Operations

Management
6630
Concepts Strategy
Principles Methods

Course Objectives / Requirements / Assignments

Objective of the course:
Understanding and improving business processes
Performance measures
How-to
Mix of industries: healthcare, restaurants, automotive, computers, call centers,
banking, etc
Requirements :
Engagement
Participation
Assignments:
Project assignment
Final exam????

Overview
The Goal by Eliyahu Goldratt and Jeff Fox
Process Improvement Principles by C. Dennis Pegden
Operations Management for MBAs by Jack Meredith and Scott
Schafer
Selected Articles and Other Material
Transforming the Organization by John Kotter
Leading Change:Why Transformation Efforts Fail
http://hbr.org/2007/01/leading-change-why-transformation-efforts-fail

Overview
Objectives:
Make Money $$$$$$
Satisfy Customers
Respect employees

The Production System

Operations Defined
Systems concerned with
transforming inputs into useful
outputs according to an agreedupon strategy and thereby adding
value to some entity

Characteristics of Products
and Services

Table 1.1

Production Systems
Parallel Servers
Flow Line
Job Shop

Three KPIs
Work in Process (WIP)
System throughput
On-time delivery
WIP refers to work that has entered the system, but is
not yet complete. WIP can be the number of items in
the system, or converted to time-based measures of
congestion such as average waiting time or time in
system
System throughput is number of entities completed or moving
through the system, and
Timely delivery is the completion of product according to
parameters set by customer considerations.

Four Dimensions of Performance

Cost

Efficiency

Quality

Product quality (how

good?)

Process quality (as good

as promised?)

Variety

Time

Customer heterogeneity

Responsiveness to
demand

Four Dimensions of Performance: Trade-offs

Cost

Quality

Efficiency

Measured by:
- cost per unit
- utilization

Product quality (how

good?)
=> Price

Process quality (as good

as promised?)
=> Defect rate

Variety

Time

Responsiveness to
demand

Measured by:
- customer lead time

Customer heterogeneity
Measured by:
- number of options
- flexibility / set-ups
- make-to-order

What Can Ops Management (This Course) Do to Help?

Step 1: Help Making Operational Trade-Offs
Responsiveness
High

Very short waiting times,

Comes at the expense of
Frequent operator idle time

Tradeoff
Low

Long waiting times,

yet operators are almost
fully utilized

Low labor
productivity

High labor
productivity

Labor Productivity
(e.g. $/call)

Example: Call center of a large retail bank

- objective: 80% of incoming calls wait less than 20 seconds
- starting point: 30% of incoming calls wait less than 20 seconds
- Problem: staffing levels of call centers / impact on efficiency
OM helps: Provides tools to support strategic trade-offs

What Can Ops Management (This Course) Do to Help?

Step 2: Identify and Overcome Inefficiencies
Responsiveness

High

Current frontier
In the industry
Competitor A
Eliminate
inefficiencies
Competitor C

Low

Competitor B
Low labor
productivity

Example:
Benchmarking shows the pattern above
Dont just manage the current system Change it!

High labor
productivity

Labor Productivity
(e.g. $/call)

Provides tools to identify and eliminate inefficiencies => Define Efficient Frontier
Types of inefficiencies:
-Poor process design
- Inconsistencies in activity network

What Can Ops Management (This Course) Do to Help?

Step 3: Evaluate Proposed Redesigns/New Technologies
Responsiveness
High
Redesign
process

New frontier
Current frontier
In the industry
Low
Low labor
productivity

High labor
productivity

Example:
What will happen if we develop / purchase technology X?
Better technologies are always (?) nice to have, but will they pay?
OM helps: Evaluates system designs before they are implemented

Labor Productivity
(e.g. $/call)

Example: The US Airline Industry

Example: The US Airline Industry

Examples of Production
System Components

Table 1.2

Customer Value
Value = perceived benefits relative to costs
Perceived benefits can take a wide variety of forms
Costs
Upfront monetary investment
Life cycle costs, such as maintenance
Hassles involved in obtaining the product or service

Quality Dimensions
1.

Conformance to specification

2.

Extent to which the product matches the design

Performance

3.

Customers equate quality with performance

Features

Options that a product or service offers

Quality Dimensions
4.

Continued

Quick response

5.

Time required to react to customers demands

Reliability

6.

Probability that a product or service will perform as

intended for a period of time

Durability

How tough a product is

Quality Dimensions
(Continued)

7.

Serviceability

8.

Ease with which maintenance can be performed

Aesthetics

9.

Factors that appeal to human senses

Customer Service

How the customer is treated

Qualitys Benefits
Customers are more pleased with a highquality product or service
More likely to encourage friends to
patronize the firm
Gives firm a good reputation
Allows firm to charge a premium price
Increases market share
Makes follow-up products more attractive

Qualitys Costs
1. Prevention costs

Including planning, training, design,

maintenance

2. Appraisal costs

Measuring, testing, test equipment,

inspectors, reports

3. Internal costs of defects

Extra labor and material, scrap, rework,

interruptions, expediting

4. External costs of defects

Ill-will, complaints, correction, warranties,

insurance, recalls, lawsuits

Competitive Advantages of
Agility
Faster matches to customers needs
Closer matches to customers needs
Ability to supply needed items as markets
develop
Faster design-to-market time
Lower cost of changing production
Ability to offer a full line without large
inventories
Ability to meet market demand even with
production delays

Mass Customization
Seek to produce low-cost, high-quality
outputs in high variety
Not all products lend themselves to being
customized
Sugar, gas, electricity, and flour

Is applicable to products characterized

by short life cycles, rapidly advancing
technology, or changing customer
requirements

Benefits of Modular
Design
1. Components that differentiate can be
added during the later stages of
production

Called postponement

2. Production time can be significantly

reduced

Simultaneously producing the required

modules

3. Facilitates the identification of production

and quality problems

Global Trends
US imports have grown for more than 30 years
Exports have increased, but not as fast as imports
Resulted in exploding trade deficient
US now largest debtor nation in the world
Cumulative deficit is about GDP

The Life-Cycle Curve

Figure 1.9

Categories of Business
Strategies
1.

First-to-market

2.

Second-to-market

3.

Cost minimization (late-to-market)

4.

Market segmentation

Slide on each of these

First-to-Market Strategy
Products available before competition
Strong applied research capability needed
Can set high price to skim market or set lower price to
gain market share

Second-to-Market
Strategy
Quick imitation of first-to-market companies
Less emphasis on applied research and more emphasis
on development
Learn from first-to-markets mistakes

Cost Minimization or
Late-to-Market Strategy
Wait until market becomes standardized and large
volumes demanded
Compete on basis of costs instead of product features
Research efforts focus on process development versus
product development

Market Segmentation
Serving niche markets
Applied engineering skills and flexible manufacturing
processes needed

Common Areas of
Organizational Focus

Table 1.5

Outsourcing
Subcontracting out production of parts or performance of
activities
Activities and parts fall on a continuum ranging from
strategically unimportant to strategically important
Activities not strategically important are candidates to be
outsourced

Process Improvement
Principles
Variability degrades performance
Buffer the bottlenecks
Feed the bottlenecks
Reduce the number of process steps
Minimize changeovers