Operations and Supply Chain Management

MGMT 3306

Lecture 01

Instructor: Dr. Yan Qin

Outline – Week 1

Course overview

◦Topics to be covered

◦Assessment items

Operations and Supply Chain Management (O&SCM)

◦What is OSCM

◦Services Vs. Goods

◦Efficiency Vs. Effectiveness

◦Productivity Measurement

◦Operations Strategies

Topics to cover in this course

Global Operations Strategy

Project Management

Quality Management

Statistical Process Control

Demand Management and Forecasting

Inventory Management

Location Strategy

Decision Making Tools

Grading scale

Your letter grade is determined using the grade distribution that follows. You can calculate your percentage grade at any time in the semester by dividing the points you have accrued by the total points available up to that point. This percentage is then matched to a letter grade.

A 90% or higher

B 80 to 89%

C 70 to 79%

D 60 to 69%

F Less than 60%

Course Assessment

Grade breakdown

◦ Class Participation 10%

◦ Individual Assignments 20%

◦ Two Exams 70%

* Please refer to the tentative class schedule for the post and due dates of each individual assignments.

Class participation

Class discussion will be held on the Forum (used to be called Discussion Board in Vista 8) in the Learn 9 system. A set of 2-4 new questions will be posted each week with their end dates stated. For each set of questions, you are expected to answer at least one of the initial questions and reply to at least one of your classmates responses for full credit.

Detailed netiquette rules you are expected to follow are available on the Discussion Forum of Week 1.

Assignments and Exams

Individual Assignments

◦ There are 4 individual assignments in total. Each assignment consists of problem-solving questions and essay questions about the topics covered in class. Each assignment accounts for 5% of the final grade.

Two Exams

◦ There will be two non-cumulative exams in total. Each accounts for 35% of the final grade. The exams will be individual, timed, and open-book/notes. Only multiple-choice questions will be given on the exams.

Contact information

Course Website: https://www.uhv.edu/elearning/login.aspx

Email: qiny@uhv.edu or via “Messages” function in Learn 9

My Office: Room 338, Brazos Hall, UHSSL

Office Hours: 4:00 pm – 5:00 pm on Tuesdays or by appointment (You can either drop by my office in Brazos Hall or meet me online at: https://meetonline.uhv.edu/su15oscm/)

Office Phone number: 832-842-2958

For technical questions about Learn 9, please email our online support technicians at bustechhelp@uhv.edu .

What is OSCM

Operations include all the activities that relate to the creation of good and services through the transformation of inputs to outputs.

Operations Management (OM) refers to the management of Operations activities to ensure the efficient utilization of all kinds of resources in meeting customer expectations.

Supply Chain Management (SCM) deals with the management of materials, information, and financial flows in a network consisting of suppliers, manufacturers, distributors, and customers.

Example: OSCM Activities in a Commercial Bank

Commercial Bank

Operations:Teller schedulingCheck ClearingCollectionTransaction ProcessingFacility Layout/designVault OperationsMaintenanceSecurity

Finance:InvestmentSecuritiesReal estate

Marketing:Loans Commercial Industrial Financial Personal MortgageAccountin

g

Auditing Trust Department

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Example: OSCM Activities in a Manufacturing Organization

Manufacturing

Operations:Facilities Construction; MaintenanceProduction and Inventory ControlQuality assurance and controlSupply Chain ManagementProduct DesignIndustrial Engineering Efficient use of machine, spaceProcess analysis

Finance:Disbursements/credits Accounts receivable Accounts payableFunds ManagementCapital requirements Stock issue Bond issue and recall

Marketing:Sales promotionAdvertisingSalesMarket research

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OM’s Transformation Role

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Inputs are transformed into Goods and Services via OSCM activities.

Differences between Services and GoodsAttributes of Goods Attributes of Services

Tangible product Intangible product

Product can be resold. Reselling a service is unusual.

Product can be inventoried.

Many services cannot be inventoried.

Some aspects of quality are measurable.

Many aspects of quality are difficult to measure.

Selling is distinct from production.

Selling is often a part of the service.

Product is transportable.

Provider, not product, is often transportable.

Site of facility is important for cost.

Site of facility is important for customer contact.

Often easy to automate.

Service is often difficult to automate.

Goods – Services Continuum

In reality, almost all services and goods are a mixture of a service and a tangible product.

“We need to have things done efficiently and effectively!” said your supervisor one day. But what does this mean?

Efficient Vs. Effective Operations

◦Efficiency: Doing something at the lowest possible cost.

◦Effectiveness: Doing the right things to create the most value for the company.

