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courseware collection/1G OM Intro Line of Visibility (2).pdf

Operations Management We use resources efficiently by designing and

managing processes to provide quality goods and services to customers for our long‐term success.

Operations Management We use resources efficiently by designing and managing processes to provide quality goods and services to customers for our long‐term success.

Resources: Efficiency: Processes: Quality: Good and Services: Long‐term:

Visible vs. Invisible Operations management is often invisible and unappreciated. There is usually a BIG problem when it’s visible! During World War II, US naval submarines accounted for 2% of total fleet, but sank 50% of enemy ships!

What you see vs. What you don’t see What you don’t see is oftentimes more important than you do see.

Line of Visibility In service, the customer is usually involved in service production. The provider does something while the customer does something else in a service setting. The guiding principles for service delivery are:

 Hide what providers do. (line of interaction, line of visibility)  Make customers do more at no cost.  Make customers do more voluntarily and happily and enjoy the process…at no cost!

Restaurant Service

Bank Operations

Express Mail Delivery

Service Blueprint at Blockbuster

Customer Enters Store

No Video Found

Customer Leaves Store

Payment Transaction Completed

Customer Receives Video

Customer Selects Video

Customer Reviews Selections

Customer Receives Request

Clerk Receives Payment

Clerk Retrieves Video

Credit Transaction

Change Made

Line of Visibility

Returns Video

Returns Change

Returns Credit Card

The Last Blockbuster Store

Exposed Line of Visibility Some companies do let customers see part of their operations… Why?

Good OM Examples If customer can and are willing to do it for free, why hire people to do it?

• IKEA self service, self assembly • Costco/Walmart self check out • Please return shopping carts! (Aldi) • Where have all the bag boys/girls gone? • Online reservations • Build A Bear!

Line of Interaction (Customer Contact)

Service delivery involves an interaction between the provider and the customer via face‐to‐face, phone, e‐mail or other means. Every time a customer comes in contact with the service provider is a moment of truth. The moment of truth determines customer perception of the service and the many moments of truth in a service interaction will together constitute the line of interaction.

Discussion Questions • Why would some organizations choose to expose

activities that are usually hidden behind the line of visibility?

• In your work, or in a scenario you are familiar with, describe the activities in front of the line of visibility and those behind it.

• Covid cases are surging. Describe the operations involved in testing people. Draw a line of visibility and describe activities visible and invisible.

courseware collection/2G Foundation Management (1).pdf

Management Fundamentals

 Industrial revolution and the use of machines

 Scientific Management: Fred Taylor applying scientific principles to management

 Henry Ford  The famous Hawthorne study  Peter Drucker  Michael Porter

Fred Taylor: Scientific Management 1. Study the one best way of

doing things from the master. 2. Recruit/select the right

people. 3. Train them the one best way. 4. Share efficiency gains

between management and workers.

There is only one way of doing everything. (e.g. McDonald’s story, Formula 1 pit stop)

The One Best Way

Each sport seems to need the right people to master. Some are more obvious while others are less so (physically).

At Dingtaifung…

One Thing and One Thing Only

Netflix Movie: The Founder

Multimixer Efficient Processes

Ketchup Dispenser Standardization

Further Readings on Management  Please read/watch the Industrial Revolution stories

www.history.com/topics/industrial‐revolution/industrial‐revolution

 Please read history of the organization of work: www.britannica.com/topic/history‐of‐work‐organization‐ 648000/State‐organized‐farming

 Please read Henry Ford: https://historycooperative.org/fast‐ moving‐henry‐fords‐contributions‐america/

 Please read about the Hawthorne Study: https://en.wikipedia.org/wiki/Hawthorne_effect

 Please read Drucker’s main ideas: https://en.wikipedia.org/wiki/Peter_Drucker

 Please read Porter’s main ideas: https://en.wikipedia.org/wiki/Porter%27s_generic_strategies

Industry 4.0

1. 1st Industrial revolution: power of steam 2. 2nd IR: power of electricity, oil (internal

combustion engine) 3. 3rd IR: power of computers 4. 4th IR: power of robots, artificial

intelligence, and IoT

https://www.youtube.com/watch?v=v9rZOa3CUC8

Broken Window Theory  Consider a building with a few broken

windows. If the windows are not repaired, the tendency is for vandals to break a few more windows. Eventually, they may even break into the building, and if it's unoccupied, perhaps become squatters or light fires inside.

 Police focus on broken windows rather than capital crimes. An ounce of prevention goes a long way.

Broken Window Theory Fact: There will never be enough police.

Challenge: What should the police do to ensure security?

Solution: Prevention. Dummies. Fighting crime in one area with dominant force and high visibility then move on to another area.

Discussion Questions Please answer the following questions: Everyone: Explain Scientific Management with 3 examples at work or in your personal life. Everyone: How would Industry 4.0 change your profession (or your personal life)? List and explain 3 major impacts. Everyone: How can you apply the broken window theory in your work/life?

courseware collection/2G Foundation OM Tools (2).pdf

Personal Productivity: Mise En Place

 Borrowed from French, mise en place literally means "setting in place.“ It’s a (kitchen) method of a culinary process in which ingredients are prepared and organized before cooking .

 Dan Charnas, author of “Work Clean”: It's not just about organizing space, it's actually about how you relate to space, how you relate to time, how you relate to motions within that space, how you relate to managing resources, how you relate to managing people, how you relate to managing your personal energies, all of that.

 Is it a productivity booster? How does it relate to the Japanese lean philosophy?

Mise En Place (Put in Place)

"Effective leadership is putting first things first. Effective management is discipline, carrying it out.“ Stephen R. Covey, author of “The 7 Habits of Highly Effective People”

“They never have enough time for us to do it right, but they always find the time for us to do it over.”

If it’s worth doing it, it’s worth doing it right the first time!

