operations management

Operations Management - MM UGM - ADG

OPERATIONS MANAGEMENT

Adi Djoko GuritnoAdi Djoko Guritno

PROGRAM MAGISTER MANAJEMEN

UNIVERSITAS GADJAH MADA


ObjectivesObjectives

- Introducing the cross functional decision making within operations management’s strategy context

- Problem-solving in case studies

- Discussing some new concepts in operations management

- Creating ideas in operation management research


R e f e r e n c e sR e f e r e n c e s

2 - Heizer, J. and B. Render, 2008, Operations Management, Prentice Hall.2 - Heizer, J. and B. Render, 2008, Operations Management, Prentice Hall.

1 - Jacobs, F.B., Chase, R.B., and N.J. Aquilano, 2009, Operations and Supply Chain Management, McGraw Hill.1 - Jacobs, F.B., Chase, R.B., and N.J. Aquilano, 2009, Operations and Supply Chain Management, McGraw Hill.

3 - Finch, B.J. 2006. Operations Now: Profitability, Processes, Performance. McGraw Hill. 3 - Finch, B.J. 2006. Operations Now: Profitability, Processes, Performance. McGraw Hill.

4 - Beckman, S.L. and D.B. Rosenfield, 2008. Operations Strategy. McGraw Hill.

4 - Beckman, S.L. and D.B. Rosenfield, 2008. Operations Strategy. McGraw Hill.


Syllabi ….


Big Paper *Big Paper *

Abstrak I. Pendahuluan: Latar Belakang; Rumusan Masalah; Batasan Penelitian; Tujuan Penelitian II. Landasan Teori: Teori; Model Penelitian; Hipotesis III. Metodologi: Objek; Populasi dan Sampel Penelitian; Uji Hipotesis (Formula dan Cara Uji Hipotesis); Flow Chart Penelitian Referensi

* Dikerjakan setiap kelompok yg dibentuk (abstrak dibagikan, hard copy dan soft copy paper). Urutan presentasi ditentukan saat pengumpulan paper.


Evaluation *

Case & Quiz : 10%

Group Presentation : 15%

Big paper : 15%

Class Participation + Discussion : 10%

Mid Examination : 25%

Final Examination : 25%

* Negotiable


• Lecturer in Supply Chain Management and Operations Management (Master of Management), Management Science and Management of Technology (Doctoral Program)

• Lecturer in Advanced Operations Management - Post Graduate Program FE-UGM

• Vice Dean of Finance, and Human Resources, Faculty of Agricultural Technology, UGM (2004 to present)

• Permanent Lecturer at Department of Agro-Industrial Technology, Faculty of Agricultural Technology, UGM (1988 to present)

• Temporary Lecturer in Supply Chain, Post Graduate Program of Industrial Engineering UII, UPN (private university), Jogjakarta

• Audit Committee Member of PT Timah Tbk (State Owned Company-Mining), Jakarta (2000 to 2007)

• Head of Risk Management and Investment Committee of PT Timah (Persero) Tbk (2007-present)

• Permanent Consultant in Business Development, PT MG Consult (Geological Survey)

• Certified Professional in Risk Management (CPRM) ; Business Continuity Certified Planner (BCCP)

• Member of CSCMP, POMS, APICS, EurOMA, IKAI, PATPI, BCMI• Journal Reviewer: International Journal of Business (IJB), Industrial Progress,

Industrial Research, Agritech, Teknoin• Research interest: Industrial Management, Supply Chain Management and

Strategic Management• Affiliation of research institutions: Green Symbiosis Japan, CIRDAI, PPA-UGM, PPE-

UGM, ISTMI• Training experiences: PT. Combiphar, PT Pegadaian, PT BNI 1946, PT Geo Dipa

Energi, PT Quick Tractors, PT Sari Husada, PT Pfizer-PCH, PT Timah, PT Telkom, PT Sriboga Raturaya, Department of Agriculture, Department of Trade and Industry, PT. Samator Group, PT. Perkebunan Nusantara

• Chairman of ISTMI ; Chairman of RISPESCIA (Riset dan Pengembangan Supply Chain Indonesia)

• Awards: Freezailah Research Award ITTO (Yokohama) ; Robert S McNamara Research Award (Washington)

• E-mail : [email protected] ; [email protected] ; [email protected] • Blog : http://www.adidjoko.wordpress.com

Adi Djoko Guritno

mailto:[email protected]




Operations Management:

Content, history, and current issues

Operations Management:

Content, history, and current issues


Definition of Operations Management

Definition of Operations Management

Operations is responsible for supplying the product orservice of the organization. Operations managers make

decisions regarding the operations function and itsconnection with other functions. The operations managersplan and control the production system and its interfaceswithin the organization and with the external environment.


