Midterm Notes (Updated) PDF

S.1 Manufacturing, Exports and Competitiveness Is manufacturing really important? In many countries, the manufacturing contribution to total GDP is decreasing, but … ​ Represents most of the exports ​ Prices are more stable compared to commodities ​ Some modern services are supported by...

S.1 Manufacturing, Exports and Competitiveness Is manufacturing really important? In many countries, the manufacturing contribution to total GDP is decreasing, but … ​ Represents most of the exports ​ Prices are more stable compared to commodities ​ Some modern services are supported by manufacturing ​ Create well paid positions ​ Leads the development of technological breakthroughs There is a clear correlation between exports and GDP growing Source to compare countries economic performance (i.e., exports): ttps://atlas.cid.harvard.edu Global Competitiveness Report: Classification of countries (World economic forum) Pillars of competitiveness Key Points: ​ Operations Management / processes is present in everything we do. ​ Course emphasis will be in manufacturing, services and logistics processes. ​ Exporting manufacturing seems easier than exporting services. ​ Exports and GDP growth are highly correlated. ​ Exports diversification and creation of economies of scale / trade blocs are crucial for a sustainable and outstanding economic performance. BUT, in consequence, supply chains become more complex. ​ Competitiveness is not only low cost scenarios → people, infrastructure and strategic management are key in being competitive S. 2 Operations Strategy - Boeing Boeing 777 and 787 Order Winners and Order Qualifiers (Terry Hill approach) Order qualifiers: attributes a product or service must have to be considered by customers. Order winners: attributes of a product or service that allow differentiation from competitors Key points: ​ Operations strategies should be defined in function of what we want to do. ​ Order Qualifiers (OQs) and Order Winners (OWs) are defined by the final customers. ​ As time goes, most of the OWs will become OQs. ​ Structure strategies in manufacturing and services can be expensive. They should be preceded by corporate objectives and marketing strategies. ​ The true mission of a manufacturing firm is not to build products but to get profit in a sustainable way satisfying its customers. S.3 Spectrum of manufacturing processes Manufacturing processes, Process-product matrix 1.​ Project Example: development of a new product, infrastructure, etc… Characteristics: ​ Uncertainty about activities duration. ​ Outsourcing and coordination of multiple tasks. → Key points: planning and control of activities Project mgt / PERT - CPM / Activities in nodes -​ PERT = Project Evaluation Review Technique -​ CPM = Critical Path Method Critical Path = set of activities with slack = 0 Project mgt / Gantt charts / Activities in bars 2.​ Job Shop Examples: Plastic molding, Machine shops Relevant characteristics ​ Flexible process / Many different products ​ Functional layout  ​ Materials flow and WIP is discontinuous → Key points: Routing and bottlenecks Functional layout 3.​ Batch Flow Examples: Chemical and pharmaceutical industries, Metal manufacturing Relevant characteristics ​ Batch production of a given size ​ Functional layout ​ Similar to Job Shop / Greater standardisation → Key points -​ Batch size / Set-up times -​ Routing, WIP, Processing time Functional layout Product layout First assembly line Ford Motor facilities Highland Park, Michigan, US 1913, T Model -​ You can have your T Model in any color, so long as it is black Was Ford the first assembly line?... Maybe, but he inspired himself in a disassembly line … a slaughterhouse. 4.​ Line Flow Examples: Automotive industry, Computers / Domestic appliances Relevant characteristics ​ Product layout ​ Product moves quickly between stations ​ More flexible and less automated than CF → Key points: Line balancing  5.