Operations

Management
6630
Concepts Strategy
Principles Methods

Class 3 Aug 31,2015

Course Objectives / Requirements / Assignments

Objective of the course:
Understanding and improving business processes
Performance measures
How-to
Mix of industries: healthcare, restaurants, automotive, computers, call centers,
banking, etc
Requirements :
Engagement
Participation
Assignments:
Project assignment
Final exam????

Overview
The Goal by Eliyahu Goldratt and Jeff Fox
Process Improvement Principles by C. Dennis Pegden
Operations Management for MBAs by Jack Meredith and Scott Schafer
Selected Articles
The Four Things a Service Business Must Get Right
http://hbr.org/2008/04/the-four-things-a-service-business-must-get-right
Know What Your Customers Want Before They Do
http://hbr.org/2011/12/know-what-your-customers-want-before-they-do

Overview
Objectives:
Make Money $$$$$$
Satisfy Customers
Respect employees

Operations
Products
Services

Forms of Transformation
Systems
Transformation system design considers alternative
transformation forms and selects best one given
characteristics of desired outputs.
Layout analysis seeks to maximize the efficiency or
effectiveness of operations.

Basic Forms of
Transformation Systems
Continuous process
Flow shop

Parallel Servers

Job shop

Flow Line

Cellular

Job Shop

Project

Slide on each of these

Continuous Process
Highly standardized products in large volumes
Often these products have become commodities
Typically these processes operate 24 hours/day seven days/week
Objective is to spread fixed cost over as large a volume as possible
Starting and stopping a continuous process can be prohibitively expensive
Highly automated and specialized equipment used
Layout follows the processing stages
Output rate controlled through equipment capacity and flow mixture rates
Low labor requirements
Often one primary input
Initial setup of equipment and procedures very complex

Flow Shop
Similar to continuous process except discrete product is
produced
Heavily automated special purpose equipment
High volume - low variety
Both services and products can use flow shop form of
processing

A Generalized Flow Shop

Operation

Advantages of the Flow

Shop
Low unit cost
Specialized high volume equipment
Bulk purchasing
Lower labor rates
Low in-process inventories

Less skilled operators used

Fewer supervisors are needed
Simplified managerial control

Layout of the Flow

Shop
Objective is to assign tasks to groups
The work assigned to each group should take about the
same amount of time to complete
Final assembly operations with more labor input often
subdivided easier
Paced versus unpaced lines

Job Shop
Each output, or small batch of outputs is processed
differently
High variety - low volume
Considerable amount of transport of staff, material, or
recipients
Large variations in system flow times
Equipment and staff grouped based on function

A Generalized Job Shop

Operation

Advantages of the Job

Shop
Flexibility to respond to individual demands
Less expensive general purpose equipment used
Maintenance and installation of general purpose equipment easier
General purpose equipment easier to modify and therefore less
susceptible to becoming obsolete
Dangerous activities can be segregated from other operations
Higher skilled work leading to pride of workmanship
Experience and expertise concentrated
Pace of work not dictated by moving line
Less vulnerable to equipment breakdowns

Cellular Production
Combines flexibility of job shop with low costs and short
response times of flow shop
Based on group technology
First identify part families
Then form machine cells to produce part families

Conversion of a Job Shop

Layout to a Cellular Layout

Organization of
Miscellaneous Parts into
Families

Advantages of Cellular
Production
Reduced machine setup times
Increased capacity
Economical to produce in smaller batch sizes
Smaller batch sizes result in less WIP
Less WIP leads to shorter lead times
Shorter lead times increase forecast accuracy and provide a competitive
advantage
Parts produced in one cell
Capitalize on benefits of using worker teams
Minimal cost to move from job shop to cellular production (e.g. EHC)
Can move from cellular production to mini-plants

Project Operations
Large scale
Finite duration
Non-repetitive
Multiple interdependent activities
Offers extremely short reaction times

Selection of a
Transformation System
The systems are simplified extremes of
what is observed in practice
Few firms use one of the five forms in a pure
sense
Most use a hybrid

Services are typically job shops

Recent focus on mass production of service

Problem is to decide what processing form

is best for the organization long term

Considerations of Volume
and Variety
High volume indicate automated mass production
High variety implies use of skilled labor and general
purpose equipment
Make-to-stock versus make-to-order

Effect of Output
Characteristics on
Transformation Systems

Service Processes
Often implemented with little
development or pretesting
Need to consider amount of customer
contact
Customers may not arrive at smooth and
even increments
Including customer in service process
provides opportunities to improve service

