Management and Operations (MD021)

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Management and Operations(MD021)

• Topic 1
• Introduction
• Competitiveness, Strategy and Productivity

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Agenda

• My Background
• Syllabus
• Overview of Operations Management
• Competitiveness Competing via Operations
• Overview of Strategy
• Measuring Productivity

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My Background

• Educational Background
• PhD, Operations and Management Science,
  University of Minnesota (1999)
• AB, Economics, The University of Chicago (1989)
• Practical Experience
• Paid for college by working in manufacturing
  plants, service facilities, and performing
  maintenance
• Work-Study student in U of C B-School admissions
  department (1986-1989)
• Economic/econometric consulting (RCF Economic and
  Financial Consulting, Inc., 1989-1992)
• Entered grad school in late 1992
• Rock and Roll band (1995-1996)
• Served on Board of Directors of Minnesota Music
  Academy, a 501(c)(3) nonprofit corporation
  (1996-1999)
• Secretary/Board Member of my wifes for-profit
  corporation (2004-2006)

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Lets Look at the Syllabus
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A Few Questions for You
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Questions for You

• Upon graduating, do you plan to obtain a job in
  operations and/or operations management?
• If not, what non-operations job are you planning
  on getting?

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Much of World History Concerns the History of
Operations Management

• Production by craftsmen and apprentices
• Industrial revolution (1770s)
• Scientific management (1911 - present)
• Mass production
• Interchangeable parts standardization
• Division of labor
• Human relations movement (1920-60)
• Decision models (1915, 1960-70s)
• Influence of Japanese manufacturers (1970s-1980s)
• Coordination of Operations via the Internet
  (1990s-2000s)
• Rise of China and India (2000s)
• Focus on Mass Customization (2000s)

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Some Themes of Operations Management Throughout
History

• Introduce science and technology into
  production/management methods
• Improve speed of processing
• Reduce variability
• of consumer demand
• within the production process
• Identify and eliminate process bottlenecks
• Improve quality
• Improve value-added steps of the process
• Eliminate non-value added steps from the process

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Introduction to Operations Management
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Operations

• Systems or processes that create goods and/or
  services
• The transformation processes that convert inputs
  to outputs

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Types of Products The Goods-Services Continuum
NOTE I use the term product to refer to a
portfolio of goods, services, and
information/electronic services
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Production of Goods vs. ServicesKey Differences
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Types of Operations
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Operations Management
The management (design and control) of systems or
processes that create goods and/or provide
services
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Operations Management Interfaces with Every Other
Functional Area
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Manufacturing OperationsFood Manufacturing
Processes
Outputs
Inputs
Processing
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Service OperationsHospital Processes
Inputs
Processing
Outputs
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Supply Chain Operations
Supply Chain A sequence of activities And
organizations involved in producing And
delivering a good or service
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Operations Management Task Add Value
Value Added the difference between the cost of
inputs and the value or price of outputs.
Also want to eliminate non-value-added steps
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The Operations Management Discipline
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Scope of Operations Management

• Operations Management includes
• Forecasting demand
• Deciding where to locate facilities
• Capacity planning
• Scheduling
• Managing inventories
• Assuring quality
• Motivating employees
• And many more . . .

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Key Decisions of Operations Managers

• What
• What resources/what amounts
• When
• Needed/scheduled/ordered
• Where
• Work to be done
• How
• Designed
• Who
• To do the work

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Operations Management System Design vs. System
Control

• System Design
• capacity
• facility location
• arrange departments
• product planning
• acquisition and placement of processing equipment

• System Control
• personnel
• inventory management
• scheduling of jobs
• quality assurance
• project management

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We Will Study Several Aspects of Operational
Decision Making

• Models
• Quantitative approaches
• Qualitative approaches
• Analysis of trade-offs
• Prioritization/Pareto phenomenon
• 80/20 Rule - 80 of problems are caused by 20 of
  the activities
• Systems thinking approach
• Focus on optimizing the system as a whole, not
  just certain parts

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Models Are Beneficial For Making Operational
Decisions

