CHAPTER 1: INTRODUCTION and service

OPERATIONS MANAGEMENT

The management of systems or processes

that create goods and/or provide services

Goods – are physical items produced by

business organizations

Services – activities that provide some

combination of time, location, form and

psychological value.

Production of goods – tangible output

Delivery of services – an act

Service job categories

• Government
Operations and Supply Chains – one
• Wholesale/retail
couldn’t exist without the other and no • Financial services
• Healthcare
business organization can exist without
• Personal services
Both. • Business services
• Education

Supply Chain is the sequence of

organizations - their facilities, functions

and activities - that are involved in

producing and delivering of a product

Key difference between production of goods
and delivery of service:

• Degree of customer contact

• Uniformity of input
• Labor content of jobs
• Uniformity of output • ORGANIZING
• Measurement of productivity
• Production and delivery
• Quality Assurance
• STAFFING
• Amount of inventory
• Evaluation of work
• Ability to patent design

• DIRECTING

SCOPE OF OPERATIONS MANAGEMENT

• Forecasting
• Capacity planning
• Scheduling
KEY DECISIONS OF OPERATIONS MANAGER
• Managing inventories
• Assuring quality What: What resources will be needed
• Motivating employees and in what amounts?
• Deciding where to locate facilities
When: When will each resource be
needed? When should the work be
RESPONSIBILITIES OF OPERATIONS scheduled? When should materials and
MANAGEMENT other supplies be ordered? When is
• PLANNING corrective action needed?

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?

• CONTROLLING/IMPROVING

TRENDS IN BUSINESS
• The Internet, e-commerce, e-business
• Management technology
• Globalization
2 BASIC ISSUES TO ADDRESS
• Management of supply chains
• Agility 1. What do the customer wants?
2. What is the best way to satisfy those wants?

CHAPTER 2: COMPETITIVENESS, STRATEGY,

AND PRODUCTIVITY

COMPETITIVENESS STRATEGY

how effectively an organization meets the wants • Plans for achieving organizational goals
and needs of customers relative to others that • Can be long-term, intermediate-term or
offer similar goods or services short term
• To be effective it must be designed to
support the organization’s mission and its
BUSINESS COMPETE USING MARKETING organizational goals

1. Identifying Customer wants or needs

2. Pricing
3. Advertising and Promotion

BUSINESS COMPETE USING OPERATIONS

1. Product and Service Design

2. Cost
3. Location
STRATEGIES AND TACTICS
4. Quality
5. Quick Response STRATEGIES
6. Flexibility
is the overall plan or approach designed to
7. Inventory Management
achieve long-term goals or objectives.
8. Supply Chain Management
9. Service It involves setting the direction and determining
the most effective way to reach the desired
outcome.
KEY TO SUCCESFUL COMPETING
Strategy is about "what" and "why."
Determine what customers want and the
directing efforts towards meeting (or even
exceeding) customer expectations • Organizational Strategies
 also known as corporate or business • Scale-based strategies - capital intensive
strategies method for high volume production
• Specialization - focus on narrow product
are broad, overarching plans that guide line for higher quality
the overall direction of the entire • Flexible operations - customization
organization. • High quality – focus on higher quality than
competitors
These strategies focus on long-term • Services – focus on various aspect of
goals, such as growth, market position, services
and overall mission fulfillment.

• Functional Strategies
are more specific, focusing on the day-to-
day operations within a particular
department or function of the
organization. STRATEGY FACTORS
• Price – low cost
These strategies support the broader • Quality – consistent quality, high quality
organizational strategies by addressing • Time – rapid delivery, on-time delivery
how different functions (like marketing, • Flexibility – variety, volume
finance, HR, etc.) will achieve their goals. • Service – customer services
• Location – convenience

TACTICS
are the specific actions or steps taken to
STRATEGY FORMULATION
implement the strategy.
• Distinctive competencies
They are the means by which a strategy is • Environmental scanning
executed, focusing on short-term objectives. It considers events and trends that present
threats or opportunities for the organization.
Tactics are about "how" and "when."
Includes: Competitors’ activities, changing
consumer needs, the potential for new
Operations – Actual “doing” part of the business markets, and the like.

