Operations Management BUSN 6110/PROC 5820 Monday Night.
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Operations ManagementOperations Management
BUSN 6110/PROC 5820BUSN 6110/PROC 5820Monday NightMonday Night
SyllabusSyllabus• Class 1 (Aug 18): chap 1; chap 2, case studyClass 1 (Aug 18): chap 1; chap 2, case study• Class 2: (Aug 25) Chap 5, Chap 8Class 2: (Aug 25) Chap 5, Chap 8• Class 3: (Sep 1) chap 10, chap 11, Chap 17(Take home exam)Class 3: (Sep 1) chap 10, chap 11, Chap 17(Take home exam)• Class 4: (Sep 8) Chap 5, Chap 7Class 4: (Sep 8) Chap 5, Chap 7• Class 5: (Sep 15); Chap 9, Chap 12, The Beer GameClass 5: (Sep 15); Chap 9, Chap 12, The Beer Game• Class 6: (Sep 22) Chap 15, Reverse Logistics – need “The Forklifts Class 6: (Sep 22) Chap 15, Reverse Logistics – need “The Forklifts
Have Nothing To Do!” Available in the Lewis and Clark BookstoreHave Nothing To Do!” Available in the Lewis and Clark Bookstore• Class 7: (Sep 29) Cabela’s TourClass 7: (Sep 29) Cabela’s Tour• Class 8: (Oct 6) Chap 13; Chap 16, Chap 4 (take home exam)Class 8: (Oct 6) Chap 13; Chap 16, Chap 4 (take home exam)• Other requirements: Other requirements:
→→visit Harley-Davidson Plant in Kansas City to see visit Harley-Davidson Plant in Kansas City to see operations management in practice and write a 3-5 page paper operations management in practice and write a 3-5 page paper comparing the class slides and readings to the Harley operationscomparing the class slides and readings to the Harley operations
→ → Home Work and QuizzesHome Work and Quizzes
Additional Text Additional Text
The #2 SellingWarehousingand Distribution Bookand #1Non-text book Warehousing Book Book as of Apr 1, 2009
GradesGrades• Homework – 20%Homework – 20%• Mid Term – 35%Mid Term – 35%• Final Exam – 35%Final Exam – 35%• Harley Paper – 5%Harley Paper – 5%• Cabela’s Paper – 5%Cabela’s Paper – 5%
Contact InformationContact Information• joewalden@supplychainresearch.com• (760) 447-3651(760) 447-3651• Personal backgroundPersonal background
Class Slides and Class Slides and InformationInformation
• www.supplychainresearch.com• Slides will be posted/updated week Slides will be posted/updated week
prior to class – therefore the slides prior to class – therefore the slides currently on the website may change currently on the website may change as new materials come availableas new materials come available
Chapter 1Chapter 1
Introduction to Introduction to Operations Operations ManagementManagement
Operations as a transformation Operations as a transformation processprocess
Operations as a Operations as a basic functionbasic function
Operations as the Operations as the technical coretechnical core
The Operations The Operations FunctionFunction
Operations as a Operations as a Transformation ProcessTransformation Process
INPUT MaterialMachinesLaborManagementCapital
Operations as a Operations as a Transformation ProcessTransformation Process
INPUT MaterialMachinesLaborManagementCapital
TRANSFORMATIONPROCESS
Operations as a Operations as a Transformation ProcessTransformation Process
INPUT MaterialMachinesLaborManagementCapital
OUTPUT GoodsServices
TRANSFORMATIONPROCESS
Operations as a Operations as a Transformation ProcessTransformation Process
FeedbackFeedback
INPUT MaterialMachinesLaborManagementCapital
OUTPUT GoodsServices
TRANSFORMATIONPROCESS
Transformation Transformation ProcessesProcesses
PhysicalPhysical ((manufacturingmanufacturing))LocationalLocational (transportation/ (transportation/
warehouse) warehouse)ExchangeExchange (retail)(retail)PhysiologicalPhysiological (health care)(health care)PsychologicalPsychological (entertainment)(entertainment)InformationalInformational (communications)(communications)
Impacts on Operations Impacts on Operations Management Management
Industrial RevolutionIndustrial Revolution Scientific ManagementScientific Management Human Relations or the lack thereofHuman Relations or the lack thereof Advent of Management ScienceAdvent of Management Science Quality EmphasisQuality Emphasis Globalization of Supply ChainsGlobalization of Supply Chains Information Age/Internet RevolutionInformation Age/Internet Revolution
