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DSC 2006 Operations Management Semester II, 2012/2013

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Lecturer: Lucy G. Chen Office: BIZ 1, #08-60 Phone: 6516-3013 Email: [email protected] Consultation: Thu, 4 - 6pm, or by appointment

DSC 2006, Operations Management, Lucy Chen

mailto:[email protected]�

Course Administration Be punctual!

Five-minute break.

Cell phones should be turned off or silent.

Laptops are generally not allowed in class.

Class participation – attitude, comments, attendance

Exams Closed book, one double sided A4 sheet is allowed Midterm – no make-up exam. Please make sure there is no

time conflict.

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Pointers for Success Communication – feel free to talk to me about any issues

that may come up

Foresight and Planning – job interview, other courses, etc.

Respect – policies, people, time

Course as a Package – course has a number of dimensions which are expected to accentuate learning

Think Big Picture – beyond this semester


Introduction to Operations Management

What is operations management?

Why is operations important?

How does operations contribute to a firm?

How does operations relate to your interests?


Common Response

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Airplane Boarding Strategies

Boarding strategies normally used First class -> Business class -> Coach class Coach class in groups back to front (Northwest Airlines) window to aisle (United Airlines) first come, first board (Southwest Airlines)

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Why does boarding strategy matter? For an airplane, cutting ground time between flights

from an hour to 40 minutes creates one or two more flights a day!

Four to five minutes boarding time savings generate $1 million per year (United Airlines).

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Reverse pyramid by America West Saves boarding time by over

2 minutes (20% saving)

OM tools applied: Process Analysis Capacity Planning Queuing Analysis Linear Programming

“Reverse pyramid”


What is Operations Management? Management of systems or processes that

create goods and/or provide services. Manage processes to better match supply and

demand

Restructure operations to improve performance and remain competitive in the face of ever changing business conditions

Find the right balance between multiple measures of performance


The Process View

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Value-adding Transformation Process

Inputs Outputs

Feedback

(Raw materials Customers, Resources, etc.)

(Goods, Services)


Value-added: The difference between the cost of inputs and the value or price of outputs.

Control Feedback

Feedback

Example: Food Processor

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Inputs Processing Outputs

Canned vegetables

Raw vegetables Metal sheets Water Energy Labor Building Equipment

Cleaning Making cans Cutting Cooking Packing Labeling


Example: Hospital


Inputs Processing Outputs

Healthy patients

Doctors, nurses Hospital Medical supplies Equipment Laboratories

Examination Surgery Monitoring Medication Therapy

Goods vs. Service Characteristic Goods Service Output Tangible Intangible Uniformity of output High Low Uniformity of input High Low Labor content Low High Measurement of productivity Easy Difficult Customer contact Low High Opportunity to correct quality problems before delivery High Low Inventory Much Little Evaluation Easy Difficult Patentable Usually Not Usually





What is the role of operations within a firm?



Why is Operations Important? Importance as a leading economic indicator Purchasing managers’ index (PMI) Durable goods orders

50% or more of the jobs in industry are operations-related: Customer Service Quality Assurance Production Planning Scheduling Inventory Management Logistics

In every company, there is usually an underlying value-adding product transformation that needs to be well-managed

Operations activities are at the core of all business organizations.


Three Major Business Functions

Operations

Finance Marketing

• Budgeting • Economic analysis of

investment proposals • Provision of funds … …

• Competitor • Customer preference • Trend of technology …

…


• Fulfillment lead time • Judgment of

manufacturability

• Financial indicators

Why is Operations Important?


The Strategic Role of Ops

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A company’s “operations” function is

either a competitive weapon or

a corporate millstone. It is seldom neutral.

---- C. Wickham Skinner


The Cold Hard Facts -- Competition


Dimensions of Competitiveness

Price

Quality

Time

Flexibility

... …


Order Winners vs. Order Qualifiers

Order Qualifiers Characteristics that potential customers perceive

as minimum standards

Order Winners Characteristics of an organizations’ goods or

services that cause them to be perceived better than the competition


Order Winners vs. Operational Capability

Price

Quality

Delivery Lead Time

Flexibility

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Low cost process

High quality process

Fast process

Flexible process


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A Strategic Framework for Ops

Business Strategy

Desired Capabilities

Processes Resources Operations Structure


Strong as always… as of 2009 $405.6 Billion Revenue (7% increase from 2008)

$95 Billion Gross Profit (8% increase from 2008)

Competitive Success through Operations: Wal-Mart


Order Winner

Paris Hilton on Wal-Mart:

"I went to Wal-Mart for the first time. I always thought they sold wallpaper. I didn’t realize it has everything. You can get anything you want there for really, really cheap."