What else do you know about work

First Things First

• The Pareto Principle is named after Italian economist and sociologist Vilfredo Pareto who is known for his theory on mass and elite interaction as well as for his application of mathematics to economic analysis.

• Pareto observed in Italy an uneven distribution of wealth among people, that approximately 80% of the land was owned by 20% of the population.

• Later, when Joseph Juran applied the Pareto Principle to management, he specified that 80% of consequences often came from 20% of the causes. Managers need to pay attention to the 20% causes to reap the most benefits of their efforts.

Pareto Analysis (80/20 Rule)

A Pareto chart is used to graphically summarize and display the relative importance of the differences between groups of data.

Pareto Chart

• Microsoft noted that by fixing the top 20% of the most-reported bugs, 80% of the related errors and crashes in a given system would be eliminated.

• In baseball, 15% of all the players produced 85% of the total wins.

• In healthcare, 80% of healthcare costs are attributed to 20% of the populace: the chronically ill.

• Adweek found that 70% of in-app purchase revenue comes from just 10% of players (known as ‘whales’), who also account for 59% of total revenue.

• Most people wear 20% of their clothes 80% of the time.

Pareto Examples

Pareto Example 1

Pareto Example 2

Fix these!

Pareto Example 3

Fix these!

What is the 2×2 Matrix?

The 2×2 Matrix is a visual tool that managers use to help them make decisions. It’s a 2×2 matrix with opposing characteristics on each end of the spectrum. The manager then sorts their ideas and insights according to where they fall in the matrix.

This common analytical tool has many variations, including the Eisenhower Matrix, the BCG Growth Share Matrix, and the SWOT Matrix that we will discuss here.

Eisenhower Matrix The Eisenhower Matrix is named after Dwight D. Eisenhower, an American army general and the 34th President of the United States from 1953 to 1961. Because he made tough decisions for the many tasks that needed his attention, he invented this method to help us prioritize by urgency and importance. He was famously quoted as saying “What is important is seldom urgent and what is urgent is seldom important.”

The Eisenhower Decision Matrix 1. “Important” and “Urgent” tasks. Highest priority and

should be your primary focus to complete ASAP. 2. “Important”, but “Not Urgent” tasks. Long-term goals

and tasks that are important and should be scheduled in your calendar after you’ve finished everything from the “Do” quadrant.

3. “Not Important”, but “Urgent” tasks. These tasks are the ones you can delegate to others.

4. “Not Important” and “Not Urgent” tasks. Delete them!

The Eisenhower

Decision Matrix

Examples

The BCG Growth Share Matrix The growth share matrix was created in 1968 by BCG’s founder, Bruce Henderson. It is a portfolio management framework that helps companies decide how to prioritize their different businesses. Each business is assigned to one of these four categories, representing a certain degree of profitability: question marks, stars, dogs, and cash cows.

The BCG Matrix

• Low Growth, High Share. Companies should milk these “cash cows” for cash to reinvest. • High Growth, High Share.

Companies should significantly invest in these “stars” as they have high future potential. • High Growth, Low Share.

Companies should invest in or discard these “question marks,” depending on their chances of becoming stars. • Low Share, Low Growth.

Companies should liquidate, divest, or reposition these “pets.”

The BCG Growth Share Matrix

SWOT Analysis

SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning. It is useful in determining the abilities and disadvantages of a business from an internal and external perspective.

SWOT Analysis Strengths: characteristics of the business or project that give it an advantage over others. One should ask if the strengths are sustainable. Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others. One asks if they can be improved? Opportunities: elements in the environment that the business or project could exploit to its advantage, now and future. Threats: elements in the environment that could cause trouble for the business or project, real and potential.

Facebook SWOT Analysis

Discussion Questions

Please research and answer the following questions: Everyone: Choose one of the 3 Pareto examples to develop an action plan.

Everyone: New car dealerships usually have revenues from 4 sources: new car sales, used car sales, parts and services, and warranties and financing. Research and analyze it using the BCG matrix.

courseware collection/2G OM Foundation Science Statistics Economics (1).pdf

Why is Science Important?  We manage by science

and facts; not by opinions or emotions.

 Science helps us analyze and evaluate complex situations.

 Science helps us develop possible solutions.

 We need science ever more now that we have BIG data!

Science  Causal relationships (A causes B to

happen) vs. correlation  Primary data vs. secondary or

tertiary data  Can you trust the Internet?

Pseudoscience and urban myths…

Science: Casual Relationship?

 Causal relationships means A causes B to happen while A correlates with B means they happen at the same time.

 Prove that milk does a body good.  Prove that kids who learn to play music

perform better in school.  Prove that we shouldn’t buy cars made

Friday afternoon (because workers are not paying attention; they are planning for the party ahead).

Causation or Correlation?

playing music

good SAT/GPA

What we think happened…

rich family

playing music

good SAT/GPA

What actually happened…

Science: Data and Source

 Primary data (data you collect for the purpose of your study) vs. secondary or tertiary data (data collected by someone else for other reasons)  Which data type above is more reliable?  What are the benefits and costs using primary data vs.

secondary data?

 Can you trust the Internet? Pseudoscience and urban myths…  Your examples of the above?

Understanding Science

 What is science? Making assumptions or hypothesis, carrying out observations and experiments, drawing conclusions and generalization.

 Knowing statistics is necessary to learn about science, and to apply scientific (management) principles!

Science: Hypothesis Testing  Parking meter experimentation (are parking

meters accurate in measuring time?) A girl went shopping with her dad and they dropped a quarter for 20 minutes of parking in Sacramento. When they returned after 19 minutes, they found a parking ticket. How would they prove that they were not violating the parking regulations?

 How do you prove prayers work?  Are happy workers more productive?  Are there differences between men and women?

Are women genetically disadvantaged for science and engineering?

