WHAT IS MANAGEMENT?

2012 Lew Hofmann

So, really

What is management?
Classic definition: Getting things done through people.
This assumes you are managing people.

How about one person overseeing an automated production line.

There are no people to manage. An operations manager manages people, resources and/or processes.
2012 Lew Hofmann

Production
What is Production?
The dictionary says it is
the act of producing. to bring into existence. to create something having exchange value.

2012 Lew Hofmann

Definition of Operations Mgt. The design, direction and control of the processes that create or add exchange value to services and/or products for customers. Customers may be internal or external to
the organization.
Inputs
2012 Lew Hofmann

Transformation Processes (Adding value)

Outputs

Operations Management
Operations is a subset of the broader management concepts that are presented in a basic management course. The subset is the activity of producing something having exchange value. The something being produced may be a good or a service.
Most companies produce both services and goods.
2012 Lew Hofmann

Operations as a Management Function

2012 Lew Hofmann

Operations Management versus Production Management

Production management was traditionally associated with goods production. Operations management referred to the the production of services. The term Operations Management is now used for production of both goods and services.
However, many companies still make a distinction.
2012 Lew Hofmann

Exchange Value
Traditional View

Production Management
Operation Management

Goods Exchange Value Services Current View

Operation Management
2012 Lew Hofmann

Services and Goods

Exchange Value

Manufacturing Inputs and Outputs

INPUTS Raw Materials Employees Plant Equipment Financing OUTPUTS Consumer Goods Materials for purchase by other firms Services Payments to employees

2012 Lew Hofmann

TCNJ Inputs and Outputs

INPUTS Students Faculty and Staff Facilities Equipment and Supplies Financing OUTPUTS Educated people Research Public service Payments to employees

2012 Lew Hofmann

Supermarket Inputs and Outputs

INPUTS Items for resale Customers Employees Facilities and Equipment Financing
2012 Lew Hofmann

OUTPUTS Satisfied Customers Service Payments to employees

Operations as a competitive weapon

Why is FedEx so successful?
Fast service
On-time deliveries Relatively low cost Technology in shipment tracking

2012 Lew Hofmann

Harry Potter and Scholastic

Scholastic is the worlds largest publisher and distributor of childrens books and educational materials.
Operates in 16 countries with over 2 billion in revenues.

Scholastic started planning early in 2007 for the worldwide release of Harry Potter and the Deathly Hallows.
90% of sales of such books occur in the first week, so they get special treatment.
2012 Lew Hofmann

Harry Potter and Scholastic

Scholastic bypassed its own warehouses and required its truckers to ship directly to its large retailers. The trucks, if parked end-to-end, would be 15 miles. GPS transponders were used to alert Scholastic by email if a driver veered off designated routes. Scholastic had to customize, coordinate, and synchronize its operations and supply chain processes across multiple partners at the printing, warehousing, distribution and retail locations. They delivered 12 million books to final customers within a few hours prior to the scheduled release date.
2012 Lew Hofmann

Processes
Processes should add value. Processes can be broken down into subprocesses, which in turn can be broken down further. Any process that is part of a larger process is considered a nested process.
Eg: Registration advisement

Each process and each nested process has inputs and outputs.
2012 Lew Hofmann

Examples of Processes
Manufacturing something Warehousing of raw materials Processing insurance claims Teaching a class Getting a product to the customer Taking inventory The supply chain Staff scheduling
2012 Lew Hofmann

Customer Focused
Being customer oriented
Serving customer needs Designing process that best add value for both the customer and the business.

All processes have inputs and outputs.

Outputs are what the customer gets. Most processes dont involve end products or services. They involve other workers, departments, or plants receiving value-added goods and or services.
2012 Lew Hofmann

External Vs. Internal Customers

External Customers: Those that are external to the organization and purchase or otherwise receive the goods and services Internal Customers are those who receive the output of others within the firm. They are part of the transformation process.
Inputs from other processes

Transformation Processes (Adding value)

Outputs to External or Internal customers

2012 Lew Hofmann

External Vs. Internal Suppliers

External Suppliers: The businesses or individuals who provide the resources, services, products, and materials for the firms short-term and long-term needs. Internal Suppliers: The employees or processes that supply important information or materials to a firms processes.
External & Internal Suppliers
2012 Lew Hofmann

Transformation Process (Adding value)

Outputs to inside or to outside customers

Service Processes Versus Manufacturing Processes

Manufacturing processes change materials in one or more of the following dimensions:
Physical properties Shape Fixed dimensions Surface finish Joining parts and materials If a process isnt doing at least one of the above, then it is a service process rather than a manufacturing process.
2012 Lew Hofmann

Manufacturing and Service

Goods Production
Tangible Can be inventoried Low customer contact Longer response time Capital Intensive Quality easily measured Goods can be shipped

Service Production
Intangible Cant be inventoried High customer contact Shorter response time Labor Intensive Quality hard to measure Locate near customers

Most firms provide both goods and services.

