OPERATIONS MANAGEMENT PDF

OPERATIONS MANAGEMENT 5 56 93 Prof. Dr. Salaheldin Ismail Salaheldin Aly 23 Prof. of Production & Operations Management Business Administration Department 51 Faculty...

OPERATIONS MANAGEMENT 5 56 93 Prof. Dr. Salaheldin Ismail Salaheldin Aly 23 Prof. of Production & Operations Management Business Administration Department 51 Faculty of Commerce & Business Admin. Helwan University  ~2~ ‫ ﺟﮭﺎز ﻧﺷر وﺗوزﯾﻊ اﻟﻛﺗﺎب اﻟﺟﺎﻣﻌﻲ‬:‫اﻟﻧﺎﺷر‬ 2023 ‫ﺣﻘوق اﻟﺗﺄﻟﯾف ﻣﺣﻔوظﺔ‬ 5 Publisher: University Book Publishing and Distribution 56 Center. All rights reserved. 93 2023 23 51  ~3~ “Preface” Basically, all organizations are oriented by meeting, catering and satisfying needs, desires and wants of customers through producing goods and/or providing services. More importantly, they are being in the marketplace to create value for customers and solve their problems. Only Operations management (OM) can make this possible. Because it reflects the way an organization produces goods or 5 provides services. So, it represents the heart of any business, 56 because it is central to the survival of a business. If this heart.i.e. OM function stops beating the business will 93 decline. Accordingly, top management and policy makers within organizations take good care of it. Consequently, the study of Operations Management will give 23 the students real information on why some things work and some things do not work. It also helps students to know and 51 realize how OM can benefit an organization through effectively & efficiently managing areas of the operations such as: production, capacity, quality, inventory, logistics, purchasing, materials management, and more. In the same vein, Operations Management is a crucial factor within an organization that wish to take its Production or Operations to the next level.  ~4~ Similarly, we intended to provide the essentials of Management (OM) course in a very clear, simple and well organized way. We also intended to use a lots of unique features and examples (as much as possible) to make the topics covered interesting, exciting, logical and rational as well. More significantly, we intended to make our students familiar with the most important issues that must be kept in consideration by the operations managers for managing OM at 5 high level of efficacy. To do that, eight essential topics are included i.e., concepts of 56 OM, operations strategy and productivity, process design, product & service design, capacity management, inventory 93 management, Quality management and recent trends in OM (.i.e. JIT, Lean production, Quality Circles, Project 23 management, and Material requirements planning). Finally, it is hoped that in the future, more topics and short 51 case study examples will be included as a matter of continuous improvement. The Author 51 23 93 56 5  ~6~ Table of Contents Subject pages Chapter 1: An Introduction to Operations Management 9-34 - Operations Management: An Overview ------------------------------ - Producing Goods Vs. Providing Services ---------------------------- - Why Study Operations Management? -------------------------------- - Objectives of Operations Management ------------------------------- - The Scope of Operations Management ------------------------------- - Operations Management and Decision Making -------------------- Chapter 2: Operations Strategy & Productivity 35-57 - Introduction --------------------------------------------------------------- - Competitiveness ---------------------------------------------------------- 5 - The Nature of Strategy -------------------------------------------------- 56 - Strategy Formulation -------------------------------------------------- - Operations Strategy ------------------------------------------------------ - Implications of Organization Strategy for OM---------------------- - Productivity --------------------------------------------------------------- Chapter 3: Process Design 93 58-74 - Introduction --------------------------------------------------------------- - The Interrelation Between Process & Product/Service Design --- 23 - Types of Processes ------------------------------------------------------- - Process Design Objectives ---------------------------------------------- - What Makes a Good Process Design ------------------- 51 - Phases of Process Design ---------------------------------------- Chapter 4: Product & Service Design: 75-87 - Introduction --------------------------------------------------------------- - What Does Product Design Do? --------------------------------------- - Reasons for product Design or Redesign ---------------------------- - Factors Affecting Product Design or Redesign -------------------- - Phases of Designing New Products ----------------------------------- - Design and Redesign Techniques -------------------------------------- Chapter 5: Capacity Management: 88-104 - Introduction --------------------------------------------------------------- - Definition of Capacity ---------------------------------------------------  ~7~ - Objectives of Capacity Management --------------------------------- - Factors Affecting Capacity Management------- -------------------- - Factors Affecting Capacity Management---------------------------- - Phases of Capacity Management ------------------------------------- - Importance of Capacity Decisions ------------------------------------ - Measuring Available Capacity ---------------------------------------- Chapter 6: Inventory Management: 105-119 - Introduction --------------------------------------------------------------- - Definition of Inventory -------------------------------------------------- - Functions of Inventory -------------------------------------------------- - Types of Inventory ------------------------------------------------------- - Importance of Keeping Inventories ----------------------------------- - Factors Affecting The Level of Inventory ---------------------------- 5 - Results of Inadequate Control of Inventory ------------------------- 56 - Cost (Three Basic Costs) ------------------------------------------------ - What Is Inventory Management? ------------------------------------- - Objectives of Inventory Management --------------------------------- 93 - Requirements for Effective Inventory Management --------------- Chapter 7: Quality Management: 120-141 - Introduction --------------------------------------------------------------- 23 - Definition of Quality ----------------------------------------------------- - The Evaluation Perspective on Quality ------------------------------ - The Quality Costs -------------------------------------------------------- 51 - Quality Standards and Certification ---------------------------------- - Total Quality Management (TQM) ----------------------------------- - Service Quality ----------------------------------------------------------- Chapter 8: Recent Trends in Operations Management. 142-186 - Introduction --------------------------------------------------------------- - Just in Time (JIT) -------------------------------------------------------- - Lean Production----------------------------------------------------------- - Quality Circles (QC)------------------------------------------------------ - Project Management (PM)---------------------------------------------- - Material Requirements Planning (MRPI)---------------------------- References ---------------------------------------------------------------187-196 About the Author-------------------------------------------------------197-198  ~8~ CHAPTER 1 5 56 93 AN INTRODUCTION TO OPERATIONS MANAGEMENT 23 51  ~9~ CHAPTER ONE AN INTRODUCTION TO OPERATIONS MANAGEMENT Learning objectives: After studying this chapter, students will be able to: 1. Define operations management. 2. Identify the differences between production and 5 operations. 56 3. Determine the differences between Production Management & Operations Management. 93 4. Link operations management with management science and other organization’s functions. 23 5. Explain the main objectives of Operations Management. 6. Recognize the main differences between goods and 51 services. 7. Understand the scope of Operations Management. 8. Describe & Comprehend the relationship between Operations Management and decision making. 1. OPERATIONS MANAGEMENT: AN OVERVIEW: Operations management refers to the transformation of inputs into outputs, using physical resources, in order to provide the desired goods & services to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability. In this regard, some operations managers and practitioners see operations management as the secret of running organization 5 in order to ad value to its customers through transforming 56 certain inputs into the desired outputs i.e. goods and services. So, within organizations, operations management describes the 93 functional area responsible for managing the operations that produce goods and/or services for customers. Goods are physical items that include raw materials, parts, subassemblies 23 such as motherboards that go into computers, and final products such as cell phones and automobiles. While, Services 51 are activities that provide some combination of time, location, form, or psychological value. Operational activities are core to the producing of goods and/or delivering services. Every organization provides a product and service combination. A meal in a restaurant, a visit to the hospital, watching a movie, reading a book, insuring an automobile, staying in an hotel, going to the cinema; all have operations activities and their management is central to the successful providing of goods and services. Chapter One: An Introduction To Operations Management  ~ 11 ~ The ideal situation for a business organization is to achieve an economic match of supply and demand. Having excess supply or excess capacity is wasteful and costly; having too little means lost opportunity and possible customer dissatisfaction. The key functions on the supply side are operations and supply chains, while sales and marketing are working on the demand side. While the operations function is responsible for producing products and/or providing services, it needs the support and input from other functions of the organization. Three basic 5 functional areas can be found in business organizations, as shown in Figure 1.1, including finance, marketing, and 56 operations. It doesn’t matter whether the business is a retail store, a hospital, a manufacturing firm, a car wash, or some 93 other type of business; all business organizations have these three core functions. 