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OM at the Hard Rock Cafe
- Operations managers at Hard Rock Cafe in Universal Studios provide more than 3, custom meals every day
- These products are designed, tested, and then analyzed for cost ingredients, labor requirements, and customer satisfaction
- The production process, from receiving, to cold storage, to grilling or baking or frying, and a dozen other steps, is designed and maintained to yield a quality meal
- Operations managers prepare effective employee schedules and design efficient layouts
production The creation of goods and services
operations management The set of activities that create value in the form of goods and services by transforming inputs into outputs
products
- Tangible goods
- Everything you wear, eat, sit on or in, use, read, or knock about on a sports field comes to you courtesy of operations
services
- Intangible, unique, consumed at the same time they are produced
- Services may be "hidden" from the public or even from the consumer
- The product may take forms such as the transplant of a liver, the filling of an empty seat on an airplane
- Every book you borrow from the library, every medical treatment you receive, every lecture you attend at a university, every service you receive comes to you courtesy of operations
3 functions to produce goods and services
- Marketing: generates demand
- Production/operations: creates, produces, and delivers the product
- Finance/accounting: tracks how well the organization is doing, pays the bills, and collects the money
commercial bank organization chart OM ACTIVITIES
- Teller scheduling
- Check clearing
- Collection
- Transaction processing
- Facilities design/layout
- Vault operations
- Maintenance
- Security
FINANCE ACTIVITIES
- Investment
- Securities
- Real Estate
- Accounting
- Auditing
--> Accounts payable --> Accounts receivable --> General ledger
- Finance --> Cash control --> International exchange
MARKETING ACTIVITIES
- Traffic administration
- Reservations
- Schedules
- Tariffs
- Sales
- Advertising
manufacturing organization chart OM ACTIVITIES
- Facilities --> Construction; maintenance
- Production and inventory control ---> Scheduling; materials control
- Quality and assurance control
- Supply-chain management
- Manufacturing --> Tooling; fabrication; assembly
- Design
--> Product development and design --> Detailed product specifications
- Industrial engineering --> Efficient use of machines, space, and personnel
- Process analysis --> Development and installation of production roots and equipment
FINANCE/ACCOUNTING ACTIVITIES
- Disbursement credits --> Accounts receivable --> Accounts payable --> General ledger
- Funds management --> Money market --> International exchange
- Capital requirements --> Stock issue --> Bond issue and recall
MARKETING
- Sales promotion
- Advertising
- Sales
- Market research
supply chain
management process
- Consists of planning, organizing, staffing, leading, and controlling
- OM is a process-oriented discipline
- A process is a system of activities that transforms inputs into valuable outputs
10 strategic operations management decisions
- Design of goods and services
- Managing quality
- Process strategy
- Location strategies
- Layout strategies
- Human resources
- Supply-chain management
- Inventory management
- Scheduling
- Maintenance
design of goods and services
- Defines much of what is required of operations in each of the other OM decisions
- For instance, product design usually determines the lower limits of cost and the upper limits of quality, as well as major implications for sustainability and the human resources required
managing quality Determines the customer's quality expectations and establishes policies and procedures to identify and achieve that quality
process and capacity strategy Determines how a good or service is produced and commits management to specific technology, quality, human resources, and capital investments that determine much of the firm's basic cost structure
location strategy Requires judgments regarding nearness to customers, suppliers, and talent, while considering costs, infrastructure, logistics, and government
layout strategy Requires integrating capacity needs, personnel levels, technology, and inventory requirements to determine the efficient flow of materials, people, and information
human resources and job design
- Determines how to recruit, motivate, and retain personnel with the required talent and skills
- People are an integral and expensive part of the total system design
supply chain management Decides how to integrate the supply chain into the firm's strategy, including decisions that determine what is to be purchased, from whom, and under what conditions
Walter Shewhart Combined his knowledge of statistics with the need for quality control and provided the foundations for statistical sampling in quality control
W. Edwards Deming Believed that management must do more to improve the work environment and processes so that quality can be improved
contributions to OM from other disciplines
- Industrial engineering
- Statistics
- Management
- Economics
- Physical sciences (biology, anatomy, chemistry, physics)
- Information technology
differences between goods and services
growth of services
- Until about 1900, most Americans were employed in agriculture
- Manufacturing employment has decreased for the past 60 years
- Services became the dominant employer in the early 1920s and has continued to rise since
- Service pay is actually paying above the national average
service sector
- The segment of the economy that includes trade, financial, lodging, education, legal, medical, and other professional occupations
- Constitutes 80-90% of the employment in the United States
productivity
- The ratio of outputs (goods and services) divided by one or more inputs (such as labor, capital, and management)
- The operation manager's job is to enhance (improve) this ratio of outputs to inputs --> this is a measure of efficiency
- Note: high production does not imply high productivity
- Only through increases in productivity can a country's standard of living improve
how to achieve high productivity Improvement can be achieved in two ways:
- Reducing inputs while keeping output constant
- Increasing output while keeping inputs constant
example: improving productivity at Starbucks
- Goal was to increase productivity by saving seconds with each order
- Stopped requiring signatures on credit-card purchases under $25 (minus 8 seconds per transaction)
- Redesign the scoop size for ice to make only one motion (saves 14 seconds)
Labor productivity with the new system: 14 titles per day/32 labor-hours = .4375 titles per labor-hour
Multifactor productivity with the old system: 8 titles per day/640 + 400 = .0077 titles per dollar
Multifactor productivity with the new system: 14 titles per day/640 + 800 = .0097 titles per day
unit increase in productivity: 0.4375 - 0.25 =.