 Are Volvos safer than others?

Hypothesis Testing

Statistics  Statistics is the study of the collection,

analysis, interpretation, presentation, and organization of data. (If you have forgotten what you learned, I strongly suggest you go over this Wikipedia page again: https://en.wikipedia.org/wiki/Statistics)

 Managers need to know statistics, not necessarily how to do it but to understand and reason with data, present arguments with data, understand material presented in publications.

Statistical Literacy Please think about the following questions:  The meanings of mean, median, standard

deviation, random sample/variable, normal distribution, t-test, confidence level/interval.

 In math, 3 is always greater than 2.8. Is it also true in statistics?

 How many college students in the U.S. (out of 20 million) do we need to survey to learn about their Internet shopping preferences?

 If a professor says to you that students sitting in the front of the room are better students. How do you know it’s true?

Normal Distribution Do you remember this chart?

Foundation: Micro Economics

 Production function: a set of ingredients/production factors and their relationships that make things happen

 Economies of scale (quantity/Costco): the more you buy, the more you save

 Economies of scope (variety and coverage/Direct TV, Macy’s): candy shop in mall, battery shop

 Utilities: satisfaction or values associated with product attributes. Types of utilities: place, time, form, possession, transaction

Production Function

 Production function: a set of ingredients/production factors and their relationships that make things happen

 Example: baking a loaf of bread needs  Flour, water, yeast, sugar, salt, time

 Example: making cars needs  Capital (money), labor, technology, know-how

 Example: making $$ driving Uber needs  A 4-door car, driver’s license, clean records, time

Economies of Scale

 Economies of scale (quantity/Costco): the more you buy, the more you save

 Example: the most popular item at Costco is 30- roll Charmin and 36-roll Kirkland toilet papers (they don’t sell 4-roll packs)

 Example: buying a dozen of donuts is always cheaper than buying individual ones...and you usually get 13 for the dozen! (baker’s dozen)

 Do you know why economies of scale happen?

Economies of Scope

 Economies of scope (variety and coverage/Direct TV, Macy’s): candy shop in mall, battery shop

 A business is viable because it offers enough variety (Macy’s department store) or enough coverage (UPS delivers worldwide)

 Example: Amazon started as a bookstore online  Example: Sirius Satellite Radio is available

anywhere in North America, and offers a wide variety of radio stations

Utilities

 Place utilities: Casino ATMs w/ higher fees, expensive bottled water at Disneyland

 Time utilities: long stem roses on Valentine’s Day, Halloween costume on Nov. 1

 Form utilities: Gogurt, baby carrots, Tyleno in liquid gel/chewable form

 Possession utilities: rental car, apartment  Transaction utilities: Black Friday, Kohl’s

couponing, limited time offerings

Please see notes in the next slide for more details.

Utilities Notes  Place utilities refers to different prices charged at different places you

purchase the item. (books in campus bookstores are usually more expensive.)

 Time utilities refers to items you paid different prices for because they were purchased in different times. (Christmas trees on Dec. 26 are half off, Vegas hotel rates on weekend are more expensive.)

 Form utilities refers to different prices for the different shapes/forms of the same product. Target charges you $10 fee if you want your bikes assembled or you will get a box with semi-assembled parts. One also pays extras for pre-cooked bacons and salads in a bag. The difference in price for baby carrots and regular carrots can only be explained by form utilities.

 Possession utilities say that you have to own it to enjoy it. Examples would be that you pay to own/spend the night at a hotel.

 Transaction utilities are values associated with shopping. Examples are Kohl’s forever % off and heavy discounts to make shoppers feel as if they got a bargain. Buy One Get One free is also another way to increase transaction utilities.

Click the Bottom Link to Listen to This Podcast

https://www.marketplace.org/2016/05/25/kids-won-t-eat-their-apples- try-slicing-them/ (What would Sid do if the link doesn’t work?)

Can You Identify These Utilities?

Can You Identify

These Utilities?

Can You Identify These Utilities?

courseware collection/3G Global manufacturing (1).pdf

Deindustrialization in Developed Economies

Social, economical, environmental impacts? Quality of life, future upwards mobility, U.S. competitiveness?

Who is Manufacturing Things?

Source: World Bank World Development Indicators, 2011

Deindustrialization in the developed world and the rise of manufacturing in the developing world

Changes in Worldwide Manufacturing Employment Share 1970‐2015

Evolving Manufacturing in the U.S.  As economy develops, manufacturing that is

polluting the environment, uses a lot of manual labor, and adds little value will move to less developed countries while services at higher levels will increase.

 Some time in the 1980s, the service sector in the U.S. started to outpace the manufacturing sector

 What are some of these manufacturing industries that have disappeared or are disappearing in the U.S.? Are there growing sectors in manufacturing?

Changes in the U.S. Manufacturing  Durable goods manufacturing increased by $9.2

billion between 1997 and 2018, a less than 1% increase.

 Nondurable goods manufacturing increased by $155 billion or 17%. Food and beverage and tobacco product grew by $60 billion (28%), petroleum and coal products grew by $58 billion (77%), and chemical manufacturing grew by $101 billion (36%).

 The number of computer and electronic product manufacturing jobs is down by 759,900 jobs ( 41%). Apparel and leather manufacturing jobs are down 380,000 (66%).

Changes in Manufacturing Jobs 2010-17

Renewed Manufacturing in the U.S.  Latest resurgence of manufacturing in the U.S. or

re‐shoring or near‐shoring  The rise of flexible production systems,

automation/robotics, business process outsourcing & downsizing has changed the landscape of manufacturing

 Arrival of Industry 4.0: new phase in the Industrial Revolution that focuses heavily on interconnectivity, automation, machine learning, and real‐time data

 The Pandemic has companies rethink about the long and sometimes risky supply chains they run.

