Fundamentals of Operations Management BUS 3 – 140 Jan 29, 2008

1. Fundamentals ofOperations ManagementBUS 3 – 140Jan 29, 2008

2. Agenda • Week 1 Review • Product & Service Design • Location Planning • Project Management

3. How Operations Interacts with Other Organizations

4. Key intersections with Sales & Marketing and with Finance FINANCE & ACCOUNTING • Budgeting • Authorizing Capital spending • Authorizing major inventory buys • Cost accounting • Make vs. Buy decisions • Location planning • Managing international trade • Analyzing trade-off decisions

5. Key intersections with Sales & Marketing and with Finance SALES & MARKETING • Forecasting Demand • Influencing demand • Committing supply • Negotiating schedules with customers • Providing competitive information • Requesting new products and services • Opening new markets

6. Interaction with other Functional Organizations

7. Product & Service Design

8. There are degrees of “Newness” • Modify existing products and services • Expand and existing product line or service offering • Clone a competitor’s product or service • New product or service There is usually some combination taking place simultaneously

9. Phases in Product Design & Development Idea Generation Market Test Product Specifications Product Introduction Follow-up Evaluation Process Specifications Prototype Development Design Review Feasibility Analysis • Supply Chain • Customers • Suppliers • Employees • Field Service • Competitors • “Me too” strategy • Reverse Engineering • Research and Development • Applied research has the objective of MAKING MONEY • Development takes the results of the applied research and finds places where they can be used (Applications)

10. Phases in Product Design & Development Product Specs. Market Test Product Introduction Follow-up Evaluation Process Specifications Prototype Development Design Review Feasibility Analysis Idea Generation • Start with the CUSTOMER • Understand what the customer wants (or demands) • Understand what the customer will PAY for • RESPOND to Opportunities and Threats • Customers not buying what you are selling • Customers buying what you are not selling • Acknowledge Cost imperatives • Defensive considerations • Product liability • Availability (possible shortages or cost issues) of Raw Material, components, labor

11. Saturation Maturity Decline Demand Growth Introduction Time Product Life Cycles Figure 4.1

12. Definitions Price What the seller is paid for goods and services provided Cost The expenses incurred in operating the enterprise, making and buying materials, and converting the materials to finished goods Value The difference between Price and Cost

13. Target Pricing is a Key Element in Product Specifications Instead of adding profit and cost to establish a selling price, the organization starts with the marketprice and required profit to establish a targetcost to achieve the necessary profit. Traditional: Cost Profit Sales Price + = Target Pricing: Sales Price (Market) Profit Cost - =

14. Design Phases leads to Introduction and Volume Product Introduction Market Test Product Specifications Follow-up Evaluation Process Specifications Prototype Development Design Review Feasibility Analysis Idea Generation • Quality and Cost • Target pricing • Capital equipment • Time to market • Time to Volume • Postponement and “Mass Customization”

15. The Standardization Challenge Standard parts are generally lower cost, more abundantly available, provide the largest number of potential suppliers, drive efficiencies in design, and provide other benefits BUT… Unique parts often differentiate products and performance, and can provide competitive advantage to the seller

16. Postponement and Mass Customization • Combine uniqueness and standardization • Delayed differentiation • Modular design • Many permutations from standard components (e.g Dell computer, Burger King, Subway, magazines) • Inventory Management • Forecasting

17. Other Design and Spec Considerations • Decisions made EARLY affect Dollars spent LATER • Whenever possible it is recommended to re-use existing components when developing new products (rather than creating numerous new components whenever creating a new subassembly) • Partnering among Design, Marketing, Sales, and Suppliers during the Design process is a major opportunity to reduce both Time To Market and Cost • Product Portfolio

18. Service Design

19. Service Design • Start with the Customer • Understand what the customer wants (or demands) • Understand what the customer will PAY for • Respond to Opportunities and Threats • Customers not buying what you are selling • Customers buying what you are not selling • Service Delivery Systems • Facilities • Processes • Skills • Technology • Service “blueprint” These concepts also useful for Managing Functions and Departments

