Operations Management
Pre Reading Comment – Chapter 7
This is one of the better
chapters in the textbook. Read all of it
carefully. Be especially prepared to
explain how operations and quality measures vary for goods and services.
Lecture Notes
Lecture Summary
·
Operations can
consist of goods creation, and services.
·
Planning is a
major function of operations management.
·
Managers also
need to carefully monitor quality.
·
Supply chain
management and logistics have helped improve performance and reduce costs.
·
ERP systems help
tie all functional area together.
Major Points
Goods and Services
You create a product by
taking things apart (refining ore), or putting things together (making
furniture). The chief goals of the
manager are process efficiency, and product quality (Can I make it more cheaply
and better?). Services are
performed. They can either be something
a customer cannot do for him/herself (getting medical care), or something the
company can do more efficiently than a customer can do (changing the oil in
your car). The chief goal of the manager
in a service business is performance and customer satisfaction (Can I respond
to the customer as quickly as they want with the service they need?). Often times businesses
have both a product and service orientation.
Activity #1: If you were running a McDonald’s restaurant,
what are some of the goods and services you would manage? List ten ways to improve each.
Activity #2: Is the business you are planning a producer
of goods or of services? How would you
measure your success as a manager in such areas as efficiency, quality, and
customer satisfaction?
Planning/Scheduling
Chief aspects of planning
are capacity, location, layout, quality, methods (process engineering for
materials, proper procedures for services), scheduling, materials management,
and process control (JIT, lean, MRP).
Activity #3: How would you plan the layout for a new
bookstore?
The Value Chain
Another way to appreciate
the activities of a business is to review the “value chain”. This sees business as a sequence of
operations. In our book store example is
might look like this:
Research on best books –
purchasing the best books – shipping – delivery – payment – display – customer
contact – advertising – pricing – sales – support
The chain contains places
where goods are predominant, and places where services are most important. All along the chain a company has an
opportunity to determine where it will place emphasis for competitive advantage.
Activity #4: Pick two or three places in the value chain
and explain strategies you might use to beat a competing bookstore.
Quality
Chief values here are
consistency (statistical process control (to keep consistency in a narrow
range), ISO 9000 (an international approach to process improvement)), reduced
defects, and improved customer satisfaction.
For example, what is “quality” on a hamburger? Consistent size of the
meat, no spoiled pickles, and fast delivery to a customer.
Activity #5: How would you know what “quality” means to a
customer at your company?
The Supply Chain
The Internet and other
technologies allow us to link to our suppliers.
What information do we share via the link? Sales demand, shipping information, billing
information. A good retail example is JC
Penney where, if a shirt is sold, the POS terminal captures the information
about the shirt, transfers it automatically to a supplier in
Activity #6: What is the supply chain for a
restaurant? What safety stock would you
want? How would you reduce inventory
costs?
During the last ten years
many larger companies have replaced older computer systems with enterprise
systems – computer systems that can collect all the information needed for
every part of the company (the whole “enterprise”), and run all the main
processes of the company. Essentially,
they are replacing lots of smaller systems that might do payroll or monitor
inventory, or send out billings, with one larger system that does it all. Why?
For one thing one computer system is easier to maintain than lots of
smaller systems, and many of the older systems needed replacing anyway. But the main reason is to get all company
information in one place – to have one database that contains customer records,
inventory data, shipping information, product materials lists… Now all the
information is available to all departments in the company and can be
shared. Here’s why operations managers
appreciate the change:
Old way- A customer places an order. The sales people enter the information into
their computer system. The customer
wants to know how long it will take to deliver the product. The sales people start phoning other
departments. Are there products in
inventory? They call the warehouse. Are the products currently being made? They call the production manager. When will the product be scheduled for
manufacture? The production manager looks
at his schedule, and then calls the warehouse to see if the parts for the
product are on-hand or have to be ordered.
If they have to be ordered, he calls the purchasing department. They check their vendor lists and make a
call… You get the idea. A simple question – when can I get my order –
requires significant effort to answer because all the answers are in different
departments.
New way –
Because all employees are linked to the same computer system and the same
database of information, the sales people check inventory levels themselves,
then check the production schedule, then check safety stock levels on parts and
shipping notices they have received from vendors. Just by reviewing data they now have
available to them, the sales people can understand all aspects of the
production process.
The same holds true for
operations managers. They now can find
the information they need to plan, schedule, and to evaluate the production
process.
Activity #7: If you order a computer on-line, what
business departments will be involved with that order? What information would an operations manager
want from that order? What information
would be shared with the company supply chain?
How are you kept aware of the progress of your order?
Business Plan Aspects
To succeed in business you
will have to provide a quality product or service. How will you define quality? What planning will you have to do to ensure
that your meet those quality requirements?
What is the value chain for your business? Where is your business on that chain? Why did you decide to pick that spot? What other spot on the chain might be more
profitable?
Chapter Summary - Exam Highlight
Besides the basics of
planning and quality, students need to understand linkage – how a company is
linked to its supply chain, and how departments are linked together through an
ERP. They need to see the flow of
information that is essential to operations management.