Industry 4.0

Growth of Industrial Robots

All data circa 2016

Industrial Robots by Countries

Robots by Industries

Discussion Questions Please research the following questions and provide evidence to support your answers. Everyone: What are the reasons deindustrialization happens in developed economies? Please look at both macro‐ and micro‐economic levels when answering. Everyone: Do you think Made in America still matters? Would you buy American‐made products when possible? Even when it’s more expensive than other comparable products of similar quality? What kind of products would you buy American and what products you would not?

Group Discussion Be sure your group is ready to lead and/or discuss the following question in class, with research or facts‐based evidence. Do you think there will be a wave of renewed manufacturing in the U.S. that would 1) revive and grow manufacturing activities in the U.S., and/or 2) generate more jobs in manufacturing, both blue and white‐collar?

courseware collection/3G Outsourcing and Made in USA (1).pdf

Outsourced!  When someone else can do it better and cheaper and faster than you can do it yourself, why do it yourself? Example: Let’s eat out!

 Outsourcing also enables companies to focus on things they do the best (core competencies or competitive advantages) and outsource non‐core competencies.

Theory of the Firm

 Peter Drucker and Tom Peters challenged companies to “do what you do best and outsource the rest.”

 Ronald Coase: minimize total cost of ownership or transaction costs in “The Nature of the Firm.”

 Example: Why do you buy a copier at office? Because the alternative to walking over to the nearest UPS store to make a copy then back is more expensive than making copies in house.

Top Outsourced Industries/Functions

Why some industries outsource more than others?

Top Reasons to Outsource

Pros and Cons of Outsourcing

• Lower costs • Better market access • Broader supplier selection

• Reputational risks • Loss of control in quality and priority • Longer and uncertain lead times • Challenges in (inter‐cultural) communication • Supply chain disruption risks • Foreign exchange rate fluctuations • Political and environmental risks

Changing Faces of Manufacturing • From vertically integrated manufacturing to specialized manufacturing

• From in‐sourcing to outsourcing or offshoring that exports jobs to developing countries

• The U.S. became a country with “cheap” labor • Development in technologies (robots, automation, CAD/CAM, 3D printing, etc.) and new product designs are bringing manufacturing back to the U.S. (re‐shoring)

• Demand for responsive global supply chain becomes inevitable

• A contract manufacturer is a firm that specializes in certain types of goods‐producing activities, such as customized design, manufacturing, assembly, and packaging, and works under contract for end users.

• Benefits of using contract manufacturing: ⁻ Access to advanced manufacturing technologies ⁻ Faster product time‐to‐market ⁻ Customization of goods in regional markets ⁻ Lower total costs resulting from economies of scale

• Who handles activities between the company and contract manufacturers? Yes, SCM!

More Contract Manufacturing

Origin of Manufacturing

Outsourcing (in the U.S.)

 The US manufacturing took off after World War II as the only industrialized power left untouched. Defense capacity was transformed back to civilian use.

 Used Mexico’s cheap labor and proximity to the US…Twin Factories (Maquiladoras) developed in automotive, aviation and aerospace, medical device, apparel and textile, and consumer products.

 “Border Industrialization Program” (BIP)  Trade agreements: NAFTA, CAFTA, USMCA

Rise of Japan and the Four Dragons • U.S.: continued engagement after World War II in Japan, Korea, Vietnam. (1949 PRC established) • Japan: post‐war development, keiretsu 系列, けいれつ • Taiwan: KMT Nationalist modernization and export‐led development since the 50s

• HK: textile, light industries, electronics since the 60s

• Singapore: Lee Kuan Yew* • Korea: Park Chung‐Hee, Chaebols재벌

Nation Building: Singapore Lee Kuan Yew  Efficient and transparent legal system  Clean but authoritative bureaucratic system  One of the most diverse countries on earth  Critical roles in transportation and trade  Affordable, high‐quality education (54% college)  Per capita GDP: $60K

Rise of East Asian Economies  Japan: industrial strengths, post‐war economic

recovery (Nakajima Ki‐84, Mitsubishi Zero)  Trade frictions between Japan and the U.S. in

the 80s (suppliers moved to other places)  Strategy: government export‐led growth policy  Structure: free/capitalist markets, state‐

controlled resources, protectionism…  Entrepreneurship, innovations  Confucianism: education, relationship (guanxi),

collectivism?  Ethnic superiority?  Use of chopsticks?

Rising Global Exports

Improved Transportation  Development of aircraft: Boeing, Douglas, and

Lockheed  Development of civil aviation  Development of containers  Development of ocean liners

Improved Transportation  Boeing 747, DC‐10  Hakone Maru (NYK, Mitsui, K‐Line or ONE now)

Declining Costs of Transportation

Concerns of East Asian Economies

Made in USA U.S. content must be disclosed on automobiles and textile, wool, and fur products. Manufacturers and marketers who choose to make claims about the amount of U.S. content in their products must comply with the FTC’s Made in USA policy. • Definition: The product must be "all or virtually all"

made in the U.S. (meaning all significant parts and processing are made in the U.S.)

• Derivatives: Designed, assembled, invented, hand‐ crafted, printed in USA…

Country of Origin When determining origin, CBP takes into account one or more of the following factors:  the character/name/use of the article and that

of it individual parts  the nature of the article’s manufacturing

process, the value added by the manufacturing process (as well as the cost of production)

 the amount of capital investment, or labor required

 whether the essential character is established by the manufacturing process or by the essential character of the imported parts or materials

Substantially Transformed or Not  The value added rule (minimum % domestic vs.

maximum % foreign)  Change of tariff classification (not just name)  Specific manufacturing or processing

operations (not just screwdriver assembly)

Is iPhone American?

