Operations Management Basic Management Functions 5.

​ Layout strategy
●​ Planning -​ Integrate capacity needs,
Operations and Productivity ●​ Organizing personnel levels, technology,
●​ Staffing and inventory
●​ Leading -​ Determine the efficient flow of
Operations Management ●​ Controlling materials, people, and
-​ It is the set of activities that create value information.
in the form of goods and services by The Strategic Decisions 6.​ Human resources and job design
transforming inputs into outputs. 1.​ Design of goods and services -​ Recruit, motivate, and retain
-​ Defines what is required of personnel with the required
Production operations talent and skills.
-​ It is the creation of goods and services. -​ Product design determines -​ Integral and expensive part of
quality, sustainability and human the total system design.
Organizing to Produce Goods and Services resources 7.​ Supply-chain management
-​ Essential Functions: 2.​ Managing quality -​ Integrate supply chain into the
1.​ Marketing - generates demand -​ Determine the customer’s quality firm’s strategy.
2.​ Production - creates the product expectations -​ Determine what is to be
3.​ Finance - tracks how well the -​ Establish policies and procedures purchased, from whom, and
organization is doing, pays bills, to identify and achieve that under what conditions.
collects the money. quality 8.​ Inventory management
3.​ Process and capacity design -​ Inventory ordering and holding
The Supply Chain -​ How is a good or service decisions.
-​ A global network of organizations and produced? -​ Optimize considering customer
activities that supply a firm with goods -​ Commits management to satisfaction, supplier capability,
and services. specific technology, quality, and production schedules.
-​ Members of the supply chain resources, and investment. 9.​ Scheduling
collaborate to achieve high levels of 4.​ Location strategy -​ Determine and implement
customer satisfaction, efficiency and -​ Nearness to customers, suppliers, intermediate- and short-term
competitive advantage. and talent. schedules.
-​ Considering costs, infrastructure,
logistics, and government.
 -​ Utilize personnel and facilities ●​ Motion study (Frank and Lillian Gilbreth -​ In 1881, as chief engineer for Midvale
while meeting customer 1922) Steel, studied how tasks were done
demands. ●​ Quality control (Shewhart 1924; Deming -​ Began first motion and time
10.​ Maintenance 1950) studies
-​ Consider facility capacity, ●​ Computer (Atanasoff 1938) -​ Created efficiency principles
production demands, and ●​ CPM/PERT (DuPont 1957, Navy 1958) -​ Taylor’s Principles
personnel. ●​ Material requirements planning (Orlicky Management Should Take More
-​ Maintain a reliable and stable 1960) Responsibility for:
process. ●​ Computer aided design (CAD 1970) -​ Matching employees to
●​ Flexible manufacturing system (FMS right job
Where are the OM Jobs? 1975) -​ Providing the proper
●​ Technology/methods ●​ Baldrige Quality Awards (1980) training
●​ Facilities/space utilization ●​ Computer integrated manufacturing -​ Providing proper work
●​ Strategic issues (1990) methods and tools
●​ Response time ●​ Globalization (1992) -​ Establishing legitimate
●​ People/team development ●​ Internet (1995) incentives for work to be
●​ Customer service accomplished
●​ Quality Eli Whitney
●​ Cost reduction -​ Born 1765; died 1825 Frank & Lillian Gilbreth
●​ Inventory reduction -​ In 1798, received government contract -​ Frank (1868-1924); Lillian (1878-1972)
●​ Productivity improvement to make 10,000 muskets -​ Husband-and-wife engineering team
-​ Showed that machine tools could make -​ Further developed work measurement
The Heritage of OM standardized parts to exact methods
●​ Division of labor (Adam Smith 1776; specifications -​ Applied efficiency methods to their
Charles Babbage 1852) -​ Musket parts could be used in home and 12 children!
