Operations Management Module.pdf

City College of San Jose del Monte OPERATIONS MANAGEMENT  City College of San Jose del Monte OPERATIONS MANAGEMENT Table of Contents...

City College of San Jose del Monte OPERATIONS MANAGEMENT  City College of San Jose del Monte OPERATIONS MANAGEMENT Table of Contents Page Title Page 2 LESSON 1: INTRODUCTION TO OPERATIONS MANAGEMENT 3 LESSON 2: COMPETITIVENESS, STRATEGY AND PRODUCTIVITY 18 LESSON 3: FORECASTING 30 LESSON 4: PRODUCT AND SERVICE DESIGN 41 LESSON 5: STRATEGIC CAPACITY PLANNING FOR PRODUCTS AND SERVICES 53 LESSON 6: PROCESS SELECTION AND FACILITIES LAYOUT 60 LESSON 7: INVENTORY MANAGEMENT 69 LESSON 8: SUPPLY CHAIN MANAGEMENT 75 LESSON 9: MANAGEMENT OF QUALITY 86 LESSON 10: MRP AND ERP 93 LESSON 11: SIX SIGMA: BREAKTHROUGH TO IN-PROCESS EFFECTIVENESS 100 1  City College of San Jose del Monte OPERATIONS MANAGEMENT https://www.slideshare.net/ShanuAggarwal2/operations-management-71432282 2  City College of San Jose del Monte OPERATIONS MANAGEMENT https://www.marketing91.com/operations-management/ Desired Learning Outcomes At the end of the session, the learners are expected to: 1. Define terms widely used in operations management. 2. Discuss and understand the underlying principles and concepts of operations management 3. Explain the need for operations management. K-W-L Chart Directions. Complete the K and W columns in the KWL chart provided below. Write as many ideas as you want. K- what I already KNOW about W- what I WANT to know about L- What I LEARNED about this topic this topic this topic ____________________________ _____________________________ ____________________________ _____________________________ ____________________________ _____________________________ ____________________________ _____________________________ Note: This column is to be ____________________________ _____________________________ filled out this at the end of the ____________________________ _____________________________ session ____________________________ _____________________________ ____________________________ _____________________________ Explain I. Introduction to Operations Management Definition of Terms Goods – physical items produced by business organizations 3  City College of San Jose del Monte OPERATIONS MANAGEMENT Services – Activities that provide some combination of time, location, form, and psychological value Operations management - The management of systems or processes that create goods and/or provide services. Supply chain - A sequence of organizations-their facilities, functions, and activities-that are involved in producing and delivering a product or service Value Added - The difference between the cost of inputs and the value or price of outputs. Lead Time – the time between ordering a good or service and receiving it Process – one or more actions that transforms input into outputs Model – an abstraction of reality; a simplified representation of something. E-Business - the use of electronic technology to facilitate business transaction E-Commerce – consumer to business transaction Six Sigma – a process for reducing costs, improving quality, and increasing customer satisfaction Agility – the ability of an organization to respond quickly to demands or opportunities Lean Systems – systems that uses minimal amounts of resources to produce high volume of high-quality goods with some variety. Sustainability – using resources in ways that do not harm ecological systems that support human existence. Ethics – a standard of behavior that guides how one should act in various situations. Ethical Framework – a sequence of steps intended to guide thinking and subsequent decisions or actions Outsourcing – buying goods or services instead of producing or providing them in-house. Operations is that part of a business organization that is responsible for producing goods and/or services. Goods are physical items that include raw materials, parts, subassemblies such as motherboards that go into computers, and final products such as cell phones and automobiles. Services are activities that provide some combination of time, location, form. or psychological value. Examples of goods and services are found all around you. 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, and sales and marketing on the demand side. While the operations function is responsible for producing products and/or delivering services, it needs the support and input from other areas of the organization. Business organizations have three basic functional areas, finance, marketing, and operations. It doesn't matter whether the business is a retail store, a hospital, a manufacturing firm, a car wash, or some other type of business: all business organizations have these three basic functions. Finance is responsible for securing financial resources at favorable prices and allocating those resources throughout the organization, as well as budgeting, analyzing investment proposals, 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 what the organization does. Operations management is responsible for managing that core. Hence operations management is the management of systems or processes that create goods and/or provide services. Operations and supply chains are intrinsically linked, and no business organization could exist without both. A supply chain is the sequence of organizations-their facilities, functions, and activities that are involved in producing and delivering a product or service The sequence begins with basic suppliers of raw materials and extends all the way to the final customer. Facilities might include warehouses, factories, processing centers, offices, distribution centers, and retail outlets. Functions and activities include forecasting, purchasing, inventory management, information management, quality assurance. scheduling, production, distribution, delivery, and customer service. One way to think of a supply chain is that it is like a chain, as its name implies. The links would represent various production and/or service operations such as factories, storage facilities, activities, and modes of transportations. The chain illustrates both the sequential nature of a supply 4  City College of San Jose del Monte OPERATIONS MANAGEMENT chain and the interconnectedness of the elements of the supply chain. Each link is a customer of the previous link and a supplier of the following line. It also helps to understand that if any one of the links fails for any reason (quality or delivery issues, weather problems, or some other problem [there are numerous possibilities]), that can interrupt the flow in the supply chain for the following portion of the chain. A SIMPLE PRODUCT SUPPLY CHAIN Supply chains are both external and internal to the organization. The external parts of a supply chain provide raw materials, parts, equipment, supplies, and/or other inputs to the organization, and they deliver outputs that are goods to the organization's customers. The internal parts of a supply chain are part of the operations function itself, supplying operations with parts and materials, performing work on products, and/or performing services. The creation of goods or services involves transforming or converting inputs into outputs. Various inputs such as capital, labor, and information are used to create goods or services using one or more transformation processes (e.g., storing, transporting, repairing), 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). The essence of the operations function is to add value during the transformation process: Value-added is the term used to describe the difference between the cost of inputs and the value or price of outputs. In nonprofit organizations, the value of outputs (e.g., highway construction, police and fire protection is their value to society; the greater the value-added, the greater the effectiveness of these operations. In for-profit organizations, the value of outputs is measured by the prices that customers are willing to pay for those goods or services. Firms use the money generated by value-added for research and development, investment in new facilities and equipment, worker salaries, and profits. Consequently, the greater the value added, the greater the amount of funds available for these purposes. Value can also be psychological, as in branding. Many factors affect the design and management of operations systems. Among them are the degree of involvement of customers in the process and the degree to which technology is used to produce and/or deliver a product or service. The greater the degree of customer involvement, the more challenging it can be to design and manage the operation. Technology choices can have a major impact on productivity, costs, flexibility, and quality and customer satisfaction. II. Production of Goods versus Providing Services Although goods and services often go hand in hand, there are some considerably basic differences between the two, differences that impact the management of the goods portion versus management of the service portion. There are also many similarities between the two. Production of goods results in a tangible output, anything that we can see or touch. It may take place in a factory, but it can occur elsewhere. Delivery of service, on the other hand, generally implies an act. Manufacturing and service are often different in terms of what is done but quite similar in terms of how it is done. Consider these points of comparison 1. Degree of customer contact - Many services involve a high degree of customer contact although services such as Internet providers, utilities, and mail service do not. When there is a high degree of contact, the interaction between server and customer becomes a "moment of truth" that will be judged by the customer every time the service occurs. 