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Welcome MGT329

Operations Management:

Lecture: Monday and Wednesday

9:30 AM - 10:45 AM
11:00 AM – 12:15 PM

Professor: Jeff Street

Office: BA 434
Phone: X4184
Cell: (770) 654-2056
Course Books
 Operations Management For
Competitive Advantage, 11th Edition,
by Richard B. Chase, F. Robert Jacobs
and Nicholas J. Aquilano.

 The Goal, by Eliyahu M. Goldratt and

Jeff Cox

The grade received in the course will be

based on:

Participation/Homework (25%)
Exam I (25%)
Exam II (25%)
Final Exam (25%)
Some questions to be addressed
in this course include:
 How does the customer fit into
operations strategy?
 How is globalization affecting
business and operations strategies?
 What effect are new technologies
having on the utilization of an
organization’s resources?
Some questions to be addressed
in this course include:
 How has the concept of quality
management changed, and how does
it affect operations?
 Why is continuous improvement in
the operations management function
necessary for an organization to
remain competitive?
Why Study Operations
Systematic Approach
to Organizational

Business Education Career Opportunities

Development of OM as a Field

Scientific Computers TQM & Quality

Management (MRP) Certification

Moving Assembly JIT/TQC & Business Process

Line Automation Reengineering

Hawthorne Manufacturing Electronic

Studies Strategy Enterprise

Operations Service Quality Global Supply

Research and Productivity Chain Mgmt.

Historical OM's Emergence

Underpinnings as a Field
Current Issues
 Speeding up the time it takes to get new
products and services into production.
 Developing flexible production systems to
enable mass customization of products and
 Managing global production/supply networks.
 Developing and integrating new production
technologies into existing production systems.
Current Issues
 Achieving high quality quickly and
keeping it up in the face of restructuring.

 Managing a diverse workforce.

 Conforming to environmental constraints,

ethical standards, and government
Introduction to Operations Management
 What is Operations Management
 Why Study Operations Management?
 Operations Decision Making
 Managing Transformations
 Service or Good?
 Closed vs. Open System Perspectives
 Development of OM as a Field
 Current Issues

What is Operations Management?
Operations Management is a functional area
of business devoted to the management of
an organization's resources to create
products or services.

The set of resources includes an

organization's know-how, facilities, work-
force, materials, and equipment.

Operations Management issues permeate all

levels of an organization's decision making
from the long-term strategic to the tactical to
the day to day operations.
Operations management is concerned
with the design, operation, and
improvement of the production system
that creates the firm’s primary products
and services.
[Even Elmer’s, ISU, and Portneuf Medical
Center are production systems]
Operations Decision Making

Corporate Strategy

Finance Strategy Operations Strategy Marketing Strategy

Operations Management

People Plants Parts Processes

Materials & Products &
Customers Services
Planning and Control

Input Output
Production System
Managing Transformations
“The Production System”
Micro View
Input Transformation Output
(Value Adding)
 People
Transformation is  Plants
enabled by The 5 Ps of OM:  Parts
 Processes
[A.K.A. The 5 Ms…Man,
 Planning and
Machines, Materials, Methods,
And Management] Control
 Physical--manufacturing
 Locational--transportation
 Exchange--retailing
 Storage--warehousing
 Physiological--health care
 Informational--telecommunications
Competitive Priorities
 Quality (including Service)

 Price (or production cost)

 Delivery (speed) f (Q,T)

 Flexibility C
Our Value Equation
Core Services Definition

Core services are basic things

that customers want from
products (or services) they
Core Services Performance Objectives
(Competitive Priorities)
“made correctly”

Flexibility Operations Delivery Speed

“customized” Management “on-time”

Price (or cost

Value-Added Services Defined
Value-added services (or features)
differentiate the organization from
competitors and build relationships
that bind customers to the firm in a
positive way.

(i.e. increase “switching costs”)

Value-Added Service Categories
Problem Solving
“close gaps”

Information Operations Sales Support

“educate customer” Management “flex to demands”

Field Support
“grow utility”
Value-Added Factory Services
 Information - provide critical data to market

 Problem Solving – troubleshooting ability

 Sales Support – demonstrate the offering

 Field Support – replace/replenish stock, spares

Service or Good?
 “If you drop it on your foot, it won’t
hurt you.” (Good or service?)

 “Services never include goods and

goods never include services.”
(True or false?)
What about McDonald’s?
 Service or Manufacturing?