2012 Lew Hofmann

Shared Problems by Manufacturing & Service

Both manufacturing and service providers have to match capacity with demand.
Harder to do for service providers

Both have to worry about quality.

Easier to change the quality of a service.

Both service & manufacturing have to deal with internal & external customers. 2012 Lew Hofmann

Value Chains
Processes add value. When two or more processes are linked, it is called a value chain. A Value chain is an interrelated series of processes that produce or add value to a service or product, or both.
An organizations supply chain is a value chain that is external to the organization.

A value chain (or a single process) produces value or adds value and consumes resources.
2012 Lew Hofmann

The secret is that the value added must exceed the cost of resources consumed in the process.

Core Processes and Support Processes

Core processes deliver value to external customers.
Teaching classes is a core process

Support processes provide vital inputs that support the core processes.
The Course/Curriculum approval process is a support process.

Value chains may consist of core processes or support processes, or both.

2012 Lew Hofmann

Four, Core Processes that most organizations have.

1. Customer relationship processes
Identify, attract, and build relationships with external customers and facilitates the placement of orders.

2. New service/product development processes

Designing and developing new services or products from inputs received from external customer specifications.

3. Order fulfillment processes

The activities required to produce and deliver the service or product to the external customers.

4. Supplier relationship processes

Selecting suppliers of services, materials and information and facilitates the timely and efficient flow of these items into the firm.
2012 Lew Hofmann

Progressive Insurance
Grew from $1.3 billion to $11 billion in 13 years.

How did they do it?

Operational Innovation (Designing new processes)
Immediate Response Claims Handling (24 hours a day) Agents quickly go to scene of accident. Streamlined claims processing went from 7-10 days to 9 hours Web site for agents only. Web site for customer information, inquiries and routine processing.
2012 Lew Hofmann

Productivity
Production is the process of creating something having exchange value. Productivity is the value of outputs (services and products) produced, divided by the value of input resources (wages, costs of equipment, etc.)
Value of Outputs Productivity = Value of Inputs Efficiency = Outputs Inputs Efficiency doesnt

Productivity has to have value!

2012 Lew Hofmann

Measuring Productivity
Single Factor methods measure the time or cost to
produce a good or a service.
Man hours to produce a car or the cost to produce a car

Multi-Factor methods
Combines two or more single-factor methods EG: Cost per hour to produce cars.

Multiple methods
Several separate single-factor and/or multi-factor methods

Using two or more methods is the best way to measure productivity

2012 Lew Hofmann

Single-factor Calculation
Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. Calculate the efficiency in policies per hour. Policies Processed Labor efficiency = Employee Hours 600 Policies = (3 Employees) (40 hours/employee) = 5 policies/hr Note: This is not a productivity calculation since there is no value considered. It is a measure of efficiency, not 2012 productivity. Lew Hofmann

Multi-factor Productivity Calculation

A company makes 400 units of a product, valued by its standard cost of $10 each (before markups for other expenses and profit). The accounting department reports that the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead. Calculate the productivity. (value of output / value of input)
Multifactor productivity = Value of Output at standard cost Labor cost + Material Cost + Overhead cost

(400 units) ($10/unit) $4,000 = $400 + $1000 + $300 $1,700

= 2.35

These types of productivity figures must be compared with performance levels in prior periods and with future goals in order to have meaning.
2012 Lew Hofmann

How We Improve Productivity

Inputs Transformation Outputs
Decrease inputs relative to outputs
Producing the same output with fewer inputs EG: Same number of graduates but fewer faculty.

Speed up the through-put

Doing it faster EG: Graduating you in 7 semesters instead of 8.

Increase output relative to input

Producing more with the same input. EG: Upping freshman admittance with same faculty.
2012 Lew Hofmann

Improve Quality

Productivity & Standard of Living

High Productivity does not insure a high standard of living.

Increasing the standard of living comes from producing more than you need. Production Capacity per Capita is the key.
The U.S. produces more per person than most countries, so we have a higher standard of living.
2012 Lew Hofmann

History of Productivity Growth in U.S.