2. Labor content of jobs - Services often have a higher degree of labor content than manufacturing jobs do, although automated services are an exception. 3. Uniformity of inputs. Service operations are often subject to a higher degree of variability of inputs. Each client, patient, customer, repair job, and so on presents a somewhat unique 5  City College of San Jose del Monte OPERATIONS MANAGEMENT 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. 4. Measurement of productivity - Measurement of productivity can be more difficult for service jobs due largely to the high more variations of inputs. 5. Quality assurance - Quality assurance is usually more challenging for services due to the higher variation in input, and because delivery and consumption occur at the same time. Unlike manufacturing, which typically occurs away from the customer and allows mistakes that are identified to be corrected, services have less opportunity to avoid exposing the customer to mistakes. 6. Inventory - Many services tend to involve less use of inventory than manufacturing operations, so the costs of having inventory on hand are lower than they are for manufacturing. However, unlike manufactured goods, services cannot be stored. Instead, they must be provided "on demand." 7. Wages. Manufacturing jobs are often well paid, and have less wage variation than service jobs, which can range from highly paid professional services to minimum-wage workers. 8. Ability to patent - Product designs are often easier to patent than service designs, and some services cannot be patented, making them easier for competitors to copy. There are also many similarities between managing the production of products and managing services. In fact, most of the topics in this book pertain to both. When there are important service considerations, these are highlighted in separate sections. Here are some of the primary factors for both: a. Forecasting and capacity planning to match supply and demand b. Process management c. Managing variations d. Monitoring and controlling costs and productivity e. Supply chain management f. Location planning, inventory management, quality control, and scheduling Note that many service activities are essential in goods-producing companies. These include training, human resource management, customer service, equipment repair, procurement, and administrative services. III. Why Learn about Operations Management? Whether operations management your major or not, the skill set you gain studying operations management will serve you well in your career. There are many career-related reasons for wanting to learn about operations management, whether you plan to work in the field of operations or not. This is because every aspect of business affects or is affected by operations. Operations and sales are the two-line functions in a business organization. All other functions-accounting, finance, marketing, IT, and so on-support the two-line functions. Among the service jobs that are closely related to operations are financial services (e.g., stock market analyst, broker, investment banker, and loan officer), marketing services (e.g. market analyst, marketing researcher, advertising manager, and product manager), accounting ser vices (e.g., corporate accountant, public accountant, and budget analyst), and information services (e.g., corporate intelligence, library services, management information systems design services Working together successfully means that all members of the organization understand not only their own role, but they also understand the roles of others. In practice, there is significant interfacing and collaboration among the various functional areas, involving exchange of information and cooperative decision making. For example, although the three primary functions in business organizations perform different activities, many of their decisions impact the other areas of the organization. Consequently, these functions have numerous interactions. Finance and operations management personnel cooperate by exchanging information and expertise in such activities as the following: 6  City College of San Jose del Monte OPERATIONS MANAGEMENT 1. Budgeting, Budgets must be periodically prepared to plan financial requirements. Budgets must sometimes be adjusted, 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 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 design people need information that relates to improving current products and services and designing new ones. Marketing, design, and production must work closely together to successfully implement design changes and to develop and produce new products. Marketing can provide valuable insight on what competitors are doing. Marketing also can supply information on consumer preferences so that design will know the kinds of products and features needed; operations can 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 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. People in every area of business need to appreciate the importance of managing and coordinating operations decisions that affect the supply chain and the matching of supply and demand, and how those decisions impact other functions in an organization. Operations also interacts with other functional areas of the organization, including legal, management information 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 scrap, 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 relations, contract negotiations, wage, and salary administration, assisting in manpower projections, and ensuring the health and safety of employees. Public relations is responsible for building and maintaining a positive public image of the organization. Good public relations provide many potential benefits. An obvious one is in the marketplace. Other potential benefits include public awareness of the organization as a good place to work (labor supply), improved chances of approval of zoning change requests, community acceptance of expansion plans, and instilling a positive attitude among employees. IV. Process Management A key aspect of operations management is process management. A process consists of one or more actions that transform inputs into outputs. In essence, the central role of all management is process management. 7  City College of San Jose del Monte OPERATIONS MANAGEMENT Businesses are composed of many interrelated processes. Generally speaking, there are three categories of business processes: 1. Upper-management processes -These govern the operation of the entire organization. Examples include organizational governance and organizational strategy. 2. Operational processes - These are the core processes that make the value stream. Examples include purchasing, production and/or service, marketing, and sales. 3. Supporting processes - These support the core processes. Examples include accounting. human resources, and IT (information technology). Business processes, large and small, are composed of a series of supplier-customer relationships, where every business organization, every department, and every individual operation is both a customer of the previous step in the process and a supplier to the next step in the process. A major process can consist of many subprocesses, each having its own goals that contribute to the goals of the overall process. Business organizations and supply chains have many such processes and subprocesses, and they benefit greatly when management is using a process perspective. Business process management (BPM) activities include process design, process execution, and process monitoring. Two basic aspects of this for operations and supply chain management are managing processes to meet demand and dealing with process variability. Managing a Process to Meet Demand Ideally, the capacity of a process will be such that its output just matches demand. Excess capacity is wasteful and costly; too little capacity means dissatisfied customers and lost revenue. Having the right capacity requires having accurate forecasts of demand, the ability to translate forecasts into capacity requirements, and a process in place capable of meeting expected demand. Even so, process variation and demand variability can make the achievement of a match between process output and demand difficult. Therefore, to be effective, it is also necessary for managers to be able to deal with variation. Process Variation Variation occurs in all business processes. It can be due to variety or variability. For example, random variability is inherent in every process; it is always present. In addition, variation can occur as the result of deliberate management choices to offer customers variety. There are four basic sources of variation: 1. The variety of goods or services being offered - The greater the variety of goods and services, the greater the variation in production or service requirements. 2. Structural variation in demand - These variations, which include trends and seasonal variations, are generally predictable. They are particularly important for capacity planning. 3. Random variation - This natural variability is present to some extent in all processes, as well as in demand for services and products, and it cannot generally be influenced by managers. 