Operations Management
BUSN 6110/PROC 5820
Syllabus
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Class 1 (Mar 10): chap 1; chap 2, case study
March 17 – No Class
Class 2: (Mar 24) chap 5; chap 6 ( thru 243)
Class 3: (Mar 31) chap 7; chap 9 (Take home exam)
Class 4: (Apr 7) chap 10, chap 11
Class 5: (Apr 14) chap 6 (243-250); chap 12, case study
Class 6: (Apr 21) Reverse Logistics – need “The Forklifts Have
Nothing To Do!” Available in the Lewis and Clark Bookstore; chap
14; chap 16; Supply Chain Security
Class 7: (Apr 28) Chap 13; Chap 3
Class 8: (May 5) Student Presentations, Take home exam
Class 9: (May 12) No Class
Other requirements:
→visit Harley-Davidson Plant in Kansas City to see operations
management in practice and write a 3-5 page paper comparing the
class slides and readings to the Harley operations
→Class Presentation on topic of your choice – may be a group
presentation focusing on any area of operations management
Grades
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Class Participation – 10%
Mid Term – 35%
Final Exam – 35%
Harley Paper – 10%
Presentation – 10%
Contact Information
• joewalden@supplychainresearch.com
• (760) 447-3651
• Personal background
Class Slides and
Information
• www.supplychainresearch.com
• Slides will be posted/updated week
prior to class – therefore the slides
currently on the website may change
as new materials come available
Chapter 1
Introduction to
Operations
Management
The Operations
Function
Operations as a transformation
process
Operations as a
basic function
Operations as the
technical core
Operations as a
Transformation Process
INPUT
Material
Machines
Labor
Management
Capital
Operations as a
Transformation Process
INPUT
Material
Machines
Labor
Management
Capital
TRANSFORMATION
PROCESS
Operations as a
Transformation Process
INPUT
Material
Machines
Labor
Management
Capital
TRANSFORMATION
PROCESS
OUTPUT
Goods
Services
Operations as a
Transformation Process
INPUT
Material
Machines
Labor
Management
Capital
TRANSFORMATION
PROCESS
Feedback
OUTPUT
Goods
Services
Transformation
Processes
Physical
Locational
(manufacturing)
(transportation/
warehouse)
Exchange
(retail)
Physiological (health care)
Psychological (entertainment)
Informational (communications)
Operations as the
Technical Core
Finance/Accounting
Suppliers
Budgets
Cost analysis
Capital investments
Stockholder
requirements
Product/Service
Availability
Lead-time estimates
Status of order
Delivery schedules
Operations
Material availability
Quality data
Delivery schedules
Designs
Personnel needs
Skill sets
Performance evaluations
Job design/work
measurement
Hiring/firing
Training
Legal requirements
Union contract negotiations
Human Resources
Sales forecasts
Customer orders
Customer feedback
Promotions
Marketing
Production and
Inventory data
Capital budgeting requests
Capacity expansion and
Orders for materials
Technology plans
Production and delivery
Schedules Quality
Requirements Design/
Performance specs
Impacts on Operations
Management
 Industrial Revolution
 Scientific Management
 Human Relations or the lack thereof
 Advent of Management Science
 Quality Emphasis
 Globalization of Supply Chains
 Information Age/Internet Revolution
Key Events
Industrial Revolution
Steam engine
1769 James Watt
Division of labor
1776 Adam Smith
Interchangeable parts 1790 Eli Whitney
Scientific Management
Principles
Frederick W. Taylor 1911
Activity scheduling chart Henry Gantt 1912
Moving assembly line Henry Ford 1913
Key Events
Human Relations
Hawthorne studies
Motivation theories
1930
1940s
1950s
1960s
Elton Mayo
Abraham Maslow
Frederick Hertzberg
Douglas McGregor
Management Science
Linear programming
Digital computer
Simulation, PERT/CPM,
Waiting line theory
MRP
1947 George Dantzig
1951 Remington Rand
1950s Operations research
groups
1960s Joseph Orlicky, IBM
Key Events
Quality Emphasis
JIT
TQM
1970s Taiichi Ohno, Toyota
1980s W. Edwards Deming,
Joseph Juran, et. al.
