1 COMPETING WITH OPERATIONS PowerPoint Slides by Jeff Heyl Copyright © 2010 Pearson Education, Inc Publ For Operations Management, 9e by Krajewski/Ritzman/Malhotra © 2010 Pearson Education 1–1 Operations Management The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, customers Processes can be linked together to form a supply chain – interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers Copyright © 2010 Pearson Education, Inc Publ 1–2 Across the Organization Finance Acquires financial resources and capital for inputs Material & Service Inputs Sales Revenue Support Functions Operations • • • • Accounting Information Systems Human Resources Engineering Translates materials and service into outputs Figure 1.1 Marketing Generates sales of outputs Product & Service Outputs Copyright © 2010 Pearson Education, Inc Publ 1–3 A Process View External environment Internal and external customers Inputs • Workers • Managers • Equipment • Facilities • Materials • Land • Energy Outputs • Goods • Services Processes and operations Information on performance Figure 1.2 Copyright © 2010 Pearson Education, Inc Publ 1–4 A Process View More like a manufacturing process • • • • • • Physical, durable output Output can be inventoried Low customer contact Long response time Capital intensive Quality easily measured More like a service process • • • • • • Intangible, perishable output Output cannot be inventoried High customer contact Short response time Labor intensive Quality not easily measured Figure 1.3 Copyright © 2010 Pearson Education, Inc Publ 1–5 The Supply Chain View New service/ product development Supplier relationship process Customer relationship management Order fulfillment process External customers External suppliers Support Processes Figure 1.4 Copyright © 2010 Pearson Education, Inc Publ 1–6 The Supply Chain View  Core processes are sets of activities that deliver value to external customers Supplier relationship process New service/product development process Order fulfillment process Customer relationship process  Support processes provide vital resources and inputs to the core processes Copyright © 2010 Pearson Education, Inc Publ 1–7 Support Processes TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES Capital acquisition The provision of financial resources for the organization to its work and to execute its strategy Budgeting The process of deciding how funds will be allocated over a period of time Recruitment and hiring The acquisition of people to the work of the organization Evaluation and compensation The assessment and payment of people for the work and value they provide to the company Human resource support and development The preparation of people for their current jobs and future skills and knowledge needs Regulatory compliance The processes that ensure that the company is meeting all laws and legal obligations Information systems The movement and processing of data and information to expedite business operations and decisions Enterprise and functional management The systems and activities that provide strategic direction and ensure effective execution of the work of the business Copyright © 2010 Pearson Education, Inc Publ 1–8 Operations Strategy Specifies the means by which operations implements corporate strategy and helps build a customer-driven firm Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization's functions Copyright © 2010 Pearson Education, Inc Publ 1–9 Operations Strategy Corporate Strategy • Environmental scanning • Core competencies • Core processes • Global strategies Market Analysis • Market segmentation • Needs assessment Competitive Priorities • Cost • Quality • Time • Flexibility New Service/ Product Development • Design • Analysis • Development • Full launch No Yes Performance Gap? Operations Strategy Decisions • Managing processes • Managing supply chains Competitive Capabilities • Current • Needed • Planned Figure 1.5 Copyright © 2010 Pearson Education, Inc Publ – 10 Using Competitive Priorities At an airline Order fulfillment  Low-cost operations  Top quality  Consistent quality  On-time delivery  Variety Copyright © 2010 Pearson Education, Inc Publ – 17 Using Competitive Priorities At an airline Supplier relationship  Low-cost operations  Consistent quality  On-time delivery  Variety  Volume flexibility Copyright © 2010 Pearson Education, Inc Publ – 18 Operations Strategy TABLE 1.3 | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS Competitive Priority Measure Capability Gap Action Low-cost operations  Cost per billing statement  $0.0813  Target is $0.06  Eliminate microfilming and storage of billing statements  Weekly postage  $17,000  Target is $14,000  Develop Web-base process for posting bills  Percent errors in bill information  0.90%  Acceptable  No action  Percent errors in posting payments  0.74%  Acceptable  No action Delivery speed  Lead time to process merchant payments  48 hours  Acceptable  No action Volume flexibility  Utilization  98%  Too high to support rapid increase in volumes   Acquire temporary employees Consistent quality Copyright © 2010 Pearson Education, Inc Publ Improve work methods – 19 