Organization of Businesses:
Three basic functions: Operations/Production, Finance-Accounting, Marketing.
Operations/Production: Goods oriented (manufacturing and assembly), Service oriented
(healthcare, transportation, retailing), Value-added.
Finance-Accounting: Budgets, Economic analysis of investment proposals, Provision of funds.
Marketing: Selling, Promoting, Assessing customer wants and needs, Communicating those
needs to operations.
Systems (Holistic) Approach:
Emphasizes interrelations among subsystems.
Important for designing, redesigning, implementing, or improving systems.
Example: Consideration of impacts on all parts of the system when adding a new feature to a
product.
Value Added:
Definition: The difference between the cost of inputs and the market or fair value/price of
outputs.
Should value added include profit?
Introduction:
Objective: Convert input into output via a transformation process that adds financial value.
Definition of Productivity: Ratio of outputs (goods and services) to inputs (resources such as
labor and capital).
Productivity as a tool for gauging a nation's competitiveness and for comparative analysis by
managers, industrial engineers, economists, and politicians.
Productivity Portfolios:
Investments in facilities and equipment, programs and systems, and people.
Not mutually exclusive; organizations tend to choose one as their dominant orientation.
Productivity & Quality:
Increased quality may lead to decreased productivity.
Common myths debunked: Profitability ≠ productivity, productivity ≠ output, production ≠
productivity.
Quality and productivity are interconnected; compromise on quality can lower profits in the long
term.
Productivity Appraisal through Productivity Ratio:
Total Productivity (TPM): Based on all inputs.
Formula: Total tangible output / Total tangible input.
Tangible inputs include human, material, capital, energy, and other measurable inputs.
If productivity ≥ 1, the company should be making a profit; if < 1, the company should be making
a loss.
.
Debunking Common Myths about Productivity:
Myth 1 - Profitability is a Measure of Productivity:
Productivity and profits are distinct concepts.
An organization can be profitable without being productive, through means such as high market
value of products, curtailing expenditure on HRD and R&D, marketing campaigns, and
strong-handed tactics.
Myth 2 - Productivity can be Judged by Output:
Comparisons with previous fiscal years must consider the impact of the environment.
Myth 3 - Production and Productivity are the Same Thing:
Productivity is not solely about quantity but is integral to all stages of the transformation
process.
Myth 4 - Productivity is Only Relevant to Manufacturing:
Productivity or lack thereof is present in various sectors, including governance, wars, and client
satisfaction.
Myth 5 - Cost Cutting Improves Productivity:
Indiscriminate cost cutting may achieve short-term goals but can be detrimental in the long term.
Myth 6 - Improving Productivity Leads to Decline in Quality:
Quality and productivity are interdependent; compromising on quality can ultimately decrease
profits in the long run.
Spending on R&D focused on product improvement rather than productivity improvement.
Debate on whether inflation causes productivity decline or is a result of productivity decline.
-------------------------------------------------
Globalization:
Process of closer integration and exchange between different countries and peoples worldwide.
Enabled by falling trade and investment barriers, advances in telecommunications, and
reductions in transportation costs.
Globalization's Impact:
Led to increases in living standards.
Examples include Germany and Japan's export-led growth post-WWII, BRIC countries
contributing significantly to global economic growth, and the transformation of economies like
Hong Kong, Singapore, South Korea, and Taiwan from underdeveloped to advanced.
Global Strategy:
Integral part of a firm's corporate strategy aimed at gaining and sustaining competitive
advantage in both foreign and domestic markets.
Involves Foreign Direct Investment (FDI), where firms invest in value chain activities abroad.
Multinational Enterprises (MNEs):
Deploy resources and capabilities in at least two countries for procurement, production, and
distribution.
Despite being less than 1% of total US companies, they account for significant employment
growth, workforce employment, wages, GDP, and R&D spending.
Examples include Boeing, Caterpillar, Coca-Cola, etc.
Globalization in the 21st Century:
MNEs operate as global collaboration networks.
Companies like GM see future growth opportunities in emerging economies like China, investing
heavily in R&D centers there.
Wal-mart's Experience in Germany:
Walmart's failed venture in Germany highlighted cultural and operational challenges.