​ Continuous flow Examples: Basic industries / Oil, iron, aluminium, Food processing Relevant characteristics ​ Product layout ​ Product moves continuously ​ Capital intensive and automation → Key points: High productivity to compete in price Process-product matrix Trend towards mass customization and lean manufacturing Similar products can be done following different processes → In the same plant we can have two or more different types of processes Example: Key Points ​ Transformation processes can be classified in five different types. ​ A plant / organization (manufacturing or services) can have two or more different processes. ​ If product and process characteristics not aligned, the organization can lose competitiveness. ​ Current strong concurrence has led to the re-definition of the product-process matrix, resulting in new approaches: lean manufacturing, flexible manufacturing systems, mass customization. S.4 Process fundamentals Topics -​ Flow diagrams -​ Fundamental concepts -​ Balancing a line -​ Little’s Law Flow Diagram Symbols Example: Buying a book from Amazon Process Fundamentals - Some concepts ​ Single-stage process = process with one stage ​ Multiple-stage process = process with multiple stages ​ Buffer = storage area where output is placed before going to future stages ​ Blocking = activity stopped as no place to store and/or next resources are busy  ​ Starving = activity is stopped because there is no work to process ​ Bottleneck = resource limits maximal output of process = resource with longest processing time ​ Cycle time (CT) = time between two consecutive units ​ Capacity = 1 / Cycle time [units/time] ​ Throughput flow time (TPT) = total time in generating one unit Examples Example 1: Two stages / Fastest station first / No buffer / 1 operator ​ Stage 1 will be blocked during 45 sec for each unit produced ​ Stage 2 will be starved during 30 secs for each unit produced A new piece will be ready every 75 seconds = Cycle time : 75 secs Total time for each unit = Throughput time : 30 * 45 = 75 secs Total time for 100 unites = 75 * 100 = 7,500 secs Example 2: Two stages / Fastest station first / No buffer / 2 operators After each unit is process, stage 1 wait for 15 seconds After 30 seconds (due to unit 1), no starving time for stage 2 ​ Stage 1 will be blocked during 15 secs for each unit produces ​ Stage 2 will start with the unit 1, 30 seconds after ​ Stage 2 will work continuously (no starving) Unit 1 will be ready after 75 secs Unit 2 will be ready after 120 secs Unit 3 will be ready after 165 secs A new piece will be ready every 45 secs = Cycle time : 45 secs Total time for each unit = Throughout time : 75 secs Total time for 100 units = 30 (unit 1) * 45 * 100 = 4530 Example 3 : Two stages / Fastest station first / Buffer / 2 operators ​ Stage 1 will work continuously (no blocking) Total time for stage 1 = 30 * 100 = 3000 ​ Stage 2 will start with the unit 1, 30 seconds after ​ Stage 2 will work continuously (no starving) Total time for stage 2 = 45 * 100 = 4500 Unit 1 will be ready after 75 seconds After, a new piece will be ready every 45 sec => Cycle time = 45 sec Total time for unit 1 = 75 / Total time for unit 2 = 90 Total time for unit 3 = 105 / Total time for unit 4 = 120 Throughput time is not constant Units in stage 2 between 30 and 3000 sec = (3000 – 30) / 45 = 66 units Time to complete 34 units left (100 units in total) = 34 * 45 = 1530 sec Total time to process 100 units = 3000 + 1530 = 4530 sec The buffer does not modify total time Example 4: Two stages / Slowest station first / No buffer / 2 operators ​ Stage 1 will work continuously (no blocking) Total time for stage 1 = 45 * 100 = 4500 ​ Stage 2 will start with the unit 1, 45 seconds after ​ Stage 2 will be starved during 15 sec for each unit produced Unit 1 will be ready after 75 seconds After, a new piece will be ready every 45 sec => Cycle time = 45 sec Total time for each unit = Throughput time = 75 sec Total time for 100 units = 45 * 100 + 30 (unit 100) = 4530 sec Line Preparation a.​ Which is the bottleneck in this process? b.​ What is the cycle time of the entire process? c.​ What is the hourly process capacity? d.​ Assuming no buffers, which task could be described as blocked? e.​ Assuming no buffers, which task could be described as starved? Gantt Chart a. Which is the bottleneck in this process? Bottleneck = Slowest station = Preparation b. What is the cycle time of the entire process? Process cycle time = Duration of slowest station = 2.5 min Every 2.5 min, a pie will be ready c. What is the hourly process capacity? Process capacity = 1/Process cycle time = 1/2.5 min = 0.4 units/min Process capacity in hours = 0.4 units/min * 60 min/h = 24 units/h d. Assuming no buffers, which task could be described as blocked? Is necessary to wait 1.5 min to take order of unit 2 Same behaviour for all other units (3, 4, …) The activity “Take order” is blocked e. Assuming no buffers, which task could be described as starved? 1.​ Need to wait 0.5 min to bake unit 2 Same behaviour for all other units The activity “Baking” is starved 2.