Operations Management Chapter 1,2,7 & 11

Operations Management

The science and art of ensuring that goods and services are created and delivered successfully to customers.

Design goods, services, and the process

Managers can directly affect

Three core issues in Operations Management

1. Efficiency: How well resources are used in creating output

2. Cost: Cost of operations

3. Quality: The quality of goods and services that create customer satisfaction

goods

Physical product a person can see, touch, or consume

durable goods

Product that does not quickly wear out and typically last at least three years.

Ex: Vechicales, dishwashers, and furniture

non-durable goods

No longer useful once its used, perishable and lasts for less than three years

Ex: Toothpaste, clothing, and food

Good-producing firms

Found in industries as manufacturing, farming, forestry, mining construction, and fishing

Service

Primary or complementary activity that does not directly produce a physical product (non-goods)

Service-producing firms

Found in industries such as banking, lodging, education, health care, and government

Goods v. Services

Similarities: Provide value and satisfaction, and can be standardized or customized to individual wants and needs.

Differences: Goods are tangible, services are intangible. Customers participate in many service processes, activites, and transactions. Demand for services is more difficult to predict than demand for goods. Services cannot be stored as physical inventory. Patents do not protect services.

Service Management

integrates marketing, human resources, and operations functions to plan, create, and deliver goods and services, and their associated service encounters

Service Encounter

An interaction between the customer and the service provider.

Ex. Making a hotel reservation, making a purchase on a website

Consist of one or more moments of truth.

Customer benefit package

Set of tangible (goods) and intangible (services) features that the customer recognizes, pays for, uses, or experiences.

Primary good/services

Core offering that attracts customers and responds to their basic needs.

Ex: Personal checking account

Peripheral goods/services

Core offering that are not essential to the primary good or service but enchance it

Ex: Designer check, special credit cards, and online bill payment

Variant

Departs from the standard CBP and is normally location or firm specific

Core Processes

Producing or delivering an organizations primary good or service. Ex. Filiing and shipping a customers order, Assembling a dishwasher, home mortgage.

Support processes

Purchasing materials and supplies used in manufacturing, managing inventory, installation, health benefits, technology acquistion, day care on-site services, and research and development.

General management processes

Accounting and information systems, human resource management, and marketing

OM Evolution

Roughly in:

1960s: Focus on cost and Efficiency

1970s: Focus on Quality

1980s: Focus on customization and design

1990s: Focus on time

2000s: Focus on Service and value, Focus on Sustainability

2010s: Focus on data and analytics

Sustainability

Organizations ability to strategically adress current business needs, develop a long term strategy. that embraces opportunities and manages risk for products, systems, supply chains, and processes to preserve resources for future generations

Environmental sustainability

Organization's commitment to the long-term quality of the environment

Social sustainability

Organization's commitment to maintain healthy communities and a society that improves the quality of life

Economic sustainability

Organization's commitment to address current business needs and economic vitality, and to have agility and strategic management to prepare successfully for future business, markets, and operating environments.

Business Analytics

a process of transforming data into actions through analysis and insights in the context of organizational decision making and problem solving

Descriptive

understand past and current performance

Predictive

predict the future by detecting patterns and relationships in data

Prescriptive

identify the best decisions

Seven categories of performance measurements

1. Financial

2. Customer and Market

3. Quality

4. Time

5. Flexibility

6. Innovation and learning

7. Productivity and operational efficiency

ORGANIZATIONAL - Level Performance Measures

Financial: Revenue and Profit, ROA, EPS

Customer and market: Customer satisfaction, market share

Quality: Customer ratings, product recalls

Time: Speed, Reliability

Flexibility: Design flexibility, Volume flexibility

Innovation and learning: New product development rates, employee turnover, employee satisfaction

Productivity and operational efficiency: Labor productivity, equipment utilization.

Sustainability: Environment and regulatory compliance, financial audits

OPERATIONAL - Level Performance Measures

Financial: Labor and material costs, cost of quality, budget variance

Customer and market: Customer claims and complaints, type of warranty failure/upset, sales forecast accuracy

Quality: Defects/unit or errors/opportunity, Service representative courtesy

Time: Flow processing or cycle time, percent of time meeting promised due date

Flexibility: Number of engineering changes, assembly line changeover time

Innovation and learning: Number of patent applications, number of improvement suggestions implemented, percent of workers trained on statistical process control

Productivity and operational efficiency: Manufacturing yield, order fulfillment time

Sustainability: Toxic wast discharge rate, workplace saftely violations

How to measure Service Quality

1. Tangibles: physical facilities, equipment uniforms

2. Reliability: Ability to perform the promised service dependably and accurately

3. Responsiveness: Willingness to help customers and provide prompt recovery to service upsets

4. Assurance: Knowledge and courtesy of the service providers and their ability to inspire trust and confidence in customers

5. Empathy: Caring attitude and individualized attention provided to customers

measures of flexibility

Goods and service design flexibility:

Ability to develop a wide range of customized goods or services to meet different or changing customers' needs

Ex. Dell's computer hardware to accommodate home users, small business, large company server, health clubs.

Volume flexibility: Ability to respond quickly to changes in the volume and type of demand.

Ex. Hospital may intensive-care nurses on standby in case of a dramatic increase in patient demand because of an accident.

