Krajewski Om9 PPT 01

1
COMPETING WITH
OPERATIONS
PowerPoint Slides
by Jeff Heyl
Copyright 2010 Pearson Education, Inc. Publ
For Operations Management, 9e by

Krajewski/Ritzman/Malhotra
2010 Pearson Education
11
Operations Management
The systematic design, direction, and
control of processes that transform inputs
into services and products for internals, as
well as external, customers
Processes can be linked together to form a
supply chain interrelated processes
within a firms and across different firms
that produce a service or product to the
satisfaction of the customers
12
Across the Organization

Finance
Acquires financial
resources and capital
for inputs
Material &
Service Inputs
Sales
Revenue
Support Functions
Operations
Accounting
Information Systems
Human Resources
Engineering
Translates
materials and
service into
outputs
Figure 1.1
Marketing
Generates sales
of outputs
Product &
Service Outputs
13
A Process View
External environment
Internal and external
customers
Inputs
Workers
Managers
Equipment
Facilities
Materials
Land
Energy
Outputs
Goods
Services
Processes and
operations
1
3
5
Information on
performance
Figure 1.2
14
A Process View
More like a
manufacturing
process
Physical, durable output

Output can be inventoried
Low customer contact
Long response time
Capital intensive
Quality easily measured
More like a
service
process
Intangible, perishable output

Output cannot be inventoried
High customer contact
Short response time
Labor intensive
Quality not easily measured
Figure 1.3
15
The Supply Chain View
New
service/
product
development
Supplier
relationship
process
Customer
relationship
management
Order
fulfillment
process
External customers
External suppliers
Support Processes
Figure 1.4
16
The Supply Chain View

Core processes are sets of activities that
deliver value to external customers
1.
Supplier relationship process
2.
New service/product development process
3.
Order fulfillment process
4.
Customer relationship process
Support processes provide vital

resources and inputs to the core
processes
17
Support Processes
TABLE 1.1
EXAMPLES OF SUPPORT PROCESSES
Capital acquisition
The provision of financial resources for the

organization to do its work and to execute
its strategy
Budgeting
The process of deciding how funds will be

allocated over a period of time
Recruitment and hiring
The acquisition of people to do the work of

the organization
Evaluation and compensation
The assessment and payment of people for

the work and value they provide to the
company
Human resource support and development
The preparation of people for their current

jobs and future skills and knowledge needs
Regulatory compliance
The processes that ensure that the company

is meeting all laws and legal obligations
Information systems
The movement and processing of data and

information to expedite business operations
and decisions
Enterprise and functional management
The systems and activities that provide

strategic direction and ensure effective
execution of the work of the business
18
Operations Strategy
Specifies the means by which operations
implements corporate strategy and helps
build a customer-driven firm
Corporate strategy provides an overall
direction that serves as the framework for
carrying out all the organization's functions
19
Operations Strategy
Corporate Strategy
Environmental scanning
Core competencies
Core processes
Global strategies
Market Analysis
Market segmentation
Needs assessment
Competitive Priorities
Cost
Quality
Time
Flexibility
New Service/
Product Development
Design
Analysis
Development
Full launch
No
Yes
Performance
Gap?
Operations Strategy
Decisions
Managing processes
Managing supply chains
Competitive Capabilities
Current
Needed
Planned
Figure 1.5
1 10
Corporate Strategy
Environmental scanning
Developing core competencies
1.
Workforce
2.
Facilities
3.
Market and financial know-how
4.
Systems and technologies
Developing core processes

Global strategies
1 11
Market Analysis
Market segmentation
Needs assessment
Service
or product needs
Delivery
Volume
Other
system needs
needs
needs
1 12
TABLE 1.2
DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

PRIORITIES
COST
Definition
Process Considerations
Example
1. Low-cost
operations
Delivering a service or a
product at the lowest
possible cost
Processes must be designed and

operated to make them efficient
Costco
2. Top quality
Delivering an outstanding
service or product
May require a high level of

customer contact and may require
superior product features
Ferrari
3. Consistent
quality
Producing services or
products that meet design
specifications on a
consistent basis
Processes designed and

monitored to reduce errors and
prevent defects
McDonalds
4. Delivery speed
Quickly filling a
customers order
Design processes to reduce lead

time
Dell
5. On-time
delivery
Meeting delivery-time
promises
Planning processes to increase

percent of customer orders
shipped when promised
United Parcel
Service (UPS)
6. Development
speed
Quickly introducing a new

science or a product
Cross-functional integration and

involvement of critical external
suppliers
Li & Fung
QUALITY
TIME
1 13
TABLE 1.2
DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

PRIORITIES
FLEXIBILITY
Definition
Process Considerations
Example
7. Customization
Satisfying the unique

needs of each customer
by changing service or
products designs
Low volume, close customer

contact, and easily reconfigured
Ritz Carlton
8. Variety
Handling a wide
assortment of services or
products efficiently
Capable of larger volumes than

processes supporting
customization
Amazon.com
9. Volume
flexibility
Accelerating or
decelerating the rate of
production of service or
products quickly to
handle large fluctuations
in demand
Processes must be designed for

excess capacity
The United States

Postal Service
(USPS)
1 14
Order Winners and Qualifiers
Sales ($)
Order Winner
Low
High
Achievement of competitive priority
Sales ($)
Order Qualifier
Low
Threshold
High
Achievement of competitive priority

Figure 1.6
1 15
Using Competitive Priorities

At an airline
Customer relationship
Top
quality
Consistent
Delivery
quality
speed
Variety
New service development

Development
speed
Customization
Top
quality
1 16

At an airline
Order fulfillment
Low-cost
operations
Top quality
Consistent quality
On-time delivery
Variety
1 17

At an airline
Supplier relationship
Low-cost
operations
Consistent quality
On-time delivery
Variety
Volume flexibility
1 18
Operations Strategy
TABLE 1.3
OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS
Competitive Priority
Measure
Capability
Gap
Action
Low-cost operations
Cost per
billing
statement
$0.0813
Target is
$0.06
Eliminate microfilming and

storage of billing statements
Weekly
postage
$17,000
Target is
$14,000
Develop Web-base process for

posting bills
Percent
errors in
bill
information
0.90%
Acceptable
No action
Percent
errors in
posting
payments
0.74%
Acceptable
No action
Delivery speed
Lead time
to process
merchant
payments
48 hours
Acceptable
No action
Volume flexibility
Utilization
98%
Too high to
support
rapid
increase in
volumes
Acquire temporary employees
Consistent quality
Improve work methods
1 19
Trends in Operations Management

Productivity improvement
Global competition
Ethical, workforce, and environmental
issues
1 20
Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:
a. Three employees process 600 insurance policies in a week.
They work 8 hours per day, 5 days per week.
SOLUTION
Policies processed
a. Labor productivity = Employee hours
600 policies
= (3 employees)(40 hours/employee) = 5 policies/hour
1 21
Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:
b. A team of workers makes 400 units of a product, which is
sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.
SOLUTION
a. Multifactor productivity =
Value of output
Labor cost + Materials cost
+ Overhead cost
(400 units)($10/unit)
$4,000
=
= 2.35
$400 + $1,000 + $300
$1,700
1 22
Application
This Year
Last Year
Year Before Last
2,762,103
2,475,738
2,175,447
Employment (hrs)
112,000
113,000
115,00
Sales of manufactured
products ($)
$49,363
$40,831
Total manufacturing
cost of sales ($)
$39,000
$33,000
Factory unit sales ($)
Calculate the year-to-date labor productivity:

This Year
factory unit sales
2,762,103
employment
112,000
Last Year
= 24.66/hr
2,475,73
8
Year Before Last

2,175,447
= 21.91/hr
113,000
115,000
= $18.91/hr
Calculate the multifactor productivity:

This Year
sales of mfg products
$49,363
total mfg cost
$39,000
= 1.27
Last Year
$40,831
$33,000
= 1.24
1 23
OM as a Set of Decisions
USING OPERATIONS TO COMPETE
In practice, managers
make strategic and
tactical decisions
1.
Each part of the

organization designs
and operates
processes
2.
Each function is
connected through
shared resources
Competing with Operations

Project Management
MANAGING PROCESSES
Process Strategy
Process Analysis
Quality and Performance
Capacity Planning
Lean Systems
MANAGING SUPLY CHAINS
Supply Chain Design

