MANAGING ACTIVITIES
Organizations  Collectiond of people, equipment, and capital.
Stakeholders people with legitimate claim on having the organization’s objectives
reflect their requirements.
GROUP
CONTRIBUTION
REQUIREMENTS
Employees
Efforts, skills, and
informations
Rewards, interesting jobs,
economic security, and
proper treatment
Partners
Goods, services, and
information
Financial rewards
commensurate with risk taken
Owners
Capital
Financial rewards
commensurate with risk taken
Community
Allows the org to operate
Conformance to laws, good
corporate citizenship and
leadership
Customers
Financial resources and or
defined need served by org
Service, quality, and value
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Organization As a Sequence of Activities
Activity A unit of work (task) with a specific goal
Exp. Fast food restourant
Activities
Acquiring
Raw
materials
Hiring &
Training
Employees
Produce
Foods
Serving
customers
Responding
to customer
complaints
Value Chain  A sequence of activities whose objective is to to provide a product to customer or provide
intermediate good in a larger value chain
Classes of activities in the value chain:
1.
Activities relating to getting ready to make the product (input activities) R & D, hiring & training
employees, buying raw materials, components, and equipments
2.
Activities relating to making the product (processing activities)  operating machines, moving WIP,
storing WIP, inspecting partly completed work
3.
Activities relating to dealing with the customers (output activities) selling activities, billing, service, and
distribution activities
4.
Other activities that support the first three activities (administratice activities) administrative functions
including personnel, accounting, and general administrative offices
Evaluation of all activities in the value chain should be from customer’s prespectivefocuses on meeting
the needs of its customers
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Fast Food Restaurant.
Customer
Corporation
Consistent quality of product,
deliver quickly, and costs less
than competitors
Improve the performance of each
activities by managing the
activities in a way that is both
effective and efficient
Effective a process that meets its objectives
Efficient a process that uses the fewest possible resources to meet its objective
Steps in improving effectiveness and efficiency of organization’s activities;
1. Charting: Identifying each activity in the value chain (produce and deliver product to
customer) and visually depicting it
2. Performance measurement: measuring the performance of an activity
3. Analyze: study the performance measures and the way activities undertaken. Identify
opportunities or problems for improving the performance of each activities
4. Activity improvement: implement to improve the customer-relevant performance of
activities
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Performance Measures
Critical performance indicators performance measures used to asses an organization’s
performance on its critical success factors
Critical success factors:
1. Service (value in use) the product’s tangiable and intangiable features promised to the
customers. Tangiable features: performance, taste, and functionality. Intangiable features:
treatment of people whwn making the purchase decision and time to deliver product to
customer
2. Quality  the similarity between the promised and the realized level of service (giving
customers what was promised).
“ You wil expect more form meal in a 5 star restaurant than you do from a meal in a fast food
restaurant”
3. Cost  organization’s ability to minimize the use of resources given the obejctives that it
seeks.
Product cost  Price of the product
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CUSTOMER PERFORMANCE
Service
Customer retention rate, number of customers, amount of purchase per
customer, % of customer served during peak period, customer satisfaction
surveys
Quality
Number of customer complaintsnper 1.000 orders filled, critical success factors
Cost
Ratios: costs to revenues, materials in final product to material purchased, and
sales per hour during peak operations
An effective system of performance measurement contains critical performance
indicators that:
1. Consider each activity and the organization itself from customer’s
perspective
2. Evaluate each activity using customer validated measures of performance
Reflect an understanding of the difference between the output and outcome.
Output: physical measure of activity (number unit produced). Outcome:
customer values the result of the activity (amount of client satisfaction).
