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The strategies in which service and manufacturing organizations are engage in are part of
the Operations Management (OM) activities.
The course will empower you with skills to address important aspects of business operations including
capacity, productivity, quality, and supply chain.
The business function responsible for planning, coordinating, and controlling the resources needed to
produce products and services for a company
To add value
Operations Examples
Exchange Retailing, whole selling, Banking Renting, Leasing, and Library Loans
Productivity is defined as the efficient use of resources, labour, capital, land, materials, energy,
information, in the production of various goods and services.
Higher productivity means accomplishing more with the same amount of resources or achieving higher
output in terms of volume and quality from the same input.
• Very broadly productivity captures our ability to transform our physical and human resources to
generate the desired outputs.
• It is important to note that productivity improvement or the effective use of available resources
is the only way for future development in the society.
Competitiveness
Competitiveness in business
For the company, competitiveness is the ability to provide products and services as or more effectively
and efficiently than the relevant competitors
Strategy
The art and science of planning and marshalling resources for their most efficient and effective use. The
term is derived from the Greek word for general ship or leading an army
• A method or plan chosen to bring about a desired future, such as achievement of a goal or
solution to a problem by adding value thru certain operations.
Companies often do not understand the differences between operational efficiency and
strategy
a) Operational efficiency is performing tasks well, even better than competitors
Operations strategy is to ensure all tasks performed are the right tasks
A business strategy is developed after taking into many factors and following some strategic
decisions such as;
Mission: Dell Computer- “to be the most successful computer company in the world”
Environmental Scanning: political trends, social trends, economic trends, market place trends,
global trends
Operations Strategy is a plan for the design and management of operations functions
Cost?
Quality?
Time?
Flexibility?
Competing on Quality?
Close tolerances
Competing on Time?
Rapid delivery:
Focused on shorter time between order placement and delivery
On-time delivery:
Competing on Flexibility?
Product flexibility:
Volume flexibility:
Examples
Positive
Improve processes
Negative
Costly
Promotes dependency
Technology for Competitive Advantage
Technology should
Measuring Productivity
Productivity = output/input
Raw productivity calculations do not tell the complete story unless there are no major structure
differences.
Productivity measures must be compared to something, i.e. another year, a different company
Chapter 2 Highlights
Business Strategy is a long range plan and vision. Each individual business function develop
needs to support the business strategy
An organization develops its business strategy by doing environmental scanning and considering
its mission and its core competencies.
The role of operations strategy is to provide a long-range plan for the use of the company’s
resources in producing the company’s primary goods and services.
The role of business strategy is to serve as an overall guide for the development of the
organization’s operations strategy.
The operations strategy focuses on developing specific capabilities called competitive priorities.
There are four categories of competitive priorities: cost, quality, time, and flexibility
Technology can be sued by companies to gain a competitive advantage and should be acquired
to support the company’s chosen competitive priorities
Productivity is a measure that indicates how efficiently an organization is using its resources
Example: Nestle
Brabeck (former chairman & CEO of Nestle) transformed Nestle from a set of far-flung operations into a
single global machine. He has inked a $200 million deal with SAP to link its five e-mail systems and
permit Nestlé’s headquarters in Vevey, Switzerland, to know for the first time how many raw materials
its subsidiaries buy, in total, from around the world. The company then will be able to negotiate better
contracts with suppliers and centralize production. Last year alone, Brabeck closed 38 different
factories. All told, he has slashed $1.6 billion in costs, without labor strife.
Cost
Quality
Time-to-market
Customer satisfaction
Economic
External Competition
Technological
Objectives of Product and Service Design
Main focus
Customer satisfaction
Secondary focus
Function of product/service
Cost/profit
Quality
Appearance
Ease of production/assembly
Ease of maintenance/service
Legal
No legal violations
Ethical
Environmental
Environmental friendly
Product Liability - A manufacturer is liable for any injuries or damages caused by a faulty
product.