• An abstraction of reality not the real system
• Easy to use, less expensive
• Systematic approach to problem solving
• Increase understanding of the problem
• Enable what if questions
• Specific objectives
• Consistent tool
• Power of mathematics
• Standardized format

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Competitiveness, Strategy, and Productivity
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Competitiveness
How effectively an organization meets the wants
and needs of customers relative to others that
offer similar goods or services
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Businesses Can Compete in Many Ways Including
Operations

• Competing with Marketing
• Identify customer wants/needs
• Price appropriately
• Advertise/promote

• Competing with Operations
• Goods/service design
• Cost
• Facility location
• Quality
• Quick response/delivery
• Flexible processes
• Inventory management
• Supply Chain Management
• Stellar service

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Many Organizations Fail Because they Ignore
Operations

• Too much emphasis on short-term financial
  performance
• Failing to take advantage of strengths and
  opportunities
• Failing to recognize competitive threats
• Neglecting operations strategy

• Too much emphasis in product and service design
  and not enough on improvement
• Neglecting investments in capital and human
  resources
• Failing to establish good internal communications
• Failing to consider customer wants and needs

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Strategy
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Strategy

• Strategies
• Plans for achieving organizational goals
• Mission
• The reason for existence for an organization
• Mission Statement
• Answers the question What business are we in?
• Goals
• Provide detail and scope of mission
• Tactics
• The methods and actions taken to accomplish
  strategies

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Examples of Strategies

• Low cost
• Scale-based strategies
• Specialization
• Flexible operations
• Fastest delivery
• High quality
• Service

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A Top-Down View of Strategy Formation
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Operations Strategy

• Operations strategy The approach, consistent
  with organization strategy, that is used to guide
  the operations function.

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Operations Strategy Formulation

• How will operations support the organizations
  strategies?
• Identify distinctive competencies
• Environmental scanning
• SWOT
• Identify Order qualifiers
• Identify Order winners

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Strategy and Tactics

• Distinctive Competencies
• The special attributes or abilities that give an
• organization a competitive edge.
• Price
• Quality
• Time
• Flexibility
• Service
• Location

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Examples of Distinctive Competencies Employed by
Firms
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Order Qualifiers Get You In The Door, Order
Winners Win The Order

• Order qualifiers
• Characteristics that customers perceive as
  minimum standards of acceptability to be
  considered as a potential purchase
• Order winners
• Characteristics of an organizations goods or
  services that cause it to be perceived as better
  than the competition

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Productivity
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Productivity

• Productivity
• A measure of the effective use of resources,
  usually expressed as the ratio of output to input
• Productivity ratios are used for
• Planning workforce requirements
• Scheduling equipment
• Financial analysis

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There Are Several Ways to Measure Productivity

• Partial measures
• output/(single input)
• Multi-factor measures
• output/(multiple inputs)
• Total measure
• output/(total inputs)

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Measures of Productivity
Partial Output Output Output
Outputmeasures Labor Machine
Capital Energy Multifactor
Output
Output measures Labor Machine
Labor Capital Energy Total
Goods or Services Produced measure
All inputs used to produce them
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Some Partial Productivity Measures
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Example 3
7040 Units Produced Sold for
1.10/unit Cost of labor of 1,000 Cost of
materials 520 Cost of overhead 2000
What is the multifactorproductivity?
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Example 3 Solution
MFP Output Labor Materials Overhead
MFP (7040 units)(1.10) 1000 520 2000
MFP 2.20
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Many Factors and Decisions Can Affect Productivity

• Capital
• Quality
• Technology
• Management decisions
• Standardization
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items

• Scrap rates
• New workers
• Safety
• Shortage of IT workers
• Layoffs
• Labor turnover
• Design of the workspace
• Incentive plans that reward productivity

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Improving Productivity

• Develop productivity measures
• Determine critical (bottleneck) operations
• Develop methods for productivity improvements
• Establish reasonable goals
• Get management support for productivity programs
• Measure and publicize improvements

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Identify and Resolve Bottleneck Operations