 Thecompany certainly manufactures

tangible products

 Why
then would we consider
McDonald’s a service business?
Front and Back Office

Back Office

Service Provider

Front Office

How would an Operations
Management focus apply
Standard Verbalize Prepare
Enter Order Collect
execution time 2 Order Food payment

30 seconds 15 seconds 60 seconds 15 seconds

Front Office point
Correct Materials
Order (e.g., food, paper)
20 seconds

Line of Not seen by customer

visibility but necessary to
Select and
purchase supplies

Back Office
Operations Strategy and

Chapter 2
Operations Strategy and
Competitiveness - Overview
 Operations Strategy

 A Framework for Operations Strategy in


 Operations Strategy in Services

 Meeting the Competitive Challenge

 Productivity Measurement
Operations Strategy

Customer Needs Corporate Strategy


Operations Strategy Core

Competitors Competencies


Processes, Infrastructure, and Capabilities

Strategy Process
Forced-Choice Model
Environmental Assessment Organization’s Position

Broad economic assumptions Statement of mission

Key government Interrelated set of financial

and regulatory issues and nonfinancial objectives

Major technological forces Statement of strengths and

Significant market
opportunities and threats Forecast of operational needs

Explicit strategies of competitors Major future programs

Strategic options
Requirements for implementing options
Contingency plans
Strategy Process Example
Customer Needs More Product

Corporate Strategy Increase Org. Size

SBU Operations Strategy Increase Production Capacity

Decisions on Processes
and Infrastructure Build New Factory
Hierarchy of Strategy Process

Corporate Strategic
Type of Value delivered
Specific Market Capabilities
Corporate Values Progress
Core competencies
Performance metrics Potential Problems/Changes
Business SBU #1 SBU #2 SBU #3

Marketing Engineering

Finance Operations
Operations Strategy --
 Get to know; team up with next and
final customer.
 Continual, rapid improvement in
lead time, quality, cost, flexibility
and variability.
Operations Strategy --
 Achieve unified purpose via
team involvement in planning and
implementing change.
Operations Strategy --
 Getto know the competition and
world-class leaders.
Operations Priorities
 Cost
 Quality Traditional
 Delivery Speed Competitive Priorities
 Flexibility
 Service
 Delivery Reliability
 Coping with Changes in Demand
 Flexibility and New Product Introduction Speed
A Framework for Manufacturing Strategy
Customer Needs

New product : Old product

dimensions & requirements

Quality, Cost, Delivery, Flexibility, and Service

Enterprise capabilities
Operationsand Suppliercapabilities
& Supplier Capabilities
R&DR&D Technology SystemsSystems
Technology People
People Distribution

Support Platforms
Financial management Human resource management Information management
Operations Strategy

Customer Needs Corporate Strategy


Operations Strategy Core

Competitors Competencies


Processes, Infrastructure, and Capabilities

Customer Needs

New Products Current Products

New Product Performance priorities Order fulfillment

Development and requirements after sales service

Quality Delivery Flexibility

Price Service

Capabilities:Enterprise, Operations, Suppliers

Technology Systems People
R&D Distribution

Finance Human Resources Information

competitive priorities


Lead Times
Dealing with Trade-offs
For example, if we reduce costs by reducing product
quality inspections, we might reduce product quality.

For example, if we Cost

improve customer
service problem solving
by cross-training Flexibility Delivery
personnel to deal with a
wider-range of Quality
problems, they may
become less effective at
dealing with commonly
occurring problems.
World-Class Manufacturing
World-class manufacturers [i.e. operations] no
longer view cost, quality, speed of delivery, and
even flexibility as tradeoffs.

They have become order qualifiers.

What are the order winners in

today’s market?

Distinctive Competency
Distinctive competency
“A strength that sets a business
apart from its competition”

 McDonald’s
 Disney World or Disney Land
 Delta Airlines
 Intel Corporation
Strategy Begins with Priorities
 Consider the case of a personal computer
1. How would we segment the market according
to product group?
 Personal use
 Small business
 Large Corporations
2. How would we identify product requirements,
demand patterns, and profit margins for each
How do we identify order winner and
order qualifiers for each group?
 quality
 cost
 delivery
 flexibility
 service

What would be the winner for each market group?

•Personal use
•Small business
•Large Corporations
How do we convert order winners into
specific performance requirements?