Factors included cultural differences, inability to lower costs leading to high prices, and
challenges with foreignness.
Impact of Globalization on Reputation and Intellectual Property:
Loss of reputation due to poor working conditions overseas can harm firms.
Intellectual property theft, especially in software, movie, and music industries, poses significant
risks.
Integration Responsiveness
Framework:
Addresses pressures MNEs face for cost reductions and local responsiveness.
Strategies include International, Multi-domestic, Global-standardization, and Transnational
strategies.
Factors Influencing Competitive Advantage:
Factor Conditions:
A country's endowments include natural, human, and other resources.
Resource-rich countries focus on commerce, while resource-lacking ones emphasize human
capital.
Other factors like capital markets, institutional framework, research universities, and public
infrastructure are crucial.
Demand Conditions:
Characteristics of demand from domestic markets influence firms' strategies.
Example: Japanese customers' demand for small, quiet, and energy-efficient air conditioners
due to urban living conditions and high energy costs.
Competitive Intensity in a Focal Industry:
Highly competitive environments lead to better firm performance.
Example: German car companies' competition in a demanding market prepared them for global
competition.
Related and Supporting Industries/Complementors:
Leadership in related industries fosters complementors in downstream industries.
These complementors strengthen the value proposition of the focal firm's offerings.
Regional Clusters:
Groups of interconnected companies and institutions in specific industries, located
geographically close and linked by common characteristics.
Knowledge spillover and exchange of ideas among firms in clusters contribute to innovation and
competitiveness.
Examples include biotechnology and software in the United States, computer manufacturing in
China and Taiwan, consumer electronics in South Korea and Japan, etc.
These factors collectively contribute to firms' abilities to gain and sustain competitive advantage
in a globalized economy, shaping their strategies and operations.
-------------------------------------------------
-------------------------------------------------
Degree of Standardization:
Standardized output:
Utilizes standardized methods, less skilled workers, and materials.
Example: Iron, Wheat, most commodities.
Customized output:
Each job is unique, requiring skilled workers.
Example: Haircuts.
Goods vs. Service Operations
Differences:
Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Production and delivery
Quality assurance
Amount of inventory
Responsibilities of Operations Management:
Planning:
Capacity utilization
Location selection
Product or service selection (make or buy)
Layout design
Project scheduling
Market share analysis
Risk reduction planning (Plan B)
Forecasting
Controlling:
Inventory management
Quality control
Cost management
Organizational structure management
Subcontracting
Process selection
Staffing (hiring/layoffs, use of overtime)
Incentive plans
Job assignments
Help from Models:
Definition: Models are purposefully built structures representing characteristics of objects or
systems.
Types of models: Physical, schematic, mathematical, statistical, inventory, linear programming,
queuing techniques, project management.
Use of models: Simulation, optimization, pattern recognition.
Benefits of models: Easy to use, cost-effective, aid in problem understanding and
communication, enable systematic problem solving and tradeoff analysis, facilitate "what if"
questions.
Production Systems/Models:
Craft Production System: Highly skilled workers produce small quantities of customized goods
using flexible tools. Example: Carpenter.
Lean Production System: Minimal resource usage to produce high volumes of high-quality
goods with some variety. Example: Dell.
Mass Production System: Lower-skilled workers use specialized machinery to produce high
volumes of standardized goods. Example: Ford.
-------------------------------------------------
Project Graphics:
Network diagramming methods like Activity-on-Arrow (AoA) and Activity-on-Node (AoN) are vital
for visually representing project activities and their sequencing.
Consolidation and multi-mode models are important for understanding complex project
structures.
Activity Sequencing:
Activity sequencing involves reviewing activities and determining dependencies, which are
crucial for critical path analysis.
Three types of dependencies:
Mandatory dependencies: inherent in the nature of the work being performed on a project.
Discretionary dependencies: defined by the project team.
External dependencies: involve relationships between project and non-project activities.
Activity-On-Arrow Networks:
Originally used by Critical Path Method (CPM) and Program Evaluation and Review Technique
(PERT) methods.
Activities are represented by links (or arrows) and the nodes represent events.
