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Dom 102: Principles of Operations Management Overview

Mr. Munyao-Mulwa Department of Management Science UoN, School of Business. Dom 102: Principles of Operations Management Overview. In managing any business, gaining competitive advantage is of prime importance.

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Dom 102: Principles of Operations Management Overview

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  1. Mr. Munyao-Mulwa Department of Management Science UoN, School of Business Dom 102: Principles of Operations ManagementOverview

  2. In managing any business, gaining competitive advantage is of prime importance. CA is achieved by excelling in meeting needs of specific customer segment irrespective of discipline i.e finance, marketing etc Serving customer well means in a timely fashion, with exceptional quality & at lowest cost possible (efficient) Organizations need to design & operate processes that are quick, accurate & inexpensive 1:Introduction to the Field OF OM 2

  3. To deliver value to customers, organizations should craft efficient & effective operations Value = Quality/Price (People, processes & technology integrate to create value) How can one increase value to customers? Introduction to the Field OF OM 2

  4. The operations function is central to the organization because it produces the goods and services which are its reason for existing, but it is neither the only nor necessarily the most It is, however, one of the three core functions of any organization; • the marketing (including sales) function – which is responsible for communicating the organization’s products and services to its markets in order to generate customer requests for service OPERATIONS IN AN ORGANIZATION 2

  5. The product/service development function – which is responsible for creating new and modified products and services in order to generate future customer requests for service • The operations function – which is responsible for fulfilling customer requests for service throughout the production and delivery of products and services. In addition, there are the support functions which enable the core functions to operate effectively. Give examples .. OPERATIONS IN AN ORGANIZATION 2

  6. Systematic Approach to Org. Processes ( Analytical thinking) Business Education ( Students need exposure) Career Opportunities Cross-Functional Applications Why Study Operations Management? Operations Management 3

  7. Operations management may be defined as the design, operation, and improvement of the production system that creates the firm’s primary products and services. • It is the science & art of ensuring that goods & services are created & delivered successfully to customers. Operations Management Definition 4

  8. Understanding the needs of customers, measuring customer satisfaction & using information to develop new & improved goods & services • Using information about customers, goods and services, operations, employees etc to make better decisions. • Exploiting technology to design goods, services, manufacturing & service delivery processes that respond to customer requirements & improve productivity Activities of OM DISCIPLINE 4

  9. Marketplace Corporate Strategy Finance Strategy Operations Strategy Marketing Strategy Operations Management People Plants Parts Processes Materials & Products & Customers Services Planning and Control Input Output Production System Operations Decision Making 5

  10. Service Uniqueness Intangible Direct customer involvement Location of service facility Can not be stored for future use GOODS PRODUCTION Vs Services 9

  11. Operations whether in manufacturing or in a service organization can be treated as service. The core services customer want; • Quality • Flexibility • Delivery Speed • Price (or production cost) Operations as a service 11

  12. Value-added services These make external or internal customer’s life easier • Information – ability to furnish critical data on product performance, process parameters & cost • Problem Solving – especially in quality • Sales Support – By demonstrating the technology, equipment or production systems the company is trying to sell. • Field Support – Ability to replace defective parts quickly OPERATIONS AS A Service… 12

  13. Industrial Revolution • Scientific Management • Human Relations • Management Science • Quality Revolution • Globalization • Information Age/Internet Revolution Historical Events in OM

  14. Industrial Revolution Steam engine 1769 James Watt Division of labor 1776 Adam Smith Interchangeable parts 1790 Eli Whitney Scientific Management Principles 1911 Frederick W. Taylor Time and motion studies 1911 Frank & Lillian Gilbreth Activity scheduling chart 1912 Henry Gant Moving assembly line 1913 Henry Ford Historical Events in OM

  15. Human Relations Hawthorne studies 1930 Elton Mayo Motivation theories 1940s Abraham Maslow 1950s Frederick Hertzberg 1960s Douglas McGregor Management Science Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, PERT/CPM, 1950s Operations research Waiting line theory groups MRP 1960s Joseph Orlicky, IBM Historical Events in OM

  16. Quality Revolution JIT 1970s Taiichi Ohno, Toyota TQM 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 1970s IBM and others other trade agreements EDI, EFT, CIM 1980s Historical Events in OM