2012 Lew Hofmann

The Volatility of Growth

2012 Lew Hofmann

Determinates of National Productivity

LABOR 16%
Healthier, better educated / higher skilled workers

CAPITAL 20%
Capital investment in plant and equipment
Capital investment per employee Turnover of capital (Net sales Invested capital)

MANAGEMENT 64%
Management takes credit for advances in technology. Working smarter, not harder
2012 Lew Hofmann

Service Sector
The Service Sector now accounts for approximately 77% of US jobs (non-farm)
Only France, Belgium and Greece are higher.

Three approximately equal sectors: 1. Government Sector 2. Wholesale & Retail Sales 3. Other Services
(Financial, medical, real estate, etc.)
2012 Lew Hofmann

Gross Domestic Product sectors

GDP is the market value of all goods and services. Agriculture 1.8% Industry 22.1% Service: 76.8%
Service Productivity growth accounts for less than 1% of the annual growth in productivity. Productivity in the smaller manufacturing sector has increased roughly 3.6% per year. Thus the lions share of the nations overall productivity gain was (and increasingly is) from Manufacturing.
Even though manufacturing is now only 22% of our economy.
2012 Lew Hofmann

Why Low Service Productivity?

Harder to automate services Harder to measure service productivity Often brain work rather than machine work Service tends to be more labor intensive

2012 Lew Hofmann

Operations as a competitive weapon

Companies use operations to compete in various ways: High quality (Mercedes) Consistent quality (New York Times) Quick delivery (FedEx) Fast development High technological efficiency (Google) Low cost efficiency (Wal-Mart)
2012 Lew Hofmann

Global Competition
Businesses must accept the fact that, to prosper, they must view customers, suppliers, facility locations, and competitors in global terms. Most products today are composites of materials and services from all over the world. Forces contributing to increased global competition:
Improved transportation and communication technologies Loosening of regulations on financial institutions. (until lately)

Increased demand for lower cost, imported services and goods

Reduced import quotas and other trade barriers
2012 Lew Hofmann

Global Competition Disadvantages

US Firms are reluctant to relinquish proprietary technology. Political risks of off-shore operations

Alienation of U.S. customers by sending jobs overseas

Lower skill levels in some off-shore areas Difficulty with global, cross-functional coordination due to cultural differences and language differences. Harder to produce products and services here that are cost/price competitive with the lower-cost labor areas off-shore.
2012 Lew Hofmann

Other Challenges for Operations Management

Very Rapid Technological Change
Ethical issues Increasing diversity of the workforce Environmental impact issues Economic volatility
2012 Lew Hofmann

Historic Development
Adam Smith
Economist and Philosopher

1723 - 1790
"An Inquiry into the Nature & Causes of the Wealth of Nations," covered such concepts as the role of self-interest, the division of labor, the function of markets, and the international implications of a laissez-faire economy.
2012 Lew Hofmann

Historic Development

Eli Whitney
Born Dec 8 1765 - Died Jan 8 1825 He translated the concept of interchangeable parts into a manufacturing system, giving birth to the American mass production concept.

2012 Lew Hofmann

Historic Development
Frederick Winslow Taylor
March 20, 1856 - March 21, 1915

Develop a "science" for every job

Carefully select workers with the right abilities for the job.
Carefully train these workers to do the job, and give them proper incentives Support these workers by planning their work and by smoothing the way as they go about their jobs.
2012 Lew Hofmann

Historic Development
Henry Ford
1863-1947
Using a constantly-moving assembly line, subdivision of labor, and careful coordination of operations, Ford realized huge gains in productivity. Model T Production
2012 Lew Hofmann

Importance of Operations

The two major functions of business are production and selling. All other functions are secondary to these.

-- Peter Drucker

2012 Lew Hofmann

Addressing the Challenges in Operations Management

Managing Value Chains Managing Processes Using Operations to Compete
Process Strategy Operations As a Competitive Weapon Supply Chain Strategy Location

Process Analysis Process Performance & Quality Constraint Management Process Layout

Inventory Management

Operations Strategy

Forecasting Sales & Operations Planning

Project Management

Resource Planning Scheduling

Lean Systems

2012 Lew Hofmann

Course Components
Operations As a Competitive Weapon Decision Making Operations Strategy Project Management Process Strategy Process Analysis ----------------- QUIZ -------------------- Simulation Process Performance and Quality Constraint Management Waiting Lines Process Layout Lean Systems ---------------- MID TERM --------------- Supply Chain Strategy Location Inventory Management Special Inventory Models Forecasting Sales and Operations Planning Linear Programming Resource Planning Scheduling

Competing with Operations

Managing Processes

Managing Value Chains

2012 Lew Hofmann