Lecture-1
Introduction to Operations
And Challenges ahead
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Lecture Outline
• What Operations and Supply Chain Managers Do
• Operations Function
• Evolution of Operations and Supply Chain
Management
• Globalization and Competitiveness
• Operations
• Strategy and Organization of the Text
• Learning Objectives for This Course
Copyright 2011 John
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What Operations and Supply Chain
Managers Do
• What is Operations Management?
• Design, operation, and improvement of productive systems that
creates and delivers the firm’s primary products and services
• What is Operations?
• a function or system that transforms inputs into outputs of greater
value
• What is a Transformation Process?
• a series of activities along a value chain extending from supplier
to customer
• activities that do not add value are superfluous and should be
eliminated
Copyright 2011 John
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Transformation Process
• Physical: as in manufacturing operations
• Locational: as in transportation or warehouse
operations
• Exchange: as in retail operations
• Physiological: as in health care
• Psychological: as in entertainment
• Informational: as in communication
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Operations as a
Transformation Process
INPUT
•Material
•Machines
•Labor
•Management
•Capital
TRANSFORMATION
PROCESS
OUTPUT
•Goods
•Services
Feedback & Requirements
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Operations Function
• Operations
• Marketing
• Finance and
Accounting
• Human
Resources
• Outside
Suppliers
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How is Operations Relevant
to your job?
• Accounting
• “As an auditor you must understand the
fundamentals of operations
management.”
• Information
Technology
• “IT is a tool, and there’s no better place to
apply it than in operations.”
• Management
• “We use so many things you learn in an
operations class—scheduling, lean
production, theory of constraints, and
tons of quality tools.”
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How is Operations Relevant
to job career?
• Economics
• Marketing
• Finance
• “It’s all about processes. I live by
flowcharts and Pareto analysis.”
• “How can you do a good job marketing a
product if you’re unsure of its quality or
delivery status?”
• “Most of our capital budgeting requests
are from operations, and most of our
cost savings, too.”
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Evolution of Operations and
Supply Chain Management
• Craft production
• process of handcrafting products or services for
individual customers
• Division of labor
• dividing a job into a series of small tasks each
performed by a different worker
• Interchangeable parts
• standardization of parts initially as replacement parts;
enabled mass production
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Evolution of Operations and
Supply Chain Management
• Scientific management
• systematic analysis of work methods
• Mass production
• high-volume production of a standardized product for
a mass market
• Lean production
• adaptation of mass production that prizes quality and
flexibility
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Historical Events in
Operations Management
Era
Industrial
Revolution
Scientific
Management
Events/Concepts
Dates
Originator
Steam engine
Division of labor
Interchangeable parts
Principles of scientific
management
1769
1776
1790
James Watt
1911
Frederick W. Taylor
Time and motion studies
1911
Activity scheduling chart
Moving assembly line
1912
1913
Adam Smith
Eli Whitney
Frank and Lillian
Gilbreth
Henry Gantt
Henry Ford
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Historical Events in
Operations Management
Era
Human
Relations
Operations
Research
Events/Concepts
Dates
Originator
Hawthorne studies
1930
1940s
1950s
1960s
1947
1951
Elton Mayo
Abraham Maslow
Frederick Herzberg
Douglas McGregor
George Dantzig
Remington Rand
1950s
Operations research
groups
1960s,
1970s
Joseph Orlicky, IBM
and others
Motivation theories
Linear programming
Digital computer
Simulation, waiting
line theory, decision
theory, PERT/CPM
MRP, EDI, EFT, CIM
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Historical Events in
Operations Management
Era
Events/Concepts
JIT (just-in-time)
TQM (total quality
management)
Strategy and
Quality
Revolution operations
Dates Originator
1970s
1980s
1980s
Reengineering
1990s
Six Sigma
1990s
Taiichi Ohno (Toyota)
W. Edwards Deming,
Joseph Juran
Wickham Skinner,
Robert Hayes
Michael Hammer,
James Champy
GE, Motorola
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Historical Events in
Operations Management
Era
Events/Concepts
Internet
Revolution
Internet, WWW, ERP,
1990s
supply chain management
Globalization
Dates Originator
E-commerce
2000s
WTO, European Union,
Global supply chains,
Outsourcing, Service
Science
1990s
2000s
ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE, Dell
Amazon, Yahoo,
eBay, Google, and
others
China, India,
emerging
economies
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Historical Events in
Operations Management
Era
Events/Concepts
Dates Originator
Green
Revolution
Global warming, An
Inconvenient Truth, Kyoto
Today
Numerous
scientists,
statesmen and
governments
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Evolution of Operations and Supply
Chain Management
• Supply chain management
– management of the flow of information, products, and services across a
network of customers, enterprises, and supply chain partners
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Globalization
• Why “go global”?
