fundamentals of operations management bus 3 – 140 aug 29, 2011
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Fundamentals ofOperations Management
BUS 3 – 140
Aug 29, 2011
Page 2 2
Agenda
– Week 1 Review
– Product & Service Design
– Location Planning
– Project Management
Product & Service Design
Page 4 4
There are degrees of “Newness”
– Modify existing products and services
– Expand and existing product line or service offering
– Clone a competitor’s product or service
– New product or service
There is usually some combinationtaking place simultaneously
Page 5 5
Phases in Product Design & Development
IdeaGeneration
FeasibilityAnalysis
ProductSpecifications
ProcessSpecifications
PrototypeDevelopment
DesignReview
MarketTest
Follow-upEvaluation
ProductIntroduction
Supply Chain Customers Suppliers Employees Field Service
Competitors “Me too” strategy Reverse Engineering
Research and Development Applied research has the objective of MAKING MONEY Development takes the results of the applied research and finds
places where they can be used (Applications)
Page 6 6
Phases in Product Design & Development
FeasibilityAnalysis
ProcessSpecifications
PrototypeDevelopment
DesignReview
MarketTest
Follow-upEvaluation
ProductIntroduction
IdeaGeneration
ProductSpecs.
– Start with the CUSTOMER
• Understand what the customer wants (or demands)• Understand what the customer will PAY for
– RESPOND to Opportunities and Threats
• Customers not buying what you are selling• Customers buying what you are not selling
– Acknowledge Cost imperatives
– Defensive considerations
• Product liability• Availability (possible shortages or cost issues) of Raw Material,
components, labor
Page 7 7
Product Life Cycles
Time
Introduction
Growth
Maturity
Saturation
Decline
Dem
and
Figure 4.1
Page 8 8
Definitions
What the seller is paid for goods and services provided
Price
The expenses incurred in operating the enterprise,making and buying materials, and converting the
materials to finished goods
Cost
The difference between Price and Cost
Value
Page 9 9
Target Pricing is a Key Element in Product Specifications
Cost ProfitSalesPrice
Traditional:
+ =
SalesPrice
(Market)Profit Cost
Target Pricing:
- =
Instead of adding profit and cost to establish a selling price, the organizationstarts with the market price and required profit to establish a target cost toachieve the necessary profit.
Page 10 10
Design Phases leads to Introduction and Volume
FeasibilityAnalysis
ProcessSpecifications
PrototypeDevelopment
DesignReview
MarketTest
Follow-upEvaluation
ProductSpecifications
IdeaGeneration
ProductIntroduction
– Quality and Cost
– Target pricing
– Capital equipment
– Time to market
– Time to Volume
– Postponement and “Mass Customization”
Page 11 11
The Standardization Challenge
Standard parts are generally lower cost, more abundantly available, provide the largest number of potential suppliers,
drive efficiencies in design, and provide other benefits
BUT…
Unique parts often differentiate products and performance,and can provide competitive advantage to the seller
Page 12 12
Postponement and Mass Customization
Page 13 13
Postponement and Mass Customization
– Combine uniqueness and standardization
• Delayed differentiation
– Modular design
• Many permutations from standard components (e.g Dell computer, Burger King, Subway, magazines)
– Inventory Management
– Forecasting
Feature Options OptionsPatties 2 1, 2Cheese 3 Y, N, ExtraKetchup 4 Y, N, Light, ExtraLettuce 4 Y, N, Light, ExtraMayo 4 Y, N, Light, ExtraOnions 4 Y, N, Light, ExtraTomatoes 4 Y, N, Light, ExtraPickles 4 Y, N, Light, Extra
24,576 Whopper Configurations
Page 14 14
Other Design and Spec Considerations
– Decisions made EARLY affect Dollars spent LATER
– Whenever possible it is recommended to re-use existing components when developing new products (rather than creating numerous new components whenever creating a new subassembly)
– Partnering among Design, Marketing, Sales, and Suppliers during the Design process is a major opportunity to reduce both Time To Market and Cost
– Product Portfolio
Service Design
Page 16 16
Service Design
Start with the Customer
• Understand what the customer wants (or demands)• Understand what the customer will PAY for
Respond to Opportunities and Threats
• Customers not buying what you are selling• Customers buying what you are not selling
– Service Delivery Systems
• Facilities• Processes• Skills• Technology• Service “blueprint”
These concepts also useful for ManagingFunctions and Departments
Page 17 17
Challenges of Service Design
– Variable requirements
– Difficult to describe
– High customer contact
– The customer is a PARTICIPANT in the process
Page 18 18
Characteristics of Well Designed Service Systems
– Consistent with the organization mission
