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Copyright 2009 John Wiley & Sons, Inc.
Introduction to Operations and
Supply Chain Management
Chapter 1
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Lecture Outline
What Operations and Supply ChainManagers Do
Operations Function Evolution of Operations and Supply Chain
Management Globalization and Competitiveness Operations Strategy
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What Operations and
Supply Chain Managers Do What is Operations Management?
design, operation, and improvement of productivesystems
What is Operations? a function or system that transforms inputs into outputs of
greater value
What is a Transformation Process? a series of activities along a value chain extending from
supplier to customer
activities that do not add value are superfluous andshould be eliminated
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Copyright 2009 John Wiley & Sons, Inc. 1-4
Physical: as in manufacturing operations
Locational: as in transportation orwarehouse operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication
Transformation Process
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Copyright 2009 John Wiley & Sons, Inc. 1-5
INPUTMaterial
Machines
Labor
Management
Capital
TRANSFORMATION
PROCESS
OUTPUT
Goods
Services
Feedback & Requirements
Operations as a
Transformation Process
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Copyright 2009 John Wiley & Sons, Inc. 1-6
Operations Function
Operations
Marketing
Finance andAccounting
Human
Resources Outside
Suppliers
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How is Operations Relevant to my
Major?
Accounting
Information
Technology
Management
As an auditor you must
understand the fundamentals of
operations management. IT is a tool, and theres no better
place to apply it than inoperations.
We use so many things youlearn in an operations classscheduling, lean production,theory of constraints, and tons ofquality tools.
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8/84Copyright 2009 John Wiley & Sons, Inc. 1-8
How is Operations Relevant to my
Major? (cont.)
Economics
Marketing
Finance
Its all about processes. I liveby flowcharts and Pareto
analysis. How can you do a good job
marketing a product if youreunsure of its quality or deliverystatus?
Most of our capital budgetingrequests are from operations,and most of our cost savings,too.
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9/84Copyright 2009 John Wiley & Sons, Inc. 1-9
Evolution of Operations and
Supply Chain Management Craft production
process of handcrafting products or
services for individual customers Division of labor
dividing a job into a series of small taskseach performed by a different worker
Interchangeable parts standardization of parts initially as
replacement parts; enabled massproduction
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Scientific management
systematic analysis of work methods Mass production
high-volume production of a standardizedproduct for a mass market
Lean production adaptation of mass production that prizes
quality and flexibility
Evolution of Operations and
Supply Chain Management (cont.)
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Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Industrial
Revolution
Steam engine 1769 James Watt
Division of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney
Scientific
Management
Principles of scientific
management1911 Frederick W. Taylor
Time and motion studies 1911Frank and Lillian
GilbrethActivity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford
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12/84Copyright 2009 John Wiley & Sons, Inc. 1-12
Historical Events in
Operations Management (cont.)Era Events/Concepts Dates Originator
HumanRelations
Hawthorne studies 1930 Elton Mayo
Motivation theories 1940s Abraham Maslow1950s Frederick Herzberg
1960s Douglas McGregor
Operations
Research
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waitingline theory, decision
theory, PERT/CPM
1950sOperations researchgroups
MRP, EDI, EFT, CIM1960s,1970s
Joseph Orlicky, IBM
and others
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Historical Events in
Operations Management (cont.)
Era Events/Concepts Dates Originator
Quality
Revolution
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total qualitymanagement)
1980s W. Edwards Deming,Joseph Juran
Strategy and
operations1980s
Wickham Skinner,
Robert Hayes
Business process
reengineering 1990s
Michael Hammer,
James Champy
Six Sigma 1990s GE, Motorola
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Historical Events in
Operations Management (cont.)Era Events/Concepts Dates OriginatorInternet
Revolution
Internet, WWW, ERP,supply chain management
1990s ARPANET, Tim
Berners-Lee SAP,i2 Technologies,
ORACLEE-commerce 2000s Amazon, Yahoo,
eBay, Google, and
othersGlobalization WTO, European Union,
and other tradeagreements, global supplychains, outsourcing, BPO,
Services Science
1990s
2000s
Numerous countries
and companies
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Evolution of Operations and
Supply Chain Management (cont.) Supply chain management
management of the flow of information, products, and services across
a network of customers, enterprises, and supply chain partners
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Globalization and
Competitiveness Why go global?
favorable cost
access to international markets
response to changes in demand
reliable sources of supply
latest trends and technologies
Increased globalization
results from the Internet and falling tradebarriers
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Globalization and
Competitiveness (cont.)