Key EventsKey EventsIndustrial RevolutionIndustrial Revolution
Steam engineSteam engine 17691769 James WattJames WattDivision of laborDivision of labor 17761776 Adam SmithAdam SmithInterchangeable partsInterchangeable parts 17901790 Eli WhitneyEli Whitney
Scientific ManagementScientific ManagementPrinciples Frederick W. Taylor 1911Principles Frederick W. Taylor 1911Activity scheduling chart Henry Gantt 1912Activity scheduling chart Henry Gantt 1912Moving assembly lineMoving assembly line Henry Ford 1913Henry Ford 1913
Human RelationsHuman RelationsHawthorne studiesHawthorne studies 19301930 Elton MayoElton MayoMotivation theoriesMotivation theories 1940s1940s Abraham MaslowAbraham Maslow
1950s1950s Frederick HertzbergFrederick Hertzberg1960s1960s Douglas McGregorDouglas McGregor
Management ScienceManagement ScienceLinear programmingLinear programming 19471947 George DantzigGeorge DantzigDigital computerDigital computer 19511951 Remington RandRemington RandSimulation, PERT/CPM, Simulation, PERT/CPM, 1950s1950s Operations researchOperations researchWaiting line theoryWaiting line theory groupsgroupsMRPMRP 1960s1960s Joseph Orlicky, IBMJoseph Orlicky, IBM
Key EventsKey Events
Quality EmphasisQuality EmphasisJITJIT 1970s1970s Taiichi Ohno, ToyotaTaiichi Ohno, ToyotaTQMTQM 1980s1980s W. Edwards Deming,W. Edwards Deming,
Joseph Juran, et. al.Joseph Juran, et. al.Strategy and operationsStrategy and operations Skinner, HayesSkinner, HayesReengineeringReengineering 1990s1990s Hammer, ChampyHammer, ChampyWorld Trade OrganizationWorld Trade Organization 1990s1990s Numerous countriesNumerous countries
and companiesand companies
GlobalizationGlobalizationEuropean Union andEuropean Union and 1970s1970s IBM and othersIBM and othersother trade agreementsother trade agreementsEDI, EFT, CIMEDI, EFT, CIM 1980s1980s
Key EventsKey Events
Information Age/Information Age/Internet RevolutionInternet Revolution
Internet, WWW, ERPInternet, WWW, ERP 1990s1990sSupply chainSupply chain SAP, i2 SAP, i2 management,management, Technologies, Technologies,
ORACLE,ORACLE,E-commerceE-commerce PeopleSoft, Amazon,PeopleSoft, Amazon,
Yahoo, eBay,Yahoo, eBay,and othersand others
Key EventsKey Events
Categories of Categories of E-CommerceE-Commerce
BusinessBusiness
ConsumerConsumer
BusinessBusiness ConsumerConsumer
B2BCommerceone.com
B2CAmazon.com
C2BPriceline.com
C2CeBay.com
Types of B2B TransactionsTypes of B2B TransactionsBuyer Seller
Buyers
Sellers
Buyer
Sellers Buyers Sellers
(a) Electronic Storefront(a) Electronic Storefront (b) Seller’s Auction(b) Seller’s Auction
(c) Buyer’s Auction(c) Buyer’s Auction (d) Exchange or E-Marketplace(d) Exchange or E-Marketplace
E-Business Promotes:E-Business Promotes:
Better customer relationsBetter customer relationsMore efficient processesMore efficient processesLower cost of materialsLower cost of materialsInformation technology synergyInformation technology synergyBetter and faster decision makingBetter and faster decision making
E-Business Promotes:E-Business Promotes:New forms of organizationsNew forms of organizationsExpanded supply chainExpanded supply chainHigher customer expectationsHigher customer expectationsNew ways of doing businessNew ways of doing businessGlobalizationGlobalization
Globalization and Globalization and CompetitivenessCompetitiveness
• Favorable costFavorable cost• Access to international Access to international
marketsmarkets• Response to changes Response to changes
in demandin demand• Reliable sources of Reliable sources of
supplysupply• 14 major trade 14 major trade
agreements in 1990sagreements in 1990s• Peak: 26% in 2000Peak: 26% in 2000
World Trade Compared to World GDPSource: “Real GDP and Trade Growth of OECD Countries, 2001–03,” International Trade Statistics 2003, World Trade Organization, www.wto.orgCopyright, 2006, John Wiley and Sons
Globalization and Globalization and Competitiveness (cont.)Competitiveness (cont.)
