McGraw-Hill/Irwin
OPERATIONS MANAGEMENT
LECTURE -1
Ch.1 Operations and Supply Chain
Management Ch.2 Strategy and Sustainability
Ch.5 Projects
1- 1
Text
McGraw-Hill Education / Jacobs
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without the prior written consent of McGraw-Hill Education.
OPERATIONS
AND SUPPLY
CHAIN
MANAGEMENT
Chapter 1
1- 2
Strategy, Processes, and Analytics
D
Operations and supply chain management involves specialists in:
I
JProduct
design
I
JPurchasing
I
JManufacturing
I
J Service operations
I
JLogistics
I
JDistribution
D
Success depends upon:
I
J Operations-related
strategy
I
JProcesses to deliver products and services
I
J Analytics to support the decisions needed to manage the firm
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distribution without the prior written consent of McGraw-Hill Education.
1- 3
What is Operations and Supply Chain
Management?
D
D
D
The design, operation, and improvement of the systems that create and
deliver the firm’s primary products and services
Operations and Supply Chain Management (OSCM) is concerned with the
management of the entire product production or service delivery system
The functional fields of business are:
IJOperations and Supply Chain Management
IJMarketing
IJFinance
IJSales
I
J Not
a Statistics course ©
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distribution without the prior written consent of McGraw-Hill Education.
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OM in the Organization Chart
Finance
Plant
Manager
Operations
Operations
Manager
Marketing
Director
Manufacturing, Production control,
Quality assurance, Engineering,
Purchasing, Maintenance, etc
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Why Study Operations Management?
Marketing enhances sales and hence revenue, Finance helps decrease financial costs, and Operations aims to decrease general
production and operational costs.
Base
Marketing (50%)
Finance (50%)
Operations(20%)
Gross Revenue
100.00
100.00
100.00
150.00
Cost
75.00
75.00
112.50
60.00
Gross Margin
25.00
37.50
25.00
40.00
Finance Cost
10.00
10.00
10.00
5.00
Gross Profit
15.00
27.50
20.00
30.00
Corporate Tax (35%)
7.00
5.25
9.63
10.50
Net Profit
9.75
17.88
13.00
19.50
83.3%
33.3%
100.0%
As compared to the base scenario, see how a 50% improvement in revenues due to the efforts of Marketing ends up with
an 83.3% Net Profit increase, a 50% decrease of the finance cost due to the efforts of the Finance area ends up with
a 33.3% Net profit increase, and just a 20% decrease in the production costs ( as a result of the Operations
department’s efforts) enhances the Net profit by 100%!!
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Operations and Supply Chain Management: Important To Any
Manager
D
D
D
Operations and supply chain management is about getting work
done quickly, efficiently, without error, and at a low cost.
Operations refers to the processes that are used to transform the
resources into goods and services.
Supply refers to how materials and services are moved to and from
those transformation processes.
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Operations and Supply Chain Processes
Operations
Supply
Chain
Manufacturing and service
processes used to transform
resources into products
Processes that move
information and material to
and from the firm
• Manufacturing produces physical
products
• Services produce intangible
products
• Logistics processes move
products
• Warehousing processes store
products
• Information makes the process
more efficient
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distribution without the prior written consent of McGraw-Hill Education.
1- 8
Operations and Supply Chain Processes
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What is Operations Management?
(Cont.)
D
D
D
Operations is often defined as a transformation process.
Inputs are transformed into outputs.
Feedback and requirements from customers are used to adjust
transformation factors in the transformation process.
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What is Operations Management?
(Cont.)
INPUT
Material
Machine
s Labor
Capital
TRANSFORMATI
ON
PROCESS
OUTPUTS
Goods
Service
s
Feedback
Requirement
s
1- 11
What is Operations Management? (Cont.)
D
D
D
The input – transformation – output process is characteristic of a wide
variety of operating systems.
