Midterm Review - Business Management

Chapter 1, 2, 5, s5, 7, s7 CONCEPT QUESTIONS Organizational Charts Figure 1.1 @2014 Pearson Education, In 2 c.  What Operations Managers Do Basic Elements in Management Process ▶ Planning ▶ Organizing ▶...

Chapter 1, 2, 5, s5, 7, s7 CONCEPT QUESTIONS Organizational Charts Figure 1.1 @2014 Pearson Education, In 2 c.  What Operations Managers Do Basic Elements in Management Process ▶ Planning ▶ Organizing ▶ Staffing ▶ Leading ▶ Controlling @2014 Pearson Education, In 3 c.  Ten Strategic Decisions TABLE 1.2 DECISION CHAPTER(S) 1. Design of goods and services 5, Supplement 5 2. Managing quality 6, Supplement 6 3. Process and capacity design 7, Supplement 7 4. Location strategy 8 5. Layout strategy 9 6. Human resources and job design 10 7. Supply-chain management 11, Supplement 11 8. Inventory management 12, 14, 16 9. Scheduling 13, 15 10. Maintenance 17  Differences Between Goods and Services TABLE 1.3 CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS Intangible: Ride in an airline seat Tangible: The seat itself Produced and consumed Product can usually be kept in inventory simultaneously: Beauty salon produces (beauty care products) a haircut that is consumed as it is produced Unique: Your investments and medical Similar products produced (iPods) care are unique High customer interaction: Often what Limited customer involvement in the customer is paying for (consulting, production education) Inconsistent product definition: Auto Product standardized (iPhone) Insurance changes with age and type of car Often knowledge based: Legal, Standard tangible product tends to education, and medical services are make automation feasible hard to automate Services dispersed: Service may occur Product typically produced at a fixed at retail store, local office, house call, facility or via internet. Dr. Lan Wang, CSUEB 5  Productivity Units produced Productivity = Input used ▶ Measure of process improvement ▶ Represents output relative to input ▶ Only through productivity increases can our standard of living improve ▶ Single-Factor Productivity  Multi-Factor Productivity Output Productivity = Labor + Material + Energy + Capital + Miscellaneous ► Also known as total factor productivity ► Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity  Productivity Variables 1. Labor - contributes about 10% of the annual increase 2. Capital - contributes about 38% of the annual increase 3. Management - contributes about 52% of the annual increase  Reasons to Globalize 1. Improve the supply chain -Locating the facilities where unique resources available. 2. Reduce costs (labor, taxes, tariffs, etc.) 3. Improve operations -different countries have their leading operations. -International operations. 4. Understand markets 5. Improve products -Firms need to remain open to the free flow of ideas. 6. Attract and retain global talent Developing Missions and Strategies Mission statements tell an organization where it is going The Strategy tells the organization how to get there Strategy is determined based on Mission  Strategies for Competitive Advantage 1. Differentiation – better, or at least different 2. Cost leadership – cheaper 3. Response – more flexibly, reliably and quickly responsive  Competing on Differentiation Distinguishing the offerings of an organization in a way that the customer perceives as adding values. Providing “uniqueness”. Positioning Operational evidence statement Volvo For life. Leadership in: 1. Safety systems innovation 2. Superior crash test performance BMW The ultimate Leadership in: driving machine. 1. Combining performance, style and luxury 2. Superior engineering Dr. Lan Wang, CSUEB 12  Competing on Cost ▶ Lower cost leadership entails achieving maximum value as defined by the customers. ▶ Frontier VS Delta Dr. Lan Wang, CSUEB 13  Competing on Response ▶ Response strategy: a set of values related to rapid, flexible and reliable performance. ▶ Flexibility is matching market changes in design innovation and volumes ▶ A way of life at Hewlett-Packard ▶ Reliability is meeting schedules ▶ German machine industry ▶ Timeliness is quickness in design, production, and delivery ▶ Johnson Electric, Pizza Hut, Motorola Dr. Lan Wang, CSUEB 14  Outsourcing – Definition Outsourcing – transferring activities that traditionally been internal to external suppliers Outsourcing is an extension of long-standing practice of Subcontracting - contract manufacturing – Advantages? – Disadvantages? SWOT Analysis Sales, cost, and cash flow Product Life Cycle Cost of development and production Sales revenue Net revenue (profit) Cash flow Negative cash flow Loss Introduction Growth Maturity