23 Figure 1.1 Business organizations have three core functions 51 Chapter One: An Introduction To Operations Management  ~ 12 ~ Finance is responsible for securing financial resources at favorable prices and allocating those resources throughout the organization, as well as budgeting, analyzing investment pro- posals, and providing funds for operations. Marketing is responsible for assessing consumer wants and needs, and selling and promoting the organization’s goods or services. Operations is responsible for producing the goods or providing the services offered by the organization. To put this into perspective, if a business organization were a car, operations would be its engine. And just as the engine is the core of what a car does, in a business organization, operations is the core of 5 what the organization does. Operations management is 56 responsible for managing that core. Hence, operations management is the management of systems or processes that create goods and/or provide services. 93 The following table (Table.1.1) shows the most important differences between production management and operations 23 management. It will be helpful for students to understand the idea in a better way. 51 Chapter One: An Introduction To Operations Management  ~ 13 ~ Table.1.1 The differences between production management and operations management. Production Management Operations Management Definition Production management refers to Operations management indicates into managing activities related to production managing overall business operations only. which includes production and post- production stages. Area of Decision making 5 Related to production decisions only. Related to the business activities in an 56 organization. 93 Found In It is found in organizations that produce It is found in organizations that produce goods. goods and/or provide services. 23 Capital Requirement More capital requirement primarily. Fewer capital requirements. 51 Source: (Byjus, 2022). Production is concerned with the creation of goods and/ or services. While operations are concerned with the transformation of specific inputs such as: materials, staff, information and facilities into desired outputs such as: goods and/or services. In the same vein, we have to put in mid that there are many Chapter One: An Introduction To Operations Management  ~ 14 ~ differences between production and manufacturing as illustrated in the following figure (Figure, 1.2). Figure 1.2, Differences Between Production & Manufacturing 5 56 93 23 51 Source: Batch master (Business Manufacturing Software, 2022). Chapter One: An Introduction To Operations Management  ~ 15 ~ To do the previously mentioned, any organization must have operations system which consists of four elements.i.e. inputs, processes, outputs and feedback. Inputs are divided into to types: Converted resources.i.e. the resources that are treated before using them such as: raw materials and information. Converting resources.i.e. the resources that act upon the converted resources such as: staff and facilities. 5 Transformation Processes indicate into all activities 56 that add values. There are five common transformation processes.i.e. physical process as in manufacturing, 93 locational process as in transportation, exchange process as in a giant store, physiological process in entertainment, and informational process as in 23 telecommunications. Outputs are goods and/or services such as: a pen and a 51 health care. Feedback, to ensure that the desired outputs are obtained, an organization takes measurements at various points in the transformation process {feedback) and then compares them with previously established standards to determine whether corrective action is needed {control). Chapter One: An Introduction To Operations Management  ~ 16 ~ Figure 1.3. illustrates the operations function as a system. Figure 1.3. Operations System 5 The term value added is used to describe the difference 56 between the cost of inputs and the value or price of outputs. In nonprofit organizations, the value of outputs (e.g., highway 93 construction, police and fire protection) is their value to society; the greater the value-added, the greater the 23 effectiveness of these operations. In for-profit organizations, the value of outputs is measured by the prices that customers 51 are willing to pay for those goods or services. Activities that do not add value are considered a waste; these include certain jobs, equipment, and processes. Table 1.2. shows some examples on the elements of operations system in different organizations. Chapter One: An Introduction To Operations Management  ~ 17 ~ Table 1.2. examples on operations system. Operation Inputs Type of Outputs process Raw, Physical Cars materials, (Assembling and Automotive Parts, processes) Maintenance company Components, Information, (goods & Labor, services) Machines & Facilities Lecture halls, Informational Highly 5 Students, (Education educated Helwan Professors, processes) individuals 56 University Workers, Textbooks, (services) Equipment & Staff 93 Source: The author 23 2. PRODUCING GOODS VERSUS PROVIDING SERVICES: 51 It is important to note that goods and services often occur jointly. For example, having the oil changed in your car is a service, but the oil that is delivered is a good. The goods- service combination can be considered as a continuum. It can range from primarily goods, with little service, to primarily service, with few goods. Chapter One: An Introduction To Operations Management  ~ 18 ~ Figure 1.4. Goods vs. Services 5 Figure 1.4. illustrates this continuum. Because there are 56 relatively few pure goods or pure services, companies usually sell product-packages, which are combination of goods and 93 services. There are elements of both goods production and service delivery in these product packages. This makes 23 managing operations more interesting, and also more challenging. 51 Despite goods and services often go hand in hand, there are some basic differences between both. These differences affect the management of the goods portion versus management of the service portion. On the other hand, there are also many similarities between them. Production of goods results in a tangible output, such as an automobile, eyeglasses, a golf ball, a refrigerator—anything Chapter One: An Introduction To Operations Management  ~ 19 ~ that we can see or touch. It may take place in a factory, but it can occur elsewhere. For example, farming and restaurants produce nonmanufactured goods. Delivery of service, on the other hand, generally implies an act. A physician’s examination, TV and auto repair, lawn care, and the projection of a film in a theater are examples of services. All in all, Goods and service are often different in terms of what is done but quite similar in terms of how it is done. 5 Consider these points of comparison: ▪ Tangibility: Goods are tangible (Embodied such as a 56 table) while services are intangible (Disembodied such as a lecture). 93 ▪ Storability: Goods can be stored (such as, storing a car while services are not (such as storing a healthcare 23 service, can not be sored). ▪ Transportability: Goods can be transported (cares can 51 be produced in Korea, then transported to Egypt), while services are not (Such as a car maintenance service). ▪ Simultaneity: Goods can be produced before they are needed (care can be produced then sored until they are needed from a customer part), while services are provided when they are needed (Such as a hair dresser or a barber provides his or her service when a customer Chapter One: An Introduction To Operations Management  ~ 20 ~ wants such service). ▪ Quality judgment. You can judge on quality of goods before you buy them such as: buying a new car you can judge on its quality before you buy it, while in services you have to receive a service firstly, then you can judge on its quality such as: receiving a health care service at a dental clinic, or attending a lecture on Operations Management. ▪ Degree of customer contact. Many services involve a 5 high degree of customer contact, although services such 56 as Internet providers, utilities, and mail service do not. When there is a high degree of contact, the interaction 93 between server and customer becomes a “moment of truth” that-will be judged by the customer every time the 23 service occurs. ▪ Uniformity of inputs. Service operations are often 51 subject to a higher degree of variability of inputs. Each client, patient, customer, repair job, and so on presents a somewhat unique situation that requires assessment and flexibility. Conversely, manufacturing operations often have a greater ability to control the variability of inputs, which leads to more-uniform job requirements. ▪ Measurement of productivity. Measurement of Chapter One: An Introduction To Operations Management  ~ 21 ~ productivity can be more difficult for service jobs due largely to the high variations of inputs. Thus, one doctor might have a higher level of routine cases to deal with, while another might have more difficult cases. Unless a careful analysis is conducted, it may appear that the doctor with the difficult cases has a much lower productivity than the one with the routine cases. 