Operations Management Chapter 1 Operations and Productivity.
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Transcript of Operations Management Chapter 1 Operations and Productivity.
Operations Management
Chapter 1
Operations and Productivity
OutlineOutline
Global Company Profile: Hard Rock Global Company Profile: Hard Rock CafeCafe
What Is Operations Management?What Is Operations Management?
Organizing To Produce Goods And Organizing To Produce Goods And Services Services
Why Study OM?Why Study OM?
What Operations Managers DoWhat Operations Managers Do
Outline - ContinuedOutline - Continued
The Heritage Of Operations The Heritage Of Operations ManagementManagement
Operations In The Service SectorOperations In The Service Sector Differences Between Goods And Differences Between Goods And
ServicesServices
Exciting New Trends In Operations Exciting New Trends In Operations
Ethics And Social Responsibility Ethics And Social Responsibility ManagementManagement
What Is Operations What Is Operations Management?Management?
ProductionProduction is the creation of is the creation of goods and servicesgoods and services
Operations management (OM)Operations management (OM) is the set of activities that is the set of activities that
creates value in the form of creates value in the form of goods and services by goods and services by
transforming inputs into transforming inputs into outputsoutputs
Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services
Essential functions:Essential functions: Marketing – generates demandMarketing – generates demand
Production/operations – creates Production/operations – creates the productthe product
Finance/accounting – tracks how Finance/accounting – tracks how well the organization is doing, pays well the organization is doing, pays bills, collects the moneybills, collects the money
OperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurity
FinanceInvestmentsSecurityReal estate
Accounting
Auditing
MarketingLoans Commercial Industrial Financial Personal Mortgage
Trust Department
Commercial Bank
OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science
Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange
Airline
MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising
MarketingSales promotionAdvertisingSalesMarket research
OperationsFacilities Construction; maintenance
Production and inventory control Scheduling; materials control
Quality assurance and controlSupply-chain managementManufacturing Tooling; fabrication; assembly
Design Product development and design Detailed product specifications
Industrial engineering Efficient use of machines, space, and personnel
Process analysis Development and installation of production tools and equipment
Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall
Manufacturing
Why Study OM?Why Study OM?
OM is one of three major functions OM is one of three major functions (marketing, finance, and operations) (marketing, finance, and operations) of any organizationof any organization
We want to know how goods and We want to know how goods and services are producedservices are produced
We want to understand what We want to understand what operations managers dooperations managers do
OM is such a costly part of an OM is such a costly part of an organizationorganization
Options for Increasing Options for Increasing ContributionContribution
SalesSales $100,000$100,000 $150,000$150,000 $100,000$100,000 $100,000$100,000
Cost of Goods Cost of Goods – 80,000– 80,000 – 120,000– 120,000 – 80,000– 80,000 – 64,000– 64,000
Gross MarginGross Margin 20,00020,000 30,00030,000 20,00020,000 36,00036,000
Finance CostsFinance Costs – 6,000– 6,000 – 6,000 – 6,000 – 3,000– 3,000 – 6,000– 6,000
SubtotalSubtotal 14,00014,000 24,00024,000 17,00017,000 30,00030,000
Taxes at 25%Taxes at 25% – 3,500– 3,500 – 6,000– 6,000 – 4,250– 4,250 – 7,500– 7,500
ContributionContribution $ 10,500$ 10,500 $ 18,000$ 18,000 $ 12,750$ 12,750 $ 22,500$ 22,500
Finance/Finance/MarketingMarketing AccountingAccounting OMOM
OptionOption OptionOption OptionOption
IncreaseIncrease ReduceReduce ReduceReduceSalesSales FinanceFinance ProductionProduction
CurrentCurrent Revenue 50%Revenue 50% Costs 50%Costs 50% Costs 20%Costs 20%
What Operations What Operations Managers DoManagers Do
PlanningPlanning
OrganizingOrganizing
StaffingStaffing
LeadingLeading
ControllingControlling
Basic Management FunctionsBasic Management Functions
Ten Critical DecisionsTen Critical DecisionsTen Decision AreasTen Decision Areas Chapter(s)Chapter(s)
Service and product designService and product design 55 Quality managementQuality management 66
6 Supplement6 Supplement Process and capacity Process and capacity 77
design design 7 Supplement7 Supplement LocationLocation 88 Layout designLayout design 99 Human resources, Human resources, 1010
job design job design 10 Supplement10 Supplement Supply-chain Supply-chain 1111
management management 11 Supplement11 Supplement Inventory managementInventory management 12, 14, 1612, 14, 16 SchedulingScheduling 13, 1513, 15 MaintenanceMaintenance 1717
Where are the OM Jobs?Where are the OM Jobs?
