Chapter 6 - ENTRIE.docx

Chapter 6 -- Operations management Introduction - Definitions of production factors. - Calculation of productivity. - Importance of processes and productivity. - Principles of customer services. - Risk reduction strategies. - Importance of sourcing right suppliers. - Importance...

Chapter 6 -- Operations management Introduction - Definitions of production factors. - Calculation of productivity. - Importance of processes and productivity. - Principles of customer services. - Risk reduction strategies. - Importance of sourcing right suppliers. - Importance of technology. - Systems for improving productivity. - Concept of total quality management. - Operations management manages ongoing business cycles. - Helps entrepreneurs manage efficiency and effectiveness of operations. - Reviews business principles for effective operations management. Factors of production - Factors of production refer to the effort required to produce goods (input) and finished goods (output). - These components are used to convert resources from the input state to the final output state. - Four major categories of factors of production are land, labour, capital, and entrepreneurship. - Land - Land is anything in the universe not created by humans, including air, water, vegetation, minerals, etc. - It plays a passive role in production, requiring humans to apply other factors. - Labour - Labour is all human effort used in production, including technical expertise, marketing expertise, and physical contributions. - It covers all work done by labourers and workers at all levels in any organization. - Capital - Capital is all drivers or physical entities used to produce goods or services. - It includes financial capital, fixed capital, working capital, intellectual capital, and social capital. - Entrepreneurship - Entrepreneurs combine the other factors of production to make profits. - Entrepreneurs are the central planners of how these factors can be combined for maximum benefit. - The transformation process is used by entrepreneurs to combine the factors of production into ready-to-market outputs. Business plan considerations - Operations management is a crucial element in business planning. - Improper planning can lead to poor customer service and inefficiencies, affecting profitability. - The business plan should cover the entire process from order placement to fulfillment and customer experience. - Operations management includes activities between sale and delivery, including back-office or production processes. - Considerations include supplier selection, negotiating service-level agreements, producing products within acceptable timeframes, and delivering products to customers. - Productivity is integral to business operations and profitability. Productivity - Productivity measures the efficiency of the production process, calculating output per unit of input. - Input is defined in terms of labour and capital, while output measures revenue and other product components. - Productivity measures how resources can be managed to complete tasks on time and within quality. - Two methods for increasing productivity are increasing and decreasing input. - Productivity can be logically defined and empirically observed. - Productivity can be quantified as a variable and observed in absolute and relative terms. - Productivity can be used to measure progress on strategic decisions and organizational improvements. - Competitiveness has become a key driver for productivity since industrialization. - Human and social capital blended with competition significantly impacts productivity growth. Processes and procedures - Processes and procedures are structured activities leading to the production of specific products or services. - They are often visualized using flow charts. - Business plans should consider these processes and procedures, including the impact of non-compliance with performance standards. - Innovations in processes and procedures can improve operations management, indicating competitiveness and differentiation. - Competence in processes and procedures is measured by the expected outputs generated. - Efficiency is a key factor, considering quality and meeting customer requirements within the allotted time. - Well-structured processes and procedures should maintain effective internal control over human resource costs, purchase rates, and supply chains. - Compliance with relevant industry statutes and policies is essential. - Documentation is necessary for cross-functional and interrelated procedures and procedures. - Advantages of documented processes and procedures include ensuring consistency, preventing organizational failures, providing orientation and training for new operators, explaining best practices, and enabling easy updates when policies change. Customer service - Customer service is crucial for operations management and long-term profitability. - It involves providing services to customers before, during, and after the purchase of goods or services. - It varies depending on product, customer, and industry, but aims to enhance customer satisfaction. - Customer service levels are strategically important and should be addressed in business plans. - Examples of customer service include exchanging defective or broken merchandise, changing operational strategies based on customer feedback, and providing product/service technical training. - Different types of customer service include: - Customer support: Helps customers make cost-effective decisions and use products correctly. - Customer feedback: Used to evaluate operations and focus on improvement areas. - Automated customer service: Provided through websites and interactive voice response systems (IVRS), offering 24/7 service. Purchasing activities - Crucial in operations management, ensuring production factors are present for transformation. - Involves identifying and evaluating vendors, selecting products, placing orders, and resolving issues related to product receipt. - Differentiates between direct and indirect materials, with direct materials becoming part of the final product and indirect materials used to manufacture goods or services. - Initially viewed as a service function, purchasing activities have evolved to include