INTRODUCTION TO OPERATIONS MANAGEMENT What makes a company successful?

Cebu Pacific - low operating expenses San Miguel Beer - good distribution system (strong distribution channels) o Available everywhere o Note that visibility of the product is really important in the Philippines Hapee - they used to supply tubes for Colgate so when Colgate decided that they no longer wanted to use the former's product, they manufactured their own toothpaste P&G - ability to localize their brands; product development Apple - innovation o Note that they don't focus on marketing and advertising o Rolling out in 35 countries at the same time Walmart - everyday low cost savings; RFID system Toyota - total quality management
Operations part of a business organization responsible for producing goods and services Operations Management Management of systems or processes that create and/or provide services The science and art of ensuring that goods and services are created and delivered successfully to consumers Creation and delivery of goods and services Operations managers make decisions regarding the operations function and its connection with other functions. Operations managers plan and control the production process and its interfaces within the organization and with the external environment.

OM Functions Operations is at the core of any business Marketing and finance are two other primary functions and supports operations Operations must coordinate with Marketing and Finance o Marketing - how many to produce o Finance - finances o Operations - HOW TO produce Cross-functional decisions Manufacturing VS Service Manufacturing - tangible outputs (you can hold and see) Service - action-oriented * In the US, manufacturing sector is declining while service sector is rising. Goods VS Service Goods Customer contact Uniformity of input Low High Services High Low High in goods for consistency; low in services because of the different factors to consider in handling customers Low in goods because of reliance in machines Remarks

Labor content Uniformity of output Output Measurement of productivity Opportunity to correct problems Inventory Evaluation Patentable

Low High

High Low

OM Decisions 1. Process o How to produce and deliver o Automated, manual 2. Quality o Criteria, measurement and process of achieving quality o Examples of success metrics: waiting time of customers, capacity of the plant to produce X numbers of units 3. Capacity o Physical facilities & labor 4. Inventory o What, when and how much?

Tangible Intangible Easy High Much Easier Usually Difficult Low Little Difficult Not usually Page | 1 *Moments of Truth

High value ratio = high perceived benefits

Conversion Process Framework

Feedback measurements taken at various points in the transformation process Control the comparison of feedback against previously established standards to determine if corrective action is necessary Example: Cellphone Inputs Conversion process (how to transform inputs to outputs) Control parts, people, machine, land/work area, electricity/light, information on how to create Assembly, packaging, programmers Testing whether the product is okay or not

OM Developments

All products and services go through the conversion processes - core framework Value Chain Perspective Value Perception of the benefits associated with a good, service, or bundle of goods and services (i.e. customer benefit package) in relation to what buyers are willing to pay for them. Network of facilities and processes that describes the flow of goods and services, information and financial transactions from suppliers through the facilities and processes that create goods and services and deliver them to customer. Good quality, comfortable, durable, convenience of buying, appealing

Value Chain

Value for money

Efficiently utilize your scarce resources Value = perceived benefits / cost

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Cost and efficiency (1960s) Quality (170s) Customization and design (1980s) Time (1990s) Service and Value (21st century) Page | 2

OM Issues and Trends Major trends 1. Internet, e-commerce, e-business 2. Management technology 3. Globalization - "borderless marketplace" 4. Outsourcing 5. Rising consumer expectations 6. Demand for empowerment 7. Ethical behavior

How to further expand market shares: Look for new territories and frontiers Free samples Cases: Coca Cola - free samples in North Korea Oishi (delicious in Japanese) - larger provider of snack in Chinese market; left Philippines and penetrated Chinese market; provided free door-todoor samples Bounty Fresh - project premium quality product that's why it was able to compete with Magnolia, which is a household brand Mang Inasal - bought by Jollibee to kill competition Gaining Competitive Advantage Understand customer needs and expectations and how the value chain can best meet these: Order Qualifiers: basic customer expectations - dissatisfiers and satisfiers - are generally considered the minimum performance level required to stay in the business Order Winners: goods and service features and performance characteristics that differentiate one customer benefit package from another, and win the customer's business Note that what was once an order winner may now be an order qualifier because of technology. Competitive Priorities Represent strategic emphasis that a firm places on certain measures and operational capabilities within a value chain Example 1. 2. Cost Quality Southwest Airlines Starbucks (type of coffee beans and milk they use, a little bit of flexibility as well because you can choose sugar levels) Facebook (easy to upload pictures) Facebook (customization); E-Bay (payment, products - rate sellers and see reviews, also change address in the middle of the transfer)

