Operations Management Midterm Review Flashcards

Exam Format

• Available Wednesday, June 18th through Friday, June 20th.
• Covers Chapters 1-8.
• This review is not comprehensive.
• On eCampus, 1 hour to complete, closed book, closed notes.
• The exam will utilize Lockdown browser.
• 25 multiple choice questions (4 points each).
• Around 75% of the questions will be conceptual.
• Around 25% of the questions will be computational.
• Calculator is needed.
• There will be multiple versions of the exam.

Operations Management

• Operations Management: The systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external, customers.

Supply Chain Management

• Supply Chain Management: The synchronization of a firm’s processes with those of its suppliers and customers to match the flow of materials, services, and information with customer demand.

Understanding Goods

• Good: Physical product that a person can see, touch, or consume.
• Durable good: Product that does not quickly wear out and lasts at least three years.
• Non-durable good: Perishable and lasts for less than three years.

Understanding Services

• Service: Primary or complementary activity that does not directly produce a physical product.
• Similarities between goods and services:
  • Provides value and satisfaction to customers who purchase and use them.
  • Can be standardized or customized to individual wants and needs.

Differences between Goods and Services

• Goods are tangible while services are intangible.
• Customers participate in many service processes, activities, and transactions.
• Demand for services is more difficult to predict than the demand for goods.
• Services cannot be stored as physical inventory.
• Service management skills are paramount to a successful service encounter.
• Service facilities need to be in close proximity to the customer.
• Patents do not protect services.

Service Management

• Integrates marketing, human resources, and operations functions to:
  • Plan
  • Create
  • Deliver goods and services
  • Deal with service encounters
    • Moments of truth: Episodes, transactions, or experiences in which a customer comes into contact with any aspect of the delivery system.

Customer Benefit Packages (CBP)

• Clearly defined set of tangible and intangible features that the customer recognizes, pays for, uses, or experiences.
• Combination of goods and services configured in a certain way to provide value to customers.
• Consists of a primary good or service, coupled with peripheral goods and/or services.

Value Chain Paradigms and Perspectives

• Input-Output Model: A value chain begins with suppliers who provide inputs that are transformed into value-added goods and services through processes that are supported by resources such as equipment and facilities, labor, money, and information. These goods and services are delivered or provided to customers and targeted market segments.

Solved Problem—In-House versus Outsource

• A manufacturer needs to produce a custom aluminum housing for a special customer order.
• Acquiring machines and tooling: fixed cost of 250,000.
• Variable cost of production: 20 per unit.
• Outsource cost: 35 per unit.
• Customer order: 12,000 units.

Productivity

• Productivity is the ratio of output of a process to the input.
• Productivity measures include units produced per labor hour, airline revenue per passenger mile, meals served per labor dollar.
• Productivity = \frac{Quantity \ of \ Output}{Quantity \ of \ Input}

Productivity Practice Problem

• Natalie Attire makes fashionable garments.

• Employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (flawed).

• Seconds are sold for 90 each at Attire’s Factory Outlet Store.

• The remaining 80 garments are sold to retail distribution at 200 each.

• Labor productivity Calculation:

  • Value of output = (52 defective * 90/defective) + (80 garments * 200/garment) = 20,680
  • Labor productivity = Value of output / Labor hours of input = 20,680 / 360 hours = 57.44 in sales per hour
  • Labor\ productivity = \frac{$20,680}{360 \ hours}= $57.44 \ in\ sales\ per\ hour

Strategic Planning

• Strategy is a pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.
• Effective strategies develop around a few key competitive priorities, such as low cost or fast service time, which provide a focus for the entire organization and exploit an organization’s core competencies (the strengths unique to that organization).

Three Levels of Strategy

1. A corporate strategy is necessary to define the businesses in which the corporation will participate and develop plans for the acquisition and allocation of resources among those businesses.
2. A business strategy defines the focus for SBUs. The major decisions involve which markets to pursue and how best to compete in those markets; that is, what competitive priorities the firm should pursue.
3. A functional strategy is the set of decisions that each functional area—marketing, finance, operations, research and development, engineering, and so on—develops to support its particular business strategy.

Operations Strategy

• The operations strategy defines how an organization will execute its chosen business strategies.
• Developing an operations strategy involves translating competitive priorities into operational capabilities by making a variety of choices and trade-offs for design and operating decisions.

Designing Goods and Services

• Customer Benefit Package design and configuration choices revolve around a solid understanding of customer needs and target markets, and the value that customers place on attributes, such as:
  • Time: Reduce waiting time, be more responsive to customer needs.
  • Place: Select location for customer convenience.
  • Information: Provide product support, user manuals.
  • Entertainment: Enhance customer experience.
  • Exchange: Multiple channels used for purchases.
  • Form: How well the physical characteristics of a good address customer needs.
• The design of a manufactured good focuses on its physical characteristics—dimensions, materials, color, and so on.
• The design of a service, however, cannot be done independently from the “process” by which the service is delivered. The process by which the service is created and delivered (that is, “produced”) is, in essence, the service itself!