Strategy and operations
Skinner, Hayes
Reengineering
1990s Hammer, Champy
World Trade Organization 1990s Numerous countries
and companies
Globalization
European Union and
other trade agreements
EDI, EFT, CIM
1970s IBM and others
1980s
Key Events
Information Age/
Internet Revolution
Internet, WWW, ERP
Supply chain
management,
E-commerce
1990s
SAP, i2
Technologies, ORACLE,
PeopleSoft, Amazon,
Yahoo, eBay,
and others
Categories of
E-Commerce
Business
Consumer
Business
B2B
Commerceone.com
B2C
Amazon.com
Consumer
C2B
Priceline.com
C2C
eBay.com
A New Value Chain
(a) Traditional Value Chain
Manufacturer
Wholesaler/
distributor
Retailer
Consumer
A New Value Chain
(a) Traditional Value Chain
Manufacturer
Wholesaler/
distributor
Retailer
Consumer
(b) Intermediaries Eliminated (Deintermediation)
Manufacturer
Wholesaler/
distributor
Retailer
Consumer
A New Value Chain
(a) Traditional Value Chain
Manufacturer
Wholesaler/
distributor
Retailer
Consumer
(b) Intermediaries Eliminated (Deintermediation)
Manufacturer
Wholesaler/
distributor
Retailer
Consumer
(b) New Intermediaries Introduced (Reintermediation)
Manufacturer
Infomediary
E-Retailer
Aggregator
Portal
Consumer
An Integrated
Value Chain
Customer
Manufacturer
Supplier
Flow of information (customer order)
An Integrated
Value Chain
Customer
Manufacturer
Supplier
Flow of information (customer order)
Flow of product (order fulfillment)
Types of B2B Transactions
Buyers
Buyer
Seller
(a) Electronic Storefront
Sellers
Sellers
(b) Seller’s Auction
Buyers
Sellers
Buyer
(c) Buyer’s Auction
(d) Exchange or E-Marketplace
E-Business Promotes:
Better customer relations
More efficient processes
Lower cost of materials
Information technology synergy
Better and faster decision making
E-Business Promotes:
New forms of organizations
Expanded supply chain
Higher customer expectations
New ways of doing business
Globalization
Globalization and
Competitiveness
• Favorable cost
• Access to international
markets
• Response to changes
in demand
• Reliable sources of
supply
• 14 major trade
agreements in 1990s
• Peak: 26% in 2000
Copyright, 2006, John Wiley and Sons
World Trade Compared to World GDP
Source: “Real GDP and Trade Growth of OECD Countries, 2001–03,”
International Trade Statistics 2003, World Trade Organization,
www.wto.org
Globalization and
Competitiveness (cont.)
Germany: $26.18
USA: $21.33
Taiwan: $5.41
Mexico: $2.38
Hourly Wage Rates for Selected Countries
Source: “International Comparisons of Hourly Compensation Costs for Production Workers in
Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.
Copyright, 2006, John Wiley and Sons
China: $0.50
Multinational Corporations
Company
Nestlé
Nokia
Philips
Bayer
ABB
SAP
Exxon Mobil
Royal Dutch/Shell
IBM
McDonald’s
Country
of Origin
Foreign Sales
as % of Total
Switzerland
Finland
Netherlands
Germany
Germany
Germany
United States
Netherlands
United States
United States
98.2
97.6
94.0
89.8
87.2
80.0
79.6
73.3
62.7
61.5
Competitiveness
The degree to which a nation can
produce goods and services that
meet the test of international
markets while simultaneously
maintaining or expanding the real
incomes of its citizens.
