There is a 8 question part for manufacturing and a case study regarding manufacturing.
Michelle_Michy
20201018211520topic_1___introduction___value_chain_modified21.pptUnit 305
Operations Management
Topic 1 - Introduction
& Value Chain
Introduction
Operations is responsible for supplying the
product or service of the organisation.
Operations managers provide value for the
customer at the lowest cost by making
decisions for the operations function and by
managing the transformation process.
Assignment - Question 1
Outline the similarities and differences between manufacturing and services in terms of operations management.
A Thought Worth Remembering
In an era where many of the world’s population
is starving …. it has recently been estimated that
up to 50% of the world’s food production is
wasted, due in part to inefficient management of
operations..
Course Details
In this topic we will consider the nature and strategic
importance of operations management. We will define the
important terms we will be using throughout this unit and
trace the evolution of operations management from the
Industrial Revolution on. We will consider in some detail
the rise of manufacturing and services, and the concept of
the value chain. We will outline the general theory of
operations management and start to demonstrate how the
successful operations manager should blend the theory
with the practical constraints of the situation at hand.
Operations as a Process
Operations has been defined as a transformation
process converting inputs into outputs.
Manufacturing plants takes raw materials and
converts those raw materials into finished goods.
Service industries more usually provide less
tangible products through adding expertise or
specialised services to clients.
Both types of operations ADD VALUE through a
transformation process.
What Is Operations Management?
Operations management (OM) is the set of
activities that creates value in the form of
goods and services by transforming inputs
into outputs (transformation process)
What Is Operations Management?
into outputs (transformation process)
Operations management (OM) designs, operates,
and improves productive systems-systems for
getting work done.
Operations management (OM) is the set of
activities that creates value in the form of
goods and services by transforming inputs
Operations as a System
Operation System
Inputs
Conversion
Subsystem
Control
Subsystem
Outputs
Operations as a Transformation Process
9
Transformations
• Physical—manufacturing operations
• Locational—transportation
• Exchange—retail operations
• Storage--warehousing
• Physiological--health care
• Psychological--entertainment
• Informational--communications
Supply Chain Management
The field of supply chain management manages the flow of information, products, and
services across a network of customers, enterprises, and supply chain partners.
11
Operations Strategy
Operations Strategy consists of goals, plans, and
a direction for the operations function that are
linked to the business strategy and other
functional strategies, leading to a competitive
advantage for the firm.
There are normally three levels of strategy:
• Corporate (or organisational) strategy
• Business unit (or tactical) strategy
• Operations (or operational) strategy
Operations Management & Strategy
Mission
Goals
Organizational Strategies
Functional Goals
Finance Marketing
Strategies Strategies
Tactics Tactics
Operating Operating
procedures procedures
Operations
Strategies
Tactics
Operating
procedures
11/05/2015
Week 2 - Technology, Quality, Capacity
Forecasting
13
Strategy
• Mission
- The reason for existence for an organization
• Mission Statement
- States the purpose of an organization
• Goals
- Provide detail and scope of mission
• Strategies
-Plans for achieving organizational goals
• Tactics
- The methods and actions taken to accomplish strategies
Changes in Strategy
A good strategy needs to be flexible enough to
allow for periodical realignments in response to
changes in the external environment.
These forces for change may be technological,
political, economic, socio-cultural, legal or
environmental.
The Components of a Company’s
Macro-Environment
Class Discussion 1
RIM Blackberry used to be THE smartphone to
use, yet its market share has decreased
(globally) to that of a minor player.
How did Apple and Samsung manage to secure
almost 50% of the global market between
them?
What is the future for HUAWEI and how is
NOKIA attempting to return as a top tier player?
Competitive Advantage
Based around an organisations goals, operations
management’s objective is to provide goods and
services as efficiently and effectively as possible
in order to provide a competitive advantage over
your opposition.
Efficiency = doing things right
Effectiveness = doing the right things
Competitive Advantage
• When firms achieve one or more of these business objectives—
- operational excellence;
- new products, services, and business models;
- customer/supplier intimacy; and improved decision making
• chances are they have already achieved a competitive advantage.
- Doing things better than your competitors,
- charging less for superior products, and
- responding to customers and suppliers in real time
• all add up to higher sales and higher profits that your competitors
cannot match.
