Operations ManagementOperations Management

BUSN 6110BUSN 6110

FA1 2013FA1 2013

SyllabusSyllabus• Class 1 (Aug 21): chap 1; chap 2, case study (Introduction, Strategy, Class 1 (Aug 21): chap 1; chap 2, case study (Introduction, Strategy,

Decision Making)Decision Making)• Class 2: (Aug 28):Chap 9/10, Chap 6 (Supply Chain, Quality)Class 2: (Aug 28):Chap 9/10, Chap 6 (Supply Chain, Quality)• Class 3: (Sep 4): Chap 4 , Supplemental readings (Product and Service Class 3: (Sep 4): Chap 4 , Supplemental readings (Product and Service

Design, Processes and Technologies)Design, Processes and Technologies)• Class 4: (Sep 11): Case Study, The Beer Game, Mid Term ExamClass 4: (Sep 11): Case Study, The Beer Game, Mid Term Exam• Class 5: (Sep 18):Chap 7, Chap 13 (Facility Planning ,Project Management, Class 5: (Sep 18):Chap 7, Chap 13 (Facility Planning ,Project Management,

Capacity and Aggregate Planning)Capacity and Aggregate Planning)• Class 6: (Sep 25): Chap 11 (Inventory Management , Forecasting)Class 6: (Sep 25): Chap 11 (Inventory Management , Forecasting)• Class 7: (Oct 2): Supplemental Readings (Reverse Logistics – need “The Class 7: (Oct 2): Supplemental Readings (Reverse Logistics – need “The

Forklifts Have Nothing To Do!” Available in the Lewis and Clark Bookstore)Forklifts Have Nothing To Do!” Available in the Lewis and Clark Bookstore)Chap 10 (Lean/Just in Time/TOC)Chap 10 (Lean/Just in Time/TOC)

• Class 8: (Oct 9) Supply Chain Security, Topics in Supply Chain Management, Class 8: (Oct 9) Supply Chain Security, Topics in Supply Chain Management, Review for Final Exam, Case Study Review Review for Final Exam, Case Study Review

• Class 8: (Oct 16) End of Course Critique, Final ExamClass 8: (Oct 16) End of Course Critique, Final Exam

Additional Text Additional Text

The # 20 SellingWarehousingand Distribution Bookand #1Non-text book Warehousing Book Book on May 23, 2013

GradesGrades

• Attendance/Participation– 20%Attendance/Participation– 20%

• Mid Term – 40%Mid Term – 40%

• Final Exam – 40%Final Exam – 40%

Contact InformationContact Information

• joewalden@supplychainresearch.com• (760) 447-3651(760) 447-3651• Personal backgroundPersonal background

Class Slides and Class Slides and InformationInformation

• www.supplychainresearch.com

• Slides will be posted/updated week Slides will be posted/updated week prior to class – therefore the slides prior to class – therefore the slides currently on the website may change currently on the website may change as new materials come availableas new materials come available

Chapter 1Chapter 1

Introduction to Introduction to Operations Operations ManagementManagement

Operations as a transformation Operations as a transformation processprocess

Operations as a Operations as a basic functionbasic function

Operations as the Operations as the technical coretechnical core

The Operations The Operations FunctionFunction

Operations as a Operations as a Transformation ProcessTransformation Process

INPUT MaterialMachinesLaborManagementCapital

Operations as a Operations as a Transformation ProcessTransformation Process

INPUT MaterialMachinesLaborManagementCapital

TRANSFORMATIONPROCESS

Operations as a Operations as a Transformation ProcessTransformation Process

INPUT MaterialMachinesLaborManagementCapital

OUTPUT GoodsServices

TRANSFORMATIONPROCESS

Operations as a Operations as a Transformation ProcessTransformation Process

FeedbackFeedback

INPUT MaterialMachinesLaborManagementCapital

OUTPUT GoodsServices

TRANSFORMATIONPROCESS

Transformation Transformation ProcessesProcesses

PhysicalPhysical ((manufacturingmanufacturing))LocationalLocational (transportation/ (transportation/

warehouse) warehouse)ExchangeExchange (retail)(retail)PhysiologicalPhysiological (health care)(health care)PsychologicalPsychological (entertainment)(entertainment)InformationalInformational (communications)(communications)

Impacts on Operations Impacts on Operations Management Management

Industrial RevolutionIndustrial Revolution Scientific ManagementScientific Management Human Relations or the lack thereofHuman Relations or the lack thereof Advent of Management ScienceAdvent of Management Science Quality EmphasisQuality Emphasis Globalization of Supply ChainsGlobalization of Supply Chains Information Age/Internet RevolutionInformation Age/Internet Revolution

