Welcome MGT329
Operations Management:
MGT329
Lecture: Monday and Wednesday
9:30 AM - 10:45 AM
11:00 AM – 12:15 PM
Professor: Jeff Street
Office: BA 434
Phone: X4184
Cell: (770) 654-2056
e-mail: strejeff@isu.edu
Course Books
 Operations
Management For
Competitive Advantage, 11th Edition,
by Richard B. Chase, F. Robert Jacobs
and Nicholas J. Aquilano.
 The
Goal, by Eliyahu M. Goldratt and
Jeff Cox
Grading
The grade received in the course will be
based on:
Participation/Homework
Exam
I
Exam II
Final Exam
(25%)
(25%)
(25%)
(25%)
Some questions to be addressed
in this course include:
 How
does the customer fit into
operations strategy?
 How is globalization affecting
business and operations strategies?
 What effect are new technologies
having on the utilization of an
organization’s resources?
Some questions to be addressed
in this course include:
 How
has the concept of quality
management changed, and how does
it affect operations?
 Why is continuous improvement in
the operations management function
necessary for an organization to
remain competitive?
Why Study Operations
Management?
Systematic Approach
to Organizational
Processes
Business Education
Operations
Management
Cross-Functional
Applications
Career Opportunities
Development of OM as a Field
Scientific
Management
Computers
(MRP)
TQM & Quality
Certification
Moving Assembly
Line
JIT/TQC &
Automation
Business Process
Reengineering
Hawthorne
Studies
Manufacturing
Strategy
Electronic
Enterprise
Operations
Research
Service Quality
and Productivity
Global Supply
Chain Mgmt.
Historical
Underpinnings
OM's Emergence
as a Field
Current Issues

Speeding up the time it takes to get new
products and services into production.

Developing flexible production systems to
enable mass customization of products and
services.

Managing global production/supply networks.

Developing and integrating new production
technologies into existing production systems.
Current Issues

Achieving high quality quickly and
keeping it up in the face of restructuring.

Managing a diverse workforce.

Conforming to environmental constraints,
ethical standards, and government
regulations.
What is Operations Management?
Operations Management is a functional area
of business devoted to the management of
an organization's resources to create
products or services.
The set of resources includes an
organization's know-how, facilities, workforce, materials, and equipment.
Operations Management issues permeate all
levels of an organization's decision making
from the long-term strategic to the tactical to
the day to day operations.
Operations management is concerned
with the design, operation, and
improvement of the production system
that creates the firm’s primary products
and services.
[Even Elmer’s, ISU, and Portneuf Medical
Center are production systems]
Operations Decision Making
Marketplace
Corporate Strategy
Finance Strategy
Operations Strategy
Marketing Strategy
Operations Management
People
Plants
Parts
Materials &
Customers
Processes
Products &
Services
Planning and Control
Input
Production System
Output
Managing Transformations
“The Production System”
Micro View
Input
Transformation
Process
Output
(Value Adding)
Transformation is
enabled by The 5 Ps of OM:
[A.K.A. The 5 Ms…Man,
Machines, Materials, Methods,
And Management]

People
 Plants
 Parts
 Processes
 Planning and
Control
Transformations

Physical--manufacturing

Locational--transportation

Exchange--retailing

Storage--warehousing

Physiological--health care

Informational--telecommunications
Competitive Priorities
 Quality
 Price
(including Service)
(or production cost)
 Delivery
(speed)
 Flexibility
f (Q,T)
V=
C
Our Value Equation
Core Services Definition
Core services are basic things
that customers want from
products (or services) they
purchase.
Core Services Performance Objectives
(Competitive Priorities)
Quality
“made correctly”
Flexibility
“customized”
Operations
Management
Price (or cost
Reduction)
“Competitively”
Delivery Speed
“on-time”
Value-Added Services Defined
Value-added services (or features)
differentiate the organization from
competitors and build
relationships that bind customers
to the firm in a positive way.
(i.e. increase “switching costs”)
Value-Added Service Categories
Problem Solving
“close gaps”
Information
“educate customer”
Operations
Management
Field Support
“grow utility”
Sales Support
“flex to demands”
Value-Added Factory Services

Information - provide critical data to market

Problem Solving – troubleshooting ability

Sales Support – demonstrate the offering

Field Support – replace/replenish stock, spares
Service or Good?
 “If
you drop it on your foot, it won’t
hurt you.” (Good or service?)

