Operations Management: Intro to Processes

Introduction to Operations Management

• Operations management involves managing systems or processes that create goods and provide services.
• Operations are a key part of a business, responsible for processing goods or services.
• Why study operations management? Operations impact all aspects of business, offering an understanding of the environment, global dependencies, success factors, and teamwork.

Goods vs. Services

• Goods are physical items.
• Services are activities providing consumers with time, location, and psychological value.
• Supply chain is the sequence of activities and organizations involved in producing and delivering a good or service.

Service Organizations vs. Manufacturers

• Services are intangible, cannot be inventoried, have high customer contact, short response time, and are labor-intensive.
• Manufacturers produce tangible, inventoried items, with low customer contact, longer response times, and are capital intensive.

Corporate Structure

• Marketing manages customer demands
• Operations manages people
• Finance manages cash flows

Supply and Demand

• Supply exceeding demand results in wasteful costs
• Demand exceeding supply results in opportunity loss and customer dissatisfaction
• Balanced supply and demand is ideal

Historical Evolution of Operations Management

• Industrial Revolution (1700s), Pre-industrial Revolution featured craft production, where highly skilled workers made customized goods with simple tools
• The Industrial Revolution began in England in the 1770s
  • Division of labor by Adam Smith in 1776
  • Application of the "rotative" steam engine in 1776
  • Cotton gin and interchangeable parts by Eli Whitney in 1792
• Scientific Management (Early 1900s), Led by Frederick Winslow Taylor
  • Belief in a "science of management" based on observation, measurement, analysis, and improvement of work methods and economic incentives
  • Management is responsible for planning and separating management activities from work activities

Human Relations Movement (1930s - 1960s)

• Emphasized the importance of the human element in job design.
• Notably, Lillian Gilbreth focused on applications of psychology
• Elton Mayo conducted Hawthorne studies on worker motivation in 1930
• Abraham Maslow introduced motivation theory (Hierarchy of Needs, 1954) in the 1940s
• Frederick Hertzberg developed the Two-Factor Theory in 1959
• Douglas McGregor proposed Theory X and Theory Y in the 1960s

Computer Age (1960s)

• Widespread computer use fundamentally changed lives

• Influence of Japanese manufacturers

• Refined and developed management practices

• Credited with fueling the "quality revolution"

• Just-in-time production

Scope of Operations Management

• Forecasting predicts weather/land conditions, seat demands, and air travel growth
• Capacity planning is essential to maintain cash flow and make a reasonable profit
• Locating facilities depends on managers’ decisions about which cities to serve
• Facilities and layout are important for effective use of workers and equipment
• Scheduling is performed for flights, routine maintenance, pilots, and flight attendants
• Managing inventories includes food, beverages, equipment, and life preservers.
• Assuring quality emphasizes safety and dealing with customers.
• Motivating involves consistently training employees in all phases of operations.

Role of Operations Manager

• Decision making to guide the organization and provide alternatives in uncertain times
• Planner

Key Issues for Operations Managers

• Environmental concerns, especially waste management
• Ethical concerns include hiring/firing and closing facilities
• Economic conditions
• Innovating
• Risk management involves disaster preparation, response, and workplace dangers
• Competing in a global economy
• Need for supply chain management (late deliveries, quality problems, inventory stockouts)
• Competitiveness: How effectively an organization meets customer needs through marketing and operations.

Reasons Why Organizations Fail

• Neglecting operations strategy
• Failing to capitalize on strengths and opportunities, and failing to recognize competitive threats
• Over-emphasizing short-term financial performance at the expense of R&D
• Over-emphasizing product/service design and neglecting process design/improvement
• Neglecting investments in capital and human resources
• Failing to establish good internal communications and cooperation
• Failing to consider customer wants and needs

Hierarchical Planning

• Mission: The reason for an organization’s existence and its purpose
• Goals: Detailed scope of the mission, short-term, and the basis for organizational strategies.
• Strategy: A plan to achieve organizational goals/roadmap
  • Organizational strategies are overall strategies for the entire organization to define the direction of the business
  • Functional-level strategies support organizational strategies in functional areas.

Strategy

• Explains how to support the execution of corporate goals and objectives
• Tactics are the methods and actions used to accomplish these strategies
• Operations are the actual “doing” part of the process

Strategy Formulation

• Environmental Scanning (SWOT) - Internal Factors: Strengths and weaknesses - External Factors: Opportunities and threats
• Order Qualifiers are basic product/service characteristics considered minimum standards for a purchase
• Order Winners are characteristics causing a product/service to be seen as better than the competition

Strategies

• Quality-based Strategies focus on quality in all organizational phases.
• Time-based Strategies focus on reducing the time needed to accomplish tasks.
• Productivity is a measure of effective resource use, expressed as the ratio of output to input.