Trends in Operations Management Productivity improvement Global competition Ethical, workforce, and environmental issues Copyright © 2010 Pearson Education, Inc Publ – 20 Productivity Improvement EXAMPLE 1.1 Calculate the productivity for the following operations: a Three employees process 600 insurance policies in a week They work hours per day, days per week SOLUTION Policies processed a Labor productivity = Employee hours 600 policies = (3 employees)(40 hours/employee) = policies/hour Copyright © 2010 Pearson Education, Inc Publ – 21 Productivity Improvement EXAMPLE 1.1 Calculate the productivity for the following operations: b A team of workers makes 400 units of a product, which is sold in the market for $10 each The accounting department reports that for this job the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead SOLUTION a Multifactor productivity = = Value of output Labor cost + Materials cost + Overhead cost (400 units)($10/unit) $4,000 = = 2.35 $400 + $1,000 + $300 $1,700 Copyright © 2010 Pearson Education, Inc Publ – 22 Application This Year Last Year Year Before Last 2,762,103 2,475,738 2,175,447 Employment (hrs) 112,000 113,000 115,00 Sales of manufactured products ($) $49,363 $40,831 — Total manufacturing cost of sales ($) $39,000 $33,000 — Factory unit sales ($)  Calculate the year-to-date labor productivity: This Year factory unit sales 2,762,103 employment 112,000 Last Year = 24.66/hr 2,475,738 113,000 Year Before Last = 21.91/hr 2,175,447 115,000 = $18.91/hr  Calculate the multifactor productivity: This Year sales of mfg products $49,363 total mfg cost $39,000 = 1.27 Copyright © 2010 Pearson Education, Inc Publ Last Year $40,831 $33,000 = 1.24 – 23 OM as a Set of Decisions USING OPERATIONS TO COMPETE  In practice, managers make strategic and tactical decisions Each part of the organization designs and operates processes Each function is connected through shared resources Competing with Operations Project Management MANAGING PROCESSES Process Strategy Process Analysis Quality and Performance Capacity Planning Lean Systems MANAGING SUPLY CHAINS Supply Chain Design Supply Chain Integration Location Inventory Management Forecasting Operations Planning and Scheduling Resource Planning Figure 1.7 Copyright © 2010 Pearson Education, Inc Publ – 24 Challenges in OM Part 1: Using operations to compete Part 2: Managing processes Part 3: Managing supply chains Copyright © 2010 Pearson Education, Inc Publ – 25 Solved Problem Student tuition at Boehring University is $150 per semester credit hour The state supplements school revenue by $100 per semester credit hour Average class size for a typical 3-credit course is 50 students Labor costs are $4,000 per class, material costs are $20 per student per class, and overhead costs are $25,000 per class a What is the multifactor productivity ratio for this course process? b If instructors work an average of 14 hours per week for 16 weeks for each 3-credit class of 50 students, what is the labor productivity ratio? Copyright © 2010 Pearson Education, Inc Publ – 26 Solved Problem SOLUTION a Multifactor productivity is the ratio of the value of output to the value of input resources 50 student class f output = credit hours student $150 tuition + $100 state support credit hour = $37,500/class of inputs = Labor + Materials + Overhead = $4,000 + ($20/student  50 students/class) + $25,000 = $30,000/class Multifactor productivity = Output Input Copyright © 2010 Pearson Education, Inc Publ = $37,500/class $30,000/class = 1.25 – 27 Solved Problem SOLUTION b Labor productivity is the ratio of the value of output to labor hours The value of output is the same as in part (a), or $45,000, so 14 hours week of input = 16 weeks class = 224 hours/class ductivity = = Output $45,000/class Input 224 hours/class = $200.89/hour Copyright © 2010 Pearson Education, Inc Publ – 28 Solved Problem Natalie Attire makes fashionable garments During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that they were flawed) Seconds are sold for $90 each at Attire’s Factory Outlet Store The remaining 80 garments are sold to retail distribution at $200 each What is the labor productivity ratio of this manufacturing process? Copyright © 2010 Pearson Education, Inc Publ – 29 Solved Problem SOLUTION Value of output = (52 defective  90/defective) + (80 garments  200/garment) = $20,680 ours of input = 360 hours or productivity = = Output $20,680 Input 360 hours = $57.44 in sales per hour Copyright © 2010 Pearson Education, Inc Publ – 30 Copyright © 2010 Pearson Education, Inc Publ – 31 ... effective execution of the work of the business Copyright © 2010 Pearson Education, Inc Publ 1–8 Operations Strategy Specifies the means by which operations implements corporate strategy and helps build... On-time delivery  Variety  Volume flexibility Copyright © 2010 Pearson Education, Inc Publ – 18 Operations Strategy TABLE 1.3 | OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS... Management Forecasting Operations Planning and Scheduling Resource Planning Figure 1.7 Copyright © 2010 Pearson Education, Inc Publ – 24 Challenges in OM Part 1: Using operations to compete Part