• Apple Inc., Walmart, and UPS, are industry leaders because they
hae competitive advantage over their competitors.
The Value Chain
Each organisation has its own internal value
chain - made up of activities which add value to
the products or services it provides.
Michael Porter (1985) proposed that a
manufacturing company activities include:
• Primary activities
• Support activities
• Margin
Porter’s Generic Value Chain
Reading
Your readings are
“The Operations Function” in Russell &
Taylor (pp2-9) (text book)
Reading 1:1
Dumond, E. J. (2000). Value Management: An Underlying
Framework. International Journal of Operations and
Production Management, 20(9), 1062-1077.
Evolution of Manufacturing
Contemporary production and operations
management has its roots in the Industrial
Revolution that occurred in the late 18th and early
19th centuries in the UK. Up to then craftsmen
(and craftswomen) with their apprentices
produced goods in small shops or their homes
and this was called “cottage industries”.
Luddites & Taylorism
The use of machinery and factories to increase
productivity led to clashes with existing
methods … the Luddites was a famous case in
late 19th century Britain.
Frederick Winslow Taylor (1911) considered the
father of scientific management brought in the
concepts of work specialisation and assembly
line practices which remained prevalent until
late 20th century.
History of OM
25
THE CHRONOLOGICAL DEVELOPMENT
OF OM
• The Industrial Revolution
- Division of labor (Adam Smith 1776 and Charles Babbage 1852)
- Standardized parts (Whitney, 1800)
• Scientific Management
- Scientific management (Taylor, 1881)
- Coordinated assembly line (Ford 1913)
- Gantt charts (Gantt, 1916)
- Motion study (Frank and Lillian Gilbreth 1922)
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
Frederick W. Taylor
Born 1856; died 1915
Known as ‘father of scientific management’
In 1881, as chief engineer for Midvale Steel, studied
how tasks were done
Began first time & motion studies
Created efficiency principles
Management Should Take More Responsibility for
Matching employees to right job
Providing the proper training
Providing proper work methods and tools
Establishing legitimate incentives for work to be accomplished
Henry Ford
Born 1863; died 1947
In 1903, created Ford
Motor Company
In 1913, first used
moving assembly line
to make Model T
Unfinished product
moved by conveyor
past work station
‘Make them all
alike!’
Paid workers very well for 1911 ($5/day!)
Frank & Lillian Gilbreth
Frank (1868-1924); Lillian
(1878-1972)
Husband-and-wife engineering
team
Further developed work
measurement methods
Applied efficiency methods to
their home & 12 children!
(Book & Movie: “Cheaper by
the Dozen,” book: “Bells on
Their Toes”
W. Edwards Deming
Born 1900; died 1993
Engineer & physicist
Credited with teaching Japan
quality control methods in
post-WW2
Used statistics to analyze
process
His methods involve workers
in decisions
THE CHRONOLOGICAL DEVELOPMENT
OF OM
• JIT, the Quality Revolution and Operations strategy
- Toyota production system
- Total Quality Management
- operations strategies
• Latest developments in OM
- Integration and Supply Chain Management (1990’s)
- E-Commerce (late 1990’s)
- CRM (early 2000)
THE CHRONOLOGICAL DEVELOPMENT
OF OM
Modern Manufacturing Methods
Various new methods have been introduced since
the late 1980’s and methods continue to evolve…
• Lean production - Japan was able to dominate
global automobile markets by using these
Techniques
• Soft manufacturing - also known as agile
manufacturing, a combination of design
features and automation
• Reengineering - fundamental rethinking and
redesign of existing processes and practices.
Philosophy of Lean
Owing to a lack of space and resources the
Japanese developed an aversion to waste. US
companies in contrast with wide open spaces and
vast supplies of natural resources did not view
waste in the same way.
Anything that does not contribute value to the
product is considered as waste.
In addition to eliminating waste, lean also utilises
the full capability of workers and suppliers.
GLOBALIZATION
• Two thirds of today’s businesses operate globally through global markets,
global operations, global financing, and global supply chains.
• Globalization can take the form of
- selling in foreign markets
- producing in foreign lands
– purchasing from foreign suppliers
- partnering with foreign firms.
• Companies “go global”
- to take advantage of favorable costs
- to gain access to international markets
- to be more responsive to changes in demand
- to build reliable sources of supply, and
- to keep abreast of the latest trends and technologies.
