Fundamentals of Operations Management BUS 3 – 140 Jan 29, 2008.

Fundamentals ofOperations Management

BUS 3 – 140

Jan 29, 2008

Page 2 2

Agenda

– Week 1 Review

– Product & Service Design

– Location Planning

– Project Management

How Operations Interacts with Other Organizations

Page 4 4

Key intersections with Sales & Marketing and with Finance

FINANCE & ACCOUNTING

– Budgeting

– Authorizing Capital spending

– Authorizing major inventory buys

– Cost accounting

– Make vs. Buy decisions

– Location planning

– Managing international trade

– Analyzing trade-off decisions

Page 5 5

Key intersections with Sales & Marketing and with Finance

SALES & MARKETING

– Forecasting Demand

– Influencing demand

– Committing supply

– Negotiating schedules with customers

– Providing competitive information

– Requesting new products and services

– Opening new markets

Page 6 6

Interaction with other Functional Organizations

Organization Key Interaction

IT ERP Application Support

Transaction Timing and accuracy

Reporting

Decision-support tools

Human Resources Training

Recruiting

Management development

Regulatory compliance

Legal Contract administration

Supplier relations

Offshoring

Product & Service Design

Page 8 8

There are degrees of “Newness”

– Modify existing products and services

– Expand and existing product line or service offering

– Clone a competitor’s product or service

– New product or service

There is usually some combinationtaking place simultaneously

Page 9 9

Phases in Product Design & Development

IdeaGeneration

FeasibilityAnalysis

ProductSpecifications

ProcessSpecifications

PrototypeDevelopment

DesignReview

MarketTest

Follow-upEvaluation

ProductIntroduction

Supply Chain Customers Suppliers Employees Field Service

Competitors “Me too” strategy Reverse Engineering

Research and Development Applied research has the objective of MAKING MONEY Development takes the results of the applied research and finds

places where they can be used (Applications)

Page 10 10

Phases in Product Design & Development

FeasibilityAnalysis

ProcessSpecifications

PrototypeDevelopment

DesignReview

MarketTest

Follow-upEvaluation

ProductIntroduction

IdeaGeneration

ProductSpecs.

– Start with the CUSTOMER

• Understand what the customer wants (or demands)• Understand what the customer will PAY for

– RESPOND to Opportunities and Threats

• Customers not buying what you are selling• Customers buying what you are not selling

– Acknowledge Cost imperatives

– Defensive considerations

• Product liability• Availability (possible shortages or cost issues) of Raw Material,

components, labor

Page 11 11

Product Life Cycles

Time

Introduction

Growth

Maturity

Saturation

Decline

Dem

and

Figure 4.1

Page 12 12

Definitions

What the seller is paid for goods and services provided

Price

The expenses incurred in operating the enterprise,making and buying materials, and converting the

materials to finished goods

Cost

The difference between Price and Cost

Value

Page 13 13

Target Pricing is a Key Element in Product Specifications

Cost ProfitSalesPrice

Traditional:

+ =

SalesPrice

(Market)Profit Cost

Target Pricing:

- =

Instead of adding profit and cost to establish a selling price, the organizationstarts with the market price and required profit to establish a target cost toachieve the necessary profit.

Page 14 14

Design Phases leads to Introduction and Volume

FeasibilityAnalysis

ProcessSpecifications

PrototypeDevelopment

DesignReview

MarketTest

Follow-upEvaluation

ProductSpecifications

IdeaGeneration

ProductIntroduction

– Quality and Cost

– Target pricing

– Capital equipment

– Time to market

– Time to Volume

– Postponement and “Mass Customization”

Page 15 15

The Standardization Challenge

Standard parts are generally lower cost, more abundantly available, provide the largest number of potential suppliers,

drive efficiencies in design, and provide other benefits

BUT…

Unique parts often differentiate products and performance,and can provide competitive advantage to the seller

Page 16 16

Postponement and Mass Customization

– Combine uniqueness and standardization

• Delayed differentiation

– Modular design

• Many permutations from standard components (e.g Dell computer, Burger King, Subway, magazines)

– Inventory Management

– Forecasting

FeatureNo. Of

OptionsOptions

Patties 2 1, 2Cheese 3 Y, N, ExtraLettuce 4 Y, N, Light, ExtraPickles 4 Y, N, Light, ExtraOnions 4 Y, N, Light, ExtraMayo 4 Y, N, Light, ExtraKetchup 4 Y, N, Light, Extra

6,144 Whopper Configurations

Page 17 17

Other Design and Spec Considerations

– Decisions made EARLY affect Dollars spent LATER

– Whenever possible it is recommended to re-use existing components when developing new products (rather than creating numerous new components whenever creating a new subassembly)

– Partnering among Design, Marketing, Sales, and Suppliers during the Design process is a major opportunity to reduce both Time To Market and Cost

– Product Portfolio

Service Design

Page 19 19

Service Design

Start with the Customer

• Understand what the customer wants (or demands)• Understand what the customer will PAY for

