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Operations Management BUSN 6110 FA2, 2011 Syllabus • • • • • • • • • • Class 1 (Oct 19): chap 1; chap 2, case study (Introduction, Strategy, Decision Making) Class 2: (Oct 26):Chap 5, Chap 4, Chap 6, (Quality, Product and Service Design) Class 3: (Nov 2): Chap 8 , chap 10, chap 11, (Take home exam) (Processes and Technologies , Facility Planning) Class 4: (Nov 9): Chap 17, Chap 9, Chap 12, (Project Management, Capacity and Aggregate Planning, Inventory Management) Class 5: (Nov 16): Chap 7 (Forecasting), Chap 15, Reverse Logistics – need “The Forklifts Have Nothing To Do!” Available in the Lewis and Clark Bookstore Nov 23: No class Class 6: (Nov 30): Chap 13, Supply Chain Security, The Beer Game Class 7: (Dec 7): Chap 16, Just in Time/TOC Class 8: (Dec 14): Group Presentations, Final Exam (take home) Other requirements: →visit Harley-Davidson Plant in Kansas City, or Boulevard Brewery in Kansas City, or The Roasterie Coffee Company in Kansas City or other operation activity and present as small groups to the class on Dec 14. Additional Text The # 2 Selling Warehousing and Distribution Book and #1Non-text book Warehousing Book Book on Oct 15, 2011 Grades • • • • Group Presentation – 10% Case Studies – 10% Mid Term – 40% Final Exam – 40% Contact Information • [email protected] • (760) 447-3651 • Personal background Class Slides and Information • www.supplychainresearch.com • Slides will be posted/updated week prior to class – therefore the slides currently on the website may change as new materials come available Chapter 1 Introduction to Operations Management The Operations Function Operations as a transformation process Operations as a basic function Operations as the technical core Operations as a Transformation Process INPUT Material Machines Labor Management Capital Operations as a Transformation Process INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS Operations as a Transformation Process INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services Operations as a Transformation Process INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS Feedback OUTPUT Goods Services Transformation Processes Physical Locational (manufacturing) (transportation/ warehouse) Exchange (retail) Physiological (health care) Psychological (entertainment) Informational (communications) Impacts on Operations Management Industrial Revolution Scientific Management Human Relations or the lack thereof Advent of Management Science Quality Emphasis Globalization of Supply Chains Information Age/Internet Revolution Key Events Industrial Revolution Steam engine 1769 James Watt Division of labor 1776 Adam Smith Interchangeable parts 1790 Eli Whitney Scientific Management Principles Frederick W. Taylor 1911 Activity scheduling chart Henry Gantt 1912 Moving assembly line Henry Ford 1913 Key Events Human Relations Hawthorne studies Motivation theories 1930 1940s 1950s 1960s Elton Mayo Abraham Maslow Frederick Hertzberg Douglas McGregor Management Science Linear programming Digital computer Simulation, PERT/CPM, Waiting line theory MRP 1947 George Dantzig 1951 Remington Rand 1950s Operations research groups 1960s Joseph Orlicky, IBM Key Events Quality Emphasis JIT TQM 1970s Taiichi Ohno, Toyota 1980s W. Edwards Deming, Joseph Juran, et. al. Strategy and operations Skinner, Hayes Reengineering 1990s Hammer, Champy World Trade Organization 1990s Numerous countries and companies Globalization European Union and other trade agreements EDI, EFT, CIM 1970s IBM and others 1980s Key Events Information Age/ Internet Revolution Internet, WWW, ERP Supply chain management, E-commerce 1990s SAP, i2 Technologies, ORACLE, PeopleSoft, Amazon, Yahoo, eBay, and others Categories of E-Commerce Business Consumer Business B2B Commerceone.com B2C Amazon.com Consumer C2B Priceline.com C2C eBay.com Types of B2B Transactions Buyers Buyer Seller (a) Electronic Storefront Sellers Sellers (b) Seller’s Auction Buyers Sellers Buyer (c) Buyer’s Auction (d) Exchange or E-Marketplace E-Business Promotes: Better customer relations More efficient processes Lower cost of materials Information technology synergy Better and faster decision making E-Business Promotes: New forms of organizations Expanded supply chain Higher customer expectations New ways of doing business Globalization Competitiveness The degree to which a nation can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens. Productivity Output Productivity = Input Productivity Output Productivity = Input Productivity improves when firms: Become more efficient Downsize Expand Retrench Achieve breakthroughs Measures of Competitiveness Productivity GDP (Gross domestic product) growth Market capitalization Technological infrastructure Quality of education Efficiency of government Barriers to Entry Economies of scale Capital investment Access to supply and distribution channels Learning curves Competition Within Industries Increases When Firms are relatively equal in size and resources Products and services are standardized Industry growth is slow or exponential Chapter 2 Operations Strategy To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved. The Importance of Clearly Stated Missions/Visions ‘The Grand Duke said “one who is confused in purpose cannot respond to his enemy” Sun Tzu, The Art of War • To know the purpose – there must be a clearly stated mission and vision. Clearly Stated Mission??? “When you come to a fork in the road, take it.” Example of A Clearly Understood Mission COL Rusling on General Grant: “He made certain his subordinates knew exactly what he wanted, and why and when he wanted it.” Example of A Clearly Understood Mission “We