4. Assignable variation. These variations are caused by defective inputs, incorrect work methods, out-of-adjustment equipment, and so on. This type of variation can be reduced or eliminated by analysis and corrective action. Variations can be disruptive to operations and supply chain processes, interfering with optimal functioning. Variations result in additional cost, delays and shortages, poor quality, and inefficient work systems. Poor quality and product shortages or service delays can lead to dissatisfied customers and can damage an organization's reputation and image. An important aspect of being able to deal with variation is to use metrics to describe it. Two widely used metrics are the mean (average) and the 8  City College of San Jose del Monte OPERATIONS MANAGEMENT standard deviation. The standard deviation quantifies variation around the mean. The mean and standard deviation are used in conjunction with variation. So, too, is the normal distribution. V. The Scope of Operations Management The scope of operations management ranges across the organization. Operations management people are involved in product and service design, process selection, selection and management of technology, design of work systems, location planning, facilities planning, and quality improvement of the organization's products or services. The operations function includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more. Managing the Supply Chain to Achieve Schedule, Cost, and Quality Goals A-primary function of an operations manager is to guide the system by decision making. Certain decisions affect the design of the system, and others affect the operation of the system. System design involves decisions that relate to system capacity, the geographic location of facilities, arrangement of departments and placement of equipment within physical structures, product and service planning, and acquisition of equipment. These decisions usually, but not always, require long-term commitments. Moreover, they are typically strategic decisions. System operation involves management of personnel, inventory planning and control, scheduling. project management, and quality assurance. These are generally tactical and operational decisions. Feedback on these decisions involves measurement and control. In many instances, the operations manager is more involved in day-to-day operating decisions than with decisions relating to system design. However, the operations manager has a vital stake in system design because system design essentially determines many of the parameters of system operation. A number of other areas are part of, or support, the operations function. They include purchasing, industrial engineering, distribution, and maintenance. Purchasing has responsibility for procurement of materials, supplies, and equipment. Close contact with operations is necessary to ensure correct quantities and timing of purchases. The purchasing department is often called on to evaluate vendors for quality. reliability, service, price, and ability to adjust to changing demand. Purchasing is also involved in receiving and inspecting the purchased goods. Industrial engineering is often concerned with scheduling, performance standards, work methods, quality control, and material handling. Distribution involves the shipping of goods to warehouses, retail outlets, or final customers. Maintenance is responsible for general upkeep and repair of equipment, buildings and grounds, heating, and air-conditioning; removing toxic wastes; parking; and perhaps security. The operations manager is the key figure in the system. He or she has the ultimate responsibility for the creation of goods or provision of services. VI. Operations Management and Decision Making The chief role of an operations manager is that of planner and decision maker. In this capacity. the operations manager exerts considerable influence over the degree to which the goals and objectives of the organization are realized. Most decisions involve many possible alternatives that can have quite different impacts on costs or profits. Consequently, it is important to make informed decisions. Operations management professionals make several key decisions that affect the entire organization. These include the following: 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? 9  City College of San Jose del Monte OPERATIONS MANAGEMENT Where: Where will the work be done? How: How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will resources be allocated? Who: Who will do the work? An operations manager's daily concerns include costs (budget), quality, and schedules (time). Models are often a key tool used by all decision makers. Models A model is an abstraction of reality, a simplified representation of something. Models are sometimes classified as physical, schematic, or mathematical. Physical models look like their real-life counterparts. Examples include miniature cars trucks, airplanes, toy animals and trains, and scale-model buildings. The advantage of these models is their visual correspondence with reality. Schematic models are more abstract than their physical counterparts; that is, they have less resemblance to the physical reality. Examples include graphs and charts, blueprint pictures, and drawings. The advantage of schematic models is that they are often relatively simple to construct and change. Moreover, they have some degree of visual correspondence. Mathematical models are the most abstract: They do not look at all like their real-life counterparts. Examples include numbers, formulas, and symbols. These models are usually the easiest to manipulate, and they are important forms of inputs for computers and calculators The variety of models in use is enormous. Nonetheless, all have certain common features. They are all decision-making aids and simplifications of more complex real-life phenomena. Real life involves an overwhelming amount of detail, much of which is irrelevant for any particular problem. Models omit unimportant details so that attention can be concentrated on the most important aspects of a situation. Benefits of Using a Model 1. Are generally easy to use and less expensive than dealing directly with the actual situation. 2. Require users to organize and sometimes quantify information and, in the process, often indicate areas where additional information is needed. 3. Increase understanding of the problem. 4. Enable managers to analyze what-if questions. 5. Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem. 6. Enable users to bring the power of mathematics to bear on a problem. Limitations of Using a Model 1. Quantitative information may be emphasized at the expense of qualitative information. 2. Models may be incorrectly applied, and the results misinterpreted. The widespread use of computerized models adds to this risk because highly sophisticated models may be placed in the hands of users who are not sufficiently knowledgeable to appreciate the subtleties of a particular model; thus, they are unable to fully comprehend the circumstances under which the model can be successfully employed. 3. The use of models does not guarantee good decisions. Quantitative Approaches Quantitative approaches to problem solving often embody an attempt to obtain mathematically optimal solutions to managerial problems. Quantitative approaches to decision making in operations management (and in other functional business areas) have been accepted because of calculators and computers capable of handling the required calculations. Although quantitative approaches are 10  City College of San Jose del Monte OPERATIONS MANAGEMENT widely used in operations management decision making, it is important to note that managers typically use a combination of qualitative and quantitative approaches, and many important decisions are based on qualitative approaches. Performance Metrics Managers use metrics to manage and control operations. There are many metrics in use, including those related to profits, costs, quality, productivity, flexibility, assets, inventories, schedules, and forecast accuracy. Analysis of Trade-Offs Operations personnel frequently encounter decisions that can be described as trade-off decisions. For example, in deciding on the amount of inventory to stock, the decision maker must take into account the trade-off between the increased level of customer service that the additional inventory would yield, and the increased costs required to stock that inventory. Decision makers sometimes deal with these decisions by listing the advantages and disadvantages the pros and cons of a course of action to better understand the consequences of the decisions they must make. In some instances, decision makers add weights to the items on their list that reflect relative importance of various factors. This can help them “net out” the potential impacts of the trade-offs on their decision. Degree of Customization A major influence on the entire organization is the degree of customization of products or services being offered to its customers. Providing highly customized products or services tends to be more labor intensive than providing standardized products such as those you would buy "off the shelf" at a mall store or a supermarket or standardized services. Furthermore, production of customized products or provision of customized services is generally more time consuming, requires more highly skilled people, and involves more flexible equipment than what is needed for standardized products or services. Customized processes tend to have a much lower volume of output than standardized processes, and customized output carries a higher price tag. The degree of customization has important implications for process selection and job requirements. The impact goes beyond operations and supply chains. It affects