MAR3203 - Exam 1

Production

The creation of goods and services

Goods

Tangible, physical products (e.g., food)

• Easy to evaluate (e.g., evaluate the strength of a bolt after it is manufactured)

Services

Economic activities that produce an intangible product (e.g., hotels, entertainment, restaurants)

• Quality may be hard to evaluate

Operations Management

The set of activities that create value in the form of goods and services by transforming inputs into outputs

Input

What does it take to produce a good or service (e.g. labor, capital)

Output

The product itself (e.g. clothing, electronics)

What are the three essential functions of a firm?

1. Marketing: generates demand

2. Productions/operations: creates the product

3. Finance/accounting: tracks how well the organization is doing, pays bills, and collects the money

How is a Commercial bank's organizational chart structured?

Split into:

• Operations: teller scheduling, check clearing, transaction processing.

• Finance

• Accounting

• Auditing

•  Marketing: loans, commercial, industrial, financial

• Trust department

How is an Airline’s organizational chart structured?

Split into:

• Operations: cruise scheduling, dispatching, and flight operations.

• Marketing: sales, advertising. 

• Finance/Accounting: accounts payable, cash control.

How is a Manufacturing’s organizational chart structured?

Split into:

• Operations: construction, management, quality assurance.

• Finance/Accounting: disbursements, general ledger, money market.

• Marketing: sales promotion, market research.

In companies what is the order in organization charts

Marketing > Operations > Finance/Accounting > Marketing

Silo Effect

Limits communication between departments. (Not the most effective) > It is better to work side-to-side and cross-functionally

Supply Chain

A global network of organizations and activities that supply a firm with goods and services

Members within the Supply Chain collaborate to achieve high levels of customer satisfaction and competitive advantage

True (Intra-firm)

Why study OM?

• Operations Management is one of the three main functions of an organization’s structure

• We want to know/need to know how goods and services are produced 

• We want to know and understand what Operations Managers do

• OM is such a costly part of an organization

Operations are often very similar to one another, why is this?

The overall goal is to meet the customers demand

There are very few pure services, why is this?

It is very rare for services, which do not include tangible goods as well

Example of a pure sevice

Couseling

85% of all jobs in 2015 were in the service sector

True

Productivity

The ratio of outputs (goods and services) divided by the inputs (labor and capital). **Production is NOT a measure of efficiency**

• Represents output relative to input

Transformation System

Inputs>Transformation>Outputs, and then it repeats

Labor productivity formula

Units produced/Labor-hours used

Muti-factorProductivity

Taking other costs into account apart from just labor hours (e.g. units produced/labor hours overhead costs+energy)

Measurement problems one may encounter in productivity

• Quality may change if the quantity of inputs and outputs remains constant

• External elements may cause an increase or decrease in productivity (e.g., a more reliable internet could increase productivity)

• Precise units of measure may be lacking

What are the three productivity varibles

1. Labor (10%)

2. Capital (38%)

3. Management (50%)

Key variables for improved labor productivity

1. Education level of workers

2. Workers’ diet

3. Environmental factors

What does management do?

• Ensures labor and capital are effectively used to increase productivity

• More effective use of technology, knowledge, and capital

Qualities of productivity in services

• Labor-intensive

• Focused on unique individual attributes or desires

• Difficult to automate

• Difficult to evaluate for quality

Examples of companies and their global strategies

• Boeing: sales and supply chain are worldwide

• Benetton: moves inventory to stores around the world faster than competitors (e.g., waits until their sweaters arrive to dye them)

• Sony: purchases components from several suppliers across the world

• Volvo:ise able to assemble cars in various countries

• Haier: has one-third of the US market and half of wine market

What are the six reasons to globalize

1. Improve the supply chain (e.g., locating facilities closer to suppliers)

2. Reduce costs and exchange rate risks (trade agreements can lower tariffs)

3. Improve operations (international operations can improve response time and customer service)

4. Understand markets (knowing your market can lead to new improvements, and extend the product life cycle)

5. Improve products (teaming up with foreign partners)

6. Attract and retain global talent 

What are some cultural and ethical issues one may encounter in globalization?