Produce designs that are consistent with the goals of the company
Product/service reliability
Example
Standardization
Standardization
Advantages of Standardization
Cost efficient
Disadvantages of Standardization
• Mass customization:
Delayed Differentiation
Producing but not quite completing a product or service until customer preferences or
specifications are known.
Automobile manufacturers that mass produce base models and add minor customizations when
the car is actually ordered. In many cases, customizations such as audio systems may be
installed at the dealership.
Clothing companies may produce certain items in white and not perform the final colouring
process until they know what colours are selling. Base items may be manufactured on a global
basis and colouring steps may occur at regional locations.
Modular Design
Modular design is a form of standardization in which component parts are subdivided into modules that
are easily replaced or interchanged. It allows:
Example: A computer is one of the best examples of modular design. Typical modules include power
supply units, processors, main boards, graphics cards, hard drives, and optical drives. All of these parts
should be easily interchangeable.
Benefits:
Reliability: The ability of a product, part, or system to perform its intended function under a
prescribed set of conditions
Failure: Situation in which a product, part, or system does not perform as intended or as per the
standard.
1. Idea generation
2. Feasibility analysis
3. Product specifications
4. Process specifications
5. Prototype development
6. Design review
7. Market test
8. Product introduction
9. Follow-up evaluation
Reverse Engineering
Reverse engineering is the Dismantling and inspecting of a competitor’s product to discover product
improvements. It is basically the reproduction of another manufacturer's product following detailed
examination of its construction or composition.
Concurrent engineering
also known as simultaneous engineering is a method of designing and developing products, in which the
different stages run simultaneously, rather than consecutively.
It decreases:
2. Use technology
Service Design
Service is an act
Facilities
Processes
Skills
Service
Product bundle
Service package
Tangible – intangible
2. User friendly
3. Easy to sustain
4. Cost effective
5. Value to customers
Variable requirements
Difficult to describe
Concurrent Engineering
Each function did its work and passed it to the next function
All functions form a design team that develops specifications, involves customers early, solves potential
problems, reduces costs, & shortens time to market
Benefit
This way, errors and redesigns can be discovered early in the design process when the project is still
flexible.
The Product Design Process
Customers
Market
Environmental factors
Customer satisfaction
Product quality
Product cost
Overall manufacturability – the ease with which the product can be made
Step 2 - Product Screening - Every business needs a formal/structured evaluation process: fit with facility
and labor skills, size of market, contribution margin, break-even analysis, return on sales
Step 3 – Preliminary Design and Testing - Technical specifications are developed, prototypes built,
testing starts
Step 4 – Final Design - Final design based on test results, facility, equipment, material, & labor skills
defined, suppliers identified
Process Types
E.g. Construction, some medical procedures, custom built home, and tailor made suit
Continuous process – very high volumes of a fully standard product, process types exist
on a continuum
E.g.
Oil refinery
Liquid chemicals
Introduction
Growth
Maturity
Decline
Equipment required
Service arrangement
Organizational structure
Labor required
E-manufacturing
E.g.
Textile
Packaging
Design of Services
Service design is unique in that the service and entire service concept are being designed
E.g. Hotels, Restaurants, Ice cream parlor, Hospitals, Hair salon, theater, Cyber cafe.
Service Characteristics
E.g. Ware houses, Distribution centers, Environmental testing labs, Back office facilities
Job design The job design specifies the contents and procedures of performing the task in the
organization..