Decline Figure 5.2  Life Cycle and Strategy Introductory Phase ► Fine tuning may warrant unusual expenses for 1. Research 2. Product development 3. Process modification and enhancement 4. Supplier development Dr. Lan Wang, CSUEB 17  Product Life Cycle Growth Phase ► Product design begins to stabilize ► Effective forecasting of capacity becomes necessary ► Adding or enhancing capacity may be necessary Dr. Lan Wang, CSUEB 18  Product Life Cycle Maturity Phase ► Competitors now established ► High volume, innovative production may be needed ► Improved cost control, reduction in options Dr. Lan Wang, CSUEB 19  Product Life Cycle Decline Phase ► Unless product makes a special contribution to the organization, must plan to terminate offering Dr. Lan Wang, CSUEB 20  Product Development Concept Stages Feasibility Figure 5.3 Customer Requirements Functional Specifications Product Specifications Scope for Scope of design and product Design Review engineering development teams team Test Market Introduction Evaluatio n  Quality Function Deployment ▶ Quality Function Deployment (QFD) is a process for determining customer requirements (customer “wants”) and translating them into the attributes (the “hows”) that each functional area can understand and act upon. QFD House of Quality Interrelationships Customer importance How to satisfy ratings customer wants assessment Competitive What the Relationship customer matrix wants Target values Weighted rating Technical evaluation  Sustainability Definition What is carbon footprint 3Rs for sustainability Corporate Social Responsibility ▶ How products and services affect people and the environment ▶ Stakeholders have strong opinions about environmental, social, and ethical issues ▶ Doing what’s right can be beneficial to all stakeholders ▶ Corporate social responsibility (CSR) ▶ Considers environmental, societal, and financial impacts. Dr. Lan Wang, CSUEB 25  Sustainability ▶ Meeting the needs of the present without compromising the ability of future generations to meet their needs ▶ More than “going green” ▶ Includes employees, customers, community, and company reputation ▶ https://www.youtube.com/watch?v=xoE8XlcDUI8 (0:26- 2:26) Dr. Lan Wang, CSUEB 26  Systems View ▶ Looking at a product’s life from design to disposal, including all the resources required ▶ The product or service itself is a small part of much larger social, economic, and environmental systems ▶ Understand the inputs and interfaces between the interacting systems. ▶ Understanding systems allows more informed judgments regarding sustainability Dr. Lan Wang, CSUEB 27  Triple Bottom Line ▶ Consider the systems necessary to support the triple bottom line of the three Ps: people, planet, and profit Figure S5.1 Dr. Lan Wang, CSUEB 28 Carbon Footprint Figure S5.2 34.5-gram Bag of Frito-Lay Chips Carbon footprint: A measure of total greenhouse gas emissions caused directly or indirectly by an organization, a product, an event or a person. Dr. Lan Wang, CSUEB 29  Design and Production for Sustainability ▶ Life cycle assessment valuates the environmental impact of a product, from raw material and energy inputs all the way to the disposal of the product at its end-of-life ▶ The goal is to make decisions that help reduce the environmental impact of a product throughout its entire life ▶ The 3Rs— reduce, reuse, and recycle Dr. Lan Wang, CSUEB 30  Process, Volume, and Variety Figure 7.1 Volume Low Repetitive High Volume Process Volume High Variety one or few units Process Focus Mass Customization per run, projects, job shops (difficult to achieve, but (allows (machine, print, huge rewards) customization) hospitals, Dell Computer restaurants) Arnold Palmer Hospital Changes in Modules modest runs, Repetitive standardized (autos, motorcycles, modules home appliances) Harley-Davidson Changes in Attributes (such as grade, Poor Product Focus quality, size, Strategy (commercial baked thickness, etc.) (Both fixed goods, steel, glass, long runs only and variable beer) costs are Frito-Lay high)  Process Focus ► Facilities are organized around specific activities or processes ► General purpose equipment and skilled personnel ► High degree of product flexibility ► Typically high costs and low equipment utilization ► Product flows may vary considerably making planning and scheduling a challenge  Repetitive Focus ► Facilities often organized as assembly lines ► Characterized by modules with parts and assemblies made previously ► Modules may be combined for many output options ► Less flexibility than process-focused facilities but more efficient  Product Focus ► Facilities are organized by product ► High volume but low variety