Dummy activities, depicted as broken arrows, may take time but do not require resources and
are subject to the basic dependency rule.
Critical Path Method (CPM):
Determines the longest path through a project, crucial for project completion time estimation.
Steps for CPM:
List all activities and expected durations.
Construct CPM diagram for activities list.
Determine EARLIEST start time for each event (forward scheduling).
Determine LATEST start time for each event (backward scheduling).
Identify the CRITICAL PATH (and the float' time for any non-critical activities).
CPM Calculations:
Earliest start (ES) and earliest finish (EF) times: EF = ES + t
Latest start (LS) and latest finish (LF) times: LS = LF - t
Example: EF = 0 + 4 = 4, LS = 9 - 2 = 7
Importance of Float and Critical Path:
Float indicates how much an activity can be delayed without affecting project completion.
Critical path activities must be closely managed to ensure project stays on schedule.
The PERT Approach:
Addresses uncertainties by considering activity time variability.
Utilizes mean and variance calculations to estimate project duration.
Mean project length (E(X)) calculation: E(X) = E(d1) + E(d2) + ... + E(dk)
Variance of project length (V(X)) calculation: V(X) = V(d1) + V(d2) + ... + V(dk)
Estimation of Activity Duration:
Uses optimistic, most likely, and pessimistic time estimates for each activity.
Completion Time with Given Probability:
Utilizing PERT to estimate completion time for desired completion probability.
Example calculation provided for 95% completion probability:
Z0.95 = (T - 33) / 2.15 = 1.64
Solving for time T: T = 33 + (2.15)(1.64) = 36.5
Additional Notes:
Network diagrams are the preferred technique for showing activity sequencing.
Consolidation models help manage complex projects.
Beta distribution is used to represent activity duration in project scheduling.
-------------------------------------------------
-------------------------------------------------
Statistical Process Control (SPC):
Definition: SPC applies statistical methods to monitor and control processes to ensure optimal
production of conforming products with minimal waste. It aims to make processes behave
predictably, producing maximum conforming output.
Applicability: While commonly used in manufacturing, SPC is equally effective in any process
with measurable output.
Key Tools: Control charts, continuous improvement, and designed experiments are fundamental
to SPC.
Control Charts:
Purpose: Control charts, constructed from historical data, distinguish between natural and
assignable variations in a process.
Data Types: Discrete data consists of counting numbers or integers, while continuous data
encompasses values over a particular range.
R-Chart: A type of variables control chart, it displays sample ranges over time, monitoring
process variability independently from the process mean.
X-bar Chart: Another type of variables control chart, it monitors the central tendency of a
process by plotting the sample means over time.
Steps in Creating Control Charts:
Sample from the population and compute the appropriate sample statistic.
Use the sample statistic to calculate control limits and draw the control chart.
Plot sample results on the control chart and determine the process state (in or out of control).
Investigate possible assignable causes and take necessary actions.
Continue sampling from the process and reset control limits when needed.
Control Charts for Attributes:
Used for categorical variables, such as good/bad or yes/no scenarios.
Measurement often involves counting defectives.
Types include percent defective (p-chart) and number of defects (c-chart).
Managerial Issues and Control Charts:
Key decisions involve selecting points needing SPC, determining appropriate charting
techniques, and establishing clear policies and procedures.
Which Control Chart to Use:
Variables Data:
X-bar Chart and R-Chart: Used when observations are variables. Collect 20-25 samples of size
4 or 5 from a stable process.
Attribute Data:
p-Chart: Used when observations are categorized as good or bad. Example: 20 samples of 100
observations each.
c-Chart: Used when observations represent the count of defects per unit of output.
Process Capability:
Describes the relationship between natural process variation and design specifications.
The process should have small enough variation to produce products meeting required
standards.
Analysis of Control Chart: Process Under Control:
Criteria for process stability include absence of incidents like points outside control limits,
consecutive points within or beyond limits, and trends or cyclic patterns.
SQC in Services:
Service organizations have been slower to adopt statistical quality control than manufacturers.
Services produce intangible products, making quality measurement more challenging.
Quantifiable measurements of service elements, like check-in time or number of complaints,
help establish acceptable control limits.
