Operations management, 9e by krajewski om9 ppt 01

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

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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

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A Process View
External environment
Internal and external
customers
Inputs
• Workers
• Managers
• Equipment
• Facilities
• Materials
• Land
• Energy

Outputs
• Goods
• Services

Processes and
operations
1

3
5

2

4

Information on
performance
Figure 1.2

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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

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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

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The Supply Chain View
 Core processes are sets of activities that
deliver value to external customers
1.

Supplier relationship process

2.

New service/product development process

3.

Order fulfillment process

4.

Customer relationship process

 Support processes provide vital
resources and inputs to the core
processes

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Support Processes
TABLE 1.1

|

EXAMPLES OF SUPPORT PROCESSES

Capital acquisition

The provision of financial resources for the
organization to do 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 do 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

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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

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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

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Corporate Strategy
 Environmental scanning
 Developing core competencies
1.

Workforce

2.

Facilities

3.

Market and financial know-how

4.

Systems and technologies

 Developing core processes
 Global strategies

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Market Analysis
Market segmentation

Needs assessment
 Service

or product needs

 Delivery
 Volume
 Other

system needs

needs

needs

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Competitive Priorities
TABLE 1.2

|

DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE
PRIORITIES

COST

Definition

Process Considerations

Example

1. Low-cost
operations

Delivering a service or a
product at the lowest
possible cost

Processes must be designed and
operated to make them efficient

Costco

2. Top quality

Delivering an outstanding
service or product

May require a high level of
customer contact and may require
superior product features

Ferrari

3. Consistent

quality

Producing services or
products that meet design
specifications on a
consistent basis

Processes designed and
monitored to reduce errors and
prevent defects

McDonald’s

4. Delivery speed

Quickly filling a
customer’s order

Design processes to reduce lead
time

Dell

5. On-time
delivery

Meeting delivery-time
promises

Planning processes to increase

percent of customer orders
shipped when promised

United Parcel
Service (UPS)

6. Development
speed

Quickly introducing a new
science or a product

Cross-functional integration and
involvement of critical external
suppliers

Li & Fung

QUALITY

TIME

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Competitive Priorities
TABLE 1.2

|

DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE
PRIORITIES

FLEXIBILITY

Definition

Process Considerations

Example

7. Customization

Satisfying the unique
needs of each customer
by changing service or
products designs

Low volume, close customer
contact, and easily reconfigured

Ritz Carlton

8. Variety

Handling a wide
assortment of services or
products efficiently

Capable of larger volumes than
processes supporting
customization

Amazon.com

9. Volume
flexibility

Accelerating or
decelerating the rate of
production of service or
products quickly to
handle large fluctuations
in demand

Processes must be designed for
excess capacity

The United States
Postal Service
(USPS)

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Order Winners and Qualifiers

Sales ($)

Order Winner

Low

High

Achievement of competitive priority

Sales ($)

Order Qualifier

Low

Threshold

High

Achievement of competitive priority
Figure 1.6

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Using Competitive Priorities

At an airline
Customer relationship
 Top

quality

 Consistent
 Delivery

quality

speed

 Variety

New service development
 Development

speed

 Customization
 Top

quality

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Using Competitive Priorities
At an airline
Order fulfillment
 Low-cost

operations
 Top quality
 Consistent quality
 On-time delivery
 Variety

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Using Competitive Priorities
At an airline
Supplier relationship
 Low-cost

operations
 Consistent quality
 On-time delivery
 Variety
 Volume flexibility

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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

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Improve work methods

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Trends in Operations Management
Productivity improvement
Global competition
Ethical, workforce, and environmental
issues

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Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:
a. Three employees process 600 insurance policies in a week.
They work 8 hours per day, 5 days per week.
SOLUTION
Policies processed
a. Labor productivity = Employee hours
600 policies
= (3 employees)(40 hours/employee) = 5 policies/hour

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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

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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

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Last Year
$40,831
$33,000

= 1.24

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OM as a Set of Decisions
USING OPERATIONS TO COMPETE

 In practice, managers

make strategic and
tactical decisions
1.

Each part of the
organization designs
and operates
processes

2.

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

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Challenges in OM
Part 1: Using operations to compete
Part 2: Managing processes
Part 3: Managing supply chains

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