Key EventsKey EventsIndustrial RevolutionIndustrial Revolution

Steam engineSteam engine 17691769 James WattJames WattDivision of laborDivision of labor 17761776 Adam SmithAdam SmithInterchangeable partsInterchangeable parts 17901790 Eli WhitneyEli Whitney

Scientific ManagementScientific ManagementPrinciples Frederick W. Taylor 1911Principles Frederick W. Taylor 1911Activity scheduling chart Henry Gantt 1912Activity scheduling chart Henry Gantt 1912Moving assembly lineMoving assembly line Henry Ford 1913Henry Ford 1913

Human RelationsHuman RelationsHawthorne studiesHawthorne studies 19301930 Elton MayoElton MayoMotivation theoriesMotivation theories 1940s1940s Abraham MaslowAbraham Maslow

1950s1950s Frederick HertzbergFrederick Hertzberg1960s1960s Douglas McGregorDouglas McGregor

Management ScienceManagement ScienceLinear programmingLinear programming 19471947 George DantzigGeorge DantzigDigital computerDigital computer 19511951 Remington RandRemington RandSimulation, PERT/CPM, Simulation, PERT/CPM, 1950s1950s Operations researchOperations researchWaiting line theoryWaiting line theory groupsgroupsMRPMRP 1960s1960s Joseph Orlicky, IBMJoseph Orlicky, IBM

Key EventsKey Events

Quality EmphasisQuality EmphasisJITJIT 1970s1970s Taiichi Ohno, ToyotaTaiichi Ohno, ToyotaTQMTQM 1980s1980s W. Edwards Deming,W. Edwards Deming,

Joseph Juran, et. al.Joseph Juran, et. al.Strategy and operationsStrategy and operations Skinner, HayesSkinner, HayesReengineeringReengineering 1990s1990s Hammer, ChampyHammer, ChampyWorld Trade OrganizationWorld Trade Organization 1990s1990s Numerous countriesNumerous countries

and companiesand companies

GlobalizationGlobalizationEuropean Union andEuropean Union and 1970s1970s IBM and othersIBM and othersother trade agreementsother trade agreementsEDI, EFT, CIMEDI, EFT, CIM 1980s1980s

Key EventsKey Events

Information Age/Information Age/Internet RevolutionInternet Revolution

Internet, WWW, ERPInternet, WWW, ERP 1990s1990sSupply chainSupply chain SAP, i2 SAP, i2 management,management, Technologies, Technologies,

ORACLE,ORACLE,E-commerceE-commerce PeopleSoft, Amazon,PeopleSoft, Amazon,

Yahoo, eBay,Yahoo, eBay,and othersand others

Key EventsKey Events

Categories of Categories of E-CommerceE-Commerce

BusinessBusiness

ConsumerConsumer

BusinessBusiness ConsumerConsumer

B2BCommerceone.com

B2CAmazon.com

C2BPriceline.com

C2CeBay.com

Types of B2B TransactionsTypes of B2B Transactions

Buyer Seller

Buyers

Sellers

Buyer

Sellers Buyers Sellers

(a) Electronic Storefront(a) Electronic Storefront (b) Seller’s Auction(b) Seller’s Auction

(c) Buyer’s Auction(c) Buyer’s Auction (d) Exchange or E-Marketplace(d) Exchange or E-Marketplace

In Theory: In Theory: E-Business Promotes:E-Business Promotes:

Better customer relationsBetter customer relationsMore efficient processesMore efficient processesLower cost of materialsLower cost of materialsInformation technology synergyInformation technology synergyBetter and faster decision makingBetter and faster decision making

E-Business Promotes:E-Business Promotes:

New forms of organizationsNew forms of organizationsExpanded supply chainExpanded supply chainHigher customer expectationsHigher customer expectationsNew ways of doing businessNew ways of doing businessGlobalizationGlobalization

CompetitivenessCompetitiveness

The degree to which a nation can The degree to which a nation can produce goods and services that produce goods and services that meet the test of international meet the test of international markets while simultaneously markets while simultaneously maintaining or expanding the real maintaining or expanding the real incomes of its citizens.incomes of its citizens.

Measures of Measures of CompetitivenessCompetitiveness

ProductivityProductivity GDP (Gross domestic product) growthGDP (Gross domestic product) growth Market capitalizationMarket capitalization Technological infrastructureTechnological infrastructure Quality of educationQuality of education Efficiency of governmentEfficiency of government

ProductivityProductivity

Become more efficientBecome more efficient DownsizeDownsize ExpandExpand Retrench Retrench Achieve breakthroughsAchieve breakthroughs

Productivity =Productivity =OutputOutput

InputInput

Productivity improves when firms:Productivity improves when firms:

Barriers to EntryBarriers to Entry

Economies of scaleEconomies of scaleCapital investmentCapital investmentAccess to supply and distribution Access to supply and distribution

channelschannelsLearning curvesLearning curves

Competition Within Competition Within Industries Increases WhenIndustries Increases When

