OPERATIONS

MANAGEMENT
November 9, 2022
TODAY'S 1 Operations Strategy

AGENDA 2 Project Management

3 Process Management

4 Quality Management
OPERATIONS STRATEGY

Mission, Strategy & Tactics

Operations strategy should be aligned with overall

organizational strategy.

Operations strategy involves developing

Operations strategy involves developing policies and plans to

use the organization’s resources to implement the overall or-
ganizational strategy.

Examples of operations strategies include low-cost operations;

high quality, flexible operations; excellent service; product inno-
vation; and on-time delivery.
OPERATIONS STRATEGY

Competitiveness
Core competencies are the special abilities of an organization that give it
an advantage against its competition (i.e., give it a competitive
advantage). Competitive dimensions are how companies differentiate
themselves from competition in the eyes of customers.

Cost: Deliver low-cost goods or services (NOTE: Cost and price

are not the same; price is what the customer pays, but cost is what it
costs the producer to make or deliver the goods or ser- vices.)

Quality: Make high-quality products or deliver service excellence

Time: Develop and launch new products quickly or deliver ser-

vice in a timely manner
OPERATIONS STRATEGY

Competitiveness

Flexibility/agility: Produce customized products, rapidly change

volume and variety of product offerings, or deal effectively with
changing volume and type of demand

Service: Provide value-added service to products

Innovation: Produce new products (goods and services) or cre-
ate new processes (services or manufacturing)

Sustainability: Run operations that are socially, environmentally,

and financially viable (i.e., run operations targeting the triple bottom
line)
OPERATIONS STRATEGY

Competitiveness
From the customer’s perspective, competitive dimensions are:
Order winners: Characteristics or features of products (goods
and services) that customers consider better than those of com-
petitors and so are willing to buy

Order qualifiers: Characteristics or features of products

(goods and services) that customers consider at the min-
imum acceptable level and so are willing to consider buying

Order losers: Characteristics or features of products (goods and

services) that customers consider not at the minimum accept-
able level and so are not willing to buy

Due to continuous competition, order winners will eventually become

order qualifiers when most competitors have similar product features.
When an organization does not deliver on order qualifiers, its products
will become order losers.
OPERATIONS STRATEGY

New Product Development

Drivers for New Goods & Services

Competition: To be competitive and first to market with a product or in
response to competition launching a new product

Customer need: To meet a customer need that is driven by demographic or

social changes or that addresses a customer problem

Technology: To use a new technology or an existing technology in a new way

Economic: To reduce the cost of existing products by creating new ones

Sustainability: To achieve the triple bottom line of managing economic,

social, and environmental goals

Regulation: To comply with new regulations, nationally or globally

OPERATIONS STRATEGY

Typical New Product Development Stages

1. Ideation: Coming up with ways to meet a customer need or a business

opportunity
2. Feasibility: Determining whether the idea is economically and technically
possible to execute or whether it fits with the mis- sion of the firm
3. Design: Defining specifications of the product in detail (product specifications)
and how to make it (process specifications)
4. Prototyping: Building a sample of the product to see if it works as expected
5. 5.Refining design: Updating the design from lessons learned in the prototyping
stage
OPERATIONS STRATEGY

Typical New Product Development Stages

6. Field testing: Launching the product to limited, select customers; testing the
product in use by customers and improving as needed

7.Product launch: Ramping up production (for large-volume products) and

launching the product based on an appropriate sales plan

8.Postlaunch review: Continuing to review product performance and customer

acceptance in order to manage production capacity, as well as design of the next
version of the product
PROJECT MANAGEMENT

Projects are unique undertakings that have to be completed by a certain date, for
a certain amount of money, within some expected level of performance.

A project manager’s duty is to balance these three often competing goals:

Scope goals: What is the project trying to accomplish?

Time goals: How long should it take to complete?
Cost goals: What should it cost?
PROJECT MANAGEMENT

Project managers are responsible for the planning, scheduling, and

controlling of the project to achieve these goals.

activities: The specific work that needs to be done in any project;

a.k.a. tasks; a project is made up of a variety of activities or tasks;
activity time is the time it takes to get the activity or task done;
this is usually estimated in most projects.
crashing: Shortening or expediting activity times; this is usually
done by using additional resources to complete the project
earlier than scheduled or to catch up when the project is behind
schedule; to crash tasks, follow the “least cost, available, on critical
path” rule:
PROJECT MANAGEMENT