New Paradigm

Business Goal Setting

Business Goal GettingGoal Getting


Competitive Dimension

• Cost Efficiency

• Quality

• Delivery

• Flexibility


Goldratt

Gilbreth

Baldrige

Taichi Ohno

Eli Whitney Just In Time

Motion Study

Quality Assessment

Theory of Constraints

Standardization


The Hard Rock CafeThe Hard Rock Cafe

First opened in 1971 Now – 110 restaurants in over 40 countries

Rock music memorabiliaCreates value in the form of good food and entertainment3,500+ custom meals per day How does an item get on the menu?Role of the Operations Manager


Significant Events in Operations Management

Significant Events in Operations Management


Major Decisions at Pizza USAA Framework for OM

Major Decisions at Pizza USAA Framework for OM

ProcessQualityCapacityInventory


Cross-Functional Decision Making

Cross-Functional Decision Making

Operations as the primary functionOther primary functions:MarketingFinance

Supporting functionsMajor cross-functional decisions


Operations as a SystemOperations as a System

Transformation(Conversion)

Process

Energy

Materials

Labor

Capital

Information

Goods orServices

Feedback information forcontrol of process inputsand process technology


Relation of Operations to its Environment

Relation of Operations to its Environment

Operations transformation systemSuppliers

HumanResources

Marketing

Accounting Finance MIS

Engineering

SOCIETY

GOVERNMENT

ExternalEnvironment

CUSTOMERS

COMPETITORS


New Challenges in OMNew Challenges in OM

Local or national focusBatch shipmentsLow bid purchasingLengthy product development

Standard productsJob specialization

Global focusJust-in-timeSupply chain partneringRapid product development, alliances

Mass customization

Empowered employees, teams

From To


The Economic System Transforms Inputs to Outputs

The Economic System Transforms Inputs to Outputs

The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital

38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%)

Land, Labor, Capital,

Management

Goods and Services

Feedback loop

Inputs Process Outputs


Fig. Ownership is family-based in Asia, except in Japan where it is widely heldcontrol over companies is seen today as a domain of professional managers, not owners.


Fig. Asian firm have varied ways of maintaining control.


Measurement ProblemsMeasurement Problems

Quality may change while the quantity of inputs and outputs remains constantExternal elements may cause an increase or decrease in productivityPrecise units of measure may be lacking


Article:

On theory in operations management

Article:

On theory in operations management


The terminology of the philosophy of science in

OM• Law of variability

• Law of bottlenecks

• Law of science methods

• Law of quality

• Law of factory focus


Law of variability

The greater the random variability, either demanded of the process or inherent in the process itself or in the processed, the less productive the process is


Law of bottleneck

An operation’s productivity is improved by eliminating or by better managing its bottlenecks. If a bottleneck cannot be eliminated in some way, say by adding capacity, productivity can be augmented by maintaining consistent production through it.


Law of scientific methods

The productivity of labor can be augmented in most instances by applying methods such as those identified by the scientific management movement


Law of quality

Productivity can frequently be improved as quality is improved and as waste declines, either by changes in product design, or by changes in materials or processing. Various techniques of the quality movement can be responsible for these improvements


Law of factory focus

Factories that focus on a limited set of tasks will be more productive than similar factories with a broader array of tasks.


The Theory of Swift, Even FlowThe Theory of Swift, Even Flow

Productivity for any process - be it labor productivity, machine productivity, materials productivity, or total factor productivity - rises with the speed by which material flow through the process, and it falls with increases in the variability associated with the demand on the process or with steps in the process itself.


Job shops

Batch operations

Assembly lines

Highly productive continuous flow process

Low demand variabilityHigh demand variability

High speed of materials

through the process

Low speed of materials

through the process

SPEED OF FLOW

DEMAND VARIABILITY

Fig. A variant on the product-process matrix


Law of Trade-offs A manufacturing plant cannot simultaneously provide the highest levels among all competitors of product quality, flexibility, and delivery, at the lowest manufactured cost

Law of Cumulative CapabilitiesImprovements in certain manufacturing capabilities e.g., quality are basic and enable improvements to be made more easily in other manufacturing capabilities e.g., flexibility.


The Theory of Performance FrontiersThe Theory of Performance Frontiers

A production frontiers is defined as the maximum output that can be produced from any given set of inputs, given technical considerations.


