OPNS 430
Professor Wuqin Lin
Class Material + Grading
• Course Pack 1 (Cases & Readings)
• Course Pack 2 (Slides)
• The Goal
• Managing Business Process Flows (MBPF)
• The Course Web-Page
Group Assignments 20%, Midterm 30%, Final 40%, Class Participation 10%
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Topics – 6 Modules

Module 1 : Operations Strategy (Shouldice, Wriston)

Module 2 : Process Analysis (CRU-Pizza Pazza, NCC)

Module 3 : Lean Operations (Toyota)

Module 4 : Supply Chain Management (Palu Gear)

Module 5 : Services (The BAT case)

Module 6 : Quality (Quality Wireless, FlyRock)
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Introduction & Strategy Module
 Introduction

Goals and Key Paradigms of Course
» Strategic role of Ops
» Process view of Ops

A Strategic Framework for Ops
» Strategy: Product attributes and the Competitive Product Space
» Ops: Capabilities and Processes

Aligning strategy and operations:
»
»
»
»
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Focus
Relationship between process choice and strategy
Shouldice Hospital
Wriston Manufacturing
4
What do you mean by “Operations”?
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What Is Meant by “Operations”?
“New York-based Merrill, the world's largest
brokerage firm and a major investment bank, has been
overhauling operations …”


“Microsoft splits into five groups in reorganization”
– Microsoft announced a long-awaited reorganization, dividing
the company to five major groups and naming two veteran
executives to head its online operations.
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Goals of this course
2.
Introduction to operations as a managerial
integration function
Evaluation and Improvement

We will adopt two paradigms
1.
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Key Paradigm of Course:
1. The Strategic Role of Ops
“A company’s operations function is
either a competitive weapon
or
a corporate millstone.
It is seldom neutral.” [Skinner ’69]
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The Strategic Role of Ops…
 Most
operational decisions have strategic impact
– IT at Walmart

Strategic decisions impact operations
– FedEx-USPS
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Key Principle of Course:
2. The Process View of Ops
 Chicago
Tribune reported: By rethinking the IBM
Austin assembly plant and introducing cells,
– distance traveled by a card was cut from 1.5 miles to 200
yards
– floor space was reduced to half
– production tripled with about the same number of workers.
[Chicago Tribune, July 1992.]
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1. What is a Process?
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Operations & the Process View:
What is a Process?
Information
structure
Inputs
Process
Management
Network of
Activities and Buffers
Outputs
Goods
Services
Flow units
(customers, data,
material, cash, etc.)
Labor & Capital
Resources
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Advantages of Adopting a Process View
of Organizations
Properties:
– Applies to any organization
» Service operations (health care), manufacturing operations
– Applies at any level
» 1 activity, 1 clinical service group, 1 hospital, 1 health care supply
chain
– Is always “customer aware” and focused on outcomes
Key
Property: focus on flows rather than
snapshots
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What is Operations Management?
 Management
of business processes
 How
to structure the processes and manage resources to
develop the appropriate capabilities to convert inputs to
outputs.
– What is appropriate?
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2. What is a “good” Process?
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What defines a “good process”?
Performance: Financial Measures
 Absolute
measures:
– revenues, costs, operating income,
net income
T
Ct
– Net Present Value (NPV) = 
t