marketing, sales, accounting, finance, and information systems. A Systems Approach A systems viewpoint is almost always beneficial in decision making. Think of it as a "big picture" view. A system can be defined as a set of interrelated parts that must work together. In a business organization, the organization can be thought of as a system composed of subsystems (e.g., marketing subsystem, operations subsystem, finance subsystem), which in turn are composed of lower subsystems. The systems approach emphasizes interrelationships among subsystems, but its main theme is that the whole is greater than the sum of its individual parts. Hence, from a systems viewpoint, the output and objectives of the organization as a whole take precedence over those of any one subsystem. A systems approach is essential whenever something is being designed, redesigned, implemented, improved, or otherwise changed. It is important to take into account the impact on all parts of the system. Establishing Priorities 11  City College of San Jose del Monte OPERATIONS MANAGEMENT In virtually every situation, managers discover that certain issues or items are more important than others. Recognizing this enables the managers to direct their efforts to where they will do the most good. Typically, a relatively few issues or items are very important, so that dealing with those factors will generally have a disproportionately large impact on the results achieved. This well-known effect is referred to as the Pareto phenomenon. This is one of the most important and pervasive concepts in operations management. In fact, this concept can be applied at all levels of management and to every aspect of decision making, both professional and personal. VII. Operations Today Advances in information technology and global competition have had a major influence on operations management. While the Internet offers great potential for business organizations the potential as well as the risks must be clearly understood in order to determine if and how to exploit this potential. In many cases, the Internet has altered the way companies compete in the marketplace. Electronic business, or e-business, involves the use of the Internet to transact business. E-business is changing the way business organizations interact with their customers and their suppliers. Most familiar to the general public is e-commerce, consumer-business transaction such as buying online or requesting information. However, business-to-business transaction such as e-procurement represent an increasing share of e-business. E-business is receiving increased attention from business owners and managers in developing strategies, planning, and decision making. The word technology has several definitions, depending on the context. Generally, technology refers to the application of scientific knowledge to the development and improvement of goods and services. It can involve knowledge, materials, methods, and equipment. The term high technology refers to the most advanced and developed machines and methods. Operations management is primarily concerned with three kinds of technology: product and service technology, process technology, and information technology (IT). All three can have a major impact on costs, productivity, and competitiveness. Product and service technology refers to the discovery and development of new products and services. This is done mainly by researchers and engineers, who use the scientific approach to develop new knowledge and translate that into commercial applications. Process technology refers to methods, procedures, and equipment used to produce goods and provide services. They include not only processes within an organization but also supply chain processes. Information technology (IT) refers to the science and use of computers and other electronic equipment to store, process, and send information. Information technology is heavily ingrained in today's business operations. This includes electronic data processing, the use of bar codes to identify and track goods, obtaining point-of-sale information, data transmission, the Internet, e-commerce, e-mail, and more. Management of technology is high on the list of major trends, and it promises to be high well into the future. For example, computers have had a tremendous impact on businesses in many ways, including new product and service features, process management, medical diagnosis, production planning and scheduling, data processing, and communication. Advances in materials, methods, and equipment also have had an impact on competition and productivity. Advances in information technology also have had a major impact on businesses. Obviously there have been-and will continue to be-many benefits from technological advances. However, technological advance also places a burden on management. For example, management must keep abreast of changes and quickly assess both their benefits and risks. Predicting advances can be tricky at best, and new technologies often carry a high price tag and usually a high cost to operate or repair. And in the case of computer 12  City College of San Jose del Monte OPERATIONS MANAGEMENT operating systems, as new systems are introduced, support for older versions is discontinued, making periodic upgrades necessary. Conflicting technologies can exist that make technological choices even more difficult. Technological innovations in both products and processes will continue to change the way businesses operate, and hence require continuing attention. Globalization and the need for global supply chains have broadened the scope of supply chain management. However, tightened border security in certain instances has slowed some movement of goods and people. Moreover, in some cases, organizations are reassessing their use of offshore outsourcing. Competitive pressures and changing economic conditions have caused business organizations to put more emphasis on operations strategy, working with fewer resources, revenue management, process analysis and improvement, quality improvement, agility, and lean production During the latter part of the 1900s, many companies neglected to include operations strategy in their corporate strategy. Some of them paid dearly for that neglect. Now more and more companies are recognizing the importance of operations strategy on the overall success of their business strategy. Working with fewer resources due to layoffs, corporate downsizing, and general cost cut business as well as the necessity for relating it to their overall business strategy. ting is forcing managers to make trade-off decisions on resource allocation, and to place increased emphasis on cost control and productivity improvement. Revenue management is a method used by some companies to maximize the revenue they receive from fixed operating capacity by influencing demand through price manipulation. Also known as yield management, it has been successfully used in the travel and tourism industries by airlines, cruise lines, hotels, amusement parks, and rental car companies, and in other industries such as trucking and public utilities. Process analysis and improvement includes cost and time reduction, productivity improvement, process yield improvement, and quality improvement and increasing customer satisfaction. This is sometimes referred to as a Six Sigma process. Given a boost by the "quality revolution" of the 1980s and 1990s, quality is now ingrained in business. Some businesses use the term total quality management (TQM) to describe their quality efforts. A quality focus emphasizes customer satisfaction and often involves team work. Process improvement can result in improved quality, cost reduction, and time reduction. Time relates to costs and to competitive advantage, and businesses seek ways to reduce the time to bring new products and services to the marketplace to gain a competitive edge. If two companies can provide the same product at the same price and quality, but one can deliver it four weeks earlier than the other, the quicker company will invariably get the sale. Time reductions are being achieved in many companies now. Agility refers to the ability of an organization to respond quickly to demands or opportunities. It is a strategy that involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/service offerings. This is particularly important as organizations scramble to remain competitive and cope with increasingly shorter product life cycles and strive to achieve shorter development times for new or improved products and services. Lean production, a new approach to production, emerged in the 1990s. It incorporates a number of the recent trends listed here, with an emphasis on quality, flexibility, time reduction, and teamwork. This has led to a flattening of the organizational structure, with fewer levels of management. Lean systems are so named because they use much less of certain resources than typical mass production systems use-space, inventory, and workers to produce a comparable amount of output. Lean systems use a highly skilled workforce and flexible equipment. In effect, they incorporate advantages of both mass production (high volume, low unit cost) and craft production (variety and flexibility). And quality is higher than in mass production. This approach has now spread to services, 13  City College of San Jose del Monte OPERATIONS MANAGEMENT including health care, offices, and shipping and delivery. The skilled workers in lean production systems are more involved in maintaining and improving the system than their mass production counterparts. They are taught to stop an operation if they discover