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Operations Management
The systematic design, direction, and control of processes that transform inputs into services and products for internals, as well as external, customers Processes can be linked together to form a supply chain interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers
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Sales Revenue
Support Functions
Accounting Information Systems Human Resources Engineering
Operations
Translates materials and service into outputs
Figure 1.1
Marketing
Generates sales of outputs
A Process View
External environment
Internal and external customers Inputs Workers Managers Equipment Facilities Materials Land Energy Outputs Goods Services 5 2 4
Information on performance
Figure 1.2
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A Process View
Physical, durable output Output can be inventoried Low customer contact Long response time Capital intensive Quality easily measured
Intangible, perishable output Output cannot be inventoried High customer contact Short response time Labor intensive Quality not easily measured
Figure 1.3
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External suppliers
External customers
Figure 1.4
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Support processes provide vital resources and inputs to the core processes
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Support Processes
TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES The provision of financial resources for the organization to do its work and to execute its strategy The process of deciding how funds will be allocated over a period of time The acquisition of people to do the work of the organization The assessment and payment of people for the work and value they provide to the company The preparation of people for their current jobs and future skills and knowledge needs The processes that ensure that the company is meeting all laws and legal obligations Capital acquisition
Information systems
The movement and processing of data and information to expedite business operations and decisions
The systems and activities that provide strategic direction and ensure effective execution of the work of the business
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Operations Strategy
Specifies the means by which operations implements corporate strategy and helps build a customer-driven firm. It links long term and short term operations decisions to corporate strategy and develops capabilities to be competitive.
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Operations Strategy
Corporate Strategy Environmental scanning Core competencies Core processes Global strategies
No Performance Gap?
Figure 1.5
Corporate Strategy
Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization's functions Environmental scanning Developing core competencies (unique resources and
strengths that management considers while formulating strategies) 1. Workforce 2. Facilities 3. Market and financial know-how 4. Systems and technologies
Market Analysis
A market analysis first divides the firms customers into market segments and then identifies the needs of each segment.
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Competitive Priorities
Competitive priorities are the critical operational dimensions a process or supply chain must possess to satisfy internal or external customers, both now and in the future. Competitive capabilities are the cost, quality, time and flexibility dimensions that a process or supply chain actually possesses and is able to deliver.
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Competitive Priorities
TABLE 1.2 COST 1. Low-cost operations | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES Definition Delivering a service or a product at the lowest possible cost Process Considerations Processes must be designed and operated to make them efficient Example Big Bazaar
QUALITY
2. Top quality Delivering an outstanding service or product Producing services or products that meet design specifications on a consistent basis Quickly filling a customers order Meeting delivery-time promises Quickly introducing a new science or a product May require a high level of customer contact and may require superior product features Processes designed and monitored to reduce errors and prevent defects Ferrari
3. Consistent quality
McDonalds
TIME 4. Delivery speed 5. On-time delivery 6. Development speed Design processes to reduce lead time Planning processes to increase percent of customer orders shipped when promised Cross-functional integration and involvement of critical external suppliers Dell DHL
Li & Fung
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Competitive Priorities
TABLE 1.2 FLEXIBILITY 7. Customization | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES Definition Satisfying the unique needs of each customer by changing service or products designs Handling a wide assortment of services or products efficiently Process Considerations Low volume, close customer contact, and easily reconfigured Example Ritz Carlton
8. Variety
Amazon.com
9. Volume flexibility
Accelerating or decelerating the rate of production of service or products quickly to handle large fluctuations in demand
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Sales ($)
Order Qualifier
Low
High
Threshold
High
speed
Customization Top
quality
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Global competition
Ethical, workforce, and environmental issues
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Productivity Improvement
EXAMPLE 1.1 Calculate the productivity for the following operations:
a. Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week.
SOLUTION Policies processed a. Labor productivity = Employee hours 600 policies = = 5 policies/hour (3 employees)(40 hours/employee)
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Productivity Improvement
EXAMPLE 1.1 Calculate the productivity for the following operations:
b. A team of workers makes 400 units of a product, which is sold in the market for $10 each. The accounting department reports that for this job the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead.
SOLUTION Value of output a. Multifactor productivity = Labor cost + Materials cost + Overhead cost = (400 units)($10/unit) $4,000 = = 2.35 $400 + $1,000 + $300 $1,700
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Solved Problem 1
Student tuition at Boehring University is $150 per semester credit hour. The state supplements school revenue by $100 per semester credit hour. Average class size for a typical 3-credit course is 50 students. Labor costs are $4,000 per class, material costs are $20 per student per class, and overhead costs are $25,000 per class.
a. What is the multifactor productivity ratio for this course process? b. If instructors work an average of 14 hours per week for 16 weeks for each 3-credit class of 50 students, what is the labor productivity ratio?
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Solved Problem 1
SOLUTION a. Multifactor productivity is the ratio of the value of output to the value of input resources.
Value of output = 50 student class 3 credit hours student $150 tuition + $100 state support credit hour
= $37,500/class Value of inputs = Labor + Materials + Overhead = $4,000 + ($20/student 50 students/class) + $25,000 = $30,000/class
Multifactor productivity =
Output Input
Solved Problem 1
SOLUTION b. Labor productivity is the ratio of the value of output to labor hours. The value of output is the same as in part (a), or $45,000, so
14 hours week 16 weeks class
= $200.89/hour
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Solved Problem 2
Natalie Attire makes fashionable garments. During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were seconds (meaning that they were flawed). Seconds are sold for $90 each at Attires Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each. What is the labor productivity ratio of this manufacturing process?
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Solved Problem 2
SOLUTION
Value of output = (52 defective 90/defective) + (80 garments 200/garment) = $20,680 Labor hours of input = 360 hours Output $20,680 Labor productivity = = Input 360 hours = $57.44 in sales per hour
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