mba 505 business_processes_operations_productivity_strategy

Dr. Anupam Das 1

Management Decision Making:Operations and Decision Analysis

May 2010

Week – 1

Business ProcessesOperations, Productivity & Strategy

Anupam Das, PhD

Dr. Anupam Das 2

Outline

Course Introduction / Orientation Business Processes What Is Operations Management? What Operations Managers Do The Heritage of Operations Management The Productivity Challenge Ethics and Social Responsibility

Dr. Anupam Das 3

Course Introduction / Orientation

Faculty: Anupam Das, PhD Office: Building 250, Room 446

Email: [email protected] Phone: 250-753-3245 ext. 2477

Class Hours:08.30am – 10.30am, Monday, Bldg: 250/125 (All sections) 08.30am – 10.30am, Friday, Bldg: 250/140 (sec. I11N70)10.30am – 12.30pm, Friday, Bldg: 250/140 (sec. I11N72) 01.30am – 03.30pm, Friday, Bldg: 250/140 (sec. I11N71)

Office Hours:10.30 am – 12.00noon Monday, 09.30 am – 12.00noon Tuesday, or by appointment

Textbook: Jay Heizer and Barry Render (2011), Operations Management, 10th edition, Prentice Hall

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Course Introduction / Orientation

Methods of Evaluation

Assignment value Due

Class Participation and Learning 15% May 30, June 13,Reinforcement/Quizzes July 11

Group assignments (3 @ 15%) 45% June 1 & 20, July 15

Final Exam (Closed book) 40% July 18

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“The systematic design, direction and controlof processes that transform inputs into

services and products for internal, as well asexternal customers ”

Operations Management is ----

InputsTransformation

Processes(Adding value)

Outputs

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Business Process is an organized group of related activities to create a result of value to the customer.

Processes should add value. Processes can be broken down into sub-

processes, which in turn can be broken down further.

Any process that is part of a larger process is considered a “nested process.”

Each process and each nested process has inputs and outputs.

Business Processes

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1. Customer relationship processes Identify, attract, and build relationships with external

customers and facilitate the placement of orders.2. New service/product development processes

Design and develop new services or products from inputs received from external customer specifications.

3. Order fulfillment processes The activities required to produce and deliver the

service or product to the external customers.4. Supplier relationship processes

Select suppliers of services, materials and information and facilitate the timely and efficient flow of these items

Core Processes

– a chain of activities that adds-value to external Customers

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Provide key resources, capabilities, or other inputs required to execute core processes

Can include: accounting & finance, human resources functions, Information and Communications Technology (ICT) support, and enterprise and functional management.

Support/Non-Core Processes

– provide vital resources and inputs to the core processes and are essential to the management of the business

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Firms have many processes that support the core processes.

Support Process

Support processes

New service/product

developmentprocess

Supplierrelationship

process

Orderfulfillmentprocess

Customerrelationship

process

Exte

rnal

Sup

plie

rsExternal Custom

ers(i.e. accounting, finance, human resource management, etc)

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Value chains are an interrelated series of

processes that produce a service or product to

the satisfaction of customers. Value chains may have core processes or Support

processes.

Core processes deliver value to external

customers. Non-Core - Support processes/functions:

provide vital inputs for the core processes.

Value Chains

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Michael Porter’s Value Chain Model

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Process Improvement & Value Chains

allows the analyst to focus on a process vs. a functional Area

can be used to identify processes for improvement

provides a cross‐function view of an organization

activity under process analysis can be further broken down into sub‐processes as required

a value chain must be present and analyzed before considering process improvements to the industry value chain

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Value Chain Framework

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APQC Process Classification Framework

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Competitive Priorities

Cost 1. Low-cost operations

Quality 2. Top quality

3. Consistent quality

Time 4. Delivery speed

5. On-time delivery

6. Development speed

Flexibility 7. Customization

8. Variety

9. Volume flexibility

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Adding Value to a Process

Increase – quality, customer service, ease of‐ use, flexibility, simplicity, functionality, and linkages to strategic plan

Decrease – costs, waste, cycle time, delay time, process time, complexity, environmental impact, and other non-value adding activities

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Process Analysis

Process analysis is the documentation and detailed understanding of how work is performed and how it can be redesigned.

2Define Scope

6ImplementChanges

5RedesignProcess

4Evaluate

Performance

3DocumentProcess

1Identify

Opportunity

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Redesigning the Process

Ideas for process redesign and improvement can be uncovered by asking six questions about each step in the process and about the process as a whole.