COMPETITIVE STRATEGY & COMPETITIVE ADVANTAGE The name of the game is competition. The playing field is global. Those who understand how to play the game will succeed; those who don't are doomed to fail. Products now don't taste as good s before because they're no longer manufactured in the US. Logistically more efficient to produce in Asian countries like China. Competitiveness How effectively an organization meets the wants and needs of customers relative to others that offer similar goods and services. Competitive Advantage A firm's ability to achieve market and financial superiority over its competitors Case: Champion They used to supply raw materials to P&G "tapat sa inyo" They're banking on the quality of the products They have already achieved efficiency so they're able to sell at a lower price Gained substantial market share in the detergent category. Instead of competing head on with distribution, they focused on distributing it outside Metro Manila because they are more willing to try new products and are not brand conscious. Operations strategy: cost efficiency (at least 20% cheaper than leading brands; quality is same because they have advanced technology), aside from strong distribution outside MM. Case 2: Kopiko Mastered effective distribution system *Without achieving operations efficiency, you'll have to spend a lot of marketing.

3. 4.

Time Flexibility

5.

Innovation Apple

You cannot be the best of everything. Choose one or two and align strategies with those competitive priorities. Page | 3

Planning and Decision-Making Framework

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Mission Goals Org strategies Functional Goals Finance/Marketing/Operations Strategies Tactics Operating procedures

Organizational Strategy Low Price High Quality

Operations Strategy Low Cost High Performance Design / high quality processing Consistent Quality Quick Response On-Time Delivery Innovation Flexibility Volume Superior Customer Service Convenience Pa-QT Naman Si Louis Vuitton

Strategy - long-term; plans for achieving org goals Tactical - shorter time frame; methods and actions taken to accomplish strategies Operations Strategy The approach, that is consistent with the organizational strategy, that is used to guide the operations function 1. Quality-based strategy: strategy that focus on quality in ALL phases of an organization Hermes - hand-stitched bags, highest level of quality of leather; you have to have worked for at least 2 decades for you to be authorized to stitch/make a bag; only one person makes the entire bag Time-based strategy: focuses on reduction of time needed to accomplish tasks McDonald's - how soon they can serve customers Logistics companies Shipping companies

Short Time Newness Variety Service Location PQTNVSL Likas Papaya - cost Rolex - quality Pizza Hut - time LBC - time

2.

Ayala - quality, innovation Page | 4

BDO - flexibility, cost French Baker - quality, innovation Seiko - cost PROCESS SELECTION AND DESIGN LOOK FOR YOUR NOTES!!! Types of Goods and Services

No finished goods inventory

Capacity to produce and deliver

KPM: Lead Time Examples: wedding, haircut

Assemble-to-Order (ATO) Produces parts and subassemblies Customers choose from a limited set

Pros Less inventory, faster service

Cons WIP inventory, limited choices

KPM: speed of service, inventory levels Examples: Bus, Subway sandwich

Capital Intensity: mix of equipment and labor that will be used by the organization Process flexibility: the degree to which the system can be adjusted to changes in processing requirements Technology: product and service (LED), process (cutting metal sheet using laser) Make-to-Stock (MTS) Consumer goods Not necessarily perishable Anything that has a standard production Features: No option/s for customer Fixed design Process Types

Pros Smooth and standardized production

Cons Inventory level and forecasting difficulties

Key performance Measures: inventory accuracy, inventory turnover Examples: shampoo, salt

Make-to-Order (MTO) One-of-a-Kind Small quantities Meets customer's specifications

Pros

Cons

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Process Type Job Shop Batch Assembly or Repetitive

Volume Low

Variety Workforce Customization / Examples Skills Standardization One-of- High a-kind Customizable Semicustomizable Standardized Wedding gowns Commercial bakery Automatic carwash Oil refinery, consumer goods (can't differentiate parts of the material)

Pathways Jollibee: Fall in line, look at menu board, pay, get order, sit down, eat Few number of pathways built by provider Service is unique Customer-routed pathway (theme parks) Buffet - provided-routed Events planning - service is unique and not repeatable Different experience, different training; you cannot standardize (customer) Customer can only choose few pathways (provider) UP (provider), students (customer) --> provider-routed because there is a certain number of courses you can take Customer-provided - ability to choose schedule, subject and course Process Map: Describes the sequence of all activities and tasks necessary to create and deliver a desired output or outcome; visual representation FACILITIES MANAGEMENT Scope of Layout Planning Layout refers to the configuration of departments, work centers, and equipment, with particular emphasis on movement of work Layout decisions Requires substantial investment Involves long-term commitment Impact cost and efficiency of operations Layout should reflect and support the process type chosen by the company. Cases Supermarkets > Impulse buying > Batteries at the counters Apple - minimalist, straightforward; customer experience you'll be able to touch the product and try them in the Apple stores Factors in Layout Planning Layout design is to facilitate a smooth flow of work, material and information through the system. Objectives Facilitate product or service quality Use workers and space efficiently Avoid bottlenecks Minimize material handling cost Eliminate unnecessary movement of workers or material