• SWOT
EXAMPLES OF STRATEGIES
• Order qualifiers
• Low cost - outsourcing factors customer considers a must have for a
product or service they will purchase
 GLOBAL STRATEGY
Characteristics that customers perceive as
Works with one country will not necessarily work
minimum standards of acceptability to be
with another
considered as a potential purchase.
Strategic decisions must be made with respect
• Order winners to globalization
something that makes a customer choose to
Strategies must be changed to account for these
buy one company’s product or service
differences
instead of competitor’s product or service
Other issues: Political, social, legal, cultural and
Characteristics of an organization’s goods or economic differences
services that cause it to be perceived as “In today’s global markets you don’t have to go
better than the competition. abroad to experience international competition,
Sooner or later the world come to you”
• Technological Change
Occur in products (HD TV, improved
computer chips, improved cellular telephone OPERATIONS STRATEGY
systems), services (faster order processing,
faster deliveries), and processes (robotics, The approach consistent with the
automation, computer-assisted processing). organization strategy that is used to guide

the operations function.

KEY EXTERNAL FACTORS QUALITY-TIME STRATEGIES

• Quality-based strategies
• Economic conditions
Focuses on maintaining or improving the
• Political conditions
quality of an organization’s products or
• Legal environment
services
• Technology
• Competition
Quality at the source
• Markets

• Time-based strategies
• Human Resources Focuses on reduction of time needed to
• Facilities and equipment accomplish tasks
• Financial resources
• Customers (loyalty, understanding)
• Products and services ORGANIZATIONS HAVE ACHIEVED TIME
• Technology REDUCTION IN THE FOLLOWING:
• Suppliers
• Planning time
• Product/Service Design
 • Processing Time • Financial analysis
• Changeover Time
• Delivery Time
• Response time for complaints For non-profit organizations: higher
Productivity means lower costs

For profit-based organization: productivity is

the 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

PRODUCTIVITY

Is an index that measures output (goods or

services) relative to the input, (labor, materials,
energy, and other resources)

Usually expresses as ratio of output to input

used for:

• Planning workforce requirements

• Scheduling equipment
COMPUTING PRODUCTIVITY
 OUTSOURCING

Higher productivity in another company

is a key reason organization outsource work

Improving productivity may reduce the

need for outsourcing

PRODUCTIVITY IN SERVICE SECTORS

Service productivity is more problematic than

manufacturing productivity

A useful measure closely related to productivity

is the process yield

Process yield is the ratio of output of a good

product to input.

Defective product is not included in the output.

 Features Common to all Forecasts

• Forecast techniques generally assume

that the same underlying causal system
that existed in the past will continue to
exist in the future
• Forecasts are not perfect
• Forecast for groups of items tend to be
more accurate than forecasts for
individual items
• Forecasts accuracy decreases as the
CHAPTEER 3: FORECASTING time period covered by the forecast

FORECAST

A statement about the future value of a variable

of interest such as demand.

Forecasts affect decisions and activities

throughout an organization:

• Accounting, finance
• Human resources
• Marketing
• MIS
• Operations
• Product / service design
 Mean Absolute Percent Error (MAPE) - Average
absolute percent error

Different Approaches to Forecasting

• Qualitative – Subjective (opinion) inputs

• Quantitative – mainly analyzing objective
or hard data; avoid personal biases

Forecasting Techniques

• Judgmental - uses subjective inputs

Forecast Accuracy (Qualitative)
Significant factor when deciding among • Time series - uses historical data
forecasting alternatives. Accuracy is based on assuming the future will be like the past
the historical error performance of a forecast. (Quantitative)
• Associative models - uses explanatory
Minimizing error variables to predict the future
Error - difference between actual value and (Quantitative)
predicted value

Judgmental Forecasts

• Executive opinions
• Sales force opinions
• Consumer surveys
• Outside opinion
• Delphi method
• Opinions of managers and staff
• Achieves a consensus forecast
3 Commonly used measures for Summarizing

Historical Errors

Mean Absolute Deviation (MAD) - Average

absolute error Time Series Forecast

• Trend - long-term movement in data

Mean Squared Error (MSE) - Average of squared • Seasonality - short-term regular
variations in data
error
• Cycle – wavelike variations of more than
one year’s duration
 • Irregular variations – caused by unusual • Quality
circumstances • Time-to-market
• Random variations - caused by chance • Customer satisfaction
• Competitive advantage

Naive Forecasts – forecast for the next period is

equal to the forecast on the previous period Product or Service Design Activities

• Translate customer wants and needs into

TECHNIQUES FOR AVERAGING product and service requirements
• Refine existing products and services
Moving average – A technique that averages a • Develop new products and services
number of recent actual values, updated as new • Formulate quality goals
values become available. - Average latest data
• Formulate cost targets
• Construct and test prototypes
• Document specifications
Weighted moving average – More recent values
in a series are given more weight in computing
the forecast.
Reasons for Product or Service Design