1. What is being done?2. When is it being done?3. Who is doing it?4. Where is it being done?5. How is it being done?6. How well does it do on the various metrics of

importance?

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Redesigning the Process

Answers to the previous six questions are challenged by asking still another set of questions. Why is the process even being done? Why is it being done where it is being done? Why is it being done when it is being done?

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Process Value Analysis

Step 1: what activities are being done – where, when, how, and who

Step 2: why are they (activities) being done this way?

Step 3: Is each step necessary; does it add value?Step 4: Design alternative ways to add value;

consider radical verses incremental Change

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Facilitation Skills

Facilitation 101 – a facilitator is a third-party who’s main purpose is to assist a group of people in generating ideas and solutions to various problems under consideration . Specific tasks can vary however facilitators should follow the Do’s – Don’ts

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Idea Generation

Brainstorming is letting a group of people, knowledgeable about the process, propose ideas for change by saying whatever comes to mind Posit notes are ideal for sharing ideas Group like-ideas together, eliminate

duplicates, and name the groupings

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Process Mapping Activities

1. List all known activities through personal knowledge, experts, brainstorming, research, documentation, and standard operating procedures (SOPs),

2. Assemble activities into 4-6 groupings,3. Name the groupings noun/verb or verb noun

combinations),4. Conceptualize the process flow,5. Decompose the process(es) as required to

gain a thorough understanding of the process,6. Identify inputs, outputs, and enablers, and7. Map and document the process

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Business Process Flowcharting – “Picturing the Process”Mapping Protocols

• Use Excel to create your process map (using Insert and the Shapes button on the ribbon)

• Label your map (i.e. give it a title such “Order Fulfillment Process”)• Maps flow from left to right; top‐to‐bottom• Use a consistent font when labeling processes, decision points, inputs and outputs• Use a rectangle (use a consistent size) to represent all processes/activities under

investigation• Cascade your processes (if possible)• Group related activities together; use a dash line to denote activities related to a

process; label the process; use verb/noun or noun/verb combinations (i.e. Enter Order)• Inputs and outputs are to be denoted use a line with an arrow• All processes/activities must have inputs (entering the process on the left) and outputs

(leaving the process on the right)• All inputs and outputs must be labeled• Inputs/outputs/enablers should not cross‐over one another, however minor cross‐over is

permitted• Denote process enablers such as IT systems as inputs to the bottom of the process

Major outputs of the main process under consideration are to be aligned on the right side of

• the process map• Decision points are to be depicted using a diamond shape• Decision points logic flow; inputs to the left or top and outputs to the right and bottom;

maintain consistent logic flow (i.e. “true” to the left and “false” from the bottom

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Process Map Example

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Business Process Management

Business process management (BPM) is a management discipline that combines a process-centric, IT enabled, and cross-functional approach to improving how organizations achieve their business goals.

BPM ensures that business processes follow a disciplined design, the process is repeatable and is followed, measured regularly, and the processes are kept up-to-date.

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What Is Operations Management?

Production is the creation of goods and services

Operations management (OM) is the set of activities that create value in the form of goods

and services by transforming inputs into outputs

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Organizing to Produce Goods and Services

• Essential functions:1. Marketing – generates demand2. Production/operations – creates the product3. Finance/accounting – tracks how well the

organization is doing, pays bills, collects the money

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Why Study OM?

1. OM is one of three major functions of any organization, we want to study how people organize themselves for productive enterprise

2. We want (and need) to know how goods and services are produced

3. We want to understand what operations managers do

4. OM is such a costly part of an organization

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Options for Increasing Contribution

Sales $100,000 $150,000 $100,000 $100,000Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000Gross Margin 20,000 30,000 20,000 36,000Finance Costs – 6,000 – 6,000 – 3,000 – 6,000Subtotal 14,000 24,000 17,000 30,000Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

Finance/Marketing Accounting OM

Option Option Option

Increase Reduce ReduceSales Finance Production

Current Revenue 50% Costs 50% Costs 20%

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What Operations Managers Do

Planning Organizing Staffing Leading Controlling

Basic Management Functions

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Significant Events in OM

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The Heritage of OM

Division of labor (Adam Smith 1776; Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Coordinated assembly line (Ford/ Sorenson 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922) Quality control (Shewhart 1924; Deming 1950) Computer (Atanasoff 1938) CPM/PERT (DuPont 1957, Navy 1958) Material requirements planning (Orlicky 1960) Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975) Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization (1992) Internet (1995)

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Eli Whitney

Born 1765; died 1825

In 1798, received government contract to make 10,000 muskets

Showed that machine tools could make standardized parts to exact specifications Musket parts could be

used in any musket

© 1995 Corel Corp.