percentage increase in productivity: (.4375 - .25)/.25 = 0.75 = 75%
problems with multifactor productivity
- Quality may change while the quantity of inputs and outputs remain constant (ex: a TV from now compared to a TV from the 1950s)
- External elements may cause an increase or decrease in productivity for which the system under study may not be directly responsible
- Precise units of measurement may be lacking
productivity variables The three factors critical to productivity improvement - labor, capital, and the art and science of management
labor
- Improvement in the contribution of labor to productivity is the result of a healthier, better, educated, and better-nourished labor force
- 10% of the annual improvement in productivity is attributed to improvement in the quality of labor
- Training, motivating, team building, and the human resources strategies may be techniques that contribute to increased labor productivity Three Key Variable for improved labor productivity:
- Basic education for an effective labor force
- Diet of the labor force
- Social overhead that makes labor available, such as transportation and sanitation
capital
- Inflation and taxes increase the cost of capital, making capital investment increasingly expensive
- When the capital invested per employee drops, we can expect a drop in productivity
- The higher the cost of capital or perceived risk, the more they are not pursued
management
- Management is a factor of proaction and an economic resource
- Management is responsible for ensuring that labor and capital are effectively used to increase productivity
- Management accounts for over half of the annual increase in productivity
- Increase includes improvements made through use of knowledge and the application of technology
knowledge societies
- Lean operations
globalization
- The rapid decline in cost of communication and transportation has made markets global
- Resources in the form of capital, materials, talent, and labor are also global
- Operations managers are rapidly seeking creative designs, efficient production, and high-quality goods via international collaboration
supply-chain partnering
- Shorter product life cycles, demanding customers, and fast changes in technology, materials, and processes require supply-chain partners to be in tune with the needs of end users
- Requires outsourcing and building long-term partnerships with critical players in the supply chain
sustainability
- Operations managers' continuing battle to improve productivity is concerned with designing products that are ecologically sustainable
- Designing green products and packaging that minimize resource use, can be recycled or reused, and are environmentally friendly
rapid product development
- Technology combined with rapid international communication of news, entertainment, and lifestyles is dramatically chopping away at the life span of products
- OM is answering with new management structures, enhanced collaboration, digital technology, and creative alliances that are more responsive and effective
mass customization
- OM must rapidly respond with product designs and flexible production processes that cater to the individual whims of consumers
- The goal is to produce customized products, whenever and wherever needed
why operational managers cut inventories
- Inventory requires financial resources
- Inventory hides quality issues
- Inventory constrains response to ever-shorter product life cycles
lean operations
- Lean is the driving force in a well-run operation, where the customer is satisfied, employees are respected, and waste does not exist
- Build organizations that are more efficient, where management creates enriched jobs that help employees engage in continuous improvement, and where goods and services are produced and delivered when and where the customer desires them
stakeholders Those with a vested interest in an organization, including customers, distributors, suppliers, owners, lenders, employees, and community members
ethics and social responsibility of the manager
- Develop and produce safe, high-quality green products
Boost Productive Efficiency
- streamlined processes
- automated optimization programs
future trends in SCM Expanding the Supply Chain
- Breadth (international), Depth (multiple tiers)
- Increasing Supply Chain Responsiveness • Flexible, Faster product and service delivery
- Reducing Supply Chain Costs
- Reduce purchasing, inventory, waste • Continuous Improvement
