Critical Decisions

Ten Critical Decisions
Ten Decision Areas Design of goods and services Managing quality Process and capacity design Location strategy Layout strategy Human resources and job design Supply chain management Inventory management Scheduling Maintenance Chapter(s) 5 6, Supplement 6 7, Supplement 7 8 9 10, Supplement 10 11, Supplement 11 12, 14, 16 13, 15 17
Instructor: Usman Ali Asif Chapter 1 1
Table 1.2
The Critical Decisions

Design of goods and services
What good or service should we offer? How should we design these products and services?
Managing quality
How do we define quality? Who is responsible for quality?
Table 1.2 (cont.)
Operations Strategies for Two Drug Companies

Brand Name Drugs, Inc. Competitive Advantage Product Differentiation Generic Drug Corp. Low Cost Low R&D investment; focus on development of generic drugs
Product Heavy R&D investment; Selection and extensive labs; focus on Design development in a broad range of drug categories Quality Major priority, exceed regulatory requirements
Meets regulatory requirements on a country by country basis

Table 2.2

Process and capacity design
What process and what capacity will these products require? What equipment and technology is necessary for these processes?
Location strategy
Where should we put the facility? On what criteria should we base the location decision?
Table 1.2 (cont.)

Brand Name Drugs, Inc. Competitive Advantage Process Product Differentiation Product and modular process; long production runs in specialized facilities; build capacity ahead of demand Still located in the city where it was founded Generic Drug Corp. Low Cost Process focused; general processes; job shop approach, shortrun production; focus on high utilization
Location
Recently moved to lowtax, low-labor-cost environment

Table 2.2

Intermediate and shortterm scheduling
Are we better off keeping people on the payroll during slowdowns? Which jobs do we perform next?
Layout strategy
How should we arrange the facility? How large must the facility be to meet our plan?
Table 1.2 (cont.)

Brand Name Drugs, Inc.
Competitive Advantage Scheduling Product Differentiation Centralized production planning
Generic Drug Corp.

Low Cost Many short-run products complicate scheduling Layout supports process-focused job shop practices
Layout
Layout supports automated productfocused production
Table 2.2

Human resources and job design
How do we provide a reasonable work environment? How much can we expect our employees to produce?
Supply chain management

Should we make or buy this component? Who are our suppliers and who can integrate into our e-commerce program?
Table 1.2 (cont.)

Brand Name Drugs, Inc.
Competitive Advantage Human Resources Product Differentiation Hire the best; nationwide searches
Generic Drug Corp.

Low Cost Very experienced top executives; other personnel paid below industry average Tends to purchase competitively to find bargains
Supply Chain
Long-term supplier relationships
Table 2.2

Inventory, material requirements planning, and JIT
How much inventory of each item should we have? When do we re-order?
Maintenance
Who is responsible for maintenance? When do we do maintenance?
Table 1.2 (cont.)

Brand Name Drugs, Inc. Competitive Advantage Inventory Product Differentiation High finished goods inventory to ensure all demands are met Generic Drug Corp. Low Cost Process focus drives up work-in-process inventory; finished goods inventory tends to be low Highly trained staff to meet changing demand
Maintenance
Highly trained staff; extensive parts inventory
Table 2.2
Productivity Numerical Problems
Productivity
Units produced Productivity = Input used
Measure of process improvement

Represents output relative to input Only through productivity increases can our standard of living improve
Productivity Calculations
Labor Productivity
Productivity = Units produced Labor-hours used 1,000 250 = 4 units/labor-hour
One resource input single-factor productivity

Multi-Factor Productivity
Output Productivity = Labor + Material + Energy + Capital + Miscellaneous
Also known as total factor productivity Output and inputs are often expressed in dollars
Multiple resource inputs multi-factor productivity
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day
8 titles/day Overhead = $400/day
8 titles/day Old labor = productivity 32 labor-hrs

Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day
8 titles/day Old labor = productivity 32 labor-hrs = .25 titles/labor-hr

Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

14 titles/day

Overhead = $800/day
8 titles/day Old labor = productivity 32 labor-hrs = .25 titles/labor-hr 14 titles/day New labor = productivity 32 labor-hrs

Old System:

14 titles/day

Overhead = $800/day
8 titles/day Old labor = productivity 32 labor-hrs = .25 titles/labor-hr 14 titles/day New labor = = .4375 titles/labor-hr productivity 32 labor-hrs

Old System:

14 titles/day

Overhead = $800/day
8 titles/day Old multifactor = productivity $640 + 400

Old System:

14 titles/day

Overhead = $800/day
8 titles/day Old multifactor = = .0077 titles/dollar productivity $640 + 400

Old System:

14 titles/day

Overhead = $800/day
8 titles/day Old multifactor = = .0077 titles/dollar productivity $640 + 400 14 titles/day New multifactor = productivity $640 + 800

Old System:

14 titles/day

Overhead = $800/day
8 titles/day Old multifactor = = .0077 titles/dollar productivity $640 + 400 14 titles/day New multifactor = = .0097 titles/dollar productivity $640 + 800

Critical Decisions

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Ten Critical Decisions

The Critical Decisions

Instructor: Usman Ali Asif Chapter 1 2

Table 1.2 (cont.)

Operations Strategies for Two Drug Companies

Meets regulatory requirements on a country by country basis

The Critical Decisions

Table 1.2 (cont.)

Operations Strategies for Two Drug Companies

Recently moved to lowtax, low-labor-cost environment

The Critical Decisions

Table 1.2 (cont.)

Operations Strategies for Two Drug Companies

Generic Drug Corp.

Layout supports automated productfocused production

The Critical Decisions

Supply chain management

Table 1.2 (cont.)

Operations Strategies for Two Drug Companies

Generic Drug Corp.

Long-term supplier relationships

The Critical Decisions

Table 1.2 (cont.)

Operations Strategies for Two Drug Companies

Highly trained staff; extensive parts inventory

Productivity Numerical Problems

Instructor: Usman Ali Asif Chapter 1 12

Measure of process improvement

One resource input single-factor productivity

Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day

8 titles/day Overhead = $400/day

8 titles/day Old labor = productivity 32 labor-hrs

Instructor: Usman Ali Asif Chapter 1 16

Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day

8 titles/day Overhead = $400/day

8 titles/day Old labor = productivity 32 labor-hrs = .25 titles/labor-hr

Instructor: Usman Ali Asif Chapter 1 17

Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

8 titles/day Overhead = $400/day

Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

8 titles/day Overhead = $400/day

Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

8 titles/day Overhead = $400/day

8 titles/day Old multifactor = productivity $640 + 400

Instructor: Usman Ali Asif Chapter 1 20

Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

8 titles/day Overhead = $400/day

8 titles/day Old multifactor = = .0077 titles/dollar productivity $640 + 400

Instructor: Usman Ali Asif Chapter 1 21

Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

8 titles/day Overhead = $400/day

Collins Title Productivity

Staff of 4 works 8 hrs/day Payroll cost = $640/day New System:

8 titles/day Overhead = $400/day

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