Where are the OM Jobs?Where are the OM Jobs?
Technology/methodsTechnology/methods Facilities/space utilizationFacilities/space utilization Strategic issuesStrategic issues Response timeResponse time People/team developmentPeople/team development Customer serviceCustomer service QualityQuality Cost reductionCost reduction Inventory reductionInventory reduction Productivity improvementProductivity improvement
Significant Events in OMSignificant Events in OM
Characteristics of GoodsCharacteristics of Goods
Tangible productTangible product
Consistent product Consistent product definitiondefinition
Production usually Production usually separate from separate from consumptionconsumption
Can be inventoriedCan be inventoried
Low customer Low customer interactioninteraction
Characteristics of ServiceCharacteristics of Service Intangible productIntangible product
Produced and Produced and consumed at same timeconsumed at same time
Often uniqueOften unique
High customer High customer interactioninteraction
Inconsistent product Inconsistent product definitiondefinition
Often knowledge-basedOften knowledge-based
Frequently dispersedFrequently dispersed
Goods and ServicesGoods and ServicesAutomobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/investment management
Consulting service/teaching
Counseling
Percent of Product that is a GoodPercent of Product that is a Good Percent of Product that is a ServicePercent of Product that is a Service
100%100% 7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||
New Trends in OMNew Trends in OM
Local or Local or national national focusfocus
Low-cost, reliable Low-cost, reliable worldwide communication worldwide communication and transportation and transportation networksnetworks
Global focusGlobal focus
Batch (large) Batch (large) shipmentsshipments
Short product life cycles Short product life cycles and cost of capital put and cost of capital put pressure on reducing pressure on reducing inventoryinventory
Just-in-time Just-in-time shipmentsshipments
Low-bid Low-bid purchasingpurchasing
Quality emphasis requires Quality emphasis requires that suppliers be engaged that suppliers be engaged in product improvementin product improvement
Supply-Supply-chain chain partners, partners, Enterprise Enterprise Resource Resource Planning, Planning, e-commercee-commerce
PastPast CausesCauses FutureFuture
New Trends in OMNew Trends in OM
Lengthy Lengthy product product developmentdevelopment
Shorter life cycles, Shorter life cycles, Internet, rapid international Internet, rapid international communication, computer-communication, computer-aided design, and aided design, and international collaborationinternational collaboration
Rapid product Rapid product development, development, alliances, alliances, collaborative collaborative designsdesigns
Standardized Standardized productsproducts
Affluence and worldwide Affluence and worldwide markets; increasingly markets; increasingly flexible production flexible production processesprocesses
Mass Mass customization customization with added with added emphasis on emphasis on qualityquality
Job Job specializationspecialization
Changing socioculture Changing socioculture milieu; increasingly a milieu; increasingly a knowledge and information knowledge and information societysociety
Empowered Empowered employees, employees, teams, and teams, and lean lean productionproduction
PastPast CausesCauses FutureFuture
New Trends in OMNew Trends in OM
Low-cost Low-cost focusfocus
Environmental issues, ISO Environmental issues, ISO 14000, increasing disposal 14000, increasing disposal costscosts
Environmentally Environmentally sensitive sensitive production, production, green green manufacturing, manufacturing, recycled recycled materials, materials, remanufacturingremanufacturing
PastPast CausesCauses FutureFuture
Ethics and Social ResponsibilityEthics and Social Responsibility
Challenges facing Challenges facing operations managers:operations managers:
Developing safe quality productsDeveloping safe quality products
Maintaining a clean environmentMaintaining a clean environment
Providing a safe workplaceProviding a safe workplace
Honouring community commitmentsHonouring community commitments
Operations Management
Chapter 1 –
Operations and Productivity11
Chapter 2
Operations Strategy in a Global Environment
OutlineOutline
Global Company Profile: BoeingGlobal Company Profile: Boeing
A Global View of OperationsA Global View of OperationsCultural and Ethical IssuesCultural and Ethical Issues
Developing Missions And Developing Missions And StrategiesStrategiesMissionMission
StrategyStrategy
Outline Outline –– Continued Continued
Achieving Competitive Advantage Achieving Competitive Advantage Through OperationsThrough OperationsCompeting On DifferentiationCompeting On Differentiation
Competing On CostCompeting On Cost
Competing On ResponseCompeting On Response
Ten Strategic OM Decisions Ten Strategic OM Decisions Global Operations Strategy OptionsGlobal Operations Strategy Options
Global StrategiesGlobal Strategies
Boeing – sales and production are Boeing – sales and production are worldwideworldwide
Benetton – moves inventory to stores Benetton – moves inventory to stores around the world faster than its around the world faster than its competition by building flexibility into competition by building flexibility into design, production, and distributiondesign, production, and distribution
Sony – purchases components from Sony – purchases components from suppliers in Thailand, Malaysia, and suppliers in Thailand, Malaysia, and around the worldaround the world
Global StrategiesGlobal Strategies
Volvo – considered a Swedish company Volvo – considered a Swedish company but it is controlled by an American but it is controlled by an American company, Ford. The current Volvo S40 is company, Ford. The current Volvo S40 is built in Belgium and shares its platform built in Belgium and shares its platform with the Mazda 3 built in Japan and the with the Mazda 3 built in Japan and the Ford Focus built in Europe.Ford Focus built in Europe.