Relative measures:
t 0
1  r 
– ROI, ROE
EBIT T ax
– ROA = AverageT otalAssets

Survival measure:
– cash flow
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What defines a “good process”? All
organizations compete on delivered value
Delivered value of process =
benefit to process customers – total process cost
Benefit driven by customer
value
Variety V
(flexibility)
Price p
(Cost)
Quality Q:
•of product or outcome
•of service
Time T:
•Rapid, reliable delivery
•New product development
Example: patient value priorities for
– Emergency care
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A Strategic Framework for Process Design
and Improvement:Three questions
competitive
strategy
operations
strategy
Process
structure & mgt
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1.
What is our strategic position: how do we compete
& provide value in the market?
» What is the value proposition to our
customers?
 Rank (p, T, Q, V)
2.
Given our strategic position, what must operations
do particularly well?
» Which competencies must ops develop?
 Rank (c, T, Q, Flex)
3.
Given needed competencies, how should
operations processes be structured to develop
competencies that support strategy?
 Process choice (structure) and management
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Representation of Strategy:
Current Position and Strategic Directions of Movement in the
competitive product space
Responsiveness
B
A
High
Low
Price
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Strategy vs. Operational Effectiveness:
The Operations Frontier as the minimal curve containing all
current positions in an industry
Responsiveness
A
B
operations
frontier
C
High
Low
Price
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Shouldice Hospital
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Question 1: Representation of Strategy:
Strategic Position in customer value space
Variety in care
B
A
High
Low
Price
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Question 2: Need competencies to deliver
value proposition
Variety
Flexibility
Customer value
proposition
Needed Process
Competencies
B
Shouldice
High
Low
Price
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A
High
Low
Cost
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Question 3: what is the best process design that has the right
process competencies to deliver customer value proposition?
World-class
Flexibility
Emergency Room
(responsiveness)
Productivity frontier =
current state of best
practice
One general
hospital
World-class
specialty non-emergency
Shouldice Hospital
Needed competencies
for a given patient
type/segment
Cost efficiency

A focused process attempts to deliver one specific and narrow customer value
proposition (i.e., its priority ranking is clear and constant for all patients)
–
–
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It is optimized to deliver the needed competencies for one narrow patient segment
Focus does not imply standardization: ER is focused on providing timeliness and flexibility to patient
needing emergency care
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Wriston Manufacturing
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Wriston’s HED Division Plant Network
Exhibit 2A
Total Burden Rates
(total overhead cost / direct labor cost)
7
6
5
4
3
2
1
0 Sandusky,
OH
Essex,
Canada
Detroit,
MI
Saginaw,
MI
Lima,
OH
Lebanon,
PA
Tiffin,
OH
Fremont,
OH
Maysville,
KY
Free capacity and Throughput
$200
$150
$100
$50
$0
Sandusky, Essex, Detroit,
OH
Canada MI
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Saginaw, Lima,
MI
OH
Lebanon, Tiffin,
PA
OH
Fremont, Maysville,
OH
KY
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Classification of Processes
by process architecture
 Project

Job Shop
Job Shop
 Batch

Line Flow

Continuous Flow
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Flow Shop
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Characteristics of Processes:
Comparison of Process Types
Type of
Process
Product
Volume
Specialized
Equipment
Product
Variety
Machine
Setup
Frequency
Labor
Skills
Variable
Cost
Job Shop
Flow Shop

Q: what are the typical managerial challenges in JS vs FS?
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Matching Process Choice with Strategy:
Product-Process Matrix
Process
Flexibility
High
JOB SHOP
Jumbled Flow.
Process segments
loosely linked.
(Commercial Printer,
Architecture firm)
BATCH
Disconnected Line
Flow/Jumbled Flow
but a dominant flow
exists.
(Heavy Equipment,
Auto Repair)
LINE FLOWS
Connected Line
Flow (assembly line)
Continuous, automated,
rigid line flow.
Process segments tightly
linked.
Low
(Auto Assembly,
Car lubrication shop)
CONTINUOUS
FLOW
(Oil Refinery)
Low
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High Standardization
Commodity Products
High volume
High
Few Major Products
Many Products
Low Standardization
One of a kind
Low Volume
Product
Variety
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Learning Objectives
Operations & Strategy

What is operations?

What makes a good operations?

Two key paradigms of course

Link between business strategy, operations strategy, and
operations structure
– Product Attributes / Operational Capabilities/Operations structure
– Strategy vs. Operational Effectiveness
– Trade-offs:
– Operational Focus
– Process Classification and Relationship with strategy
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