Crash activities that are available (i.e., the type of work involved
can be expedited).
Of these, crash the activity on the critical path, since only this
path impacts project duration.
Of these, crash the activity that is the least cost (i.e., one that
needs the least resources to expedite for a unit time; e.g., least
cost to crash per day).
Repeat this sequence until the required project duration is
achieved, the project cannot be crashed any more, or it is more
expensive to crash the project relative to the benefits of crash-
ing.
PROJECT MANAGEMENT

critical path method (CPM): A method used to plan, schedule,

and control a project when activity time is deterministic.
critical path: The network path in which all activities have zero
slack; this means that none of the activities on the critical path
can be de- layed; the path is critical because any delays in the
activities on this path will delay the project; it is also the longest
path.
early start, early finish: Early start (ES) is the earliest time an
activity can begin (i.e., as soon as all the predecessor activities are
com- pleted); early finish (EF) is the earliest time an activity can
finish; EF =
PROJECT MANAGEMENT

immediate predecessor: The prerequisite activity or activities that

need to be done before another specific activity can be started.

latest start, latest finish: Latest finish (LF) is the latest time an
activity can finish without delaying the project; latest start (LS) is the
latest time an activity can begin; LS = LF – activity time (t). path: A
sequence of connected nodes in a network.

program evaluation review technique (PERT): A method used to

plan, schedule, and control a project when activity time is
probabalistic.
PROJECT MANAGEMENT

project duration: The time it takes to complete the project; the dura-
tion of the project is the duration of the critical path, which is the
sum of the individual activity times for the activities on the critical
path.

project network: A graphical approach to describe a project, con-

sisting of nodes that represent the various activities in a project and
arrows (arcs) that represent the predecessor relationships between
activities;

slack: The amount of time for an activity that the start or finish time
can be delayed without delaying the project; slack = LS – ES = LF – EF.
PROJECT MANAGEMENT
PROJECT MANAGEMENT

Strategic Capacity Planning

capacity buffer: Extra capacity that is built in or available to meet

unexpected or uncertain demand (i.e., capacity in excess of what is
needed to meet expected demand); a.k.a. cushion.

capacity utilization: How well the actual output matches the ideal or
designed capacity; (Actual Capacity/Design Capacity) × 100%.

capacity: The amount of resources available to deliver a required out-

put of goods or services over a specific period of time (e.g., facility
space, machine output, number of employees, subcontractor
capacity); considered input capacity when stating capacity as resource
inputs and considered output capacity when stating capacity as
output produced.
PROJECT MANAGEMENT

Strategic Capacity Planning

design capacity: The ideal or maximum capacity of a machine or
process as per design.

diseconomies of scale: Beyond a certain point, increased volume of

production (large output rate) increases the average cost per item.

economies of scale: Increased volume of production (large output

rate) reduces the average cost per item.

economies of scope: When multiple goods or services can be pro-

duced at a lower cost when done together than when done
separately. effective capacity: The actual or real capacity, which is the
design capacity minus scheduled reductions, such as employee time
off and scheduled maintenance.
PROJECT MANAGEMENT

Strategic Capacity Planning

efficiency: How well the actual output matches the real or effective
capacity; (Actual Output/ Effective Capacity) × 100%.
lag strategy for capacity increase: Building or adding extra capacity
after the actual demand increase has occurred.
lead strategy for capacity increase: Building or adding extra capacity
in anticipation of demand growth; this is an optimistic strategy.
planning time horizons: The planning period for resources; can be
long-range or annual planning for one or more years, intermediate
range or monthly or quarterly planning for the next 6–12 months, or
short range for daily or weekly planning.
strategic capacity planning: The level of capital-intensive resources
needed to deliver on the long-term strategy of the firm.
PROCESS MANAGEMENT

process: A set or sequence of activities that adds value to an organi-

zation by taking inputs and transforming them into outputs.

process mapping: a.k.a. flowcharting, a graphical representation of a

process that uses the following basic symbols:
•Activity, task, or operation step:
•Decision point:
•Storage or queue:
•Flow of people, material, information, or money:
PROCESS MANAGEMENT

cycle time: The average time between completion of successive products in a

process.

flow time: The average time a product, task, or customer takes to

move through the entire process (i.e., time-in-system).

Little’s law: WIP = Throughput Rate × Flow Time.

operation time: Setup Time + Run Time.

run time: The time required to actually make a product or do a task.

setup time: The time needed to prepare machines or other resources to make a
product or do a task.
throughput rate: The output rate of a process.
work-in-process (WIP): Material or work that is in between the various steps in a
process.
PROCESS MANAGEMENT
Process Types
batch: Moderate-volume, moderate-variety customized products or
intermittent work processes, using moderately skilled workers and
some flexible equipment (e.g., baking cookies and university educa-
tion).
continuous flow: Very-high-volume, low-variety, highly standardized,
nondiscrete-product, continuous (flow) processes; can be low to high
skill; uses nonflexible (specialized) equipment (e.g., generating elec-
tricity and refining petroleum).

job shop: Low-volume, high-variety highly customized products,

using intermittent work processes, highly skilled workers, and flexible
general-purpose equipment (e.g. auto servicing and hospital emer-
gency room service).
PROCESS MANAGEMENT

project: Very low volume (usually of one) and very high customiza-
tion, using nonroutine, nonrepetitive activities (e.g., constructing
buildings and building ships).