Calculate Productivity

Productivity = Quantity of Output / Quantity of Input

Interlinking

Quantitative modeling of cause-and-effect relationships between external and internal performance criteria

Helps quantify performance relationships between all parts of a value chain

Ex: managers can objectively make internal decisions that impact external outcomes

Balanced scorecard

Translates strategies into measures that uniquely communicate an organization's vision

Performance perspectives:

Financial: Measures value provided to shareholders

Customer: Focuses on customer needs and satisfaction and market share and its growth

Innovation and learning: Emphasizes people and infrastructure

Internal: Focuses attention on the performance of key internal processes that drive a business

Make-to-order

Produced and delivered as one-of-a-kind or in small quantities. Designed to meet specific customers specifications

Ex. Ships, Internet sites, weddings, taxi service, estate plans, buildings, and surgery

Assemble-to-order

Configurations of standards parts, subassemblies, or services that can be selected by customers from a limited set

Ex. Dell computers, subway sandwitches, machine tools, and travel agent services

Make-to-stock

Made according to a fixed design, and the customer has no options from which to choose

Ex. Appliances, shoes, sporting goods, credit cards, online web based courses, and bus service

4 type of Process

Projects: Large-scale, customized initiatives that consist of smaller tasks and activities that must be coordinated and completed to finish on time and within budget

Job Shop: Organized around particular types of general-purpose equipment that are flexible and capable of customizing work for individual customers

Flow Shop: Organized around a fixed sequence of activities and process steps, such as an assembly line, to produce a limited variety of similar goods or services

Continuous Flow: Creates highly standardized goods or services, around the clock in very high volumes.

Project Life cycle

A characterization of product growth, maturity, and decline over time

Four phases:

Introduction

Growth

Maturity

Decline and turnaround

Product Process Matrix

Alignment of process choice with the characteristics of the manufactured good

Appropriate match between type of product and type of process occurs along the diagonal in the product-process matrix

As one moves down the diagonal, the emphasis on both product and process structure shifts from low volume and high flexibility to higher volume and more standardization

If product and process characteristics are not well matched, the firm will be unable to achieve its competitive priorities effectively

Service Positioning Matrix

The product-process matrix does not transfer well to service businesses and processes as the relationship between volume and process is not found in many service businesses.

Like the product-process matrix:

Nature of the customer's desired service encounter activity sequence should lead to appropriate service system design and that superior performance results by staying along the diagonal of the matrix

pathway (service-position)

a unique route through a service system

Customer-routed services

Offer customers broad freedom to select the pathways that are best suited for their immediate needs and wants from many possible pathways through the service delivery system

Provider-routed services

constrain customers to follow a very smaller number of possible and predefined pathways through the service system

Levels of Process Work

Task: Specific unit of work required to create an output

Activity: Group of tasks needed to create and deliver an immediate or final output

Process: Group of activities

Value Chain: Network of processes

process map (flowchart)

describes the sequence of all process activities and tasks necessary to create and deliver a desired output or outcome.

Learn how to draw and identify bottleneck

Value Stream

refers to all value-added activities involved in designing, producing, and delivering goods and services to customers

Value Stream Map (VSM)

shows the process flows in a matter similar to an ordinary process map, but highlights value-added versus non-value-added activities, and include costs associated with work activities for both value-and non-value-added activities

Utlization

is the fraction of time a workstation or individual is busy over the long run.

Utilization = Demand Rate/ Service Rate * Number of Services

Throughput

Average number of entities completed per unit time from a process.

Measured as parts per day, transactions per minute, or customers per hour, depending on the context.

Bottleneck

Work activity that effectively limits throughput of the entire process.

Identifying and breaking process bottlenecks is an important part of process design and improvement.

- Increase the speed of the process

- Reduces waiting and work-in process inventory

- Uses resources more efficiently

Little's Law

Flow time, or cycle time: Average time it takes to complete one cycle of a process

Simple formula that explains:

- Relationship among flow time (T)

- Throughput (R)

- Work-in-process (WIP)

- Work in process = Throughput * Flow Time or

- WIP= R * T

Waiting line management

Queueing models help managers understand key performance measures such as waitingtimes, queue lengths, and machine or server idle times so that they can manage resourcesmore effectively and provide better customer satisfaction

Queuing System

Consists of customers that arrive for service, one or more servers that provide the services, and a queue (waiting line) of entities that wait for service if the server is busy.

- One or more parallel servers fed by a single queue.

- Several parallel servers fed by their own queues

- A combination of several queues in series.

Single Server Queueing Model

1. The waiting line has a single server.

2. The pattern of arrivals follows a Poisson probability distribution.

3. The service times follow an exponential probability distribution.

4. The queue discipline is FCFS.

5. Arriving customers must join the queue and cannot leave while waiting.

Theory of Constraints (Bottleneck management principle)

is a set of principles that focuses on increasing total process throughput by maximizing the utilization of all bottleneck work activities and workstations

Only the bottleneck workstations are critical to achieving process and factory objectives and should be scheduled first.

An hour lost at a bottleneck resource is an hour lost for the entire process or factory output.

Work-in-process buffer inventory should be placed in front of bottlenecks to maximize resource utilization at the bottleneck.

Use large order sizes at bottleneck workstations to minimize setup time and maximize resource utilization.

Bottleneck workstations should work at all times to maximize throughput and resource utilization so as to generate cash from sales and achieve the company's goal.