Operations management, 9e by krajewski itzman malhotra chapter 01

Operations Managementcontrol of processes that transform inputs into services and products for internals, as well as external, customers supply chain – interrelated processes within a fi

C OMPETING WITH

O PERATIONS

1

Operations Management

control of processes that transform inputs into services and products for internals, as well as external, customers

supply chain – interrelated processes within a firms and across different firms that produce a service or product to the satisfaction of the customers

Across the Organization

Material &

Service Inputs Revenue Sales

Finance

Acquires financial resources and capital

A Process View

External environment

Information on performance

Internal and external

customers

Processes and operations 1

2

3 4

A Process View

• Physical, durable output

• Output can be inventoried

• Low customer contact

• Long response time

• Capital intensive

• Intangible, perishable output

• Output cannot be inventoried

• High customer contact

• Short response time

• Labor intensive

More like a manufacturing process

More like a service process

The Supply Chain View

New service/

product development

Order fulfillment process

Customer relationship management

Figure 1.4

The Supply Chain View

deliver value to external customers

1 Supplier relationship process

2 New service/product development process

3 Order fulfillment process

4 Customer relationship process

resources and inputs to the core processes

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

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 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

Operations Strategy

implements corporate strategy and helps build a customer-driven firm

direction that serves as the framework for carrying out all the organization's functions

Yes

3 Market and financial know-how

4 Systems and technologies

Market Analysis

 Service or product needs

 Delivery system needs

 Volume needs

 Other needs

Competitive Priorities

TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

PRIORITIES COST Definition Process Considerations Example

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

McDonald’s

TIME

4 Delivery speed Quickly filling a

customer’s order Design processes to reduce lead time Dell

5 On-time

delivery Meeting delivery-time promises Planning processes to increase percent of customer orders United Parcel Service (UPS)

Competitive Priorities

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

in demand

Processes must be designed for excess capacity The United States Postal Service

(USPS)

Order Winners and Qualifiers

Using Competitive Priorities

Using Competitive Priorities

Using Competitive Priorities

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 Consistent quality  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

Trends in Operations Management

issues

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

a Labor productivity = Policies processed

Employee hours

600 policies

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

 Calculate the year-to-date labor productivity:

 Calculate the multifactor productivity:

This Year Last Year Year Before Last Factory unit sales ($) 2,762,103 2,475,738 2,175,447

= 24.66/hr 112,000

Last Year 2,475,738

= 21.91/hr 113,000

Year Before Last 2,175,447

= $18.91/hr 115,000

2 Each function is

connected through shared resources

Competing with Operations

Project Management USING OPERATIONS TO COMPETE

Process Strategy Process Analysis Quality and Performance Capacity Planning Lean Systems MANAGING PROCESSES

Supply Chain Design Supply Chain Integration

Location Inventory Management Forecasting Operations Planning and Scheduling

Resource Planning MANAGING SUPLY CHAINS

Figure 1.7

Challenges in OM

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?

Solved Problem 1

SOLUTION

a Multifactor productivity is the ratio of the value of output to

the value of input resources.

Value of output = 50 student

class

$150 tuition +

$100 state support credit hour

3 credit hours student

Value of inputs = Labor + Materials + Overhead

= $37,500/class

= $4,000 + ($20/student × 50 students/class) + $25,000

= $30,000/class

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

Labor productivity = = $45,000/class

224 hours/class

Output Input

= 224 hours/class

= $200.89/hour

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 Attire’s 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?

Value of output = (52 defective × 90/defective)

+ (80 garments × 200/garment)

= $20,680

= $57.44 in sales per hour