●​ Standardized parts (Whitney 1800) any musket -​ Book & Movie: “Cheaper by the Dozen,”
●​ Scientific Management (Taylor 1881) “Bells on Their Toes”
●​ Coordinated assembly line (Ford/ Frederick W. Taylor
Sorenson 1913) -​ Born 1856; died 1915 Henry Ford
●​ Gantt charts (Gantt 1916) -​ Known as ‘father of scientific -​ Born 1863; died 1947
management’ -​ In 1903, created Ford Motor Company
 -​ In 1913, first used moving assembly line 3.​ Improve operations
to make Model T Operations Strategy in a Global Environment 4.​ Understand markets
-​ Unfinished product moved by 5.​ Improve products
conveyor past work station 6.​ Attract and retain global talent
-​ Paid workers very well for 1911 ($5/day!) Global Strategies
●​ Boeing – sales and supply chain are Improve the Supply Chain
W. Edwards Deming worldwide. ●​ Locating facilities closer to unique
-​ Born 1900; died 1993 ●​ Benetton – moves inventory to stores resources
-​ Engineer and physicist around the world faster than its ○​ Auto design to California
-​ Credited with teaching Japan quality competition by building flexibility into ○​ Athletic shoe production to
control methods in post-WW2 design, production, and distribution. China
-​ Used statistics to analyze process ●​ Sony – purchases components from ○​ Perfume manufacturing in
-​ His methods involve workers in decisions suppliers in Thailand, Malaysia, and France
around the world.
Contributions From ●​ Volvo – considered a Swedish Reduce Costs
●​ Human factors company, recently purchased by a ●​ Foreign locations with lower wage rates
●​ Industrial engineering Chinese company, Geely. The current can lower direct and indirect costs
●​ Management science Volvo S40 is assembled in Belgium, South ●​ Trade agreements can lower tariffs
●​ Biological science Africa, Malaysia and China on a ○​ Maquiladoras
●​ Physical sciences platform shared with the Mazda 3 built ○​ World Trade Organization (WTO)
●​ Information technology in Japan and the Ford Focus built in ○​ North American Free Trade
Europe. Agreement (NAFTA)
Ethics, Social Responsibility, and Sustainability ●​ Haier – A Chinese company, produces ○​ APEC, SEATO, MERCOSUR,
●​ Challenges facing operations compact refrigerators (it has one-third CAFTA
managers: of the US market) and wine cabinets (it ○​ European Union (EU)
○​ Develop and produce safe, has half of the US market) in South
high-quality green products Carolina. Improve Operations
○​ Train, retrain, and motivate ●​ Understand differences between how
employees in a safe workplace Reasons to Globalize business is handled in other countries
○​ Honor stakeholder commitments 1.​ Improve the supply chain ○​ Japanese – inventory
2.​ Reduce costs (labor, taxes, tariffs, etc.) management
 ○​ Scandinavians – ergonomics ○​ Punctuality ○​ Answer: ‘What do we contribute
●​ International operations can improve ○​ Lunch breaks to society?’
response time and customer service ○​ Environment ○​ Provides boundaries and focus
○​ Intellectual property
Understand Markets ○​ Thievery ●​ Strategy tells the organization how to
●​ Interacting with foreign customers, ○​ Bribery get there
suppliers, competition can lead to new ○​ Child labor ○​ Action plan to achieve mission
opportunities ○​ Functional areas have strategies
○​ Cell phone design moved from Companies Want To Consider ○​ Strategies exploit opportunities
Europe to Japan ●​ National literacy rate and strengths, neutralize threats,
○​ Extend the product life cycle ●​ Rate of innovation and avoid weaknesses
●​ Rate of technology change ○​ Strategies for Competitive
Improve Products ●​ Number of skilled workers Advantage
●​ Remain open to free flow of ideas ●​ Political stability 1.​ Differentiation – better, or
●​ Toyota and BMW manage joint research ●​ Product liability laws at least different
and development ●​ Export restrictions 2.​ Cost leadership –
○​ Reduced risk, state-of-the-art ●​ Variations in language cheaper
design, lower costs ●​ Work ethic 3.​ Response – more
●​ Samsung and Bosch jointly produce ●​ Tax rates responsive
batteries. ●​ Inflation
●​ Availability of raw materials ❖​ Competing on Differentiation
Attract and Retain Global Talent ●​ Interest rates -​ Uniqueness can go beyond both
●​ Offer better employment opportunities ●​ Population the physical characteristics and
○​ Better growth opportunities and ●​ Number of miles of highway service attributes to encompass
insulation against unemployment ●​ Phone system everything that impacts
○​ Relocate unneeded personnel customer’s perception of value
to more prosperous locations Developing Missions and Strategies
●​ Mission statements tell an organization ❖​ Competing on Cost
Cultural and Ethical Issues where it is going. -​ Provide the maximum value as
●​ Cultures can be quite different ○​ Where is the organization going? perceived by the customer.