Haier – A Chinese company, produces Haier – A Chinese company, produces compact refrigerators (it has one-third of compact refrigerators (it has one-third of the US market) and wine cabinets (it has the US market) and wine cabinets (it has half of the US market) in South Carolinahalf of the US market) in South Carolina
Reasons to GlobalizeReasons to Globalize
Reasons to GlobalizeReasons to Globalize
Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.) Improve supply chainImprove supply chain Provide better goods and servicesProvide better goods and services Understand marketsUnderstand markets Learn to improve operationsLearn to improve operations Attract and retain global talentAttract and retain global talent
Tangible Tangible ReasonsReasons
Intangible Intangible ReasonsReasons
Reduce CostsReduce Costs
Foreign locations with lower wage Foreign locations with lower wage rates can lower direct and indirect rates can lower direct and indirect costscostsWorld Trade Organization (WTC)World Trade Organization (WTC)
North American Free Trade North American Free Trade Agreement (NAFTA)Agreement (NAFTA)
APEC, SEATO, MERCOSUR APEC, SEATO, MERCOSUR
European Union (EU)European Union (EU)
Improve the Supply ChainImprove the Supply Chain
Locating facilities closer to Locating facilities closer to unique resourcesunique resourcesAuto design to CaliforniaAuto design to California
Athletic shoe production to ChinaAthletic shoe production to China
Perfume manufacturing in FrancePerfume manufacturing in France
Provide Better Goods Provide Better Goods and Servicesand Services
Objective and subjective Objective and subjective characteristics of goods and characteristics of goods and servicesservicesOn-time deliveriesOn-time deliveries
Cultural variablesCultural variables
Improved customer serviceImproved customer service
Understand MarketsUnderstand Markets
Interacting with foreign customer Interacting with foreign customer and suppliers can lead to new and suppliers can lead to new opportunitiesopportunities
Learn to Improve OperationsLearn to Improve Operations
Remain open to the free flow of Remain open to the free flow of ideasideasGeneral Motors partnered with a General Motors partnered with a
Japanese auto manufacturer to Japanese auto manufacturer to learnlearn
Attract and Retain Global Attract and Retain Global TalentTalent
Offer better employment Offer better employment opportunitiesopportunitiesBetter growth opportunities and Better growth opportunities and
insulation against unemploymentinsulation against unemployment
Relocate unneeded personnel to Relocate unneeded personnel to more prosperous locationsmore prosperous locations
Incentives for people who like to Incentives for people who like to travel travel
Developing Missions and Developing Missions and StrategiesStrategies
MissionMission statements tell an statements tell an organization where it is goingorganization where it is going
The The Strategy Strategy tells the tells the organization how to get thereorganization how to get there
MissionMission
Mission - where are Mission - where are you going?you going?Organization’s Organization’s
purpose for beingpurpose for being
Answers ‘What do Answers ‘What do we provide society?’we provide society?’
Provides boundaries Provides boundaries and focusand focus
Hard Rock CaféHard Rock Café
Our Mission: To spread the spirit of Rock ‘n’ Our Mission: To spread the spirit of Rock ‘n’ Roll by delivering an exceptional Roll by delivering an exceptional
entertainment and dining experience. We entertainment and dining experience. We are committed to being an important, are committed to being an important,
contributing member of our community and contributing member of our community and offering the Hard Rock family a fun, healthy, offering the Hard Rock family a fun, healthy,
and nurturing work environment while and nurturing work environment while ensuring our long-term success.ensuring our long-term success.