5 3. WHY STUDY OPERATIONS 56 MANAGEMENT? This is a question often asked by students (at both 93 undergraduate and graduate levels) when they study this unique discipline (i.e. Operations Management). The answer is 23 very simple, in operations management course the students will find tools, information and skills to become the best 51 managers possible, the skill set them gain studying operations management will serve them well in their career. More importantly, Operations management is one of the in- demand specialization in any business school or college of commerce at both undergraduate and graduate levels. It provides a systematic way towards the organizational process. It uses analytical thinking in the real-world. By enrolling into operation management, a student can benefit with: Chapter One: An Introduction To Operations Management  ~ 22 ~ product efficacy increasing customer satisfaction promoting creativity and innovation improving maintenance material planning and control. Developing operations strategy. Furthermore, there are many career-related reasons for wanting to learn about operations management, whether you plan to 5 work in the field of operations or not. This is because every aspect of business affects or is affected by operations. 56 Operations and marketing are the two line functions in a business organization. All other functions—accounting, 93 finance, marketing, IT, and so on—support the two line functions. Among the service jobs that are closely related to 23 operations are financial services (e.g., stock market analyst, broker, investment banker, and loan officer), marketing 51 services (e.g., market analyst, marketing researcher, advertising manager, and product manager), accounting services (e.g., corporate accountant, public accountant, and budget analyst), and information services'(e.g., corporate intelligence, library services, management information systems design services). In contrast, a common complaint from employers is that Chapter One: An Introduction To Operations Management  ~ 23 ~ college graduates come to them very focused, when employers would prefer them to have more of a general knowledge of how business organizations operate. This book provides some of the breadth that employers are looking for in their new hires. Apart from the career-related reasons is a not so obvious one: Through learning about operations and supply chains, you will have a much better understanding of the world you live in, the global dependencies of companies and nations, some of the 5 reasons that companies succeed or fail, and the importance of working with others. 56 Working together successfully means that all members of the organization understand not only their own role, but they also 93 understand the roles of others. In practice, there is significant interfacing and collaboration among the various functional 23 areas, involving exchange of information and cooperative decision making. For example, although the three primary 51 functions in business organizations perform different activities, many of their decisions impact the other areas of the organization. Consequently, these functions have numerous interactions, as depicted by the overlapping circles shown in Figure 1.5. Chapter One: An Introduction To Operations Management  ~ 24 ~ Figure 1.5. Overlapping three Core Business Functions 5 56 Finance and operations management personnel cooperate by 93 exchanging information and expertise in such activities as the following: 23 1. Budgeting. Budgets must be periodically prepared to plan financial requirements. Budgets must sometimes be adjusted, 51 and performance relative to a budget must be evaluated. 2. Economic analysis of investment proposals. Evaluation of alternative investments in plant and equipment requires inputs from both operations and finance people. 3. Provision of funds. The necessary funding of operations and the amount and timing of funding can be important and even critical when funds are tight. Careful planning can help Chapter One: An Introduction To Operations Management  ~ 25 ~ avoid cash-flow problems. Marketing’s focus is on selling and/or promoting the goods or services of an organization. Marketing is also responsible for assessing customer wants and needs, and for communicating those to operations people (short term) and to design people (long term). That is, operations needs information about demand over the short to intermediate term so that it can plan accordingly (e.g., purchase materials. or schedule work), while 5 design people need information that relates to improving current products and services and designing new ones. Market- 56 ing, design, and production must work closely together to successfully implement design changes and to develop and 93 produce new products. Marketing can provide valuable insight on what competitors are doing. Marketing also can supply 23 information on consumer preferences so that design will know the kinds of products and features needed; operations can 51 supply information about capacities and judge the manufacturability of designs. Operations will also have advance warning if new equipment or skills will be needed for new products or services. Finance people should be included in these exchanges in order to provide information on what funds might be available (short term) and to learn what funds might be needed for new Chapter One: An Introduction To Operations Management  ~ 26 ~ products or services (intermediate to long term). One important piece of information marketing needs from operations is the manufacturing or service lead time in order to give customers realistic estimates of how long it will take to fill their orders. Thus, marketing, operations, and finance must interface on product and process design, forecasting, setting realistic schedules, quality and quantity decisions, and keeping each other informed on the other’s strengths and weaknesses. 5 People in every area of business need to appreciate the 56 importance of managing and coordinating operations decisions that affect the supply chain and the matching of supply and 93 demand, and how those decisions impact other functions in an organization. 23 Operations also interacts with other functional areas of the organization, including legal, management information 51 systems (MIS), accounting, personnel/human resources, and public relations. The legal department must be consulted on contracts with employees, customers, suppliers, and transporters, as well as on liability and environmental issues. Accounting supplies information to management on costs of labor, materials, and overhead, and may provide reports on items such as scrap, Chapter One: An Introduction To Operations Management  ~ 27 ~ downtime, and inventories. Management information systems (MIS) is concerned with providing management with the information it needs to effectively manage. This occurs mainly through designing systems to capture relevant information and designing reports. MIS is also important for managing the control and decision-making tools used in operations management. The personnel or human resources department is concerned with recruitment and training of personnel, labor 5 relations, contract negotiations, wage and salary administration, assisting in manpower projections, and 56 ensuring the health and safety of employees. has responsibility for building and Public relations 93 maintaining a positive public image of the organization. Good public relations provides many potential benefits. An obvious 23 one is in the marketplace. Other potential benefits include public awareness of the organization as a good place to work 51 (labor supply), improved chances of approval of zoning change requests, community acceptance of expansion plans, and instilling a positive attitude among employees. Chapter One: An Introduction To Operations Management  ~ 28 ~ 4. OBJECTIVES OF OPERATIONS MANAGEMENT: Operation Management involves management of the entire process responsible for converting inputs into outputs. The following are the objectives of operations management. 1. To provide customer service The main objective of any operating management systems is to utilize resources judiciously for the satisfaction of customer 5 needs and wants. Therefore, customer satisfaction is a key 56 objective of operations management. Operation management focuses on providing the right products at a right price at the 93 right time. Hence, this objective will influence the operations manager’s decisions to achieve the required customer service. 23 2. To utilize resources efficiently Resources that are used in the business organization must be 51 carefully utilized. Inefficient use of resources or inadequate customer service leads to commercial failure of an organization. Operations management is concerned essentially with the utilization of resources. It aims at obtaining maximum output from the available resources with minimum cost. 3. To reduce costs of operations Operation management aims at reduction in the cost of production of goods and services. The cost per unit of the Chapter One: An Introduction To Operations Management  ~ 29 ~ product has to be set properly and all efforts should be taken to control the actual cost to pre-determined cost of production. Cost can be classified in to fixed cost and variable cost. The variable cost changes with every level of production. This variable cost can be checked by means of inventory and labor control techniques. 