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Page 1: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Chapter 3Chapter 3Decision MakingDecision Making

Page 2: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Strategic Decisions in Strategic Decisions in OperationsOperations

Products Processes and

Technology

Capacity

Human Resources Quality

Facilities Sourcing

Services

Operating Systems

Page 3: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Products & ServicesProducts & ServicesMake-to-order

Made to customer specifications after order received

Make-to-stockMade in anticipation of demand

Assemble-to-orderAdd options according to

customer specification

Page 4: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Processes & TechnologyProcesses & TechnologyProject

One-time production of product to customer order

Batch production Process many jobs at same time in batch

Mass production Produce large volumes of standard

product for mass marketContinuous production

Very high volume commodity product

Page 5: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Capacity & FacilitiesCapacity & FacilitiesHow much capacity to provideSize of capacity changesHandling excess demandHiring/firing

workersNeed for new

facilities

Page 6: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

FacilitiesFacilities

Best size for facility?Large or small facilitiesFacility focusFacility locationGlobal facility

Page 7: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Human ResourcesHuman ResourcesSkill levels requiredDegree of autonomyPoliciesProfit sharing Individual or team workSupervision methodsLevels of managementTraining

Page 8: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

QualityQualityTarget levelMeasurementEmployee involvementTrainingSystems needed to ensure qualityMaintaining quality awarenessEvaluating quality effortsDetermining customer perceptions

Page 9: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

SourcingSourcingDegree of vertical integrationSupplier selectionSupplier relationshipSupplier qualitySupplier cooperation

Page 10: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Operating SystemsOperating SystemsExecute strategy daily Information technology

supportEffective planning & control

systemsAlignment of inventory

levels, scheduling priorities, & reward systems

Page 11: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Policy DeploymentPolicy Deployment

Focuses employees on common goals & priorities

Translates strategy into measurable objectives

Aligns day-to-day decisions with strategic plan

Page 12: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Balanced ScorecardBalanced ScorecardFinance — How should we look to our

shareholders?Customer — How should we look to our

customers?Processes — At which business

processes must we excel?Learning and Growing — How will we

sustain our ability to change and improve?

Page 13: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Issues and TrendsIssues and Trends

Global markets, sourcing, operations

Virtual companiesGreater choiceEmphasis on

serviceSpeed and

flexibility

Supply chainsCollaborationTechnological

advancesKnowledgeEnvironment

and social responsibilities

Page 14: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

The Dilbert (Dogbert) Solution – Change the Name of the Old Program

Page 15: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Decision AnalysisDecision Analysis• Payoff Table - craps tables• Maximax - maximum of maximum payoffs

- optimistic - “hard ways”• Maximin - maximum of minimum payoffs -

safe bets or even odds bets• Minimax regret - minimum of maximum

regrets or opportunity costs

Page 16: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Decision TreesDecision Trees

• Graphical method of analyzing a decision - similar to Theory of Constraints

• Payoff table can be translated to a Decision Tree

Page 17: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

The Payoff TableThe Payoff TableA method of organizing & illustrating

the payoffs from different decisions given various states of nature

A payoff is the outcome of the decision – a Craps table pay off chart is an example of a payoff chart

Page 18: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Payoff TablePayoff Table

States Of Nature(Alternatives)

Decision a b1 Payoff 1/a Payoff 1/b2 Payoff 2/a Payoff 2/b

Page 19: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

STATES OF NATURESTATES OF NATURE

Good ForeignGood Foreign Poor ForeignPoor Foreign

DECISIONDECISION Competitive ConditionsCompetitive Conditions Competitive ConditionsCompetitive Conditions

ExpandExpand $ 800,000$ 800,000 $ 500,000$ 500,000Maintain status quoMaintain status quo 1,300,0001,300,000 -150,000-150,000Sell nowSell now 320,000320,000 320,000320,000