endeavor to go to the moon and return safely before the end of this decade.” - John F. Kennedy VISION® • Vital to the Organization • Integrated throughout the Organization • Sustainable and Achievable • Important from the viewpoint of the employees • Organization Goals • Not necessarily a one size fits all vision Velocity Management in Logistics and Distribution, 2005, Walden Strategy Formulation • Define a primary task • Assess core competencies • Determine order winners & order qualifiers • Positioning the firm Core Competencies • Also known as core capabilities • Skills that differentiate the service or manufacturing firm from competitors • Those things that the company does best Strategy Formulation • Define a primary task • Assess core competencies • Determine order winners & order qualifiers • Positioning the firm Competing on Cost Eliminate all waste Invest in Updated facilities & equipment Streamlining operations Training & development Competitive Priorities: Cost • Southwest Airlines – one type of airplane facilitates crew changes, record-keeping, maintenance, and inventory costs – direct flights mean no baggage transfers – $30 million annual savings in travel agent commissions by requiring customers to contact the airline directly Copyright, 2006, John Wiley and Sons Competing on Quality Please the customer Understand customer attitudes toward and expectations of quality Example: Ritz Carlton Competing on Flexibility Produce wide variety of products Introduce new products Modify existing products quickly Respond to customer needs Competing on Speed Fast moves Fast adaptations Tight linkages Example: FEDEX, UPS, DHL Operations Role in Corporate Strategy Provide support for overall strategy of a firm Serve as firm’s distinctive competence Must be consistent Must be consistent with overall strategy Operations and Wall Street • Comparing operations at a firm with competitors • Example income per employee revenue per employee inventory turnover customer turnover Operations Strategy at Wal-Mart Mission Wal-Mart Provide value for our customers Competitive Priority Low prices, everyday Operations Strategy Low inventory levels Short flow times Operations Structure Linked communications between stores Fast transportation system Enabling Process and Technologies EDI/satellites Cross-docking Focused locations Strategy and the Internet Create a distinctive business strategy Strengthen existing competitive advantages Integrate new and traditional activities Must provide a unique value to the customer Products & Services Make-to-order Made to customer specifications after order received Make-to-stock Made in anticipation of demand Assemble-to-order Add options according to customer specification Processes & Technology Project One-time production of product to customer order Batch production Process many jobs at same time in batch Mass production Produce large volumes of standard product for mass market Continuous production Very high volume commodity product Capacity & Facilities How much capacity to provide Size of capacity changes Handling excess demand Hiring/firing workers Need for new facilities Facilities Best size for facility? Large or small facilities Facility focus Facility location Global facility Human Resources Skill levels required Degree of autonomy Policies Profit sharing Individual or team work Supervision methods Levels of management Training Quality Target level Measurement Employee involvement Training Systems needed to ensure quality Maintaining quality awareness Evaluating quality efforts Determining customer perceptions Sourcing Degree of vertical integration Supplier selection Supplier relationship Supplier quality Supplier cooperation Operating Systems Execute strategy daily Information technology support Effective planning & control systems Alignment of inventory levels, scheduling priorities, & reward systems Policy Deployment Focuses employees on common goals & priorities Translates strategy into measurable objectives Aligns day-to-day decisions with strategic plan Balanced Scorecard Finance — How should we look to our shareholders? Customer — How should we look to our customers? Processes — At which business processes must we excel? Learning and Growing — How will we sustain our ability to change and improve? Issues and Trends Global markets, sourcing, operations Virtual companies Greater choice Emphasis on service Speed and flexibility Supply chains Collaboration Technological advances Knowledge Environment and social responsibilities The Dilbert (Dogbert) Solution – Change the Name of the Old Program Intro to Decision Making Decision Analysis • Payoff Table - craps tables • Maximax - maximum of maximum payoffs - optimistic - “hard ways” • Maximin - maximum of minimum payoffs safe bets or even odds bets • Minimax regret - minimum of maximum regrets or opportunity costs Decision Trees • Graphical method of analyzing a decision - similar to Theory of Constraints • Payoff table can be translated to a Decision Tree The Payoff Table A method of organizing & illustrating the payoffs from different decisions given various states of nature A payoff is the outcome of the decision – a Craps table pay off chart is an example of a payoff chart Payoff Table States Of Nature (Alternatives) Decision a b 1 Payoff 1/a Payoff 1/b 2 Payoff 2/a Payoff 2/b STATES OF NATURE DECISION Expand Maintain status quo Sell now Good Foreign Poor Foreign Competitive Conditions Competitive Conditions $ 800,000 1,300,000 320,000 $ 500,000 -150,000 320,000 Maximums: 1,300,000; 800,000, 320,000 Minimums: 500,000; 320,000; -150,000 decision/State of Nature sell condo sell beach house sell office bldg EVPI VPI good economy 