1. Satisfaction
2. Motivation
3. Commitment
4. Loyalty
1. Specialization
3. Teams
4. Working conditions
1. Specialization
a) The term specialization refers to work that concentrates on some aspect of a product or service.
a) Job Enlargement
E.g. John creates financial statements for smaller companies now added some more
small companies in his checklist.
b) Job Enrichment
Is a management concept that involves redesigning jobs so that they are more
challenging to the employee and have less repetitive work. It is a vertical expansion.
c) Job Rotation
Succession planning
To evade monotony
a) Motivation
b) Trust
a) The teamwork includes increased efficiency, the ability to focus different minds on the same
agenda/problem and mutual support.
b) When a team is able to work well together they accomplish more than individuals can do alone
c) Benefits of teams
Higher quality
Higher productivity
5. Working Conditions
a) Working conditions are affected by factors including health and safety, security
and working hours.
b) Poor working conditions can damage your health and put your safety at risk.
c) Your employer is legally responsible for ensuring good working conditions, but you also have a
responsibility to work safely.
Maintained working warning systems (such as fire alarms or even warning posters)
Ergonomics:
1. Ergonomics is the process of designing or arranging workplaces, products and systems so that
they fit the people who use them.
2. Ergonomics aims to improve workspaces and environments to minimise risk of injury or harm.
Compensation
1. Time-based system
Time rates are used when employees are paid for the amount of time they spend at work.
For example: The usual form of time rate is the weekly wage or monthly salary.
2. Output-based system
Compensation based on the amount of output an employee produces during a pay period
For example in the transformer making industry, the employer set to sell 15 transformer in a
month and if the employee sell only 10 transformers in a month then the employer rate the
performance below the expectations and pay compensation according to it. This compensation
system is also called as pay for performance (P4P) system
1. Accurate
2. Easy to apply
3. Consistent
4. Easy to understand
5. Fair
Quality Management
Quality is the ability of a product or service to consistently meet or exceeded from customer’s
expectations.
1. Quality Assurance
2. Strategic Approach
Dimensions of Quality
Service Quality
1. Convenience
2. Reliability
3. Responsiveness
4. Time
5. Assurance
6. Courtesy
E.g. Courier service, online shopping, Cellular services, utility companies, hotels, hospitals etc.
Dimension Examples
Responsiveness Were customers service personnel willing and able to answer questions?
Assurance Did the customer service personnel seem knowledgeable about the repair?
2. The buyer will not buy any other product from the company.
3. The buyer will tell their friends and relatives about their bad experience.
The Consequences of Poor Quality
1. Loss of sale
2. Loss of profit
3. Loss of Productivity
1. Top management
2. Design
3. Procurement
4. Production/operations
5. Quality assurance
8. Customer service
A philosophy that involves everyone in an organization in a continual effort to improve quality and
achieve customer satisfaction.
Philosophy that seeks to make never-ending improvements to the process of converting inputs into
outputs.
Example
Tesco (Retail Industry): Tesco is one of the most successful retail supermarket chains in the UK
since 1920’s. It is listed among world’s largest companies in retail industry. The main focus in
quality assurance for the company is to provide customers with products and services that will
meet their needs as well as providing products and services that are free from defects.
“Diversity is more than anyone gender, race or ethnicity. It’s richly representative of all people, all
backgrounds and all perspectives
Elements of TQM
1. Continual improvement
2. Competitive benchmarking
3. Employee empowerment
4. Team approach
6. Knowledge of tools
8. Supplier quality
9. Timely delivery
Costs of Quality
Costs incurred to fix problems that are detected before the product/service is delivered
to the customer.
All costs incurred to fix problems that are detected after the product/service is delivered
to the customer.
4. Appraisal Costs
5. Prevention Costs
All TQ training, TQ planning, process control, and quality improvement costs to prevent
defects from occurring
Chapter 7 : Quality Control and Quality Assurance
Quality control
A system of maintaining standards in manufactured products by testing a sample of the output against
the specification.
OR
Quality control (QC) is a procedure or set of procedures intended to ensure that a manufactured
product or performed service adheres to a defined set of quality criteria or meets the requirements of
the client or customer.
Quality Assurance
The maintenance of a desired level of quality in a service or product, especially by means of attention to
every stage of the process of delivery or production.