Hourly Wage Rates for Selected CountriesSource: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.
Germany: $26.18
USA: $21.33
Taiwan: $5.41
Mexico: $2.38
China: $0.50Copyright, 2006, John Wiley and Sons
Multinational CorporationsMultinational CorporationsCountryCountry Foreign SalesForeign Sales
CompanyCompany of Originof Origin as % of Totalas % of TotalNestléNestlé SwitzerlandSwitzerland 98.298.2NokiaNokia FinlandFinland 97.697.6PhilipsPhilips NetherlandsNetherlands 94.094.0BayerBayer GermanyGermany 89.889.8ABBABB GermanyGermany 87.287.2SAPSAP GermanyGermany 80.080.0Exxon MobilExxon Mobil United StatesUnited States 79.679.6Royal Dutch/ShellRoyal Dutch/Shell NetherlandsNetherlands 73.373.3IBMIBM United StatesUnited States 62.762.7McDonald’sMcDonald’s United StatesUnited States 61.561.5
CompetitivenessCompetitivenessThe degree to which a nation can The degree to which a nation can produce goods and services that produce goods and services that meet the test of international meet the test of international markets while simultaneously markets while simultaneously maintaining or expanding the real maintaining or expanding the real incomes of its citizens.incomes of its citizens.
ProductivityProductivity
Productivity =Productivity =OutputOutputInputInput
ProductivityProductivity
Become more efficientBecome more efficient DownsizeDownsize ExpandExpand Retrench Retrench Achieve breakthroughsAchieve breakthroughs
Productivity =Productivity =OutputOutputInputInput
Productivity improves when firms:Productivity improves when firms:
Changes in Productivity for Changes in Productivity for Select CountriesSelect Countries
Internet-enabled productivity
- Dot com bust- 9/11 terrorist attacks
Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003. U.S. figures for 2002–2003 from “Major Sector Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004
Copyright, 2006, John Wiley and Sons
Measures of Measures of CompetitivenessCompetitiveness
ProductivityProductivity GDP (Gross domestic product) growthGDP (Gross domestic product) growth Market capitalizationMarket capitalization Technological infrastructureTechnological infrastructure Quality of educationQuality of education Efficiency of governmentEfficiency of government
Barriers to EntryBarriers to EntryEconomies of scaleEconomies of scaleCapital investmentCapital investmentAccess to supply and distribution Access to supply and distribution
channelschannelsLearning curvesLearning curves
Competition Within Competition Within Industries Increases WhenIndustries Increases When
Firms are relatively equal in size Firms are relatively equal in size and resourcesand resources
Products and services are Products and services are standardizedstandardized
Industry growth is slow or Industry growth is slow or exponentialexponential
Chapter 2Chapter 2
Operations Operations StrategyStrategy
To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.
The Importance of Clearly The Importance of Clearly Stated Missions/VisionsStated Missions/Visions
‘ ‘The Grand Duke said “one who is The Grand Duke said “one who is confused in purpose cannot respond confused in purpose cannot respond to his enemy” Sun Tzu, to his enemy” Sun Tzu, The Art of WarThe Art of War (III.23)(III.23)
• To know the purpose – there must be a To know the purpose – there must be a
clearly stated mission and vision.clearly stated mission and vision.
