Operations ManagementOperations Management

BUSN 6110/PROC 5820BUSN 6110/PROC 5820Monday NightMonday Night

SyllabusSyllabus• Class 1 (Aug 18): chap 1; chap 2, case studyClass 1 (Aug 18): chap 1; chap 2, case study• Class 2: (Aug 25) Chap 5, Chap 8Class 2: (Aug 25) Chap 5, Chap 8• Class 3: (Sep 1) chap 10, chap 11, Chap 17(Take home exam)Class 3: (Sep 1) chap 10, chap 11, Chap 17(Take home exam)• Class 4: (Sep 8) Chap 5, Chap 7Class 4: (Sep 8) Chap 5, Chap 7• Class 5: (Sep 15); Chap 9, Chap 12, The Beer GameClass 5: (Sep 15); Chap 9, Chap 12, The Beer Game• Class 6: (Sep 22) Chap 15, Reverse Logistics – need “The Forklifts Class 6: (Sep 22) Chap 15, Reverse Logistics – need “The Forklifts

Have Nothing To Do!” Available in the Lewis and Clark BookstoreHave Nothing To Do!” Available in the Lewis and Clark Bookstore• Class 7: (Sep 29) Cabela’s TourClass 7: (Sep 29) Cabela’s Tour• Class 8: (Oct 6) Chap 13; Chap 16, Chap 4 (take home exam)Class 8: (Oct 6) Chap 13; Chap 16, Chap 4 (take home exam)• Other requirements: Other requirements:

→→visit Harley-Davidson Plant in Kansas City to see visit Harley-Davidson Plant in Kansas City to see operations management in practice and write a 3-5 page paper operations management in practice and write a 3-5 page paper comparing the class slides and readings to the Harley operationscomparing the class slides and readings to the Harley operations

→ → Home Work and QuizzesHome Work and Quizzes

Additional Text Additional Text

The #2 SellingWarehousingand Distribution Bookand #1Non-text book Warehousing Book Book as of Apr 1, 2009

GradesGrades• Homework – 20%Homework – 20%• Mid Term – 35%Mid Term – 35%• Final Exam – 35%Final Exam – 35%• Harley Paper – 5%Harley Paper – 5%• Cabela’s Paper – 5%Cabela’s Paper – 5%

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 TransactionsBuyer 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

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

Globalization and Globalization and CompetitivenessCompetitiveness

• Favorable costFavorable cost• Access to international Access to international

marketsmarkets• Response to changes Response to changes

in demandin demand• Reliable sources of Reliable sources of

supplysupply• 14 major trade 14 major trade

agreements in 1990sagreements in 1990s• Peak: 26% in 2000Peak: 26% in 2000

World Trade Compared to World GDPSource: “Real GDP and Trade Growth of OECD Countries, 2001–03,” International Trade Statistics 2003, World Trade Organization, www.wto.orgCopyright, 2006, John Wiley and Sons

Globalization and Globalization and Competitiveness (cont.)Competitiveness (cont.)

Hourly Wage Rates for Selected CountriesSource: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.

Germany: $26.18

USA: $21.33

Taiwan: $5.41

Mexico: $2.38

China: $0.50Copyright, 2006, John Wiley and Sons

Multinational CorporationsMultinational CorporationsCountryCountry Foreign SalesForeign Sales

CompanyCompany of Originof Origin as % of Totalas % of TotalNestléNestlé SwitzerlandSwitzerland 98.298.2NokiaNokia FinlandFinland 97.697.6PhilipsPhilips NetherlandsNetherlands 94.094.0BayerBayer GermanyGermany 89.889.8ABBABB GermanyGermany 87.287.2SAPSAP GermanyGermany 80.080.0Exxon MobilExxon Mobil United StatesUnited States 79.679.6Royal Dutch/ShellRoyal Dutch/Shell NetherlandsNetherlands 73.373.3IBMIBM United StatesUnited States 62.762.7McDonald’sMcDonald’s United StatesUnited States 61.561.5

CompetitivenessCompetitivenessThe 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.

ProductivityProductivity

Productivity =Productivity =OutputOutputInputInput

ProductivityProductivity

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

Productivity =Productivity =OutputOutputInputInput

Productivity improves when firms:Productivity improves when firms:

Changes in Productivity for Changes in Productivity for Select CountriesSelect Countries

Internet-enabled productivity

- Dot com bust- 9/11 terrorist attacks

Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003. U.S. figures for 2002–2003 from “Major Sector Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004

Copyright, 2006, John Wiley and Sons

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

Barriers to EntryBarriers to EntryEconomies 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

To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.

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

‘ ‘The Grand Duke said “one who is The Grand Duke said “one who is confused in purpose cannot respond confused in purpose cannot respond to his enemy” Sun Tzu, to his enemy” Sun Tzu, The Art of WarThe Art of War (III.23)(III.23)

  • 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.