4. To improve product (goods & services) quality Quality control and maintenance are the two important 5 objectives of operations management. Quality control consists of all those activities, which are designed to define, maintain 56 and control specific quality of products within reasonable limits. It is the systematic regulation of all variables affecting 93 the goodness of the final product. In other words, quality control involves determination of quality standards and its 23 actual measurement.It is necessary to ensure that the established standards are practiced and maintained. It does not 51 attempt to achieve the perfect quality but to secure satisfactory or reasonable quality at a reasonable level of cost. 5. To fix time schedule Another important objective of operation management is to establish time schedule for various operation activities. The schedule fixation includes the operating cycle time, inventory turnover rate, machine utilization rate, capacity utilization etc. Chapter One: An Introduction To Operations Management  ~ 30 ~ 6. To operate machines properly Operation management has to take number of decisions with regard to machinery and equipment. New machines should be installed and the old machines are to be replaced. It has to ensure judicious utilization of machinery and equipment. 7. To control materials effectively Based on the sales forecast and production plans, the materials planning and control is done. This involves estimating the 5 individual requirements of parts, preparing materials budget, forecasting the levels of inventories, scheduling the orders and 56 monitoring the performance in relation to production and sales. 93 5. THE SCOPE OF OPERATIONS 23 MANAGEMENT: The scope of operations management ranges across the whole 51 organization. Operations management people are involved in designing goods and services, selecting processes, selecting and managing technology, designing work systems, location and facilities planning, and quality improvement of the organization’s goods or services. The operations function includes many interrelated activities, such as forecasting, capacity management, scheduling, managing inventories, quality assurance, motivating Chapter One: An Introduction To Operations Management  ~ 31 ~ employees, deciding where to locate facilities, and more. For example, consider a service organization’s operations system in an airline company. The system consists of the aircrafts, air and ground crews, airport facilities such as ticketing and internal transportation & catering , and maintenance facilities, sometimes spread out over a wide area. Those activities may include: - Forecasting such things as weather and landing 5 conditions, seat demand for flights, and the growth in air travel. 56 - Capacity management, essential for the airline to maintain cash flow and make a reasonable profit. (Too 93 few or too many planes, or even the right number of planes but in the wrong places, will hurt profits.) 23 - Facilities and layout, important in achieving effective use of workers and equipment. 51 - Locating facilities according to managers’ decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs. - Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and Chapter One: An Introduction To Operations Management  ~ 32 ~ baggage handlers. - Managing inventories of such items as foods and beverages, first-aid equipment, inflight magazines, pillows and blankets, and life preservers. - Quality assurance, essential in flying and maintenance operations, where the emphasis is on safety, and important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and curb 5 service, where the emphasis is on efficiency and courtesy. 56 - Motivating and training employees in all phases of operations. 93 23 6. OPERATIONS MANAGEMENT AND DECISION MAKING 51 Operations manager is responsible for making and taking several decisions in order to accomplish the required outcomes that contribute to the achievement of the organization’s overall strategic goals. Most operations’ decisions have quite different impacts on costs or profits, quality, dependability, speed of delivery, durability, reliability and after sale service. Operations managers make a number of crucial decisions that affect the entire organization. These include the following: Chapter One: An Introduction To Operations Management  ~ 33 ~ ▪ What: What resources will be needed, and in what amounts? ▪ When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When is corrective action needed? ▪ Where: Where will the work be done? ▪ How: How will the product or service be designed? 5 How will the work be done (organization, methods, equipment)? How will resources be allocated? 56 ▪ Who: Who will do the work?. 93 23 51 Chapter One: An Introduction To Operations Management  5 56 CHAPTER 2 93 OPERATIONS STRATEGY & PRODUCTIVITY 23 51  ~ 35 ~ CHAPTER TWO OPERATIONS STRATEGY & PRODUCTIVITY Learning objectives After studying this chapter, students will be able to: 1. Define the role of business strategy. 2. Explain how a business strategy is developed. 3. Determine the role of operations strategy in the organization. 5 4. Describe the relationship between business strategy 56 and operations strategy. 5. Describe how an operations strategy is developed. 93 6. Identify competitive priorities of the operations function. 23 7. Define productivity and explain productivity measures. 51 1. INTRODUCTION All business organizations are oriented by how they will survive and prosper in the future. So, a business strategy is repeatedly thought of as a plan that will set the long-term direction of the actions that are needed to ensure future organizational success. An organization’s strategy can only become a meaningful reality, in practice, if it is operationally enacted. An organization’s operations are strategically 5 important precisely because most organizational activity 56 comprises the day-to-day activities within the operations function. It is the countless of daily actions of operations, 93 when considered in their totality that constitute the organization’s long-term strategic direction. 23 Many people think that operations management is only concerned with short-term, day-to-day, tactical issues. This 51 represents a short sight for conducting business. Accordingly, this chapter will seek to correct that view by considering the strategic importance of operations within any organization. It will develop the theme of how operations management must be seen in terms of strategic importance and how strategies have to be in place if the organization wants to be able to compete in the modern business world. Chapter Two: Operations Strategy & Productivity  ~ 37 ~ 2. COMPETITIVENESS It reflects the location of an organization in the marketplace relative to its competitors. So, all organizations must be competitive to sell their goods and services in the marketplace. Competitiveness is an important factor in determining whether an organization prospers, barely gets by, or fails. Business organizations compete through some combination of price, delivery time, and product or service differentiation. Operations management has a major influence on 5 competitiveness through product and service design, cost, 56 location, quality, response time, flexibility, inventory and supply chain management, and service. Many of these are 93 interrelated. 1. Product and service design should reflect joint efforts of 23 many areas of the firm to achieve a match between financial resources, operations capabilities, supply chain capabilities, 51 and consumer wants and needs. Special characteristics or features of a product or service can be a key factor in consumer buying decisions. Other key factors include innovation and the time-to-market for new products and services. 2. Cost of an organization’s output is a key variable that affects pricing decisions and profits. Cost-reduction efforts are Chapter Two: Operations Strategy & Productivity  ~ 38 ~ generally ongoing in business organizations. Productivity (discussed later in the chapter) is an important determinant of cost. Organizations with higher productivity rates than their competitors have a competitive cost advantage. A company may outsource a portion of its operation to achieve lower costs, higher productivity, or better quality. 3. Location can be important in terms of cost and convenience for customers. Location near inputs can result in 5 lower input costs. Location near markets can result in lower transportation costs and quicker delivery times. Convenient 56 location is particularly important in the retail sector. 4. Quality refers to materials, workmanship, design, and 93 service. Consumers judge quality in terms of how well they think a product or service will satisfy its intended purpose. 23 Customers are generally willing to pay more for a product or service if they perceive the product or service has a higher 51 quality than that of a competitor. 5. Quick response can be a competitive advantage. One way is quickly bringing new or improved products or services to the market. Another is being able to quickly deliver existing products and services to a customer after they are ordered, and still another is quickly handling customer complaints. 6. Flexibility is the ability to respond to changes. Changes Chapter Two: Operations Strategy & Productivity  ~ 39 ~ might relate to alterations in design features of a product or service, or to the volume demanded by customers, or the mix of products or services offered by an organization. High flexibility can be a competitive advantage in a changeable environment. 7. Inventory management can be a competitive advantage by effectively matching supplies of goods with demand. 8. Supply chain management involves coordinating internal 5 and external operations (buyers and suppliers) to achieve timely and cost-effective delivery of goods throughout the 56 system. 