3. Consider all facets of activity performance that affect customers
4. Provide feedback to organization for improvement
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Understanding Causes Costs
Effective cost control  customer rqequirements  activities  costs
Performance improvement
improved activity management
Development of activity data/information
(Amount time for production and delivery, amount of material handled,
Storage space for factory floor, rework done)
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Actitivites Create Costs
Activities Undertaken
Activity 1
(Value added, inefficient)
Resources Used
Costs
Raw materials
Activity 2
(Non value added, efficient)
Activity 3
(Nonvalue added, inefficient)
Activity 1
(Value added, efficient)
Labours
COSTS
Equipments
Value added actitivity; an activity that, if eliminated, would reduce the product’ service
to customer in the long run
Exp. acquiring raw materials
Nonvalue added actitivity; an activity that presents the opportunity for cost reduction
without reducing the product’s service potential to the customer
Exp. Supervisor inspects each product. Inspection is value added activity if
employees have not been trained to inspect their won work. If they were taught, then
activity of inspection would be nonvalue added activity
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Activity must be efficient and effective
Activity should meet other staeholders’ criteria
Exp. To lower cost, company spends as little as possible on employees safety,
then this create dangerous working environment
Airways company eliminate or reduce activities that demanded by rules to
keep costs low in order to set low price
Activity /value analysis  an approach to operation control that involves the
application of steps of continuous improvement to an activity
Identify process objectives (what customer wants, expects from the process)
Charting the existing process ((Activities used to complete the product)
Classify all activities (value added and non value added
Continuous improve all activities and plan to
eliminate nonvalue added activities
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TIME REQUIREMENTS FOR ACTIVITIES AND CYCLE TIME
Reason for organization is inteseted in the amount of time to do a sequence of
activities:
1. Number of costs of non production personnel, equipments, and supplies
vary proportionally with the time it takes to make a product and these costs
can be reduced by eliminating the causes of long cycle time
2. Customers value a prompt response (short process time) o their request for
the product
Cycle Time total time needed to complete an activity or process
Classification of activities:
1. Processing
2. Moving
3. Storing
4. Inspecting
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Efficinecy of value
added activities
improves
Non value added
activities reduces
Number of people,
equipment,
materials, and
supplies used to
make product
decrease
Process
cycle time
reduce
Costs will
fall
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Measure for assessing process efficiency Manufacturing cycle
efficiency
Manufacturing Cycle Efficiency
Manufacturing cycle efficiency =
Processing Time
Processing Time + Moving Time + Storing Time + Inspection Time
Exp. Furniture company produces cabinets
Cycle Time
Activity
Time (hours)
Processing
23
Moving
12
Storing
475
Inspecting
Total
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515
Manufacturing cycle efficiency = 23 : 515 = 4,5 %
Most organizations have manufacturing cycle efficiency < 10 %
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Facilities Layout
1. Process layout  a means of organizing a production activity so that all similar
equipment or function grouped together. Exp in the university, the offices of staff
in the same department.
2. Product layout  a means of organizing a production activity so that equipment or
functions are organized to make a specific product. Exp An automobile assmbly
line and some hospitals are specialized
3. Cell manufacturing  a means of organizing a production activity so that all
equipment needed to make a product is grouped together. The machines are
flexible and easily adjusted to make a different products.
Process layout
Moving
activity
(customer
goes to the
bank)
Processing
activity
Storage activity
Moving activity
(bank takes loan
application from
customer )
(Loan
application are
accumulated)
(Loan
application are
passed to loan
officer)
Processing activity
Processing activity
(loans are deposited
in the customer’s
acount)
(customers are
contacted when
decision has been
made)
Processing activity
(Loan application are
proved by loan
officer)
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Analysis work in process piled up at each of the processing points (bank
teller’s desk, bank loan officer’s desk, and regional supervisor’s desk.
Weaknesses of proccess layout:
1. Handling work in batches reduces setting up, moving and handling costs, but
increase inventory level
2. Works are unbalanced among activity
3. Area managers that process the application try to avoid the work
Just In Time Manufacturing
Concept of JIT  a means of improve organization performance
JIT  making a good only when the customer requires it. Manufacturing cycle
efficiency equal 1
Elements of JIT:
1. Eliminate nonvalue added activity
2. Continuous improvement
3. Make activities simple
4. Quality commitment
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