Mr.

Munyao-Mulwa
Department of Management Science
UoN, School of Business
 In managing any business, gaining competitive
advantage is of prime importance.
 CA is achieved by excelling in meeting needs of specific
customer segment irrespective of discipline i.e finance,
marketing etc
 Serving customer well means in a timely fashion, with
exceptional quality & at lowest cost possible (efficient)
 Organizations need to design & operate processes that
are quick, accurate & inexpensive

2
 To deliver value to customers, organizations should craft
efficient & effective operations
 Value = Quality/Price (People, processes & technology
integrate to create value)
 How can one increase value to customers?

2
The operations function is central to the organization
because it produces the goods and services which are its
reason for existing, but it is neither the only nor
necessarily the most important fn
It is, however, one of the three core functions of any
organization;
 the marketing (including sales) function – which is responsible
for communicating the organization’s products and services to
its markets in order to generate customer requests for service

2
 The product/service development function – which is
responsible for creating new and modified products and
services in order to generate future customer requests for
service
 The operations function – which is responsible for fulfilling
customer requests for service throughout the production and
delivery of products and services.
In addition, there are the support functions which enable
the core functions to operate effectively. Give examples ..

2
 Systematic Approach
to Org. Processes
( Analytical thinking)

Business
Education
( Students need Operations
exposure) Career Opportunities
Management

Cross-Functional
Applications
3
Operations management may be defined as the
design, operation, and improvement of the
production system that creates the firm’s primary
products and services.
It is the science & art of ensuring that goods &
services are created & delivered successfully to
customers.

4
 Layout planning to give smooth and effective flow of customers (Process design)
 Designing stylish products that can be packed efficiently (Product design)
 Making sure that all staff can contribute to the company’s success (Job design)
 Locating stores of an appropriate size in the most effective place (Supply network
design)
 Arranging for the delivery of products to stores (Supply chain management)
 Coping with fluctuations in demand (Capacity management)
 Maintaining cleanliness and safety of storage/work areas ( Failure prevention)
 Avoiding running out of products for sale (Inventory management)
 Monitoring and enhancing quality of service to customers (Quality management)
 Continually examining and improving operations practice (Operations
improvement)

4
Understanding the needs of customers, measuring
customer satisfaction & using information to
develop new & improved goods & services
Using information about customers, goods and
services, operations, employees etc to make better
decisions.
Exploiting technology to design goods, services,
manufacturing & service delivery processes that
respond to customer requirements & improve
productivity

4
 Marketplace

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

5
Service Uniqueness

 Intangible

 Direct customer involvement

 Location of service facility

 Can not be stored for future use

9
Operations whether in manufacturing or in a service organization

can be treated as service. The core services customer want;

 Quality

 Flexibility

 Delivery Speed

 Price (or production cost)

11
Value-added services

These make external or internal customer’s life easier

 Information – ability to furnish critical data on product performance, process parameters & cost

 Problem Solving – especially in quality

 Sales Support – By demonstrating the technology, equipment or production systems the

company is trying to sell.

 Field Support – Ability to replace defective parts quickly

12
 Industrial Revolution
 Scientific Management
 Human Relations
 Management Science
 Quality Revolution
 Globalization
 Information Age/Internet Revolution
 Industrial Revolution
Steam engine 1769 James Watt
Division of labor 1776 Adam Smith
Interchangeable parts 1790 Eli Whitney

Scientific Management
Principles 1911 Frederick W. Taylor
Time and motion studies 1911 Frank & Lillian Gilbreth
Activity scheduling chart 1912 Henry Gant
Moving assembly line 1913 Henry Ford
 Human Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories 1940s Abraham Maslow
1950s Frederick Hertzberg
1960s Douglas McGregor

Management Science
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, PERT/CPM, 1950s Operations research
Waiting line theory groups
MRP 1960s Joseph Orlicky, IBM
 Quality Revolution
JIT1970s Taiichi Ohno, Toyota
TQM 1980s W. Edwards Deming,
Joseph Juran, et. al.
Strategy and operations Skinner, Hayes
Reengineering 1990s Hammer, Champy
World Trade Organization 1990s Numerous countries
and companies

Globalization
European Union and 1970s IBM and others
other trade agreements
EDI, EFT, CIM 1980s
 Information Age/
Internet Revolution
Internet, WWW, ERP 1990s ARPANET, Tim
Supply chain Berners-Lee, SAP, i2
management, Technologies, ORACLE,
E-commerce PeopleSoft, Amazon,
Yahoo, eBay,
and others
 Time-Based Competition 1990s

 Supply chain Management 1990s

 Electronic Commerce 2000s

 Offshoring, Outsourcing & flattening of the world- 2000s

 Talent Age Now

19
 Transformation
Input Process Output
(Value Adding)

Transformation is  People
enabled by The 5 Ps of OM:  Plants
 Parts
 Processes
 Planning and Control

6
 Physical--manufacturing
 Locational--transportation
 Exchange--retailing
 Storage--warehousing
 Physiological--health care
 Informational--telecommunications

7
System Primary Inputs Resources Primary Typical desired
transformation Output
functions
Hospital Patients MDs, nurses, Health care Healthy individuals
medical supplies,
equipment
Resturant Hungry customers Food, chef, wait- Well-prepared, Satisfied customers
staff, environment well-served food;
agreeable
environment
( physical &
exchange)
College or High school Teachers, books, imparting Educated
University graduates lecture halls knowledge & skills individuals
( Informational)
Automobile factory sheet steel, engine Tools, equipment, Fabrication & High-quality cars
parts workers assembly of cars
(physical)
Airline Travellers Airplanes, Crew, Move to destination On-time , safe
scheduling delivery to
7
/ticketing systems destination
 Although all operations are similar in that they all
transform input resources into output products and
services, they do differ in a number of ways, four of
which are particularly important:
 Volume of their output;
 Variety of their output;
 Variation in the demand for their output;
 The degree of visibility which customers have of the
production of the product or service.

14
 All four dimensions have implications for the cost of
creating the products or services.
 High volume, low variety, low variation and low
customer contact all help to keep down processing
costs.
 Low volume, high variety, high variation and high
customer contact generally carry some kind of cost
penalty for the operation.

14
 Coordinating the relationships between mutually
supportive but separate organizations.  
  Dramatic surge in the outsourcing of parts and services that had
previously been produced internally.
 New breed of contract manufacturers that specialize in performing
focused manufacturing activities now exists
 Companies considering outsourcing other major corporate
functions such as information systems, product development and
design, engineering services, packaging, testing, and distribution..
 Optimizing global supplier, production, and
distribution networks.   
 The implementation of global enterprise resource planning
systems, now common in large companies, has challenged
managers to use all of this information.
 Requires a careful understanding of where centralized control and
autonomy should be to optimally control such resources as
inventory, transportation, and production equipment
 Increased co-production of goods and services. 
  The Internet has opened new ways for the customer to interact
directly with a firm.
 Simple direct entry and monitoring of orders is now possible
 Intelligent use of information technology will allow the shedding
of entire layers of inefficient customer-oriented functions within a
firm, resulting in dramatic reductions in cost while actually
improving service to the customer
 Managing customer touch points
  As companies strive to become superefficient, they often scrimp
on customer support personnel (and training) required to
effectively staff service departments, help lines, and checkout
counters
 Making resource utilization decisions must capture the implicit
costs of lost customers as well as the direct costs of staffing
 Raising senior management awareness of operations as
a significant competitive weapon
 Many senior executives entered many organizations through
finance, strategy, or marketing and built their reputations on work
in these areas, and as a result often take operations for granted.
 Executives of profitable companies such as Toyota, Dell, Taco
Bell, and Southwest Airlines have creatively used operations
management for competitive advantage
 Volume of output
 Cost (materials, labor, delivery, scrap…)
 Utilization (labor & equipment)
 Quality & product reliability
 On-time delivery
 Investments (ROI)
 Flexibility for product change
 Flexibility for Volume change
 Speeding up the time it takes to get new products into
production.
 Developing flexible production systems to enable mass
customization of products and services.
 Managing global production networks.
 Developing and integrating new production technologies
into existing production systems.

14
 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 regulations.

15
 It can reduce the costs of producing products and services by being efficient;

 It can increase revenue by increasing customer satisfaction through good

quality and service;

 It can reduce the amount of investment (sometimes called capital employed)

that is necessary by increasing the effective capacity of the operation and by
being innovative in how it uses its physical resources

 It can provide the basis for future innovation by building a solid base of
operations skills and knowledge within the business.

15
The degree to which a firm can produce goods
and services that meet the test of international
markets while simultaneously maintaining or
expanding the wealth of its shareholders.

15
 Cost
 Quality
 Delivery Flexibility
 Delivery Speed / Time based competition
 Delivery Reliability
 Coping with Changes in Demand
 Flexibility and New Product Introduction Speed

15
 Eliminate all waste
 Invest in
 Updated facilities & equipment
 Streamlining operations
 Training & development
 Please the customer by doing things right
 Understand customer attitudes toward and
expectations of quality
 Quality reduces costs of output
 Quality Increases dependability
 Produce wide variety of
products
 Introduce new products
 Modify existing products
quickly
 Respond to customer needs
Time Based Competition (TBC)
 Speed means the elapsed time between customers

requesting products or services and their receipt of

them.
 Provide the most value to the customer at the lowest cost
in the least amount of time
 Aimed at minimizing the time it takes to deliver a product
or service to the customer
 Rapid response enables companies to quickly redirect their
value-delivery systems to the most attractive customers
What Competitive priorities can you infer from the photograph?

 Fast moves
 Fast adaptations
 Tight linkages
 Output
Productivity =
Input
Productivity improves when firms:
 Become more efficient
 Downsize
 Expand
 Retrench
 Achieve breakthroughs
 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)

17
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

18
10,000 units/500hrs = 20 units/hour ...

... or we can arrive at a unitless figure

(10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22

19
 Competition Intensity is
high when
 Firms equal in size
 Resources, products &
services standardized
 Slow industry growth (battle
for market shares, the global
market remaining constant)
 Industry growth exponential
(you must have a foothold in
the market)
 Consequences
 Price wars
 Relentless advertising
 High Frequency of
introduction of new products
& services
 Free trials
 Low profit margins
 Purchasing incentives
 Switching bonuses
 Financial packages; cheap
credit
 Economies of Scale
 Fixed & variable costs
 Unit cost decreases when capacity increases
 Newcomers: insufficient orders to justify large capacities => higher costs
 Initial Capital Investment
 May be prohibitive (service to community, hospital, robotized mega plant)
 May be low: e-commerce, consulting…
 Access to Supply & Distribution Channels
 May be controlled by (major) Competitors Bargaining Power (Porter)
 Exclusivity agreements (credit cards & banks)
 Largely easier when going to e-commerce (no broker, distributor needed)
 Learning curves
 Lack of experience, skills, expertise can be penalizing (aerospace,
shipbuilding [10% cost reduction for each similar ship built]
 Volume of output
 Cost (materials, labor, delivery, scrap…)
 Utilization (labor & equipment)
 Quality & product reliability
 On-time delivery
 Investments (ROI)
 Flexibility for product change
 Flexibility for Volume change
 Cost
Traditional
Flexibility Delivery Approach

Quality
Plant within a Plant (PWP)

World Class Manufacturing

FOCUS FOCUS
Advanced Approaches
Trade-offs FOCUS FOCUS

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998 5

World-class manufacturers no longer view cost, quality,
speed of delivery, and even flexibility as tradeoffs. They
are order qualifiers & order winners.

Order qualifiers - a screening criterion that permits a

firm’s products to be considered as possible candidates
of purchase e.g on time delivery

Order winners – A criterion that differentiates the

products or services of one firm from another e.g
price, quality & reliability
6
 Birth of the System
 Product Design & Process Selection
 Design of the System
 Start-up of the System
 The System in steady state
 Termination of the System
 Birth of the System
 What are the goals of the firm?
 What product or service will be offered?
 Product Design & Process Selection
 Design of the System
 Start-up of the System
 The System in steady state
 Termination of the System
 Birth of the System
 Product Design & Process Selection
 Form & Appearance of Product?
 Technologically, how should the product be made?
 Design of the System
 Start-up of the System
 The System in steady state
 Termination of the System
 Birth of the System
 Product Design & Process Selection
 Design of the System
 Capacity?
 Location?
 Lay-out?
 How to maintain quality?
 How to determine forecast for demand?
 What job is each worker to perform?
 How will the job be performed & measured?
 How will the workers be rewarded?
 Start-up of the System
 The System in steady state
 Termination of the System
 Birth of the System
 Product Design & Process Selection
 Design of the System
 Start-up of the System
 How do you get the system in operation?
 How long will it take to reach desired level of output?
 The System in steady state
 Termination of the System
 Birth of the System
 Product Design & Process Selection
 Design of the System
 Start-up of the System
 The System in steady state
 How do you manage the day to day activities?
 How do you maintain the system?
 How can you improve the system?
 How do you revise the system in light of changes in corporate strategy?
 Termination of the System
 Birth of the System
 Product Design & Process Selection
 Design of the System
 Start-up of the System
 The System in steady state
 Termination of the System
 How does the system die?
 What can be done to salvage resources?
 As the era of globalization & liberalization dawned on
organizations, leading companies began to adopt surprisingly
similar new practices in OM.
 New practices were aimed at serving the customers better so as to
achieve a competitive hedge in the global front.
 Principles of OM by Schonberger;
 Get to know the customer & the competition
 Cut: work in process (waiting lines), throughput times, flow distances &
space
 Cut set up & changeover times
 Produce & deliver at the customer’s usage rate
 Principles of OM by Schonberger;
 Cut the number of suppliers to a few good ones
 Cut the number of components in a product or service
 Make it easy to make or provide goods or services without error the first
time
 Arrange the workplace to eliminate search time
 Cross-train for mastery of multiple skills
 Record & retain output volume, quality & problem data at the workplace
 Ensure that line people first crack at problem solving before experts
 Maintain & improve present equipment & human work before thinking
about new equipment
 Look for simple, cheap & movable equipment
 Principles of OM by Schonberger;
 Automate incrementally when process variability can not otherwise be
reduced
 Seek to have plural rather than singular work stations, machines, cells &
flow lines for each product, service or customer
 Become dedicated to continual rapid improvement
 Principles of OM by Schonberger;
 Automate incrementally when process variability can not otherwise be
reduced
 Seek to have plural rather than singular work stations, machines, cells &
flow lines for each product, service or customer
 Become dedicated to continual rapid improvement
 Principles of OM by Schonberger;
 Automate incrementally when process variability can not otherwise be
reduced
 Seek to have plural rather than singular work stations, machines, cells &
flow lines for each product, service or customer
 Become dedicated to continual rapid improvement