of products ► Long, continuous production runs enable efficient processes ► Typically high fixed cost but low variable cost ► Generally less skilled labor  Mass Customization ► The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires ► Combines the flexibility of a process focus with the efficiency of a product focus  Comparison of Processes TABLE 7.2 Comparison of the Characteristics of Four Types of Processes PRODUCT MASS PROCESS FOCUS REPETITIVE FOCUS CUSTOMIZATION (LOW-VOLUME, FOCUS (HIGH-VOLUME, (HIGH-VOLUME, HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY) 1. Small quantity 1. Long runs, 1. Large 1. Large quantity and large usually a quantity and and large variety of standardized small variety variety of products product from of products products modules 2. Broadly 2. Moderately 2. Less broadly 2. Flexible skilled trained skilled operators operators employees operators  Comparison of Processes TABLE 7.2 Comparison of the Characteristics of Four Types of Processes PRODUCT MASS PROCESS FOCUS REPETITIVE FOCUS CUSTOMIZATION (LOW-VOLUME, FOCUS (HIGH-VOLUME, (HIGH-VOLUME, HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY) 3. Instructions 3. Few changes 3. Standardized 3. Custom orders for each job in the job requiring many instructions instructions job instructions 4. High inventory 4. Low inventory 4. Low inventory 4. Low inventory relative to the value of the product  Comparison of Processes TABLE 7.2 Comparison of the Characteristics of Four Types of Processes PRODUCT MASS PROCESS FOCUS REPETITIVE FOCUS CUSTOMIZATION (LOW-VOLUME, FOCUS (HIGH-VOLUME, (HIGH-VOLUME, HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY) 5. Finished 5. Finished 5. Finished 5. Finished goods goods are goods are goods are are build-to- made to order made to made to a order (BTO) and not stored frequent forecast and forecasts stored 6. Scheduling is 6. Scheduling is 6. Scheduling is 6. Sophisticated complex routine routine scheduling accommodates custom orders  Comparison of Processes TABLE 7.2 Comparison of the Characteristics of Four Types of Processes PRODUCT MASS PROCESS FOCUS REPETITIVE FOCUS CUSTOMIZATION (LOW-VOLUME, FOCUS (HIGH-VOLUME, (HIGH-VOLUME, HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY) 7. Fixed costs 7. Fixed costs 7. Fixed costs 7. Fixed costs are low and are dependent are high and tend to be high variable costs on flexibility of variable costs and variable high the facility low costs low Improving Service Productivity TABLE 7.3 Techniques for Improving Service Productivity STRATEGY TECHNIQUE EXAMPLE Separation Structuring service so Bank customers go to a customers must go where manager to open a new the service is offered account, to loan officers for loans, and to tellers for deposits Self-service Self-service so customers Supermarkets and examine, compare, and department stores evaluate at their own pace Postponement Customizing at delivery Customizing vans at delivery rather than at production Focus Restricting the offerings Limited-menu restaurant Improving Service Productivity TABLE 7.3 Techniques for Improving Service Productivity STRATEGY TECHNIQUE EXAMPLE Modules Modular selection of Investment and service insurance selection Modular production Prepackaged food modules in restaurants Automation Separating services that Automatic teller machines may lend themselves to some type of automation Scheduling Precise personnel Scheduling ticket counter scheduling personnel at 15-minute intervals at airlines Training Clarifying the service Investment counselor, options funeral directors Explaining how to avoid After-sale maintenance problems personnel  System Performance Measure: Utilization and Efficiency Utilization is the percent of design capacity actually achieved Utilization = Actual output/Design capacity Efficiency is the percent of effective capacity actually achieved Efficiency = Actual output/Effective capacity Key to improve the efficiency is: correcting quality problems and effective scheduling, training, and maintenance  Managing Demand ► Demand exceeds capacity ► Curtail demand by raising prices, scheduling longer lead time ► Long term solution is to increase capacity ► Capacity exceeds demand ► Stimulate market-pricing reduction or aggressive marketing ► Product changes ► Adjusting to seasonal demands ► Produce products with complementary demand patterns- snowmobile motor and jet ski engine Tactics for Matching Capacity to Demand 1. Making staffing changes 2. Adjusting equipment ► Purchasing additional machinery ► Selling or leasing out existing equipment 3. Improving processes to increase throughput 4. Redesigning products to facilitate more throughput 