understanding customer needs, maintaining long-term supplier relationships, and integrating business processes. - Purchasing activities are strategic and cover steps for documenting purchase orders, coordinating with suppliers for pricing, and finalizing orders. - Sourcing Suppliers - An institutional procurement process that includes all activities resulting in supplies from external sources. - Continuously required to improve and re-evaluate purchasing activities. - Identifies and addresses alternative suppliers as a risk reduction measure in the business plan. - Factors for sourcing include assessing current spending, supply market, total costs, potential new suppliers, making buying decisions, negotiating with suppliers, and tracking results. - Suppliers should be selected for short-term savings and long-term cost savings. - The buying strategy of an organization also affects decisions such as purchasing, renting, or leasing. - Sourcing suppliers involves three stages: finding the money, getting the money, and keeping the money. The value chain - A concept in business management that represents the chain of activities for a company\'s value chain operating in a particular industry. - Works at the business unit 9 level in a company, not at divisional or corporate unit level. - A manufacturing product or service passes through all levels of the value chain, gaining value as they pass through each level. - Requirements of a Value Chain - Important requirements include information technology investment, leadership, job adaptability and flexibility, collaboration, coordination, employee capability, and attitude. - Areas in a Value Chain - Value chains can contain primary activities such as company operations, logistics, sales, marketing, services, and outbound logistics. - They can also contain supporting activities such as research and development, infrastructure management, and human resources management. - Value Chain at Industry Level - Represents different procedures and processes involved in manufacturing goods or providing services. - The sum of these link values for the industry is called the value chain at the industry level. - Significance of the Value Chain - At the forefront of management thinking due to power analytics capability for strategic planning. - Applies at industry level to serve the entire distribution network. - Value System - Michael Porter has given the name value system to a huge, networked value chain. - Value Chain Reference Models - Value chain groups have developed value chain reference models for product development, customer relationships, and supply networks. Systems technology - Historical Systems and Technology - Internal reporting was manually prepared using accounting system and statistics, resulting in partial and delayed information about management performance. - Data was initially classified according to organizational requirements, then sifted to store only essential data. - Automation in Business - Automation is the use of information technology and control systems to reduce the need for human labor in production and manufacturing. - It is a step beyond mechanisation, significantly decreasing the need for thinking and human sensory input. - Main categories of automation include proactive support automation, pre-emptive support automation, self-support automation, and assisted support automation. - Impact on Industries Outside the Manufacturing Sector - Automation has replaced telephone operators, sped up medical processes, and reduced the need for bank visits. - It has led to the shift in the world economy from industry-based jobs to service-based jobs. - Office Automation - Office automation involves the use of computer software and hardware to digitally create, store, manipulate, collect, and communicate data to complete basic tasks. - It includes activities of electronic transfer, raw data storage, and management of electronic business information. - Major Advantages of Manufacturing Automation - Reduced lead times, higher consistency, better quality, reduced handling, simplified production, improved work flow, and better worker morale. Operations management philosophies - Total Quality Management (TQM) - An integrative management philosophy focusing on improving and refining product, service, and process quality. - Principles include: process management, cross-functional product design, supplier quality management, information management, customer involvement, strategic planning, committed leadership, employee involvement, and cross-functional training. - Aims for long-term success through customer satisfaction, involving all organizational members in improving processes, services, culture, and products. - Six Sigma - Originated in 1986 by Motorola to reduce defects by minimizing production process variation. - Aims to achieve products free of defects as its core principle. - Major difference between TQM and Six Sigma is in approach, setting minimum standards and requirements, while TQM aims for better performance. Quality - Understanding Quality - Quality is a conditional, perceptual, and subjective characteristic of products. - Consumers focus on product requirement quality and its comparison to competitors. - Producers measure conformance quality, the correctness of product or service production. - Improving Quality - Quality assurance involves preventing defects through a quality management system. - Pre-emptive activities analyze defects and controls, including effects analysis, failure mode, and quality control. - Quality control, also known as verification and validation, detects defects linked to testing using a quality management system. - Historical Evolution of Quality Systems - Quality systems first appeared during the Industrial Revolution. - Innovators like Henry Ford and Frederick Winslow Taylor recognized limitations of mass production methods and changed product quality. - Quality departments were established to manage quality during production and fix errors. - Quality systems became associated with professional and managerial processes in the late 20th century. - Quality systems evolved from simple control to engineering and systems engineering. - Quality control activities peaked in the 1950s, 1960s, and 1970s.