Chapter 1. Introduction to Operations and Supply Chain Management 1-1

Transcription

1 Chapter 1 Introduction to Operations and Supply Chain Management 1-1

2 Lecture Outline Why do we need to study Production & Operations Management? What Operations and Supply Chain Managers Do? The Operations Function Evolution of Operations and Supply Chain Management Globalization Productivity and Competitiveness Strategy and Operations Learning Objectives for This Course Copyright 2011 John Wiley & Sons, Inc. 1-2

3 Why do we need to study POM? It is not my major?!! You ll be able to use the ideas in this course to organize work, ensure quality, and manage processes. Regardless of your major, you can still apply some aspects of operations management to your future career. In general, operations brings together many disciplines and provides an integrated view of business organizations. Copyright 2011 John Wiley & Sons, Inc. 1-3

4 Why do we need to study POM? Understand how some of the giant companies like Apple and Toyota manage their operations in order to remain competitive in today s global market. $153 billion $21.8 billion Copyright 2011 John Wiley & Sons, Inc.

5 How is Operations Relevant to my Major? Accounting Information Technology As an auditor you must understand the fundamentals of operations management. IT is a tool, and there s no better place to apply it than in operations. Management We use so many things you learn in an operations class scheduling, lean production, theory of constraints, and tons of quality tools. Copyright 2011 John Wiley & Sons, Inc. 1-5

6 How is Operations Relevant to my Major? Economics Marketing Finance It s all about processes. I live by flowcharts and Pareto analysis. How can you do a good job marketing a product if you re unsure of its quality or delivery status? Most of our capital budgeting requests are from operations, and most of our cost savings, too. Copyright 2011 John Wiley & Sons, Inc. 1-6

7 What Operations and Supply Chain Managers Do What is Operations Management? It is the study of processes directly related to the creation and distribution of goods and services. What is Operations? A function or system that transforms inputs into outputs of greater value. Operation is often defined as a transformation process. 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 and should be eliminated (non-value adding activities). Copyright 2011 John Wiley & Sons, Inc. 1-7

8 Operations as a Transformation Process INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services Feedback & Requirements Copyright 2011 John Wiley & Sons, Inc. 1-8

9 Transformation Process Physical: as in manufacturing operations Locational: as in transportation or warehouse operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication Copyright 2011 John Wiley & Sons, Inc. 1-9

10 Activities in OM includes: Operations Function Organizing & scheduling work Selecting processes Designing jobs Planning production Managing inventory Arranging layouts Locating facilities Measuring performance Controlling quality The four primary functional areas of a firm are: marketing, finance, operations and human resources. Copyright 2011 John Wiley & Sons, Inc. 1-10

11 Operations Function Copyright 2011 John Wiley & Sons, Inc. 1-11

12 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 tasks each performed by a different worker Interchangeable parts Standardization of parts initially as replacement parts; enabled mass production (Ex. Honda) Copyright 2011 John Wiley & Sons, Inc.

13 Evolution of Operations and Supply Chain Management Scientific management (SM) Systematic analysis of work methods Identifies the best method for performing each job Mass production High-volume production of a standardized product for a mass market Lean production Adaptation of mass production that prizes quality and flexibility Copyright 2011 John Wiley & Sons, Inc. 1-13

14 Snapshot Henry Ford applied SM to the production of the model T in He reduced the assembly time per car from 728 hrs to 1.5 hrs. How? Model T Chassis moves slowly down a conveyor belt with 6 workers walking alongside it. Workers pick up parts from carefully spaced piles on the floor and fit them to the chassis. The short assembly time allowed this model to be produced in high volumes or mass production. Copyright 2011 John Wiley & Sons, Inc. 1-14

15 Historical Events in Operations Management Era Events/Concepts Dates Originator Industrial Revolution Scientific Management Steam engine 1769 James Watt Division of labor 1776 Adam Smith Interchangeable parts 1790 Eli Whitney Principles of scientific management Time and motion studies Frederick W. Taylor Frank and Lillian Gilbreth Activity scheduling chart 1912 Henry Gantt Moving assembly line 1913 Henry Ford Copyright 2011 John Wiley & Sons, Inc. 1-15

16 Historical Events in Operations Management Era Events/Concepts Dates Originator Human Relations Operations Research Hawthorne studies 1930 Elton Mayo 1940s Abraham Maslow Motivation theories 1950s Frederick Herzberg 1960s Douglas McGregor Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, waiting Operations research line theory, decision 1950s groups theory, PERT/CPM MRP, EDI, EFT, CIM 1960s, Joseph Orlicky, IBM 1970s and others See your textbook page 8 Copyright 2011 John Wiley & Sons, Inc.