Hourly Compensation Costs for Production Workers
Source: U.S. Bureau of Labor Statistics, 2005.
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Globalization and
Competitiveness (cont.)
World Population Distribution
Source: U.S. Census Bureau, 2006.
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Globalization and
Competitiveness (cont.)
Trade in Goods as % of GDP
(sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
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India at your service
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Productivity and
Competitiveness Competitiveness
degree to which a nation can produce goods andservices that meet the test of international
markets Productivity
ratio of output to input
Output sales made, products produced, customers
served, meals delivered, or calls answered Input
labor hours, investment in equipment, materialusage, or square footage
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Measures of Productivity
Productivity and
Competitiveness (cont.)
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Productivity and
Competitiveness (cont.)
Average Annual Growth Rates in Productivity, 1995-2005.
Source: Bureau of Labor Statistics. A Chartbook ofInternational Labor Comparisons. January 2007, p. 28.
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Productivity and
Competitiveness (cont.)
Average Annual Growth Rates in Output and Input, 1995-2005
Source: Bureau of Labor Statistics. A Chartbook of InternationalLabor Comparisons, January 2007, p. 26.
Dramatic Increase in
Output w/ Decrease in
Labor Hours
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Retrenching
productivity is increasing, but both output and input
decrease with input decreasing at a faster rate
Assumption that more input would causeoutput to increase at the same rate
certain limits to the amount of output may not beconsidered
output produced is emphasized, not output sold;increased inventories
Productivity and
Competitiveness (cont.)
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Strategy Provides direction for achieving a mission
Five Steps for Strategy Formulation Defining a primary task
What is the firm in the business of doing?
Assessing core competencies What does the firm do better than anyone else?
Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What wins the order?
Positioning the firm How will the firm compete?
Deploying the strategy
Strategy and Operations
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Strategic Planning
Mission
and Vision
Corporate
Strategy
Operations
Strategy
Marketing
Strategy
Financial
Strategy
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Order Winners
and Order Qualifiers
Source:Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and AlanBetts, Operations and Process Management, Prentice Hall, 2006, p. 47
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Positioning the Firm
Cost
Speed
Quality
Flexibility
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Positioning the Firm:
Cost Waste elimination
relentlessly pursuing the removal of all waste
Examination of cost structure looking at the entire cost structure for
reduction potential
Lean production
providing low costs through disciplinedoperations
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Copyright 2009 John Wiley & Sons, Inc. 1-31
Positioning the Firm:
Speed fast moves, fast adaptations, tight linkages Internet
conditioned customers to expect immediate responses
Service organizations always competed on speed (McDonalds, LensCrafters, and
Federal Express)
Manufacturers time-based competition: build-to-order production and
efficient supply chains Fashion industry
two-week design-to-rack lead time of Spanish retailer, Zara
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Copyright 2009 John Wiley & Sons, Inc. 1-32
Positioning the Firm:
Quality Minimizing defect rates or conforming to
design specifications; please the customer
Ritz-Carlton - one customer at a time Service system is designed to move heaven
and earth to satisfy customer
Every employee is empowered to satisfy a
guests wish Teams at all levels set objectives and devise
quality action plans
Each hotel has a quality leader
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Positioning the Firm:
Flexibility ability to adjust to changes in product mix,
production volume, or design
National Bicycle Industrial Company offers 11,231,862 variations delivers within two weeks at costs only 10%
above standard models mass customization: the mass production of
customized parts
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Policy Deployment
Policy deployment
translates corporate strategy into measurable
objectives
Hoshins
action plans generated from the policydeployment process
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Policy Deployment
Derivation of an Action Plan Using Policy Deployment
