ba 105 first exam
TRANSCRIPT
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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 everywhereo Note that visibility of the product is really important in the Philippines
Hapee - they used to supply tubes for Colgate so when Colgate decidedthat they no longer wanted to use the former's product, they manufacturedtheir 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 andservices
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 successfullyto consumers Creation and delivery of goods and services
Operations managers make decisions regarding the operations function andits connection with other functions.
Operations managers plan and control the production process and itsinterfaces within the organization and with the external environment.
OM Decisions1. Process
o How to produce and delivero Automated, manual
2. Qualityo Criteria, measurement and process of achieving qualityo Examples of success metrics: waiting time of customers,
capacity of the plant to produce X numbers of units3. Capacity
o Physical facilities & labor4. Inventory
o What, when and how much?
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 produceo Finance - financeso Operations - HOW TO produce
Cross-functional decisions
Manufacturing VS ServiceManufacturing - 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 Services Remarks
Customer
contact
Low High
Uniformity ofinput
High Low High in goods for consistency;low in services because of thedifferent factors to consider inhandling customers
Labor content Low High Low in goods because ofreliance in machines
Uniformity ofoutput
High Low
Output Tangible Intangible
Measurement ofproductivity
Easy Difficult
Opportunity tocorrect problems
High Low *Moments of Truth
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not
usually
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Conversion Process Framework
Feedback
measurements taken at various points in the transformation processControl
the comparison of feedback against previously established standards todetermine if corrective action is necessary
Example: Cellphone
Inputs parts, people, machine, land/work area,electricity/light, information on how to create
Conversion process (how totransform inputs to outputs)
Assembly, packaging, programmers
Control Testing whether the product is okay or not
All products and services go through the conversion processes - core framework
Value Chain Perspective
Value Perception of the benefits associated with a good, service, orbundle of goods and services (i.e. customer benefit package) inrelation to what buyers are willing to pay for them.
ValueChain
Network of facilities and processes that describes the flow ofgoods and services, information and financial transactions fromsuppliers through the facilities and processes that create goodsand services and deliver them to customer.
Value formoney
Good quality, comfortable, durable, convenience of buying,appealing
Efficiently utilize your scarce resources
Value = perceived benefits / cost
High value ratio = high perceived benefits
OM Developments
1. Cost and efficiency (1960s)2. Quality (170s)3. Customization and design (1980s)4. Time (1990s)
5. Service and Value (21st century)
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OM Issues and TrendsMajor trends
1. Internet, e-commerce, e-business2. Management technology3. Globalization - "borderless marketplace"4. Outsourcing5. Rising consumer expectations6. Demand for empowerment
7. Ethical behavior
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 aredoomed to fail.
Products now don't taste as good s before because they're no longermanufactured in the US.Logistically more efficient to produce in Asian countries like China.
CompetitivenessHow effectivelyan organization meets the wants and needs of customers relativeto others that offer similar goods and services.
Competitive AdvantageA 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 outsideMetro Manila because they are more willing to try new products and arenot brand conscious.
Operations strategy: cost efficiency (at least 20% cheaper than leadingbrands; quality is same because they have advanced technology), asidefrom strong distribution outside MM.
Case 2: Kopiko
Mastered effective distribution system*Without achieving operations efficiency, you'll have to spend a lot of marketing.
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-to-
door 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 AdvantageUnderstand customer needs and expectations and how the value chain can bestmeet these:
Order Qualifiers: basic customer expectations - dissatisfiers and satisfiers- are generally considered the minimum performance level required to stayin the business
Order Winners: goods and service features and performance
characteristics that differentiate one customer benefit package fromanother, and win the customer's businessNote that what was once an order winner may now be an order qualifier becauseof technology.
Competitive PrioritiesRepresent strategic emphasis that a firm places on certain measures andoperational capabilities within a value chain
Example
1. Cost Southwest Airlines
2. Quality Starbucks (type of coffee beans and milk they use, a
little bit of flexibility as well because you can choosesugar levels)
3. Time Facebook (easy to upload pictures)
4. Flexibility Facebook (customization);E-Bay (payment, products - rate sellers and see reviews,also change address in the middle of the transfer)
5. Innovation Apple
You cannot be the best of everything. Choose one or two and align strategieswith those competitive priorities.