Respond to Opportunities and Threats

• Customers not buying what you are selling• Customers buying what you are not selling

– Service Delivery Systems

• Facilities• Processes• Skills• Technology• Service “blueprint”

These concepts also useful for ManagingFunctions and Departments

Page 20 20

Challenges of Service Design

– Variable requirements

– Difficult to describe

– High customer contact

– The customer is a PARTICIPANT in the process

Page 21 21

Characteristics of Well Designed Service Systems

– Consistent with the organization mission

– User friendly

Robust

– Easy to sustain

– Cost effective

– Value to customers

– Effective linkages between back operations

– Single unifying theme

Ensure reliability and high quality

Page 22 22

Guidelines for Successful Service Design

• Define the service package

• Focus on customer’s perspective

• Consider image of the service package

• Recognize that designer’s perspective is different from the customer’s perspective

• Make sure that managers are involved

Define quality for tangible and intangibles

Make sure that recruitment, training and rewards are consistent with service expectations

Establish procedures to handle exceptions

• Establish systems to monitor service

Page 23 23

Components of the “Service Package”

– Physical Resources

– Accompanying goods that are purchased or consumed by the customer, or provided with the service

• Bundling of like products• Service contracts• Insurance plans• Package deals

– Explicit services

– Implicit services

Page 24 24

Key Elements of Service Operations Management

• Tangible – intangible

• Services are created and delivered at the same time

• Services cannot be inventoried

• Services highly visible to customers

• Services have low barrier to entry

• Location important to service

• Range of service systems

• Demand variability

There is FUNGIBLE CAPACITY – you “use it or lose it”

Difficult to leverage and scale when people intensive

Turnover and attendance can be critical factors

Location Planning

Page 26 26

Objectives of Location Planning

– Strategic

• Reduce costs• Add revenue• Both

– Tactical

• Explosive growth• Dramatic decline

– Key customers

– Mergers and acquisitions

Page 27 27

Four Location Options

– Expand existing facilities

– Add new

– Leave existing and find new

– Do nothing

Page 28 28

Regional Factors when making Location decisions

– Raw materials and components

– New Markets

– Labor

– Tax relief and other incentives

Page 29 29

Characteristics of Service and Retail Locations

Heavier emphasis on REVENUE than Manufacturing locations

• Traffic volume and convenience most important

• Demographics • Age• Income• Education

• Location is CRITICAL

• Good transportation

• Customer safety

Page 30 30

Comparing Manufacturing vs. Service Locations

Manufacturing/Distribution Service/Retail

Cost Focus Emphasis Revenue focus Emphasis

Transportation modes/costs Demographics: age,income,etc

Energy availability, costs Population/drawing area

Labor cost/availability/skills Competition

Building/leasing costs Traffic volume/patterns

Customer access/parking

Project Management

Page 32 32

The Nature of Projects

This Course and Semester are PROJECTS!

Unique, one-time operations designed to accomplish a Unique, one-time operations designed to accomplish a specific set of objectives in a limited time frame.specific set of objectives in a limited time frame.

Build A

A Done

Build B

B Done

Build C

C Done

Build D

Ship

JAN FEB MAR APR MAY JUN

On time!

Page 33 33

Overview of Project Management (from Table 17-1)

How is it different?

• Limited time frame• Narrow focus, specific objectives• Less bureaucratic

Why is it used?

• Special needs• Pressures for new or improves products or services

What are the Key Metrics?

• Time• Cost• Performance objectives

What are the Key Success Factors?

• Top-down commitment• Having a capable project manager• Having time to plan• Careful tracking and control• Good communications

Page 34 34

Overview of Project Management (from Table 17-1, continued)

What are the Major Administrative Issues?

• Executive responsibilities• Project selection• Project manager selection• Organizational structure

• Organizational alternatives• Manage within functional unit• Assign a coordinator• Use a matrix organization with a project leader

What are the tools?

• Work breakdown structure• Network diagram• Gantt charts• Risk management

Page 35 35

The Work of the Project Manager

Responsible for RESULTS achieved through:

• Work• Human Resources • Communication• Schedule• Cost

Risk Management

Project Managers often must INFLUENCE team membersand others WITHOUT formal (Organizational Chart) authority

Page 36 36

Gantt Charts

MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Locate new facilities

Interview staff

Hire and train staff

Select and order furniture

Remodel and install phones

Move in/startup

Gantt Chart

Page 37 37

An example of a Gantt Chart for this Class

In this example, you would know that you should startreading by Feb 25 to complete the assignment by Apr 1

Complete Final Draft

Write First Draft

Compare Book to Course

Read Book

25-Feb 4-Mar 11-Mar 18-Mar 25-Mar 01-Apr

Page 38 38

A Project Work Plan and Project Life Cycle

Concept

FeasibilityFeasibility

PlanningPlanning

Execution

Termination

Man

agem

ent

The Key is to COMPLETE the work,achieve the RESULTS,

and Move On