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Frederick W. Taylor


Known as ‘father of scientific management’

In 1881, as chief engineer for Midvale Steel, studied how tasks were done Began first motion and time

studies

Created efficiency principles

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Taylor’s Principles

• Matching employees to right job• Providing the proper training• Providing proper work methods and tools• Establishing legitimate incentives for work to be

accomplished

Management Should Take More Responsibility for:

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Frank & Lillian Gilbreth

Frank (1868-1924); Lillian (1878-1972)

Husband-and-wife engineering team

Further developed work measurement methods

© 1995 Corel Corp.

Applied efficiency methods to their home and 12 children!

Book & Movie: “Cheaper by the Dozen,” “Bells on Their Toes”

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In 1903, created Ford Motor Company

In 1913, first used moving assembly line to make Model T

Henry Ford

Unfinished product moved by conveyor past work station

Paid workers very well for 1911 ($5/day!)

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W. Edwards Deming


Engineer and physicist

Credited with teaching Japan quality control methods in post-WW2

Used statistics to analyze process

His methods involve workers in decisions

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Contributions From

• Human factors• Industrial engineering• Management science• Biological science• Physical sciences• Information technology

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Characteristics of Goods

Tangible product

Consistent product definition

Production usually separate from consumption

Can be inventoried

Low customer interaction

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Characteristics of Service

Intangible product

Produced and consumed at same time

Often unique

High customer interaction

Inconsistent product definition

Often knowledge-based

Frequently dispersed

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Goods and Services

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 Good Percent of Product that is a Service

100% 75 50 25 0 25 50 75 100%| | | | | | | | |

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Productivity Challenge

Productivity is the ratio of outputs (goods and services) divided by the inputs (resources

such as labour and capital)

The objective is to improve productivity!

Important Note!Production is a measure of output only

and not a measure of efficiency

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Measure of process improvement

Represents output relative to input

Only through productivity increases can our standard of living improve

Productivity

Productivity =Units produced

Input used

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Productivity Calculations

Productivity =Units produced

Labour-hours used

= = 4 units/labor-hour1,000

250

Labour Productivity

One resource input single-factor productivity

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Multi-Factor Productivity

OutputLabor + Material + Energy +

Capital + Miscellaneous

Productivity =

Also known as total factor productivity

Output and inputs are often expressed in dollars

Multiple resource inputs multi-factor productivity

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Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day

Old System:

=Old labour productivity

8 titles/day

32 labor-hrs= .25 titles/labour-hr

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Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labor-hrs=Old labor

productivity

=New labor productivity

= .25 titles/labor-hr

14 titles/day

32 labor-hrs= .4375 titles/labor-hr

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Old System:Old System:


New System:New System:

=Old multifactor

productivity8 titles/day

$640 + 400= .0077 titles/dollar

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Old System:Old System:


New System:New System:

8 titles/day

$640 + 400=

Old multifactor productivity

=New multifactor

productivity

= .0077 titles/dollar

14 titles/day14 titles/day

$640 + 800$640 + 800= .0097 titles/dollar

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Measurement Problems

1. Quality may change while the quantity of inputs and outputs remains constant

2. External elements may cause an increase or decrease in productivity Precise units of measure may be lacking

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Productivity Variables

1. Labor - contributes about 10% of the annual increase

2. Capital - contributes about 38% of the annual increase

3. Management - contributes about 52% of the annual increase

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Developing Missions and Strategies

MissionMission - where are you going?

– Organization’s purpose for being– Provides boundaries & focus– Answers ‘What do we provide society?’

© 1995 Corel Corp.

Mission of the Hard Rock CaféTo 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.