9. Service might involve after-sale activities customers 93 perceive as value-added, such as delivery, setup, warranty work, and technical support. Or it might involve extra attention 23 while work is in progress, such as courtesy, keeping the customer informed, and attention to details. Service quality can 51 be a key differentiator; and it is one that is often sustainable. Moreover, businesses rated highly by their customers for service quality tend to be more profitable, and grow faster, than businesses that are not rated highly. Chapter Two: Operations Strategy & Productivity  ~ 40 ~ 3. THE NATURE OF STRATEGY: Strategy can be defined as “the direction and scope of an organization over a long time period, which achieves advantage in a changing environment through its configuration of resources with the aim of fulfilling stakeholder expectations”. In its determination of the long- term direction of an organization, strategy involves the interplay of three elements: (1) the organization’s external environment, (2) its resources and (3) its objectives (in 5 meeting the expectations of its stakeholders). 56 Operations management is principally concerned with the organizational resources. However, the way that the operations 93 function manages resources will impact both the way that the organization interacts with its external environment and its 23 ability to meet the needs of its stakeholders. Thus, operations management is an integral part of an organization’s strategy. 51 Strategy can be considered to exist at three levels in an organization as explained below: 1- Corporate level strategy: Corporate level strategy is the highest level of strategy. It sets the long-term direction and scope for the whole organization. If the organization comprises more than one business unit, corporate level strategy will be concerned with what those businesses should be, how Chapter Two: Operations Strategy & Productivity  ~ 41 ~ resources (e.g. cash) will be allocated between them, and how relationships between the various business units and between the corporate center and the business units should be managed. Organizations often express their strategy in the form of a corporate mission or vision statement. 2- Business level strategy: Business level strategy is primarily concerned with how a particular business unit should compete within its industry, and what its strategic aims and objectives should be. Depending upon the organization’s corporate 5 strategy and the relationship between the corporate center and 56 its business units, a business unit’s strategy may be constrained by a lack of resources or strategic limitations placed upon it by 93 the center. In single business organizations, business level strategy is synonymous with corporate level strategy. 23 3- Functional level strategy: The bottom level of strategy is that of the individual function. These strategies are concerned 51 with how each function contributes to the business strategy, what their strategic objectives should be and how they should manage their resources in pursuit of those objectives. 4. STRATEGY FORMULATION Strategy formulation is always critical to the success of any strategy implementation. Therefore, in order to formulate an Chapter Two: Operations Strategy & Productivity  ~ 42 ~ effective strategy, managers must take into account the core competencies of the organizations, and they must scan the environment. They must determine what competitors are doing, or planning to do, and take that into account. They must critically examine other factors that could have either positive or negative effects. This is sometimes referred to as the SWOT approach (strengths, weaknesses, opportunities, and threats). Strengths and weaknesses have an internal focus and are 5 typically evaluated by operations people. Threats and opportunities have an external focus and are typically 56 evaluated by marketing people. SWOT is often regarded as the link between organizational strategy and operations strategy. 93 Important factors may be internal or external. The following are key external factors: 23 1. Economic conditions. These include the general health and direction of the economy, inflation and deflation, interest rates, 51 tax laws, and tariffs. 2. Political conditions. These include favorable or unfavorable attitudes toward business, political stability or instability, and wars. 3. Legal environment. This includes antitrust laws, government regulations, trade restrictions, minimum wage laws, product liability laws and recent court experience, labor Chapter Two: Operations Strategy & Productivity  ~ 43 ~ laws, and patents. 4. Technology. This can include the rate at which product innovations are occurring, current and future process technology (equipment, materials handling), and design technology. 5. Competition. This includes the number and strength of competitors, the basis of competition (price, quality, special features), and the ease of market entry. 5 6. Markets. This includes size, location, brand loyalties, ease of entry, potential for growth, long-term stability, and 56 demographics. The organization also must take into account various internal 93 factors that relate to possible strengths or weaknesses. Among the key internal factors are the following: 23 1. Human resources. These include the skills and abilities of managers and workers, special talents (creativity, designing, 51 problem solving), loyalty to the organization, expertise, dedication, and experience. 2. Facilities and equipment. Capacities, location, age, and cost to maintain or replace can have a significant impact on operations. 3. Financial resources. Cash flow, access to additional funding, existing debt burden, and cost of capital are important Chapter Two: Operations Strategy & Productivity  ~ 44 ~ considerations. 4. Products and services. These include existing products and services, and the potential for new products and services. 5. Technology. This includes existing technology, the ability to integrate new technology, and the probable impact of technology on current and future operations. 6. Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility, and service are typical 5 considerations. Other. Other factors include patents, labor relations, 56 7. company or product image, distribution channels, relationships with distributors, maintenance of facilities and equipment, 93 access to resources, and access to markets. In formulating a successful strategy, organizations must take 23 into account both order qualifiers and order winners. Order qualifiers are those characteristics that potential customers 51 perceive as minimum standards of acceptability for a product to be considered low purchase. However, that may not be sufficient to get a potential customer to purchase from the organization. Order winners are those characteristics of an organization’s goods or services that cause them to be perceived as better than the competition. Characteristics such as price, delivery reliability, delivery Chapter Two: Operations Strategy & Productivity  ~ 45 ~ speed, and quality can be order qualifiers or order winners. Thus, quality may be an order winner in some situations, but in others only an order qualifier. Over time, a characteristic that was once an order winner may become an order qualifier, and vice versa. Obviously, it is important to determine the set of order qualifier characteristics and the set of order winner characteristics. It is also necessary to decide on the relative 5 importance of each characteristic so that appropriate attention can be given to the various characteristics. Marketing must 56 make that determination and communicate it to operations. 93 5. OPERATIONS STRATEGY: 23 In essence, operations strategy can be defined as the set of plans policies for using the resources of an organization in order to sustain its competitive advantage. 51 Therefore, the organization’ strategy provides the overall direction for the organization. It is broad in scope, covering the entire organization, while operations strategy is narrower in scope, dealing primarily with the operations aspect of the organization. More importantly, operations strategy relates to products, processes, methods, operating resources, quality, costs, lead Chapter Two: Operations Strategy & Productivity  ~ 46 ~ times, and scheduling. In order for operations strategy to be truly effective, it is important to link it to organization strategy; i.e., the two strategies should not be formulated independently. Rather, formulation of organization strategy should take into account the realities of operations’ strengths and weaknesses, capitalizing on strengths and dealing with weaknesses. Similarly, operations strategy must be consistent with the 5 overall strategy of the organization, and with the other functional units of the organization. 56 In other words, operations strategy has a vertical relationship in the corporate hierarchy with business and corporate 93 strategies, and horizontally with the other functional strategies (e.g. marketing, finance, human resources, etc.). This requires 23 that senior managers work with functional units to formulate strategies that will support, rather than conflict with, each 51 other and the overall strategy of the organization. As obvious as this may seem, it doesn’t always happen in practice. Instead, we may find power struggles between various functional units. These struggles are detrimental to the organization because they pit functional units against each other rather than focusing their energy on making the organization more competitive and better able to serve the customer. Some of the latest Chapter Two: Operations Strategy & Productivity  ~ 47 ~ approaches in organizations, involving teams of managers and workers, may reflect a growing awareness of the synergistic effects of working together rather than competing internally. All in all, operations strategy reflects the ability of an organization for using its resources in order to support its long -term competitive strategy. 