E.g. Automobile factory: sheet steel (input) is formed into different
shapes, painted (transformation) and finished.
E.g. Hospital: patients (input) are helped to become healthier
individuals through special care, medication, and surgical procedure
(transformation).
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What is Operations Management? (Cont.)
In operations management, we try to ensure that the transformation
process is performed efficiently and that the output is of greater
value than the sum of the inputs.
Activities in operations management (OM) includes scheduling work,
selecting processes, locating facilities, measuring performance, controlling
quality, managing inventory, and planning production.
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Efficiency, Effectiveness, and Value
Efficiency
• Doing something at the lowest possible cost
Effectiveness
• Doing the right things to create the most value for your
customer; e.g. have plenty of operating checkout lines at a
grocery store
Value
• The attractiveness of a product relative to its cost; be defined
• as quality/price
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1- 14
Evaluating Efficiency
D
D
Benchmarking – a process in which one company studies
the processes of another company to identify best practices
Benchmarking is important to investors
I
JFrom
an operations and supply chain perspective, the relative cost of
providing a good or service is closely related to earnings growth
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distribution without the prior written consent of McGraw-Hill Education.
1- 15
Management Efficiency Ratios
I
JDays
sales outstanding – number of days that it takes to collect
cash from customers
I
JDays inventory – number of days’ worth of inventory
I
JPayables period – how quickly suppliers are paid
I
JCash conversion cycle – how quickly a company converts the cash it receives
from sales to company profits
I
JReceivables turnover – number of times receivables are collected
I
JInventory turnover – average number of times inventory is sold and
replaced during the year
I
JAsset turnover – the amount of sales generated for every dollar’s worth of
assets
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distribution without the prior written consent of McGraw-Hill Education.
1- 16
Management Efficiency Ratios
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distribution without the prior written consent of McGraw-Hill Education.
1- 17
Operations and Supply Chain Processes Activities
D
D
D
D
D
Planning – processes needed to operate an existing supply chain strategically
Sourcing – selection of suppliers that will deliver the goods and services needed
to create the firm’s product. A set of pricing, delivery, payments, and partner
relationship metrics needed
Making – producing the major product or providing the service
Delivering – logistics processes such as selecting carriers, coordinating the movement
of goods and information, and collecting payments from customers
Returning – processes for receiving worn-out, defective, and excess products
back from customers
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distribution without the prior written consent of McGraw-Hill Education.
1- 18
Supply Chain Processes
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distribution without the prior written consent of McGraw-Hill Education.
1- 19
Differences Between Services and
Goods
1.
2.
3.
4.
5.
A service is an intangible process that cannot be weighed or measured
Service requires some degree of interaction with the customer.
Services are heterogeneous.
Services are perishable and time dependent.
Services are defined as a package of features that affect the five
senses.
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Goods vs Services
Goods
Pure Goods
Service
s
Core Goods
Tangible
Less interaction with customers
Often homogeneous
Not perishable – can be inventoried
Core Services
Pure Services
Intangible
Interaction with customer required
Inherently heterogeneous
Perishable/time dependent
Defined and evaluated as a package of
features
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1- 21
The Goods – Services Continuum
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distribution without the prior written consent of McGraw-Hill Education.
1- 22
Product - Service Bundling
D
D
Product/service bundling refers to the practice of building service
activities into products to create additional value for the customer
Many firms offer a combination of goods and services
I
JProducts are supported by services such as warranties and training
I
JServices are enhanced through the inclusion of products
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distribution without the prior written consent of McGraw-Hill Education.
1- 23
Careers in Operations and Supply Chain
Management
Plant manager
Hospital
administrator
Branch
manager
Department
store manager
Call center
manager
Supply chain
manager
Purchasing
manager
Quality control
manager
Business process
improvement
analyst
Lean
improvement
manager
Project
manager
Production
control analyst
Facilities
manager
Chief
operating
officer
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distribution without the prior written consent of McGraw-Hill Education.