Moderate Multiple Moderate High Low Low

Continuous High (MTS)

Low

Low

Highly Standardized

Project

LOOK FOR YOUR NOTES!!! Product-Process Matrix Service-Positioning Matrix

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 Minimize production time or customer service time Design for safety QEBHMTS QT-BEMSH
Layout Types 1. Product layout uses standardized processing operations to achieve smooth, rapid, high-volume flow; used for repetitive processing/continuous flow For make-to-stock (MTS) Pros: o High output o Low unit cost o High utilization of labor and equipment Cons: o Dull, repetitive jobs o Lower worker skills o Prone to shutdowns o Require intensive preventive maintenance

1.

Fixed-position layout Layout remains stationary Workers, materials, and equipment are moved as needed Example: road, buildings Pros o Consolidated resources o Stationary work center Cons o Highly dependent on timely delivery of materials and equipment o Wide range of skills required o Lack of storage space Cellular Production Layout Work stations are grouped into a cell that can process items that have similar processing requirements Batch and assembly hybrid; product and process layout hybrid More efficient Easier transfer of raw materials from one to another Pros o Smoother work flow o Reduction in material transport and delay o Increased employee morale o Quicker response to quality problems o Reduction in space consumption o Encourages teamwork Cons o Costs associated with implementation o Rearrangement of layout o Requires more intensive employee training/multi-skilled level

4.

2.

Process layout Designed to process items or provide services that involve a variety of process requirements; functional groupings in which similar kinds of activities are performed For batch and assembly Pros: o Provide more flexibility o General-purpose equipment less costly than specialized o Less vulnerable to equipment failures o Increased worker satisfaction Cons o Slow material handling o Higher worker skill equipment o Lower equipment utilization

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Location Evaluation Tools Cost-Profit-Volume Analysis (CPV Analysis) Determine the fixed and variable costs associated with each location alternative; required level of output Center of Gravity Method Determine the location facility that will minimize shipping costs or travel time to various destinations Factor Rating Determine relevant factors and assign weight to each factor that indicates its relative importance compared with all other factors DESIGN OF WORK SYSTEMS Quality of work life affects workers' overall sense of wellbeing and contentment and most importantly, their productivity Important aspects of quality of work life How a worker gets along with co-workers Quality of management Working conditions Compensation 5. Service layouts Can be categorized as product, process, or fixed position Requirements are somewhat different due to some factors as: Degree of customer contact Degree of customization Common service layouts: Warehouse and storage layouts Retail layouts Office layouts Work conditions Work time & work breaks Safety Temperature and humidity Illumination Occupational healthcare Ethical issues Ventilation Noise and vibration Compensation Important for organizations to develop suitable compensation plans for their employees. Compensation approaches: 1. Time-based systems - compensation based on time an employee has worked during the pay period 2. Output-based systems - based on amount of output an employee produced during the pay period IDEAL: mix of both o Example: Sales Managers - base pay (time-based), variable pay (output-based) 3. Incentive systems - accurate, easy to apply, consistent, easy to understand, and fair (individual and group) 4. Knowledge-based system - pay system used by organizations to reward workers who undergo training that increases their skills

Critical Factors in Location Planning Closely tied to org strategies Low cost VERSUS Convenience to attract market share Effect on capacity and flexibility Represent a long-term commitment of resources Effect on investment requirements, operating costs, revenues, operations Impact competitive advantage Importance to supply chains Decision between manufacturing/distribution (COST-focus) OR service/retail (REVENUE-focus)

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o
IDEAL compensation package: balances motivation, profitability and retention of good employees

Job enrichment - increasing responsibility for planning and coordination tasks by vertical loading Job rotation - workers periodically exchange jobs; sometimes used for control purposes

