What is “Operations Management”? (and why should you care?)

1. What is“Operations Management”?(and why should you care?) Dr. Ron Lembke, Ph.D. University of Nevada, Reno

2. Reaching me • Email: rtl@unr.edu • Phone: (775) 682-9164 • WWW: http://coba.unr.edu/faculty/rtl • FAX: (775) 784-1796 • eFax: (509) 562-2179 Don’t call my house, and I won’t call yours. When emailing, please include “701” in the subject line.

3. Who Are You? (This is Homework) In an email, please tell me the following: • Your name Where From • Major Interests / Hobbies • phone #’s to reach you at Musical interests • email address • when you anticipate graduating • any experience you have had that might be relevant to this course

4. The Goal What is the goal of a company?

5. Efficent & Effective • Efficiency: Doing things with the least use of resources • Effectiveness: Doing the right thing at the right time. • Value = Quality / $

6. What is Operations Management? • “The design, operation, and improvement of the systems that create and deliver the firm’s primary products and services.” p. 6. • Operations research / management science • Applying quantitative methods to decision making • Industrial Engineering • Engineering discipline • OM is a field of management that may use some tools from OR/MS and IE.

7. What is OM? • Manage entire system for delivering service or product for OEM • Original Equipment Manufacturer • Brand name on the product. Probably doesn’t produce Suppliers, vendors, Third party logistics providers (3PLs) Contract manufacturers – Solectron, Flextronics

8. Why OM is the most important area • Marketing gets people to buy our product • Finance makes sure we have the money to operate • Accounting keeps track of what we spend • Management keeps people on task • I/S makes sure systems work to support everyone else • Operations actually makes the thing we sell. Without operations, you can’t have a company.

9. Why Do You Care? • Satisfying Customers depends on Operations • You must understand and work in or with Operations: • Finance: Depr, Cash Flow, Make vs. Buy • Acctg: Cost estimates, Overhead, Inv valuation • Mktg: What can be done? • HR: job descr, standards, incentives • MIS: production, shipping, billing, receiving

10. Operations as Service Everybody’s in service Core services: done correctly, customized to their needs, delivered on time, priced competitively Value-added services: make life easier, help do jobs easier: Information on product – data, specs Problem solving – help internal, external customer Sales support – demo product trying to sell Field support – replace parts quickly

11. Decisions of OM 1. Quality: what do customers want? 2. Goods & Service Design: what to sell? 3. Process & Capacity Design: how to make it and how much capacity to have? When add more? Where? How? 4. Location Selection: where to build? 5. Layout Design: how to design facilities?

12. Decisions of OM 6. Human Resource & Job Design: what skills and how many people needed? 7. Supply chain management: vendor management, who use as suppliers? 8. Inventory: how much and where? 9. Scheduling: HR, facility needs, when? 10. Maintenance: how much, when?

13. Current OM Issues Flexible supply chains for mass customization of products and services Global supplier, production, and distribution networks Commoditization of suppliers – “plug compatibility” Enhancing value-added services Maximizing use of internet to share information, coordinate production

15. Continuous Process Improvement • It used to be you had to be “good enough” • Now, you must be looking for ways to make your customer happy, and meet their future needs • If you aren’t someone else is, and is going to take your business

16. What is strategy? • How a firm intends to create and sustain value for its shareholders (p. 24) • Major components: • Operations effectiveness • Customer management • Product innovation • Competitiveness: • A firm’s relative position in comparison to other firms in the marketplace

17. Satisfying the Customer • Mission: the organization’s purpose, what it hopes to achieve; rationale for its existence. To provide society with superior products and services--innovations and solutions that improve the quality of life and satisfy customer needs--to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return. (Merck mission statement)

18. Mission Statement • “Without a clear mission, an organization is unlikely to achieve its true potential, because there is little direction for formulating strategies.” • Wouldn’t the same be true about people?

19. My Favorite Guru • When you think of something, put it on a list. • Check your lists regularly. • Don’t get sucked into email distractions. • Get rid of the clutter you don’t need.

20. Strategy • Strategy: a plan for achieving the mission • Each functional area (accounting, finance, marketing) determines its “supporting mission” • Tactics: the methods to be used to achieve the strategic goals. • Must support mission, corporate values

21. Michael Porter Three ways to achieve corporate mission: 1. Differentiation: Make your product different and / or better 2. Cost Leadership (lower prices): Wal- Mart, Southwest Airlines 3. Quick Response: Pizza Hut, FedEx

22. Purchasing Triangle Price Quality Speed “Don’t be sad; two out of three ain’t bad” -- Meatloaf

23. Competitive Dimensions • Cost -- make it cheap • Quality and Reliability -- make it good • Speed -- make it fast • Reliability -- deliver when promised • Cope with Change -- change volume • New product speed • Customer support

24. Focus • What is Merck’s strategy? To provide society with superior products and services--innovations and solutions that improve the quality of life and satisfy customer needs--to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return.

25. Impact of Life Cycle iTunes CDs DVD Audio Cassettes Records MiniDisc DAT 8-Tracks Introduction Growth Maturity Decline

26. Impact of Life Cycle Records DAT Introduction Growth Maturity Decline

27. Impact of Life Cycle • Introduction: develop product, small-scale production • Growth: ramp up production, marketing • Maturity: standardized, volume production, optimization • Decline: cost minimization, eliminate unprofitable products

28. Competitiveness • Order qualifiers: screening criterion that allows your products to be considered • deliver on-time, reliability, general quality • Order Winners: criterion that differentiates your service/product above the competition • price, quality, reliability

29. Balanced Scorecard – track performance from following perspectives: • Financial: revenue or productivity growth • Customer: Product leadership, customer intimacy, operational excellence • Internal: innovation, customer management, operational excellence, corporate citizenship • Learning and Growth: strategic competencies and technologies, climate for action • Kaplan and Martin, 1992, “The Balanced Scorecard: Measures that Drive Performance” Harvard Business Review

30. Operations Strategy • Core capabilities: the skills that differentiate the firm from its competitors. • What is the thing you do better than everyone else, that you could never dare trust to anyone else? • Soft drinks: the secret sauce • Automobiles: designing engines

31. Productivity • Productivity = Outputs / Inputs • Partial: Output/Labor or Output/Capital • Multifactor: Output / (Labor + Capital + Energy ) • Total Measure: Output / Inputs

32. Productivity • Services have always been a large portion of U.S. economy • Services’ share continues to grow • U.S. has higher service % than others • U.S. productivity growth has lagged other countries in past. • What explains this phenomena?

33. Improving Productivity • Develop productivity measurements– you can’t improve what you can’t measure • Identify and Improve bottleneck operations first • Establish goals, document and publicize improvements