Operations Management6630Concepts Strategy Principles Methods

Course Objectives / Requirements / AssignmentsObjective of the course: Understanding and improving business processesPerformance measuresHow-toMix of industries: healthcare, restaurants, automotive, computers, call centers, banking, etc

Requirements : EngagementParticipation

Assignments:Project assignmentFinal exam????

Overview

The Goal by Eliyahu Goldratt and Jeff Fox Process Improvement Principles by C. Dennis PegdenOperations Management for MBAs by Jack Meredith and Scott SchaferSelected Articles and Other MaterialTransforming the Organization by John Kotter Leading Change:Why Transformation Efforts Fail http://hbr.org/2007/01/leading-change-why-transformation-efforts-fail

OverviewObjectives:Make Money $$$$$$Satisfy CustomersRespect employees

The Production System

Operations Defined

Systems concerned with transforming inputs into useful outputs according to an agreed-upon strategy and thereby adding value to some entity

Characteristics of Products and ServicesTable 1.1

Production SystemsParallel ServersFlow LineJob Shop

Three KPIs

Work in Process (WIP) System throughput On-time delivery

WIP refers to work that has entered the system, but is not yet complete. WIP can be the number of items in the system, or converted to time-based measures of congestion such as average waiting time or time in system

System throughput is number of entities completed or moving through the system, and

Timely delivery is the completion of product according to parameters set by customer considerations.

CostEfficiencyTimeResponsiveness to demandQualityProduct quality (how good?) Process quality (as good as promised?) Four Dimensions of PerformanceVarietyCustomer heterogeneity

CostEfficiencyMeasured by: - cost per unit - utilizationTimeResponsiveness to demandMeasured by: - customer lead time QualityProduct quality (how good?) => PriceProcess quality (as good as promised?) => Defect rateFour Dimensions of Performance: Trade-offsVarietyCustomer heterogeneityMeasured by: - number of options - flexibility / set-ups - make-to-order

Example: Call center of a large retail bank - objective: 80% of incoming calls wait less than 20 seconds - starting point: 30% of incoming calls wait less than 20 seconds - Problem: staffing levels of call centers / impact on efficiency OM helps: Provides tools to support strategic trade-offsResponsivenessLabor Productivity(e.g. $/call)LowHighLow laborproductivityHigh laborproductivityTrade-offVery short waiting times,Comes at the expense ofFrequent operator idle timeLong waiting times, yet operators are almost fully utilizedWhat Can Ops Management (This Course) Do to Help? Step 1: Help Making Operational Trade-Offs

ResponsivenessLowHighEliminate inefficienciesCurrent frontierIn the industryLabor Productivity(e.g. $/call)Low laborproductivityHigh laborproductivityCompetitor ACompetitor CCompetitor BExample: Benchmarking shows the pattern above Dont just manage the current system Change it!

Provides tools to identify and eliminate inefficiencies => Define Efficient Frontier

Types of inefficiencies:Poor process design Inconsistencies in activity networkWhat Can Ops Management (This Course) Do to Help?Step 2: Identify and Overcome Inefficiencies

Example: What will happen if we develop / purchase technology X? Better technologies are always (?) nice to have, but will they pay?

OM helps: Evaluates system designs before they are implementedWhat Can Ops Management (This Course) Do to Help?Step 3: Evaluate Proposed Redesigns/New Technologies

Example: The US Airline Industry

Example: The US Airline Industry

Examples of Production System ComponentsTable 1.2

Customer ValueValue = perceived benefits relative to costsPerceived benefits can take a wide variety of formsCostsUpfront monetary investmentLife cycle costs, such as maintenanceHassles involved in obtaining the product or service

Quality DimensionsConformance to specificationExtent to which the product matches the designPerformanceCustomers equate quality with performanceFeaturesOptions that a product or service offers

Quality Dimensions ContinuedQuick responseTime required to react to customers demandsReliabilityProbability that a product or service will perform as intended for a period of timeDurabilityHow tough a product is

Quality Dimensions (Continued)ServiceabilityEase with which maintenance can be performedAestheticsFactors that appeal to human sensesCustomer ServiceHow the customer is treated