Clearly Stated Mission???Clearly Stated Mission???
““When you come to a fork in the When you come to a fork in the road, take it.”road, take it.”
Example of A Clearly Example of A Clearly Understood MissionUnderstood Mission
COL Rusling on General Grant: COL Rusling on General Grant: “He made certain his “He made certain his subordinates knew exactly what subordinates knew exactly what he wanted, and why and when he he wanted, and why and when he wanted it.”wanted it.”
Example of A Clearly Example of A Clearly Understood MissionUnderstood Mission
““We endeavor to go to the moon and We endeavor to go to the moon and return safely before the end of this return safely before the end of this decade.”decade.”
- John F. Kennedy- John F. Kennedy
VISIONVISION®®
• Vital to the OrganizationVital to the Organization• Integrated throughout the OrganizationIntegrated throughout the Organization• Sustainable and AchievableSustainable and Achievable• Important from the viewpoint of the Important from the viewpoint of the
employeesemployees• Organization GoalsOrganization Goals• Not necessarily a one size fits all visionNot necessarily a one size fits all vision
Velocity Management in Logistics and Distribution, 2005, Walden
Strategy FormulationStrategy Formulation
• Define a primary taskDefine a primary task• Assess core Assess core
competenciescompetencies• Determine order Determine order
winners & order qualifierswinners & order qualifiers• Positioning the firmPositioning the firm
Core CompetenciesCore Competencies• Also known as core capabilitiesAlso known as core capabilities• Skills that differentiate the service or Skills that differentiate the service or
manufacturing firm from competitorsmanufacturing firm from competitors• Those things that the company does Those things that the company does
bestbest
Strategy FormulationStrategy Formulation
• Define a primary taskDefine a primary task• Assess core Assess core
competenciescompetencies• Determine order Determine order
winners & order qualifierswinners & order qualifiers• Positioning the firmPositioning the firm
Competing on CostCompeting on CostEliminate all wasteEliminate all wasteInvest inInvest in
Updated facilities & equipmentUpdated facilities & equipment Streamlining operationsStreamlining operations Training & developmentTraining & development
Competitive Competitive Priorities: CostPriorities: Cost
• Southwest AirlinesSouthwest Airlines– one type of airplane facilitates crew one type of airplane facilitates crew
changes, record-keeping, maintenance, changes, record-keeping, maintenance, and inventory costsand inventory costs
– direct flights mean no baggage direct flights mean no baggage transferstransfers
– $30 million annual savings in travel $30 million annual savings in travel agent commissions by requiring agent commissions by requiring customers to contact the airline directlycustomers to contact the airline directly
Copyright, 2006, John Wiley and Sons
Competing on QualityCompeting on QualityPlease the customerPlease the customer
Understand customer Understand customer attitudes toward and attitudes toward and expectations of expectations of quality quality Example: Ritz Carlton
Competing on Competing on FlexibilityFlexibility
Produce wide variety of Produce wide variety of productsproducts
Introduce new productsIntroduce new productsModify existing products Modify existing products
quicklyquicklyRespond to customer Respond to customer
needsneeds
Competing on SpeedCompeting on Speed
Fast movesFast movesFast adaptationsFast adaptationsTight linkagesTight linkages
Example: FEDEX, UPS, DHL
Competitive Competitive Priorities: SpeedPriorities: Speed• Citicorp Citicorp
– advertises a 15-minute mortgage approvaladvertises a 15-minute mortgage approval• L.L. Bean L.L. Bean
– ships orders the day they are receivedships orders the day they are received• Wal-Mart Wal-Mart
– replenishes its stock twice a week replenishes its stock twice a week • General Electric General Electric
– reduces time to manufacture circuit-breaker boxes into reduces time to manufacture circuit-breaker boxes into three days and dishwashers into 18 hoursthree days and dishwashers into 18 hours
