Operations management
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Operations management refers to the management of processes that transform inputs into finished goods and services. It seeks to increase quality, efficiency, and responsiveness through techniques like total quality management, just-in-time inventory, flexible manufacturing, and process reengineering. The goal is to provide higher value to customers at a lower cost through continuous improvement efforts.
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Operations management
- 1. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Operations ManagementOperations Management Systematic direction, control, and evaluation of the entire range of processes that transform inputs into finished goods or services. Environmental factors-culture, political, and market influences Inputs-HR, capital, materials, land, energy, information, customer Transformations-convert inputs into outputs
- 2. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT O.M. (cont)O.M. (cont) Outputs-goods or services, and waste Customer Contact-customers actively participate in transformation processes, self- service Performance Feedback-repair records, customer comments
- 3. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Operations ManagementOperations Management Refers to the management of the production system that transforms inputs into finished goods and services. Production system: the way a firm acquires inputs then converts and disposes outputs. Operations managers: responsible for the transformation process from inputs to outputs. Operations management seeks to increase the quality, efficiency, and responsiveness of the firm. Seeks to provide a competitive advantage.
- 4. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Operations Management ConceptsOperations Management Concepts Quality: goods and services that are reliable and perform correctly. Quality allows customers to receive the performance that they expect. Efficiency: the amount of input to produce a given output. Less input required lowers cost and waste. Responsiveness to customers: actions taken to respond to customer needs. Firm can react quickly and correctly to customer needs as they arise.
- 5. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Differences Between Services andDifferences Between Services and GoodsGoods Information Asymmetry Intangible Inventory Customer Contact Response Time Labor Intensity
- 6. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Typical Characteristics of Services and Goods ProducersTypical Characteristics of Services and Goods Producers Adapted from Table 21.1 Primarily ServicePrimarily Service ProducersProducers Primarily GoodsPrimarily Goods ProducersProducersContinuum ofContinuum of CharacteristicsCharacteristics Intangible, nondurable Output can’t be inventoried High customer contact Short response time Labor intensive Tangible, durable Output can be inventoried Low customer contact Long response time Capital intensive MixedMixed 21.3
- 7. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Positioning Strategies-approachPositioning Strategies-approach selected for transformationalselected for transformational processesprocesses Process Focus-layout of plant and equipment around each production unit custom made Low Volume Norwegian Ship Building Product Focus-arranging plant and equipment around one or a few output types many of one product high-volume, highly automated low flexibility Factory Lines Intermediate Strategy- plant and equipment layout reflects some of both strategies batches of products Kinkos, Ball Homes Agile Strategy-mass customization
- 8. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT FlexibilityFlexibility Product Flexibility-speed with which products are created, ability to customize, ability to modify products for special needs Volume Flexibility-ability to respond to sudden changes in demand, change from small to full scale Process Flexibility-ability to manufacture a variety of goods in a short time, adjust to product mix over time, ability to accommodate changes in raw materials
- 9. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Core Positioning StrategiesCore Positioning Strategies Adapted from Figure 21.2 Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A., and Wheelwright, S.C. The Perpetual Enterprise Machine: Seven Keys to Corporate Renewal Through Successful Product and Process Development. New York: Oxford University Press, 1994; Upton, D.M. “The management of manufacturing flexibility.” California Management Review, Winter 1994, 72–89. Process focus Space shuttle Legal practice Product focus Auto assembly plant Mail processing Intermediate Garment industry Branch banks Product volumeProduct volume Custom products, low volume Standard products, high volume Mixture of custom and standard products, moderate volume Continuous process (stable) ResourceflowsResourceflows Mass production Large batch Sporadic (unstable) 21.5
- 10. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Improving Responsiveness to CustomersImproving Responsiveness to Customers Without customers, organizations cease to exist. Non-profit and for-profit firms all have customers. Managers need to identify who the customer is and their needs. What do customers want? Usually customers prefer: A lower price to a higher price. High quality over low quality. Fast service over slow service. Also good after sale support. Many features over few features. Products tailored to their specific needs.