Inventory Management
Inventory
Inventory is the raw materials, work-in-process products and finished goods that are considered
to be the portion of a business's assets that are ready or will be ready for sale
Inventory represents one of the most important assets of a business because the turnover of
inventory represents one of the primary sources of revenue generation and
subsequent earnings for the company's shareholders.
Inventory Management
Inventory management is all about having the right inventory at the right quantity, in the right
place, at the right time, and at the right cost.
In inventory management, goods are delivered into the receiving area of a warehouse in the
form of raw materials or components and after processing are put into stock areas or shelves.
Types of Inventories
Finished-goods inventories
(milk pack, tang, Vaseline, chair, door, finished home)
Functions of Inventory
To decouple operations
Inventory management uses several methodologies to keep the right amount of goods on hand
to fulfil customer demand and operate profitably.
Stock Review
Researching buying patterns, seasonal demand, time based needs (forecast demand accurately)
Customer demand can be met without needing to keep quantities of products on hand
Example:
The Bailey Seat Company supplies GM with all the seats it needs for the production of its full-
size trucks. The Bailey Seat Company and GM work closely together so that the seats arrive at
the assembly plant as they are needed for each truck being built. The seats are never stored at
GM's assembly plant, waiting to be installed onto the trucks. The seats are delivered to the plant
and are immediately installed into the new trucks.
Honey/butter (seasonal)
ABC analysis
Classifies inventory into three categories that represent the cost and quantity of the goods
Category A - represents high-cost and low-quantity goods (PMTs, Trafos, heavy vehicle engines)
For example, more expensive category A items may take longer to sell, but they may not need to
be kept in large quantities
Require a considerable amount of resources to continually analyse the inventory levels of all the
categories.
Inventory Control
maximizing the ability to provide customers with products in a timely manner (customer
satisfaction)
Objective of Inventory Control
To achieve satisfactory levels of customer service while keeping inventory costs within reasonable
bounds
Lead time: time interval between ordering and receiving the order
◦ Holding costs
◦ Ordering costs
◦ Shortage costs
Holding (carrying) costs: cost to carry an item in inventory for a length of time that can be:
Storage space
Damage
Spoil
Insurance
Example:
Example:
o Lost customer
o Lost sales
o Disputes in contract
Chapter 9
Just-In-Time System
Just-in-time (JIT): is an inventory strategy that companies employ to increase efficiency and
decrease waste by receiving goods only as they are needed in the production process, thereby
reducing inventory costs.
Example: Ford Australia only produces cars when they have been ordered by customers.
(Parts): Car manufacturer that operates with very low inventory levels. The parts needed to
manufacture the cars do not arrive before or after they are needed; instead, they arrive just as
they are needed.
Advantages
Storage needs
Insurance
Longer Security.
Companies also spend less money on raw materials because they buy just enough to make the products
and no more.
Benefits of JIT Systems
Reduced need for support labor (e.g.; extra labor required for handling and securing the
inventory)
Disadvantages
If a supplier of raw materials has a breakdown and cannot deliver the goods on time, one supplier can
shut down the entire production process.
A sudden order for goods that surpasses expectations may delay delivery of finished products to clients.
JIT in Services
The basic goal of the demand flow technology in the service organization is to provide optimum
response to the customer with the highest quality service and lowest possible cost.
Eliminate disruptions
Remove grievances
JIT concepts work best when goods can be produced in response to consumer demand (e.g.
automobiles, other technology, gadgets etc.)
JIT is less effective for the production of fast moving consumer goods (e.g. basic clothing,
confectionaries, soft drinks, etc.)
Chapter 9 Just-In-Time System
Just-in-time (JIT): is an inventory strategy that companies employ to increase efficiency and
decrease waste by receiving goods only as they are needed in the production process, thereby
reducing inventory costs.
Example: Ford Australia. Ford Australia only produces cars when they have been ordered by customers.