Benefit to Society
Mission
Factors Affecting MissionFactors Affecting Mission
Philosophy and Values
Profitability and GrowthEnvironment
Customers Public Image
Strategic ProcessStrategic Process
Marketing Operations Finance/ Accounting
Functional Area Missions
Organization’s Mission
StrategyStrategy
Action plan to Action plan to achieve missionachieve mission
Functional areas Functional areas have strategieshave strategies
Strategies exploit Strategies exploit opportunities and opportunities and strengths, neutralize strengths, neutralize threats, and avoid threats, and avoid weaknessesweaknesses
Strategies for Competitive Strategies for Competitive AdvantageAdvantage
Differentiation – better, or at least Differentiation – better, or at least differentdifferent
Cost leadership Cost leadership –– cheaper cheaper
Quick response – more Quick response – more responsiveresponsive
Competing on Competing on DifferentiationDifferentiation
Uniqueness can go beyond both the Uniqueness can go beyond both the physical characteristics and service physical characteristics and service attributes to encompass everything attributes to encompass everything
that impacts customer’s perception of that impacts customer’s perception of valuevalue
Safeskin gloves – leading edge productsSafeskin gloves – leading edge products
Walt Disney Magic Kingdom – Walt Disney Magic Kingdom – experience differentiationexperience differentiation
Hard Rock Cafe – theme experienceHard Rock Cafe – theme experience
Competing on CostCompeting on Cost
Provide the maximum value as Provide the maximum value as perceived by customer. Does not perceived by customer. Does not
imply low quality.imply low quality.
Southwest Airlines – secondary Southwest Airlines – secondary airports, no frills service, efficient airports, no frills service, efficient utilization of equipmentutilization of equipment
Wal-Mart – small overheads, shrinkage, Wal-Mart – small overheads, shrinkage, distribution costsdistribution costs
Franz Colruyt – no bags, low light, no Franz Colruyt – no bags, low light, no music, doors on freezersmusic, doors on freezers
Competing on ResponseCompeting on Response
Flexibility is matching market changes in Flexibility is matching market changes in design innovation and volumesdesign innovation and volumes Institutionalization at Hewlett-PackardInstitutionalization at Hewlett-Packard
Reliability is meeting schedulesReliability is meeting schedules German machine industryGerman machine industry
Timeliness is quickness in design, Timeliness is quickness in design, production, and deliveryproduction, and delivery Johnson Electric, Bennigan’s, MotorolaJohnson Electric, Bennigan’s, Motorola
OM’s Contribution to StrategyOM’s Contribution to Strategy
Product
Quality
Process
Location
Layout
Human resource
Supply-chain
Inventory
Scheduling
Maintenance
FLEXIBILITYSony’s constant innovation of new products………………………………....Design HP’s ability to follow the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
DELIVERY Pizza Hut’s five-minute guarantee at lunchtime…………………..…..……..Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability
QUALITY Motorola’s automotive products ignition systems…………………………......Conformance Motorola’s pagers………………………..….Performance
IBM’s after-sale service on mainframe computers……....AFTER-SALE SERVICE
Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE
OperationsOperations SpecificSpecific CompetitiveCompetitiveDecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage
Response(Faster)
Cost leadership(Cheaper)
Differentiation(Better)
Strategy Development ProcessStrategy Development Process
Determine Corporate MissionState the reason for the firm’s existence and identify the
value it wishes to create.
Form a StrategyBuild a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines.
Environmental AnalysisIdentify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
Four International Four International Operations StrategiesOperations Strategies
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
International Strategy
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product
Economies of scale Cross-cultural
learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Use existing domestic model globally
Franchise, joint ventures, subsidiaries
ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe
Multidomestic Strategy
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic Strategy Use existing
domestic model globally Franchise, joint ventures,
subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic Strategy Use existing
domestic model globally Franchise, joint ventures,
subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
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LowLow
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Move material, people, ideas across national boundaries
Economies of scale Cross-cultural
learning
ExamplesCoca-ColaNestlé
Transnational Strategy
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy Transnational Strategy
Move material, people, ideas across national boundaries
Economies of scale Cross-cultural learning
ExamplesCoca-ColaNestlé
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic Strategy Use existing
domestic model globally Franchise, joint ventures,
subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe