PRODUCTION

OPERATIONS
MANAGEMENT
OPERATIONS STRATEGY IN GLOBAL ENVIRONMENT
 Global View of Operations

Reasons to Globalize

 Improve the supply chain.

 Reduce costs and exchange rate risk.

 Improve operations.

 Understand markets.
 Improve products.

 Attract and retain global talent.

 Developing Missions and Strategies

Mission Statement
Mission statements tell an organization where it is going
Strategy
The Strategy tells the organization how to get there
Mission - where are you going?
 Organization’s purpose for being
 Answers:
 What do we do?
 How do we do it?
 Whom do we do it for?
 What value are we bringing?
Developing Missions and Strategies

Factors Affecting Mission

Philosophy
and Values

Profitability Environment
and Growth
Mission

Public Image Customers

Benefit to
Society
 Developing Missions and Strategies

 Once an organization’s mission has been decided, each functional area

within the firm determines its supporting mission.
 Missions for each function are developed to support the firm’s overall
mission.
Developing Missions and Strategies

Strategic Process
Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operation Accounting
s
 Developing Missions and Strategies

Sample Company Mission

To manufacture and service an innovative, growing, and profitable
worldwide microwave communications business that exceeds our
customers’ expectations.
Sample Operations Management Mission
To produce products consistent with the company’s mission as the
worldwide low-cost manufacturer.
Achieving Competitive Advantage Through Operations

Strategy
 Strategy is an action plan to achieve mission
 All the functional areas have strategies
 Strategies exploit opportunities and strengths, neutralize threats, and
avoid weaknesses

Strategic Concepts
 Differentiation – better, or at least different

 Cost leadership – cheaper

 Quick response – more responsive
Achieving Competitive Advantage Through Operations

Competing on Differentiation
 Differentiation is concerned with providing uniqueness
 It goes beyond both physical characteristics and service attributes,
encompassing everything about product and service

Competing on Cost
 It entails achieving maximum value as defined by your customer
 A low-cost strategy does not imply low value or low quality
 It requires examining each of the 10 OM decisions to drive down costs
Achieving Competitive Advantage Through Operations

Competing on Response
 There are three aspects of response:
 Flexibility – match changes in marketplace
 Reliability – meeting schedules
 Quickness - speed in product development, speed in production, and
speed in delivery
 Strategy Development and Implementation

Strategy Development Process

Identify critical success factors
Build and staff the organization
Integrate OM with other activities
Strategy Development and Implementation

Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.

Determine Corporate Mission

State the reason for the firm’s existence and identify the
value it wishes to create.

Form a Strategy
Build a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, dependability, after-
sale service, broad product lines.
Strategy Development and Implementation

SWOT Analysis

Mission

Internal External
Strengths Opportunities

Analysis

Internal External
Weaknesses Threats

Strategy
 Strategic Operations Decisions

10 Strategic OM Decisions
Product Selection and Design
Quality
Process and capacity design
Location selection
Layout design
Human resources
Supply chain
Inventory
Schedule
Maintenance
 Strategic Operations Decisions

10 Operations Management Decisions and Goods and Services

Operations
Decisions Goods Services
Product Product is usually Service is not
Selection and tangible tangible
Design

Quality Many objective Many subjective

standards standards

Process and Customers not Customer may be

capacity involved directly involved
design Capacity must match
demand
 Strategic Operations Decisions

Operations
Decisions Goods Services
Location Near raw materials Near customers
selection and labor

Layout design Production efficiency Enhances product

and production

Human Technical skills, Interact with

resources and constant labor customers, labor
job design standards, output standards vary
based wages
 Strategic Operations Decisions

Operations
Decisions Goods Services
Supply-chain Relationship critical Important, but may
mgmt. to final product not be critical

Inventory Raw materials, Cannot be stored

work-in-process, and
finished goods may
be held
Scheduling Level schedules Meet immediate
possible customer demand
 Strategic Operations Decisions

Operations
Decisions Goods Services
Maintenance Often preventive Often “repair” and
and takes place at takes place at
production site customer’s site
 Design of Goods and Services

Product Decision
 The good or service the organization provides society
 Top organizations typically focus on core products
 Customers buy satisfaction, not just a physical good or particular service
 Fundamental to an organization's strategy with implications throughout
the operations function
 Design of Goods and Services

Product Life Cycles

 May be any length from a few hours to decades

 The operations function must be able to introduce new products

successfully

 Four phases of Product Life Cycle: introduction, growth, maturity, and

decline
 Design of Goods and Services

Sales, cost, and cash flow Cost of development and production

Sales revenue
Net revenue (profit)

Cash
flow

Negative
cash flow Loss

Introduction Growth Maturity Decline

 Design of Goods and Services
Introduction
 Fine tuning
 Research
 Product development
 Process modification and enhancement
 Supplier development

Growth
 Product design begins to stabilize
 Effective forecasting of capacity becomes necessary
 Adding or enhancing capacity may be necessary
 Design of Goods and Services
Maturity
 Competitors now established
 High volume, innovative production may be needed
 Improved cost control, reduction in options, paring down of
product line

Decline
 Unless product makes a special contribution to the organization,
must plan to terminate offering
 Generating New Products

New Product Opportunities

 Understanding the customer
 Economic change
 Sociological and demographic change
 Technological change
 Political/legal change
 Market practice, professional standards, suppliers, distributors
 Generating New Products

Ideas

Ability

Customer Requirements
Scope of Functional Specifications
product
development Product Specifications
team
Design Review

Test Market

Introduction

Evaluation
 Product Design and Development

Organizing for Product Development

 Historically – distinct departments
 Duties and responsibilities are defined
 Difficult to foster forward thinking
 Today – team approach
 Cross functional–representatives from all functions
 Concurrent engineering
 Product Design and Development

Issues for Product Development

 Robust design
 Modular design
 Computer-aided design (CAD)
 Computer-aided manufacturing (CAM)
 Virtual reality technology
 Value analysis
 Environmentally friendly design
 Product Design and Development
Robust Design
 Product is designed so that small variations in production or assembly do
not adversely affect the product
 Typically results in lower cost and higher quality
Modular Design
 Products designed in easily segmented components
 Adds flexibility to both production and marketing
 Improved ability to satisfy customer requirements
 Product Design and Development

Computer-Aided Design & Manufacturing (CAM)

 Utilizing specialized computers and program to control manufacturing
equipment
 Often driven by the CAD system
Virtual Reality Technology
 Computer technology used to develop an interactive, 3-D model of a
product from the basic CAD data
 Allows people to ‘see’ the finished design before a physical model is built
 Very effective in large-scale designs such as plant layout
 Product Design and Development

Value Analysis
 Focuses on design improvement during production
 Seeks improvements leading either to a better product or a product
which can be produced more economically
PRODUCTION
OPERATIONS
MANAGEMENT
PROCESS STRATEGY
 Four Process Strategy
Process Strategies
 How to produce a product or provide a service that
 Meets or exceeds customer requirements
 Meets cost and managerial goals
 Has long term effects on
 Efficiency and production flexibility
 Costs and quality
Four Basic Strategies
 Process focus
 Repetitive focus
 Product focus
 Mass customization
Within these basic strategies there are many ways they may be implemented
 Process Focus

 Facilities are organized around specific activities or processes

 General purpose equipment and skilled personnel
 High degree of product flexibility
 Typically, high costs and low equipment utilization
 Product flows may vary considerably making planning and scheduling a
challenge
 Process Focus
Hospital
Many inputs
(surgeries, sick patients,
baby deliveries, emergencies)

High variety of outputs

(uniquely treated patients)
 Repetitive Focus

 Facilities often organized as assembly lines

 Characterized by modules with parts and assemblies made previously
 Modules may be combined for many output options
 Less flexibility than process-focused facilities but more efficient
 Repetitive Focus

Automobile Assembly Line

Raw materials and
component inputs

Modules

Modules combined for

many output options
 Product Focus
 High-volume, low-variety
 The facilities are organized around products
 Long, continuous production runs enable efficient processes
 Typically, high fixed cost but low variable cost
 Generally, less skilled labor required than in Process Focused
 Product Focus
Potato Chips Manufacturing Plant
Few inputs
(corn, potatoes, water,
seasoning)

Output variation in size, shape,

and packaging
 Mass Customization

 Low-cost, high-volume, efficient production of individually customized

offerings
 Producing goods and services to meet individual customer’s need with near
mass production efficiency
 Achieves economies of scope
 Typically, high fixed cost but low variable cost
 Mass Customization

Computer Manufacturing
Many parts and component inputs

Many modules

Many output versions

 Comparison of Process Choices Part A

Comparisons Between:
 Process focus

 Repetitive focus

 Product focus

 Mass customization
 Comparison of Process Choices Part A

Process Focus Repetitive Focus Product Focus Mass

(Low volume, (Modular) (High-volume, Customization
high variety) low-variety) (High-volume,
high-variety)

Small quantity, Long runs, Large quantity, Large quantity,

large variety of standardized small variety of large variety of
products product made products products
from modules

General purpose Special Special purpose Rapid changeover

equipment equipment aids in equipment on flexible
use of assembly equipment
line

Operators are Employees are Operators are Flexible operators

broadly skilled modestly trained less broadly are trained for the
skilled necessary
customization
 Comparison of Process Choices Part A

Process Focus Repetitive Focus Product Focus Mass

(Low volume, (Modular) (High-volume, Customization
high variety) low-variety) (High-volume,
high-variety)

Many job Repetition Few work orders Custom orders

instructions as reduces training and job require many job
each job and changes in instructions instructions
changes job instructions because jobs
standardized

Raw material JIT procurement Raw material Raw material

inventories high techniques used inventories are inventories are
low low

Work-in-process JIT inventory Work-in-process Work-in-process

is high techniques used inventory is low inventory driven
down by JIT, lean
production
 Comparison of Process Choices Part B

Comparisons Between:
 Process focus

 Repetitive focus

 Product focus

 Mass customization
 Comparison of Process Choices Part B

Process Focus Repetitive Focus Product Focus Mass

(Low volume, (Modular) (High-volume, Customization
high variety) low-variety) (High-volume,
high-variety)

Units move slowly Movement is Swift movement of Goods move swiftly

through the plant measured in hours unit through the through the facility
and days facility is typical

Finished goods Finished goods made Finished goods made Finished goods often
made to order to frequent forecast to forecast and stored made to order

Scheduling is Scheduling based on Relatively simple Sophisticated

complex, trade-offs building various scheduling, scheduling required
between inventory, models from modules establishing output to accommodate
availability, to forecasts rate to meet forecasts customer orders
customer service
 Comparison of Process Choices Part B

Process Focus Repetitive Focus Product Focus Mass

(Low volume, (Modular) (High-volume, Customization
high variety) low-variety) (High-volume,
high-variety)

Fixed costs low, Fixed costs Fixed costs high, Fixed costs high,
variable costs dependent on variable costs low variable costs
high flexibility of the must be low
facility

Costing Costs usually High fixed costs High fixed costs

estimated before known due to mean costs and dynamic
job, not known extensive dependent on variable costs
until after job is experience utilization of make costing a
complete capacity challenge
 Flow Diagram

Process Flow Diagram is a schematic or drawing of the movement of

material, product, or people.
 Flow Diagram

Customer

Purchasing Customer sales

representative

Vendors
PREPRESS DEPT
Accounting Receiving
PRINTING DEPT
Warehouse
COLLATING GLUING, BINDING,
DEPT STAPLING, LABELING

Information flow
POLYWRAP DEPT
Material flow

SHIPPING
 Flow Diagram

Frame tube Frame-building Frame Hot-paint

bending work cells machining frame painting
THE ASSEMBLY LINE
TESTING Engines and
Incoming parts transmissions
28 tests

Air cleaners Oil tank work cell

Fluids and mufflers Shocks and forks

Fuel tank work cell Handlebars

Wheel work cell Fender work cell

Roller testing
Crating
 Time-function Mapping

Time-function mapping (or process mapping) is a modified flowchart

with time added on the horizontal axis.
 Time-function Mapping

Order Receive
Customer product product

Process
Sales order

Production Wait
control

Plant A Print

Warehouse Wait Wait Wait

Plant B Extrude

Transport Move Move

12 days 13 days 1 day 4 days 1 day 10 days 1 day 0 day 1 day

52 days
 Time-function Mapping

Order Receive
Customer product product

Process
Sales order

Production
control Wait

Plant Print Extrude

Warehouse Wait

Transport Move

1 day 2 days 1 day 1 day 1 day

6 days
 Process Charts

Process charts use symbols, time, and distance to provide an objective and
structured way to analyze and record the activities that make up a process.
Process Charts
 Service Blueprint

Service Blueprint
 Focuses on the customer and provider interaction
 Defines three levels of interaction
 Each level has different management issues
 Identifies potential failure points
 Service Blueprint

Personal Greeting Service Diagnosis Perform Service Friendly Close

Level Customer arrives
#1 for service Customer departs

Notify Customer pays bill

Determine
Warm greeting specifics customer
and obtain No and recommend
service request an alternative
Level Standard provider
#2 Can
request service be
Direct done and does
customer to No
customer
waiting room approve? Notify
customer the
car is ready

Yes Yes Perform

Level required work
#3

Potential failure point

Prepare invoice
 Service Process Design
Degree of Customization
Low High
Mass Service Professional Service
Private
banking
Commercial
banking
High General-
Full-service purpose law firms
Degree of Labor

stockbroker
Boutiques
Retailing

Service Factory Law clinics Service Shop

Limited-service Specialized
stockbroker hospitals
Warehouse and Fast food Fine-dining
Low catalog stores restaurants restaurants Hospitals

Airlines

No frills
airlines
 Service Process Design
Improving Service Productivity
Strategy Technique Example
Separation Structure service so Bank customers go to
customers must go a manager to open a
where service is new account, to loan
offered officers for loans, and
to tellers for deposits

Self-service Self-service so Supermarkets and

customers examine, department stores,
compare, and internet ordering
evaluate at their own
pace
 Service Process Design

Strategy Technique Example

Postponement Customizing at Customizing vans at
delivery delivery rather than
at production
Focus Restricting the Limited-menu
offerings restaurant
Modules Modular selection of Investment and
service, modular insurance selection,
production prepackaged food
modules in
restaurants
 Service Process Design

Strategy Technique Example

Automation Precise personnel Automatic teller
scheduling machines
Scheduling Precise personnel Scheduling ticket
scheduling counter personnel at
15-minute intervals
at airlines
Training Clarifying the service Investment
options, explaining counselor, funeral
how to avoid directors, after-sale
problems maintenance
personnel