17 Evolution of Operations and Supply Chain Management Supply chain management Management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners Copyright 2011 John Wiley & Sons, Inc. 1-17

18 Globalization Two thirds of today s businesses operate globally 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 trade barriers Copyright 2011 John Wiley & Sons, Inc. 1-18

19 Hourly Compensation for production workers FACT: China has become a strategic manufacturing base for nearly every industry worlwide 1-19

20 GDP per Capita 1-20

21 Trade in Goods, % of GDP Producer s economy The world s service provider Copyright 2011 John Wiley & Sons, Inc. 1-21

22 Productivity and Competitiveness Competitiveness Degree to which a nation can produce goods and services 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 Copyright 2011 John Wiley & Sons, Inc. 1-22

23 Measures of Productivity Single factor productivity: compares output to individual inputs Multifactor productivity: relates output to a combination of inputs Total factor productivity: compares total quantity of good and services produced with all the inputs used to produce them Copyright 2011 John Wiley & Sons, Inc. 1-23

24 Osborne Industries B5*B7 B6*B8 B4/B5 B4/B6 B4/B14 Copyright 2011 John Wiley & Sons, Inc. 1-24

25 Productivity Growth NOTE: Productivity is a relative measure of performance and can be misleading! Output per labor hours (2008) Copyright 2011 John Wiley & Sons, Inc. 1-25

26 Percent Change in Input and Output Copyright 2011 John Wiley & Sons, Inc. 1-26

27 Strategy and Operations Strategy: how the mission of a company is accomplished. Importance of a well-defined strategy: Provides direction for achieving a mission Unites the organization Provides consistency in decisions Keeps organization moving in the right direction Copyright 2011 John Wiley & Sons, Inc. 1-27

28 Strategic Planning Mission and Vision Corporate Strategy Marketing Strategy Operations Strategy Financial Strategy Copyright 2011 John Wiley & Sons, Inc. 1-28

29 Consists of five steps: Strategy Formulation 1. Defining a primary task What is the firm in the business of doing? Should not be defined too narrowly. Example: Norfolk Sothern railways is in the business of transportation not railroads. 2. Assessing core competencies What does the firm do better than anyone else? A core competency can be exceptional service, higher quality, faster delivery or lower costs.

30 Strategy Formulation 3. Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What wins the order? (the final factor in the purchasing decision). Example: Automotive industry (qualifier = quality, winner = innovative design or superior gas mileage) 4. Positioning the firm How will the firm compete in the marketplace? An effective placement strategy should employ the SWOT matrix (Strengths, Weaknesses [both internal]; Opportunities, Threats [both external]) Could compete on cost, speed, quality, flexibility Copyright 2011 John Wiley & Sons, Inc. 1-30

31 Positioning the Firm: Cost Waste elimination Continuously 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 disciplined operations Copyright 2011 John Wiley & Sons, Inc. 1-31

32 Positioning the Firm: Speed Fast moves, Fast adaptations, Tight linkages Internet Customers expect immediate responses Service organizations Always competed on speed (McDonald s, 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) while (Gap) has six-month time to market policy. Copyright 2011 John Wiley & Sons, Inc. 1-32

33 Positioning the Firm: Quality Minimizing defect rates or conforming to design specifications Ritz-Carlton - one customer at a time Service system designed to move heaven and earth to satisfy its 500,000 customers. Employees empowered to satisfy a guest s wish Teams set objectives and devise quality action plans Each hotel has a quality leader Copyright 2011 John Wiley & Sons, Inc. 1-33

34 Positioning the Firm: Flexibility Ability to adjust to changes in product mix, production volume, or design Mass customization: the mass production of customized parts National Bicycle Industrial Company Offers 11,231,862 variations Delivers within two weeks at costs only 10% above standard models Copyright 2011 John Wiley & Sons, Inc. 1-34

35 Strategy Deployment Implementing a strategy can be more difficult than formulating it. Companies struggling to align day-to-day decisions with corporate strategy can resort to two types of planning systems: 1. Policy deployment 2. Balanced scorecard Copyright 2011 John Wiley & Sons, Inc. 1-35

36 Policy Deployment Translates corporate strategy into measurable objectives Derivation of an Action Plan Using Policy Deployment Copyright 2011 John Wiley & Sons, Inc. 1-36

37 Balanced Scorecard Balanced scorecard Examines a firm s performance in four areas: 1. Finances: how should we look to our shareholders? 2. Customers: how should we look to our customers? 3. Processes: at which business process must we excel? 4. Learning and growing: how will we sustain our ability to change and improve? Key performance indicators Set of measures to help managers evaluate performance in critical areas. Copyright 2011 John Wiley & Sons, Inc. 1-37

38 Balanced Scorecard Worksheet Copyright 2011 John Wiley & Sons, Inc. 1-38

39 Balanced Scorecard Radar Chart Dashboard Copyright 2011 John Wiley & Sons, Inc. 1-39

40 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 and managing operations and to create value along the supply chain Develop a skill set for continuous improvement Copyright 2011 John Wiley & Sons, Inc. 1-40