Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT 21. 7 Competitiveness Value Map Higher Relative Price Poor value Premium value Average value Economy value Outstanding value Lower Inferior Superior Source: Adapted from Gale, B. T. , and Buzzell, R. D. “Market perceived quality: Key strategic concept. ” Planning Review, March-April, 1989, 10. Relative Quality Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999 Adapted from Figure 21. 3

PPT Price v. Attributes n Firms offering high quality, fast service and other customer desires, often must raise price. n Customers must tradeoff price for attributes. n Operations management tries to push the price/attribute curve to the right with better production. n n Provides more attributes at the same cost. By enhancing the price/attribute relationship, the firm can increase its competitive position. Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Customer Responsive Production Systems n An output’s attributes is determined by the production system. n n Firms must strike a balance between cost and attributes Improving Quality: can apply to firms producing goods and services. n n A firm that provides higher quality than others at the same price is more responsive to customers. Higher quality can also lead to better efficiency. n Lowers waste levels and operating costs. Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Total Quality Management n n The continuous process of ensuring every aspect of production builds in product quality Traditional Quality-product inspection during or at the end of the transformation process Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT 21. 11 Total Versus Traditional Quality Total Quality Management Traditional Quality Control n Quality is a strategic issue n Quality is a tactical issue n Plan for quality n Screen for quality n Quality is everybody’s responsibility n n Strive for zero defects Quality is the responsibility of the quality control department n Quality means conformance to requirements that meet or exceed customers’ expectations n Some mistakes are inevitable n Quality means inspection n Scrap and reworking are the major costs of poor quality n Scrap and reworking are only a small part of the costs of nonconformance Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999 Adapted from Table 21. 3

PPT Improving Efficiency n Labor productivity allows labor comparisons between organizations. n n TQM and Efficiency: TQM can lead to much higher labor productivity. n n Improved efficiency leads to lower costs and better performance. When quality rises, less time is wasted on scrap. Flexible manufacturing and efficiency: reduces the set-up costs for production systems. Facilities layout: seeks to design the machine-worker interface to increase production efficiency. Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Efficient Manufacturing n Most firms face major expense when setting up to produce a product. n These costs must be paid before production begins. n n n The more often products to be built change, the higher setup costs become. Flexible Manufacturing reduces setup costs. Just-in-Time (JIT) inventory, while developed for TQM, also adds to efficient production. n Many costs are reduced including warehousing, holding costs and inventory tracking. n Firm does not have a supply of parts, but can be vulnerable to strikes or supply problems. Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Efficient Manufacturing n Self-managed teams boost efficiency by allowing for a flatter organization structure. n n n The team takes the role of the supervisor. Teams working together often become very skilled at enhancing productivity. Kaizen: Japanese term for a management philosophy the stresses the need for continuous improvement. n n Better operations can come from many, small, continuous improvements. Focus on what adds value to the product and try to eliminate steps that do not add value (such as inspection for defects). Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Reengineering n Process Reengineering: the fundamental rethinking and radical redesign of the business process. n n n Can boost efficiency by directing efforts to activities that add value to the good or service produced. While Kaizen focuses on continuous enhancements, process reengineering considers wholesale change. Top managers must support operations enhancement tools for them to be accepted by workers. n n Usually, a successful operations change means a complete change in the organizational culture. Without a supporting culture, change will not succeed. Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT 21. 4 Nine Categories of Operations Management Decisions n n n n n Product plans Competitive Priorities Positioning Strategies Location Technological Choices Quality management and control Inventory management and control Materials Management Master production scheduling Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Inventory Costs n n What contributes to inventory costs? TOTAL COST = ORDERING + CARRYING n Carrying Costs n n n Warehouse Insurance Obsolescence taxes breakage Ordering Costs Placing the order n Transportation n Shortage Hellriegel, Jackson, and Slocum n MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT Inventory Terms n Lead Time n n EOQ-economic order cost n n Elapsed time between placing and receiving an order optimum order quantity yielding the lowest total inventory cost Just-in-time n n n finished goods to sell sub assemblies to be assembled purchases of raw materials to be transformed Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999

PPT 21. 13 Cost Trade-Offs in Determining Inventory Levels High Average annual cost ($) Total cost Carrying cost Order cost Low Small Hellriegel, Jackson, and Slocum MANAGEMENT, 8 E South-Western College Publishing Copyright © 1999 Q 1 Quantity (Q) Large Adapted from Figure 21. 5