Now you know that 4 situations can happen to you:

Efficient but Ineffective

Inefficient but

Effective

Efficient and Effective

Inefficient and

Ineffective

Efficient Vs. Effective Operations

From: http://optimaltraining.typepad.com/blog/effectiveness/

The 10 major OM decisions

Ten Decision Areas Sample Issues

Design of goods and services

What good or service should we offer?

Managing quality How do we define the quality?

Process and capacity What process and what capacity will these products require?

Location strategy Where should we put the facilities?

Layout strategy How should we arrange the facilities?

Human resources and job design

How do we provide a reasonable work environment?

Supply chain management

Should we make or buy this component?

Inventory, material requirements planning, and JIT

How much inventory of item should we have? When do we reorder?

Intermediate and short-term scheduling

Are we better off keeping people on the payroll during slowdowns?

Maintenance Who is responsible for maintenance?

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Productivity Measures

Productivity is a measure of efficiency.

It shows how well a country, industry, or business unit is using its resources (or factors of production).

Formula:

Productivity = outputs / inputs

Three types of productivity measures

There are three types of productivity measures:

◦ Partial: Exactly one input is considered in measuring productivity

◦ Multifactor: More than one input but not all inputs are included when measuring productivity.

◦ Total: All the inputs are included when measuring productivity.

Note that when one than one input is used to calculate productivity, the inputs should be measured by the same unit. (More details will be provided in the following.)

Example: Partial measures

According to the 2006 edition of the Harbour Report on North American auto-factory productivity

GM : 33.19 labor hrs to build 1 vehicle

Honda: 41 minutes less than GM

Nissan: 500 autos with 14,230 labor hrs

Question 1: If GM’s labor productivity in year 2007 was .029 vehicles/ hr, what was GM’s change in labor productivity?

Question 2: How many hours did it take to build a vehicle at GM in year 2007?

Example: Question 1

Answer:

GM’s labor productivity in year 2006 = output / input

= 1/ 33.19

= 0.03 vehicles/hr

GM’s labor productivity in year 2007 = 0.029 (given)

Change in labor productivity = 0.029 -0.03

= - 0.001

Example: Question 2

Answer: GM’s labor productivity in year 2007 =

0.029 vehicle/hr (given)

The number of labor hours it took to

produce a vehicle in year 2007 = vehiclehrshrvehicle

/48.34/029.0

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Example: Multi-factor measures

Suppose an automaker shows the following results:

◦ Output : 500,000 vehicles

◦ Labor = 29.4 hrs/ vehicle at $47/hr

◦ O/H Charge = $327 per Labor hour

◦ Material Cost = $6.5 Billion

Please calculate the multifactor productivity for labor and material together.

Example: Solution - 1

Using the formula for productivity, Multifactor productivity for labor and material

= Output / (Labor cost + Material cost)

(1) Note that in this case we should use labor cost, instead of labor hour, since materials are measured by dollar. Inputs should be measured by the same unit.

(2) The unit of Output can be different from the unit of Input. For example, the output in this example is the number of vehicles produced and the input is the total amount of money put in labor and material.

Example: Solution - 2

The total material cost is $6.5 billion as given. We now need to calculate the total labor cost: Labor = 29.4 hrs per vehicle at $47/hour (given)

Labor cost per vehicle = 29.4 hrs/vehicle * $47/hr

= $1384.8 per vehicle

Output = 500,000 vehicles

Therefore, the total labor cost incurred to produce the 500,000 vehicles = $1384.8 per vehicle * 500,000 vehicles

= $ 0.6909 billion

Example: Solution - 3

Multifactor productivity for labor and material

= Output / (Labor cost + material cost)

= 500,000 vehicles / ($0.6909 billion + $6.5 billion)

= 500,000 vehicles / $7.1909 billion

= 0.000695 vehicle per dollar

Example: Total productivity

Company A received the data below for its rodent cage production unit. Please find the total productivity.

Output Input

50,000 cages

Sales price: $3.50 per unit

Production time

620 labor hours

Wages $7.50 per hour

Raw material cost

$30,000

Component cost

$15,350

Example: Solution

The output here can be either the total number of cages or the total revenue.

Suppose we use total revenue as output in this case.

Then, Total Productivity

= Output / Sum of Inputs (in $)

= Revenue / (labor cost + raw material cost + cost of components)

= (50,000 * $3.5 per unit) / (620* $7.5 per hr + $30,000 + $15,350)

= 3.5

Reasons to Globalize

Reasons why domestic business operations decided to change to some form of international operations:

1. Reduce costs (labor, taxes, tariffs, and etc.)

2. Improve supply chain

3. Provide better goods and services

4. Understand markets

5. Learn to improve operations

6. Attract and retain global talent

Reasons to Globalize

Reduce costs: Foreign locations with lower wage rates can lower direct and indirect costs.