1- 24
Careers in Operations and Supply Chain
Management
D
D
Plant manager - oversees the workforce and physical resources (inventory, equipment, and
information technology) required to produce the organization’s product
Hospital administrator - oversees human resource management, staffing, and finances at a health
care facility
D
Branch manager (bank) - oversees all aspects of financial transactions at a branch
D
Department store manager - oversees all aspects of staffing and customer service
D
Call center manager - oversees staffing and customer service activities at a call center.
D
D
Supply chain manager - negotiates contracts with vendors and coordinates the flow of material
inputs to the production process and the shipping of finished products to customers
Purchasing manager - manages the day-to-day aspects of purchasing, such as invoicing and
follow-up
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1- 25
Careers in Operations and Supply Chain
Management
D
Logistics manager - oversees the movement of goods throughout the supply chain
D
Warehouse/Distribution manager - oversees all aspects of running a warehouse
D
D
D
D
D
D
Business process improvement analyst - applies the tools of lean production to reduce cycle time
and eliminate waste in a process
Quality control manager - applies techniques of statistical quality control
Lean improvement manager - trains organizational members in lean production and continuous
improvement methods
Project manager - plans and coordinates staff activities, such as new-product development, newtechnology deployment, and new-facility location
Production control analyst - plans and schedules day-to-day production.
Facilities manager - ensures that the building facility design, layout, furniture, and other
equipment are operating at peak efficiency
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Current Issues in OSCM
Coordinating relationships between organizations
• Managing the companies that produce components and supply major business
functions for the firm
Optimizing global supplier, production and distribution networks
• Leveraging the information available to the firm to make decisions concerning
inventory, transportation, and production
Managing customer touch points
• Recognize that resource utilization decisions must consider both the cost of
staffing and the costs associated with lost customers
Raising awareness of the competitive advantages of OSCM
• Many companies have created significant advantages through OSCM
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McGraw-Hill Education / Jacobs
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without the prior written consent of McGraw-Hill Education.
STRATEGY
AND
SUSTAINABILI
TY
Chapter 2
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Sustainable Operations
D
D
Sustainability – the ability to meet current resource needs without compromising
the ability of future generations to meet their needs
The firm’s strategy describes how it will create and sustain value for its current shareholders
I
J Shareholders
– individuals or companies that legally own one or more shares of stock in the
company
I
J Stakeholders – individuals or organizations who are directly or indirectly influenced by the actions
of the firm
D
The goal of sustainability means that the scope of the firm’s strategy must focus on three
areas (the triple bottom line)
I
J Social
responsibility – business practices should be fair to labor, the community, and the region
where the firm conducts business
I
J Economic prosperity – shareholders must be compensated via a competitive return
I
J Environmental stewardship – the company should protect the environment as much as possible
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distribution without the prior written consent of McGraw-Hill Education.
1- 29
Triple Bottom Line
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distribution without the prior written consent of McGraw-Hill Education.
1- 30
Operations and Supply Chain Strategy
D
Setting broad policies and plans for using the resources of a firm –
must be integrated with corporate strategy
I
JCorporate strategy
provides overall direction and coordinates operational
goals with those of the larger organization
D
Operations effectiveness – performing activities in a manner that best
implements strategic priorities at a minimum cost
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distribution without the prior written consent of McGraw-Hill Education.
1- 31
Operations Strategy
Strategy Process
Customer Needs
Example
More Product
Corporate Strategy
Increase Org. Size
Operations Strategy
Decision on Process
and Infrastructure
Increase Production Capacity
Build New Factory
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Competitive Dimensions
Cost or Price
• Make the product or deliver the service cheap
Quality
• Make a great product or delivery a great service
Delivery Speed
• Make the product or deliver the service quickly
Delivery Reliability
• Deliver it when promised
Coping with Changes in Demand
• Change its volume
Flexibility and New-Product Introduction Speed
• Change it (offer a wide variety of existing products and introduce new products quickly)
Other Product-Specific Criteria
• Support it (technical assistance, meeting launch dates, after-sale support, environmental impact)
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1- 33
Some Other Dimensions
Technical liaison and support
• A supplier may be expected to provide technical assistance for product development
Ability to meet a launch date
• Requirement to coordinate with other firms on a complex project
Supplier after-sales support
• Involves the availability of replacement parts
Environmental impact
• Related to criteria such as carbon dioxide emissions, the use of nonrenewable resources, etc.