Wal-Mart K-Mart Target

Price 84% 6% 11% Selection of products 70% 5% 25% In-stock merchandise 66% 5% 28% Convenience 57% 14% 29% Parking 48% 14% 38% Service 48% 6% 46%

Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics north America, July 23, 2003

“Which store is the best at each of the following aspects?”

Order Winner


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Wal-Mart Business Strategy

(Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices

Operations Strategy/Capability

– Short flow times – Low inventory levels

Operations Structure – EDLP (everyday low prices) – Fast transportation system

– Hub & Spoke distribution – Cross docking

– Supplier management, use of technology (e.g., EDI, RFID)

– Big stores offer economy of scale and variety


Order Winners – Low price – Variety – Convenience

Compatible!

The Romance of

$16.82 $9.94

$24.96

Business Strategy

Operational Strategies


More Success through Ops

Southwest Airlines

Dell Inc.

McDonald’s

… …


Tradeoff of Priorities

Wal-Mart K-Mart Target

Quality of products 44% 5% 51%

Cleanliness 30% 3% 67%

Checkout 40% 10% 50%

“Which store is the best at each of the following aspects?”

Can’t Be Good At Everything.

Source: Shoppers Rank Wal-Mart, Target And Kmart, Consumer Technographics north America, July 23, 2003


Low price

Quality

Strategic Tradeoffs


Low price

Quality

Tradeoffs and Efficient Frontier

World class

Improvement


http://www.target.com/gp/browse.html/ref=nav_t_logo/602-7074317-9127863?_encoding=UTF8&node=1038576�

http://www.kmart.com/home.jsp�

Low price

Quality

Tradeoffs and Efficient Frontier

Improvement


World class

http://www.target.com/gp/browse.html/ref=nav_t_logo/602-7074317-9127863?_encoding=UTF8&node=1038576�

http://www.kmart.com/home.jsp�

How Does Ops Relate to your Interests?

Consulting Analyzing and improving business processes SCM and use of ERP systems to achieve SC efficiency is a hot topic Problem solving – modeling and analysis

Finance How healthy is that company? Balance the upside versus the downside – risk analysis How do financial objectives relate to operational measures

Marketing Sales promotions and their impact on operational performance Level of customization – how to achieve it at low cost Order qualifiers and winners

Accounting What is the cost of making this product – Activity based or time

based Are inventories assets or liabilities?


Salary of Executives

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Medium Annual Pay (base salary + bonus+ benefit, in USD)

www.salary.com, Jan 2013, New York City

Chief Executive Officer $1,442,640 Chief Operating Officer $812,646 Chief Financial Officer $591,634 Chief HR Executive $343,501 Chief Marketing Executive $333,883 Chief Purchasing Executive $261,012


http://www.salary.com/�

Today’s Takeaways What is Operations Management about? Design operations to better match supply with demand. A set of quantitative models and qualitative strategies.

Why is operations important? Contribute to a company’s bottom line Relationship between Ops and marketing, Ops and Finance.

Order winners and order qualifiers

Strategic tradeoffs and operations frontier

Operational capabilities and structures have to be compatible with firm strategy

DSC 2006, Operations Management, Lucy Chen 41

Assignments Readings: Chapters 1 & 2 (excluding pages 50-56)

Tutorial Questions: Please see IVLE.

Experiential Exercises: Select two stores that you shop at regularly and identify their order winners.

Quiz of the Day: Assume Walmart decides to enter the Singapore market. What will be the challenges for Walmart as well as the incumbent firms such as NTUC Fairprice, Cold Storage, Sheng Siong, and Giant? Do you think Wal-mart will succeed?

DSC 2006, Operations Management, Lucy Chen 42

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