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Balanced Scorecard
Balanced scorecard
measuring more than financial performance
finances
customers
processes
learning and growing
Key performance indicators a set of measures that help managers evaluate
performance in critical areas
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Balanced Scorecard
BalancedScorecard Worksheet
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Balanced Scorecard
Radar Chart Dashboard
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Operations Strategy
Products
Services Process
and
Technology
Capacity
Human
Resources Quality
Facilities Sourcing Operating
Systems
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Organization of This Text:
Part I
Operations Management Intro. to Operations and
Supply Chain Management: Chapter 1
Quality Management: Chapter 2 Statistical Quality Control: Chapter 3
Product Design: Chapter 4
Service Design: Chapter 5
Processes and Technology: Chapter 6 Facilities: Chapter 7
Human Resources: Chapter 8
Project Management: Chapter 9
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Supply Chain
Strategy and Design: Chapter 10
Global Supply ChainProcurement and Distribution: Chapter 11
Forecasting: Chapter 12
Inventory Management: Chapter 13
Sales andOperations Planning: Chapter 14
Resource Planning: Chapter 15
Lean Systems: Chapter 16
Scheduling: Chapter 17
Organization of This Text:
Part II
Supply Chain Management
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Copyright 2009 John Wiley & Sons, Inc. 1-42
Learning Objectives of
this Course Gain an appreciation of strategic importance
of operations and supply chain management
in a global business environment Understand how operations relates to other
business functions
Develop a working knowledge of concepts
and methods related to designing andmanaging operations and supply chains
Develop a skill set for quality and processimprovement
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Copyright 2009 John Wiley & Sons, Inc. 1-43
Copyright 2009 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this
work beyond that permitted in section 117 of the 1976United States Copyright Act without express permission
of the copyright owner is unlawful. Request for further
information should be addressed to the Permission
Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and
not for distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages caused
by the use of these programs or from the use of the
information herein.
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Copyright 2009 John Wiley & Sons, Inc. 1-44
Lecture Outline
What Operations and Supply ChainManagers Do
Operations Function Evolution of Operations and Supply Chain
Management Globalization and Competitiveness
Operations Strategy and Organization of the Text Learning Objectives for This Course
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What Operations and
Supply Chain Managers Do What is Operations Management?
design, operation, and improvement of productivesystems
What is Operations? a function or system that transforms inputs into outputs of
greater value
What is a Transformation Process?
a series of activities along a value chain extending fromsupplier to customer
activities that do not add value are superfluous andshould be eliminated
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Copyright 2009 John Wiley & Sons, Inc. 1-46
Physical: as in manufacturing operations
Locational: as in transportation orwarehouse operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication
Transformation Process
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Copyright 2009 John Wiley & Sons, Inc. 1-47
INPUT
Material
Machines
Labor
Management
Capital
TRANSFORMATION
PROCESS
OUTPUT
Goods
Services
Feedback & Requirements
Operations as a
Transformation Process
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Operations Function
Operations
Marketing
Finance andAccounting
Human
Resources Outside
Suppliers
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Copyright 2009 John Wiley & Sons, Inc. 1-49
How is Operations Relevant to myMajor?
Accounting
Information
Technology
Management
As an auditor you must
understand the fundamentals of
operations management. IT is a tool, and theres no better
place to apply it than inoperations.
We use so many things youlearn in an operations classscheduling, lean production,theory of constraints, and tons ofquality tools.
7/28/2019 operation engine
50/84
Copyright 2009 John Wiley & Sons, Inc. 1-50
How is Operations Relevant to myMajor? (cont.)
Economics
Marketing
Finance
Its all about processes. I liveby flowcharts and Paretoanalysis.
How can you do a good jobmarketing a product if youreunsure of its quality or deliverystatus?
Most of our capital budgetingrequests are from operations,and most of our cost savings,too.