◦ Maquiladoras: Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment.

◦ World Trade Organization (WTO)

◦ North American Free Trade Agreement (NAFTA)

◦ APEC, SEATO, MERCOSUR, CAFTA

◦ European Union (EU)

Reasons to Globalize

Improve the Supply Chain: Locating facilities closer to unique resources, such as Athletic shoe production to China and Perfume manufacturing in France

Provide Better Goods and Services: Some characteristics of goods and services can be subjective and difficult to measure. A local presence permits firms to

1. Have a better understanding of local goods and service requirements ,and

2. Reduce response time to meet customers’ changing requirements.

Reasons to Globalize

Learn to improve operations: Remain open to the free flow of ideas

◦ General Motors partnered with a Japanese auto manufacturer to learn new approaches to production and inventory control

◦ Equipment and layout have been improved using Scandinavian ergonomic competence

Attract and Retain Global Talent

Example: Global Strategies

Benetton – moves inventory to stores around the world faster than its competition by building flexibility into design, production, and distribution

Volvo – considered a Swedish company but until controlled by an American company, Ford, and later on acquired by Geely, a Chinese automaker.

Example: Global Strategies

Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

Boeing – sales and production are worldwide

Haier – A Chinese company, produces compact refrigerators (it has one-third of the US market) and wine cabinets (it has half of the US market) in South Carolina

Concerns when going international

Cultures can be quite different

Attitudes can be quite different towards:

Punctuality

Lunch breaks

Environment

Intellectual property

Thievery

Bribery

Child labor

Concerns when going international

Companies want to consider:

National literacy rate Rate of innovation Rate of technology

change Number of skilled

workers Political stability Product liability laws Export restrictions Variations in language

Work ethic Tax rates Inflation Availability of raw

materials Interest rates Population Number of miles of

highway Phone system

Developing Missions and Strategies

Mission statements tell an organization where it is going

The Strategy tells the organization how to get there

Mission

where are you going?

◦Organization’s purpose for being

◦Answers ‘What do we provide society?’

◦Provides boundaries and focus

Examples of Mission:

Merck: Provide society with superior products and services—innovations and solutions that improve the quality of life and satisfy customer needs—to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return.

Hard Rock Café: To spread the spirit of Rock ’n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

Factors Affecting Mission

Benefit to

Society

Mission

Philosophy and Values

Profitability and Growth

Environment

Customers Public Image

Strategy

Action plan to achieve mission

Functional areas have strategies

Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

Strategies for Competitive Advantage

Competitive advantage implies the creation of a system that has a unique advantage over competitors.

Each of the following strategies provides an opportunity for operations managers to achieve competitive advantage:

1. Competing on Differentiation: Better or at least different

2. Competing on Cost: Cheaper

3. Competing on Response: Rapid Response

Competing on Differentiation

Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value.

Examples of businesses competing on differentiation:

◦ Safeskin gloves – leading edge products

◦ Walt Disney Magic Kingdom – experience differentiation

◦ Hard Rock Cafe – dining experience

Competing on Cost

Provide the maximum value as perceived by customer. Does not imply low quality.

Examples of businesses competing on cost:

◦ Southwest Airlines – secondary airports, no frills service, efficient utilization of equipment

◦ Wal-Mart – small overhead, shrinkage, distribution costs

◦ Franz Colruyt – no bags, low light, no music, doors on freezers

Competing on Response

Response is often considered as flexible response, but it also refers to reliable and quick response.

◦ Flexibility is matching market changes in design innovation and volumes. (ex: A way of life at Hewlett-Packard)

◦ Reliability is meeting schedules (ex: German machine industry)

◦ Timeliness is quickness in design, production, and delivery (ex: Johnson Electric, Pizza Hut, Motorola)

Strategy Development Process

Determine the Corporate Mission

State the reason for the firm’s existence and identify the value it wishes to create.

Form a Strategy

Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-

sale service, broad product lines.

Analyze the EnvironmentIdentify the strengths, weaknesses, opportunities, and threats.

Understand the environment, customers, industry, and competitors.

Figure 2.6

Implement Strategy

The operations manager’s job is a three-step process:

1. Support a Core Competence and implement strategy by identifying and executing the Key Success Factors in the Functional Areas.

2. Build and staff the organization

3. Integrate OM with other strategy

KSFs and Core Competencies

A successful strategy requires determining the firm’s Key success factors (KSFs) and core competencies.

KSFs are those activities that are necessary for a firm to survive in its industry and achieve its goals.

KSFs are often necessary, but not sufficient for competitive advantage.

Core competencies are the set of unique skills, talents, and capabilities that a firm does a world-class standard.

Core competencies allow a firm to set itself apart and develop a competitive advantage.