Competition Us
(Them) Differentiation (Distinctive
 Servicecan be
an “order
winner” Travel
Warranty Planning


Roadside Loaner
Car Dealership Assistance Vehicles

Again, What is Operations

Operations Management is the

functional area of business devoted to
the management of an organization's
resources to create products or
What is Productivity?
A measure of the effective use of
resources, usually expressed as the
ratio of output to input.
Productivity = Input
What factors affect the
productivity of a business?
 work methods
 capital

 quality

 training

 technology

 management
What methods can be used to
improve productivity?
 develop productivity measures
 measurement is necessary to control the operation
 look at overall productivity
 develop methods for achieving productivity
 establish reasonable goals for improvement
 measure and communicate improvements to
both customers and employees
Total Measure Productivity
Total measure Productivity = Outputs

= Goods and services produced

All resources used

[Productivity versus Throughput]

Partial Measure Productivity
Partial measures of productivity =

Output or Output or Output or Output

Labor Capital Materials Energy
Multifactor Measure Productivity
Multifactor measures of productivity =

Output .
Labor + Capital + Energy


Output .
Labor + Capital + Materials
Example of Productivity Measurement
You have just determined that your service
employees have used a total of 2400 hours of labor
this week to process 560 insurance forms. Last
week the same crew used only 2000 hours of labor to
process 480 forms.

Which productivity measure should be used?

Answer: Could be classified as a Total Measure or
Partial Measure.

Is productivity increasing or decreasing?

Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.
10,000 Units Produced
Sold for $10/unit
500 labor hours What is the
Labor rate: $9/hr labor productivity?
Cost of raw material: $5,000
Cost of purchased material: $25,000
Example--Labor Productivity
10,000 units/500hrs = 20 units/hour

(10,000 unit*$10/unit)
= $22.22
What do these calculations tell us?
More importantly -- What don’t they tell us?
Applying Productivity Figures
 You’ve just told your boss that the
plant labor productivity is better than
that of a plant in a related business.

What does this really mean?

Productivity measures
 need to be tracked over time
 need to include all possible inputs
 are difficult to compare between
companies or industries
 do not (directly) include measures of
timeliness or quality
[th********] [sc*** and re****]
Solution for Problem #1
Labor Productivity – units/hour

Model Output Input Productivity

in Units in Labor Hours (Output/Input)
Deluxe Car 4,000 20,000 0.20

Limited Car 6,000 30,000 0.20

Labor Productivity – dollars

Model Output Input Productivity

in Dollars in Dollars (Output/Input)
Deluxe Car 4,000($8000)= 20,000($12.00)= 133.33
$32,000,000 $240,000

Limited Car 6,000($9500)= 30,000($14.00)= 135.71

$57,000,000 $420,000
Solution to Problem #2
Labor Productivity

Country Output Input Productivity

in Units in Hours (Output/Input)
U.S. 100,000 20,000 5.00

LDC 20,000 15,000 1.33

Capital Equipment Productivity

Country Output Input Productivity

in Units in Hours (Output/Input)
U.S. 100,000 60,000 1.67

LDC 20,000 5,000 4.00

Solution to Problem #2
Multifactor – Labor and Capital Equipment

Country Output Input Productivity

in Units in Hours (Output/Input)
U.S. 100,000 20,000 + 60,000= 1.25

LDC 20,000 15,000 + 5,000= 1.00


Raw Material Productivity

Country Output Input Productivity

in Units in Dollars (Output/Input)
U.S. 100,000 $20,000 5.00

LDC 20,000 FC $20,000/10= 10.00

Lasik Vision
Lasik Vision

 What was Lasik Vision’s competitive priority?

 High volume – low cost

 Other priorities?
 Flexibility?
 Delivery?
 Quality?
Lasik Vision
 Is
this the appropriate approach in this
 Is standardization more difficult in health

 Whatrepercussions, actual or perceived

might occur with this priority?
Lasik Vision
 Given that a company has chosen this
priority, what needs to be done to achieve
Lasik Vision -- Update
 January 15, 2001 – Icon Laser Eye Centers
proposes takeover of Lasik Vision
 March, 2001 – takeover complete
 April 4, 2001 – Lasik Vision in bankruptcy
 April 23, 2001 – Dr. Hugo Sutton and
others purchase assets of Lasik Vision.
Clinic reopens as Lasik Eye Centres