Firms are relatively equal in size Firms are relatively equal in size and resourcesand resources

Products and services are Products and services are standardizedstandardized

Industry growth is slow or Industry growth is slow or exponentialexponential

Chapter 2Chapter 2

Operations Operations StrategyStrategy

The Importance of Clearly The Importance of Clearly Stated Missions/VisionsStated Missions/Visions

“ “one who is confused in purpose one who is confused in purpose cannot respond to his enemy” Sun cannot respond to his enemy” Sun Tzu, Tzu, The Art of WarThe Art of War

  • To know the purpose – there must be a To know the purpose – there must be a

clearly stated mission and vision.clearly stated mission and vision.

Vision, Mission, Vision, Mission, StrategyStrategy

• Mission Statement

• Vision

• Strategy

Clearly Stated Mission???Clearly Stated Mission???

““When you come to a fork in the When you come to a fork in the road, take it.”road, take it.”

Example of A Clearly Example of A Clearly Understood MissionUnderstood Mission

COL Rusling on General Grant: COL Rusling on General Grant: “He made certain his “He made certain his subordinates knew exactly what subordinates knew exactly what he wanted, and why and when he he wanted, and why and when he wanted it.”wanted it.”

Example of A Clearly Example of A Clearly Understood MissionUnderstood Mission

““We endeavor to go to the moon and We endeavor to go to the moon and return safely before the end of this return safely before the end of this decade.”decade.”

- John F. Kennedy- John F. Kennedy

Strategy FormulationStrategy Formulation

• Define a primary taskDefine a primary task• Assess core Assess core

competenciescompetencies• Determine order Determine order

winners & order qualifierswinners & order qualifiers• Positioning the firmPositioning the firm

Internal and External Internal and External AnalysisAnalysis

• SWOT AnalysisSWOT Analysis– StrengthsStrengths– WeaknessesWeaknesses– Opportunities Opportunities – ThreatsThreats

STEEPLE AnalysisSTEEPLE Analysis

• SocietySociety

• TechnologyTechnology

• EconomicEconomic

• EnvironmentEnvironment

• PoliticalPolitical

• LegalLegal

• EthicsEthics

STEEPLE and PMESII-PT

• Social• Technological• Environmental• Economic• Political• Legal • Ethical

• Political• Military• Economic• Social• Information• Infrastructure• Physical environment• Time

© 2011, Joe Walden

Core CompetenciesCore Competencies

• Also known as core capabilitiesAlso known as core capabilities

• Skills that differentiate the service or Skills that differentiate the service or manufacturing firm from competitorsmanufacturing firm from competitors

• Those things that the company does Those things that the company does bestbest

Strategy FormulationStrategy Formulation

• Define a primary taskDefine a primary task• Assess core Assess core

competenciescompetencies• Determine order Determine order

winners & order qualifierswinners & order qualifiers• Positioning the firmPositioning the firm

Competing on CostCompeting on Cost

Eliminate all wasteEliminate all wasteInvest inInvest in

Updated facilities & equipmentUpdated facilities & equipment Streamlining operationsStreamlining operations Training & developmentTraining & development

Competitive Competitive Priorities: CostPriorities: Cost

• Southwest AirlinesSouthwest Airlines– one type of airplane facilitates crew one type of airplane facilitates crew

changes, record-keeping, maintenance, changes, record-keeping, maintenance, and inventory costsand inventory costs

– direct flights mean no baggage direct flights mean no baggage transferstransfers

– $30 million annual savings in travel $30 million annual savings in travel agent commissions by requiring agent commissions by requiring customers to contact the airline directlycustomers to contact the airline directly

Copyright, 2006, John Wiley and Sons

Competing on QualityCompeting on Quality

Please the customerPlease the customerUnderstand customer Understand customer

attitudes toward and attitudes toward and expectations of expectations of quality quality Example: Ritz Carlton

Competing on Competing on FlexibilityFlexibility

Produce wide variety of Produce wide variety of productsproducts

Introduce new productsIntroduce new productsModify existing Modify existing

products quicklyproducts quicklyRespond to Respond to

customer needscustomer needs

Competing on SpeedCompeting on Speed

Fast movesFast movesFast adaptationsFast adaptationsTight linkagesTight linkages

Example: FEDEX, UPS

Operations Role in Operations Role in Corporate StrategyCorporate Strategy

Provide support for overall Provide support for overall strategy of a firmstrategy of a firm

Serve as firm’s distinctive Serve as firm’s distinctive competencecompetence

Must be consistentMust be consistentMust be consistent with overall Must be consistent with overall

strategystrategy

Operations and Wall Operations and Wall StreetStreet

• Comparing operations at a firm with Comparing operations at a firm with competitorscompetitors