7/28/2019 operation engine
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Copyright 2009 John Wiley & Sons, Inc. 1-51
Evolution of Operations andSupply Chain Management
Craft production process of handcrafting products or
services for individual customers
Division of labor dividing a job into a series of small tasks
each performed by a different worker
Interchangeable parts standardization of parts initially as
replacement parts; enabled massproduction
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Copyright 2009 John Wiley & Sons, Inc. 1-52
Scientific management
systematic analysis of work methods
Mass production
high-volume production of a standardizedproduct for a mass market
Lean production adaptation of mass production that prizes
quality and flexibility
Evolution of Operations andSupply Chain Management (cont.)
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Copyright 2009 John Wiley & Sons, Inc. 1-53
Historical Events in
Operations ManagementEra Events/Concepts Dates Originator
Industrial
Revolution
Steam engine 1769 James Watt
Division of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney
Scientific
Management
Principles of scientific
management1911 Frederick W. Taylor
Time and motion studies 1911Frank and LillianGilbreth
Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford
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Copyright 2009 John Wiley & Sons, Inc. 1-54
Historical Events in
Operations Management (cont.)Era Events/Concepts Dates Originator
Human
Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories
1940s Abraham Maslow
1950s Frederick Herzberg
1960s Douglas McGregor
OperationsResearch
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
line theory, decision
theory, PERT/CPM
1950s Operations researchgroups
MRP, EDI, EFT, CIM1960s,1970s
Joseph Orlicky, IBM
and others
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Copyright 2009 John Wiley & Sons, Inc. 1-55
Historical Events in
Operations Management (cont.)Era Events/Concepts Dates Originator
Quality
Revolution
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total qualitymanagement)
1980s W. Edwards Deming,Joseph Juran
Strategy and
operations1980s
Wickham Skinner,
Robert Hayes
Business process
reengineering1990s
Michael Hammer,
James ChampySix Sigma 1990s GE, Motorola
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Copyright 2009 John Wiley & Sons, Inc. 1-56
Historical Events in
Operations Management (cont.)Era Events/Concepts Dates OriginatorInternet
Revolution
Internet, WWW, ERP,supply chain management
1990s ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLEE-commerce 2000s Amazon, Yahoo,
eBay, Google, and
othersGlobalization WTO, European Union,and other tradeagreements, global supplychains, outsourcing, BPO,Services Science
1990s
2000s
Numerous countries
and companies
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Evolution of Operations andSupply Chain Management (cont.)
Supply chain management
management of the flow of information, products, and services across
a network of customers, enterprises, and supply chain partners
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Globalization andCompetitiveness
Why go global?
favorable cost
access to international markets response to changes in demand
reliable sources of supply
latest trends and technologies
Increased globalization
results from the Internet and falling tradebarriers
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Globalization and
Competitiveness (cont.)
Hourly Compensation Costs for Production Workers
Source: U.S. Bureau of Labor Statistics, 2005.
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Globalization and
Competitiveness (cont.)
World Population Distribution
Source: U.S. Census Bureau, 2006.
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Globalization and
Competitiveness (cont.)
Trade in Goods as % of GDP
(sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
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Productivity and
Competitiveness Competitiveness
degree to which a nation can produce goods andservices that meet the test of international
markets Productivity
ratio of output to input
Output sales made, products produced, customers
served, meals delivered, or calls answered
Input labor hours, investment in equipment, material
usage, or square footage
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Measures of Productivity
Productivity andCompetitiveness (cont.)
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Productivity and
Competitiveness (cont.)
Average Annual Growth Rates in Productivity, 1995-2005.
Source: Bureau of Labor Statistics. A Chartbook ofInternational Labor Comparisons. January 2007, p. 28.
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Productivity and
Competitiveness (cont.)
Average Annual Growth Rates in Output and Input, 1995-2005
Source: Bureau of Labor Statistics. A Chartbook of InternationalLabor Comparisons, January 2007, p. 26.
