department of msis xiaowei xurutgers 1 welcometo production and operations management
TRANSCRIPT
Department of MSIS Xiaowei XuRutgers
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Welcome Welcome
to to
Production and Operations Production and Operations ManagementManagement
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Every company needs a strategy, so the employees will know what they do and what they don’t do…
Business StrategyBusiness Strategy
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A business strategy is composed of several elements, including:
• Marketing: generates the demand in the market, in which the business is to compete.
• Finance/accounting: pays the bills, collects the money, tracks how well the organization is doing, and decides where to invest.
• Production/operations: creates goods and services through transformation of inputs into outputs.
We are going to study the production and operations strategy in this class.
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Marketing and SalesFinance and Accounting
CFO
Operations
COO
Business OrganizationCEO
American companies place more (less) emphasis on marketing and finance (operations) than their
Japanese and Asian competitors do.
Business OrganizationBusiness Organization
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Operations MattersOperations Matters
• On 5/9/2001, Cisco stock price was down $1.25, or 6 percent, to $19.13 by market close. What happened?
• On 5/8/2001, Cisco announced $2.25B inventory write-off after the market was closed.
• Causes:
1. Dot-com implosion and economy down-turn.
2. Too much custom-built inventories, such as flash-memory chips, optimal modulators and digital signal processors, which were depreciated quickly.
Operations Strategy may significantly affect the financial performance of a company.
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Operations Matters (cont.)Operations Matters (cont.)• Worldwide out-of-stock rates in the retail industry fall in
the range of 5%-10%.
• For fashion and seasonal products, such as toys, apparel and Christmas gifts, the situation is even worse.
• Why do not retailers purchase more inventories in advance?
• Answers:
1. High demand volatility makes forecasting extremely hard.
2. If the product turns out to be an underdog, then retailers have to markdown heavily, which hurts margins.We will see some operations strategies to
solve this puzzle in this class.
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The Transformation ProcessThe Transformation Process
OutputInput
POM processes
Performance Measurement
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• Input : materials, land, human resources, facilities, energy,
and information
• Output: goods and services
• Performance measurements: profitability, cost, productivity,
and quality
The Transformation Process (cont.)The Transformation Process (cont.)
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Goods vs. ServicesGoods vs. Services
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Characteristics of GoodsCharacteristics of Goods
Tangible product Consistent product
definition Production usually
separate from consumption
Can be inventoried Low customer
interaction
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Characteristics of ServiceCharacteristics of Service
Intangible product Inconsistent product
definition Produced and consumed at
same time High customer interaction Often knowledge-based
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Can be resoldCan be resold
Can be inventoriedCan be inventoried
Some aspects of quality Some aspects of quality measurablemeasurable
Selling is distinct from Selling is distinct from productionproduction
Product is transportableProduct is transportable
Site of facility important for costSite of facility important for cost
Revenue generated primarily Revenue generated primarily from tangible productfrom tangible product
Attributes of GoodsAttributes of Goods(Tangible Product)(Tangible Product)
Attributes of ServicesAttributes of Services (Intangible Product) (Intangible Product)
Reselling unusualReselling unusual
Difficult to inventoryDifficult to inventory
Quality difficult to measureQuality difficult to measure
Selling is part of service Selling is part of service
Provider, not product, isProvider, not product, isoften transportableoften transportable
Site of facility important forSite of facility important forcustomer contactcustomer contact
Revenue generated primarily Revenue generated primarily from the intangible servicefrom the intangible service
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Automobile
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%|| || || || || || || || ||