• Social and cultural behaviors differ

• International laws, code of ethics, and conduct

What are the five issues in operational strategy

1. Resource View

2. Value-chain analysis

3. Porter’s five forces model

4. Operating in a system with many external factors

5. Constant change 

Resource view

Method managers use to evaluate the resources at their disposal and manage or alter them to achieve competitive advantage

Value-chain analysis

Ways to identify elements in the production or element chain that uniquely add value

Porter’s five forces model

A method of analyzing the five forces in the competitive environment

1. Competition in the industry

2. Potential of the new entrance into the market

3. Threat of substitute products

4. Power of customers

5. Power of suppliers

Product life cycle

introduction>growth>maturity>decline

SWOT Analysis

Strengths, weaknesses, threats, opportunities

Strategy development process

Analyze the environment>determine the corporates mission>form a strategy

10 OM Decisions/Key Factors

1. Product

2. Quality

3. Process

4. Location

5. Layout

6. HR

7. Supply chain

8. Inventory

9. Schedule

10. Maintenance

Activity map

A graphical link or competitive advantage, key success factors, and supporting activities

Outsourcing

transferring activities that traditionally have been internal to external suppliers (e.g., legal services, IT services, payroll)

Theory of competitive advantage

If an external provider can perform activities more productively than the purchasing firm, then the external provider should do the work

Advantages of Outsourcing

• Cost savings

• Accessing outside technology

• Improving operations and services

Disadvantages of outsourcing

• Loss of control

• Potential creation of future competition

• Increased logistics and inventory costs

Factor-rating method

points and weights are assigned for each factor to each provider 

Forecasting

Process of predicting a future event

• It is the underlying basis of all business decisions (production, inventory, personnel)

Short-range forecast

• Up to 1 year, generally less than 3 months

• Purchasing, job scheduling, workforce levels, job assignments

• Tend to be more accurate

Medium-range forecast

• 3 months to 3 years

• Sales and production planning, budgeting

Long-range forecast

• 3+ years

• New production planning, facility location, research and development

Introduction and growth require more forecasts than maturity and decline

True

Economic forecasts

Address the business cycle - inflation rate, money supply, housing starts

Technological forecasts

Predict rate of technological progress

Demand forecasts

Predict sales of existing products and services

Techniques used by short-term forecasting

• Moving averages

• Exponential smoothing

• Trend exploitation

Seven Steps in the forecaForecasting Ssting system

1. Determine the use of the forecast

2. Select the items to be forecasted

3. Determine the time horizon of the forecast

4. Select the forecasting models

5. Gather the data needed to make the forecast

6. Make the forecast

7. Validate and implement the results

Time-Series Forecasting

Based on a set of evenly spaced numeral past values

Four components of time series

1. Trend

2. Cyclical

3. Seasonal

4. Random

Naive Approach

Assumes demand in the next period is the same as demand in the most recent period 

• Good starting point

• Cost effective and efficient 

Moving Average

a series of arithmetic means

• Used if little or no trend

• 
  

Weighted moving average

Used when some average might be present

Usually weighted like:

• 3 Months ago= 1

• 2 Months ago= 2

• 1 Months ago = 3

Moving Averages problems

• Does not forecast trends well

• Requires extensive historical data

Exponential Smoothing

Requires less record keeping than moving average

As alpha increases older values become less significant

True

Choose high values of alpha when the underlying value is likely to change and VICE VERSA

True

Mean Absolute Deviation (MAD)

How much the forecast missed the target

Mean squared percent error

The square of how much the forecast missed the target

Mean absolute percent error

The average percent of error

What is the objective of inventory management

To strike a balance between inventory investment and customer service

Why is inventory important?

It is one of the most expensive assets of many companies

What are the four functions of inventory?

1. Provide a selection of goods for anticipated demand

2. To decouple or separate various parts of the production process

3. To take advantage of quantity discounts

4. To hedge against inflation

Raw material 

Purchased, but not processed

Work-in-progress

Undergone some change, but not completed

Maintanance repair

Necessary to keep machinery and processes productive

Finished good

Finish production, but awaiting shipment

ABC Analysis

Divides inventory into three classes

1. Class A: high annual dollar volume

2. Class B: medium annual dollar volume

3. Class C: low annual dollar volume 

Perpetual inventory

Tracks receipts and subtractions continuingly (e.g. through bar codes)