(Parts): Car manufacturer that operates with very low inventory levels. The parts needed to
manufacture the cars do not arrive before or after they are needed; instead, they arrive just as they are
needed.
Advantages
Storage needs
Insurance
Longer Security.
Companies also spend less money on raw materials because they buy just enough to make the products
and no more.
Reduced need for support labor (e.g.; extra labor required for handling and securing the
inventory)
Disadvantages
If a supplier of raw materials has a breakdown and cannot deliver the goods on time, one supplier can
shut down the entire production process.
A sudden order for goods that surpasses expectations may delay delivery of finished products to clients.
JIT in Services
The basic goal of the demand flow technology in the service organization is to provide optimum
response to the customer with the highest quality service and lowest possible cost.
Eliminate disruptions
Remove grievances
JIT concepts work best when goods can be produced in response to consumer demand (e.g.
automobiles, other technology, gadgets etc.)
JIT is less effective for the production of fast moving consumer goods (e.g. basic clothing,
confectionaries, soft drinks, etc.)
CHAPTER 10 Supply Chain Management
Supply Chain
A supply chain is a system of organizations, people, activities, information, and resources involved in
moving a product or service from supplier to customer.
Supply chain management (SCM) is the management of the flow of goods and services, involves the
movement and storage of raw materials, of work-in-process inventory, and of finished goods from point
of origin to point of consumption.
Plan
Efficient
Cost less
Value to customers
Develop (Source)
Suppliers
Reliable suppliers
Make
Testing
Packaging
Deliver
Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Delivery
Organization Benefit
Lower inventories
Higher productivity
Higher profits
Logistics
Logistics
It refers to the movement of materials within a facility and to incoming and outgoing
shipments of goods and materials in a supply chain
The resources managed in logistics can include physical items such as food, materials,
animals, equipment, and liquids.
E-Commerce
Applications include
Easy access
Cost effective
No physical movement
Increased productivity
Reduction of paperwork
Increased accuracy
Advantages E-Commerce
Companies can:
Centralized purchasing
Decentralized purchasing
Suppliers
You need to keep a good relationship with your supplier so they will make sure to help you when you
need it.
Good Supplier:
The supplier was contacted as we wanted to make a change to our order and fortunately they were kind
and willing to help.
Supplier reputation
Location
Price
Price
Quality
Services
Location
Flexibility
CHAPTER 11 PROJECT MANAGEMENT
Project management is the discipline of, planning, leading, executing, controlling, and closing
the work of a team to achieve specific goals and meet specific success criteria at the specified
time.
The object of project management is to produce a complete project which complies with the
client's objectives.
1. Internal – Management
The primary challenge of project management is to achieve all of the project goals within the given
constraints.
Scope
Time
Quality
Budget
Why is it used?
Special needs
Client’s requirement
Top-down commitment
Good communications
Key Decisions
Work
Human Resources
Communications
Quality
Time
Costs
Ethical Issues
Withhold information
Falsifying records
Imposes a methodology
Examples
Recovery project
Construction projects
CHAPTER 12 FORECASTING
FORECAST:
A planning tool that helps management to cope up with the uncertainty of the future.
Forecasting starts with certain assumptions based on the management's experience, knowledge,
and judgment.
Since any error in the assumptions will result in a similar or magnified error in forecasting that
will affect decisions and activities throughout an organization
Principles of Forecasting
2. Forecasts are more accurate for grouped data than for individual items
3. Forecast are more accurate for shorter than longer time periods
Uses of Forecast
Operations
Accounting, finance
Human resources
Marketing
MIS
Time series - uses historical data, trends; assuming the future will be like the past
Averaging: Getting average of sequential items assuming the future will be the average of all
Judgmental Forecasts
Executive opinions
Market assumption
Naive Forecasts
The forecast for any period equals the recent previous period’s actual value.
Naïve Forecasts
Simple to use
Practically no cost
Easily understandable