5.1. Strategic Operations Management Decision Areas Operations management people play a strategic role in many 5 strategic decisions in a business organization. Table 2.1 highlights some key decision areas. Notice that most of the 56 decision areas have cost implications. 93 Table 2.1. Key Decision Areas Decision Area What the Decisions Affect Product and service design Costs, quality, liability and environmental 23 issues Capacity Cost structure, flexibility Process selection and layout Costs, flexibility, skill level needed, 51 capacity Work design Quality of work life, employee safety, productivity Location Costs, visibility Quality Ability to meet or exceed customer expectations Inventory Costs, shortages Maintenance Costs, equipment reliability, productivity Scheduling Flexibility, efficiency Supply chains Costs, quality, agility, shortages, vendor relations Projects Costs, new products, services, or operating systems Chapter Two: Operations Strategy & Productivity  ~ 48 ~ 5.2. Quality and Time Strategies Two factors that tend to have universal strategic operations importance relate to quality and time. The following section discusses quality and time strategies. Traditional strategies of business organizations have tended to emphasize cost minimization or product differentiation. While not abandoning those strategies, many organizations have embraced strategies based on quality and/or time. 5 Quality-based strategies focus on maintaining or improving the quality of an organization’s products or services. Quality is 56 generally a factor in both attracting and retaining customers. Quality-based strategies may be motivated by a variety of 93 factors. They may reflect an effort to overcome an image of poor quality, a desire to cattish up with the competition, a 23 desire to maintain an existing image of high quality, or some combination of these and other factors. Interestingly enough, 51 quality-based strategies can be part of another strategy such as cost reduction, increased productivity, or time, all of which benefit from higher quality. Time-based strategies focus on reducing the time required to accomplish various activities (e.g., develop new products or services and market them, respond to a change in customer demand, or deliver a product or perform a service). By doing Chapter Two: Operations Strategy & Productivity  ~ 49 ~ so, organizations seek to improve service to the customer and to gain a competitive advantage over rivals who take more time to accomplish the same tasks. The rationale is that by reducing time, costs are generally less, productivity is higher, quality tends to be higher, product innovations appear on the market sooner, and customer service is improved. Organizations have achieved time reduction in some of the following: ▪ Planning time: The time needed to react to a competitive 5 threat, to develop strategies and select tactics, to approve 56 proposed changes to facilities, to adopt new technologies, and so on. 93 ▪ Product/service design time: The time needed to develop and market new or redesigned products or services. 23 ▪ Processing time: The time needed to produce goods or provide services. This can involve scheduling, repairing 51 equipment, methods used, inventories, quality, training, and the like. ▪ Changeover time: The time needed to change from producing one type of product or service together. This may involve equipment settings and attachments, different methods, equipment, schedules, or materials. ▪ Delivery time: The time needed to fill orders. Chapter Two: Operations Strategy & Productivity  ~ 50 ~ ▪ Response time for complaints: These might be customer complaints about quality, timing of deliveries, and incorrect shipments. These might also be complaints from employees about working conditions (e.g., safety, lighting, heat or cold), equipment problems, or quality problems. 6. IMPLICATIONS OF ORGANIZATION STRATEGY FOR OPERATIONS 5 MANAGEMENT: 56 Organization strategy has a major impact on operations and supply chain management 93 strategies. For example, organizations that use a low-cost, high-volume strategy limit the amount of variety offered to customers. As a result, 23 variations for operations and the supply chain are minimal, so they are easier to deal with. Conversely, a strategy to offer a 51 wide variety of products or services, or to perform customized work, creates substantial operational and supply chain variations and, hence, more challenges in achieving a smooth flow of goods and services throughout the supply chain, thus making, the matching of supply, to demand more difficult. Similarly, increasing service reduces the ability to compete on price. Table 2.2 provides a brief overview of variety and some other key implications. Chapter Two: Operations Strategy & Productivity  ~ 51 ~ Table 2.2. Overview of variety & other key implications On Operations Management Organization Implications for Operations Management strategy Low price Requires low variation in products/services and a high- volume, steady flow of goods results in maximum use of resources through the system. Standardized work, material, and inventory requirements. High quality Entails higher initial cost for product and service design, and process design, and more emphasis on assuring supplier quality. Quick Requires flexibility, extra capacity, and higher levels of some inventory items. 5 response Newness/ Entails large investment in research and development for new 56 Innovation or improved products and services plus the need to adapt operations and supply processes to suit new products or services. 93 Product or Requires high variation in resource and more emphasis on service variety product and service design; higher worker skills needed, cost estimation more difficult; scheduling more complex; quality 23 assurance more involved; inventory management more complex; and matching supply to demand more difficult. Sustainability Affects location planning, product and service design, process 51 design, outsourcing decisions, returns policies, and waste management. 7. PRODUCTIVITY One of the primary responsibilities of a manager is to achieve productive use of an organization’s resources. The term productivity is used to describe this. Productivity is an index that measures output (goods and services) relative to the input Chapter Two: Operations Strategy & Productivity  ~ 52 ~ (labor, materials, energy, and other resources) used to produce it. It is usually expressed as the ratio of output to input: Output Productivity = Input Although productivity-is important for all business organizations, it is particularly important for organizations that use a strategy of low cost, because the higher the productivity, the lower the cost of the output. 5 A productivity ratio can be computed for a single operation, a department, an organization, or an entire country. In business 56 organizations, productivity ratios are used for planning workforce requirements, scheduling equipment, financial 93 analysis, and other important tasks. Productivity has important implications for business organizations and for entire nations. 23 For nonprofit organizations, higher productivity means lower costs; for profit-based organizations, productivity is an 51 important factor in determining how competitive a company is. For a nation, the rate of productivity growth is of great importance. Productivity growth is the increase in productivity from one period to the next relative to the productivity in the preceding period. Thus: current productivity − Pr evious productivity Productivity growth =  100 Pr evious productivity Chapter Two: Operations Strategy & Productivity  ~ 53 ~ 7.1. Productivity Measures: Productivity measures can be based on a single input (partial productivity;, on more than one input (multifactor productivity), or on all inputs (total productivity). Some examples of productivity measures are listed below. The choice of productivity measure depends primarily on the purpose of the measurement. If the purpose is to track improvements in labor productivity, then labor becomes the 5 obvious input measure. 56 93 23 51 Partial measures are often of greatest use in operations management. 7.2. Factors Affecting Productivity: There are several factors affect productivity. Generally, they are methods, capital, quality, technology, and management. Chapter Two: Operations Strategy & Productivity  ~ 54 ~ Factors that affect productivity may include the following: ▪ Standardizing processes and procedures wherever possible to reduce variability can have a significant benefit for both productivity and quality. ▪ Quality differences may distort productivity measurements. One way this can happen is when comparisons are made over time, such as comparing the productivity of a factory now with one 30 years ago. Quality is now much higher than it was then, 5 but there is no simple way to incorporate quality improvements into productivity measurements. 56 ▪ Use of the Internet can lower costs of a wide range of transactions, thereby increasing productivity. It is likely that 93 this effect will continue to increase productivity in the fore- seeable future. 23 ▪ Scrap rates have an adverse effect on productivity, signaling inefficient use of resources. 