a defect, and to work with other employees to find and correct the cause of the defect so that it won't recur. This results in an increasing level of quality over time and eliminates the need to inspect and rework at the end of the line. Because lean production systems operate with lower amounts of inventory, additional emphasis is placed on anticipating when problems might occur before they VII. Key Issue for Today’s Business Operations There are several issues that are high priorities of many business organizations. Although not every business is faced with these issues, many are. Chief among the issues are the following. Economic conditions. The lingering recession and slow recovery in various sectors of the economy has made managers cautious about investment and rehiring workers who had been laid off during the recession. Innovating. Finding new or improved products or services are only two of the many possibilities that can provide value to an organization. Innovations can be made in processes, the use of the Internet, or the supply chain that reduce costs, increase productivity. expand markets or improve customer service. Quality problems. The numerous operations failures underscore the need to improve the way operations are managed. That relates to product design and testing, oversight of suppliers, risk assessment, and timely response to potential problems. Risk management. The need for managing risk is underscored by recent events that include financial crises, product recalls, accidents, natural and man-made disasters, and economic ups and downs. Managing risks starts with identifying risks, assessing vulner ability and potential damage (liability costs, reputation, demand), and taking steps to reduce or share risks. Cyber-security. The need to guard against intrusions from hackers whose goal is to steal personal information of employees and customers is becoming increasingly necessary. Moreover, interconnected systems increase intrusion risks in the form of industrial espionage. Competing in a global economy. Low labor costs in third-world countries have increased pressure to reduce labor costs. Companies must carefully weigh their options, which include outsourcing some or all of their operations to low-wage areas, reducing costs internally, changing designs, and working to improve productivity. Three other key areas require more in-depth discussion: environmental concerns, ethical conduct, and managing the supply chain. Environmental Concerns Concern about global warming and pollution has had an increasing effect on how businesses operate. Stricter environmental regulations, particularly in developed nations, are being imposed. Furthermore, business organizations are coming under increasing pressure to reduce their carbon footprint (the amount of carbon dioxide generated by their operations and their supply chains) and to generally operate sustainable processes. Sustainability refers to service and production processes that use resources in ways that do not harm ecological systems that support both current and future human existence. Sustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision making. 14  City College of San Jose del Monte OPERATIONS MANAGEMENT All areas of business will be affected by this. Areas that will be most affected include product and service design, consumer education programs, disaster preparation and response, supply chain waste management, and outsourcing decisions. Note that outsourcing of goods production increases not only transportation costs, but also fuel consumption and carbon released into the atmosphere. Consequently, sustainability thinking may have implications for outsourcing decisions. Because they all fall within the realm of operations, operations management is central to dealing with these issues. Sometimes referred to as "green initiatives," the possible include reducing packaging, materials, water and energy use, and the environmental impact of the supply chain, including buying locally. Other possibilities include reconditioning used equipment (eg, printers and copiers) for resale, and recycling. Ethical Conduct The need for ethical conduct in business is becoming increasingly obvious, given numerous examples of questionable actions in recent history. In making decisions, managers must co sider how their decisions will affect shareholders, management, employees, customers, the community at large, and the environment. Finding solutions that will be in the best interests of all of these stakeholders is not always easy, but it is a goal that all managers should strive to achieve. Furthermore, even managers with the best intentions will sometimes make mistakes. If mistakes do occur, managers should act responsibly to correct those mistakes as quickly as possible, and to address any negative consequences. Many organizations have developed codes of ethics to guide employees' or members' conduct. Ethics is a standard of behavior that guides how one should act in various situations. The Markula Center for Applied Ethics at Santa Clara University identifies five principles for thinking ethically: The Utilitarian Principle: The good done by an action or inaction should outweigh any harm it causes or might cause. An example is not allowing a person who has had too much to drink to drive. The Rights Principle: Actions should respect and protect the moral rights of others. An example is not taking advantage of a vulnerable person. The Fairness Principle: Equals should be held to, or evaluated by, the same standards. An example is equal pay for equal work. The Common Good Principle: Actions should contribute to the common good of the community. An example is an ordinance on noise abatement. The Virtue Principle; Actions should be consistent with certain ideal virtues. Examples include honesty, compassion, generosity, tolerance, fidelity, integrity, and self-control. The center expands these principles to create a framework for ethical conduct. An ethical framework is a sequence of steps intended to guide thinking and subsequent decisions or actions. Operations managers, like all managers, have the responsibility to make ethical decisions. Ethical issues arise in many aspects of operations management, including: Financial statements: accurately representing the organization's financial condition Worker safety: providing adequate training, maintaining equipment in good working condition, maintaining a safe working environment. Product safety: providing products that minimize the risk of injury to users or damage to property or the environment. Quality: honoring warranties, avoiding hidden defects. The environment: not doing things that will harm the environment. The community: being a good neighbor. Hiring and firing workers: avoiding false pretenses (e.g... promising a long-term job when that is not what is intended). Closing facilities: taking into account the impact on a community, and honoring commitments that have been made. 15  City College of San Jose del Monte OPERATIONS MANAGEMENT Workers' rights respecting workers' rights, dealing with workers' problems quickly and fairly. The Need to Manage the Supply Chain Supply chain management is being given increasing attention as business organizations face mounting pressure to improve management of their supply chains. In the past, most organizations did little to manage their supply chains. Instead, they tended to concentrate on their own operations and on their immediate suppliers. Moreover, the planning, marketing, production, and inventory management functions in organizations in supply chains have often operated independently of each other. As a result, supply chains experienced a range of problems that were seemingly beyond the control of individual organizations. The problems included large oscillations of inventories, inventory stockouts, late deliveries, and quality problems. These and other issues now make it clear that management of supply chains is essential to business success. The other issues include the following: 1. The need to improve operations. Efforts on cost and time reduction, and productivity and quality improvement, have expanded in recent years to include the supply chain. Opportunity now lies largely with procurement, distribution, and logistics the supply chain. 2. Increasing levels of outsourcing. Organizations are increasing their levels of outsourcing, buying goods or services instead of producing or providing them themselves. As outsourcing increases, organizations are spending increasing amounts on supply-related activities (wrapping, packaging, moving, loading, and unloading, and sorting), A significant amount of the cost and time spent on these and other s activities may be unnecessary. Issues with imported products, including tainted food products, toothpaste, and pet foods, as well as unsafe tires and toys, have led to questions of liability and the need for companies to take responsibility for monitoring the safety of outsourced goods. 3. Increasing transportation costs. Transportation costs are increasing, and they need to be more carefully managed. 4. Competitive pressures. Competitive pressures have led to an increasing number of new products, shorter product development cycles, and increased demand for customization. And in some industries, most notably consumer electronics, product life cycles are relatively short. Added to this are adoption of quick-response strategies and efforts to reduce lead times. 