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35A00210

Operations Management
Lecture 1
Introduction to Operations
Management
What is OM
Transformation processes
Manufacturing vs services
Operations strategy
Lecture 1
Introduction to OM
What is OM
Dairy
farmer
Transport
company
Milk product
processing
Milk product
packaging
Lumber
company
Paper
mill
Cardboard
container
manufacturer
Oil
refinery
Chemical
manufacturer
Plastic
container
manufacturer
Supermarket
OM 2013 - L1
Operations management at IKEA
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Design a store layout
which gives smooth
and effective flow
Design elegant
products which can be
flat-packed efficiently
Site stores of an
appropriate size in
the most effective
locations
Maintain cleanliness
and safety of storage
area
Arrange for fast
replenishment of
products
Monitor and enhance
quality of service to
customers
Continually examine
and improve
operations practice
Ensure that the jobs of
all staff encourage
their contribution to
business success
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What is OM about?
The ultimate goal:
fulfilling peoples needs
Needs are filled by producing
products and services
Operati ons is responsible
for producti on
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Who said operations are boring?
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Various definitions of what OM is?
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a) Transforming inputs to outputs
b) Designi ng, managi ng and i mproving the
production system that develops
companys products and services
c) Managing companys business processes
d) Planning, designi ng, operating,
controll ing and i mprovi ng
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One pretty universal OM-definition
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Designing companys processes,
managing i ts resources and developi ng
capabili ties, which help to transform raw
materials to products and services
customers value
OM has strong managerial and
getti ng things done focus
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Even traditionally defined OM is a
wide area
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Why study OM-issues?
Value added very likely operations based
- has be to understood no matter where one works
- e.g. accounting, finance, marketing, information technology
- numerous career opportunities / have to?
Signifi cant role in companys every day life
- most of the costs are operations based
Success is achieved by doing things right
- many problems can be led to OM-mistakes
- Bad execution kills CEOs(Fortune-magazine)
- Brilliant strategy, but can you execute?(McKinsey & Co.)
- operational excellence as a strategy
- importance understood again in recent years
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Who should be interested in
operations?
Inputs constantly transformed to outputs
e.g. accounting manager
- input: data, information, employees
- transformation: processes, knowledge, following the rules
- output: reports, knowledge of success
You cannot hide from people, material and
machines
- grocery store visit is a simple inventory problem
- painting a house requires job design
- etc.
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OM is a useful way of thinking
- not only a profession -
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Operations are the heart of
corporations - case Disney World -
Forecasting demand and
managing capacity
Equipment acquisition, locating
and maintenance
Quality assurance
Procurement of stores
Workforce training and
scheduling
Management of queues and
cleanliness
Use of technology
Cost cutting
etc..
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How do operations differ from each
other?
Producti on volume
- impacts almost everything
Complexity of product variety
- smaller variety eases operations
Fluctuati on in demand
- level demand much easy to manage
Relati on between product and service
- influences the requirements for operations
Role of the customer