GLOBALIZATION
• A global marketplace for products and services means more
customers and more intense competition.
• The OECD (Organization for Economic Cooperation and
Development) defines competitiveness as “the degree to which a
nation can produce goods and services that meet the test of
international markets while simultaneously maintaining or
expanding the real incomes of its citizens.”
• The most common measure of competitiveness is productivity.
• Increases in productivity allow wages to grow without producing
inflation, thus raising the standard of living.
• Productivity growth also represents how quickly an economy can
expand its capacity to supply goods and services.
Productivity Challenge
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources such as
labor and capital)
The objective is to improve this measure of
efficiency
Important Note!
Production is a measure of output only and not a
measure of efficiency
Productivity
Units produced
Productivity =
Input used
Measure of process improvement
Represents output relative to input
Only through productivity increases can
our standard of living improve
Measures of Productivity
40
GLOBALIZATION
• China accounts for 20% of the world’s population and is
the world’s largest manufacturer, employing more
production workers than the Unites States, United
Kingdom, Germany, Japan, Italy, Canada, and France
combined. China has become a strategic manufacturing
base for nearly every industry worldwide.
• As much as China is known as the world’s
manufacturer, India is renowned for its export of
services. India has an enormous resource of highly
skilled engineers, scientists, and technically trained
workers available at less than half the cost of those
located in developed countries.
GLOBALIZATION
• Hourly Compensation Costs for Production Workers (in U.S.
Dollars)
Source: Bureau of Labor Statistics, International Comparisons of Hourly Compensation Costs in Manufacturing
2007, Washington, DC: March 26, 2009, p. 23.
GLOBALIZATION
• International Employment by Industry Sector
Source: International Labour Organization Yearbook of Labour Statistics 2008, retrieved from http://www.ilo.org
The Service Sector
The service economy now represents more than
80% of jobs in the U.S. and most industrialised
economies in Europe and Asia today. Service
process design clearly needs more emphasis to
reflect the importance that services play in
modern economies.
What are Services?
Services are delivered by a wide variety of
organisations.
• Businesses selling services to consumers
(restaurants, appliance repair).
• Organisations providing specialist knowledge
(consulting and accounting).
• Organisations providing welfare to customers
(education and hospitals).
• Government services, including e-Government
(licensing, registration, police).
Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
Characteristics of Service
Intangible product
Produced and consumed at
same time
Often unique
High customer interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
Defining Service
Most definitions of ‘SERVICE’ stress the
“Intangibility of the product”.
A better definition is that services are produced
and consumed simultaneously. Simultaneous
production and consumption is thus a critical
characteristics of service because it implies that
the customer may be in the production system
while production takes place.
Also in the Same Location?
Although most service are provided to the
customer at the same time there are exceptions,
such as electricity, water, communications
where the services might be produced in one
location and transported to delivery in another
location.
The Differences from Manufacturing
Many services can be defined as interactions
that are social in nature. Interactions between
service provider and customer at time of
production is a critical attribute of service. This
is quite foreign to manufacturing and its
related processes.
Can for example a service process use a robot,
as seen in manufacturing processes? If so
what are the consequences?
Goods & Services - The Difference
• Services are acts, deeds, performances or
relationships that produce time, place, form or
psychological utilities for customers.
• In reality, almost all purchases of goods are
accompanied by facilitating services, and almost
every service purchase is accompanied by
facilitating goods.
• Thus, the key to understanding the difference
between goods and services lies in the realization
that these items are not completely distinct but
rather are two poles on a continuum
DEFINE A PRODUCT-SERVICE BUNDLE
• Good
- a tangible object or product
• Service
- intangible and perishable
• Facilitating services
- allow benefits of the good’s intended use
• Facilitating goods
- transfer of a service’s value to customer
The Service-Product Bundle
Before designing the process to deliver a service,
the service product must be defined. The service product
bundle consists of three elements.
• The benefits or explicit service (eg an order is
taken correctly and delivered on time)
• Psychological benefits or implicit
services(courtesy of the provider)
• The physical or facilitating goods (the actual
product received)
Some Examples
Fast food restaurant -
Tangible …. Fast & accurate service
Physical goods … The food itself
Psychological … interactions, surroundings
So what about the following? …
• Dental services
• An airline flight
• Pizza home delivery
Service-Manufacturing Continuum
Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counselling
100%
75
50
25
0
25
50
75
100%
|
|
|
|
|
|
|
|
|
Percent of Product that is a Good
Percent of Product that is a Service
56
Customer Contact
Interactions between customer and service
organisation can be low-contact as in ATM’s or
IKEA or high-contact as in dentistry, hairdressing
or consulting.