51 ▪ New workers tend to have lower productivity than seasoned workers. Thus, growing companies may experience a productivity lag. ▪ Safety should be addressed. Accidents can take a toll on productivity. ▪ Layoffs often affect productivity. The effect can be positive and negative. Initially, productivity may increase after a layoff, Chapter Two: Operations Strategy & Productivity  ~ 55 ~ because the workload remains the same but fewer workers do the work—although they have to work harder and longer to do it. However, as time goes by, the remaining workers may experience an increased risk of burnout, and they may fear additional job cuts. The most capable workers may decide to leave. ▪ Labor turnover has a negative effect on productivity; replacements need time to get up to speed. ▪ Design of the workspace can impact productivity. For 5 example, having tools and other work items within easy reach 56 can positively impact productivity. ▪ Incentive plans that reward productivity increases can 93 boost productivity. Moreover, there are still other factors that affect productivity, 23 such as equipment breakdowns and shortages of parts or materials. The education level and training of workers and 51 their health can greatly affect productivity. The opportunity to obtain lower costs due to higher productivity elsewhere is a key reason many organizations turn to outsourcing. Hence, an alternative to outsourcing can be improved productivity. Moreover, as a part of their strategy for quality, the best organizations strive for continuous improvement. Productivity improvements can be an important aspect of that approach. Chapter Two: Operations Strategy & Productivity  ~ 56 ~ 7.3. Improving Productivity: A company or a department can take a number of key steps toward improving productivity: 1. Develop productivity measures for all operations. Measurement is the first step in managing and controlling an operation. 2. Look at the system as a whole in deciding which operations are most critical. It is overall productivity that is important. 5 Develop methods for achieving productivity improvements, such as soliciting ideas from workers (perhaps organizing 56 teams of workers, engineers, and managers), studying how other firms have increased productivity, and reexamining the 93 way work is done. 3. Establish reasonable goals for improvement. 23 4. Make it clear that management supports productivity improvement. Consider incentives to reward workers for 51 contributions. 5. Measure improvements and publicize them. Chapter Two: Operations Strategy & Productivity  CHAPTER 3 PROCESS DESIGN 5 56 93 23 51 Chapter Three: Process Design  ~ 58 ~ CHAPTER THREE PROCESS DESIGN Learning objectives After studying this chapter, students will be able to: 1. Define the process design. 5 2. Understand the relationship between a product design & a 56 process design. 3. Explain the main steps of process design. 93 4. Discuss the driving forces affecting the process design decision. 23 5. Identify different types of processes and explain their characteristics. 51 6. Describe the main objectives of process design. 7. Understand what makes a good process design. Chapter Two: Operations Strategy & Productivity  ~ 59 ~ 1. INTRODUCTION Operations managers are responsible for the design and redesign of processes i.e. operations. Their role is very important in integrating all the contributors into the design/redesign process. More importantly, operations mangers are responsible for running processes effectively & efficiently, to do so, they have to inform their people about the main difference between a 5 business process and a process design as explained below: 56 A business process is “a set of logically related business activities that combine to deliver something of value (e.g. 93 products, goods, services or information) to a customer”. While, Process design refers to “the activity of determining 23 the workflow, equipment needs, and implementation requirements for a particular process”. 51 2. THE RELATIONSHIP BETWEEN PROCESS DESIGN AND PRODUCT/SERVICE DESIGN There is a consensus among operations managers and practitioners that a process design and a product design are clearly interrelated and must be integrated.i.e. they have to be treated together as depicted in Figure 3.1.below: Chapter Two: Operations Strategy & Productivity  ~ 60 ~ Figure 3.1: The Interrelation between design of goods /services and processes design. 5 56 93 23 It is important to understand that the detailed design of any 51 good or service must be consistent with the way an organization produces it. The reason behind this previous fact is if there is any small changes in the design of goods and services, the operations that will transform such design into actual product (.i.e. a good or a service) will be affected automatically. Accordingly, the design of a process can Chapter Two: Operations Strategy & Productivity  ~ 61 ~ constrain the flexibility of product and service designers to perform as they would hope and wish. However, the overlap between the two designs.i.e. process design and product design is obviously clear in operations which provide services. Because many services involve the customer in being part of the conversion processes, from a customer perspective, the service cannot be separated from the process to which the customer is exposed. 5 All in all, overlapping product design and process design has a great impact on the design activities within any organization. 56 Undoubtedly, when designers are going to create a new design, they will put in their minds what is important in this new 93 design or they have to concentrate on the ultimate target of that design. For example, in the early days of flight, the engineers 23 who designed the aircraft were testing pilots who took them out on their first flight. For this reason, safety was a significant 51 objective in the design activity. Chapter Two: Operations Strategy & Productivity  ~ 62 ~ 3. TYPES OF PROCESSES 3.1. Types of processes based on the stages of the product life cycle: All processes can be grouped into two broad categories.i.e. intermittent operations and repetitive processes. These two categories differ from each other. Once we realize these differences, we can easily identify organizations based on the category of process they use. All in all, operations managers 5 indicated that intermittent process is best for early in product 56 life cycle, while repetitive process is better for later product life cycle when demand is more expectable. 93 3.1.1. Intermittent Processes Intermittent operations are used to produce a variety of 23 products with different processing requirements in lower volumes. Examples are an auto body shop, a tool shop, or a healthcare facility. 51 More importantly, intermittent operations tend to be labor intensive rather than capital intensive. Workers need to be able to perform different tasks, depending on the processing needs of the products produced. So, we see skilled and semiskilled workers in this environment, with a reasonable amount of worker choice in performing their jobs. Workers need to be flexible and able to Chapter Two: Operations Strategy & Productivity  ~ 63 ~ perform different tasks as needed for the different products. Equipment in this type of process is flexible in order to satisfy different processing requirements. In contrast. automation tends to be less common because automation is typically product-specific. Finally, the volume of goods produced in this environment is directly tied to the number of customer orders. 3.1.2. Repetitive Processes 5 Repetitive processes or operations are used to produce one or a few standardized products in high volume. Examples are an 56 assembly line, a cafeteria, or an automatic car wash. In this environment, resources are organized in a line flow to 93 efficiently accommodate production of the product. So, we have to note that in this repetitive environment it is possible to 23 arrange resources in a line because there is only one type of product. This is directly the opposite of what we saw and 51 found with intermittent operations. To efficiently produce a large volume of one type of product, these processes can be considered as capital intensive rather than labor intensive. An example is “mass-production” operations, which usually have much invested in their facilities and equipment to provide a high degree of product consistency. Accordingly, these Chapter Two: Operations Strategy & Productivity  ~ 64 ~ facilities hinge on the degree of automation and technology to improve efficacy and increase outputs rather than on labor skill. The volume of products produced is generally based on a prediction of future demands rather than on direct customer orders. In sum, we can determine the most common differences between intermittent and repetitive processes in two main 5 dimensions: (1) the amount of product volume produced, and (2) the degree of product standardization. 56 It is very important to say that product volume may range from producing one product to producing a large number of 93 products at the same time. It is important also, to explain what does a product 23 standardization mean?. It refers to “a lack of variety in a particular product”. Examples of standardized products are 51 white undershirts, calculators, toasters, and television sets. Finally, specific differences between intermittent and repetitive processes are shown in figure 3.2. Chapter Two: Operations Strategy & Productivity  ~ 65 ~ Figure 3.2. Differences between Intermittent and Repetitive Processes 5 56 93 3.2. Types of processes based on product volume and 23 product standardization: In the same vein, processes can be divided into some essential categories of operations or 51 processes which will help operations managers in understanding and perceiving their overall characteristics. To be more detailed, we can further divide each category according to product volume and degree of product standardization, as explained below: Intermittent processes can be divided into project processes and batch processes. Repetitive processes can be divided into Chapter Two: Operations Strategy & Productivity  ~ 66 ~ line processes and continuous processes. Figure 3.3 displays those types of processes. So, we will discuss all of them in brief, as follow: Project processes: are used to make one-of-a-kind products exactly to customer specifications. These processes are used when there is high customization and low product volume, because each product is different. Examples can be seen in construction, shipbuilding, medical procedures, custom 5 tailoring, and interior design. Batch processes: are used to produce small quantities of 56 products in groups or batches based on customer orders or product specifications. They are also known as job shops. The 93 volumes of each product produced are still small, and there can still be a high degree of customization. Examples can be seen 23 in bakeries, education, and printing shops. The classes you are taking at the university use a batch process. 