Operations Management: Strategy and 10 OM Areas

• Operations Management is one of the three main business functions, its knowledge is important for understanding how goods/services are produced and its impact to business
• OM is a significant company contributor

Operations Strategy

• The operations strategy aligns with the company's mission and overall business strategy
• Key elements of the business strategy include cost leadership, differentiation, market focus, and fast response
• Internal capabilities are assessed to determine the company's strengths and weaknesses
• The strategy implementation involves defining product/service concepts, target markets, operating strategies, and delivery systems

The 10 OM Areas

• Design of Goods and Services includes product specifications, variables, and features
• Quality Management ensures that quality standards and customer expectations are met
• Process and Capacity Design optimizes productivity and capacity through resource allocation
• Location Strategy focuses on effectively and efficiently reaching customers
• Layout Design and Strategy ensures the efficient movement of resources and information
• Human Resources and Job Design provides adequate human resource support while retaining and training employees
• Supply Chain Management aims to maintain an adequate supply that matches the company's needs
• Inventory Management involves maintaining adequate inventory levels while minimizing wastage and expenses
• Scheduling streamlines short and long-term schedules to match current and expected needs
• Maintenance ensures the stability and reliability of processes

Productivity

• Productivity is defined as the ratio of outputs divided by inputs
• Improving productivity means improving efficiency

Methods of Improving Productivity

• Reducing inputs while maintaining constant outputs
• Increasing outputs while maintaining constant inputs

Multifactor Productivity

• Multifactor Productivity measures output relative to combined inputs
• Multifactor Productivity equals Output / (Labor + Material + Energy + Capital + Misc.)

Product and Service Design

• Operations which produces/delivers the final output will have an important role to play in product and service design
• Marketing cannot design a product or service singularly, operations will not be able to "create"

Key Elements to Consider for Product/Service Design

• Product or Service Concept: Involves determining product mix, specific features, and efforts required for design, delivery, and marketing
• Target Market: Considers common characteristics and the importance of various segments and their needs
• Delivery System: Focuses on system capacity and convenience
• Operating Strategy: Determines important operational elements, costs, investments, quality, and cost control, with the goal of efficient operations versus competition

Quality Function Deployment (QFD)

• Determine what will satisfy the customer using the 4-step process

The 4-Step QFD Process

• Product Definition: collect Voice of the Customer(VOC) and translate to specifications
• Product Development: Identify critical parts and produce specifications
• Process Development: Identify the processes then create a flow diagram
• Process Quality Control: Design process control and testing mechanisms

House of Quality

• Plot the 'Whats' or the 'Customers' in the left grid in the HOQ
• Then, provide an importance rating or weighting to each factor, usually between 1 and 5

House of Quality Roof

• Map the interrelationships between individual product attributes
• "+" indicates support, "-" indicates opposition, and "0" indicates no relationship; magnitude is expressed by using more than one marker

House of Quality Interpretation Example

• Flavor and packaging have no relation
• Flavor and sugar content support each other
• Flavor and size have no relation
• Flavor and quality of milk has a huge supporting relationship

Overall Importance in House of Quality

• The basement of the house is the calculation of the overall importance of each attribute based on everything above
• It helps decide which product attribute to prioritize and which ones to de-prioritize

Forecasting

• Forecasting predicts a future event, which underlies all business decisions

Business Decision Factors

• Production
• Inventory
• Personnel
• Facilities

Types of Forecasts

• Economic Forecasts: Address business cycles, inflation rates, and money supply
• Technological Forecasts: Predict the rate of technological progress
• Demand Forecasts: Predict sales of existing products and services, plus new product development

7-Steps in Forecasting

• Determine the use of the forecast
• Select the items to be forecasted
• Determine the time horizon of the forecast
• Select the forecasting model(s)
• Gather the data
• Make the forecast
• Validate and implement results

Forecasting Approaches

Qualitative Methods

• These are used when the situation is vague and little data exists
• Involves intuition and experience

Quantitative Methods

• These are used when the situation is 'stable' and historical data exists
• Uses Mathematical Techniques and other logic-based calculations

Components of Demand

• Seasonal is observed within a year
• Cyclical happens over multiple years
• Random: Erratic, unsystematic, causes unforeseen issues