5. Adding process flexibility to meet changing product preferences 6. Closing facilities Service-Sector Demand and Capacity Management ► Demand management (scheduling customer) ► Appointment, reservations, FCFS rule ► Capacity management (scheduling workforce) ► Full time, temporary, part-time staff  Service Process Matrix Degree of Customization Figure 7.8 Low High Mass Service Professional Service Private Traditional banking orthodontics Commercia l banking High General- Full-service purpose law firms stockbroker Digital Degree of Labor Boutiques orthodontics Retailing Service Factory Law clinics Service Shop Limited-service Specialized stockbroker hospitals Warehouse and Fast-food Fine-dining catalog stores restaurants Hospitals Low restaurants Airlines No-frills airlines Dr. Lan Wang, CSUEB 46  Service Process Matrix Mass Service and Professional Service ► Labor involvement is high ► Focus on human resources ► Selection and training highly important Degree of Customization Personalized services Low High ► Mass Service Professional Service Private banking Traditional orthodontics Commerci al banking High General- Full-service purpose law stockbroker firms Digital Degree of Labor Boutiques orthodontics Retailing Law clinics Service Factory Service Shop Limited-service Specialized stockbroker hospitals Warehouse and Fast-food catalog stores Fine-dining Low restaurants restaurants Hospitals Airlines No-frills airlines Dr. Lan Wang, CSUEB 47  Service Process Matrix Service Factory and Service Shop ► Automation of standardized services ► Restricted offerings ► Low labor intensity responds well to process technology and scheduling Degree of Customization Low High Mass Service Professional Service Private Traditional banking orthodontics Tight control required to Commerci al banking General- ► High Full-service purpose law stockbroker firms Digital Degree of Labor Boutiques orthodontics maintain standards Retailing Law clinics Service Factory Service Shop Limited-service Specialized stockbroker hospitals Warehouse and Fast-food catalog stores Fine-dining Low restaurants restaurants Hospitals Airlines No-frills airlines Dr. Lan Wang, CSUEB 48  Bottleneck Analysis and the Theory of Constraints ► The bottleneck time is the time of the slowest workstation (the one that takes the longest) in a production system ► The throughput time is the time it takes a unit to go through production from start to end Figure S7.4 A B C 2 min/unit 4 min/unit 3 min/unit  Bottleneck Management Four principles 1. Release work orders to the system at the pace of set by the bottleneck ► Drum, Buffer, Rope 2. Lost time at the bottleneck represents lost time for the whole system 3. Increasing the capacity of a non-bottleneck station is a mirage 4. Increasing the capacity of a bottleneck increases the capacity of the whole system  Break-Even Analysis ► Fixed costs are costs that continue even if no units are produced ► Depreciation, taxes, debt, mortgage payments ► Variable costs are costs that vary with the volume of units produced ► Labor, materials, portion of utilities ► Contribution is the difference between selling price and variable cost © 2014 Pearson Education, Inc. S7 - 51  Break-Even Analysis Assumptions ► Costs and revenue are linear functions ► Generally not the case in the real world ► variable costs and revenues increase in direct proportion to the volume of production ► We actually know these costs ► Very difficult to verify ► Time value of money is often ignored They cover these topics: - Productivity - Capacity and system performance - Total life cycle cost and break even analysis - Break even point of cost and revenue - Bottleneck analysis. CALCULATION QUESTIONS  Assignment Tutorial Please watch the video showing the sample question tutorial. – https://csueastbay.hosted.panopto.com/Pano pto/Pages/Viewer.aspx?id=6a8076eb-e5a8-46 63-adf1-b092017fe441 This tutorial covers question types from – Productivity (Problem I) – Total life cycle cost and break even analysis (Problem II) – Capacity and system performance (Problem III) – Bottleneck Analysis (Problem IV)  Break even point BEPx = x = number break-even of units produced point in units TR = total BEP$ = revenue = Px break-even F = fixed point in dollars costs P = V = price F Profit = TR variable per unit - TC cost per BEP$ = BEP P = P (after x allP – V unit discounts) = Px – (F + Vx) F TC = total = (P – V)/P = Px costs – F – Vx = F + Vx = (P - V)x – F F = 1 – V/P  Break-Even Example Fixed costs = $10,000 Material = $.75/unit Direct labor = $1.50/unit Selling price = $4.00 per unit F $10,000 BEP$ = = 1 – (V/P) 1 – [(1.50 +.75)/(4.00)] $10,000 = = $22,857.14.4375