20. Challenges of Service Design • Variable requirements • Difficult to describe • High customer contact • The customer is a PARTICIPANT in the process

21. Characteristics of Well Designed Service Systems • Consistent with the organization mission • User friendly • Robust • Easy to sustain • Cost effective • Value to customers • Effective linkages between back operations • Single unifying theme • Ensure reliability and high quality

22. Guidelines for Successful Service Design • Define the service package • Focus on customer’s perspective • Consider image of the service package • Recognize that designer’s perspective is different from the customer’s perspective • Make sure that managers are involved • Define quality for tangible and intangibles • Make sure that recruitment, training and rewards are consistent with service expectations • Establish procedures to handle exceptions • Establish systems to monitor service

23. Components of the “Service Package” • Physical Resources • Accompanying goods that are purchased or consumed by the customer, or provided with the service • Bundling of like products • Service contracts • Insurance plans • Package deals • Explicit services • Implicit services

24. Key Elements of Service Operations Management • Tangible – intangible • Services are created and delivered at the same time • Services cannot be inventoried • Services highly visible to customers • Services have low barrier to entry • Location important to service • Range of service systems • Demand variability • There is FUNGIBLE CAPACITY – you “use it or lose it” • Difficult to leverage and scale when people intensive • Turnover and attendance can be critical factors

25. Location Planning

26. Objectives of Location Planning • Strategic • Reduce costs • Add revenue • Both • Tactical • Explosive growth • Dramatic decline • Key customers • Mergers and acquisitions

27. Four Location Options • Expand existing facilities • Add new • Leave existing and find new • Do nothing

28. Regional Factors when making Location decisions • Raw materials and components • New Markets • Labor • Tax relief and other incentives

29. Characteristics of Service and Retail Locations • Heavier emphasis on REVENUE than Manufacturing locations • Traffic volume and convenience most important • Demographics • Age • Income • Education • Location is CRITICAL • Good transportation • Customer safety

30. Comparing Manufacturing vs. Service Locations

31. Project Management

32. Build A A Done Build B B Done Build C C Done Build D Ship JAN FEB MAR APR MAY JUN On time! The Nature of Projects • Unique, one-time operations designed to accomplish a specific set of objectives in a limited time frame. This Course and Semester are PROJECTS!

33. Overview of Project Management (from Table 17-1) • How is it different? • Limited time frame • Narrow focus, specific objectives • Less bureaucratic • Why is it used? • Special needs • Pressures for new or improves products or services • What are the Key Metrics? • Time • Cost • Performance objectives • What are the Key Success Factors? • Top-down commitment • Having a capable project manager • Having time to plan • Careful tracking and control • Good communications

34. Overview of Project Management (from Table 17-1, continued) • What are the Major Administrative Issues? • Executive responsibilities • Project selection • Project manager selection • Organizational structure • Organizational alternatives • Manage within functional unit • Assign a coordinator • Use a matrix organization with a project leader • What are the tools? • Work breakdown structure • Network diagram • Gantt charts • Risk management

35. The Work of the Project Manager • Responsible for RESULTS achieved through: • Work • Human Resources • Communication • Schedule • Cost • Risk Management Project Managers often must INFLUENCE team members and others WITHOUT formal (Organizational Chart) authority

36. Gantt Chart Locate new facilities Interview staff Hire and train staff Select and order furniture Remodel and install phones Move in/startup MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Gantt Charts

37. An example of a Gantt Chart for this Class Complete Final Draft Write First Draft Compare Book to Course Read Book 25-Feb 4-Mar 11-Mar 18-Mar 25-Mar 01-Apr In this example, you would know that you should start reading by Feb 25 to complete the assignment by Apr 1

38. A Project Work Plan and Project Life Cycle Feasibility Planning Management Concept Execution Termination The Key is to COMPLETE the work, achieve the RESULTS, and Move On