Moving Average

• A series of arithmetic used for smoothing to provide an impression of data over time
• Formula: Sum of Demand in Previous n periods / n

Weighted Moving Average (WMA)

• Used when determining a trend that is present and the weights are based on experience and intuition
• WMA = ( Σ Weight x (demand in Period n) ) / Σ Weights

Exponential Smoothing/EMA

• New Forecast = Last Period’s Forecast
• Requires subjective smoothing constant, ranging from 0 to 1
• Predicted + α(Actual - Predicted)

Choosing the Forecast Method

• Objective: Obtain the most accurate forecast by selecting the model that results in the lowest forecast error
• Forecast Error = Actual Demand - Forecast
• Mean Absolute Deviation = Σ [Actual – Forecast] / n
• MSE = Σ [Forecast Errors] 2/ n
• MAPE = [ Σ | At - Ft | / At ] * (1/n)

Operations Management Definition

• Operations Management is a set of activities that creates value in the form of goods and services by transforming inputs into outputs
• OM is part of the three essential business functions: marketing, operations, and finance

Process

• The series of steps or activities undertaken to transform inputs into outputs
• Process enables efficiency is determined by customers, products, services, and technology

Process Strategy Factors

• Variety: How much will the process need to be able to handle?
• Volume: How much will the process need to be able to handle?

Four Basic Strategies

Process Focus

• Facilities are organized around activities
• Relies on Highly skilled personnel
• High degree of product flexibility
• Low equipment utilization
• High inventory
• Many varying inputs and outputs

Repetitive Focus - Automobiles

• Facilities often organized as assembly lines
• Lower flexibility than process-focused
• Low inventory
• Produces Standardized products

Product Focus - Frito Lay Products

• Facilities are focused on producing products
• Inputs are less varying
• Less skilled labor
• High fixed costs, low variable costs
• Produces Standardized Product

Mass Customization

• Combines flexibility with efficiency
• Large quantity and variety of products
• Custom orders
• High fixed costs and low variable costs
• Built-to-Order Goods

Process Flow Chart key

• Oval = Start
• Arrows = Connector
• Parallogram = Input/Output
• Process = Process
• Diamond = Decision

Process Design for Services

• Customer contact and interaction are high
• Labor intensity increases
• Customization to the needs of the customer

Designing Processes for Agility

• Characterized by ability to adapt quickly and effectively - rapid response

Mistake -Proofing Processes

• Design defects and errors out of the process
• Identify defects and errors and stop a process before they occur
• Identify defects and errors soon after they occur and quickly correcting the process

Process Analysis and Improvement

Cost

• Is the current process costing too much in terms of resources to the business or talking too long

Compliance

• New policies that need to be implemented (whether by the company or due to regulations) entail changes in the process

Customer

• Does the process need to be reviewed and streamlined to make it more efficient and convenient for the customer

Capacity

• The limit of what your company can do in its processes, systems, inventory, assets, etc.
• Throughput or the number of units a facility can hold, receive, store, produce in a given time
• Goal: To achieve the best match between the long-term capabilities of the company and the forecasted level of demand
• A capacity gap can result in imbalance

Capacity Types

• Design Capacity: The theoretical maximum output of a system in a given period

Effective Capacity

• What a firm expects to achieve given constraints
• Productive capacity is dependent on physical facilities for processing, and general infrastructure

Two Capacity Management Approaches include

• Capacity Management: Scheduling the work
• Demand Management: Scheduling the customers

Bottleneck Analysis

• The "choke point” in process slowing things down (lowest capacity)
• Bottleneck operations perform below targets quantity or quality

Breakeven Analysis

• There are two types, single and multi product

Multi-Product Case (MPC)

• BEPs = F / Σi(1− Vi/Pi)(Wi)
• Pi = price per unit of product i
• F = Fixed Costs
• Vi = Variable costs of product i per unit
• Wi = Weight of product i (ratio of product’s sales to total sales)

Single Product Case (SPC)

• BEPx = F / P - V
• BEPs = F / 1 − V/P
• P = Price per unit after discounts
• F = Fixed Costs
• V = Variable Costs per Unit

Learn about operations strategy, which aligns with the company's mission and business strategy. Explore the 10 key areas of Operations Management, including design, quality management, process and capacity design, location strategy, and more. Understand how these areas contribute to a company's success.