​ Need to wait 2.5 min to box unit 2 Same behaviour for all other units The activity “Box” is starved Little's Law As we saw before, we can compute Throughput time = total time for one unit Cycle time = time between two consecutive units But what about, the average WIP in the whole process? Little’s Law => Throughput time = WIP * Cycle time or WIP = Throughput time / Cycle time If the process has buffers, Little’s Law has to be adjusted Key Takeaways ​ Flow diagrams allow to understand better Operations processes ​ Main symbols = start/end, operations, warehousing, decisions ​ Key concepts in process analysis: stages, cycle time, throughput time, bottleneck, buffer, starving, blocking ​ A line is balanced when outputs from stages are similar and all stations’ outputs are similar to the bottleneck ​ Little’s law = a useful relationship for cycle time (CT), throughput time (TPT) and work-in-process (WIP) S.5 Service Strategy Topics ​ Services versus Manufacturing ​ Services processes - Taxonomy ​ Structural and managerial elements ​ Offer and demand management Services vs Manufacturing Spectrum Outputs can be tangible or intangible ​ Pure services vs pure products ○​ Pure services: no tangible products generated In services, production and consumption of the services occur at the same time Evaluation strongly based on customers consumption Communication and attitude of providers and customers are key Services ​ Customer is co-producer ​ Centered in the human factor which makes standardisation difficult ​ Service quality is an experience ​ Reduced visibility ​ IT is key ​ Usually inventories are not visible but they are key Services matrix by Schmenner Revisited - Services matrix by Schmenner Conceiving or designing a service Structural elements ​ Delivery system: Front & Back Office, customer participation ​ Facilities design: Size, aesthetics, layout ​ Location: Customer demographics, single or multiple sites, site characteristics ​ Capacity planning: Managing queues, number of servers, accommodating average or peak demand Managerial elements ​ “The service encounter”: Service culture, motivation, selection and training, employee empowerment  ​ Quality: Monitoring, measurement, methods, expectations vs perceptions, service guarantee ​ Offer versus Demand: Altering demand and controlling supply ​ Information: Data gathering, transforming data into useful information Offer vs. Demand Offer management More personnel in peak periods Flexibility and multi-functionality Assigning more functions to customers Sharing installed capacity (“win-win” relationship) Demand management Price : “Happy hours”, night and off-peak calls, … Creation of added value in services Yield management Key Takeaways ​ The border between service and manufacturing firms is thin. Moreover, it is better to talk about service and manufacturing operations inside a given firm. ​ “Going downstream” = a strategy followed by manufacturing firms to be closer to customers. ​ Even more difficult than in manufacturing, there are some interesting taxonomies in the service sector. ​ Conceiving or designing a service ○​ Structural elements (hardware) ○​ Managerial elements (software) ​ The big challenge in services: balance offer and demand S.6 Waiting Lines Topics ​ Waiting lines ​ Basic elements of a queueing system ​ Quantitative approach ​ The psychology of waiting lines Waiting line theory > applications -​ Customers to be served in a service center -​ Phone calls to be processed -​ Planes taking off (or landing) in an airport -​ Machines waiting to be repaired -​ Tasks to be processed by a computer -​ Inventory units to be used in a process Basic configuration of a queueing system Basic elements for a queueing system -​ Distribution for arrivals -​ Distribution for service times -​ Design of queueing facilities (series, parallel, network) -​ Service discipline (FIFO, LIFO, SIRO, …) -​ Line size (infinite or finite) -​ Arrivals source (infinite or finite) -​ Customer behaviour (jockeying, balking, priorities,...) -​ Server behaviour (failures, rates changes, batches,...) Costs involved in queueing analysis Key performance indicators for a queue Pn = Probability (or time percentage) that there are n customers in the system L = Mean number of customers in system W = Mean wait in the system Lq = Mean number of customers in the queue Wq = Mean wait in the queue s = number of servers Utilization factor – One server 𝜆 = mean rate of arrival (customers/hour) μ = mean service rate (customers/hour) p = Utilization factor = 𝜆 / μ If 𝜆 ≥ μ queue grows indefinitely KPIs – One server Utilization factor – Multiple servers Utilization factor p = 𝜆 / (sμ) If 𝜆 ≥ (sμ) queue grows indefinitely KPIs – Multiple servers Multiple lines with one server each versus one line with multiple servers Queueing systems with finite capacity s = Number of servers (1, 2, 3, … ) m = Queue capacity System capacity = m + s Examples of waiting lines with finite capacity ​ Facilities with limited capacity ○​ Small areas for attending customers ○​ Mechanical garages ○​ Facilities attending large volume units ​ Call centers ​ Medical visitors with limited time Psychology of waiting lines 1.