Dramatic Increase in
Output w/ Decrease in
Labor Hours
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Copyright 2009 John Wiley & Sons, Inc. 1-66
Retrenching
productivity is increasing, but both output and input
decrease with input decreasing at a faster rate Assumption that more input would cause
output to increase at the same rate
certain limits to the amount of output may not be
considered
output produced is emphasized, not output sold;increased inventories
Productivity andCompetitiveness (cont.)
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Copyright 2009 John Wiley & Sons, Inc. 1-67
Strategy Provides direction for achieving a mission
Five Steps for Strategy Formulation Defining a primary task
What is the firm in the business of doing?
Assessing core competencies What does the firm do better than anyone else?
Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What wins the order?
Positioning the firm How will the firm compete?
Deploying the strategy
Strategy and Operations
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Strategic Planning
Mission
and Vision
Corporate
Strategy
Operations
Strategy
Marketing
Strategy
Financial
Strategy
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Order Winnersand Order Qualifiers
Source:Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and AlanBetts, Operations and Process Management, Prentice Hall, 2006, p. 47
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Positioning the Firm
Cost
Speed
Quality
Flexibility
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Positioning the Firm:Cost
Waste elimination relentlessly pursuing the removal of all waste
Examination of cost structure looking at the entire cost structure for
reduction potential
Lean production
providing low costs through disciplinedoperations
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Copyright 2009 John Wiley & Sons, Inc. 1-72
Positioning the Firm:Speed
fast moves, fast adaptations, tight linkages Internet
conditioned customers to expect immediate responses
Service organizations always competed on speed (McDonalds, LensCrafters, and
Federal Express)
Manufacturers time-based competition: build-to-order production and
efficient supply chains Fashion industry
two-week design-to-rack lead time of Spanish retailer, Zara
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Copyright 2009 John Wiley & Sons, Inc. 1-73
Positioning the Firm:Quality
Minimizing defect rates or conforming todesign specifications; please the customer
Ritz-Carlton - one customer at a time Service system is designed to move heaven
and earth to satisfy customer
Every employee is empowered to satisfy aguests wish
Teams at all levels set objectives and devisequality action plans
Each hotel has a quality leader
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Copyright 2009 John Wiley & Sons, Inc. 1-74
Positioning the Firm:Flexibility
ability to adjust to changes in product mix,production volume, or design
National Bicycle Industrial Company offers 11,231,862 variations delivers within two weeks at costs only 10%
above standard models mass customization: the mass production of
customized parts
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Copyright 2009 John Wiley & Sons, Inc. 1-75
Policy Deployment
Policy deployment
translates corporate strategy into measurable
objectives Hoshins
action plans generated from the policydeployment process
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Policy Deployment
Derivation of an Action Plan Using Policy Deployment
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Balanced Scorecard
Balanced scorecard
measuring more than financial performance
finances customers
processes
learning and growing
Key performance indicators a set of measures that help managers evaluate
performance in critical areas
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Balanced Scorecard
BalancedScorecard Worksheet
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Balanced Scorecard
Radar Chart Dashboard
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Operations Strategy
Products
Services Process
and
Technology
Capacity
Human
Resources Quality
Facilities Sourcing Operating
Systems
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Organization of This Text:Part IOperations Management
Intro. to Operations and
Supply Chain Management: Chapter 1
Quality Management: Chapter 2
Statistical Quality Control: Chapter 3
Product Design: Chapter 4
Service Design: Chapter 5
Processes and Technology: Chapter 6
Facilities: Chapter 7
Human Resources: Chapter 8
Project Management: Chapter 9
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Supply Chain
Strategy and Design: Chapter 10
Global Supply Chain
Procurement and Distribution: Chapter 11
Forecasting: Chapter 12
Inventory Management: Chapter 13
Sales and
Operations Planning: Chapter 14
Resource Planning: Chapter 15
Lean Systems: Chapter 16
Scheduling: Chapter 17
Organization of This Text:Part IISupply Chain Management
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Copyright 2009 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this
work beyond that permitted in section 117 of the 1976United States Copyright Act without express permission
of the copyright owner is unlawful. Request for further
information should be addressed to the Permission
Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only andnot for distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages caused
by the use of these programs or from the use of the