Maximums: 1,300,0001,300,000; 500,000

Minimums: 500,000; 320,000320,000; -150,000

Page 20: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

decision/State of Nature

good economy

fair economy

poor economy EMV

sell condo 295000 126000 19500 178550

sell beach house 175000 76000 37500 113950

sell office bldg 275000 95000 78000 179900

0.5 0.2 0.3

EVPI 183950

VPI 4050

Page 21: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Products and Products and ServicesServices

Page 22: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Product DesignProduct DesignSpecifies materialsSpecifies materialsDetermines dimensions & Determines dimensions &

tolerancestolerancesDefines appearanceDefines appearanceSets performance standardsSets performance standards

Page 23: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Service DesignService DesignSpecifies what the customer is to Specifies what the customer is to

experienceexperience Physical itemsPhysical items Sensual benefitsSensual benefits Psychological benefitsPsychological benefits

Page 24: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

An Effective Design An Effective Design ProcessProcess

Matches product/service characteristics with Matches product/service characteristics with customer customer needsneeds

Meets Meets customercustomer requirements in simplest, requirements in simplest, most cost-effective mannermost cost-effective manner

Reduces time to market - haste vs. speed to Reduces time to market - haste vs. speed to marketmarket

Minimizes revisions - quality designed into Minimizes revisions - quality designed into the productthe product

Page 25: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Stages in the Design ProcessStages in the Design Process Idea Generation — Product Concept - can you Idea Generation — Product Concept - can you

create your own market? What role does the create your own market? What role does the voice of the customer play in idea generation?voice of the customer play in idea generation?

Feasibility Study — Performance SpecificationsFeasibility Study — Performance Specifications Preliminary Design — Prototype - testing and Preliminary Design — Prototype - testing and

redesignredesign Final Design — Final Design SpecificationsFinal Design — Final Design Specifications Process Planning — Manufacturing Process Planning — Manufacturing

Specifications - make to order/stock – assembly Specifications - make to order/stock – assembly line? line?

Page 26: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

The Design ProcessThe Design Process

Pilot runand final tests

New product or service launch

Final designFinal design& process plans& process plans

Ideageneration

Feasibilitystudy

Product or Product or service conceptservice concept

Performance Performance specificationsspecifications

Functionaldesign

Form design

Production design

Revising and testing Revising and testing prototypesprototypes

Design Design specificationsspecifications

Manufacturing Manufacturing or delivery or delivery specificationsspecifications

SuppliersSuppliersR&DR&D

CustomersCustomers

MarketingMarketing CompetitorsCompetitors

Page 27: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Idea GenerationIdea Generation Suppliers, distributors, salespersonsSuppliers, distributors, salespersons Trade journals and other published Trade journals and other published

materialmaterial Warranty claims, customer complaints, Warranty claims, customer complaints,

failuresfailures Customer surveys, focus groups, Customer surveys, focus groups,

interviewsinterviews Field testing, trial usersField testing, trial users Research and developmentResearch and development

Page 28: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

More Idea GeneratorsMore Idea Generators Perceptual MapsPerceptual Maps

Visual comparison of Visual comparison of customer perceptionscustomer perceptions

BenchmarkingBenchmarking Comparing product/service Comparing product/service

against best-in-classagainst best-in-class

Reverse engineeringReverse engineering Dismantling competitor’s product to improve Dismantling competitor’s product to improve

your own productyour own product

Page 29: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Perceptual Map of Perceptual Map of Breakfast CerealsBreakfast Cereals

HIGH HIGH NUTRITIONNUTRITION

LOW LOW NUTRITIONNUTRITION

GOOD GOOD TASTETASTE

BAD BAD TASTETASTE

Page 30: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Perceptual Map of Perceptual Map of Breakfast CerealsBreakfast Cereals

HIGH HIGH NUTRITIONNUTRITION

LOW LOW NUTRITIONNUTRITION

GOOD GOOD TASTETASTE

Cocoa PuffsCocoa Puffs

BAD BAD TASTETASTE

Rice Rice KrispiesKrispies

WheatiesWheaties

CheeriosCheerios

Shredded Shredded WheatWheat

Page 31: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Feasibility StudyFeasibility Study Market Analysis - Market Analysis -

Market SegmentationMarket Segmentation Economic AnalysisEconomic Analysis Technical / Strategic AnalysisTechnical / Strategic Analysis Performance SpecificationsPerformance Specifications

Not unlike mission analysis orIntelligence Preparation of the Battlefield

Page 32: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Risk AnalysisRisk Analysis

1. Identify the Hazards

2.Assess hazards to determine risks.