- influences directly the process design
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Low High Volume (of production)
High Low
Variety (of production)
High Low Variation (in demand)
High Low Visibility (customer contact)
Operations differ by the Four V s
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The Four V s - Implications
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IMPLICATIONS
IMPLICATIONS
Volume Low High
Flexible
Complex
Match customer needs
High unit cost
Well defined
Routine
Standardised
Low unit costs
Variety High Low
Variation
in demand
High Low
Visibility
(contact)
High Low
Anticipation
Flexibility
In touch with demand
High unit cost
Stable
Routine/Predictable
High utilisation
Low unit cost
Changing capacity
High unit cost
Lag between production
and consumption
High staff utilisation
Low unit cost
Satisfaction governed by
perception
Short waiting tolerance
Customer contact skills
Low repetition
Staff members perform
more of job
Less systemisation
High unit costs
High repeatability
Specialisation
Systemisation
Capital intensive
Low unit costs
OM 2013 - L1
Lecture 1
Introduction to OM
Transformation processes
What are operations about?
Transformation process
Activities and inventories
Outputs
Products
Services
Inputs
Material
Customers
Workforce and money
Resources
Process
Management
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Different transformations
Production is only one type of transformati on
process
- physical - manufacturing, chemical
- locational - transportation
- exchange - sales
- informative - telecommunication
- storage - inventory
- physiological - health
- mental - education
- attitudinal - entertainment
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Lecture 1
Introduction to OM
Manufacturing vs services
Service Definitions
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Services are deeds, processes, and performances.
Zeithaml & Bitner
A service is a time-perishable, intangible experience
performed for a customer acting in the role of a co-
producer.
James Fitzsimmons
Service enterprises are organizations that facilitate
the production and distribution of goods, support
other firms in meeting their goals, and add value to
our personal lives.
James Fitzsimmons
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Percent Employment in Services
- Top Ten Postindustrial Nations
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Country 1965 1975 1985 1995 2005
United States 59.5 66.4 70.0 74.1 78.6
United Kingdom 51.3 58.3 64.1 71.4 77.0
The Netherlands 52.5 60.9 68.3 73.4 76.5
Sweden 46.5 57.7 66.1 71.5 76.3
Canada 57.8 65.8 70.6 74.8 76.0
Australia 54.6 61.5 68.4 73.1 75.8
France 43.9 51.9 61.4 70.0 74.8
J apan 44.8 52.0 57.0 61.4 68.6
Germany 41.8 n/a 51.6 60.8 68.5
Italy 36.5 44.0 55.3 62.2 65.5
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PURE SERVICES
PURE GOODS
Output from most operations are a
mixture of goods and services
Tangible
Can be stored
Production precedes
consumption
Low customer
contact
Can be transported
Quality is evident
Quality difficult to judge
Cannot be transported
High customer contact
Production and
consumption are
simultaneous
Cannot be stored
Intangible
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Insurance
Psychotherapy clinic
Management consultancy
Computer systems service
Restaurant
Tailoring
Special machine manuf.
Aluminunsmelting
Crude oil production
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Typical characteristics of services
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Intangibility
- measuring quality and efficiency
hard and very subjective
- opportunity to mass customize
quite easy
Inseparability
- rather labor oriented and
customer part of the process
Heterogeneity
- both input and output differs
(customers have an impact)
Perishability
- opportunity loss of idle capacity,
no inventory
- demand and supply has to be
balanced with employees, pricing,
customer participation,
reservation systems etc.
Compared to manufacturing,
these characteristics introduce:

more uncertainty into the


operating system

fewer options for managing


uncertainty

an operational focus on
managing the customer
experience throughout the
service delivery process
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Service Process
INPUTS SERVICE OUTPUTS
PROCESS
Customers
Staff
Materials
Information
Activities,
Resources,
Processes
Service
experience
Satisfaction/
dissatisfaction
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Services interesting from OM
perspective
Methods quite similar in production and services
Many additional but at the same time interesting
challenges compared to production of products
- production & marketing cooperation in designing & running ops
- balancing technology, information and human resources from
customer satisfaction point of view
- impact of simultaneous production & consumption to quality
- improving employees technical and customer interaction skills
- customer contacts and customizations impact on hiring and
motivating employees as well as designing their work
- greater dependency on business networks and IT
- several geographical locations
- slow productivity gains compared to manufacturing (only about 1 %
per year)
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Customer rarely sees the
production side of the service
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Back office
Invisible activities to the customer
Front office
Visible activities to the customer
Customer
S
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r
v
i
c
e
p
r
o
v
i
d
e
r

B
a
c
k
O
f
f
i
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e

The production side of the service -


car repair
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3. Timing the repair
4. Finding out the problem
5. Managing the inventory for repair parts
6. Doing the repair work and testing (+test drive)

F
r
o
n
t
O
f
f
i
c
e

1. Calling the auto shop and making appointment


2. Leaving the car and meeting supervisor
....
7. Receiving a notice from finished work
8. Checking the work and paying
Lecture 1
Introduction to OM
Operations strategy
Operations is not the same as
operational
Operations are the resources that create
products and services
Operational is the opposite of strategic,
meaning day-to-day and detailed
One can examine both the operational and the
strategi c aspects of operati ons
- the operational role =do things right
- the strategic role =do the right things
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Micro
level of the process
Macro
level of the total operation
Level of
analysis
Time scale
Short-term
for example, capacity
decisions
1-12 months
D
e
m
a
n
d
1-10 years
D
e
m
a
n
d
Long-term
for example, capacity
decisions
Level of
aggregation
Detailed
For example
Can we give tax services to
the small business market in
Antwerp?
Aggregated
For example
What is our overall business
advice capability compared with
other capabilities?
Level of
abstracti on
Concrete
For example
How do we improve our
purchasing procedures?
Philosophical
For example
Should we develop strategic
alliances with suppliers?
Operations management Operations strategy
(Slack et al, 2006)
Operations strategy is different
from operations management
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How company competes;
Products, customers, competiti ve advantage
Business strategy
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Strategy development process
Internal
analyses
Competitor
analyses
External
analyses
Environment
analyses
Customer valued capability, which gives the company
advantage over its competitors (often operation based)
Developing long-term plans and systems which lead to success
(goal and a plan how to achieve them)
Vision and mission
Corporate strategy
Business strategy
Functional
strategies
(e.g. oper. strategy)
Tactics
Disney World, Orlando
total family experience,
product uniqueness,
variety and quality
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Location strategy
- large site, warm climate, far from Disneyland, legal independence, good for tourists,
possible other attractions close by
Capacity strategy
- larger site than required, steady capacity expansion, lagging demand
Layout strategy
- convenience to spend money, different groups separated from each other, interpark
transportation, restaurants and gaming closely nit, parks and lakes as entertainment
and sound buffers
Technology strategy
- strong internal technology capabilities, management of queues
Personnel strategy
- most talented, continuous training, willingness to serve
Information strategy
- continuous radio communication, electronic signs
- electronic booking system
Quality strategy
- safe and clean
Competitive priorities
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Cost
Top quality
Consistent
quality
Quality
Competitive priorities
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Delivery speed
On-time delivery
Development
speed
Time
Customization
Variety
Volume flexibility
Flexibility
Order winners and quali fiers
order winners
qualifiers
less important
C
o
m
p
e
t
i
t
i
v
e
b
e
n
e
f
i
t
Positive
Neutral
Negative
Low
High
Achieved performance
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Successful companies focus
No company can succeed at being everything for
everybody
- operatively impossible
- economically impossible
- from skill point-of-view impossible
- customers do not believe
Company has to find its own value proposition and be
able to deliver it
- product, price, access, service, experience
- dominate in one element
- differentiate on a second
- be industry par on the remaining three
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Case in point:
How to develop operations
strategy?
Operations strategy
cost/speed/quality/flexibility
process and technology
capacity, location, workforce
Marketing strategy
products, markets,
pricing/promotion/distribution,
services
Business strategy
products, markets,
competitive advantage
Cannot be developed apart!
Customer
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Operations
Managers
Global
competition
Social
responsibility
Technology
Productivity
improvement
Environmental
responsibility
Trends & challenges for OM
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Operations strategies have an
ethical dimension
Product/service design
- customer safety, recyclability of materials, energy consumption.
Network design
- employment implications and environmental impact of location.
Layout of facilities
- staff safety, disabled customer access
Process technology
- staff safety, waste and product disposal, noise pollution, fumes and emissions
Job design
- workplace stress, unsocial working hours
Capacity planning and control
- employment policies
Inventory planning and control
- price manipulation
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