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Handout for Unit 25 Operations and Production Management  Mission statements tell an organization where it is going  The strategy tells the organization how to get there  Strategies for Competitive Advantage:  Differentiation – better, or at least different  Cost leadership –...

Handout for Unit 25 Operations and Production Management  Mission statements tell an organization where it is going  The strategy tells the organization how to get there  Strategies for Competitive Advantage:  Differentiation – better, or at least different  Cost leadership – cheaper  Response – rapid response  Process Design: Page 1 of 17  Handout for Unit 25 Operations and Production Management  Product Life Cycle:  Competing on Differentiation: Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value  Competing on Cost: Provide the maximum value as perceived by customer. Does not imply low quality.  Competing on Response: Flexibility is responding to the rapidly changing market needs with high-quality solutions Page 2 of 17  Handout for Unit 25 Operations and Production Management  10 Strategic OM Decisions 1. Goods and service design 2. Quality 3. Process and capacity design 4. Location selection 5. Layout design 6. Human resources and job design 7. Supply-chain management 8. Inventory 9. Scheduling 10. Maintenance  External environment: everything outside an organization’s boundaries that might affect it. The uncontrollable environment.  Internal environment: the conditions and forces within an organization. The controllable environment. Page 3 of 17  Handout for Unit 25 Operations and Production Management  Business environment types:  PESTLE Analysis: It includes those factors that create opportunities and threat to business units. Following are the elements of Macro Environment.  Political factors  Economic factors  Social factors  Technological factors  Environmental factors  Legal factors Page 4 of 17  Handout for Unit 25 Operations and Production Management  Responsibilities of Business:  Economic responsibilities  Legal responsibilities  Social responsibilities (Ethical responsibilities + Discretionary responsibilities)  SWOT stands for: S – Strengths W – Weaknesses O – Opportunities T – Threats  Benefits of Corporate Social Responsibility (CSR): It has been increasingly evident that by undertaking CSR initiatives the tangible benefits to an organization can be seen in reducing cost and risks, gaining competitive advantage, building a strong reputation and satisfying stakeholder demands. Page 5 of 17  Handout for Unit 25 Operations and Production Management  Ways to improve Quality:  Cause-and-Effect Diagram: A tool that identifies process elements (causes) that might effect an outcome. Page 6 of 17  Handout for Unit 25 Operations and Production Management  Different views of Quality:  User-based: better performance, more features  Manufacturing-based: conformance to standards, making it right the first time  Product-based: specific and measurable attributes of the product  Control is the process of coping with any changes that affect the plan. It may also mean that an ‘intervention’ will need to be made in the operation to bring it back ‘on track’.  Planning is deciding:  what activities should take place in the operation  when they should take place  what resources should be allocated to them  Planning is a formalization of what is intended to happen at some time in the future.  A plan does not guarantee that an event will actually happen, it is a statement of intention.  Although plans are based on expectations, during their implementation things do not always happen as expected. Page 7 of 17  Handout for Unit 25 Operations and Production Management  Planning is deciding:  What activities should take place in the operation  When they should take place  What resources should be allocated to them  Control is:  understanding what is happening in the operation  deciding whether there is a significant deviation from what should be happening  (If there is deviation) changing resources to affect the operation’s activities.  To provide an ‘appropriate’ amount of capacity at any point in time  The ‘appropriateness’ of capacity planning in any part of the operation can be judged by its effect on:  Costs  Revenue  Working capital  Service level  Ways of reconciling capacity and demand:  Level capacity  Chase demand  Demand management Page 8 of 17  Handout for Unit 25 Operations and Production Management  Ways of reconciling capacity and demand  Adjust output to match demand – Chase strategy  Absorb demand – Level capacity strategy  Change demand - Demand management  Ways Adjust output to match demand:  Inventory is created to compensate for the differences in timing between supply and demand  Inventory classifications and measures:  Class A items – the 20% or so of high-value items which account for around 80% of the total stock value  Class B items – the next 30% or so of medium-value items which account for around 10% of the total stock value  Class C items – the remaining 50% or so of low-value items which account for around the last 10% of the total stock value Page 9 of 17  Handout for Unit 25 Operations and Production Management  Pareto curve for stocked items:  ‘Supply chain management is the management of the interconnection of organizations that relate to each other through upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services.’  Supply chain management is concerned with managing the flow of materials and information between a string of operations that form the strands or ‘chains’ of a supply network.  