- 11. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Quality-how well a product doesQuality-how well a product does what the customer expectswhat the customer expects Internal View-within the organization External View-value customers expect Value-the relationship between quality and price
- 12. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Competitiveness Value MapCompetitiveness Value Map Relative QualityRelative Quality SuperiorInferior Higher Lower Poor value Adapted from Figure 21.3 RelativePriceRelativePrice Economy value Outstanding value Premium value Average value Source: Adapted from Gale, B.T., and Buzzell, R.D. “Market perceived quality: Key strategic concept.” Planning Review, March-April, 1989, 10. 21.7
- 13. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT PricePrice v.v. AttributesAttributes Firms offering high quality, fast service and other customer desires, often must raise price. Customers must tradeoff price for attributes. Operations management tries to push the price/attribute curve to the right with better production. Provides more attributes at the same cost. By enhancing the price/attribute relationship, the firm can increase its competitive position.
- 14. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Customer Responsive Production SystemsCustomer Responsive Production Systems An output’s attributes is determined by the production system. Firms must strike a balance between cost and attributes Improving Quality: can apply to firms producing goods and services. A firm that provides higher quality than others at the same price is more responsive to customers. Higher quality can also lead to better efficiency. Lowers waste levels and operating costs.
- 15. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Total Quality ManagementTotal Quality Management The continuous process of ensuring every aspect of production builds in product quality Traditional Quality-product inspection during or at the end of the transformation process
- 16. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Total Versus Traditional QualityTotal Versus Traditional Quality Adapted from Table 21.3 Quality is a strategic issue Plan for quality Quality is everybody’s responsibility Strive for zero defects Quality means conformance to requirements that meet or exceed customers’ expectations Scrap and reworking are only a small part of the costs of nonconformance Traditional Quality ControlTraditional Quality ControlTotal Quality ManagementTotal Quality Management Quality is a tactical issue Screen for quality Quality is the responsibility of the quality control department Some mistakes are inevitable Quality means inspection Scrap and reworking are the major costs of poor quality 21.11
- 17. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Improving EfficiencyImproving Efficiency Labor productivity allows labor comparisons between organizations. Improved efficiency leads to lower costs and better performance. TQM and Efficiency: TQM can lead to much higher labor productivity. When quality rises, less time is wasted on scrap. Flexible manufacturing and efficiency: reduces the set-up costs for production systems. Facilities layout: seeks to design the machine-worker interface to increase production efficiency.
- 18. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Efficient ManufacturingEfficient Manufacturing Most firms face major expense when setting up to produce a product. These costs must be paid before production begins. The more often products to be built change, the higher setup costs become. Flexible Manufacturing reduces setup costs. Just-in-Time (JIT) inventory, while developed for TQM, also adds to efficient production. Many costs are reduced including warehousing, holding costs and inventory tracking. Firm does not have a supply of parts, but can be vulnerable to strikes or supply problems.
- 19. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Efficient ManufacturingEfficient Manufacturing Self-managed teams boost efficiency by allowing for a flatter organization structure. The team takes the role of the supervisor. Teams working together often become very skilled at enhancing productivity. Kaizen: Japanese term for a management philosophy the stresses the need for continuous improvement. Better operations can come from many, small, continuous improvements. Focus on what adds value to the product and try to eliminate steps that do not add value (such as inspection for defects).
- 20. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT ReengineeringReengineering Process Reengineering: the fundamental rethinking and radical redesign of the business process. Can boost efficiency by directing efforts to activities that add value to the good or service produced. While Kaizen focuses on continuous enhancements, process reengineering considers wholesale change. Top managers must support operations enhancement tools for them to be accepted by workers. Usually, a successful operations change means a complete change in the organizational culture. Without a supporting culture, change will not succeed.
- 21. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Nine Categories of Operations Management DecisionsNine Categories of Operations Management Decisions Product plans Competitive Priorities Positioning Strategies Location Technological Choices Quality management and control Inventory management and control Materials Management Master production scheduling 21.4
- 22. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Inventory CostsInventory Costs What contributes to inventory costs? TOTAL COST = ORDERING + CARRYING Carrying Costs Warehouse Insurance Obsolescence taxes breakage Ordering Costs Placing the order Transportation Shortage
- 23. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Inventory TermsInventory Terms Lead Time Elapsed time between placing and receiving an order EOQ-economic order cost optimum order quantity yielding the lowest total inventory cost Just-in-time finished goods to sell sub assemblies to be assembled purchases of raw materials to be transformed
- 24. Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Quantity (Q)Quantity (Q) HighHigh LowLow Averageannualcost($)Averageannualcost($) Total cost Carrying cost Order cost SmallSmall LargeLargeQ1 Adapted from Figure 21.5 Cost Trade-Offs in Determining Inventory LevelsCost Trade-Offs in Determining Inventory Levels 21.13