repetitive flow: High-volume, low-variety standardized discrete prod-

ucts or repetitive processes, with relatively low-skilled workers and
less-flexible equipment (e.g., automobile and computer assembly
lines).
PROCESS MANAGEMENT
Facility Layouts
cellular layout: Layout in which workstations are grouped into “cells”
of workstations; cells process items or parts that require similar pro-
cessing steps; has less work-in-process, reduced material handling or
movement through the production process, and faster setup times;
referred to as a hybrid layout as it combines product and process lay-
outs.
line balancing: Assigning tasks to workstations so that each work-
station takes approximately the same time for work done, and the
work is balanced across workstations, reducing workstation (re-
source) idle time and cycle time.

process layout: For nonrepetitive processing or a discontinuous flow

of products, equipment and tasks are arranged in groups of similar functions or
departments where similar tasks are performed; work flows between groups or
departments as required for making the product (e.g., university campus of
colleges and departments); a.k.a. functional layout.
PROCESS MANAGEMENT

product layout: For repetitive processing or a continuous flow of

products, equipment and tasks arranged in a fixed sequence of work-
stations as needed for making the product; work flows progressively
through the sequence of work stations (e.g., production lines, assem-
bly lines).
project layout: The product is in one position, and equipment and
other resources are brought to the product; a.k.a. fixed-position lay-
out.
service layout: Designed to maximize revenue, increase customer
convenience and flow, or facilitate greater communication and team-
work in office layouts.
QUALITY MANAGEMENT

Quality is the characteristic of whether a product meets or

exceeds customer expectation along multiple dimensions.

Quality = Expectation – Perception

QUALITY MANAGEMENT
Dimensions of Product Quality
Performance: How well the main characteristics of the product
work
Features: What extra desirable features the product has

Reliability: How dependable the performance is over time or the

probability of failure

Conformance: How closely the product is made to its specifications

Durability: What the useful life of the product is
Serviceability: How easily a product can be repaired or maintained
Aesthetics: How the product looks, feels, tastes, and smells or
how appealing the sensory features of the product are

Perceived quality: The product’s reputation or how it has performed in the past
QUALITY MANAGEMENT
Dimensions of Service Quality

Reliability: How consistent and dependable the service is

Responsiveness: How willing the service provider is to help cus-

tomers with special needs or problems

Assurance: How knowledgeable the service provider is and

whether the service provider conveys trust and confidence

Empathy: How courteously the customers are treated by the ser-

vice provider

Tangibles: The characteristics of the physical facilities, equip-

ment, and other physical elements of the service
QUALITY MANAGEMENT

Challenges of Delivering Quality

•Different customers value different dimensions of quality.

•The same customer values different dimensions of quality at different

times.

•Customers keep raising their expectations over time.

QUALITY MANAGEMENT
Cost of Quality

Costs of quality include both the costs of avoidance of creating

defects and the costs of recovering from them. Types include appraisal cost, prevention cost,
internal failure cost, and external failure cost.

Appraisal cost: Cost to ensure the quality of a product or

process or uncover defects (inspection, testing)

Prevention cost: Cost of preventing defects from occurring

(training, redesign)

Internal failure cost: Costs incurred within the organization

when defective products or services are produced (e.g., scrap, rework, repair after breakdown of
equipment)

External failure cost: Costs incurred by the organization when a

defective product or service is delivered to the customer (e.g., customer complaints, product
repair or replacement under war- ranty, loss of customer goodwill, potential loss of sales, nega-
tive word of mouth, litigation)
QUALITY MANAGEMENT

Quality Awards & Standards

•Deming Prize: Japanese quality award; www.juse.or.jp/

e/deming/

•Malcolm Baldrige National Quality Award (MBNQA): U.S. qual-

ity award; www. baldrige.gov

•European Foundation for Quality Management (EFQM): Euro-

pean quality award; www.efqm.org

International Organization for Standardization (ISO): The ISO

9000 series of standards are for assessing quality, whereas the ISO 14000 guides
organizations in environmental quality man- agement; www.iso.org
QUALITY MANAGEMENT

Total Quality Management (TQM)

•TQM is a quality management philosophy based on continuous
improvement, involving everyone in the organization, and has
the objective of customer satisfaction.

•Other characteristics of TQM include the use of empowered

teams, data-driven decision making, use of statistical quality-
management tools, long-term supplier relationships, support of
quality by leadership (champions) and coaches, and a process
orientation.
QUALITY MANAGEMENT

Quality Awards & Standards

•Deming Prize: Japanese quality award; www.juse.or.jp/

e/deming/

•Malcolm Baldrige National Quality Award (MBNQA): U.S. qual-

ity award; www. baldrige.gov

•European Foundation for Quality Management (EFQM): Euro-

pean quality award; www.efqm.org

International Organization for Standardization (ISO): The ISO

9000 series of standards are for assessing quality, whereas the ISO 14000 guides
organizations in environmental quality man- agement; www.iso.org