3.Develop controls and make risk decisions.

4. Implement controls.

5.Supervise and evaluate.From FM 100-14

Page 33: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Preliminary DesignPreliminary Design

Create form & functional designCreate form & functional designBuild prototypeBuild prototypeTest prototypeTest prototypeRevise prototypeRevise prototypeRetestRetest

How will it look?

Page 34: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Functional DesignFunctional Design(How the Product Performs)(How the Product Performs)

ReliabilityReliability Probability product performs intended Probability product performs intended

function for specified length of timefunction for specified length of time

MaintainabilityMaintainability Ease and/or cost or Ease and/or cost or

maintaining/repairing productmaintaining/repairing product

Page 35: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Computing ReliabilityComputing Reliability

0.90 0.90 0.90 x 0.90 = 0.810.90 x 0.90 = 0.81

Components in seriesComponents in series

Page 36: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Computing ReliabilityComputing Reliability

0.90 0.90 0.90 x 0.90 = 0.810.90 x 0.90 = 0.81

0.95 + 0.90(1-0.95) = 0.9950.95 + 0.90(1-0.95) = 0.995

Components in seriesComponents in series

Components in parallelComponents in parallel

0.95

0.90RR22

RR11

Page 37: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

System AvailabilitySystem Availability

System Availability, SA = System Availability, SA = MTBFMTBF

MTBF + MTTRMTBF + MTTR

Page 38: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

System AvailabilitySystem Availability

System Availability, SA = System Availability, SA = MTBFMTBF

MTBF + MTTRMTBF + MTTR

PROVIDERPROVIDER MTBF (HR)MTBF (HR) MTTR (HR)MTTR (HR)

AA 6060 4.04.0BB 3636 2.02.0CC 2424 1.01.0

Page 39: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

System AvailabilitySystem Availability

System Availability, SA = System Availability, SA = MTBFMTBF

MTBF + MTTRMTBF + MTTR

PROVIDERPROVIDER MTBF (HR)MTBF (HR) MTTR (HR)MTTR (HR)

AA 6060 4.04.0BB 3636 2.02.0CC 2424 1.01.0

SASAAA = 60 / (60 + 4) = .9375 or 93.75% = 60 / (60 + 4) = .9375 or 93.75%

SASABB = 36 / (36 + 2) = .9473 or 94.73% = 36 / (36 + 2) = .9473 or 94.73%

SASACC = 24 / (24 + 1) = .96 or 96% = 24 / (24 + 1) = .96 or 96%

Page 40: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Production DesignProduction Design

Part of the preliminary Part of the preliminary design phasedesign phase

SimplificationSimplification StandardizationStandardization ModularityModularity

Page 41: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Final Design & Final Design & Process PlansProcess Plans

Produce detailed drawings & Produce detailed drawings & specificationsspecifications

Create workable instructions for Create workable instructions for manufacturemanufacture

Select tooling & equipmentSelect tooling & equipment Prepare job descriptionsPrepare job descriptions Determine operation & assembly orderDetermine operation & assembly order Program automated machinesProgram automated machines

Page 42: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Improving the Design Improving the Design ProcessProcess

Design teamsDesign teams Concurrent designConcurrent design Design for manufacture & assemblyDesign for manufacture & assembly Design to prevent failures and ensure valueDesign to prevent failures and ensure value Design for environmentDesign for environment Measure design qualityMeasure design quality Utilize quality function deploymentUtilize quality function deployment Design for robustnessDesign for robustness Engage in collaborative designEngage in collaborative design