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Factors Affecting Mission

Mission

Philosophy &Values

Profitability& GrowthEnvironment

Customers Public Image

Benefit toSociety

Benefit toSociety

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Strategic Process

Marketing OperationsFinance/

Accounting

Functional Area Missions

Organization’s Mission

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Mission/Strategy

Mission - where you are going

Strategy - how you are going to get there; an action plan

Strategy• Action plan to achieve mission• Shows how mission will be achieved• Company has a business strategy• Functional areas have strategies • Strategies exploit opportunities and

strengths, neutralize threats, and avoid weaknesses

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Strategies for Competitive Advantage

Differentiation – better, or at least different Cost leadership – cheaper Response – rapid response

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

value

Safeskin gloves – leading edge products

Walt Disney Magic Kingdom – experience differentiation

Hard Rock Cafe – dining experience

Competing on Differentiation

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

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

Wal-Mart – small overheads, shrinkage, distribution costs

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

Competing on Cost

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Flexibility is matching market changes in design innovation and volumes Institutionalization at Hewlett-Packard

Reliability is meeting schedules German machine industry

Timeliness is quickness in design, production, and delivery Johnson Electric,

Bennigan’s, Motorola

Competing on Response

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Components of OM Mission and Strategy

P/OM Mission and

Strategy

LocationProcurement

Human Resources & Job DesignInventory

Reliability and Maintenance

Process Design

Layout

Scheduling

Quality Management

Product Design

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Issues In Operations Strategy

• Resources view• Value Chain analysis• Porter’s Five Forces model• Operating in a system with many external

factors• Constant change

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Product Life Cycle

Best period to increase market share

R&D engineering is critical

Practical to change price or quality image

Strengthen niche

Poor time to change image, price, or quality

Competitive costs become criticalDefend market position

Cost control critical

Introduction Growth Maturity Decline

Co

mp

any

Str

ate

gy/Is

sue

s

Internet search engines

Sales

Drive-through restaurants

CD-ROMs

Analog TVs

iPods

Boeing 787

LCD & plasma TVs

Twitter

Avatars

Xbox 360

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Product Life Cycle

Product design and development critical

Frequent product and process design changes

Short production runs

High production costs

Limited models

Attention to quality

Introduction Growth Maturity Decline

OM

Str

ate

gy/

Issu

es

Forecasting critical

Product and process reliability

Competitive product improvements and options

Increase capacity

Shift toward product focus

Enhance distribution

Standardization

Fewer product changes, more minor changes

Optimum capacity

Increasing stability of process

Long production runs

Product improvement and cost cutting

Little product differentiation

Cost minimization

Overcapacity in the industry

Prune line to eliminate items not returning good margin

Reduce capacity

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Strategy Process

CompanyMission

BusinessStrategy

Functional AreaStrategies

MarketingDecisions

OperationsDecisions

SWOTAnalysis

EnvironmentalAnalysis

Fin./Acct.Decisions

CompanyMission

BusinessStrategy

Functional AreaStrategies

MarketingDecisions

OperationsDecisions

SWOTAnalysis

EnvironmentalAnalysis

Fin./Acct.Decisions

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Identify critical success factors Build and staff the organization Integrate OM with other activities

The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase

productivity

Strategy Development and Implementation

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Strategy Development Process

Determine the 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.

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

Understand the environment, customers, industry, and competitors.

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Strategy

Mission

ExternalOpportunities

InternalStrengths

InternalW eaknesses

ExternalThreats

CompetitiveAdvantage

SWOT Analysis to Strategy Formulation

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Strategic planning Tactical Planning long time horizon less certainty less structured poorly defined information requirements irreversible impact focus on the whole

short time horizon more certainty more structured well-defined information requirements reversible impact focus on parts

The Planning Continuum

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Four International Operations StrategiesC

ost

Red

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Co

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High

Low

HighLowLocal Responsiveness Considerations

(Quick Response and/or Differentiation)

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

International Strategy

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Four International Operations Strategies

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Standardized product

Economies of scale Cross-cultural

learning

ExamplesTexas InstrumentsCaterpillarOtis Elevator

Global Strategy


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Standardized product Economies of scale Cross-cultural learning

Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy





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Global Strategy




Use existing domestic model globally

Franchise, joint ventures, subsidiaries

ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe

Multidomestic Strategy


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Standardized productEconomies of scaleCross-cultural learning


Global Strategy




Multidomestic StrategyUse existing

domestic model globallyFranchise, joint ventures,

subsidiaries

ExamplesHeinz, The Body ShopMcDonald’s Hard Rock Cafe


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Global Strategy




Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural

learning

ExamplesCoca-ColaNestlé

Transnational Strategy


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Global Strategy Transnational Strategy Move material, people, ideas

across national boundaries Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé




Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe


mba 505 business_processes_operations_productivity_strategy

Business

subsidiaries

cultural learning

national boundaries

material requirements

standardized

international

operations

operations