5. Increasing globalization. Increasing globalization has expanded the physical length of supply chains. A global supply chain increases the challenges of managing a supply chain. Having far-flung customers and/or suppliers means longer lead times and greater opportunities for disruption of deliveries. Often currency differences and monetary fluctuations are factors, as well as language and cultural differences. Also, tightened border security in some instances has slowed shipments of goods. 6. Increasing importance of e-business. The increasing importance of e-business has added new dimensions to business buying and selling and has presented new challenges. 7. The complexity of supply chains. Supply chains are complex; they are dynamic. and they have many inherent uncertainties that can adversely affect them, such as inaccurate forecasts, late deliveries, substandard quality, equipment breakdowns, and canceled or changed orders. 8.The need to manage inventories. Inventories play a major role in the success or failure of a supply chain, so it is important to coordinate inventory levels throughout a supply chain. Shortages can severely disrupt the timely flow of work and have far-reaching impacts, while excess inventories add unnecessary costs. It would not be unusual to find inventory shortages in some parts of a supply chain and excess inventories in other parts of the same supply chain. 16  City College of San Jose del Monte OPERATIONS MANAGEMENT Directions. Check your understanding of the discussion by answering the following questions. 1. What is operations management? 2. What is supply chain? 3. What is process management? K-W-L Chart (Continuation) Directions. With the inputs you collected, you will now complete the KWL chart by writing what they have learned in the L column. Screenshot your final KWL Chart and post it in our official FB group/google classroom. K- what I already KNOW W- what I WANT to know L- What I LEARNED about this about this topic about this topic topic __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ __________________________ ____________________________ ____________________________ ---End of Lesson 1 Module--- Source and References: Create by Mcgraw-Hill Education. (2019). Operations Management with Total Quality Management. Mcgraw-Hill Education. 17  City College of San Jose del Monte OPERATIONS MANAGEMENT https://www.totaljobs.com/advice/operations-manager-job-description Desired Learning Outcomes At the end of the session, the learners are expected to: 1. Define the terms competitiveness, strategy, and productivity 2. Discuss the underlying concepts and principles of competitiveness, strategy, and productivity in operations management 3. Explain the importance of competitiveness, strategy, and productivity in operations management K-W-L Chart Directions. Complete the K and W columns in the KWL chart provided below. Write as many ideas as you want. K- what I already KNOW about W- what I WANT to know about L- What I LEARNED about this topic this topic this topic ____________________________ _____________________________ ____________________________ _____________________________ ____________________________ _____________________________ ____________________________ _____________________________ Note: This column is to be ____________________________ _____________________________ filled out this at the end of the ____________________________ _____________________________ session ____________________________ _____________________________ ____________________________ _____________________________ Explain 18  City College of San Jose del Monte OPERATIONS MANAGEMENT Competitiveness, Strategy and Productivity I. Competitiveness Companies must be competitive to sell their goods and services in the marketplace. Competitiveness is an important factor in determining whether a company prospers, barely gets by, or fails. Business organizations compete through some combination of price, delivery time, and product or service differentiation. Marketing influences competitiveness in several ways, including identifying consumer wants and needs, pricing, and advertising and promotion. 1. Identifying consumer wants and/or needs is a basic input in an organization's decision-making process, and central to competitiveness. The ideal is to achieve a perfect match between those wants and needs and the organization's goods and/or services 2. Price and quality are key factors in consumer buying decisions. It is important to understand the trade-off decision consumers make between price and quality. 3. Advertising and promotion are ways organizations can inform potential customers about features of their products or services, and attract buyers, Operations has a major influence on competitiveness through product and service design cost, location, quality, response time, flexibility, inventory and supply chain management, and service. Many of these are interrelated. 1. Product and service design should reflect joint efforts of many areas of the firm to achieve a match between financial resources, operations capabilities, supply chain capabilities, 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 generally ongoing in business organizations. Productivity 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 lower input costs. Location near markets can result in lower transportation costs and quicker delivery times. Convenient location is particularly important in the retail sector. 4. Quality refers to materials, workmanship, design, and service. Consumers judge quality in terms of how well they think a product or service will satisfy its intended purpose. Customers are generally willing to pay more for a product or service if they perceive the product or service has a higher 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 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 sup plies of goods with demand. 8. Supply chain management involves coordinating internal and external operations (buyers and suppliers) to achieve timely and cost-effective delivery of goods throughout the system 9. Service might involve after-sale activities customers perceive as value-added, such as delivery, setup, warranty work, and technical support. Or it might involve extra attention while work is in progress, such as courtesy, keeping the customer informed, and attention to details. Service quality can be a key differentiator; and it is one that is often sustainable. 19  City College of San Jose del Monte OPERATIONS MANAGEMENT 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 10. Managers and workers are the people at the heart and soul of an organization, and if they are competent and motivated, they can provide a distinct competitive edge by their skills and the ideas they create. Why Some Organizations Fail Organizations fail, or perform poorly, for a variety of reasons. Being aware of those reasons can help managers avoid making similar mistakes. Among the chief reasons are the following: 1. Neglecting operations strategy. 2. Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threats: 3. Putting too much emphasis on short-term financial performance at the expense of research and development. 4. Placing too much emphasis on product and service design and not enough design and on process improvement. 5. Neglecting investments in capital and human resources. 6. Failing to establish good internal communications and cooperation among different functional areas. 7. Failing to consider customer wants and needs. The key to successfully competing is to determine what customers want and then directing efforts toward meeting (or even exceeding) customer expectations. Two basic issues must be addressed. First: What do the customers want? (Which items on the preceding list of the ways business organizations compete are important to customers?) Second: What is the best way to satisfy those wants? Operations must work with marketing to obtain information on the relative importance of the various items to each major customer or target market. Understanding competitive issues can help managers develop successful strategies. II. Mission and Strategies As organization's mission is the reason for its existence. It is expressed in its mission statement. For a business organization, the mission statement should answer the question “What business are we in?” Missions vary from organization to organization, depending on the nature of their business. A mission statement serves as the basis for organizational goals, which provide more detail and describe the scope of the mission. The mission and goals often relate to how an organization wants to be perceived by the general public, and by its employees, suppliers, and customers. Goals serve as a foundation for the development of organizational strategies. These, in turn, provide the basis for strategies and tactics of the functional units of the organization. Organizational strategy is important because it guides the organization by providing direction for, and alignment of, the goals and strategies of the functional units. Moreover, strategies can be the main reason for the success or failure of an organization. There are three basic business strategies: Low cost Responsiveness – relates to the ability to respond to changing demands. Differentiation from competitors – relates to product or service features, quality, reputation or customer service. Some organizations focus on single strategy while others employ combinations of strategies. Strategies and Tactics If you think of goals as destinations, then strategies are the roadmaps for reaching the destinations. Strategies provide focus for decision making. Organizations have overall strategies called organizational strategies, which relate to the entire organization. They also have functional strategies, which relate to each of the functional areas of the organization. The functional strategies should support the overall strategies of the organization, just as the organizational strategies should support the goals and mission of the organization. 