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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