Operations and Productivity

• Production: Creating goods and services
• Operations management: Creating value, input to outputs
• 3 Functions: Marketing, Productions/Operations, Finance/Accounting
• Supply Chain: Network of organizations that supplies goods/services
  • The goal is customer satisfaction, efficiency, competitive advantage
• Why Study OM?
  • 1. OM is one of three major functions, how is production organized?
  • 2. How are good and services produced
  • 3. What do operation managers do
  • 4. OM is such a costly part of an organization
• Goods are usually tangible, services are not
• Productivity: Output/Input, single factor has one input, multi has multiple inputs
  • Measurement Problems: Quality, external elements, units might be lacking
• Variables of Productivity: Labor (10% of increase), capital (38%), management (52%)
• Service typically labor intensive, customized, intellectual, hard to automate/evaluate for quality
• Challenges: Globalization, partnering, sustainability, rapid development, customization, being lean
  • Also making high quality, safe products, retaining/training talent, and honoring commitments.

Operations Strategy in a Global Environment

• Globalization: Companies are becoming worldwide, world trade increasing
  • 1. Improve the supply chain: locating facility closer to resource (ex: steel plant in Ruhr)
    2. Reduce costs and exchange rate risks: trade agreements lower tariffs
    3. Improve operations: comparative advantage in production
    4. Understand markets: New opportunities
    5. Improve products: Collaboration, comparative advantage
    6. Attract and retain global talent
• Cultures and laws and norms differ which may be an issue, mobility of info, goods, people.
• Mission: What we want to do. Strategy: How
• Strategies for Competitive Advantage
  • Differentiation – better, or at least different
  • Cost leadership – cheaper
  • Response – more responsive (flexibility in market changes, adapting)
• Product Life Cycle: Introduction (R&D, get market share), Growth (increase capacity), Maturity, Decline
• SWOT: Strengths, weaknesses, opportunities, threats
• Strategy Development and Implementation: Identify success factors -> Integrate OM -> Build and staff
• Outsourcing: Have external suppliers, increasing due to cost, speed, and reliability
  • Subcontracting: Hire someone to do part of the work for a task
  • Insufficient analysis most common reason for failure, factor analysis rates by criteria, give weights
• Global Operations Strategy Options
  • International: Import/export or license, low response/cost reduction
  • Globalization: Standardization, cross cultural, saves costs but hard to respond locally
  • Multidomestic: Existing model globally (franchise, join venture, subsidiary), high response, costly
  • Transnational: Move material/people across boundaries, high cost saving/responsiveness

Forecasting

• Good Forecasting gives a Competitive Advantage
• Forecasting: Predicts future events, helps decide production, inventory, personnel, facilities.
• Time frames: Short (< 1 year, usually less than a month), Medium (3 months to 3 years), long (3+ years)
  • Shorter term more accurate, longer term more comprehensive issues
• If marginal cost above average, average increases, relative place is direction
• Types of Forecasts: Economic (inflation, money supply, etc), Technological (how fast), Demand
• Uses: Supply Chain, Human Resources, Capacity
• Steps:
  • 1. Determine the use of the forecast
    2. Select the items to be forecasted
    3. Determine time horizon
    4. Select the forecasting model(s)
    5. Gather data needed to make the forecast
    6. Make the forecast
    7. Validate and implement the results
• Issues: Forecasts are inaccurate, they assume stability, product family forecasts more accurate
• Qualitative: Used when situation is vague, little data (like new product), involves intutition and experience
  • Jury (pool of experts), Delphi (experts separately), Sales force (ask sales), Market (ask consumer)
• Quantitative: Used when data is stable and a lot, involves math
  • Naive (past is future), Moving average, exponential smoothing, trends, linear regression
  • Least squares: Super complicated he gives the formula
    • Exponential smoothing: Forecast = Last Forecast + alpha(last demand – last forecast)
    • Mean Absolute Deviation (error measure): sum of all differences divided by number of terms
    • Mean squared error: square each error, add it, divide by number of terms
    • Mean Absolute Percent Error: Find percent of error, add it all up, divide by number of terms
  • Components: seasonal (pattern in year), cyclical, random