“Services never include goods and
goods never include services.”
(True or false?)
What about McDonald’s?
 Service
or Manufacturing?
 The
company certainly manufactures
tangible products
 Why
then would we consider
McDonald’s a service business?
How would an Operations
Management focus apply
here?
Standard
execution time 2
minutes
Verbalize
Order
Enter Order
30 seconds
15 seconds
Prepare
Food
Collect
payment
60 seconds
15 seconds
Fail
point
Front Office
Correct
Order
Materials
(e.g., food, paper)
20 seconds
Line of
visibility
Not seen by customer
but necessary to
performance
Back Office
Select and
purchase supplies
Operations Strategy and
Competitiveness
Chapter 2
Operations Strategy
Customer Needs
Corporate Strategy
Alignment
Competitors
Operations Strategy
Core
Competencies
Decisions
Processes, Infrastructure, and Capabilities
Strategy Process
Forced-Choice Model
Environmental Assessment
Broad economic assumptions
Key government
and regulatory issues
Major technological forces
Significant market
opportunities and threats
Explicit strategies of competitors
Organization’s Position
Statement of mission
Interrelated set of financial
and nonfinancial objectives
Statement of strengths and
weaknesses
Forecast of operational needs
Major future programs
Strategic options
Requirements for implementing options
Contingency plans
Strategy Process
Example
Customer Needs
More Product
Corporate Strategy
Increase Org. Size
SBU Operations Strategy
Decisions on Processes
and Infrastructure
Increase Production Capacity
Build New Factory
Hierarchy of Strategy Process
Customers
Environment
Vision
Type of Value delivered
Specific Market
Corporate Values
Core competencies
Performance metrics
Strategic
Business
SBU #1
Units
Marketing
Corporate Strategic
Planning
Capabilities
Progress
Potential Problems/Changes
SBU #2
Engineering
Functional
Areas
Finance
Operations
Mgt
SBU #3
Operations Strategy -Formulation
Customers
 Get
to know; team up with next and
final customer.
 Continual,
rapid improvement in
lead time, quality, cost, flexibility
and variability.
Operations Strategy -Formulation
Company
 Achieve
unified purpose via
information;
team involvement in planning and
implementing change.
Operations Strategy -Formulation
Competitors
 Get
to know the competition and
world-class leaders.
Operations Priorities

Cost

Quality

Delivery Speed

Flexibility

Service

Delivery Reliability

Coping with Changes in Demand

Flexibility and New Product Introduction Speed
Traditional
Competitive Priorities
A Framework for Manufacturing Strategy
Customer Needs
New product : Old product
Competitive
dimensions & requirements
Quality, Cost, Delivery, Flexibility, and Service
Enterprise capabilities
Operations
Suppliercapabilities
Capabilities
Operationsand
& Supplier
R&DR&D
Technology
SystemsSystems
Technology
People
People
Distribution
Distribution
Support Platforms
Financial management
Human resource management
Information management
Operations Strategy
Customer Needs
Corporate Strategy
Alignment
Competitors
Operations Strategy
Core
Competencies
Decisions
Processes, Infrastructure, and Capabilities
competitive priorities
Quality
Flexibility
Service
Cost
Lead Times
Variability
Dealing with Trade-offs
For example, if we reduce costs by reducing product
quality inspections, we might reduce product quality.
For example, if we
Cost
improve customer
service problem solving
Flexibility
by cross-training
personnel to deal with a
Quality
wider-range of
problems, they may
become less effective at
dealing with commonly
occurring problems.
Delivery
World-Class Manufacturing
World-class manufacturers [i.e. operations] no
longer view cost, quality, speed of delivery, and
even flexibility as tradeoffs.
They have become order qualifiers.
What are the order winners in
today’s market?
Distinctive Competency
Distinctive competency
“A strength that sets a business
apart from its competition”





McDonald’s
Disney World or Disney Land
Delta Airlines
Intel Corporation
UPS
Strategy Begins with Priorities

Consider the case of a personal computer
manufacturer.
1. How would we segment the market according
to product group?



