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Operations Management: Enhancing Processes for Business Success

Learn the significance of Operations Management (OM) in improving competitiveness, decision-making, & career prospects. Explore business process management, system approach, process selection trade-offs, & analysis of make-to-stock vs. make-to-order systems.

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Operations Management: Enhancing Processes for Business Success

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  1. Processes • A business process is a recurring network of activities with specific precedence relationships to transform inputs into desired outputs. • Providing new car financing • Producing an engine • Making a hamburger • Delivering a book from Amazon to a customer • Teaching a course • Others?

  2. Why learn OM? • OM defines the competitiveness of the corporations • OM enables a systematic view at organizational processes • OM provides the concepts and tools used in business decision making • OM presents promising career opportunities

  3. Systems approach “The whole is greater than the sum of the parts.” Suboptimization 2 > 1+1

  4. Systems approach • Systems approach and • Sales • Purchasing • Production

  5. Systems A set of parts with interrelationships between parts organized to achieve a goal How systems grow up

  6. Operations Management • Key questions: • How to design processes to improve performance? • How to reduce cost? • How to deliver goods and services faster? • How to improve quality? • How to provide more variety and advance customer satisfaction?

  7. Operations Management • What is operations management’s philosophy to decision-making? • Describe the processes relevant to producing and delivering goods and services. • Develop measures to evaluate the efficiency and effectiveness of processes. • Apply methods and tools to improve process performance.

  8. Business Process Management • Building block of Operations Management • System view • Flowchart • A tool to describe the business process • Evaluation and trade-offs • Make-to-order vs. Make-to-stock • First peek on the risk-pooling effect

  9. Process Selection (Trade-off) • Will different companies intentionally choose different processes to accomplish the same goal? • Let us describe the process of making a hamburger • in McDonald • in In & Out

  10. McDonald’s Customer places order Raw Material Finished Goods Cook Assemble Deliver Activity Storage This is a make-to-stock system. Decision Flow (Prior to 1999)

  11. Make To Stock (MTS) • Advantages: • Fast (customers get the hamburger right away). • Disadvantages: • Hamburger quality may suffer. • Some hamburgers may not be sold; have to be discarded.

  12. In & Out’s Customer places order Raw Material Cook Assemble Deliver What are the advantages and disadvantages? This is a make-to-order system.

  13. Make-to-stock vs. Make-to-order • MTS MTO • Cost prob • Responsiveness X • Variety (customization) X • Quality ? ?

  14. Process Analysis • Process Evaluation • Different processes lead to different advantages and disadvantages. • Is there a simply better process, i.e., no trade-offs?

  15. Analysis of Tradeoffs Tradeoffs What are the pros and cons of models?

  16. Buying a new machine Additional Investment Having more inventory Higher Carrying Costs More Obsolescence Higher Productivity Better Quality More Flexibility Better Customer Service Analysis of tradeoffs

  17. How can McDonald improve its quality (taste)? Customer places order Raw Material Finished Goods Cook Assemble Deliver This is a make-to-stock system. (Prior to 1999)

  18. McDonald’s New Hybrid Process Customer places order Raw Material WIP Cook Assemble Deliver (Patties can be kept for up to 30 minutes.) (After 1999) This is a hybrid system.

  19. Advantages and Disadvantages • Advantages: • Customized hamburger, tailored to customer preferences • Fast • Disadvantages: • High investment cost • Need to manage inventory of cooked hamburgers

  20. Polling: Selling a ticket We are interested in the management of processes. Selling a ticket seems easy, but …

  21. Processes: Selling a ticket

  22. Processes: Selling a ticket

  23. Uncertainty: Potential Solution • Inventory • How many inventories? • If too many … opportunity cost, spoilage cost • If too few … loss of sales • It is costly to solve uncertainty using inventory.

  24. Amazon.com: Delivering Books • Notice that: • It is not difficult to deliver books very fast • It is not difficult to deliver books at a very low cost • But, it is very difficult to deliver book fast and at a low cost ?

  25. Potential Solutions Inventory How do we deal with uncertainty Eliminate the uncertainty Print on demand Transfer/Share the uncertainty Transfer the inventory to a distributor

  26. Potential Solutions: Transfer the inventory to the distributor • Example: In the early days of Amazon.com the company did not keep any inventory of books. • The supplier Ingram kept the books for Amazon. • Once Amazon received an order it was transmitted to Ingram. • Ingram would ship the book directly to the consumer.

  27. Potential Solutions: Transfer the inventory to the distributor Amazon’s Order Ingram’s Order Ingram’s Book Inventory Amazon’s Post Order Process Ingram’s Post Order Process

  28. Potential Solutions: Transfer the inventory to the distributor • What are the advantages for such an arrangement for Amazon and Ingram? • Risking pooling (less inventory is needed) • What are the disadvantages of this arrangement for Amazon and Ingram? • Allocation priority

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