Page 43: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Breaking Down Barriers to Effective Design

Page 44: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Design TeamsDesign Teams

Marketing, manufacturing, Marketing, manufacturing, engineeringengineering

Suppliers, dealers, customersSuppliers, dealers, customersLawyers, accountants, insurance Lawyers, accountants, insurance

companiescompanies

Preferred solution = cross functional teams

Page 45: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Concurrent DesignConcurrent Design Improves quality of early design Improves quality of early design

decisionsdecisions Decentralized - suppliers complete Decentralized - suppliers complete

detailed design detailed design Incorporates production processIncorporates production process Scheduling and management can be Scheduling and management can be

complex as tasks are done in parallelcomplex as tasks are done in parallel include the include the customer customer in the in the

process!!process!!

Page 46: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Design for Design for Manufacture and AssemblyManufacture and Assembly

Design a product for easyDesign a product for easy& economical production& economical production

Incorporate production Incorporate production design early in the design phasedesign early in the design phase

Improves quality and reduces costs Improves quality and reduces costs Shortens time to design and Shortens time to design and

manufacturemanufacture also known as Design for Six Sigmaalso known as Design for Six Sigma

Page 47: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Design for Six SigmaDesign for Six Sigma• Define – the goals of the design activity• Measure – customer input to determine what is

critical to quality from the customers’ perspective – what are customer delighters? What aspects are critical to quality?

• Analyze – innovative concepts for products and services to create value for the customer

• Design – new processes, products, and services to deliver customer value

• Verify – new systems perform as expected

Page 48: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

DFM GuidelinesDFM Guidelinesü Minimize the number of parts, tools, Minimize the number of parts, tools,

fasteners, and assembliesfasteners, and assembliesü Use standard parts and repeatable Use standard parts and repeatable

processesprocessesü Modular designModular designü Design for ease of assembly, minimal Design for ease of assembly, minimal

handlinghandlingü Allow for efficient testing and parts Allow for efficient testing and parts

replacementreplacement

Page 49: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Design for Assembly Design for Assembly (DFA)(DFA)

Procedure for reducing number of Procedure for reducing number of partsparts

Evaluate methods for assemblyEvaluate methods for assembly Determine assembly sequenceDetermine assembly sequence

Page 50: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Design ReviewDesign ReviewFailure Mode and Effects Analysis Failure Mode and Effects Analysis

(FMEA)(FMEA)A systematic approach for analyzing A systematic approach for analyzing

causes & effects of failurescauses & effects of failuresPrioritizes failuresPrioritizes failuresAttempts to eliminate causesAttempts to eliminate causes

Page 51: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Value Analysis Value Analysis (Value Engineering)(Value Engineering)

Ratio of value / costRatio of value / cost Assessment of value : Assessment of value :

1. Can we do without it?1. Can we do without it?2. Does it do more than is required?2. Does it do more than is required?3. Does it cost more than it is worth?3. Does it cost more than it is worth?4. Can something else do a better job4. Can something else do a better job5. Can it be made by less costly method, tools, 5. Can it be made by less costly method, tools,

material?material?

6. Can it be made cheaper, better or faster by 6. Can it be made cheaper, better or faster by someone else?someone else? Should we contract it out?Should we contract it out?

Is there value added?

Page 52: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Design for EnvironmentDesign for Environment Design from recycled materialDesign from recycled material Use materials which can be recycledUse materials which can be recycled Design for ease of repairDesign for ease of repair Minimize packagingMinimize packaging Minimize material & energy Minimize material & energy

used during manufacture, used during manufacture, consumption & disposalconsumption & disposal

green laws in Europe - green laws in Europe -

Page 53: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

ExamplesExamples

• Recycling of oil

• carpets in land fills - 4 billion pounds in land fills annually

• Xerox and Hewlett-Packard - pay for return of printer cartridges on larger printers

Page 54: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Quality Function Quality Function Deployment (QFD)Deployment (QFD)