Asset Frontier

Operating Frontier for B

Operating Frontier for A

A B

PERFORMANCE

COST

Fig. Operating and asset frontiers


Asset Frontier

Bettered Operating Frontier

Operating Frontier

A

A2

PERFORMANCE

COST

Fig. Three operating states for a manufacturing plant

A1


Law of Diminishing ReturnsAs improvement moves a manufacturing plant nearer and nearer to its operating frontier or its asset frontier, more and more resources must be expended in order to achieve each additional increment of benefit.

Law of Diminishing Synergy The strength of the synergistic effects predicted by the law of cumulative capabilities diminishes as a manufacturing plant approaches its asset frontier.


Operations Strategy and

Competitiveness

Operations Strategy and

Competitiveness


Boeing Suppliers (777)

Firm Country Parts

Alenia Italy Wing flaps

AeroSpaceTechnologies

Australia Rudder

CASA Spain Ailerons

doors, wing sectionFuji Japan Landing gear

GEC Avionics

United Kingdom Flight computers

Korean Air Korea Flap supports

Menasco Aerospace Canada Landing gears

Short Brothers Ireland Landing gear doors

SingaporeAerospace

Singapore Landing gear doors


Brainpower Weighs In

PRODUCT PRICE WEIGHT in pounds

PRICE per pound

PC microprocessor 851 0.01984 $42,893.00

Viagra (tablet) 8 0.00068 $11,766.00

Gold (ounce) 301.7 0.0625 $4,827.20

Hermès scarf 275 0.14 $1,964.29

Palm V 449 0.26 $1,726.92

Saving Private Ryan on DVD 34.99 0.04 874.75

Cigarettes (20) 4 0.04 100

Who Moved My Cheese? by Spencer Johnson 19.99 0.49 40.8

Mercedes-Benz E-class four-door sedan $78,445.00 4,134.00 18.98

The Competitive Advantage of Nations by Michael Porter 40 2.99 13.38

Chevrolet Cavalier four-door sedan $17,770.00 2,630.00 6.76

Hot-rolled steel (ton) 370 2,000.00 0.19

50


Corporate Strategy

Supply ChainStrategy

Manufacture Strategy

Service Strategy

Distribution & Retailing

Monitoring K P IRisk Management

Fig. Flow of Supply Chain Strategy

51


A strategy must

•Fit the existing and potential environment

•Provide a linkage mechanism

•Incorporate the activities of all major line functions

•Extend into staff activities

•Specify the performance required

•Promote a culture of continual improvement

52


Steps in Developing a Manufacturing Strategy

1. Segment the market according to the product group

2. Identify product requirements, demand patterns, and

profit margins of each group

3. Determine order qualifiers and winners for each group

4. Convert order winners into specific performance

requirements


Its not what you say, its what you do…

Successful strategy ???

• The firm • Customers

A plan for being competitive

Operations Strategy

Operations Strategy


Competitive Dimension

• Cost Efficiency

• Quality

• Delivery

• Flexibility

55


Product Leadership

Product Leadership

Operational excellence

Operational excellence

Customer Intimacy

Customer Intimacy

Market Leadership

Market Leadership

Competitors Focus

Competitors Focus

Company Focus

Company Focus

Customer Focus

Customer Focus

Fig. Strategic Triangle

56


Corporate Strategy

Mission

Distinctive

Competence

Cross Functional

Int. & Ext. Analysis

Objectives

•Cost

•Quality

•Delivery

•Flexibility

Policies

•Process

•Quality

•Capacity

•Inventory

Consistent Pattern of Decision


Mission of FedExFedEx is committed to our People-Service-Profit philosophy. We will

produce outstanding financial returns by providing total reliable, competitively superior, global air-ground transportation of high priority

goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained using real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional to each other and the

public. We will strive to have a completely satisfied customer at the end of each transaction.


Mission of the Hard Rock Café

To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering

the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

59


Example:

Distinctive competencies of Japanese manufacturing

•Low labour cost strategy – shortly after the war;

•Scale-based strategy – high productivity and low unit cost;

•Focused factory strategy – specialization for higher quality;

•Flexible factory strategy – high quality with increased variety;

•Lean production – reducing all waste


Table. Typical Operation Objectives (Example)


Examples of Important Policies in Operations

Policy Type Policy Area Strategic Choices

Process Span of processAutomationProcess flowJob specializationSupervision

Make or buyHandmade or machine –madeFlexible or hard automationProject, batch, line, or continuousHighly decentralized or centralized

Quality Systems ApproachTrainingSuppliers

Prevention or inspectionTechnical or managerial trainingSelected on quality or cost

Capacity Facility sizeLocationInvestment

One large or several small facilitiesNear markets, low cost, or foreignPermanent or temporary

Inventory Amount Distr.