20  City College of San Jose del Monte OPERATIONS MANAGEMENT Tactics are the methods and actions used to accomplish strategies. They are more specific than strategies, and they provide guidance and direction for carrying out actual operations, which need the most specific and detailed plans and decision making in an organization. You might think of tactics as the "how to" part of the process (eg.. how to reach the destination, following the strategy roadmap) and operations as the actual "doing" part of the process. Here are some examples of different strategies an organization might choose from: Low cost. Outsource operations to third-world countries that have low labor costs. Scale-based strategies. Use capital-intensive methods to achieve high output volume and low unit costs. Specialization. Focus on narrow product lines or limited service to achieve higher quality. Newness. Focus on innovation to create new products or services. Flexible operations. Focus on quick response and/or customization. High quality. Focus on achieving higher quality than competitors. Service, Focus on various aspects of service (e.g., helpful, courteous, reliable, etc.). Sustainability. Focus on environmental-friendly and energy-efficient operations. A wide range of business organizations are beginning to recognize the strategic advantages of sustainability, not only in economic terms, but also in promotional benefit by publicizing their sustainability efforts and achievements. Sometimes organizations will combine two or more of these or other approaches into their strategy. However, unless they are careful, they risk losing focus and not achieving advantage in any category. Generally speaking, strategy formulation takes into account the way organizations compete and a particular organization's assessment of its own strengths and weaknesses in order to take advantage of its core competencies-those special attributes of abilities possessed by an organization that give it a competitive edge. The most effective organizations use an approach that develops core competencies based on customer needs as well as on what the competition is doing. Marketing and operations work closely to match customer needs with operations capabilities. Competitor competencies are important for several reasons. For example, if a competitor is able to supply high-quality products, it may be necessary to meet that high quality as a baseline. However, merely matching a competitor is usually not sufficient to gain market share. It may be necessary to exceed the quality level of the competitor or gain an edge by excelling in one or more other dimensions, such as rapid delivery or service after the sale, Walmart, for example, has been very successful in managing its supply chain, which has contributed to its competitive advantage. 21  City College of San Jose del Monte OPERATIONS MANAGEMENT Strategy Formulation Strategy formulation is almost always critical to the success of a strategy. To formulate an effective strategy, senior 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 typically evaluated by operations people. Threats and opportunities have an external focus and are typically evaluated by marketing people. SWOT is often regarded as the link between organizational strategy and operations strategy. An alternative to SWOT analysis is Michael Porter's five forces model, which takes its account the threat of new competition, the threat of substitute products or services, the bargaining power of customers, the bargaining power of suppliers, and the intensity of competition. In formulating a successful strategy, organizations must take into account both order qualfiers and order winners. Order qualifiers are those characteristics that potential customer perceive as minimum standards of acceptability for a product to be considered for 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 the cause them to be perceived as better than the competition. Characteristics such as price, delivery reliability, delivery 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 importance of each characteristic so that appropriate attention can be given to the various characteristic Marketing must make that determination and communicate it to operations. Environmental scanning is the monitoring of events and trends that present either threats or opportunities for the organization. Generally, these include competitors' activities, changing consumer needs: legal, economic, political, and environmental issues, the potential for new markets; and the like. Another key factor to consider when developing strategies is technological change, which can present real opportunities and threats to an organization. Technological changes occur in products (high-definition TV, improved computer chips, improved cellular telephone systems, and improved designs for earthquake-proof structures); in services (faster order processing faster delivery); and in processes (robotics, automation, computer-assisted processing point- of-sale scanners, and flexible manufacturing systems). The obvious benefit is a competitive edge; the risk is that incorrect choices, poor execution, and higher-than-expected operating costs will create competitive disadvantages. Important factors may be internal or external. The following are key external factors: 1. Economic conditions. These include the general health and direction of the economy, inflation and deflation, interest rates, 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 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 case of market entry. 22  City College of San Jose del Monte OPERATIONS MANAGEMENT 6. Markets. This includes size, location, brand loyalties, ease of entry, potential for growth, long-term stability, and demographics. The organization also must take into account various internal factors that relate to possible strengths or weaknesses. Among the key internal factors are the following: 1. Human resources. These include the skills and abilities of managers and workers, special talents (creativity, designing, 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 considerations. 4. Customers. Loyalty, existing relationships, and understanding of wants and needs are important. 5. Products and services. These include existing products and services, and the potential for new products and services. 6. Technology. This includes existing technology, the ability to integrate new technology. and the probable impact of technology on current and future operations. 7. Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility, and service are typical considerations. 8. Other. Other factors include patents, labor relations, company or product image, distribution channels, relationships with distributors, maintenance of facilities and equipment, access to resources, and access to markets. The organization may decide to have a single, dominant strategy (e.g., be the price leader) or to have multiple strategies. A single strategy would allow the organization to concentrate on one particular strength or market condition. On the other hand, multiple strategies may be needed to address a particular set of conditions. Growth is often a component of strategy, especially for new companies. A key aspect of this strategy is the need to seek a growth rate that is sustainable. Companies increase their risk of failure not only by missing or incomplete strategies; they also fail due to poor execution of strategies. And sometimes they fail due to factors beyond their control, such as natural or man-made disasters, major political or economic changes, or competitors that have an overwhelming advantage (e.g., deep pockets, very low labor costs, less rigorous environmental requirements). Supply Chain Strategy A supply chain strategy specifies how the supply chain should function to achieve supply chain goals. The supply chain strategy should be aligned with the business strategy. If it is well executed, it can create value for the organization. It establishes how the organization should work with suppliers and policies relating to customer relationships and sustainability. Sustainability Strategy Society is placing increasing emphasis on corporate sustainability practices in the form of governmental regulations and interest groups. For these and other reasons, business organizations are or should be devoting attention to sustainability goals. To be successful, they will need a sustainability strategy. That requires elevating sustainability to the level of organizational governance: formulating goals for products and services, for processes, and for the ensure supply chain, measuring achievements and striving for improvements; and possibly linking executive compensation to the achievement of sustainability goals. Global Strategy As globalization increased, many companies realized that strategic decisions with respect to station must be made. One issue companies must face is that what works in one country or region will not 23  City College of San Jose del Monte OPERATIONS MANAGEMENT necessarily work in another, and strategies must be carefully crafted to take these variabilities into account. Another issue is the threat of political or social upheaval. Still another issue is the difficulty of coordinating and managing far-flung operations. Indeed. "In today's global markets, you don't have to go abroad to experience