●​ Attitudes can be quite different towards ○​ Organization’s purpose for being Does not imply low quality.
 ❖​ Competing on Response after-sale service, broad product 2.​ Medium-range forecast
-​ Flexibility is matching market lines. -​ 3 months to 3 years
changes in design innovation -​ Sales and production planning,
and volumes Strategy Development and Implementation budgeting
-​ A way of life at ●​ Identify key success factors 3.​ Long-range forecast
Hewlett-Packard ●​ Integrate OM with other activities -​ 3+ years
-​ Reliability is meeting schedules ●​ Build and staff the organization -​ New product planning, facility
-​ German machine location, research and
industry The operations manager’s job is to implement development
-​ Timeliness is quickness in design, an OM strategy, provide competitive
production, and delivery advantage, and increase productivity Distinguishing Differences
-​ Johnson Electric, Pizza 1.​ Medium/long range forecasts deal with
Hut, Motorola more comprehensive issues and support
Forecasting management decisions regarding
Strategy Development Process planning and products, plants and
processes
1.​ Analyze the Environment ●​ Process of predicting a future event 2.​ Short-term forecasting usually employs
-​ Identify the strengths, ●​ Underlying basis of all business decisions different methodologies than
weaknesses, opportunities, and ○​ Production longer-term forecasting
threats. Understand the ○​ Inventory 3.​ Short-term forecasts tend to be more
environment, customers, ○​ Personnel accurate than longer-term forecasts
industry, and competitors. ○​ Facilities
2.​ Determine the Corporate Mission Influence of Product Life Cycle
-​ State the reason for the firm’s Forecasting Time Horizons
existence and identify the value 1.​ Short-range forecast Introduction – Growth – Maturity – Decline
it wishes to create. -​ Up to 1 year, generally less than
3.​ Form a Strategy 3 months ●​ Introduction and growth require longer
-​ Build a competitive advantage, -​ Purchasing, job scheduling, forecasts than maturity and decline
such as low price, design, or workforce levels, job ●​ As product passes through life cycle,
volume flexibility, quality, quick assignments, production levels forecasts are useful in projecting
delivery, dependability, ○​ Staffing level
 ○​ Inventory levels Seven Steps in Forecasting Basic Terms Used in Sales Forecasting
○​ Factory capacity 1.​ Determine the use of the forecast ●​ Market demand for a product or service
2.​ Select the items to be forecasted is the estimated total sales volume in a
Types of Forecasts 3.​ Determine the time horizon of the market (or industry) for a specific time
1.​ Economic forecasts forecast period in a defined marketing
-​ Address business cycle – inflation 4.​ Select the forecasting model(s) environment, under a defined
rate, money supply, housing 5.​ Gather the data needed to make the marketing program or expenditure.
starts, etc. forecast Market demand is a function associated
2.​ Technological forecasts 6.​ Make the forecast with varying levels of industry marketing
-​ Predict rate of technological 7.​ Validate and implement results expenditure.
progress ●​ Market (or industry) forecast (or market
-​ Impacts development of new Forecasting Approaches size) is the expected market (or industry)
products ●​ Qualitative Methods demand at one level of industry
3.​ Demand forecasts ○​ Used when situation is vague marketing expenditure.
