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Environment
Week 1
1-1
Outline
1.1 Operations and Productivity
1.2 Competing in a Global Market
Cases
Hard Rock Caf
Star Bucks
Boeing
Regal Marine
2014 Pearson Education, Inc.
1-2
Topics
1-3
topics
1-4
Topics
1-5
What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs
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1-6
Organizing to Produce
Goods and Services
Essential functions of an organization:
1. Marketing generates demand
2. Production/operations creates the
product
3. Finance/accounting tracks how well
the organization is doing, pays bills,
collects the money
Examples..
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1-7
Organizational Charts
Figure 1.1
1-8
Organizational Charts
Figure 1.1
1-9
Organizational Charts
Figure 1.1
1 - 10
Farmer
Syrup
producer
Bottler
Distributor
Retailer
Figure 1.2
1 - 11
1 - 12
FINANCE
/ACCOUNTING
OPTION
OM OPTION
CURRENT
INCREASE
SALES
REVENUE 50%
REDUCE
FINANCE
COSTS 50%
REDUCE
PRODUCTION
COSTS 20%
$100,000
$150,000
$100,000
$100,000
Cost of goods
80,000
120,000
80,000
64,000
Gross margin
20,000
30,000
20,000
36,000
Finance costs
6,000
6,000
3,000
6,000
Subtotal
14,000
24,000
17,000
30,000
Taxes at 25%
3,500
6,000
4,200
7,500
Contribution
$ 10,500
$ 18,000
$ 12,750
$ 22,500
Sales
1 - 13
Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
1 - 14
CHAPTER(S)
1.
5, Supplement 5
2.
Managing quality
6, Supplement 6
3.
7, Supplement 7
4.
Location strategy
5.
Layout strategy
6.
10
7.
Supply-chain management
11, Supplement
11
8.
Inventory management
12, 14, 16
9.
Scheduling
13, 15
10. Maintenance
2014 Pearson Education, Inc.
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1 - 15
2. Managing quality
Determine the customers quality expectations
Establish policies and procedures to identify
and achieve that quality
Table 1.2 (cont.)
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4. Location strategy
Nearness to customers, suppliers, and
talent.
Considering costs, infrastructure, logistics,
and government.
Table 1.2 (cont.)
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1 - 18
8. Inventory management
Inventory ordering and holding decisions.
Optimize considering customer satisfaction,
supplier capability, and production schedules.
Table 1.2 (cont.)
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10. Maintenance
Consider facility capacity, production
demands, and personnel.
Maintain a reliable and stable process.
Table 1.2 (cont.)
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Operations Management
at Hard Rock Cafe
First opened in 1971
1 - 21
Certifications
APICS, the Association for Operations
Management
American Society for Quality (ASQ)
Institute for Supply Management (ISM)
Project Management Institute (PMI)
Council of Supply Chain Management
Professionals
Charter Institute of Purchasing and Supply
(CIPS)
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Significant Events in OM
2011
Pearson
Education,
2014
Pearson
Education,Inc.
Inc.
publishing as Prentice Hall
Figure 1.3
1 - 23
TABLE 1.3
CHARACTERISTICS OF SERVICES
CHARACTERISTICS OF GOODS
75
|
50
|
25
|
0
|
25
|
50
|
75
|
100%
|
Productivity Challenge
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources
such as labor and capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output only