  17. Information Age/ Internet Revolution Internet, WWW, ERP 1990s ARPANET, Tim Supply chain Berners-Lee, SAP, i2 management, Technologies, ORACLE, E-commerce PeopleSoft, Amazon, Yahoo, eBay, and others Historical Events in OM

  18. Transformation Process Input Output (Value Adding) People Plants Parts Processes Planning and Control 2. The concept of value addition Transformation is enabled by The 5 Ps of OM: 6

  19. Physical--manufacturing • Locational--transportation • Exchange--retailing • Storage--warehousing • Physiological--health care • Informational--telecommunications Transformations 7

  20. Input-transformation-output relationships for typical systems 7

  21. Although all operations are similar in that they all transform input resources into output products and services, they do differ in a number of ways, four of which are particularly important: • Volume of their output; • Variety of their output; • Variation in the demand for their output; • The degree of visibility which customers have of the production of the product or service. PROCESSES HAVE DIFFERENT CHARACTERISTICS 14

  22. All four dimensions have implications for the cost of creating the products or services. • High volume, low variety, low variation and low customer contact all help to keep down processing costs. • Low volume, high variety, high variation and high customer contact generally carry some kind of cost penalty for the operation. implications of the ‘four Vs’ of operations 14

  23. Speeding up the time it takes to get new products into production. Developing flexible production systems to enable mass customization of products and services. Managing global production networks. Developing and integrating new production technologies into existing production systems. Current Issues 14

  24. Achieving high quality quickly and keeping it up in the face of restructuring. Managing a diverse workforce. Conforming to environmental constraints, ethical standards, and government regulations. Current Issues 15

  25. It can reduce the costs of producing products and services and being efficient; It can increase revenue by increasing customer satisfaction through good quality and service; It can reduce the amount of investment (sometimes called capital employed) that is necessary by increasing the effective capacity of the operation and by being innovative in how it uses its physical resources It can provide the basis for future innovation by building a solid base of operations skills and knowledge within the business. Why is operations management so important? 15

  26. The degree to which a firm can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the wealth of its shareholders. 3. OM and Competitiveness 15

  27. Cost Quality Delivery Flexibility Delivery Speed / Time based competition Delivery Reliability Coping with Changes in Demand Flexibility and New Product Introduction Speed Competitive priorities 15

  28. Eliminate all waste • Invest in • Updated facilities & equipment • Streamlining operations • Training & development Competing on Cost

  29. Please the customer by doing things right • Understand customer attitudes toward and expectations of quality • Quality reduces costs of output • Quality Increases dependability Competing on Quality

  30. Produce wide variety of products • Introduce new products • Modify existing products quickly • Respond to customer needs Competing on Flexibility

  31. Time Based Competition (TBC) • Speed means the elapsed time between customers requesting products or services and their receipt of them. • Provide the most value to the customer at the lowest cost in the least amount of time • Aimed at minimizing the time it takes to deliver a product or service to the customer • Rapid response enables companies to quickly redirect their value-delivery systems to the most attractive customers Competing on SPEED

  32. Fast moves • Fast adaptations • Tight linkages What Competitive priorities can you infer from the photograph? Competing on Speed

  33. Output Input Productivity = Productivity • Become more efficient • Downsize • Expand • Retrench • Achieve breakthroughs Productivity improves when firms:

  34. Productivity • Partial measures • output/(single input) • Multi-factor measures • output/(multiple inputs) • Total measure • output/(total inputs) 17

  35. Example 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $5,000 Cost of purchased material: $25,000 What is the labor productivity? 18

  36. Example--Labor Productivity 10,000 units/500hrs = 20 units/hour ... ... or we can arrive at a unitless figure (10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22 19

  37. Competitiveness • Competition Intensity is high when • Firms equal in size • Resources, products & services standardized • Slow industry growth (battle for market shares, the global market remaining constant) • Industry growth exponential (you must have a foothold in the market) • Consequences • Price wars • Relentless advertising • High Frequency of introduction of new products & services • Free trials • Low profit margins • Purchasing incentives • Switching bonuses • Financial packages; cheap credit