51 Line processes: are designed to produce a large volume of a standardized product for mass production. More importantly, they are also known as flow shops, flow lines, or assembly lines. With line processes the product that is made in high volume with little or no customization. Examples include cars, computers, television sets, shoes, candy bars, even food items. Chapter Two: Operations Strategy & Productivity  ~ 67 ~ Continuous processes: are operating repeatedly to produce a very high volume of a completely standardized product. Examples include oil refineries, water treatment plants, and certain paint facilities. The products produced by continuous processes are usually in continual rather than discrete units, such as liquid or gas. They usually have a single input and a limited number of outputs. Finally, note that both project and batch processes have low 5 product volumes and offer customization. The difference is in the volume and degree of customization. Project processes are 56 more extreme cases of intermittent operations compared to batch processes. Also, note that both line and continuous 93 processes primarily produce large volumes of standardized products. Again and again, the main difference is in the 23 volume and degree of standardization. Continuous processes are more extreme cases of high volume and product 51 standardization than are line processes. Chapter Two: Operations Strategy & Productivity  ~ 68 ~ Figure 3.3. Types of processes based on product volume and product standardization 5 56 93 4. DRIVING FORCES OF PROCESS DESIGN 23 Different process design will target different areas of business activity, according to the organizational focus and 51 requirements most process design are driven by a combination of the following common requirements: The need to increase efficiency: An inefficient business process leads to poor communication, duplication of effort, functional barriers, delays, unnecessary costs (money, materials and manpower) and, ultimately, an Chapter Two: Operations Strategy & Productivity  ~ 69 ~ output that either partially or wholly fails to achieve its nominated purpose. The need to evaluate business practice as part of an organizational development project: It means that business process design is required for the successful implementation of organization technology such as ERP modules for SCM or CRM, or prior to a proposed acquisition or internal restructuring projects. The need to evaluate potential new business ventures: 5 Examples included joint ventures or alliances or business 56 offerings. The need to manage the company’s knowledge resources: 93 Managing Knowledge can be difficult without clear processes to catch and contain both what is already known, and the new 23 knowledge and skills that are acquired on a daily basis. The need to manage human resources: 51 Business process design can help to identify current and future human resources competences that is required to developing a human resource strategy. 5. OBJECTIVES OF PROCESS DESIGN At the begging we can say that process design is required to make sure that the performance of the process is appropriate Chapter Two: Operations Strategy & Productivity  ~ 70 ~ relevant for whatever it is trying to achieve. For example, if an operation competed primarily on its ability to respond quickly to customer requests, its processes would need to be designed to give fast throughput times. This would minimize the time between customers requesting a product or service and them receiving it. Similarly, if an operation competed on low price, cost-related objectives would be likely to dominate its process design. 5 So, we can come up with a main conclusion that is there is a great impact of strategic performance objectives on process 56 design objectives and performance as illustrated in Table 3.1. 93 23 51 Chapter Two: Operations Strategy & Productivity  ~ 71 ~ Table 3.1. The impact of strategic performance objectives on process design objectives and performance 5 56 93 23 51 Chapter Two: Operations Strategy & Productivity  ~ 72 ~ 6. WHAT MAKES A GOOD PROCESS DESIGN There are some general considerations should be taken into account when designing the process, or a good process design must be characterized by the following characteristics: Inherent safety: All processes which might create a danger to either staff or customers should not be accessible to the unauthorized. Length of flow: The flow of materials, information or 5 customers should be suitable for the operation. This usually 56 means minimizing the distance travelled by transformed resources. Clarity of flow: All flow of materials and customers should be 93 well marked, clear and evident to staff and customers alike. Staff conditions: Staff should be located away from noisy or 23 unfavorable parts of the operation. Management coordination: Supervision and communication 51 should be assisted by the location of staff and communication devices. Accessibility: All machines and facilities should be accessible for appropriate cleaning and maintenance. Use of space: All layouts should use space properly. This usually means minimizing the space used, but sometimes can Chapter Two: Operations Strategy & Productivity  ~ 73 ~ mean achieving an impression of spacious luxury, as in the entrance lobby of a high-class hotel. Long-term flexibility: Layouts need to be changed periodically. A good layout will have been devised with the possible future needs of the operation in mind. 7. STAGES OF EFFECTIVE PROCESS DESIGN Process design identifies the best relative locations of 5 functional work centers. Work centers that interact frequently, 56 with movement of material or people, should be located close together, whereas those that have little interaction can be 93 separated. One approach of designing an efficient functional layout involves the following phases: 23 1. List and describe each functional work center; 2. Obtain a drawing and description of the facility being designed; 51 3. Identify and estimate the amount of material and personnel flow among work centers; 4. Use structured analytical methods to obtain a good general layout; and 5. Evaluate and modify the layout, incorporating details such as machine orientation, storage area location, and equipment access. Chapter Two: Operations Strategy & Productivity  CHAPTER 4 5 PRODUCT & SERVICE DESIGN 56 93 23 51  CHAPTER FOUR PRODUCT & SERVICE DESIGN Learning objectives By the end of this chapter, students will be able to: 1. Define good & service design and explain its strategic impact on the entire organization. 5 56 2. Identify the key reasons for designing or redesigning goods and services. 93 3. Determine the critical factors affecting designing or redesigning goods and services. 23 4. Describe the main phases of designing or redesigning goods 51 and services. 5. Recognize the main activities of designing or redesigning goods and services. 6. Explain the most important techniques used in designing goods and services. 1. INTRODUCTION Designing a product (good or service) is the most important challenge of any organization. Therefore, organizations that have well-designed goods or services are more likely to accomplish their objectives than those with poorly designed products or services. Henceforth, organizations have a strategic interest in designing new goods and services. Product (good or service) design must be closely tied to an 5 organization’s strategy. 56 Designing products is a critical factor in producing goods and services with low cost, high quality, high speed of delivery, 93 high customer satisfaction, and having a competitive advantage. Consequently, all core functions within an 23 organization.i.e. marketing, finance, operations, accounting, IT, and HR must be involved in designing new goods and services. 51 Furthermore, product (good and service) design has a great impact on what materials, parts and components would be used, which suppliers will be selected, what machines or what type of processes will be used, where those materials and parts will be stored, how they will be transported etc. All in all, we can say that without designing new goods and services there would be no customers. Without customers, there would be no Chapter Four: Product & Service Design  ~ 77 ~ revenue. Without revenue, there would be no expansion and no survival in the marketplace. Good and service design is concerned with converting new ideas into practice by inserting them in goods and services. In other words, product design deals with conversion of ideas into reality. Every business Organization has to design, develop and introduce new goods and services as a commercial strategy. Good and service design defines a product’s features & 5 characteristics, such as its appearance, the materials it is made 56