• Motorola Motorola – needs less than 30 minutes to build to order pagersneeds less than 30 minutes to build to order pagers
Copyright, 2006, John Wiley and Sons
Operations Role in Operations Role in Corporate StrategyCorporate Strategy
Provide support for overall Provide support for overall strategy of a firmstrategy of a firm
Serve as firm’s distinctive Serve as firm’s distinctive competencecompetence
Must be consistentMust be consistentMust be consistent with overall Must be consistent with overall
strategystrategy
Operations and Wall Operations and Wall StreetStreet
• Comparing operations at a firm with Comparing operations at a firm with competitorscompetitors
• ExampleExampleincome per employeeincome per employeerevenue per employeerevenue per employeeinventory turnover inventory turnover customer turnovercustomer turnover
OperationsOperationsStrategy at Strategy at Wal-MartWal-Mart Provide value for our customers
Low prices, everyday
Low inventory levels
Linked communications between stores
Short flow times
Fast transportation system
Cross-docking Focused locations
EDI/satellites
Wal-MartWal-Mart
MissionMission
Competitive Competitive PriorityPriority
Operations Operations StrategyStrategy
Operations Operations StructureStructure
Enabling Process Enabling Process and Technologiesand Technologies
Strategy and the Strategy and the InternetInternet
Create a distinctive Create a distinctive business strategybusiness strategy
Strengthen existing Strengthen existing competitive advantagescompetitive advantages
Integrate new and Integrate new and traditional activitiestraditional activities
Must provide a unique Must provide a unique value to the customervalue to the customer
Strategic Decisions in Strategic Decisions in OperationsOperations
Products Processes and
Technology
CapacityHuman
Resources Quality
Facilities Sourcing
Services
Operating Systems
Figure 2.2Figure 2.2
Products & ServicesProducts & ServicesMake-to-orderMake-to-order
Made to customer specifications Made to customer specifications after order receivedafter order received
Make-to-stockMake-to-stockMade in anticipation of demandMade in anticipation of demand
Assemble-to-orderAssemble-to-orderAdd options according to Add options according to
customer specificationcustomer specification
Processes & TechnologyProcesses & Technology ProjectProject
One-time production of product to One-time production of product to customer ordercustomer order
Batch productionBatch production Process many jobs at same time in batchProcess many jobs at same time in batch
Mass productionMass production Produce large volumes of standard Produce large volumes of standard
product for mass marketproduct for mass market Continuous productionContinuous production
Very high volume commodity productVery high volume commodity product
Product-Process MatrixProduct-Process MatrixVo
lum
eVo
lum
e
LowLowLowLow HighHigh
HighHigh
Projects
BatchProduction
MassProduction
ContinuousProduction
StandardizationStandardizationFigure 2.3Figure 2.3
Service-Process MatrixService-Process MatrixVo
lum
eVo
lum
e
LowLowLowLow HighHigh
HighHigh
Professional Service
Service Shop
MassService
Service Factory
StandardizationStandardizationFigure 2.4Figure 2.4
Capacity & FacilitiesCapacity & FacilitiesHow much capacity to provideHow much capacity to provideSize of capacity changesSize of capacity changesHandling excess demandHandling excess demandHiring/firing Hiring/firing
workersworkersNeed for new Need for new
facilitiesfacilities
FacilitiesFacilitiesBest size for facility?Best size for facility?Large or small facilitiesLarge or small facilitiesFacility focusFacility focusFacility locationFacility locationGlobal facilityGlobal facility
Human ResourcesHuman Resources Skill levels requiredSkill levels required Degree of autonomyDegree of autonomy PoliciesPolicies Profit sharingProfit sharing Individual or team workIndividual or team work Supervision methodsSupervision methods Levels of managementLevels of management TrainingTraining