Control Systems

High levels or low levels of inventory

Centralized or decentralized warehouses

Control in great detail or less detail


Order Qualifiers and WinnersDefined

Order qualifiers are the basic criteria that permit the firms products to be considered as candidates for purchase by customers

Order winners are the criteria that differentiates the products and services of one firm from another


Table Strategic Alternatives

Strategy A Strategy B

Business StrategyProduct Imitator Product Innovator

Market conditions

Price sensitive Mature market High volume Standardization

Product features- sensitive

Emerging market Low volume

Customized products Operation

mission Emphasiz e low cost for mature products

Emphasize flexibility to introduce new products

Distinctive competence operations

Low cost through superior process technology and vertical integration

Fast and reliable new product introduction through product teams and fle xible automation

Operations policies

Superior processes Dedicated automation Slow reaction to change Economy of scale Workforce involvement

Superior products Flexible automation

Fast reaction to changes Economies of scope

Use product development teams

Ma rketing strategies

Mass distribution Repeat sales Maximizing of sales opportunities National salesforce

Selective distribution New-market development

Product design Sales made through agents

Finance strategies

Low risk Low profit margin

Higher risk Higher profit margins


Why Some Organizations Fail

Too much emphasis on short-term financial performanceFailing to take advantage of strengths and opportunitiesFailing to recognize competitive threatsNeglecting operations strategyToo much emphasis in product and service design and not enough on improvementNeglecting investments in capital and human resourcesFailing to establish good internal communicationsFailing to consider customer wants and needs


Operation Decisions

Quality

Product

Process

Location

Layout

Human Resources

Supply Chain

Inventory

Scheduling

Maintenance

ExamplesSpecific

Strategy Used

Sony - constant innovation ……..……. FLEXIBILITY

Compact - PC market ……...……....… FLEXIBILITY

Southwest Airlines - no frills service.... LOW

PRICE

Pizza Hut - five minutes guarantee … DELIVERY

FedEx - on time ………………….……… DELIVERY

Motorola pagers - performance ……. QUALITY

IBM - after sales ………………………… AFTER SALES

OM’s Contribution to Strategy


Brand Name Drugs vs Generic Drugs


Operations Strategies for Two Drug Companies


Strategy and Issues During a Product’s Life


Types of Focus

Product focusProcess typeTechnologyVolume of salesMake-to-stock and make-to-orderNew products and mature products


Some Multinational Corporations

WorkforceCompany Home

Country% SalesOutsideHomeCountry

% AssetsOutsideHomeCountry

% Foreign

ICI Britain 78 50 NA

Nestlé Switzerland 98 95 97

Philips Netherlands 94 85 82

Siemens Germany 51 NA 38

Electronics

Unilever Britain & Netherlands

95 70 64


Four International Operations Strategies


Mass Customization and Strategic Process Choices


Case:

Retaining A Consistent Position


CS: Retaining A Consistent Position

A local chain of fast food restaurants wants to extend its performance in the flexibility characteristic and is considering broadening its menu to offer chicken, fish, or veal platters in addition to its normal, limited-menu sandwich items. The new platters will not be ordered in large volume as are its standard items, and the company is therefore evaluating alternative decisions regarding whether or not the platters will be prepared ahead of time. If the company chooses not to prepare platters ahead of demand, it will move away from the delivery-service characteristic for these items. If these items are prepared ahead and held, the platters might not appear so fresh and be so tasty. This option would cause the company to move away from a high-quality emphasis. If the items are prepared at some rate of reasonable expected demand and thrown away if not demanded, the company's cost performance will suffer. (Adapted from: James B. Dilworth, Production and Operations Management: Manufacturing and Non-manufacturing, 3rd ed, p.60, 1986, Random House-NY)


If the company chooses not to prepare platters ahead of demand delivery-service

If these items are prepared ahead and held high-quality problems

If the items are prepared at some rate of reasonable expected demand

Cost performance problems


Differences in manufacturing strategy decision between Japanese and Western manufacturing plants: the role of

strategic time orientation

Chris Voss, Kate Blackmon


Next :

Innovation and Managing the

renewal of the business


Pun, Kit Fai, 2004. “A conceptual synergy model of strategy formulation for manufacturing “. International Journal of Operation and Production Management Vol. 24 No. 9: 903-928

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