Personal use
Small business
Large Corporations
2. How would we identify product requirements,
demand patterns, and profit margins for each
group?
How do we identify order winner and
order qualifiers for each group?





quality
cost
delivery
flexibility
service
What would be the winner for each market group?
•Personal use
•Small business
•Large Corporations
How do we convert order winners into
specific performance requirements?
Competition
(Them)
Differentiation
Us
(Distinctive
Competencies)
 Service
can be
an “order
winner”
Warranty
Travel
Planning
Roadside
Assistance
Loaner
Vehicles
Leases
Car Dealership
7
Again, What is Operations
Management?
Operations Management is the
functional area of business devoted to
the management of an organization's
resources to create products or
services.
What is Productivity?
A
measure of the effective use of
resources, usually expressed as the
ratio of output to input.
Output
Productivity =
Input
What factors affect the
productivity of a business?
work methods
 capital
 quality
 training
 technology
 management

What methods can be used to
improve productivity?
 develop

productivity measures
measurement is necessary to control the operation
 look
at overall productivity
 develop methods for achieving productivity
improvements
 establish reasonable goals for improvement
 measure and communicate improvements to
both customers and employees
Total Measure Productivity
Total measure Productivity =
Outputs
Inputs
or
= Goods and services produced
All resources used
[Productivity versus Throughput]
Partial Measure Productivity
Partial measures of productivity =
Output or Output or Output or Output
Labor
Capital
Materials Energy
Multifactor Measure Productivity
Multifactor measures of productivity =
Labor
Output
+ Capital
+
.
Energy
+
.
Materials
or
Labor
Output
+ Capital
Example of Productivity Measurement
You have just determined that your service
employees have used a total of 2400 hours of labor
this week to process 560 insurance forms. Last week
the same crew used only 2000 hours of labor to
process 480 forms.
Which productivity measure should be used?
Answer: Could be classified as a Total Measure or
Partial Measure.
Is productivity increasing or decreasing?
Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.
Example
10,000 Units Produced
Sold for $10/unit
500 labor hours
Labor rate: $9/hr
What is the
labor productivity?
Cost of raw material: $5,000
Cost of purchased material: $25,000
Example--Labor Productivity
10,000 units/500hrs = 20 units/hour
(10,000 unit*$10/unit)
(500hrs*$9/hr)
= $22.22
What do these calculations tell us?
More importantly -- What don’t they tell us?
Applying Productivity Figures
 You’ve
just told your boss that the
plant labor productivity is better than
that of a plant in a related business.
What does this really mean?
Productivity measures
 need
to be tracked over time
 need to include all possible inputs
 are difficult to compare between
companies or industries
 do not (directly) include measures of
timeliness or quality
[th********]
[sc*** and re****]
Solution for Problem #1
Labor Productivity – units/hour
Model
Deluxe Car
Output
in Units
4,000
Input
in Labor Hours
20,000
Productivity
(Output/Input)
0.20
Limited Car
6,000
30,000
0.20
Labor Productivity – dollars
Model
Deluxe Car
Limited Car
Output
in Dollars
4,000($8000)=
$32,000,000
Input
in Dollars
20,000($12.00)=
$240,000
Productivity
(Output/Input)
133.33
6,000($9500)=
$57,000,000
30,000($14.00)=
$420,000
135.71
Solution to Problem #2
Labor Productivity
Country
U.S.
Output
in Units
100,000
Input
in Hours
20,000
Productivity
(Output/Input)
5.00
LDC
20,000
15,000
1.33
Input
in Hours
60,000
Productivity
(Output/Input)
U.S.
Output
in Units
100,000
LDC
20,000
5,000
4.00
Capital Equipment Productivity
Country
1.67
Solution to Problem #2
Multifactor – Labor and Capital Equipment
Country
U.S.
Output
in Units
100,000
Input
in Hours
20,000 + 60,000=
80,000
Productivity
(Output/Input)
1.25
LDC
20,000
15,000 + 5,000=
20,000
1.00
U.S.
Output
in Units
100,000
Input
in Dollars
$20,000
Productivity
(Output/Input)
5.00
LDC
20,000
FC $20,000/10=
$2,000
10.00
Raw Material Productivity
Country
Lasik Vision
Lasik Vision

What was Lasik Vision’s competitive priority?


High volume – low cost
Other priorities?

Flexibility?

Delivery?

Quality?
Lasik Vision
 Is
this the appropriate approach in this
industry?

Is standardization more difficult in health
care?
 What
repercussions, actual or
perceived might occur with this
priority?
Lasik Vision
 Given
that a company has chosen this
priority, what needs to be done to achieve
success?
Lasik Vision -- Update

January 15, 2001 – Icon Laser Eye Centers
proposes takeover of Lasik Vision

March, 2001 – takeover complete

April 4, 2001 – Lasik Vision in bankruptcy

April 23, 2001 – Dr. Hugo Sutton and
others purchase assets of Lasik Vision.
Clinic reopens as Lasik Eye Centres