Unit 2: Capacity Planning

• Capacity is the upper limit/ceiling on the load an operating unit can handle
• Goal is to achieve a match between long-term supply capability and predicted long-term demand
  • Overcapacity: Operating costs are too high
  • Undercapacity: Strained resources and possible loss of customers

Decisions

• Capacity decisions are strategic, determining initial costs, involving long-term resource commitment, impacting future demand satisfaction, and needing advance planning.

• Consumption of financial and other resources

• Design Capacity: Maximum output/service capacity of an operation/facility under ideal conditions.

• Effective Capacity: Maximum output achievable under normal conditions.

  • Efficiency = (actual output/effective capacity)
  • Utilization = (actual output/design capacity)

Determinants of Effective Capacity

• Facilities: layout, design, and location
• Products and services: Product and service design influences production speed, faster with similar processes.
• Process: Output quality affects quantity capability; lower quality can slow down output
• Human factors: Training given to employees affects actual output.
• Policy factors: Management policies like overtime affect capacity

Factors

• Operational Factors
  • Scheduling affects capacity
• Supply Chain Factors
  • Material availability affects production capacity
• External Factors
  • Regulations, technology, and economy influence capacity

Steps in Capacity Planning

• Estimate future capacity requirements.
• Evaluate existing capacity/facilities; identify gaps.
• Identify alternatives for meeting requirements.
• Conduct financial analysis.
• Assess key qualitative issues.
• Select the best alternative for the long-term.
• Implement chosen alternative.
• Monitor results

In-House or Outsource

• Determine if they should produce a product or service itself or outsource it - Outsourcing is hiring an outside company to perform work - Insourcing (in-housing) is assigning the work to existing employees or business owners.

Product and Service Design

• Process: Involves developing products/services addressing customer needs.
• Product Design.

Idea Generation

• A product's development begins with this
• Can come from a variety of sources
  • Supply chain
  • Competitors
  • Research

Supply-Chain Based

• Ideas come from suppliers, customers, distributors, employees, maintenance staff

Competitor Based

• Competitors' actual products and services motivate improved products and services "Reverse Engineering": Companies analyze competitors' products for ways to improve their own.

Research Based

• Development involves technical analysis and organized efforts to increase scientific knowledge or product innovation.

Legal and Ethical Considerations

• Product Liability: Manufacturers are responsible for injuries/damages from faulty products, e.g., market pull-outs.
• Human Factors.

Cultural Factors

• Design must consider cultural differences in global markets
• Environmental Factors (Sustainability)
• Focuses on global warming, smog, solid waste generation (e.g., solar panels).

Processes Used

• Reduce material use (value analysis)
• Reuse (remanufacturing): Refurbishing worn parts
• Recycling: Recovering materials for future use

Phases in Product Design and Development

• Feasibility Analysis: Market analysis
• Product Specification: Detailed description
• Process Specification: Detailed process needed
• Prototype Development: Sample products to identify problems
• Design Review: Necessary changes are made, or the project is abandoned.

Stage in UNIT 3: Sales Projection

• Sales Projections: Estimate revenue over a period, predicting sales based on past performance, market trends, and seasonal demands.
  • Set realistic goals
  • Plan budgets
  • Manage inventory
  • Make well informed decisions

Budgeting

• Better Budget Planning
  • Knowing expected sales allows you to plan your budget more effectively
• Setting Realistic Goals
  • Working towards specific goals, improving motivation and overall performance

Business Actions

• Managing Cash Flow
  • Projections give you a clear picture of your expected cash flow.
• Improving Inventory Management
  • You'll known when to order more stock.
• Making Strategic Decisions
  • Projections help you make strategic decisions.

Factors Impact Sales

• Market trend, economic conditions, seasonal demands, competitor actions, marketing efforts, product availability, and customer behavior impact sales projections

Sales Methods

QUANTITATIVE METHOD

• Trend Analysis: uses historical sales to identify patterns and trends
• Moving Averages: highlights long-term trends by calculating the average sales

QUALITATIVE METHOD

• Market Research-Based Forecasting: gathers insights from market research
• Expert Judgement: relying on the opinions of industry experts or experienced sales staff
• Sales Force Opinions: collecting forecasts from your sales team

Sales Rate

• Projected Sales = Historical Sales x (1 + Growth Rate)
• Historical Sales - total revenue of units sold in a previous period Growth Rate - Percentage by which you expect your sales to increase (or decrease)