– User friendly
Robust
– Easy to sustain
– Cost effective
– Value to customers
– Effective linkages between back operations
– Single unifying theme
Ensure reliability and high quality
Page 19 19
Guidelines for Successful Service Design
• Define the service package
• Focus on customer’s perspective
• Consider image of the service package
• Recognize that designer’s perspective is different from the customer’s perspective
• Make sure that managers are involved
Define quality for tangible and intangibles
Make sure that recruitment, training and rewards are consistent with service expectations
Establish procedures to handle exceptions
• Establish systems to monitor service
Page 20 20
Components of the “Service Package”
– Physical Resources
– Accompanying goods that are purchased or consumed by the customer, or provided with the service
• Bundling of like products• Service contracts• Insurance plans• Package deals
– Explicit services
– Implicit services
Page 21 21
Key Elements of Service Operations Management
• Tangible – intangible
• Services are created and delivered at the same time
• Services cannot be inventoried
• Services highly visible to customers
• Services have low barrier to entry
• Location important to service
• Range of service systems
• Demand variability
There is FUNGIBLE CAPACITY – you “use it or lose it”
Difficult to leverage and scale when people intensive
Turnover and attendance can be critical factors
Location Planning
Page 23 23
Objectives of Location Planning
– Strategic
• Reduce costs• Add revenue• Both
– Tactical
• Explosive growth• Dramatic decline
– Key customers
– Mergers and acquisitions
Page 24 24
Four Location Options
– Expand existing facilities
– Add new
– Leave existing and find new
– Do nothing
Page 25 25
Regional Factors when making Location decisions
– Raw materials and components
– New Markets
– Labor
– Tax relief and other incentives
Page 26 26
Characteristics of Service and Retail Locations
Heavier emphasis on REVENUE than Manufacturing locations
• Traffic volume and convenience most important
• Demographics • Age• Income• Education
• Location is CRITICAL
• Good transportation
• Customer safety
Page 27 27
Comparing Manufacturing vs. Service Locations
Manufacturing/Distribution Service/Retail
Cost Focus Emphasis Revenue focus Emphasis
Transportation modes/costs Demographics: age,income,etc
Energy availability, costs Population/drawing area
Labor cost/availability/skills Competition
Building/leasing costs Traffic volume/patterns
Customer access/parking
Project Management
Page 29 29
The Nature of Projects
This Course and Semester are PROJECTS!
Unique, one-time operations designed to accomplish a Unique, one-time operations designed to accomplish a specific set of objectives in a limited time frame.specific set of objectives in a limited time frame.
Build A
A Done
Build B
B Done
Build C
C Done
Build D
Ship
JAN FEB MAR APR MAY JUN
On time!
Page 30 30
Overview of Project Management (from Table 17-1)
How is it different?
• Limited time frame• Narrow focus, specific objectives• Less bureaucratic
Why is it used?
• Special needs• Pressures for new or improves products or services
What are the Key Metrics?
• Time• Cost• Performance objectives
What are the Key Success Factors?
• Top-down commitment• Having a capable project manager• Having time to plan• Careful tracking and control• Good communications
Page 31 31
Overview of Project Management (from Table 17-1, continued)
What are the Major Administrative Issues?
• Executive responsibilities• Project selection• Project manager selection• Organizational structure
• Organizational alternatives• Manage within functional unit• Assign a coordinator• Use a matrix organization with a project leader
What are the tools?
• Work breakdown structure• Network diagram• Gantt charts• Risk management
Page 32 32
The Work of the Project Manager
Responsible for RESULTS achieved through:
• Work• Human Resources • Communication• Schedule• Cost
Risk Management
Project Managers often must INFLUENCE team membersand others WITHOUT formal (Organizational Chart) authority
Page 33 33
Gantt Charts
MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Locate new facilities
Interview staff
Hire and train staff
Select and order furniture
Remodel and install phones
Move in/startup
Gantt Chart
Page 34 34
An example of a Gantt Chart for this Class
In this example, you would know that you should startreading by Sep 19 to complete the assignment by Oct 24
Complete Final Draft
Write First Draft
Compare Book to Course
Read Book
19-Sep 26-Sep 03-Oct 10-Oct 17-Oct 24-Oct
Page 35 35
A Project Work Plan and Project Life Cycle
Concept
FeasibilityFeasibility
PlanningPlanning
Execution
Termination
Man
agem
ent
The Key is to COMPLETE the work,achieve the RESULTS,
and Move On