Discussion Questions Please research the following questions and provide evidence to support your answers. Everyone: Summarize at least three factors that make one industry/firm more likely to outsource than others. Back up your position with facts/examples. Everyone: Is iPhone American? On what base do you say so? Please reference course materials and legitimate evidence to support your claim.

Group Discussion Be sure your group is ready to lead and/or discuss the following question in class, with research or facts‐based evidence. With abundant and inexpensive labor, and proximity to the U.S., why hasn’t Mexico developed into a more advanced economies with industries like semiconductors, computers, cell phones, consumer products, and automotives, like its Asian counterparts, despite the fact the U.S. outsourced to Mexico first in the 1960s and now has more than 40 million Spanish speakers?

courseware collection/4G Time based competition (2).pdf

Time-Based Competition

Speed is King! Jong-yong Yun, CEO, Samsung: “Speed is the key to all perishable commodities from sashimi to mobile phones. Even expensive fish become cheap in a day or two. For both the sashimi shop and the digital industry, inventory is detrimental and speed is everything.”

• Lean thinking refers to approaches that focus on the elimination of waste in all forms, and smooth, efficient flow of materials and information throughout the value chain to obtain faster customer response, higher quality, and lower costs.

• Manufacturing and service operations that apply these principles are often called lean operating systems, initially developed and implemented by the Toyota Motor Corporation.

Lean Philosophy

1. Eliminate Waste: Eliminate any activities that do not add value in an organization. Includes overproduction, waiting time, transportation, processing, inventory.

2. Increase Speed and Response: Better process designs allow efficient responses to customers’ needs.

3. Improve Quality: Poor quality reduces yields, requiring extra inventory, processing time, and space for scrap and rework. Do it right the first time.

4. Reduce Cost: Simplifying processes and improving efficiency translates to reduced costs.

Lean Operating Systems

Time in JIT (Just in Time) Just-in-time, or JIT, is an inventory management method in which goods are received from suppliers only as they are needed. The main objective of this method is to reduce inventory holding costs and increase inventory turnover.

• Quantity • Quality • Timed arrivals

Time-Based Business Models

• Time utilities: Everything is the same except it’s faster!

• McDonald’s • FedEx • Zara, H&M • Southwest Airlines • MBA derivatives • Instant meals • Hong Kong tailors

Time-Based Competition

Organizations can improve the time it takes to get things done in every aspect of their operations.

 Business model innovations  Business Process Reengineering (BPR)  See Now, Buy Now: planning, design,

development, sell-in, production, distribution  New product development  Quick Response Manufacturing (QRM)  Order fulfillment: pick, pack, ship  Inventory velocity  Cash conversion cycle (CCC)

Business Model Innovations

EV and Its (Supply Chain) Impacts

Business Process Reengineering Business process re-engineering is the radical redesign of business processes to achieve dramatic improvements in critical aspects like quality, output, cost, service, and speed. Business process reengineering (BPR) aims at cutting down enterprise costs and process redundancies on a very huge scale.

Southwest Airlines

SWA managed to unload all the landed passengers with their luggage, cleaning, refueling, restocking, and boarding new passengers together with their luggage and cargo in 10 MINUTES!

End-to-End Fashion Cycle

SHEIN  China's most mysterious billion-dollar company and

TikTok's most-hyped fashion brand.  The largest online-only fashion company in the world.  The brand undercuts rivals on price and often adds

thousands of new styles to its website daily.  It uses aggressive social media marketing to win over

young shoppers.

COVID-19 Vaccine Development  Coordination and funding  mRNA technology  Phases of clinical trials overlapped  Manufacturing underway during clinical trials  Bureaucratic clearance

Custom On-Demand Production

Silver Crystal

Product customization at point of sale!

The goal is offering guests a great experience but delivering it in a shorter window of time. Revenues = # of tables X check size X # of turns

Turning Tables Faster

Inventory velocity is the speed at which the inventory is cycled in a given period or how fast inventory is turned over.

Inventory Velocity

Inventory velocity is measured by inventory turnover or number of days inventory is held.

Inventory Velocity

Inventory Velocity at Apple

Inventory Velocity at Amazon

Cash Conversion Cycle In most businesses, cash is tied up in stale inventory and short-term customer credits, therefore reducing cash conversion cycles (CCC) is the best method for liquidating working capital. The CCC represents the number of days it takes a company to turn inventory into cash, and the longer the CCC, the greater a company's working capital requirement.

Cash Conversion Cycle

In most businesses, cash is tied up in stale inventory and short-term customer credits, therefore reducing cash conversion cycles (CCC) is the best method for liquidating working capital. The CCC represents the number of days it takes a company to turn inventory into cash, and the longer the CCC, the greater a company's working capital requirement.

China Speed The blistering pace of expansion by China's economy in the past decades has impressed the world as "China speed," which is about the breakneck pace of GDP growth, and the sheer velocity of building roads, bridges and skyscrapers. It’s also about how swiftly an economy of China's size embraces new development technologies.

China EV Growth

Interstate Highway Mileage U.S. vs. China, 1959-2017

Tesla Giga Shanghai

Tesla Giga Shanghai May 2018: Tesla (Shanghai) formally established

July 2018: Tesla CEO Elon Musk signed an agreement with the Shanghai regional government

October 2018: 50-year lease of land signed

December 2018: site grading on the Gigafactory began

August 2019: General Assembly Building completed and manufacturing line equipment installed

October 2019: Model 3 initial production began

December 2019: First assembled Model 3s delivered

Discussion Questions Please research the following questions and provide evidence to support your answers. Everyone: Why can’t I get my driver’s license the same day I pass the test? Discuss the barriers and how these barriers might be overcome. Everyone: Select one to discuss how it can improve inventory velocity: Tiffany, Restoration Hardware, Amazon. Everyone: What can be learned from COVID-19 vaccine development? Everyone: Does “China Speed” have any drawbacks? What strategy/practice could be used to counter a country/company that possesses “China speed?”