Translates the “voice of the Translates the “voice of the customer” into technical design customer” into technical design requirementsrequirements

Displays requirements in matrix Displays requirements in matrix diagramsdiagrams

First matrix called “house of quality”First matrix called “house of quality” Series of connected housesSeries of connected houses

Page 55: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Design for RobustnessDesign for Robustness Product can fail due to poor design Product can fail due to poor design

qualityquality Products subjected to many conditionsProducts subjected to many conditions Robust design studiesRobust design studies

Controllable factors - under designer’s Controllable factors - under designer’s controlcontrol

Uncontrollable factors - from user or Uncontrollable factors - from user or environmentenvironment

Designs products for consistent Designs products for consistent performanceperformance

Page 56: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Consistency is ImportantConsistency is Important

Consistent errors are easier to correct Consistent errors are easier to correct than random errorsthan random errors

Parts within tolerances may yield Parts within tolerances may yield assemblies which aren’tassemblies which aren’t

Consumers prefer product Consumers prefer product characteristics near their ideal valuescharacteristics near their ideal values

Page 57: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Characteristics of ServicesCharacteristics of Services• Services are intangibleServices are intangible• Service output is variable Service output is variable • Service have higher customer contactService have higher customer contact• Services are perishableServices are perishable• Service inseparable from deliveryService inseparable from delivery• Tend to be decentralized and dispersedTend to be decentralized and dispersed• Consumed more often than productsConsumed more often than products• Services can be easily emulatedServices can be easily emulated• Call girl principle – value diminishes after Call girl principle – value diminishes after

service is renderedservice is rendered

Page 58: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

A Well-Designed A Well-Designed Service System isService System is

Consistent with firm’s strategic Consistent with firm’s strategic focusfocus

CustomerCustomer friendly friendly Easy to sustainEasy to sustain Effectively linked between front & Effectively linked between front &

back officeback office Cost effectiveCost effective Visible to Visible to customercustomer

Page 59: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Processes and Processes and TechnologiesTechnologies

Page 60: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Process StrategyProcess Strategy

Overall approach to producing Overall approach to producing goods and servicesgoods and services

Defines:Defines:Capital intensityCapital intensityProcess flexibilityProcess flexibilityVertical integrationVertical integrationCustomer involvementCustomer involvement

Page 61: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Types of ProcessesTypes of Processes

ProjectsProjectsBatch productionBatch productionMass productionMass productionContinuous productionContinuous production

Page 62: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Process PlanningProcess Planning Make-or-buy decisionsMake-or-buy decisions Process selectionProcess selection Specific equipment selectionSpecific equipment selection Process plansProcess plans Process analysisProcess analysis

Page 63: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Make-or-Buy DecisionsMake-or-Buy Decisions

1. Cost1. Cost

2. Capacity2. Capacity

3. Quality3. Quality

4. Speed4. Speed

5. Reliability5. Reliability

6. Expertise6. Expertise

What about

Proprietary Information?

Barrier to Make-or-Buy?

Page 64: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Rationale for Off Shore to Low Country Source

94.00%

37.00%

27.00%23.00% 22.00% 21.00% 20.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

$ Savings procuredgoods

Penetration to newmarket

inventory redux inc customer service access newtechnology

reduced cycle time log cost reductions

Source: Aberdeen Research, “Low-Cost Country Sourcing Success Strategies: Maximizing and Sustaining the Next Big Supply Savings Opportunity,” Jun 2005

Page 65: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Specific Equipment Specific Equipment SelectionSelection

1.1. Purchase costPurchase cost

2.2. Operating costOperating cost

3.3. Annual savingsAnnual savings

4.4. Revenue enhancementRevenue enhancement

5.5. Replacement analysisReplacement analysis

6.6. Risk and uncertaintyRisk and uncertainty

7.7. Piecemeal analysis – “one piece at Piecemeal analysis – “one piece at

a time”a time”