Other dimensions
• Colors available, size, weight, location, customization
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distribution without the prior written consent of McGraw-Hill Education.
1- 34
Trade-Offs
D
Management must decide which parameters of performance are critical
and concentrate resources on those characteristics
IJAn
operation cannot simultaneously excel on all competitive dimensions
IJFor example, a firm that is focused on low-cost production may not be capable of
quickly introducing new products
IJA strategic position is not sustainable unless there are compromises with other
positions
D
Straddling – seeking to match a successful competitor by adding
features, services, or technology to existing activities
IJOften
a risky strategy : E.g. Continental straddling Southwest Airlines
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distribution without the prior written consent of McGraw-Hill Education.
1- 35
Trade-Offs
D
For example, if a company
wants to focus on speed of
delivery, it cannot be very
flexible in its ability to offer a
wide range of products
Cos
t
Flexibility
Delivery
Quality
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Order Winners and Order Qualifiers
D
D
Describe marketing-oriented dimensions that are keys to competitive
success
Order winners are criteria that differentiate the products or
services of one firm from those of another
I
JFeatures
that customers use to determine which product to ultimately
purchase
D
Order qualifiers are screening dimensions that permit a firm’s
products to be considered as possible candidates for purchase
I
JFeatures
customers will not forego
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1- 37
Core Capabilities
Core capabilities (or competencies) are the distinctive
skills or capabilities that the organization possesses.
□
Skills that differentiate a manufacturing or service firm
from its competitors.
□
■ Google’s
core capability is its effective
search algorithms
1- 38
Who Competed on What?
1- 39
Activity-System Maps
□
□
Diagrams that show how a company’s strategy is delivered through a set of
supporting activities
IKEA example:
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distribution without the prior written consent of McGraw-Hill Education.
1- 40
Assessing Risk
□
All strategies have an inherent level of risk
I
JUncertainty
in the environment causes supply chain planners to evaluate the
relative riskiness of their operations and strategies
□
Supply chain risk is the likelihood of a disruption that would impact the
ability of a company to continuously supply products or services
I
JSupply
chain coordination risks are associated with the day-to-day
management of the supply chain
I
JDisruption risks are caused by natural or manmade disasters
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1- 41
Risk Management Framework
Identify the sources of potential disruptions
1.
■
■
Highly situation-dependent
Focus should be on highly unlikely events
Assess the potential impact of the risk
2.
■
Goal is to quantify the probability and impact
Develop plans to mitigate the risk
3.
■
Detailed strategy for minimizing the impact of the risk
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distribution without the prior written consent of McGraw-Hill Education.
1- 42
Risk Mitigation Strategies
Ris
k
Natural disaster
Risk Mitigation
Strategy
Contingency planning (alternate sites, etc.), insurance
Country risks
Hedge currency, produce/source locally
Supplier failures
Multiple suppliers
Network provider failures
Support of redundant digital networks
Regulatory risk
Up-front and continuing research; good legal advice, compliance
Commodity price risks
Multisourcing, commodity hedging
Logistics failure
Safety stock, detailed tracking, and alternate suppliers
Inventory risks
Pool inventory, safety stock
Major quality failure
Careful selection and monitoring of suppliers
Loss of customers
Service/product innovation
Theft and vandalism
Insurance, security precautions, knowledge of likely risks, etc.