Group Discussion Be sure your group is ready to lead and/or discuss the following question in class, with research or facts-based evidence. It seems like time-based competition is all good, that businesses focus on time and everything else would fall into place. What are some perils of such strategy? Can you think of a few examples where being faster may not be desirable? What would be the advantages for being fast, and what would be the advantages for being slow? What would you do in your line of business?

courseware collection/5G Circular economy Goods Services CBP (3).pdf

Evolution of Economy

From linear to reuse to circular economy.

Circular Economy

From linear to circular economy.

Examples of Circular Economy

Circular Economy Opportunities  Ranpak:

 Waste management, recycler, refurbishment:

An Economy of Goods and Services  Good: Physical product that a person can see,

touch, or consume  Durable good: Product that does not quickly wear

out and lasts at least three years  Non‐durable good: Perishable and lasts for less than

three years

 Service: Primary or complementary activity that does not directly produce a physical product

 Combinations of goods and services  Many goods are sold with service components  Many services are sold with a tangible item

Similarities and Differences Between Goods and Services  Similarities between goods and services  Provides value and satisfaction to customers who

purchase and use them  Can be standardized or customized to individual

wants and needs

 Differences between goods and services  Goods are tangible while services are intangible  Customers participate in many service delivery

processes and activities, but not in goods production  Goods can be stored while services cannot be stored

as physical inventory  Demand for services is more difficult to predict than

the demand for goods

Gradient of Goods and Services

Examples of Goods and Services Can you tell whether the following are goods or services?  Can it be prepared ahead of time?  Can it be stored?  Does it require customer participation?

Delivering Goods

 Customers go to Goods

 Goods go to customers

 Customers and Goods meet halfway

Delivering Services  Customers go to

Services  Services go to

customers  Customers and

Services meet halfway

Goods Can/Should Be Turned Into Services

Benefits: To avoid price comparison, to turn one‐time transactions into longer term relationships, to add value to goods sold. How: By bundling goods and/or service components (installation, repair, warranty, tech support, subscription).

Subscription Models Instead of customer‐initiated purchases, the subscription model sends products/services to customers at pre‐schedule times until it’s cancelled. Examples include newspapers, Cable TV, streaming, gym membership, meal deliveries, wine clubs, etc.

Benefits: Customer loyalty Upsell opportunities Predictability (inventory, capacity, cash flow)

Customer Benefits Package A CBP is a combination of goods and services that adds value to the primary product acquired by the customer. For example: McDonald’s CBP.

Customer Benefits Package Pizza is a good, not a service, right? The CBP looks at the offering and determines what customers actually buy.

What do you buy a Rolex for?

Do you buy a Rolex to tell time?

Why do you think your husband bought you the largest diamond ring among your friends?

Examples of CBP Examples of supply chain elements in this e‐commerce era. Please listen to the following broadcast:

https://www.cnet.com/news/walmart‐plus‐targets‐amazon‐prime‐with‐cheaper‐98‐ membership‐fee/

OM Elements in CBP What operations elements are or should be in the CBP, especially in this e‐commerce era?

Discussion Questions Please research the following questions and provide evidence to support your answers. Everyone: Think of three goods and services you purchased in the past few months: 1 mostly goods, 1 mostly services, and 1 about equal part of both. Which one is more profitable for the seller and why? What are their CBPs? Can they be turned into subscriptions? Why or why not? Everyone: Do you know how active it is for people to buy/sell used goods online on eBay, Craigslist, Offerup, Facebook and in physical stores like Goodwill and Re‐store? What are some business opportunities there? Everyone: Explain and list all the benefits in the CBP related to selling groceries in store and online with same day delivery.

Group Discussion

Be sure your group is ready to lead and/or discuss the following question in class, with research or facts‐based evidence. What’s the business model of Dollar Shave Club? Why did DSC become popular? Is it easier to run operationally? What can DSC do to incorporate the circular economy concept in their operations?

courseware collection/5G Porter value chain (3).pdf

What is Value?

Value = Performance

Cost

Performance = f (Quality, Speed, Flexibility)

Think: How do you increase value of your offerings?

The Value Chain $, Info

Materials, Info

Primary and Support Activities Support activities: corporate functions that add values in an indirect manner.

Primary activities: corporate functions that add values directly to final products or services.

Manage Supply AND Demand Chains

Supply side: raw materials, inbound logistics and production processes

Demand side: outbound logistics, marketing and sales.

suppliers customers

Ancillary to Porter’s Value Chain  Local optimization yields to global

optimization (inventory minimization might not lead to low total costs)

 Coordination, speed, information and resource sharing are important

 Each activity must add value to the final product or service

 Each participating player of the supply chain has its own value chain

 If it doesn’t add value, don’t do it!

Broken Oreos…

Think: Everyone wants to buy Oreos in perfect shapes. Who wants to buy broken Oreos during manufacturing and shipping? Do you throw them away?

What a Great (Expired) Deal! https://dailytable.org/

This organization offers customers foods that are near or past the best before date.

Discussion Questions Please research the following questions and provide evidence to support your answers. Everyone: Is Daily Table a sustainable business model? Why or why not? How does it relate to the circular economy we talked about?

https://www.npr.org/sections/thesalt/2015/0 6/04/411777947/trader-joes-ex-president- opens-store-with-aging-food-and-cheap- meals

Group Discussion Be sure your group is ready to lead and/or discuss the following question in class, with research or facts-based evidence. Use the organization one of you works at (if none, then use an organization that you are familiar with), identify their management of supply AND demand chains. What can be done to improve their value-added activities? In other words, what can be done to enhance value? Please address it from both performance side and cost side.

courseware collection/9G Capacity planning (2).pdf

Capacity and Demand Planning So we have figured out a unique place in the circular economy, designed a product/service to deliver value to target customers, and selected an appropriate process to make them, but we still need to answer the following questions:  How much to produce  What lot/batch sizes to choose  When to produce Today’s manufacturing or service rendering is a highly complex process that requires a lot of resources and a considerable amount of planning. We need to make sure our products/services meet customer demand in a timely fashion.