Supply Chain Integration
Location
Inventory Management
Forecasting
Operations Planning and Scheduling
Resource Planning
Figure 1.7
1 24
Challenges in OM
Part 1: Using operations to compete
Part 2: Managing processes
Part 3: Managing supply chains
1 25
Solved Problem 1
Student tuition at Boehring University is $150 per semester
credit hour. The state supplements school revenue by $100 per
semester credit hour. Average class size for a typical 3-credit
course is 50 students. Labor costs are $4,000 per class,
material costs are $20 per student per class, and overhead
costs are $25,000 per class.
a. What is the multifactor productivity ratio for this course
process?
b. If instructors work an average of 14 hours per week for 16
weeks for each 3-credit class of 50 students, what is the
labor productivity ratio?
1 26
Solved Problem 1
SOLUTION
a. Multifactor productivity is the ratio of the value of output to
the value of input resources.
50 student
Value of output =
class
3 credit hours
student
$150 tuition +
$100 state support
credit hour
= $37,500/class
Value of inputs = Labor + Materials + Overhead
= $4,000 + ($20/student 50 students/class) + $25,000
= $30,000/class
Multifactor productivity =
Output
Input
$37,500/class
$30,000/class
= 1.25
1 27
Solved Problem 1
SOLUTION
b. Labor productivity is the ratio of the value of output to
labor hours. The value of output is the same as in part (a),
or $45,000, so
Labor hours of input =
14 hours
week
16 weeks
class
= 224 hours/class
Labor productivity =
Output
Input
$45,000/class
224 hours/class
= $200.89/hour
1 28
Solved Problem 2
Natalie Attire makes fashionable garments. During a particular
week employees worked 360 hours to produce a batch of 132
garments, of which 52 were seconds (meaning that they were
flawed). Seconds are sold for $90 each at Attires Factory Outlet
Store. The remaining 80 garments are sold to retail distribution
at $200 each. What is the labor productivity ratio of this
manufacturing process?
1 29
Solved Problem 2
SOLUTION
Value of output = (52 defective 90/defective)
+ (80 garments 200/garment)
= $20,680
Labor hours of input = 360 hours
Labor productivity =
Output
Input
$20,680
360 hours
= $57.44 in sales per hour
1 30
1 31

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For Operations Management, 9e by

Copyright 2010 Pearson Education, Inc. Publ

Across the Organization

Copyright 2010 Pearson Education, Inc. Publ

Copyright 2010 Pearson Education, Inc. Publ

Physical, durable output

Intangible, perishable output

Copyright 2010 Pearson Education, Inc. Publ

The Supply Chain View

Copyright 2010 Pearson Education, Inc. Publ

The Supply Chain View

Supplier relationship process

New service/product development process

Order fulfillment process

Customer relationship process

Support processes provide vital

Copyright 2010 Pearson Education, Inc. Publ

EXAMPLES OF SUPPORT PROCESSES

The provision of financial resources for the

The process of deciding how funds will be

Recruitment and hiring

The acquisition of people to do the work of

Evaluation and compensation

The assessment and payment of people for

Human resource support and development

The preparation of people for their current

The processes that ensure that the company

The movement and processing of data and

Enterprise and functional management

The systems and activities that provide

Copyright 2010 Pearson Education, Inc. Publ

Copyright 2010 Pearson Education, Inc. Publ

Copyright 2010 Pearson Education, Inc. Publ

Market and financial know-how

Systems and technologies

Developing core processes

Copyright 2010 Pearson Education, Inc. Publ

Copyright 2010 Pearson Education, Inc. Publ

DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

Processes must be designed and

May require a high level of

Processes designed and

Design processes to reduce lead

Planning processes to increase

Quickly introducing a new

Cross-functional integration and

Copyright 2010 Pearson Education, Inc. Publ

DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

Satisfying the unique

Low volume, close customer

Capable of larger volumes than

Processes must be designed for

The United States

Copyright 2010 Pearson Education, Inc. Publ

Order Winners and Qualifiers

Achievement of competitive priority

Achievement of competitive priority

Copyright 2010 Pearson Education, Inc. Publ

Using Competitive Priorities

New service development

Copyright 2010 Pearson Education, Inc. Publ

Using Competitive Priorities