Tangible assets are the easiest to value, and often are the only resources that appear on a firm’s balance sheet. They include real estate, production facilities, and raw materials, among others. Although tangible resources may be essential to a firm’s strategy, due to their standard nature, they rarely are a source of competitive advantage. There are, of course, notable exceptions. Page 10 of 17  Handout for Unit 25 Operations and Production Management  Intangible assets include such things as company reputations, brand names, cultures, technological knowledge, patents and trademarks, and accumulated learning and experience. These assets often lay an important role in competitive advantage (or disadvantage), and firm value.  Organizational capabilities are not factor inputs like tangible and intangible assets; they are complex combinations of assets people, and processes that organizations use to transform inputs into outputs. The list of organizational capabilities includes a set of abilities describing efficiency and effectiveness: low cost structure, “lean” manufacturing, high quality production, fast product development.  is McKinsy 7-S Framework: Management model that describes 7 factors to organize a company in an holistic and effective way. Strategy, Structure, Systems, Shared Values, Skills, Style and Staff.  3 HARD ‘S’: More tangible, easy to define and easy to influence than the soft ‘S’.  Strategy It refers to the intended sequence of actions taken by a company to achieve its goals and objectives. It deals with resource allocation and includes competition, customers and the environment. Page 11 of 17  Handout for Unit 25 Operations and Production Management  Structure It refers to how the various business units are structured and how they communicate with each other. A company’s structure may be centralized or decentralized or may take many other forms depending on the company’s culture and values.  Systems This includes a host of systems within an organization that define its processes and routines. It includes performance appraisal system, financial systems, IT systems etc.  4 SOFT ‘S’  Shared values Core values of the company that connect all the other 6 factors. These are the fundamental ideas or guiding principles that lay the foundation of businesses.  Skills These define the core competencies of the employees.  Style This spans the core beliefs, norms and management style in the organization. Page 12 of 17  Handout for Unit 25 Operations and Production Management  Staff It refers to the number and type of employees in the organization. It is very important for an organization to manage its human capital to create competitive advantage.  Risk is the uncertainty that surrounds future events and outcomes.  Risk is the expression of the likelihood and impact of any event with the potential to influence the achievement of an organization’s objectives.  Identification of Risk:  Financial Risk - unplanned losses or expenses  Service Delivery/Operational Risk - lapses in continuity of operations  HR Risk – Employment practices; retention  Strategic Risk – untapped opportunities  Reputational Risk – damage to relationship with community at large (loss of revenue)  Legal/Compliance Risk – noncompliance with statutory or regulatory obligations  Technology/Privacy Risk – threats to and breaches in IT security  Governance Risk – wide-spread non-compliance with policies and standards  Physical Security/or Hazard Risk – harm or damage to people, property or environment Page 13 of 17  Handout for Unit 25 Operations and Production Management  Risk Assessment – Consider Impact and Likelihood to Prioritize Risks  Risk (uncertainty) may affect the achievement of objectives.  Effective mitigation strategies and controls can reduce negative risks (threats) or increase opportunities.  Residual risk is the level of risk remaining after applying risk controls.  Acceptance and action should be based on residual risk levels.  Strategic Risk Management Steps:  Identify Risks  Prioritize  Take Action  Monitor and Reassess Page 14 of 17 Handout for Unit 25 Operations and Production Management  Operations Management is: The business function responsible for planning, coordinating, and controlling the resources needed to produce products and services for a company.  Operations Management is:  A management function  An organization’s core function  In every organization whether Service or Manufacturing, profit or Not for profit  OM’s Transformation Role:  To add value o Increase product value at each stage o Value added is the net increase between output product value and input material value  Provide an efficient transformation o Efficiency – means performing activities well for least possible cost Page 15 of 17 Handout for Unit 25 Operations and Production Management  Manufacturers vs Service Organizations  Services: o Intangible product o Product cannot be inventoried o High customer contact o Short response time o Labor intensive  Manufacturers: o Tangible product o Product is inventoried o Low customer contact o Longer response time o Capital intensive  Similarities for Service/Manufacturers:  Both use technology  Both have quality, productivity, & response issues  Both must forecast demand  Both can have capacity, layout, and location issues  Both have customers, suppliers, scheduling and staffing issues Page 16 of 17 Handout for Unit 25 Operations and Production Management  OM Decisions: All organizations make decisions and follow a similar path  Strategic Decisions – set the direction for the entire company; they are broad in scope and long-term in nature  Tactical decisions: focus on specific day-to-day issues like resource needs, schedules, & quantities to produce, and are frequent  Strategic decisions are less frequent  Tactical and Strategic decisions must align. 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