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Seminar 1: Introduction To Operations, Operations Strategy Soh Yu Hong Jonathan
Seminar 1: Introduction To Operations, Operations Strategy Soh Yu Hong Jonathan
Seminar 1: Introduction To Operations, Operations Strategy Soh Yu Hong Jonathan
OM deals with the design, operation and improvement of the production system that create the
firms primary products or services.
Operations include any process that accepts inputs and use resources to transform these inputs
into valuable outputs- strategic (next 20 years), tactical (next 1 or 2 years) and operational (now)
decisions.
All physical products used and all services used was created/impacted by operations.
Importance of OM
Bottom line and profitability of every business are affected by how well it manages its operations,
be it a manufacturing or service organisation.
Improving and streamlining and business processes and operations can have a significant impact
to the shareholder value.
Good operations can contribute to the top line (corporate sales/revenue).
Challenges facing OM
Product proliferation (variety: customers may not always see the difference)
Decreasing profit margins
Short product life cycles (new products produced quickly)
Long supply chains- coordination issues
Continuous new product launches to meet market place requirements
Being on top of innovation curve
OM in the organisation
Operations strategy
Involves configuring and developing business processes that will enable the firm to produce and
deliver the products specified by the business strategy
Internal processes and interfaces between inputs and output markets (means by which
operations implements corporate strategy & helps build a customer driven firm)
Competitive priorities
Cost
o Low cost: process must be designed and operated to make them efficient (eg Costco)
Quality
o Top quality: may require a high level of customer contact and may require superior
product features (eg Ferrari)
o Consistent quality: processes designed and monitored to reduce errors and prevent
defects (eg Mcdonalds)
Time
Cost: min cost, max value (internal). Min price, highest value (external)
Quality: error free processes (internal). Error-free products and services (external)
Speed: Fast throughput (movement of inputs and outputs through a production process)
(internal). Quick delivery (external)
Flexibility: ability to change (internal). Frequent new products, maximum choice (external)
Breakeven analysis
Breakeven formula:
Make or buy decisions
Finds quantity for which the total costs for two alternatives are equal
Same price: Cost of making= Fm + cmQ. Cost of buying= Fb + cbQ.
Different price: Cost of making= pmQ (Fm + cmQ). Cost of buying= pbQ- (Fb + cbQ).
If cost of making < cost buying then make!
If expected demand > Q then make. Expected demand < Q then buy.
Formula: Q = (Fm-Fb)/(cb-cm)