• Economic
Exponential Smoothing – weighted averaging • Social and demographic
method based on previous forecast plus a • Political, liability, or legal
percentage of the forecast error • Competitive
• Cost or availability
• Technological
Linear Trend Equation – TECHNIQUES FOR
TREND
Objectives of Product and Service Design

Main focus

• Customer satisfaction
• Understand what the customer wants

CHAPTER 4: PRODUCT AND SERVICE DESIGN

Major factors in design strategy

• Cost
 Secondary focus

• Function of product/service Standardization - Extent to which there is an

• Cost/profit absence of variety in a product, service or
• Quality process
• Appearance
• Ease of production/assembly
• Ease of maintenance/service Advantages:

• Fewer parts to deal with in inventory &

manufacturing
Other Issues in Product and Service Design • Design costs are generally lower
• Product/service life cycles • Reduced training costs and time
• How much standardization • More routine purchasing, handling, and
• Mass customization inspection procedures
• Product/service reliability • Quality is more consistent
• Robust design
• Degree of newness
• Orders fillable from inventory
• Cultural differences
• Opportunities for long production runs
and automation
• Need for fewer parts justifies increased
expenditures on perfecting designs and
improving quality control procedures.

Disadvantage:

• Designs may be frozen with too many

imperfections remaining.
• High cost of design changes increases
resistance to improvements.
• Decreased variety results in less
consumer appeal.

Mass customization

A strategy of producing standardized

goods or services, but incorporating some

degree of customization
 Normal operating conditions: The set of

conditions under which an item’s reliability is

Delayed differentiation Specified

• postponement tactic
• Producing but not quite completing a
Robust Design: Design that results in
product or service until customer
preferences or specifications are known products or services that can function

over a broad range of conditions

Modular design

a form of standardization in which component Multinational companies must take into

parts are subdivided into modules that are easily
replaced or interchanged. account cultural differences related to the

It allows: product design.

• easier diagnosis and remedy of failures

• easier repair and replacement Product Design
• simplification of manufacturing and
Design for manufacturing (DFM)
assembly
- Designing products in a way that makes

them easier and cheaper to produce.

Reliability: The ability of a product, part, or

system to perform its intended function under a

Design for assembly (DFA)
prescribed set of conditions
- Creating products that are easier to put
Improving Reliability:
together.
• Component design
• Production/assembly techniques
• Testing
Design for recycling (DFR)
• Redundancy/backup
• Preventive maintenance procedures - Designing products with materials that
• User education can be easily recycled after their use.
• System design

Remanufacturing
Failure: Situation in which a product, part, or
- Restoring used products to like-new condition
system does not perform as intended
by repairing and replacing parts.
 is the bringing together of engineering design and
manufacturing personnel early in the design
Design for disassembly (DFD)
phase.
- Creating products that can be easily taken

apart for repair or recycling.

Computer-Aided Design (CAD) is

product design using computer graphics.

Robust design

- Ensuring products work well under various

Recycling: recovering materials for future use
conditions and are less likely to fail.

Recycling reasons
Manufacturability
• Cost savings - Recycling can save money
is the ease of fabrication and/or assembly which by reducing the need for new materials
is and lowering disposal costs.
important for: • Environment concerns - Recycling helps
protect the environment by reducing
• Cost - Easier-to-manufacture products waste and conserving natural resources.
usually cost less to produce. • Environment regulations - Many laws
• Productivity - Good manufacturability encourage or require recycling to reduce
means workers can produce more pollution and waste in landfills.
products in less time.
• Quality -Products that are easier to make
tend to have fewer errors, leading to Remanufacturing: Refurbishing used
higher quality.
products by replacing worn-out or defective

components.
Design for Manufacturing (DFM)

The designers’ consideration of the

Design for Disassembly (DFD): Designing
organization’s manufacturing capabilities when
designing a product. products so that they can be easily taken

The more general term design for operation Apart.

encompasses services as well as manufacturing

Concurrent engineering
SERVICE DESIGN
 • Service is an act • Location important to service
• Service delivery system • Range of service systems
• Facilities • Demand variability
• Processes
• Skills
• Many services are bundled with products Service blueprinting

A method used in service design to describe

Service and analyze a proposed service

Something that is done to or for a customer A useful tool for conceptualizing a service

delivery system

A tool for simultaneously depicting the

service process, the points of customer

Service delivery system contact, and the evidence of service from the

The facilities, processes, and skills needed to customer’s point of view.

provide a service

Product bundle

The combination of goods and services

provided to a customer

Service package

The physical resources needed to perform

the service

Differences Between Product and Service

Design

• Tangible – intangible
• Services created and delivered at the
same time
• Services cannot be inventoried
• Services highly visible to customers
• Services have low barrier to entry