In any service industry the “moment of truth” is
when a customer comes in contact with an
employee of an organisation. This is the makeor-
break moment for customer satisfaction.
Empowering employees by using
transformational rather than transactional
management techniques may be most useful.
Class Discussion
There is a global trend to reduce the costs of
service by requiring customers to “self-serve”.
In Australia we have filled our cars with petrol
for 2 decades. In the UK there is an option to
bypass the checkout operators by scanning your
own groceries and bagging them yourself. IKEA
stores sell furniture in flatpack form which the
customer needs to assemble, and also asks you
to clear your own table after eating.
Why are these options not used in the UAE?
Operations Managers
Operations managers have the responsibility of
getting the job done. This is in addition to the
usual management responsibility of planning,
organising and controlling. They must provide
the leadership to produce the product or service
demanded by the customer.
Cross Functional Product Design
No matter how excellent the advanced planning
or technology, misalignment can occur in
technology, infrastructure or reward systems.
Leonard-Barton, D. (1995). Wellsprings of Knowledge: Building and Sustaining the
Sources of Innovation. Boston MA: Harvard Business School Press.
To overcome these problems a concurrent
marketing, engineering and production
approach is suggested. This approach is
analogous to a rugby team moving forward
together rather than a relay race.
Organizational Functions
Marketing
Gets customers
Operations
creates product or
service
Finance/Accounting
Obtains funds
Tracks money
Simplified Organizational Chart
62
Information Flows
63
Operations as the Technical Core
64
Information Flows
To & From Operations
65
Organizational Charts
Commercial Bank
Operations
Teller Scheduling
Check Clearing
Transactions
processing
Facilities
design/layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real Estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Organizational Charts
Airline
Operations
Ground support
equipment
Maintenance
Ground Operations
Facility maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science
Finance & Accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange
Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
What Operations Managers Do ?
The primary concern of an operations manager is
the activities of the conversion process.
Plan
Organize
Staff
Lead
Control
WELL-MANAGED OPERATIONS: THE SOURCE
OF CUSTOMER SATISFACTION
OM is responsible for system designs
physical transformation process
planning, scheduling, and controlling
monitoring and improving effectiveness in satisfying
customers
OM is responsible for effective operation of
planning, scheduling, and controlling systems
Decision Making in OM
Strategic Decisions
Operating/Tactical Decisions
Control Decisions
Strategic Decisions
These decisions are of strategic importance and
have long-term significance for the organization.
Examples include deciding:
the design for a new product’s production process
where to locate a new factory
whether to launch a new-product development plan
Operating/Tactical Decisions
These decisions are necessary if the ongoing
production of goods and services is to satisfy
market demands and provide profits.
Examples include deciding:
how much finished-goods inventory to carry
the amount of overtime to use next week
the details for purchasing raw material next month
Example
73
Control Decisions
These decisions concern the day-to-day activities of
workers, quality of products and services,
production and overhead costs, and machine
maintenance.
Examples include deciding:
labor cost standards for a new product
frequency of preventive maintenance
new quality control acceptance criteria
What Controls the Operations
System?
Information about the outputs, the conversions, and
the inputs is fed back to management.
This information is matched with management’s
expectations
When there is a difference, management must take
corrective action to maintain control of the system
Ten Critical Decisions
Operations management designs, operates, and improves productive systems—
systems for getting work done.
Service, product design
Quality management
Process, capacity design
Location
Layout design
Job design
Supply-chain
management
Inventory management
Scheduling
Maintenance
Challenges for the Operations Manager
Operations managers face great challenges.