Page 66: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Process PlansProcess Plans BlueprintsBlueprints Bill of material Flat or multiple Bill of material Flat or multiple

layers - part or assemblylayers - part or assembly Assembly chart /Assembly chart /

product structure diagramproduct structure diagram Operations process chart - list of Operations process chart - list of

operations involved in assemblyoperations involved in assembly Routing sheet - sequence of eventsRouting sheet - sequence of events

Page 67: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Operations Process ChartOperations Process ChartPart name Crevice Tool

Part No. 52074

Usage Hand-Vac

Assembly No. 520

Oper. No. Description Dept. Machine/Tools Time

10 Pour in plastic bits 041 Injection molding 2 min

20 Insert mold 041 #076 2 min

30 Check settings 041 113, 67, 650 20 min& start machine

40 Collect parts & lay flat 051 Plastics finishing 10 min

50 Remove & clean mold 042 Parts washer 15 min

60 Break off rough edges 051 Plastics finishing 10 min

Page 68: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Process AnalysisProcess Analysis The systematic examination of all aspects The systematic examination of all aspects

of a process to improve its operationof a process to improve its operation FasterFaster More efficientMore efficient Less costlyLess costly More responsiveMore responsive

Basic toolsBasic tools Process flowchartProcess flowchart Process diagramsProcess diagrams Process mapsProcess maps

Page 69: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Process Flowchart SymbolsProcess Flowchart Symbols

OperationsOperations

InspectionInspection

TransportationTransportation

DelayDelay

StorageStorage

Page 70: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Process FlowchartProcess Flowchart

Ste

p

Op

erat

ion

Tra

nsp

ort

Insp

ect

Del

ay

Sto

rag

e

Dis

tan

ce(f

eet)

Tim

e(m

in)Description

ofprocess

1

2

3

4

5

6

7

8

9

10

11

Unload apples from truck

Move to inspection station

Weigh, inspect, sort

Move to storage

Wait until needed

Move to peeler

Apples peeled and cored

Soak in water until needed

Place in conveyor

Move to mixing area

Weigh, inspect, sort

TotalPage 1 0f 3 480

30

5

20

15

360

30

20

190 ft

20 ft

20 ft

50 ft

100 ft

Date: 9-30-02Analyst: TLR

Location: Graves MountainProcess: Apple Sauce

Page 71: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Process DiagramProcess Diagram

Reserve Storage

Quality Assurance

Back to Vendor

UPS

Parcel Post

Next-Day UPS

Mono-gramming

Embroid-ering

Hemming

Gift Boxing

Receiving Active Bins Picking Packing Shipping

Page 72: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Process MapProcess Map

Place order

Drink

Eat salad or soup

Eat dinner

Receives check

Gives payment to waiter

Collect change, leave tip

Fill in tip amount

Give order to waiter

Prepare dinner order

Prepare soup or salad order

Give order to waiter

Is order complete?

Give soup or salad order to chef

Give dinner order to chef

Get drinks for customer

Deliver salad or soup order to customer

Deliver dinner to customer

Deliver check to customer

Receive payment for meal

Cash or Credit?

Bring change to customer

Run credit card through

Return credit slip to customer

Collect tip

YY

NN

CreditCredit

CashCash

CustomerCustomer WaiterWaiter Salad ChefSalad Chef Dinner ChefDinner Chef

Page 73: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Principles for Redesigning Principles for Redesigning ProcessesProcesses

• Remove waste, simplify, Remove waste, simplify, consolidateconsolidate

• Link processes to create valueLink processes to create value• Let the swiftest and most capable Let the swiftest and most capable

executeexecute• Capture information digitally and Capture information digitally and

propagatepropagate

Page 74: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Principles for Redesigning Principles for Redesigning ProcessesProcesses

• Provide visibility through Provide visibility through information about process statusinformation about process status

• Fit the process with sensors and Fit the process with sensors and feedback loopsfeedback loops

• Add analytic capabilitiesAdd analytic capabilities• Connect, collect and create Connect, collect and create

knowledge around the processknowledge around the process• Personalize the processPersonalize the process