  38. Economies of Scale • Fixed & variable costs • Unit cost decreases when capacity increases • Newcomers: insufficient orders to justify large capacities => higher costs • Initial Capital Investment • May be prohibitive (service to community, hospital, robotized mega plant) • May be low: e-commerce, consulting… • Access to Supply & Distribution Channels • May be controlled by (major) Competitors Bargaining Power (Porter) • Exclusivity agreements (credit cards & banks) • Largely easier when going to e-commerce (no broker, distributor needed) • Learning curves • Lack of experience, skills, expertise can be penalizing (aerospace, shipbuilding [10% cost reduction for each similar ship built] Entry Barriers

  39. Volume of output Cost (materials, labor, delivery, scrap…) Utilization (labor & equipment) Quality & product reliability On-time delivery Investments (ROI) Flexibility for product change Flexibility for Volume change Objectives of Productive Systems

  40. Cost Flexibility Delivery Quality World Class Manufacturing FOCUS FOCUS Advanced Approaches FOCUS FOCUS Trade-offs Dealing with Trade-offs Traditional Approach Plant within a Plant (PWP) 5 Irwin/McGraw-Hill • The McGraw-Hill Companies, Inc., 1998

  41. Order QUALIFIERS & WINNERS World-class manufacturers no longer view cost, quality, speed of delivery, and even flexibility as tradeoffs. They are order qualifiers & order winners. Order qualifiers - a screening criterion that permits a firm’s products to be considered as possible candidates of purchase e.g on time delivery Order winners – A criterion that differentiates the products or services of one firm from another e.g price, quality & reliability 6

  42. Birth of the System Product Design & Process Selection Design of the System Start-up of the System The System in steady state Termination of the System The Lifecycle of a Productive System

  43. Birth of the System • What are the goals of the firm? • What product or service will be offered? • Product Design & Process Selection • Design of the System • Start-up of the System • The System in steady state • Termination of the System Key Decisions in the life of a Productive system

  44. Birth of the System • Product Design & Process Selection • Form & Appearance of Product? • Technologically, how should the product be made? • Design of the System • Start-up of the System • The System in steady state • Termination of the System Key Decisions in the life of a Productive system

  45. Birth of the System • Product Design & Process Selection • Design of the System • Capacity? • Location? • Lay-out? • How to maintain quality? • How to determine forecast for demand? • What job is each worker to perform? • How will the job be performed & measured? • How will the workers be rewarded? • Start-up of the System • The System in steady state • Termination of the System Key Decisions in the life of a Productive system

  46. Birth of the System • Product Design & Process Selection • Design of the System • Start-up of the System • How do you get the system in operation? • How long will it take to reach desired level of output? • The System in steady state • Termination of the System Key Decisions in the life of a Productive system

  47. Birth of the System • Product Design & Process Selection • Design of the System • Start-up of the System • The System in steady state • How do you manage the day to day activities? • How do you maintain the system? • How can you improve the system? • How do you revise the system in light of changes in corporate strategy? • Termination of the System Key Decisions in the life of a Productive system

  48. Birth of the System • Product Design & Process Selection • Design of the System • Start-up of the System • The System in steady state • Termination of the System • How does the system die? • What can be done to salvage resources? Key Decisions in the life of a Productive system

  49. As the era of globalization & liberalization dawned on organizations, leading companies began to adopt surprisingly similar new practices in OM. • New practices were aimed at serving the customers better so as to achieve a competitive hedge in the global front. • Principles of OM by Schonberger; • Get to know the customer & the competition • Cut: work in process (waiting lines), throughput times, flow distances & space • Cut set up & changeover times • Produce & deliver at the customer’s usage rate Principles of operations management

  50. Principles of OM by Schonberger; • Cut the number of suppliers to a few good ones • Cut the number of components in a product or service • Make it easy to make or provide goods or services without error the first time • Arrange the workplace to eliminate search time • Cross-train for mastery of multiple skills • Record & retain output volume, quality & problem data at the workplace • Ensure that line people first crack at problem solving before experts • Maintain & improve present equipment & human work before thinking about new equipment • Look for simple, cheap & movable equipment Principles of operations management

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