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Planning and Decision-Making Framework
1. Mission
2. Goals3. Org strategies4. Functional Goals
Finance/Marketing/Operations Strategies
Tactics
Operating procedures
Strategy - long-term; plans for achieving org goalsTactical - shorter time frame; methods and actions taken to accomplishstrategies
Operations StrategyThe approach, that is consistent with the organizational strategy, that is used toguide 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; youhave to have worked for at least 2 decades for you to be authorizedto stitch/make a bag; only one person makes the entire bag
2. Time-based strategy: focuses on reduction of time needed to accomplishtasks
McDonald's - how soon they can serve customers
Logistics companies
Shipping companies
Organizational Strategy Operations Strategy
Low Price Low Cost
High Quality High Performance Design / high qualityprocessingConsistent Quality
Short Time Quick ResponseOn-Time Delivery
Newness Innovation
Variety FlexibilityVolume
Service SuperiorCustomerService
Location Convenience
PQTNVSL Pa-QT Naman SiLouis Vuitton
Likas Papaya - costRolex - qualityPizza Hut - timeLBC - time
Ayala - quality, innovation
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BDO - flexibility, costFrench Baker - quality, innovationSeiko - cost
PROCESS SELECTION AND DESIGNLOOK FOR YOUR NOTES!!!
Types of Goods and Services
Make-to-Stock (MTS)
Consumer goods Not necessarily perishable Anything that has a standard production Features:
No option/s for customer Fixed design
Pros Cons
Smooth and standardizedproduction
Inventory level and forecastingdifficulties
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
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 Cons
Less inventory, faster service 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 theorganization
Process flexibility: the degree to which the system can be adjusted to changesin processing requirements
Technology: product and service (LED), process (cutting metal sheet usinglaser)
Process Types
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ProcessType
Volume Variety WorkforceSkills
Customization /Standardization
Examples
Job Shop Low One-of-a-kind
High Customizable Weddinggowns
Batch Moderate Multiple Moderate Semi-customizable
Commercialbakery
AssemblyorRepetitive
High Low Low Standardized Automaticcarwash
Continuous(MTS)
High Low Low HighlyStandardized
Oil refinery,consumergoods (can'tdifferentiateparts of thematerial)
Project
LOOK FOR YOUR NOTES!!!
Product-Process Matrix
Service-Positioning Matrix
PathwaysJollibee: Fall in line, look at menu board, pay, get order, sit down, eatFew number of pathways built by provider
Service is uniqueCustomer-routed pathway (theme parks)Buffet - provided-routedEvents 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 certainnumber of courses you can takeCustomer-provided - ability to choose schedule, subject and course
Process Map: Describes the sequence of all activities and tasks necessary tocreate and deliver a desired output or outcome; visual representation
FACILITIES MANAGEMENT
Scope of Layout Planning
Layout refers to the configuration of departments, work centers, andequipment, 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 thecompany. 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 Applestores
Factors in Layout Planning
Layout design is to facilitate a smooth flow of work, material andinformation 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
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Minimize production time or customer service time Design for safety
QEBHMTSQT-BEMSH
Layout Types1. 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 outputo Low unit costo High utilization of labor and equipment
Cons:o Dull, repetitive jobso Lower worker skillso Prone to shutdownso Require intensive preventive maintenance
2. Process layout
Designed to process items or provide services that involve a varietyof process requirements; functional groupings in which similar kindsof activities are performed
For batch and assembly
Pros:o Provide more flexibilityo General-purpose equipment less costly than specializedo Less vulnerable to equipment failureso Increased worker satisfaction
Conso Slow material handlingo Higher worker skill equipmento Lower equipment utilization
1. Fixed-position layout
Layout remains stationary
Workers, materials, and equipment are moved as needed
Example: road, buildings
Proso Consolidated resourceso Stationary work center
Conso
Highly dependent on timely delivery of materials andequipmento Wide range of skills requiredo Lack of storage space
4. Cellular Production Layout
Work stations are grouped into a cell that can process items thathave similar processing requirements
Batch and assembly hybrid; product and process layout hybrid
More efficient
Easier transfer of raw materials from one to another
Proso Smoother work flowo Reduction in material transport and delayo Increased employee moraleo Quicker response to quality problemso Reduction in space consumptiono Encourages teamwork
Conso Costs associated with implementationo Rearrangement of layouto Requires more intensive employee training/multi-skilled level
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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
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)
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 ortravel 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 contentmentand 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
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 fortheir employees.