and not a measure of efficiency
2014 Pearson Education, Inc.
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures
on credit card purchases
under $25
Saved 8 seconds
per transaction
Saved 14 seconds
per drink
Saved 12 seconds
per shot
1 - 27
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Saved 12 seconds
per shot
1 - 28
Productivity
Productivity =
Units produced
Input used
1 - 29
Multi-Factor Productivity
Productivity =
Output
Labor + Material + Energy +
Capital + Miscellaneous
1 - 30
Measurement Problems
1. Quality may change while the
quantity of inputs and outputs
remains constant
2. External elements may cause an
increase or decrease in productivity
3. Precise units of measure may be
lacking
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Productivity Variables
1. Labor - contributes
about 10% of the
annual increase
2. Capital - contributes
about 38% of the
annual increase
3. Management contributes about 52%
of the annual increase
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1 - 33
Management factor
Ensures labor and capital are effectively
used to increase productivity
Use of knowledge
Application of technologies
Knowledge societies
Difficult challenge
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1 - 35
1 - 36
Results:
Productivity
at Taco Bell
Preparation time cut to 8 seconds
1 - 37
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Ethics and
regulations
not at the
forefront
Local or
national
focus
Global focus,
international
collaboration
Lengthy
product
development
Rapid product
development;
design
collaboration
Figure 1.5
1 - 38
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Low cost
production,
with little
concern for
environment;
free
resources
(air, water)
ignored
Public sensitivity to
environment; ISO 14000
standard; increasing
disposal costs
Environmentally
sensitive
production; green
manufacturing;
sustainability
Low-cost
standardized
products
Rise of consumerism;
increased affluence;
individualism
Mass
customization
Figure 11.5
- 39
Changing Challenges
Traditional
Approach
Reasons for
Change
Current
Challenge
Emphasis on
specialized,
often manual
tasks
Recognition of the
employee's total
contribution; knowledge
society
Empowered
employees;
enriched jobs
In-house
production;
low-bid
purchasing
Rapid technological
change; increasing
competitive forces
Supply-chain
partnering; joint
ventures, alliances
Large lot
production
Just-In-Time
performance;
lean; continuous
improvement
Figure 1.5
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1 - 41
HEADQUARTERS
COUNTRY
COMPONENT
Latecoere
France
Passenger doors
Labinel
France
Wiring
Dassault
France
Messier-Bugatti
France
Electric brakes
Thales
France
Messier-Dowty
France
Diehl
Germany
Interior lighting
2014
2014
Pearson
Pearson
Education,
Education,
Inc.Inc.
1 - 42
HEADQUARTERS
COUNTRY
COMPONENT
Cobham
UK
Rolls-Royce
UK
Engines
Smiths Aerospace
UK
BAE Systems
UK
Electronics
Alenia Aeronautica
Italy
Toray Industries
Japan
Japan
2014
2014
Pearson
Pearson
Education,
Education,
Inc.Inc.
1 - 43
HEADQUARTERS
COUNTRY
COMPONENT
Kawasaki Heavy
Industries
Japan
Teijin Seiki
Japan
Hydraulic actuators
Mitsubishi Heavy
Industries
Japan
Wing box
China
Rudder
Hafei Aviation
China
Parts
Korean Airlines
South Korea
Wingtips
Saab
Sweden
2014
2014
Pearson
Pearson
Education,
Education,
Inc.Inc.
1 - 44
Global Strategies
Boeing sales and supply chain are
worldwide
Benetton moves inventory to stores around
the world faster than its competition by
building flexibility into design, production,
and distribution
Sony purchases components from
suppliers in Thailand, Malaysia, and around
the world
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Reasons to Globalize
1. Improve the supply chain
2. Reduce costs (labor, taxes, tariffs, etc.)
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global talent
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1 - 47
Reduce Costs
Foreign locations with lower wage rates
can lower direct and indirect costs
Trade agreements can lower tariffs
Maquiladoras
World Trade Organization (WTO)
North American Free Trade Agreement
(NAFTA)
APEC, SEATO, MERCOSUR, CAFTA
European Union (EU)
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Improve Operations
Understand differences between
how business is handled in other
countries
Japanese inventory management
Scandinavians ergonomics
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Understand Markets
Interacting with foreign customers,
suppliers, competition can lead to
new opportunities
Cell phone
design moved
from Europe
to Japan
Extend the
product life
cycle
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Improve Products
Remain open to free flow of ideas
Toyota and BMW manage joint
research and development
Reduced risk, state-of-the-art design,
lower costs
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1 - 52
Punctuality
Thievery
Lunch breaks
Bribery
Environment
Child labor
Intellectual
property
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Work ethic
Rate of innovation
Tax rates
Rate of technology
change
Inflation
Number of skilled
workers
Availability of raw
materials
Political stability
Interest rates
Population
Number of miles of
highway
Phone system
Export restrictions
Variations in language
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1 - 55
1 - 56
Competing on Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customers perception of value
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Competing on Cost
Provide the maximum value as perceived
by customer. Does not imply low quality.
1 - 58
Competing on Response
Flexibility/agility is matching market changes
in design innovation and volumes
A way of life at Hewlett-Packard
Timeliness is quickness
in design, production,
and delivery
Johnson Electric,
Pizza Hut, Motorola
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Strategy
DIFFERENTIATION:
Innovative design
Broad product line
After-sales service
Experience
COST LEADERSHIP:
Low overhead
Example
Safeskins innovative gloves
Fidelity Securitys mutual
funds
Caterpillars heavy equipment
service
Hard Rock Cafs dining
experience
Effective capacity
use
Inventory
management
Walmarts sophisticated
distribution system
Supply chain
Inventory
Scheduling
RESPONSE:
Flexibility
Reliability
Quickness
Maintenance
2014 Pearson Education, Inc.
Competitive
Advantage
Hewlett-Packards response to
volatile world market
FedExs absolutely, positively,
on time
Pizza Huts 5-minute guarantee
at lunchtime
Differentiation
(better)
Response
(faster)
Cost
leadership
(cheaper)
Figure 2.4
1 - 60
Company Strategy/Issues
Growth
Best period to
increase market
share
Practical to change
price or quality
image
R&D engineering is
critical
Strengthen niche
Maturity
Decline
Poor time to
change image,
price, or quality
Cost control
critical
Competitive costs
become critical
Defend market
position
Drive-through
Internet search engines
restaurants
Xbox 360
Boeing 787
Sales
3-D game
players
Google glass
DVDs
iPads
iPods
3D printers
Electric vehicles
Analog
TVs
Figure 2.5
1 - 61
OM Strategy/Issues
Growth
Product design
and development
critical
Forecasting critical
Standardization
Frequent product
and process
design changes
Product and
process reliability
Competitive
product
improvements and
options
Fewer product
changes, more
minor changes
Short production
runs
High production
costs
Limited models
Attention to quality
Increase capacity
Shift toward
product focus
Enhance
distribution
Maturity
Optimum capacity
Increasing stability
of process
Long production
runs
Product
improvement and
cost cutting
Decline
Little product
differentiation
Cost
minimization
Overcapacity in
the industry
Prune line to
eliminate items
not returning
good margin
Reduce
capacity
Figure 2.5
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Competitive Advantage:
Low Cost
High
Aircraft
Utilization
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
1 - 63
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Short Haul, Point-toProductive
Point Routes, Often to
Employees Automated ticketing machinesSecondary Airports
No seat assignments
Competitive
Advantage:
No baggage
transfers
Low Cost
High
Aircraft
Utilization
No meals (peanuts)
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
1 - 64
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
No meals (peanuts)
Employees
Low Cost
High
Aircraft
Utilization
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
1 - 65
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Productive
Employees
Standardized
Pilot training required
only
Fleet of on
Boeing
one type of 737
aircraft
Aircraft
Reduced maintenance
2014 Pearson Education, Inc.
inventory required because of
Frequent,
Reliable
Schedules
Figure 2.8
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Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Productive
Employees
Competitive Advantage:
Excellent
supplier
relations
Low
Cost
with Boeing has aided financing
High
Aircraft
Utilization
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
1 - 67
Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
Lean,
Productive
Employees
Flexible
union
contracts
High
Aircraft
Utilization
Low
Cost
Flexible
employees and
Frequent,
Maintenance personnel trained
only one type of aircraft Reliable
Schedules
Standardized
20-minute
gate turnarounds
Fleet of Boeing
737 Aircraft
Figure 2.8
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Activity Mapping at
Southwest Airlines
Courteous, but
Automated
ticketing machines
Limited
Passenger
Service
Empowered
employees
High employee compensation
Short Haul, Point-toHire for attitude, then
train
Point
Routes, Often to
Lean,
Productive
Employees
Secondary Airports
High level of stock ownership
High number
of flights reduces
Competitive
Advantage:
employee idle time between
Low Cost
flights
High
Aircraft
Utilization
Standardized
Fleet of Boeing
737 Aircraft
Frequent,
Reliable
Schedules
Figure 2.8
1 - 69
Implementing Strategic
Decisions
TABLE 2.1
COMPETITIVE
ADVANTAGE
PRODUCT DIFFERENTIATION
STRATEGY
Product
selection and
design
Quality
Process
Location
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Implementing Strategic
Decisions
TABLE 2.1
COMPETITIVE
ADVANTAGE
PRODUCT DIFFERENTIATION
STRATEGY
Layout
Human
resources
Supply chain
Inventory
Scheduling
Maintenance
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1 - 72
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Risks of Outsourcing
TABLE
2.2
ADVANTAGES
DISADVANTAGES
Cost savings
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Global strategy
(eg, Caterpillar
Texas Instruments
Otis Elevator)
Cost Reduction
Standardize product
Economies of scale
Cross-cultural learning
International
strategy
(eg, Harley-Davidson
U.S. Steel)
Import/export or
license existing
product
Low
Transnational
strategy
(eg, Coca-Cola, Nestl)
Figure 2.9
Move material,
people, ideas across
national boundaries
Economies of scale
Cross-cultural
learning
Multidomestic
strategy
(eg, Heinz, McDonalds
The Body Shop
Hard Rock Cafe)
Use existing domestic
model globally
Franchise, joint
ventures,
subsidiaries
Low
High
Local Responsiveness
(Quick Response and/or Differentiation)
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