–
–
–
–
–
favorable cost
access to international markets
response to changes in demand
reliable sources of supply
latest trends and technologies
• Increased globalization
– results from the Internet and falling trade barriers
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Hourly Compensation
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GDP per Capita
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Trade in Goods, % of GDP
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Productivity and Competitiveness
• Competitiveness
• degree to which a nation can produce goods and
services that meet the test of international markets
• Productivity
• ratio of output to input
• Output
• sales made, products produced, customers served,
meals delivered, or calls answered
• Input
• labor hours, investment in equipment, material usage,
or square footage
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Measures of Productivity
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Osborne Industries
C6*C8
C7*C9
C5/C6
C5/C7
C5/C13
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Productivity Growth
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Percent Change in Input and Output
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Strategy and Operations
•
•
•
•
•
How the mission of a company is accomplished
Provides direction for achieving a mission
Unites the organization
Provides consistency in decisions
Keeps organization moving in the right direction
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Strategy Formulation
1. Defining a primary task
• What is the firm in the business of doing?
2. Assessing core competencies
• What does the firm do better than anyone else?
3. Determining order winners and order qualifiers
• What qualifies an item to be considered for
purchase?
• What wins the order?
4. Positioning the firm
• How will the firm compete?
5. Deploying the strategy
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Strategic Planning
Mission
and Vision
Corporate
Strategy
Marketing
Strategy
Operations
Strategy
Financial
Strategy
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Order Winners
and Order Qualifiers
Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan
Betts, Operations and Process Management, Prentice Hall, 2006, p. 47
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Positioning the Firm
•
•
•
•
Cost
Speed
Quality
Flexibility
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Positioning the Firm: Cost
• Waste elimination
• relentlessly pursuing the removal of all waste
• Examination of cost structure
• looking at the entire cost structure for reduction potential
• Lean production
• providing low costs through disciplined operations
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Positioning the Firm: Speed
• Fast moves, Fast adaptations, Tight linkages
• Internet
• Customers expect immediate responses
• Service organizations
• always competed on speed (McDonald’s, LensCrafters,
and Federal Express)
• Manufacturers
• time-based competition: build-to-order production and
efficient supply chains
• Fashion industry
• two-week design-to-rack lead time of Spanish retailer, Zara
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Positioning the Firm: Quality
• Minimizing defect rates or conforming to design
specifications
• Ritz-Carlton - one customer at a time
• Service system designed to “move heaven and earth”
to satisfy customer
• Employees empowered to satisfy a guest’s wish
• Teams set objectives and devise quality action plans
• Each hotel has a quality leader
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Positioning the Firm: Flexibility
• Ability to adjust to changes in product mix,
production volume, or design
• Mass customization: the mass production of
customized parts
• National Bicycle Industrial Company
• offers 11,231,862 variations
• delivers within two weeks at costs only 10% above
standard models
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Policy Deployment
• Policy deployment
• translates corporate strategy into measurable
objectives
• Hoshins
• action plans generated from the policy
deployment process
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Policy Deployment
Derivation of an Action Plan Using Policy Deployment
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Balanced Scorecard
• Balanced scorecard
• measuring more than financial performance
1. finances
2. customers
3. processes
4. learning and growing
• Key performance indicators
• set of measures to help managers evaluate
performance in critical areas
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Balanced Scorecard Worksheet
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Balanced Scorecard
Radar Chart
Dashboard
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Operations Strategy
Services
Products
Capacity
Facilities
Human
Resources
Sourcing
Process
and
Technology
Quality
Operating
Systems
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Current Issues in the OM
• Effectively consolidating the operations resulting from mergers:
• Offers economies of scale and Operational Efficiency
• In reality the difference in culture and technology a challenge
• Hewett Packard and Compaq Computers
• TRW and Northampton Computers
• Develop flexible Supply Chain for mass customization
• The challenge of producing so many diff products and also
ensure it distribution
• Managing global suppliers, production and distribution networks
• Increased Commoditization of suppliers:
• Long term supply contracts to switch over “ plug compatible
• Achieving the Service factory:
• Developing personalized service for each customer
• Enhancing Value added services:
• Advance knowledge of Model Changes required
• Making Efficient use of internet technology
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• Achieving good service from service firms.