Compensation approaches:1. Time-based systems - compensation based on time an employee
has worked during the pay period2. Output-based systems - based on amount of output an employee
produced during the pay period
IDEAL: mix of botho 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
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IDEAL compensation package: balances motivation, profitability andretention of good employees
HR Strategy - HRM Framework
Objectives:1. Manage labor2. Design jobs3. Achieve efficiency and effectiveness4. Support quality of work life5. Create an atmosphere of mutual commitment and trust6. Motivate employees
Job Design
The act of specifying the contents and methods of jobs o What will be done in a jobo Who will do the jobo How the job will be doneo Where the job will be done
Objectiveso Must be understood and agreed by both employees and
managemento In written formo Consistent with organization's goalso 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
o Job enrichment - increasing responsibility for planning andcoordination tasks by vertical loading
o Job rotation - workers periodically exchange jobs; sometimes usedfor control purposes
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 price84% of Filipinos are willing to pay premium for better quality
QualityAbility of a product or service to consistently meet or exceed customerexpectations
Dimensions
Performance main characteristics of the product
Aesthetics appearance, feel, smell, taste
Special features extra characteristics
Conformance how well the product conforms to designspecifications
Reliability consistency of performance
Durability the useful life of the product
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Perceived quality indirect evaluation of quality
Serviceability handling of complaints or repairs
[FOR SERVICE]Convenience
the availability and accessibility of the service
Reliability ability to perform a service dependably,consistently, and accurately
Responsiveness willingness to help customers in unusualsituations and to deal with problems
Time Speed with which the service is delivered
Assurance Knowledge exhibited by personnel and theirability to convey trust and convenience
Courtesy Way customers are treated by employees
Tangibles Physical appearance of facilities, equipment,personnel and communication materials
Consistency Ability to provide the same level of good qualityrepeatedly
Product: SCRAP-DPSService: 3C2R2TA
Servqual
An instrument designed to obtain feedback on an organization's ability toprovide quality service to customers by focusing on service dimensionsthat influence customers' perceptions of service quality: o Tangibleso Reliabilityo Responsivenesso Assuranceo Courtesy (empathy)
Identify gaps or discrepancies between:o Actual customer expectation versus management perceptions of
expectationso Management perception of customer expectations versus service
quality specificationso Service quality versus service actually deliveredo Service actually delivered versus what is communicated abot the
service to customersCost of Quality
1. Appraisal costs: costs of activities designed to ensure quality or uncoverdefects (text equipment, inspectors)
2. Prevention costs: costs of preventing defects from occurring (training andquality control)
3. Failure costs: costs incurred by defective parts or products or faultyservices
Internal failure costs: incurred to fix problems that are detectedbefore 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 toimprove quality an achieve customer satisfaction needs top managementcommitment
3 Key Philosophies1. Continuous Improvement ("KAIZEN"): never-ending push to improve2. Involvement of everyone in the organization3. Goal of customer satisfaction
"POKAYOKE" - focus on processes that facilitate doing the job right for the firsttime; 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 causeQuality Awards
Malcolm Bridge Award: USA
European Quality Award
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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 reusedcomponents)
Philippine Quality AwardSix Sigma
A business process of improving quality, reducing costs, and increasingcustomer satisfaction
Statistically, it means having no more than 3.4 defects per millionopportunities in any process, product or service
Used by companies such as Motorola, GE, and Texas Instruments Process (DMAIC)
o Defineo Measureo Analyzeo Improveo Control
Six Sigma Computationo 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 spreadsheetusing 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