​ Unoccupied time feels longer than occupied time a.​ Some restaurants, hand out menus to customers while waiting in line b.​ This practice has the added benefit of shortening the service time c.​ Transform the waiting area into a bar – Additional revenues d.​ Activity provided should be related to the service – Counterexample: music in telephone waits e.​ By focusing the customer's attention on the rate of progress rather than the length of the line, the waiting experience is enhanced 2.​ Pre-process waits feel longer than in-process waits a.​ Once the customer is being served, service times are not so important, even if they can be much longer than waiting times b.​ An additional advantage of tactics explained in previous point (menus, drinks, games, …) is that the customers feels that the service has started 3.​ Anxiety makes waits seem longer a.​ Anxiety is about whether or not I have been forgotten “The other line always moves faster” – Many single server lines versus one multiple servers line b.​ Not being sure that we will be served = Stand-by status in a flight 4.​ Uncertain waits are longer than known, finite waits a.​ How long will the wait be? b.​ The information about the waiting time may lead to an initial annoyance but it is better than not saying anything to the customer c.​ The appointment syndrome = No problem to wait until my appointment time but waiting beyond that point increases the dissatisfaction very fast 5.​ Unexplained waits are longer than explained waits a.​ The lack of an explanation is one of the prime factors adding to my uncertainty about the length of the wait b.​ It is better to announce the real reasons of a delay and avoid that customers start to imagine worse scenarios c.​ Waiting in ignorance creates in customers a feeling of frustration, irritation and rudeness  6.​ Unfair waits are longer than equitable waits a.​ The feeling that somebody has successfully “cut in front” of you causes even the most patient customer to become furious b.​ Queue discipline = FIFO, loyal customers, priority services, lowest service times first, fast-passes, … c.​ Express check-out lines (less than 10 articles) in supermarkets d.​ The customer´s sense of equity is not always obvious and need to be explicitly managed 7.​ The more valuable the service, the longer I will wait a.​ Express check-out lines = customers with few items feel that is not worthy to wait a long time / customers with full carts feel that is worthy to wait b.​ Easier to accept long waits in high standard restaurants c.​ Waits in pre-processes service are more accepted than waits in post-processes (flights, hotels, car rental, …) 8.​ Solo waiting feels longer than group waiting a.​ It is not a problem to stay alone in a service with no deviations / If a deviation occurs, affected customers will start to interact expressing exasperation and trying to console each other. b.​ There is some form of comfort in group waiting rather than waiting alone Takeaways ​ Waiting lines are necessary evils – We cannot design our facilities for peak hours ​ Quantitative approach – Some formulas can help in finding some KPIs of waiting lines ​ Simulation – A very useful technique to understand the behaviour of a given system – Largely used to know more about waiting lines ​ Qualitative approach – Very related to the psychology of our customers ​ Use of technology is helping to improve the waiting experience S.7 Kristen's cookies S.9 Service Quality Topics ​ Service quality - perspectives ​ The gap model ​ The Performance – Importance matrix ​ The best service firms seen by you Five dimensions of quality in services 1.​ Tangibility – Provider physical characteristics 2.​ Reliability – Adequate and constant performance 3.​ Responsiveness – Willingness to solve 4.​ Assurance – Competence, credibility  5.​ Empathy – Put yourself in your customer’s shoes Service Quality - The gap model 1.​ Listening Gap Between expected service and managerial perception 4% of unsatisfied customers complain, but the other 96% share the problems with 8-10 other customers Causes: Inadequate marketing research orientation Lack of upward communication Insufficient relationship focus 2.