Page 75: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Other ways to redesign the Other ways to redesign the processprocess

• Define• Measure• Improve

• Define• Measure• Analyze• Improve • Control

Velocity Management Methodology

General Electric’sSix Sigma Methodology

Page 76: Chapter 3 Decision Making. Strategic Decisions in Operations Products Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services

Techniques for Generating Techniques for Generating Innovative IdeasInnovative Ideas

Vary entry point to a problemVary entry point to a problem Draw analogiesDraw analogies Change your perspectiveChange your perspective Use attribute brainstormingUse attribute brainstorming

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Information TechnologyInformation Technology

Management Information Systems Management Information Systems (MIS)(MIS) Move large amounts of dataMove large amounts of data

Decision Support Systems (DSS)Decision Support Systems (DSS) Add decision making supportAdd decision making support

Expert SystemExpert System Recommend decision based on Recommend decision based on

expert knowledgeexpert knowledge

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Artificial IntelligenceArtificial IntelligenceNeural networksNeural networks

Emulate interconnections in Emulate interconnections in brainbrain

Genetic algorithmsGenetic algorithmsBased on adaptive capabilities in Based on adaptive capabilities in

naturenatureFuzzy logicFuzzy logic

Simulate human ability to deal Simulate human ability to deal with ambiguitywith ambiguity

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Enterprise SoftwareEnterprise SoftwareCollect, analyze, and make decisions Collect, analyze, and make decisions

based on databased on dataERP - Enterprise Resource PlanningERP - Enterprise Resource PlanningManaging wide range of processesManaging wide range of processes

Human resources, materials management, Human resources, materials management, supply chains, accounting, finance, supply chains, accounting, finance, manufacturing, sales force automation, manufacturing, sales force automation, customer service, customer order entrycustomer service, customer order entry

Finding hidden patterns through data Finding hidden patterns through data miningmining

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ERPERP

• SAP – 42% of market; forecast to 43% in 2006

• Oracle – 20%; forecast to 23% 2006

• Sage Group – 6%

• Microsoft – 4%

• Horror Stories – Hershey’s, Dell

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Advanced CommunicationsAdvanced Communications

Electronic data interchange (EDI)Electronic data interchange (EDI) Internet, extranetsInternet, extranets Wireless communicationsWireless communications Teleconferencing & Teleconferencing &

telecommutingtelecommuting Bar coding, Radio Frequency IdentificationBar coding, Radio Frequency Identification Virtual realityVirtual reality Distance Learning?

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RFIDRFID• Active Tags• Always on • Battery powered• Can be read from

up to 300 ft• US Army • Savi Tags

• Passive Tags• Small• Must be activated• May be turned off• England• California• Rolex

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Automated Material Automated Material HandlingHandling

ConveyorsConveyorsAutomated guided vehicle (AGV)Automated guided vehicle (AGV)Automated storage & retrieval Automated storage & retrieval

system (ASRS) Grainger/Defense system (ASRS) Grainger/Defense Distribution Center, San JoaquinDistribution Center, San Joaquin

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Flexible Manufacturing Flexible Manufacturing Systems (FMS)Systems (FMS)

Programmable machine toolsProgrammable machine tools Controlled by common computer networkControlled by common computer network Combines flexibility with efficiencyCombines flexibility with efficiency Reduces setup & queue timesReduces setup & queue times cellular layout - more on design next cellular layout - more on design next

weekweek

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RoboticsRobotics Programmable manipulatorsProgrammable manipulators Follow specified pathFollow specified path Better than humans with respect to Better than humans with respect to

Hostile environmentsHostile environments Long hoursLong hours ConsistencyConsistency

Adoption has been slowed by ineffective Adoption has been slowed by ineffective integration and adaptation of systemsintegration and adaptation of systems

Welding at Harley Davidson PlantWelding at Harley Davidson Plant

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Next WeekNext Week

• Next Class Jun 17: Facility Planning, Facility Planning, Project ManagementProject Management

• Take home exam – passed outTake home exam – passed out