• ExampleExample

income per employeeincome per employee

revenue per employeerevenue per employee

inventory turnover inventory turnover

customer turnovercustomer turnover

OperationsOperationsStrategy at Strategy at Wal-MartWal-Mart Provide value for our customersProvide value for our customers

Low prices, everydayLow prices, everyday

Low inventory levelsLow inventory levels

Linked communications between stores

Linked communications between stores

Short flow timesShort flow times

Fast transportation system

Fast transportation system

Cross-dockingCross-docking Focused locationsFocused locations

EDI/satellitesEDI/satellites

Wal-MartWal-Mart

MissionMission

Competitive Competitive PriorityPriority

Operations Operations StrategyStrategy

Operations Operations StructureStructure

Enabling Process Enabling Process and Technologiesand Technologies

Strategy and the Strategy and the InternetInternet

Create a distinctive business Create a distinctive business strategystrategy

Strengthen existing competitive Strengthen existing competitive advantagesadvantages

Integrate new and traditional Integrate new and traditional activitiesactivities

Must provide a unique value to the Must provide a unique value to the customer- Zappos/Amazoncustomer- Zappos/Amazon

Products & ServicesProducts & Services

Make-to-orderMake-to-orderMade to customer specifications Made to customer specifications

after order receivedafter order receivedMake-to-stockMake-to-stock

Made in anticipation of demandMade in anticipation of demandAssemble-to-orderAssemble-to-order

Add options according to Add options according to customer specificationcustomer specification

Processes & TechnologyProcesses & Technology ProjectProject

One-time production of product to One-time production of product to customer ordercustomer order

Batch productionBatch production Process many jobs at same time in batchProcess many jobs at same time in batch

Mass productionMass production Produce large volumes of standard Produce large volumes of standard

product for mass marketproduct for mass market Continuous productionContinuous production

Very high volume commodity productVery high volume commodity product

Decisions in Decisions in OperationsOperations

Capacity & FacilitiesCapacity & FacilitiesHow much capacity to provideHow much capacity to provideSize of capacity changesSize of capacity changesHandling excess demandHandling excess demandHiring/firing Hiring/firing

workersworkersNeed for new Need for new

facilitiesfacilities

FacilitiesFacilities

Best size for facility?Best size for facility?Large or small facilitiesLarge or small facilitiesFacility focusFacility focusFacility locationFacility locationGlobal facilityGlobal facility

Human ResourcesHuman Resources Skill levels requiredSkill levels required Degree of autonomyDegree of autonomy PoliciesPolicies Profit sharingProfit sharing Individual or team workIndividual or team work Supervision methodsSupervision methods Levels of managementLevels of management TrainingTraining

QualityQuality Target levelTarget level MeasurementMeasurement Employee involvementEmployee involvement TrainingTraining Systems needed to ensure qualitySystems needed to ensure quality Maintaining quality awarenessMaintaining quality awareness Evaluating quality effortsEvaluating quality efforts Determining customer perceptionsDetermining customer perceptions

SourcingSourcingDegree of Degree of vertical integrationSupplier selectionSupplier selectionSupplier relationshipSupplier relationshipSupplier qualitySupplier qualitySupplier cooperationSupplier cooperation

Operating SystemsOperating Systems Execute strategy dailyExecute strategy daily Information technology supportInformation technology support Effective planning & control Effective planning & control

systemssystems Alignment of inventory levels, Alignment of inventory levels,

scheduling priorities, & reward scheduling priorities, & reward systemssystems

Policy DeploymentPolicy Deployment

Focuses employees on common Focuses employees on common goals & prioritiesgoals & priorities

Translates strategy into Translates strategy into measurable objectivesmeasurable objectives

Aligns day-to-day decisions with Aligns day-to-day decisions with strategic planstrategic plan

Balanced ScorecardBalanced Scorecard Finance — Finance — How should we look to our How should we look to our

shareholders?shareholders? Customer — Customer — How should we look to our How should we look to our

customers?customers? Processes — Processes — At which business At which business

processes must we excel?processes must we excel? Learning and Growing — Learning and Growing — How will we How will we

sustain our ability to change and sustain our ability to change and improve?improve?

Issues and TrendsIssues and Trends

Global markets, Global markets, sourcing, sourcing, operationsoperations

Virtual companiesVirtual companies Greater choiceGreater choice Emphasis on Emphasis on

serviceservice Speed and Speed and

flexibilityflexibility

Supply chainsSupply chains CollaborationCollaboration Technological Technological

advancesadvances KnowledgeKnowledge Environment Environment

and social and social responsibilitiesresponsibilities

The Dilbert (Dogbert) Solution – Change the Name of the Old Program

Homework Homework

• case studycase study