international competition Sooner or later the world comes to you." Operations Strategy The organization strategy provides the overall direction for the organization. It is broad in scope, covering the entire organization. Operations strategy is narrower in scope, deal ing primarily with the operations aspect of the organization Operations strategy relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling Table 23 provides a comparison of an organization's mission, its overall strategy, and its operations strategy, tactics, and operations. In order for operations strategy to be truly effective, it is important to link it to organization strategy, that is, the two should not be formulated independently. Rather, formulation of organization strategy should take into account the realities of operations' strengths and weak nesses, capitalizing on strengths and dealing with weaknesses. Similarly, operations strategy must be consistent with the overall strategy of the organization, and with the other functional units of the organization. This requires that senior managers work with functional units to formulate strategies that will support, rather than conflict with, each 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 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. Operations strategy can have a major influence on the competitiveness of an organization. If it is well designed and executed, there is a goo chance that the organization will be successful; if it is not well designed or executed, the chances are much less that the organization will be successful. Strategic Operations Management Decision Areas Operations management people play a strategic role in many strategic decisions in a business organization. Two factors that tend to have universal strategic operations importance relate to quality and time. 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. Quality-based strategies focus on maintaining or improving the quality of an organization's products or services. Quality is generally a factor in both attracting and retaining customers. Quality-based strategies may be motivated by a variety of factors. They may reflect an effort to overcome an image of poor quality, a desire to catch up with the competition, a desire to maintain an existing image of high quality, or some combination of these and other factors. Interestingly enough, 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 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. Time-based strategies focus on reducing the time needed to conduct the various activities in a process. The rationale is that by reducing time, costs are generally less, productivity is higher, 24  City College of San Jose del Monte OPERATIONS MANAGEMENT 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: o Planning time: The time needed to react to a competitive threat, to develop strategies and select tactics, to approve proposed changes to facilities, to adopt new technologies. and so on. o Product/service design time: The time needed to develop and market new or redesigned products or services. o Processing time: The time needed to produce goods or provide services. This can involve scheduling, repairing equipment, methods used, inventories, quality, training, and the like. o Changeover time: The time needed to change from producing one type of product or service to another. This may involve new equipment settings and attachments, different methods, equipment, schedules, or materials. Delivery time: The time needed to fill orders. o 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 o cold) equipment problems, or quality problems. It is essential for marketing and operations personnel to collaborate on strategy formulation in order to ensure that the buying criteria of the most important customers in each market segment are addressed. Agile operations is a strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change Agility involves a blending of several distinct competencies such as cost. quality, and reliability along with flexibility. Processing aspects of flexibility include quick equipment changeovers, scheduling, and innovation. Product or service aspects include varying output volumes and product mix. Successful agile operations requires careful planning to achieve a system that includes people, flexible equipment, and information technology Reducing the time needed to perform work is one of the ways an organization can improve a key metric productivity. III. 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 (labor, materials, energy, and other resources) used to produce it. It is usually expressed as the ratio of output to 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. A productivity ratio can be computed for a single operation, a department, an organization, or an entire country. In business organizations, productivity ratios are used for planning workforce requirements, scheduling equipment, financial analysis, and other important tasks. Productivity has important implications for business organizations and for entire nations. For nonprofit organizations, higher productivity means lower costs; for profit-based organizations, productivity is an 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, 25  City College of San Jose del Monte OPERATIONS MANAGEMENT For example, if productivity increased from 80 to 84, the growth rate would be; Productivity growth is a key factor in a country’s rate of inflation and the standard of living of its people. Productivity increases add value to the economy while keeping inflation in check. Computing Productivity Productivity measures can be based on a single input (partial productivity), on more than one input (multifactor productivity), or on all inputs (total productivity). Table below lists some examples of productivity measures. 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 obvious input measure. Productivity Measures Partial measures are often of greatest use in operations management. Table below provides some examples of partial productivity measures. The units of output used in productivity measures depend on the type of job performed. The following are examples of labor productivity: Some Examples of Partial Productivity Measures 26  City College of San Jose del Monte OPERATIONS MANAGEMENT Productivity measures are useful on a number of levels. For an individual department or organization, productivity measures can be used to track performance over time. This allows managers to judge performance and to decide where improvements are needed. For example, if productivity has slipped in a certain area, operations staff can examine the factors used to compute productivity to determine what has changed and then devise a means of improving productivity in subsequent periods. Productivity measures also can be used to judge the performance of an entire industry or the productivity of a country as a whole. These productivity measures are aggregate measures. In essence, productivity measurements serve as scorecards of the effective use of resources. Business leaders are concerned with productivity as it relates to competitiveness: If two firms both have the same level of output, but one requires less input because of higher productivity, that one will be able to charge a lower price and consequently increase its share of the market. Or that firm might elect to charge the same price, thereby reaping a greater profit. Government leaders are concerned with national productivity because of the close relationship between productivity and a nation’s standard of living. High levels of productivity are largely responsible for the relatively high standards of living enjoyed by people in industrial nations. Furthermore, wage and price increase not accompanied by productivity increases tend to create inflationary pressures on a nation’s economy. Advantages of domestic-based operations for domestic markets often include higher worker productivity, better control of quality, avoidance of intellectual property losses, lower shipping costs, political stability, low inflation, and faster delivery. Factors That Affect Productivity Numerous factors affect productivity. Generally, they are methods, capital, quality, technology, and management. 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, but there is no simple way to incorporate quality improvements into productivity measurements. Use of the Internet can lower costs of a wide range of transactions, thereby increasing productivity. It is likely that this effect will continue to increase productivity in the foreseeable future. Computer viruses can have an immense negative impact on productivity. Searching for lost or misplaced items wastes time, hence negatively affecting productivity. Scrap rates have an adverse effect on productivity, signaling inefficient use of resources. 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. A shortage of technology-savvy workers hampers the ability of companies to update computing resources, generate and sustain growth, and take advantage of new opportunities. Layoffs often affect productivity. The effect can be positive and negative. Initially, productivity may increase after a layoff, 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 example, having tools and other work items within easy reach can positively impact productivity. Incentive plans that reward productivity increases can boost productivity. And there are still other factors that affect productivity, such as equipment breakdowns and shortages of parts or materials. The education level and training of workers and their health can greatly affect 27