Capacity Planning Terms (I)

 SKU (Stock keeping unit): A unique identifier assigned to each product for easier and more efficient record- keeping.

 Production function: It is the functional relationship between the quantity of a good produced (output) and factors of production (inputs such as labor, capital, land, technology).

 Bill of Materials: BOM specifies the relationship between the end product (independent demand) and the components (dependent demand). It is a comprehensive list of the raw materials, assemblies, subassemblies, parts and components, as well as the quantities of each, needed to manufacture a product.

SKU vs. UPC UPC (Universal Product Code) is used only in the US and Canada, while the EAN (European Article Number) is used everywhere else globally.

Capacity Planning Terms (II)  Master production schedule: An MPS is a plan to

produce individual final items. The MPS lays out the production plan for each stage's quantity.

 Materials requirements planning: MRP is a tool that determines what items are required, how many, and when.

 MRP II: Manufacturing Resource Planning  Enterprise resources planning: ERP is commonly

used by (especially) large organizations to coordinate the ever more complex activities that they perform. Vendors such as SAP, Oracle, PeopleSoft are dominating this market segment.

MRP Illustrated

Capacity Planning • Capacity planning is the process of determining

the production capacity needed by an organization to meet changing demands for its products or services.

• Capacity has to do with the space available, amount of equipment/machines used, number of people and shifts, manufacturing processes selected, and management efficiency.

• So you see a business opportunity to build a plant to make N95 masks during the pandemic. What factors do you take into account when building this plant?

Your N95 Mask Plant

• Demand • Physical facilities • Manufacturing

process • Machines • Staffing • Storage room • Production space • Outbound logistics

Capacity Choices/Decisions • How much do we need to produce to meet the

anticipated demand? • Do we buy or make ourselves? How much needs to be

bought or made in the supply chain? • If we buy, do we source domestically or internationally?

How do we manage the procurement process? • If we make, how much do we make and how many

parts and subassemblies do we need to buy from vendors? Do we set up plants or outsource to contract manufacturers? Domestic or international locations? Do we use automation or manual labor? Should we own or lease equipment/factory?

• What’s our contingency plan if demand is higher/lower than our forecasts?

Hotel ONT So you bet on increased travel through the Ontario Airport and would like to build a hotel on a vacant lot your friend owns. How big of a hotel (how many rooms) should you build? Capacity is calculated as number of rooms x 365 x utilization rate (not 100% rooms are available every night). Occupancy rate is the percentage of occupied rooms in your property at a given time. It is one of the most important KPIs and is calculated by dividing the total number of rooms occupied, by the total number of rooms available, times 100, creating a percentage such as 75% occupancy.

U.S. Hotel Occupancy Rate

Airlines Load Factor Load factor for a single flight is calculated by dividing the number of (fare paying) passengers by the number of seats (available for sale). Load factor for an airline represents the proportion of airline output that is actually consumed. To calculate this figure, divide Revenue Passenger Miles (RPMs) by Available Seat Miles (ASMs). The higher the load factor, the more an airline can spread its fixed costs amongst passengers.

Worldwide Passenger Airlines Load Factor

Managing Demand Demand forecasting is the process using

historical sales or other data to estimate customer demand. It’s an estimate of the amount of goods and services that customers will purchase in the specific time period.

Methods:  Use historical data (time series)  Use external factors (regression)  Use expert opinions  Use machine learning/AI

Demand management:  Adjust price  Adjust arrival (reservation/appointment/queuing)

Managing Demand

Queueing  Customers oftentimes are asked to be in queue, or

waiting line, before they get the service.  Too many agents/cashiers at any given time means that

you are wasting money for your employees to do nothing. Too few, you may agitate customers who either leave or wait for a long time to get service.

 Service provider has to determine what level of service they provide at how much cost (i.e. what is the expected wait time, how many customers can they handle in a day/hour, etc.)

 Many service providers use an appointment system to help handle customer arrivals so they can schedule services accordingly. (i.e. doctor’s office, DMV)

Queueing Solutions (I)

Mathematical:  Arrival: customer

arrival rate and pattern

 Queue: single line or multiple, single phase or multiple, first-come first-serve or priority/triage, single or batch

 Service: service rate and number of servers

Queueing Solutions (II)

Psychological:  Keep them occupied  Get them started  Explain why  Give time estimate  Be fair  Arrange group wait  Make the wait more

valuable

Optimal Waiting Line Cost Cashiers are on your payroll; customers are not!

Discussion Questions Please answer the following questions with reference to class and provide evidence to support your answers. Everyone: What factors do you take into account when building an N95 plant in mid-2020? Be methodical. Everyone: In your current or previous position, how is capacity managed? How can it be improved? Everyone: Describe a good waiting line management from your own personal experience. How can it be even better (definition first)? Everyone: Which plane boarding method do you think is the best and why? What can you do to speed it up?

Group Discussion Be sure your group is ready to lead and/or discuss the following question in class, with research or facts-based evidence. Learn how California DMV manages demand and queueing. Critique their management, using what we have discussed so far in class. Propose a better (define how you would measure “better”) way as if you were the head of DMV.

courseware collection/9G Inventory (1).pdf

• Manufacturing and service operations that apply these principles are often called lean operating systems, initially developed and implemented by the Toyota Motor Corporation.

Lean

1. Eliminate Waste: Eliminate any activities that do not add value in an organization. Includes overproduction, waiting time, transportation, processing, inventory.