They simultaneously need to coordinate the
functional areas of:
• Marketing
• Financial decision making & Accounting
• Human resources
• Purchasing and Inventory
• Product design and engineering
• Distribution
• Research & development
• Legal
• Information systems
New Challenges in OM
From
Local or national
focus
Batch shipments
Low bid purchasing
Lengthy product
development
Standard products
Job specialization
To
Global focus
Just-in-time
Supply chain
partnering
Rapid product
development,
alliances
Mass
customization
Empowered
employees, teams
New Trends in OM
Past
Causes
Future
Local or
national
focus
Low-cost, reliable
worldwide communication
and transportation
networks
Global focus
Batch (large)
Short product life cycles
Just-in-time
shipments
and cost of capital put
shipments
pressure on reducing
inventory
Low-bid
Quality emphasis requires
Supply-
purchasing
that suppliers be engaged
chain
in product improvement
partners,
Enterprise
Resource
Planning,
e-commerce
79
New Trends in OM
Past
Causes
Future
Lengthy
product
development
Standardized
products
Shorter life cycles,
Internet, rapid international
communication, computer-
aided design, and
international collaboration
Affluence and worldwide
markets; increasingly
flexible production
processes
Rapid product
development,
alliances,
collaborative
designs
Mass
customization
with added
emphasis on
quality
Job
specialization
Changing socioculture Empowered
milieu; increasingly a employees,
knowledge and information teams, and
society lean
production
80
New Trends in OM
Past
Causes
Future
Low-cost Environmental issues, ISO
focus 14000, increasing disposal
costs
Environmentally
sensitive
production,
green
manufacturing,
recycled
materials,
remanufacturing
81
CURRENT TRENDS INFLUENCING THE FIELD OF
OPERATIONS MANAGEMENT
• Growth and dominance of services
• Internationalization
- business competition is global
• Environmental quality
- environmental impact of operational decisions is a growing concern
for businesses
• Cross-functional management
- Business Process Reengineering (BPR)
• Supply chain management
- business is concerned with competitiveness of entire chain of value-
adding activities
• The explosion of E-commerce
- operational decisions must be more responsive to other functional
areas
- the Internet
Current Issues in OM
• Effectively consolidating the operations resulting
from mergers.
• Developing flexible supply chains to enable mass
customization of products and services.
• Managing global supplier, production and
distribution networks.
• Increased “commoditization” of suppliers.
• Achieving the “Service Factory”.
• Achieving good service from service firms.
OPERATIONS MANAGEMENT IN THE AGE OF
E-COMMERCE
• Consumers and businesses conduct business over electronic
networks
- Electronic Data Interchange (EDI)
- Internet
• E-commerce categories
- Business to business (B-B)
- Business to consumer (B-C)
• Enterprise Resource Planning (ERP) Systems integrate decision
support programs
• In E-commerce, OM is more closely integrated with other
functional areas
• Operational decision makers cannot take a functional
perspective but a process perspective
Three Foundational Components
of Modern Operations Management
85
BASIC ELEMENTS IN THE DEVELOPMENT OF
CUSTOMER RECOGNIZED VALUE
Define a Product-Service Bundle That
Meets:
•Service value added
•Manufacturing value added
•Synergy between service and
manufacturing value added
Develop a Value-Adding System:
•Service delivery system elements
•Manufacturing process elements
•Linkages between service delivery
system and manufacturing services
Establish and Use an Operational Performance
Measurement System Applied to Material, Facilities,
and Personnel in Order to Attempt to Determine If
Our Bundle of Goods and Services:
•Provides what the customer must have
(specifications)
•Meets customer expectations
•Excites and delights the customer
LEVEL OF CUSTOMER
SATISFACTION
Objective and
Subjective
Perceptions
Why Study Operations Management?
All businesses want to hire bright people who
can make the best decision for the business as
a whole, not just the best marketing, finance or
operations decision.
As every decision is cross-functional in nature
you will always need to work with operations
and understand operations no matter what
career path you choose.
How Is Operations Relevant to My Major?
88
The Future of Operations Management
The impact of the internet …
• The introduction of integrated supply chains
and enterprise resource planning …
• More demanding and knowledgeable clients …
• The ever increasing rates of change (including
technology and business models) …
• Competition is more intense …
• Global markets and operations strategy in a
global economy …
References
Hammer, M., & Champy, J. (1994). Reengineering the Corporation. New
York, NY: Harper Business.
Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining
Superior Performance. New York: The Free Press.
Sch
Taylor, F. W. (1911). Scientific Management. New York:: Harper & Row.
van Weele, A. J. (2010). Purchasing and Supply Chain Management 5th
edition. Singapore: Cengage Learning.