-​ Predict sales of existing products and little data exist ●​ Market potential is the maximum market
and services. ■​ New products (or industry) demand, resulting from a
■​ New technology very high level of industry marketing
Strategic Importance of Forecasting ○​ Involves intuition, experience expenditure, where further increases in
●​ Supply-Chain Management ■​ e.g., forecasting sales on expenditure would have little effect on
○​ Good supplier relations, Internet increase in demand.
advantages in product ●​ Company demand is the company’s
innovation, cost and speed to ●​ Quantitative Methods estimated share of market demand for
market ○​ Used when situation is ‘stable’ a product or service at alternative levels
●​ Human Resources and historical data exist of the company marketing efforts (or
○​ Hiring, training, laying off workers ■​ Existing products expenditures) in a specific time period.
●​ Capacity ■​ Current technology ●​ Company sales potential is the
○​ Capacity shortages can result in ○​ Involves mathematical maximum estimated company sales of
undependable delivery, loss of techniques a product or service, based on
customers, loss of market share ■​ e.g., forecasting sales of maximum share (or percentage) of
color televisions market potential expected by the
company.
 ●​ Company sales forecast is the estimated 4.​ Decide company sales forecast (lower ●​ Accuracy: fair; time required: short to
company sales of a product or service, than company sales potential because medium (1 – 4 weeks).
based on a chosen (or proposed) sales potential is maximum estimated
marketing expenditure plan, for a sales, without any constraints) Delphi method
specific time period, in an assumed ●​ Process includes a coordinator getting
marketing environment. Steps followed in Bottom-up / Build-up forecasts separately from experts,
●​ Sales budget is the estimate of Approach summarizing the forecasts, giving the
expected sales volume in units or summary report to experts, who are
revenues from the company’s products 1.​ Salespersons estimate sales expected asked to make another prediction; the
and services, and the selling expenses. It from their customers process is repeated till some consensus
is set slightly lower than the company 2.​ Area / Branch managers combine sales is reached.
sales forecast, to avoid excessive risks. forecasts received from salespersons ●​ Experts are company managers,
3.​ Regional / Zonal managers combine consultants, intermediaries, and trade
Forecasting Approaches sales forecasts received from area / associations.
●​ Two basic approaches: branch managers ●​ Advantages: objective, good accuracy
○​ Top-down or Break-down 4.​ Sales / marketing head combines sales ●​ Disadvantages: getting experts, no
approach forecasts received from regional / zonal breakdown into subunits, time required:
○​ Bottom-up or Build-up approach managers into company sales forecast, medium (3/4 weeks) to long (2/3
●​ Some companies use both approaches which is presented to CEO for discussion months)
to increase their confidence in the and approval
forecast Salesforce composite method
Executive opinion method ●​ An example of bottom-up or grass-roots
Steps followed in Top-down / Break-down ●​ Most widely used approach
Approach ●​ Procedure includes discussions and / or ●​ Procedure consists of each salesperson
1.​ Forecast relevant external average of all executives’ individual estimating sales. Company sales
environmental factors opinions. forecast is made up of all salespersons’
2.​ Estimate industry sales or market ●​ Advantages: quick forecast, less sales estimates
potential expensive. ●​ Advantages: Salespeople are involved,
3.​ Calculate company sales potential = ●​ Disadvantages: subjective, no breakdown into subunits possible
market potential x company share breakdown into subunits. ●​ Disadvantages: Optimistic or pessimistic
forecasts, medium to long time required
 ●​ Accuracy: fair to good (if trained) ●​ Goods or services are the basis for an Product Life Cycle
organization's existence ●​ Growth Phase
Survey of Buyers’ Intentions Method ●​ Limited and predictable life cycles 1.​ Product design begins to
●​ Process includes asking customers about requires constantly looking for, stabilize
their intentions to buy the company’s designing, and developing new 2.​ Effective forecasting of capacity
products and services products becomes necessary
●​ Questionnaire may contain other ●​ New products generate substantial 3.​ Adding or enhancing capacity
relevant questions revenue may be necessary
●​ Advantages: gives more market
information, can forecast new and Product Decision ●​ Maturity Phase
