DOM 511 :Operations Management Practice 1- Overview

1. DOM 511 :Operations Management Practice1- Overview By: Munyao-mulwa UON School of Business Dept of Management Science

2. What is Operation Management? • Manufacturing: Getting the products a company makes to an agreed specification, in due time • Transport: Ensuring the transport runs to an agreed schedule • Retailing: Pushing the merchandise through the store to the consumer • Service: Providing satisfactory, according to an agreed schedule, the service to the customer Operations Manager: • The supplier of products or services required by the market place • Utilises the organization resources to meet the product or service specifications efficiently & effectively

3. Operations ManagementDefinition • Operations management may be defined as the design, operation, and improvementof the production system that creates the firm’s primary products and services. • Analysis of definition;- 4

4. Operations ManagementDefinition • OM is the science & art of ensuring that goods & services are created & delivered successfully to customers. • Applying the principles of OM entails a solid understanding of people, processes, & how they are integrated within a business to create value 4

5. From General Management To Operations Management • Traditional Management paradigm revolves around planning, organizing, directing & controlling • OM is the only means by which managers can directly affect the value provided to all stakeholders – customers, employees, investors & society 4

6. From General Management To Operations Management Key activities for OM discipline; • Understanding the needs of customers, measuring customer satisfaction & using the information to develop new & improved goods & services • Building quality into goods, services & processes & continually improving them to reduce errors, defects & waste • Using information about customers, goods/services, operations, suppliers, employees etc to make better decisions 4

7. From General Management To Operations Management Key activities for OM discipline; • Exploiting technology to design goods & services that respond rapidly & flexibly to customer requirements & improve productivity • Creating a high-performance workplace thro’ training, rewards etc • Continually learning from co-workers, competitors & customers & adapting the organization to global & environmental changes 4

8. OM Discipline OM principles are not complicated for they constitute the “basics” of everyday life eg Respect for customer experience Focus on the dynamics of demand Recognition that experience is delivered by people etc >>The fundamental purpose of OM is to deliver ever-improving value to customers through the continuous improvement of overall company performance & capabilities 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. Transformation Process Input Output (Value Adding) OM Involves Managing Transformations • People • Plants • Parts • Processes • Planning and Control Transformation is enabled by The 5 Ps of OM: 6

11. Operations ManagementDefinition • Value = quality / price • How can an organization increase customer value? 4

12. OM’s Transformation Role • To add value • Increase product value at each stage • Value added is the net increase between output product value and input material value • Provide an efficient transformation • Efficiency – perform activities well at lowest possible cost 7

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

14. Systemic Approach Greater value than inputs Requirements • Inputs • Material • Machines • Labor • Management • Capital • Outputs • Goods • Services Transformation Process Feedback Feedback Push or Pull?

15. SIPOC Model Interfaces Management Inputs Outputs Process (+ Owner) Suppliers Clients Responsible for “smooth” operation The output has higher value than the input: VALUE CHAIN

16. Operations Function & its Environment Product / Services Suppliers Other functions (Purchasing, Distribution, R&D…) Production Technical Core Human Resources Marketing Sales Order Labor Force Physical Transformation Activity Finance Investments in Equipment

17. Finance/Accounting Production and Inventory data Capital budgeting requests Capacity expansion and Technology plans Budgets Cost analysis Capital investments Stockholder requirements Orders for materials Production and delivery Schedules Quality Requirements Design/ Performance specs Material availability Quality data Delivery schedules Designs Product/Service Availability Lead-time estimates Status of order Delivery schedules Sales forecasts Customer orders Customer feedback Promotions Operations Suppliers Marketing Personnel needs Skill sets Performance evaluations Job design/work measurement Hiring/firing Training Legal requirements Union contract negotiations Human Resources Operations as the Technical Core

18. Trends in OM • Service sector growing to 50-80% • Global competitiveness • Demands for higher quality • Huge technology changes • Time based competition • Work force diversity

19. Why OM? • For long-run success companies must place much importance on their operations • The 1950-1960 era was the U.S. golden era where primary opportunities were marketing • The 1970-1980 U.S. companies experienced a large decline in productivity growth – international firms began to challenge in many markets • The 1970-1980 era saw U. S. firms lagging behind in methods and processes • The resurgence of American business in the 1990’s capitalized on improved operations

20. Today’s OM Environment • Customers demand better quality, greater speed, and lower costs • Companies implementing lean systems concepts – a total systems approach to efficient operations • Recognized need to better manage information using ERP and CRM systems • Increased cross-functional decision making

21. OM in Practice • OM is the most diverse organizational function • Manages the transformation process • OM has many faces and names such as; • Chief Operating Officer, V. P. operations, Director of supply chain, Manufacturing manager • Plant manger, Quality specialist, etc. • All business functions need information from OM in order to perform their tasks

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

23. Historical Events in OM 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

24. Historical Events in OM 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

25. Historical Events in OM Quality Revolution JIT 1970s Taiichi Ohno, Toyota TQM 1980s W. Edwards Deming, Joseph Juran, et. al. Strategy and operations 1990s Skinner, Hayes Reengineering 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

26. Historical Events in OM Information Age/ Internet Revolution Internet, WWW, ERP 1990s Supply chain Berners-Lee, SAP, management, ORACLE, E-commerce PeopleSoft,

27. Historical Development of OM • Time-Based Competition 1990s • Supply chain Management 1990s • Electronic Commerce 2000s • Outsourcing &flattening of the world 2000s

28. Objectives of Productive Systems • 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

29. The Lifecycle of a Productive System • 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

30. Key Decisions in the life of a Productive system • 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

31. Key Decisions in the life of a Productive system • 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

32. Key Decisions in the life of a Productive system • 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

33. Key Decisions in the life of a Productive system • 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

34. Key Decisions in the life of a Productive system • 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

35. Key Decisions in the life of a Productive system • 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?

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

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

38. 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

39. 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

40. Competitiveness The degree to which a an organization can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real wealth of its shareholders.

41. 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

42. Entry Barriers • 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 • 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])