The Service Matrix

The Service Model

The offering
The funding mechanism
Employee management system
Customer management system

The Offering
Customer experience versus product characteristics
Convenience, customer service, price
What to do well and what not to do well
Examples: Wal-Mart

The Funding
Mechanism
Charge the customer in a palatable way
Create a win-win between operational savings and valueadded services
Spend now to save later
Have customer do the work

The Employee Management

System
Able to achieve excellence
Motivated to achieve excellence

The Customer Management

System
Able to achieve excellence
Motivated to achieve excellence

Service Gaps
It is useful to inspect the service design for gaps between
customer needs and what provider is offering
This allows provider to control quality, productivity, cost,
and performance
Can help identify a competitive advantage

Diagnosing Service Design

1. The Offering
Which service attributes (convenience? friendliness?) does the
firm target for excellence?
Which ones does it compromise in order to achieve excellence in
other areas?
How do its service attributes match up with targeted customers
priorities?
2. The Funding Mechanism
Are customers paying as palatably as possible?
Can operational benefits be reaped from service features?
Are there longer-term benefits to current service features?
Are customers happily choosing to perform work (without the lure
of a discount) or just trying to avoid more-miserable alternatives?

Diagnosing Service Design

3. The Employee Management System
What makes employees reasonably able to produce excellence?
What makes them reasonably motivated to produce excellence?
Have jobs been designed realistically, given employee
selection, training, and motivation challenges?
4. The Customer Management System
Which customers are you incorporating into your operations?
What is their job design?
What have you done to ensure they have the skills to do the
job?
What have you done to ensure they want to do the job?
How will you manage any gaps in their performance?

Diagnosing Service Design

The Whole Service Model
Are the decisions you make in one dimension supported
by those youve made in the others?
Does the service model create long-term value for
customers, employees, and shareholders?
How well do extensions to your core business fit with your
existing service model?
Are you trying to be all things to all peopleor specific
things to specific people?

Monitoring and Control

Monitoring system is a direct connection between
planning and control
Monitor processes, output, and environment to make
sure that strategy is appropriate to achieve goals
First, identify the key factors to be controlled
Second, identify the relevant information to be collected

Balanced Scorecard
In the past, it was common to rely on
financial measures
When inadequacies discovered,
managers either tried to improve or
switched to operational measures
Many organizations now realize no one
type of measurement is best
The purpose of the balanced scorecard it
to provide a comprehensive view

Benefits of Balanced
Scorecard
An effective way to clarify and gain
consensus of the strategy
A mechanism for communicating the
strategy throughout the entire organization
A mechanism for aligning departmental and
personal goals to the strategy
A way to ensure that strategic objectives are
linked to annual budgets
Timely feedback related to improving the
strategy

Areas Measured by Balanced

Scorecard
1.

Financial performance

2.

Customer performance

3.

Internal business process performance

4.

Organizational learning and growth

ISO Certifications
ISO 9000 was developed by International
Organization for Standardization
ISO 9000 was developed as a guideline for
designing, manufacturing, selling, and
servicing products
ISO 14000 and 14001 Series of standards
covering environmental management systems,
environmental auditing, evaluation of
environmental performance, environmental
labeling, and life-cycle assessment

Failure Mode and Effect

Analysis (FMEA)
1. List ways a production system might fail
2. Evaluate the severity (S) of each failure
3. Estimate the likelihood (L) of each failure
4. Estimate the ability to detect (D) for each
cause
5. Find risk priority number RPN=S L D
6. Consider ways to reduce S, L, and D
where RPN is high

Characteristics of a Good
Control System
Flexible

Capable of being extended

Cost effective

Fully documented

Simple

Ethical

Timely
Sufficiently precise
Easy to maintain
Signal if out of order

Statistical Process
Control
1.

Inspection for variables

2.

Measuring a variable that can be scaled such as weight,

length, temperature, and diameter

Inspection of characteristic (attribute)

Determining the existence of a characteristic such as

acceptable-defective, timely-late, and right-wrong

Controlling Service
Quality
Process control, strategy maps, and
control charts can also be used for
quality control in services
Measuring service quality is more difficult
Service is abstract, transient, and
psychological

Customer satisfaction surveys

Service Defections
Feedback from defecting customers can be used to
identify problem areas
Determine what is needed to win them back
Changes in defection rates can be used as early warning
signals