Case Study
NUMMI
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History/Products
• Late 70’s oil crisis
• GM closes Fremont, CA plant firing 6000 in 1982
• Toyota approaches GM to set up Toyota production system at
a GM plant, United Auto Workers accepts the deal
• GM and Toyota put together $400M in 1984. GM owns the
infrastructure, Toyota is the tenant.
• Nummi = New United Motor Manufacturing, Inc is born in 1984
as the unique example of a Toyota – GM joint venture
• Products: Toyota Corolla, Tacoma Trucks, Pontiac Vibe
(Toyota bottom, GM top) and Toyota Voltz (Toyota bottom, GM
top, sold in Japan) , GM Prism until 13/12/01
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Workers
• Nummi has about 4500 unionized workers
• Workers are under two types:
• Production, high school graduates
• Maintenance
• Workers work in teams of 4-6
• Workers in a team rotate the tasks every 1-3 hours
• Team leader is responsible for the rotation.
• Team leader withdraws parts from the inventory (every 12 hours) and provides the tools as necessary
• Workers make $17 per hour
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Capacity
• Nummi has a cycle time of
• 60 seconds for Corolla, 1 body
• 82 seconds for Tacoma, 3 bodies (only cabin is
produced at Nummi, the bottom and the back are
bought from suppliers)
• Nummi works in two shifts
• I: 6:00-14:30, II: 16:30-1:00
• Each shift has 1 hour lunch/dinner break
• Starting the first shift at 6:00 workers avoid heavy
morning traffic
• Two hours between shifts I and II is to allow for
overtime after the first shift when necessary
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Work Flow
• Stamping: Forming metal (side, back, front) panels with
presses
• Body & Weld: Putting panels together
• Paint: Paint inspection is the current bottleneck
• Primer body paint applied by robots (chemically
hazardous task)
• Door jambs painted manually
• Plastics: Making bumpers, inside panels
• Assembly: Putting in tires, engine, seats, bumpers,
harnessing. Cars , trucks on 2 km , 0.8 km conveyors
• Cars contain Building manifest = BOM = Ingredients list at
every step of these operations
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Just in time
• Kaizen: continuous improvement
• Kanban: replenishment every 1-2 hours
• Jidoka: Assure 100% quality. Otherwise pull the Andon
chord
• 1000 times per shift
• 9% of line stops are longer than 30 seconds
• Line stops longer than an hour once every month
• Muda: Waste to be eliminated
• Genchi Genbutsu: Go to the source to learn and to solve
the problems
• This Japanese terminology is all over the boards in the
plant
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Creative Tool / Work Place Design
• Die change at the stamping in 3 hours
• Tilted storage bins for ease of access
• Collapsing storage boxes when empty
• To reduce the empty box storage requirements in
trucks returning to suppliers, say in Indiana
• These boxes save about $10M annually
• The worker who suggested the boxes earned several
thousand points. 1 point = $1.
• More info www.nummi.com
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