Productivity
Output
Productivity =
Input
Productivity
Output
Productivity =
Input
Productivity improves when firms:
 Become more efficient
 Downsize
 Expand
 Retrench
 Achieve breakthroughs
Changes in Productivity for
Select Countries
Internet-enabled
productivity
- Dot com bust
- 9/11 terrorist attacks
Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau
of Labor Statistics, U.S. Department of Labor, September 2003. U.S. figures for 2002–2003 from “Major Sector
Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004
Copyright, 2006, John Wiley and Sons
Measures of
Competitiveness
 Productivity
 GDP (Gross domestic product) growth
 Market capitalization
 Technological infrastructure
 Quality of education
 Efficiency of government
Barriers to Entry
Economies of scale
Capital investment
Access to supply and distribution
channels
Learning curves
Competition Within
Industries Increases When
 Firms are relatively equal in size
and resources
 Products and services are
standardized
 Industry growth is slow or
exponential
Primary Topics in
Operations Management
 Strategy
 Products and
services
 Processes and
technologies
 Facilities
 Project
management
 Managing the supply
chain
 Forecasting demand
for products and
services
 Production planning
and scheduling
 Ensuring quality
Chapter 2
Operations
Strategy
To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.
Chapter 2
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Vision/Missions
Strategy
METL and Goals/Mission
Competition
Strategy and the Internet
Products and Services
Strategy Deployment
Balanced Scorecard
Decision Making Tools and the MDMP
The Importance of Clearly
Stated Missions/Visions
‘The Grand Duke said “one who is
confused in purpose cannot respond
to his enemy” Sun Tzu, The Art of War
(III.23)
• To know the purpose – there must be a
clearly stated mission and vision.
Clearly Stated Mission???
“When you come to a fork in the
road, take it.”
Example of A Clearly
Understood Mission
COL Rusling on General Grant:
“He made certain his
subordinates knew exactly what
he wanted, and why and when he
wanted it.”
Example of A Clearly
Understood Mission
“We endeavor to go to the moon and
return safely before the end of this
decade.”
- John F. Kennedy
VISION®
• Vital to the Organization
• Integrated throughout the
Organization
• Sustainable and Achievable
• Important from the viewpoint of the
employees
• Organization Goals
• Not necessarily a one size fits all
vision
Velocity Management in Logistics and Distribution, 2005, Walden
Strategy Formulation
• Define a primary task
• Assess core
competencies
• Determine order
winners & order qualifiers
• Positioning the firm
Core Competencies
• Also known as core capabilities
• Skills that differentiate the service or
manufacturing firm from competitors
• Those things that the company does
best
Strategy Formulation
• Define a primary task
• Assess core
competencies
• Determine order
winners & order qualifiers
• Positioning the firm
Competing on Cost
Eliminate all waste
Invest in
 Updated facilities & equipment
 Streamlining operations
 Training & development
Competitive
Priorities: Cost
• Southwest Airlines
– one type of airplane facilitates crew
changes, record-keeping, maintenance,
and inventory costs
– direct flights mean no baggage
transfers
– $30 million annual savings in travel
agent commissions by requiring
customers to contact the airline directly
Copyright, 2006, John Wiley and Sons
Competing on Quality
Please the customer
 Understand customer
attitudes toward and
expectations of
quality
Example: Ritz Carlton
Competing on
Flexibility
Produce wide variety of
products
Introduce new products
Modify existing
products quickly
Respond to customer
needs
Competing on Speed
Fast moves
Fast adaptations
Tight linkages
Example: FEDEX, UPS, DHL
Competitive
Priorities: Speed
• Citicorp
– advertises a 15-minute mortgage approval
• L.L. Bean
– ships orders the day they are received
• Wal-Mart
– replenishes its stock twice a week
• General Electric
– reduces time to manufacture circuit-breaker boxes into
three days and dishwashers into 18 hours
• Motorola