2. Increase Speed and Response: Better process designs allow efficient responses to customers’ needs.

3. Improve Quality: Poor quality reduces yields, requiring extra inventory, processing time, and space for scrap and rework. Do it right the first time.

4. Reduce Cost: Simplifying processes and improving efficiency translates to reduced costs.

Principles of Lean Operating Systems

Avoiding Wastes in Lean Systems

• Inventory is any asset held for future use or sale with objectives of maintaining sufficient amount and variety to meet demands while incurring the lowest possible cost.

• Inventory Management involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets that are needed to meet customer wants and needs.

Inventory Management

• Raw materials, component parts, subassemblies, and supplies: inputs to manufacturing and service- delivery processes.

• Work-in-process (WIP): partially finished products in various stages of completion that are awaiting further processing.

• Finished goods: completed products ready for distribution or sale to customers.

• In-transit inventory: items in in-bound or out-bound logistics links.

• Safety stock: additional amount of inventory that is kept over and above the average amount required to meet just-in-case demand.

Types of Inventory

• Inventory turnover, or the ability to make more sales with less investment in inventory: the higher the better (a measure of inventory productivity)

• Inventory carrying costs, the expenses associated with keeping inventory in hand (obsolescence, storage, moving, etc.)

• Shortage costs or stockout costs, or the costs associated with an item being unavailable to meet demand: the lower the better (to an extent).

Inventory Decisions & Costs

• When inventory level is high (service level or order fill rate is high): stockouts and resulted lost sales are less likely to happen but inventory carrying costs and obsolescence risks are high.

• When inventory level is low (low safety stock): costs of keeping inventory in hand are minimized and inventory turnover is high but there is an increased risk of running out of stock and the customers may not be happy.

• The question is how much inventory do you keep?

Inventory Trade-Offs

What type of driver are you and implications of your conscientious decision: costs (stops for gas, time, mileage, higher price of gas...), benefits (peace of mind, ready anytime), risks (running out of gas, fuel pump damage...)

Can you analyze this?

Driver A vs. B

Monthly Retail Sales and Inventories, United States, 1992-2019

Fact 1: Retail sales have been going up. Fact 2: Retail inventories have been going up as well. Fact 3: Inventories/Sales ratios have been going down.

Question 1: What does inventories/sales ratio mean? Question 2: Why are they going down?

Think...

What? Pareto again?

• “A” items account for a large dollar value but relatively small percentage of total items (e.g., 10% to 30 % of items, yet 60% to 80% of total dollar value).

• “C” items account for a small dollar value but a large percentage of total items (e.g., 50% to 60% of items, yet about 5% to 15% of total dollar value). These can be managed by automated systems.

• “B” items are between A and C.

ABC Inventory (Pareto) Analysis

• Just-in-Time (JIT) production system was introduced at Toyota a half-century ago.

• Traditional factories use a push system, which produces finished goods inventory in advance of customer demand using a forecast of sales.

• The JIT or pull system, products are not produced until the customer demand is more certain or confirmed. Then items are “pulled” from the source or the suppliers “just in time” to make the required parts and products for the customer. The result is lower inventory throughout the system.

Just-in-Time Systems

• Traditional accounting treats inventory as asset, the more the merrier.

• Just-in-Time (JIT) treats inventory as (necessary) evil and tries to avoid keeping it at all costs. Inventory is nothing but trouble (expensive) in a JIT system.

Just-in-Time Philosophy

Damages Mark downs Theft or pilferage

• VMI is where the vendor (e.g. a consumer goods manufacturer) monitors and manages the inventory for the customer (e.g. a grocery store). ⁻ Chevron monitors gasoline levels then delivers

fuels to gas stations…automatically. ⁻ Pepsi comes into Von’s to restock.

• Vendors love to do more for customers. Why?

Vendor Managed Inventory (VMI)

Who is responsible for making sure all products face front and shelves are fully stocked?

Who should be blamed for empty shelves? And who lost?

Inventory Velocity (Turnover)

Inventory turnover is a ratio that measures the number of times inventory is sold or consumed in a given period of time.

It’s also known as inventory turns, stock turn, and stock turnover. The inventory turnover formula is calculated by dividing the cost of goods sold (COGS) by average inventory.

Inventory Velocity (Turnover) Cash to cash cycle: time from the acquisition of a firm’s inventory to the time that specific inventory is sold and money received. It is usually measured in days.

Inventory Velocity Among Retailers Groceries: 13.5; Apparel retail: 3.5; Dept stores: 4

Costco: 12; Walmart: 8.5; Target: 6; Home Depot: 5

How Fast is Fast Fashion?

Turnover ratio 3-4 5 3 4

Zara Front-Positioned Inventory

Inventory Turnover: Amazon v Apple

Square root law: Number of stock points (warehouses or DCs or stores) increases by X times, total inventory increases by the square root of X times.

The Square Root Law in Inventory Management

How much inventory has increased at Amazon?

Amazon Fulfillment Centers

Amazon Growing Logistics Costs

Discussion Questions Please research the following questions and provide evidence to support your answers. Everyone: Compare and contrast Just in time and Just in case inventory management thoughts in the Lean context. Everyone: Analyze and answer questions of the slide on Monthly Retail Sales and Inventories, U.S., 1992-2019 Everyone: Discuss the costs and benefits of Type A vs. B drivers as shown in my PPT slide on inventory trade-offs. What’re the lifetime costs/benefits of type B drivers? Everyone: Why did Amazon’s inventory turnovers drop from 16 to 8? And what happened to Apple’s from 80-100 around 2012-13 to about 40 in 2017-20? Can you explain?

Group Discussion Be sure your group is ready to lead and/or discuss the following question in class, with research or facts-based evidence. This is the $64,000 question: Are you concerned about Amazon’s growing logistics costs if you were the COO of Amazon? What would you do if you think it’s a concern? What would your conversations be with the CEO and with the logistics managers?