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1- 43
Supply Chain Risk Matrix
□
Different supply chain strategies are exposed to specific types of risk – the
supply chain risk matrix shows the level and type of risk for various strategies
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distribution without the prior written consent of McGraw-Hill Education.
1- 44
Productivity Measurement
□
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distribution without the prior written consent of McGraw-Hill Education.
1- 45
Productivity Measurement – Example
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or distribution without the prior written consent of McGraw-Hill Education.
1- 46
Partial Measures of Productivity
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distribution without the prior written consent of McGraw-Hill Education.
1- 47
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: Partial Measure = Output / Labor
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.
1- 48
McGraw-Hill Education / Jacobs
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PROJEC
TS
Chapter 5
1- 49
Project Management
□
What is a project?
I
JA
series of related jobs, usually directed toward some major output and
requiring a significant period of time to perform.
□
What is project management?
I
JPlanning,
directing, and controlling resources (people, equipment, material)
to meet the technical, cost, and time constraints of a project.
□
Why is project management important?
I
JAt
the highest levels of an organization, management often involves juggling a
portfolio of projects.
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distribution without the prior written consent of McGraw-Hill Education.
1- 50
Types of Development Projects
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distribution without the prior written consent of McGraw-Hill Education.
1- 51
Project’s Organizational Structures
Pure Project
• A self-contained team works full time on the project.
Functional Project
• Responsibility for the project lies within one functional division of
the firm. Employees from that division work on the project,
usually only part time.
Matrix Project
• A blend of pure and functional project structures – people from
different functional areas work on the project, possibly only
part time.
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distribution without the prior written consent of McGraw-Hill Education.
1- 52
Pure Project Structure
Advantages
•
•
•
•
The project manager has full authority
Team members report to one boss
Shortened communication lines
Team pride, motivation, and commitment are high
Disadvantages
•
•
•
•
Duplication of resources
Organizational goals and policies are ignored
Lack of technology transfer
Team members have no functional area home
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1- 53
Functional Project Structure
Advantages
Disadvantages
•
•
•
•
A team member can work on several projects
Technical expertise maintained in functional area
Functional area is “home” after project completed
Critical mass of specialized knowledge
• Aspects of the project that are not directly related to the functional
area get short-changed
• Motivation of team members is often weak
• Needs of the client are secondary and are responded to slowly
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1- 54
Matrix Project Structure
Advantages
Disadvantages
•
•
•
•
•
Better communications between functional areas
Project manager held responsible for success
Duplication of resources is minimized
Functional “home” for team members
Policies of the parent organization are followed
• Too many bosses
• Success depends on project manager’s negotiating skills
• Potential for suboptimization
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written consent of McGraw-Hill Education.
1- 55
Organizing Project Tasks
□
A project starts as a statement of work (SOW)
I
JA
written description of the objectives to be achieved
I
JBrief statement of work to be done
I
JProposed schedule
□
□
□
Task – a further subdivision of a project – usually not longer than several
months and performed by a single group or organization
Subtask further divides the project into more meaningful pieces.
Work Package – a group of activities combined to be assignable to a single
organizational unit
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1- 56
Organizing Project Tasks
□
□
□
Project Milestone - specific events in the life of the project to
be reached at points in time
Work Breakdown Structure (WBS) - defines the hierarchy of project
tasks, subtasks, and work packages
Activities – defined within the context of the work breakdown and are
pieces of work that consume time
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1- 57
Work Breakdown Structure – Example: Large
Optical Scanner Design
Overview
Details
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distribution without the prior written consent of McGraw-Hill Education.
1- 58
Managing Projects
□
□
□
Charts provide an easily
understood visual presentation
Software can be used to create
the charts
Gantt chart – shows in a
graphic manner the amount of
time involved and the sequence
of activities. Often referred to
as a bar chart.
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distribution without the prior written consent of McGraw-Hill Education.
Exhibit
5.4
31-- 5599
Graphic Project Report Samples
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distribution without the prior written consent of McGraw-Hill Education.
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