Qualitys BenefitsCustomers are more pleased with a high-quality product or serviceMore likely to encourage friends to patronize the firmGives firm a good reputationAllows firm to charge a premium priceIncreases market shareMakes follow-up products more attractive

Qualitys CostsPrevention costsIncluding planning, training, design, maintenanceAppraisal costsMeasuring, testing, test equipment, inspectors, reportsInternal costs of defectsExtra labor and material, scrap, rework, interruptions, expeditingExternal costs of defectsIll-will, complaints, correction, warranties, insurance, recalls, lawsuits

Competitive Advantages of AgilityFaster matches to customers needsCloser matches to customers needsAbility to supply needed items as markets developFaster design-to-market timeLower cost of changing productionAbility to offer a full line without large inventoriesAbility to meet market demand even with production delays

Mass CustomizationSeek to produce low-cost, high-quality outputs in high varietyNot all products lend themselves to being customizedSugar, gas, electricity, and flourIs applicable to products characterized by short life cycles, rapidly advancing technology, or changing customer requirements

Benefits of Modular DesignComponents that differentiate can be added during the later stages of productionCalled postponementProduction time can be significantly reducedSimultaneously producing the required modulesFacilitates the identification of production and quality problems

Global TrendsUS imports have grown for more than 30 yearsExports have increased, but not as fast as importsResulted in exploding trade deficientUS now largest debtor nation in the worldCumulative deficit is about GDP

The Life-Cycle CurveFigure 1.9

Categories of Business StrategiesFirst-to-marketSecond-to-marketCost minimization (late-to-market)Market segmentationSlide on each of these

First-to-Market StrategyProducts available before competitionStrong applied research capability neededCan set high price to skim market or set lower price to gain market share

Second-to-Market StrategyQuick imitation of first-to-market companiesLess emphasis on applied research and more emphasis on developmentLearn from first-to-markets mistakes

Cost Minimization or Late-to-Market StrategyWait until market becomes standardized and large volumes demandedCompete on basis of costs instead of product featuresResearch efforts focus on process development versus product development

Market SegmentationServing niche marketsApplied engineering skills and flexible manufacturing processes needed

Common Areas of Organizational FocusTable 1.5

OutsourcingSubcontracting out production of parts or performance of activitiesActivities and parts fall on a continuum ranging from strategically unimportant to strategically importantActivities not strategically important are candidates to be outsourced

Process Improvement PrinciplesVariability degrades performanceBuffer the bottlenecksFeed the bottlenecksReduce the number of process stepsMinimize changeovers

*The result of increasing performance pressure and decreasing competitive advantage is that companies must reevaluate how their business and manufacturing strategies fit together.

Revenue passenger mile (RPM) Available seat miles (ASM)

In general, business strategy should drive manufacturing strategy. Each aspect of the manufacturing strategy (what, where, and how) should be examined to see how the overall business strategy can be advanced. By looking at what is manufactured, for example, a company might decide to not make certain things and thereby free up factory floor space, which can in turn act as a catalyst to ultimately restructuring the entire network. The end result of this hypothetical situation would be that unnecessary factories could be closed down to capture overhead savings. This would not have been the result had the company taken only a narrow, tactical approach to reviewing a certain process in a particular factory. A company must have a comprehensive view when examining manufacturing strategy.*The result of increasing performance pressure and decreasing competitive advantage is that companies must reevaluate how their business and manufacturing strategies fit together.

In general, business strategy should drive manufacturing strategy. Each aspect of the manufacturing strategy (what, where, and how) should be examined to see how the overall business strategy can be advanced. By looking at what is manufactured, for example, a company might decide to not make certain things and thereby free up factory floor space, which can in turn act as a catalyst to ultimately restructuring the entire network. The end result of this hypothetical situation would be that unnecessary factories could be closed down to capture overhead savings. This would not have been the result had the company taken only a narrow, tactical approach to reviewing a certain process in a particular factory. A company must have a comprehensive view when examining manufacturing strategy.