295000 175000 275000 295000 0.5 196100 16200 poor fair economy economy 126000 76000 95000 126000 0.2 19500 37500 78000 78000 0.3 EMV 178550 113950 179900 179900 Supply Chain Management Supply Chain Management • First appearance – Financial Times • Importance → Inventory ~ 14% of GDP → GDP ~ $12 trillion → Warehousing/Trans ~ 9% of GDP → Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain • 1982 Peter Drucker – last frontier • Supply Chain problems can cause ≤ 11% drop in stock price • Customer perception of company SCOR Reference: www.supply-chain.org End-to-End Supply Chain Plan Plan Deliver Source Return Return Suppliers’ Supplier Make Deliver Return Supplier Source Make Deliver Return Return Plan Source Return Your Company Internal or External Make Deliver Source Return Return Customer Internal or External Customers’ Customer SCOR reference model • Whether from Cow to Cone or from Rock to Ring SCOR is not limited by organizational boundaries Copyright © Supply Chain Council, 2008. All rights reserved 69 6 End-to-End Supply Chain Components Source Make Sub assemblies Deliver Supplier’s Supplier Source Make Supplier Deliver Manufacturer Source Make Deliver MP3 Company Retailer Source Deliver Customer Consumer Source Customer’s Customer Process, arrow indicates material flow direction Copyright © Supply Chain Council, 2008. All rights reserved 70 7 Supply Chain “The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.” APICS Dictionary Supply Chain Uncertainty Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability Inventory is a form of insurance Distorted information is one of the main causes of uncertainty Bullwhip effect Information in the Supply Chain Centralized coordination of information flows Integration of transportation, distribution, ordering, and production Direct access to domestic and global transportation and distribution channels Locating and tracking the movement of every item in the supply chain - RFID Bar Codes Computer readable codes attached to items flowing through the supply chain Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans 1234 5678 IT Issues Increased benefits and sophistication come with increased costs Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient Security problems are very real – camera phones, cell phones, thumb drives Collaboration and trust are important elements that may be new to business relationships Suppliers Purchased materials account for about half of manufacturing costs Materials, parts, and service must be delivered on time, of high quality, and low cost Suppliers should be integrated into their customers’ supply chains Partnerships should be established On-demand delivery (JIT) is a frequent requirement - what is JIT and does it work? Sourcing Relationship between customers and suppliers focuses on collaboration and cooperation Outsourcing has become a long-term strategic decision Organizations focus on core competencies Single-sourcing is How does increasingly a part single source of supplier relations differ from sole source? Distribution The actual movement of products and materials between locations Handling of materials and products at receiving docks, storing products, packaging, and shipping Often called logistics Driving force today is speed Distribution Centers and Warehousing DCs are some of the largest business facilities in the United States Trend is for more frequent orders in smaller quantities Flow-through facilities and automated material handling Final assembly and product configuration (postponement) may be done at the DC Vendor-Managed Inventory Not a new concept – same process used by bread deliveries to stores for decades Reduces need for warehousing Increased speed, reduced errors, and improved service Onus is on the supplier to keep the shelves full or assembly lines running variation of JIT Proctor&Gamble - Wal-Mart Home Depot Transportation Railroads 95,000 - 150,000 miles in US Low cost, high-volume Improving flexibility intermodal service double stacking Complaints: slow, inflexible, large loads Advantages: large/bulky loads, intermodal Trucking Most used mode in US -75% of total freight (volume not total weight) Flexible, small loads Consolidation, Internet load match sites Truck load (TL) vs. Less Than Truck Load (LTL) Air Lightweight, small items Quick, reliable, expensive (relatively expensive depending on costs of not getting item there) Major airlines and US Postal Service, UPS, FedEx Package Carriers UPS, US Postal Service, FedEx Ground Significant growth driven by e-businesses and the move to smaller shipments and consumer desire to have it NOW Use several modes of transportation Innovative use of technologies in some cases Online tracking – some better than others Intermodal Combination of several modes of transportation Most common are truck/rail/truck and truck/water/rail/truck Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping Switching Milk Cans from a Farmer’s Buggy to a Truck on a Rural Road in North Carolina, 1929 Early form of intermodal transport and cross docking Water One of oldest means of transport Low-cost, high-volume, slow (relative) Security - sheer volume - millions of containers annually Bulky, heavy and/or large items Standardized shipping containers improve service The most common form of international shipping Pipelines Primarily for oil & refined oil products Slurry lines carry coal or kaolin High initial capital investment Low operating costs Can cross difficult terrain Global Supply Chain Free trade & global opportunities Nations form trading groups No tariffs or duties Freely transport goods across borders Security!! Homework • Motel 6 case study – one page analysis