existing products, good accuracy -​ The objective of the product decision is 1.​ Competitors now established
●​ Disadvantages: some buyers’ unwilling to develop and implement a product 2.​ High volume, innovative
to respond, time required is long (3-6 strategy that meets the demands of the production may be needed
months), medium to high cost marketplace with a competitive 3.​ Improved cost control, reduction
advantage in options, paring down of
product line
Design of Goods and Services Product Life Cycles
-​ May be any length from a few days to ●​ Decline Phase
decades -​ Unless product makes a special
Goods and Services Selection -​ The operations function must be able to contribution to the organization,
●​ Organizations exist to provide goods or introduce new products successfully must plan to terminate offering
services to society
●​ Great products are the key to success Life Cycle and Strategy Generating New Products
●​ Top organizations typically focus on ●​ Introductory Phase 1.​ Understanding the customer
core products ○​ Fine tuning may warrant unusual 2.​ Economic change
●​ Customers buy satisfaction, not just a expenses for 3.​ Sociological and demographic change
physical good or particular service 1.​ Research 4.​ Technological change
●​ Fundamental to an organization's 2.​ Product development 5.​ Political and legal change
strategy with implications throughout 3.​ Process modification and 6.​ Market practice, professional standards,
the operations function enhancement suppliers, distributors
4.​ Supplier development
Quality Function Deployment ○​ No organizational divisions ○​ Adds flexibility to both
1.​ Identify customer wants production and marketing
2.​ Identify how the good/service will satisfy Manufacturability and Value Engineering ○​ Improved ability to satisfy
customer wants ●​ Benefits: customer requirements
3.​ Relate customer wants to product hows 1.​ Reduced complexity of the
4.​ Identify relationships between the firm’s product ●​ Computer-aided design (CAD)
hows 2.​ Reduction of environmental ○​ Using computers to design
5.​ Develop customer importance ratings impact products and prepare
6.​ Evaluate competing products 3.​ Additional standardization of engineering documentation
7.​ Compare performance to desirable components ○​ Shorter development cycles,
technical attributes 4.​ Improvement of functional improved accuracy, lower cost
aspects of the product ○​ Information and designs can be
Organizing for Product Development 5.​ Improved job design and job deployed worldwide
●​ Traditionally – distinct departments safety ○​ Design for Manufacturing and
○​ Duties and responsibilities are 6.​ Improved maintainability Assembly (DFMA)
defined (serviceability) of the product ■​ Solve manufacturing
○​ Difficult to foster forward thinking 7.​ Robust design problems during the
●​ A Champion design stage
○​ Product manager drives the Issues for Product Design ○​ 3-D Object Modeling
product through the product ●​ Robust design ■​ Small prototype
development system and ○​ Product is designed so that small development
related organizations variations in production or ○​ CAD through the internet
●​ Team approach assembly do not adversely ○​ International data exchange
○​ Cross functional – affect the product through STEP
representatives from all ○​ Typically results in lower cost and
disciplines or functions higher quality ●​ Computer-aided manufacturing (CAM)
○​ Product development teams, ○​ Utilizing specialized computers
design for manufacturability ●​ Modular design and program to control
teams, value engineering teams ○​ Products designed in easily manufacturing equipment
●​ Japanese “whole organization” segmented components ○​ Often driven by the CAD system
approach (CAD/CAM)
 ○​ Sustainability means meeting the
Benefits of CAD/CAM needs of the present without
1.​ Product quality compromising the ability of
2.​ Shorter design time future generations to meet their
3.​ Production cost reductions needs
4.​ Database availability ○​ LCA is a formal evaluation of the
5.​ New range of capabilities environmental impact of a
product
●​ Virtual reality technology
○​ Computer technology used to
develop an interactive, 3-D
model of a product from the
basic CAD data
○​ Allows people to ‘see’ the
finished design before a physical
model is built
○​ Very effective in large-scale
designs such as plant layout

●​ Value analysis
○​ Focuses on design improvement
during production
○​ Seeks improvements leading
either to a better product or a
product which can be
produced more economically
with less environmental impact

●​ Sustainability and Life Cycle Assessment