Customer-Focused Design

• Customer requirements, as expressed in the customer’s own terms, are called the voice of the customer.
• Quality function deployment (QFD) is an approach to guide the design, creation, and marketing of goods and services by integrating the voice of the customer into all decisions.
• QFD translates customer wants and needs into technical requirements of a product or service.

Process Choice Decisions

• Process design is an important operational decision that affects the cost of operations, customer service, and sustainability.

Process Choice Decisions – Types of Goods and Services

• Option, or assemble-to-order, goods and services are configurations of standard parts, subassemblies, or services that can be selected by customers from a limited set. Examples are Dell computers, Subway sandwiches, machine tools, and travel agent services.
• Standard, or make-to-stock , goods and services are made according to a fixed design, and the customer has no options from which to choose. Examples are appliances, shoes, sporting goods, credit cards, online Web-based courses, and bus service.

Process Choice Decisions – Types of Processes

• Job shop processes are organized around particular types of general-purpose equipment that are flexible and capable of customizing work for individual customers.
  • Characteristics: Significant setup and/or changeover time, batching, low to moderate volume, many routes, many different products, high work-force skills, and customized to customer’s specs.
  • Examples: Many small manufacturing companies are set up as job shops, as are hospitals, legal services, and some restaurants.
• Flow shop processes are 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.
  • Characteristics: Little or no setup time, dedicated to small range of goods or services that are similar, similar sequence of process steps, moderate to high volume.
  • Examples: Assembly lines that produce automobiles and appliances, production of insurance policies and checking account statements, and hospital laboratory work.
• A continuous flow process creates highly standardized goods or services, usually around the clock in very high volumes.
  • Characteristics: Very high volumes in a fixed processing sequence, high investment in system, 24-hour/7-day continuous operation, automated, dedicated to a small range of goods or services.
  • Examples: Chemical, gasoline, paint, toy, steel factories; electronic funds transfer, credit card authorizations, and automated car wash.

Facility Layout

• Facility layout refers to the specific arrangement of physical facilities.
• Facility-layout studies are necessary whenever:
  1. a new facility is constructed,
  2. there is a significant change in demand or throughput volume,
  3. a new good or service is introduced to the customer benefit package, or
  4. different processes, equipment, and/or technology are installed.

Facility Layout – Types

• A product layout is an arrangement based on the sequence of operations that are performed during the manufacturing of a good or delivery of a service.
  • Examples: Winemaking industry, credit card processing, Subway sandwich shops, paper manufacturers, insurance policy processing, and automobile assembly lines.
  • Advantages: Lower work-in-process inventories, shorter processing times, less material handling, lower labor skills, and simple planning and control systems.
  • Disadvantages: A breakdown at one workstation can cause the entire process to shut down; a change in product design or the introduction of new products may require major changes in the layout, limiting flexibility.
• A process layout consists of a functional grouping of equipment or activities that do similar work.
  • Examples: Legal offices, shoe manufacturing, jet engine turbine blades, and hospitals use a process layout.
  • Advantages: A lower investment in equipment, the diversity of jobs inherent in a process layout can lead to increased worker satisfaction.
  • Disadvantages: High movement and transportation costs, more complicated planning and control systems, longer total processing time, higher in- process inventory or waiting time, and higher worker -skill requirements.
• In a cellular layout, the design is not according to the functional characteristics of equipment, but rather by self-contained groups of equipment (called cells), needed for producing a particular set of goods or services.
  • Examples: Legal services such as labor law, bankruptcy, divorce; medical specialties such as maternity, oncology, surgery.
  • Advantages: Reduced materials-handling requirements, quicker response to quality problems, more efficient use of floor space, more worker responsibility increasing morale.
  • Disadvantages: Duplication of equipment among cells, greater worker skills requirements.
• A fixed-position layout consolidates the resources necessary to manufacture a good or deliver a service, such as people, materials, and equipment, in one physical location.
  • Examples: The production of large items such as heavy machine tools, airplanes, buildings, locomotives, and ships. Service-providing examples include major hardware and software installations, sporting events, and concerts.
  • Advantages: Work remains stationary, reducing movement.
  • Disadvantages: High level of planning and control required.

Supply Chain Design

• Distribution Centers
• Postponement
• Outsourcing
• Calculating weighted scores and making decisions between several possible location choices
• Breakeven analysis for outsourcing decisions