HR Strategy - HRM Framework QUALITY MANAGEMENT World's Most Admired Companies Amazon Google Nordstrom Apple Whole Foods Market WW Grainger Polo Ralph Lauren Michelin Nestle Neflix Important to invest in product quality - constantly improve and innovate Consequences of Poor Quality Loss of business Liability Productivity Costs 62% of Filipino associate good quality with high price 84% of Filipinos are willing to pay premium for better quality Quality Ability of a product or service to consistently meet or exceed customer expectations Dimensions Performance Aesthetics Special features Conformance Reliability Durability main characteristics of the product appearance, feel, smell, taste extra characteristics how well the product conforms to design specifications consistency of performance the useful life of the product

Objectives: 1. Manage labor 2. Design jobs 3. Achieve efficiency and effectiveness 4. Support quality of work life 5. Create an atmosphere of mutual commitment and trust 6. Motivate employees Job Design The act of specifying the contents and methods of jobs o What will be done in a job o Who will do the job o How the job will be done o Where the job will be done Objectives o Must be understood and agreed by both employees and management o In written form o Consistent with organization's goals o Carried out by experienced personnel with the necessary training and background Behavioral approaches to job design o Job enlargement - giving a worker a larger portion of task by horizontal tasking

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Perceived quality Serviceability [FOR SERVICE] Convenience Reliability Responsiveness Time Assurance Courtesy Tangibles Consistency Product: SCRAP-DPS Service: 3C2R2TA

indirect evaluation of quality handling of complaints or repairs the availability and accessibility of the service ability to perform a service dependably, consistently, and accurately willingness to help customers in unusual situations and to deal with problems Speed with which the service is delivered Knowledge exhibited by personnel and their ability to convey trust and convenience Way customers are treated by employees Physical appearance of facilities, equipment, personnel and communication materials Ability to provide the same level of good quality repeatedly

1. 2. 3.

Appraisal costs: costs of activities designed to ensure quality or uncover defects (text equipment, inspectors) Prevention costs: costs of preventing defects from occurring (training and quality control) Failure costs: costs incurred by defective parts or products or faulty services Internal failure costs: incurred to fix problems that are detected before the product or service is delivered to the customer External failure costs: all costs incurred to fix problems that are detected after the product or service is delivered to the customer

TQM (Total Quality Management) A philosophy that involves everyone in an organization in a continual effort to improve quality an achieve customer satisfaction needs top management commitment 3 Key Philosophies 1. Continuous Improvement ("KAIZEN"): never-ending push to improve 2. Involvement of everyone in the organization 3. Goal of customer satisfaction "POKAYOKE" - focus on processes that facilitate doing the job right for the first time; mistake-proof Elements of TQM Continuous improvement Competitive benchmarking Employee empowerment Team approach Decision based on fact, not opinion Knowledge of tools Supplier quality Champion - TQM Champion Quality at the source Suppliers are partners in the process - long-term relationship Quality Tools Flow chart Check sheets Histogram Scatter diagrams Ishikawa Diagram or "fish-bone" diagram : cause-and-effect diagram; helps identify root cause Quality Awards Malcolm Bridge Award: USA European Quality Award

Servqual An instrument designed to obtain feedback on an organization's ability to provide quality service to customers by focusing on service dimensions that influence customers' perceptions of service quality: o Tangibles o Reliability o Responsiveness o Assurance o Courtesy (empathy) Identify gaps or discrepancies between: o Actual customer expectation versus management perceptions of expectations o Management perception of customer expectations versus service quality specifications o Service quality versus service actually delivered o Service actually delivered versus what is communicated abot the service to customers Cost of Quality

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Deming Prize: Japan's highly coveted award Quality Certifications ISO 9000 (quality management), ISO 14000 (environmental performance), and ISO 24700 (quality of reused components) Philippine Quality Award

Six Sigma A business process of improving quality, reducing costs, and increasing customer satisfaction Statistically, it means having no more than 3.4 defects per million opportunities in any process, product or service Used by companies such as Motorola, GE, and Texas Instruments Process (DMAIC) o Define o Measure o Analyze o Improve o Control Six Sigma Computation o DPMO or EPMO (defects or errors per million opportunities) = (number of defects or errors discovered/opportunities for error) X 1,000,000 o The sigma level can easily be calculated on an excel spreadsheet using the cell formula = normsinv (1 - number of defects/number of opportunities) + 1.5 or equivalently, = normsinv (1 - dpmo/1,000,000) + 1.5 o Ratings 3-sigma process has dpmo of 66,807 4-sigma process has dpmo of 6,210 5-sigma process has dpmo of 233 6-sigma process has dpmo of 3.4

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