QualityQuality Target levelTarget level MeasurementMeasurement Employee involvementEmployee involvement TrainingTraining Systems needed to ensure qualitySystems needed to ensure quality Maintaining quality awarenessMaintaining quality awareness Evaluating quality effortsEvaluating quality efforts Determining customer perceptionsDetermining customer perceptions
SourcingSourcingDegree of vertical integrationDegree of vertical integrationSupplier selectionSupplier selectionSupplier relationshipSupplier relationshipSupplier qualitySupplier qualitySupplier cooperationSupplier cooperation
Operating SystemsOperating Systems Execute strategy dailyExecute strategy daily Information technology Information technology
supportsupport Effective planning & control Effective planning & control
systemssystems Alignment of inventory Alignment of inventory
levels, scheduling priorities, levels, scheduling priorities, & reward systems& reward systems
Policy DeploymentPolicy Deployment
Focuses employees on common Focuses employees on common goals & prioritiesgoals & priorities
Translates strategy into Translates strategy into measurable objectivesmeasurable objectives
Aligns day-to-day decisions with Aligns day-to-day decisions with strategic planstrategic plan
Balanced ScorecardBalanced Scorecard Finance — Finance — How should we look to our How should we look to our
shareholders?shareholders? Customer — Customer — How should we look to our How should we look to our
customers?customers? Processes — Processes — At which business At which business
processes must we excel?processes must we excel? Learning and Growing — Learning and Growing — How will we How will we
sustain our ability to change and sustain our ability to change and improve?improve?
Issues and TrendsIssues and Trends Global markets, Global markets,
sourcing, sourcing, operationsoperations
Virtual companiesVirtual companies Greater choiceGreater choice Emphasis on Emphasis on
serviceservice Speed and Speed and
flexibilityflexibility
Supply chainsSupply chains CollaborationCollaboration Technological Technological
advancesadvances KnowledgeKnowledge Environment Environment
and social and social responsibilitiesresponsibilities
The Dilbert (Dogbert) Solution – Change the Name of the Old Program
Supplement to Chapter Supplement to Chapter 22
Decision AnalysisDecision Analysis• Payoff Table - craps tablesPayoff Table - craps tables• MaximaxMaximax - maximum of maximum payoffs - maximum of maximum payoffs
- optimistic - “hard ways”- optimistic - “hard ways”• MaximinMaximin - maximum of minimum payoffs - - maximum of minimum payoffs -
safe bets or even odds betssafe bets or even odds bets• Minimax regretMinimax regret - minimum of maximum - minimum of maximum
regrets or opportunity costsregrets or opportunity costs
Decision TreesDecision Trees• Graphical method of analyzing a Graphical method of analyzing a
decision - similar to Theory of decision - similar to Theory of ConstraintsConstraints
• Payoff table can be translated to a Payoff table can be translated to a Decision TreeDecision Tree
The Payoff TableThe Payoff TableA method of organizing & illustrating A method of organizing & illustrating
the payoffs from different decisions the payoffs from different decisions given various states of naturegiven various states of nature
A payoff is the outcome of the A payoff is the outcome of the decision – a Craps table pay off chart decision – a Craps table pay off chart is an example of a payoff chart is an example of a payoff chart
Payoff TablePayoff Table
States Of NatureStates Of Nature(Alternatives)(Alternatives)
DecisionDecision aa bb11 Payoff 1/aPayoff 1/a Payoff 1/bPayoff 1/b22 Payoff 2/aPayoff 2/a Payoff 2/bPayoff 2/b
STATES OF NATURESTATES OF NATURE
Good ForeignGood Foreign Poor ForeignPoor ForeignDECISIONDECISION Competitive ConditionsCompetitive Conditions Competitive ConditionsCompetitive Conditions
ExpandExpand $ 800,000$ 800,000 $ 500,000$ 500,000Maintain status quoMaintain status quo 1,300,0001,300,000 -150,000-150,000Sell nowSell now 320,000320,000 320,000320,000
Maximums: 1,300,0001,300,000; 500,000
Minimums: 500,000; 320,000320,000; -150,000
Homework Homework • Motel 6 case study – one page Motel 6 case study – one page
analysisanalysis•
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