1. Management Decision Making: Operations and Decision Analysis May 2010 Week – 1 Business Processes Operations, Productivity & Strategy Anupam Das, PhD

3. Course Introduction / Orientation Faculty: Anupam Das, PhD Office : Building 250, Room 446 Email: [email_address] Phone: 250-753-3245 ext. 2477 Class Hours: 08.30am – 10.30am, Monday, Bldg: 250/125 (All sections) 08.30am – 10.30am, Friday, Bldg: 250/140 (sec. I11N70) 10.30am – 12.30pm, Friday, Bldg: 250/140 (sec. I11N72) 01.30am – 03.30pm, Friday, Bldg: 250/140 (sec. I11N71) Office Hours: 10.30 am – 12.00noon Monday, 09.30 am – 12.00noon Tuesday, or by appointment Textbook: Jay Heizer and Barry Render (2011), Operations Management , 10 th edition, Prentice Hall

4. Course Introduction / Orientation Methods of Evaluation Assignment value Due Class Participation and Learning 15% May 30, June 13, Reinforcement/Quizzes July 11 Group assignments (3 @ 15%) 45% June 1 & 20, July 15 Final Exam (Closed book) 40% July 18

5. “ The systematic design, direction and control of processes that transform inputs into services and products for internal, as well as external customers ” Operations Management is ---- Inputs Transformation Processes (Adding value) Outputs

10. Firms have many processes that support the core processes. Support Process Support processes New service/ product development process Supplier relationship process Order fulfillment process Customer relationship process External Suppliers External Customers (i.e. accounting, finance, human resource management, etc)

12. Michael Porter’s Value Chain Model

14. Value Chain Framework

15. APQC Process Classification Framework

16. Competitive Priorities Cost 1. Low-cost operations Quality 2. Top quality 3. Consistent quality Time 4. Delivery speed 5. On-time delivery 6. Development speed Flexibility 7. Customization 8. Variety 9. Volume flexibility

21. Process Value Analysis Step 1: what activities are being done – where, when, how, and who Step 2: why are they (activities) being done this way? Step 3: Is each step necessary; does it add value? Step 4: Design alternative ways to add value; consider radical verses incremental Change

26. Process Map Example

28. What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs

30. Organizational Charts Commercial Bank Operations Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Accounting Auditing Marketing Loans Commercial Industrial Financial Personal Mortgage Trust Department

31. Airline Organizational Charts Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

32. Manufacturing Organizational Charts Marketing Sales promotion Advertising Sales Market research Operations Facilities Construction; maintenance Production and inventory control Scheduling; materials control Quality assurance and control Supply-chain management Manufacturing Tooling; fabrication; assembly Design Product development and design Detailed product specifications Industrial engineering Efficient use of machines, space, and personnel Process analysis Development and installation of production tools and equipment Finance/ accounting Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall

34. Options for Increasing Contribution Sales $100,000 $150,000 $100,000 $100,000 Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000 Gross Margin 20,000 30,000 20,000 36,000 Finance Costs – 6,000 – 6,000 – 3,000 – 6,000 Subtotal 14,000 24,000 17,000 30,000 Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500 Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500 Finance/ Marketing Accounting OM Option Option Option Increase Reduce Reduce Sales Finance Production Current Revenue 50% Costs 50% Costs 20%

39. Significant Events in OM

50. Goods and Services Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a Good Percent of Product that is a Service 100% 75 50 25 0 25 50 75 100% | | | | | | | | |

51. Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital) The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency

53. Productivity Calculations Labour Productivity One resource input  single-factor productivity Productivity = Units produced Labour-hours used = = 4 units/labor-hour 1,000 250

55. Collins Title Productivity = .25 titles/labour-hr Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: = Old labour productivity 8 titles/day 32 labor-hrs

56. Collins Title Productivity = .25 titles/labor-hr = .4375 titles/labor-hr Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = New labor productivity 14 titles/day 32 labor-hrs

57. Collins Title Productivity = .0077 titles/dollar Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: = Old multifactor productivity 8 titles/day $640 + 400

58. Collins Title Productivity = .0077 titles/dollar = .0097 titles/dollar Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 = Old multifactor productivity = New multifactor productivity 14 titles/day $640 + 800

62. Developing Missions and Strategies Factors Affecting Mission Mission Philosophy & Values Profitability & Growth Environment Customers Public Image Benefit to Society Benefit to Society

63. Strategic Process Organization’s Mission Marketing Operations Finance/ Accounting Functional Area Missions

69. Components of OM Mission and Strategy P/OM Mission and Strategy Location Procurement Human Resources & Job Design Inventory Reliability and Maintenance Process Design Layout Scheduling Quality Management Product Design

71. Product Life Cycle Best period to increase market share R&D engineering is critical Practical to change price or quality image Strengthen niche Poor time to change image, price, or quality Competitive costs become critical Defend market position Cost control critical Introduction Growth Maturity Decline Company Strategy/Issues Internet search engines Sales Drive-through restaurants CD-ROMs Analog TVs iPods Boeing 787 LCD & plasma TVs Twitter Avatars Xbox 360

72. Product Life Cycle Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution Standardization Fewer product changes, more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Introduction Growth Maturity Decline OM Strategy/Issues

73. Developing Missions and Strategies Strategy Process

75. Strategy Development Process Determine the Corporate Mission State the reason for the firm’s existence and identify the value it wishes to create. Form a Strategy Build a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines. Analyze the Environment Identify the strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors.

76. SWOT Analysis to Strategy Formulation

77. The Planning Continuum