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

VISIONVISION®®

• Vital to the OrganizationVital to the Organization• Integrated throughout the OrganizationIntegrated throughout the Organization• Sustainable and AchievableSustainable and Achievable• Important from the viewpoint of the Important from the viewpoint of the

employeesemployees• Organization GoalsOrganization Goals• Not necessarily a one size fits all visionNot necessarily a one size fits all vision

Velocity Management in Logistics and Distribution, 2005, Walden

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

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 CostEliminate 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 QualityPlease the customerPlease the customer

Understand 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 products Modify existing products

quicklyquicklyRespond to customer Respond to customer

needsneeds

Competing on SpeedCompeting on Speed

Fast movesFast movesFast adaptationsFast adaptationsTight linkagesTight linkages

Example: FEDEX, UPS, DHL

Competitive Competitive Priorities: SpeedPriorities: Speed• Citicorp Citicorp

– advertises a 15-minute mortgage approvaladvertises a 15-minute mortgage approval• L.L. Bean L.L. Bean

– ships orders the day they are receivedships orders the day they are received• Wal-Mart Wal-Mart

– replenishes its stock twice a week replenishes its stock twice a week • General Electric General Electric

– reduces time to manufacture circuit-breaker boxes into reduces time to manufacture circuit-breaker boxes into three days and dishwashers into 18 hoursthree days and dishwashers into 18 hours

• Motorola Motorola – needs less than 30 minutes to build to order pagersneeds less than 30 minutes to build to order pagers

Copyright, 2006, John Wiley and Sons

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

• ExampleExampleincome per employeeincome per employeerevenue per employeerevenue per employeeinventory turnover inventory turnover customer turnovercustomer turnover

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

Low prices, everyday

Low inventory levels

Linked communications between stores

Short flow times

Fast transportation system

Cross-docking Focused locations

EDI/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 Create a distinctive business strategybusiness strategy

Strengthen existing Strengthen existing competitive advantagescompetitive advantages

Integrate new and Integrate new and traditional activitiestraditional activities

Must provide a unique Must provide a unique value to the customervalue to the customer

Strategic Decisions in Strategic Decisions in OperationsOperations

Products Processes and

Technology

CapacityHuman

Resources Quality

Facilities Sourcing

Services

Operating Systems

Figure 2.2Figure 2.2

Products & ServicesProducts & ServicesMake-to-orderMake-to-order

Made to customer specifications Made to customer specifications after order receivedafter order received

Make-to-stockMake-to-stockMade in anticipation of demandMade in anticipation of demand

Assemble-to-orderAssemble-to-orderAdd 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

Product-Process MatrixProduct-Process MatrixVo

lum

eVo

lum

e

LowLowLowLow HighHigh

HighHigh

Projects

BatchProduction

MassProduction

ContinuousProduction

StandardizationStandardizationFigure 2.3Figure 2.3

Service-Process MatrixService-Process MatrixVo

lum

eVo

lum

e

LowLowLowLow HighHigh

HighHigh

Professional Service

Service Shop

MassService

Service Factory

StandardizationStandardizationFigure 2.4Figure 2.4

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

FacilitiesFacilitiesBest 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 vertical integrationDegree of vertical integrationSupplier selectionSupplier selectionSupplier relationshipSupplier relationshipSupplier qualitySupplier qualitySupplier cooperationSupplier cooperation

Operating SystemsOperating Systems Execute strategy dailyExecute strategy daily Information technology Information technology

supportsupport Effective planning & control Effective planning & control

systemssystems Alignment of inventory Alignment of inventory

levels, scheduling priorities, levels, scheduling priorities, & reward systems& reward systems

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

Supplement to Chapter Supplement to Chapter 22

Decision AnalysisDecision Analysis• Payoff Table - craps tablesPayoff Table - craps tables• MaximaxMaximax - maximum of maximum payoffs - maximum of maximum payoffs

- optimistic - “hard ways”- optimistic - “hard ways”• MaximinMaximin - maximum of minimum payoffs - - maximum of minimum payoffs -

safe bets or even odds betssafe bets or even odds bets• Minimax regretMinimax regret - minimum of maximum - minimum of maximum

regrets or opportunity costsregrets or opportunity costs

Decision TreesDecision Trees• Graphical method of analyzing a Graphical method of analyzing a

decision - similar to Theory of decision - similar to Theory of ConstraintsConstraints

• Payoff table can be translated to a Payoff table can be translated to a Decision TreeDecision Tree

The Payoff TableThe Payoff TableA method of organizing & illustrating A method of organizing & illustrating

the payoffs from different decisions the payoffs from different decisions given various states of naturegiven various states of nature

A payoff is the outcome of the A payoff is the outcome of the decision – a Craps table pay off chart decision – a Craps table pay off chart is an example of a payoff chart is an example of a payoff chart

Payoff TablePayoff Table

States Of NatureStates Of Nature(Alternatives)(Alternatives)

DecisionDecision aa bb11 Payoff 1/aPayoff 1/a Payoff 1/bPayoff 1/b22 Payoff 2/aPayoff 2/a Payoff 2/bPayoff 2/b

STATES OF NATURESTATES OF NATURE

Good ForeignGood Foreign Poor ForeignPoor ForeignDECISIONDECISION Competitive ConditionsCompetitive Conditions Competitive ConditionsCompetitive Conditions

ExpandExpand $ 800,000$ 800,000 $ 500,000$ 500,000Maintain status quoMaintain status quo 1,300,0001,300,000 -150,000-150,000Sell nowSell now 320,000320,000 320,000320,000

Maximums: 1,300,0001,300,000; 500,000

Minimums: 500,000; 320,000320,000; -150,000

Homework Homework • Motel 6 case study – one page Motel 6 case study – one page

analysisanalysis•