​ Standards Gap Between the managerial perception and what is specified Causes: Poor service design Absence of customer-driven standards Inappropriate physical evidence and servicescape 3.​ Performance Gap Between the delivered service and what is specified Causes: Deficiencies in human resource policies Failure to match supply and demand Problems with service intermediaries 4.​ Communication Gap Between the delivered service and what we communicate to the customer Causes: Lack of integrated marketing communications Ineffective management of customer expectations Inadequate horizontal communications Overpromising 5.​ Customer Gap Between expected and perceived service Causes: The other four gaps Performance – Importance Matrix Takeaways ​ Service quality = To be considered from five different perspectives. ​ The gap model = A tool to close the most important gap: ○​ Expected service – Perceived service ​ Ask your customers about the performance and the importance of main attributes to be evaluated ​ Performance-importance matrix = A two-dimensión tool to fix priorities ​ A key attribute = Quality/Price ratio ​ What can we learn from top (and bottom) firms? Midterm Notes (Updated) S.1 Manufacturing, Exports, and Competitiveness Is Manufacturing Really Important? - Manufacturing’s share of total GDP is decreasing in many countries, but it remains crucial because: - Drives Exports – Most countries’ exports rely heavily on manufactured goods. - Stable Pricing – More predictable than commodity-based industries. - Supports Services – Many modern services (logistics, IT, finance) depend on manufacturing. - Creates High-Paying Jobs – Supports skilled labor and innovation. - Encourages Technological Breakthroughs – Essential for R&D growth. Exports and GDP Growth - A strong correlation exists between exports and GDP growth. - Diversification and economies of scale are essential for sustainable economic performance. - However, complex global supply chains create logistical and strategic challenges. Comparison: Exporting Products vs. Exporting Services --------------------------------------------------------------------- | Factor | Product Export | Service Export | |-------------------|---------------|------------------------------| | Tangibility | Physical goods | Intangible, real-time needed | | Standardization | High | Requires customization | | Logistics | Shipping | No shipping, but legal barriers | | Scalability | Easier | Harder (skilled labor needed) | | Examples | Cars, food | Consulting, software | --------------------------------------------------------------------- Competitiveness Factors - Low-cost labor is not enough – Infrastructure, technology, and strategic management matter. - Global Competitiveness Reports (WEF) classify countries based on economic performance. - Export success depends on innovation, skilled labor, and efficient logistics. S.3 Spectrum of Manufacturing Processes Comparison of Manufacturing Processes -------------------------------------------------------------------------------------------- | Process Type | Example | Key Features | Layout Type | |------------------|-----------------------------|-----------------------|--------------| | Project | Construction, R&D | Large-scale, uncertain | Fixed Layout | | Job Shop | Plastic molding, Machine shops | High variety, flexible | Functional Layout | | Batch Flow | Pharmaceuticals, Metal | Batch production | Functional Layout | | Line Flow | Car manufacturing, Electronics | Standardized flow | Product Layout | | Continuous Flow | Oil refining, Steel production | Non-stop automation | Product Layout | -------------------------------------------------------------------------------------------- Key Differences Between Layouts --------------------------------------------------------------- | Feature | Functional Layout | Product Layout | |----------------|------------------|---------------| | Flexibility | High | Low | | Efficiency | Slower | Faster | | Work-in-Process | High | Low | | Example | Custom workshops | Car assembly | --------------------------------------------------------------- What About Work-in-Process (WIP)? -------------------------------------------------------------------------------- | Statement | True/False | Explanation | |------------------------------------------------|-----------|------------------------------------| | WIP is not present in job shop processes | False | Job Shops have high WIP levels | | WIP flows continuously in continuous processes | True | No interruptions in flow |