Inventory Management

• Goal: Balance between inventory investment and customer service
• Inventory: one of the most expensive assets, less means lower cost but might run out
  • Helps provide selection, separate production, get bulk discounts, hedge against inflation
  • Types: Raw (can’t use), Work in Progress, Maintenance/Repair (needed to operate), Finished good
• ABC Analysis: A (top 20% of items), B (next 30%), C is bottom half
• Record Keeping: Different prices for different people, bad for consumer

Project Management Fundamentals

• 🔹 Functions of a Project Manager
• Planning, scheduling, controlling resources, meeting quality/time/cost targets.
• 🔹 Importance of Project Management
• Coordinates complex projects (e.g., Bechtel’s data center builds).
• Keeps large-scale efforts on time, within budget.
• 🔹 Project Planning
• Steps: Define → Set Goals → Work Breakdown Structure → Allocate Resources → Team Structure
• Example: Building construction tasks like framing, pouring, wiring.
• 🔹 Project Scheduling
• Tools: Gantt Charts, CPM, PERT
• Defines start/end times and task order.
• 🔹 Project Controlling
• Tools: MS Project, Oracle Primavera.
• Adjusts plans using performance feedback.
• 🔹 PERT vs. CPM
• PERT = probabilistic time estimates (uncertain tasks).
• CPM = deterministic time + cost trade-offs (crashing projects).
• 🔹 Determining Project Schedule
• Critical Path = Longest activity path (no slack).
• Delay in any critical task delays entire project.
• 🔹 Project Crashing
• Calculate crash cost per unit time.
• Identify critical path activities.
• Shorten lowest-cost critical activity first.
• Formulas
• Earliest Start (ES) / Earliest Finish (EF): Forward pass
• Latest Start (LS) / Latest Finish (LF): Backward pass
• Slack Time: LS − ES = LF − EF

Operations & Process Strategy

🔹 Process Strategies

1. Process Focus: High flexibility, low efficiency (e.g., hospital).
2. Repetitive Focus: Assembly lines (e.g., Harley-Davidson).
3. Product Focus: High volume, low variety (e.g., Frito-Lay).
4. Mass Customization: Efficiency + Flexibility (e.g., Dell).

🔹 Selection of Equipment

• Consider cost, flexibility, capacity, quality, and market volatility.

🔹 Process Analysis & Design

• Tools: Flowcharts, Time-Function Mapping, Value-Stream Mapping
• Goal: Eliminate waste, maximize value.

🔹 Process Redesign

• Radical rethink of processes for big gains in cost/time/value.

🔹 Technology in Services

• Automation improves speed, quality, and convenience.
• Examples: ATMs, online education, robotic surgery.

Capacity, Bottlenecks & Cost Analysis

🔹 Capacity Planning

• Design Capacity: Ideal maximum output.
• Effective Capacity: Adjusted for expected realities.
• Actual Output: What’s actually produced.

🔹 Bottleneck Analysis & Theory of Constraints (TOC)

• Bottleneck = stage with lowest capacity (limits throughput).
• TOC Steps: Identify → Exploit → Subordinate → Elevate → Repeat
• Throughput Time: Time for one unit start to finish (no waiting).

🔹 Bottleneck Example

• Tasks A (12), B (8), C (14), D (10), E (10)
  • C is bottleneck (14)
  • If C gets 2 machines → 7 → A becomes bottleneck (12)

🔹 Break-Even Analysis

• Fixed Costs (F): Don’t change with volume
• Variable Costs (V): Per unit cost
• Selling Price (P)

🔹 Multiproduct Break-Even

• Weighted average contribution margins are used.

🔹 Incremental Changes to Reduce Risk

• Leading, Lagging, or Averaging capacity strategies to manage demand risk.