– needs less than 30 minutes to build to order pagers
Copyright, 2006, John Wiley and Sons
Operations Role in
Corporate Strategy
Provide support for overall
strategy of a firm
Serve as firm’s distinctive
competence
Must be consistent
Must be consistent with overall
strategy
Operations and Wall
Street
• Comparing operations at a firm with
competitors
• Example
income per employee
revenue per employee
inventory turnover
customer turnover
Operations
Strategy at
Wal-Mart
Mission
Wal-Mart
Provide value for our customers
Competitive
Priority
Low prices, everyday
Operations
Strategy
Low inventory levels
Short flow times
Operations
Structure
Linked communications
between stores
Fast transportation
system
Enabling Process
and Technologies
EDI/satellites
Cross-docking
Focused
locations
Strategy and the
Internet
 Create a distinctive
business strategy
 Strengthen existing
competitive advantages
 Integrate new and
traditional activities
 Must provide a unique
value to the customer
Strategic Decisions in
Operations
Products
Services
Capacity
Human
Resources
Facilities
Figure 2.2
Sourcing
Processes and
Technology
Quality
Operating
Systems
Products & Services
Make-to-order
 Made to customer specifications
after order received
Make-to-stock
 Made in anticipation of demand
Assemble-to-order
 Add options according to
customer specification
Processes & Technology
 Project
 One-time production of product to
customer order
 Batch production
 Process many jobs at same time in batch
 Mass production
 Produce large volumes of standard
product for mass market
 Continuous production
 Very high volume commodity product
Product-Process Matrix
High
Continuous
Production
Volume
Mass
Production
Batch
Production
Projects
Low
Low
Figure 2.3
Standardization
High
Service-Process Matrix
High
Service
Factory
Volume
Mass
Service
Low
Service
Shop
Professional
Service
Low
Figure 2.4
Standardization
High
Capacity & Facilities
How much capacity to provide
Size of capacity changes
Handling excess demand
Hiring/firing
workers
Need for new
facilities
Facilities
Best size for facility?
Large or small facilities
Facility focus
Facility location
Global facility
Human Resources
 Skill levels required
 Degree of autonomy
 Policies
 Profit sharing
 Individual or team work
 Supervision methods
 Levels of management
 Training
Quality
 Target level
 Measurement
 Employee involvement
 Training
 Systems needed to ensure quality
 Maintaining quality awareness
 Evaluating quality efforts
 Determining customer perceptions
Sourcing
Degree of vertical integration
Supplier selection
Supplier relationship
Supplier quality
Supplier cooperation
Operating Systems
 Execute strategy daily
 Information technology
support
 Effective planning & control
systems
 Alignment of inventory
levels, scheduling
priorities, & reward systems
Strategic Planning
Mission and
Vision
Voice of the
Business
Marketing
Strategy
Figure 2.5
Corporate
Strategy
Operations
Strategy
Voice of the
Customer
Financial
Strategy
Policy Deployment
Focuses employees on common
goals & priorities
Translates strategy into
measurable objectives
Aligns day-to-day decisions with
strategic plan
Balanced Scorecard
 Finance — How should we look to our
shareholders?
 Customer — How should we look to our
customers?
 Processes — At which business
processes must we excel?
 Learning and Growing — How will we
sustain our ability to change and
improve?
Issues and Trends
 Global markets,
sourcing,
operations
 Virtual companies
 Greater choice
 Emphasis on
service
 Speed and
flexibility
 Supply chains
 Collaboration
 Technological
advances
 Knowledge
 Environment
and social
responsibilities
The Dilbert (Dogbert) Solution –
Change the Name of the Old Program
Decision Analysis
• Payoff Table - craps tables
• Maximax - maximum of maximum payoffs
- optimistic - “hard ways”
• Maximin - maximum of minimum payoffs safe bets or even odds bets
• Minimax regret - minimum of maximum
regrets or opportunity costs
Decision Trees
• Graphical method of analyzing a
decision - similar to Theory of
Constraints
• Payoff table can be translated to a
Decision Tree
Homework
• Motel 6 case study
• Chap 5
• Chap 6