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Topic 1

by: Taylor ohl

Topic 1 MGTOP 340-02

Taylor ohl
WSU, Washington
GPA 3.2

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This is one week of notes
Operations management
Michelle wu
Class Notes
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This 15 page Class Notes was uploaded by Taylor ohl on Wednesday September 30, 2015. The Class Notes belongs to MGTOP 340-02 at WSU, Washington taught by Michelle wu in Summer 2015. Since its upload, it has received 63 views. For similar materials see Operations management in Business at WSU, Washington.


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Date Created: 09/30/15
MgtOp 340-0perations Management Professor Munson Thimaterial mbe protected by copyriq;•t !aw iS.Code)7 Topic 1 Introduction to Operations Management and Operations Strategy "Our Production cycle is aoout eighty-one hours from the 1nineto finished machine in the freight car, or three days and nine hours instead of the fourteen days we used to think was record breaking." Henry Ford on Model T production, 1926 ''Thoughthe [Boeing 777] plant itself was built in the early 1990s, lean production techniques already have improved the workflow so dramatically that one huge production hall now stands vacant. Boeing's new production techniques allow it to build the same number of aircraft inone production hall that it formerly built in two." John Gillie, "Boeing Manager is Tacoma Ne1-vs-Tr11126/02 This Material May be Protected -5- ByCopyright Law (title 17, U.S.Code) Historical Figures Eli Whitney • Born 1765; died 1825 • In 1798, received government contract to make 10,000 muskets • Showed that machine tools could make standardized parts to exact specifications • Musket parts could be used in any musket ~ :>t<A,hotcvt-ionv/f>..-S th\n.o; Frederick W. Taylor • Born 1856; died 1915 • Known as "father of scientific management" • In 1881, as chief engineer for Midvale Steel, studied how tasks were done • Began first tim& motion studies • Created efficiency principles Henry Ford..."Make them all alike!" • Born 1863; died 1947 • In 1903, created Ford Motor Company • In.1911, first used moving assembly line to make Model T • Unfinished product moved by conveyor past work station • Paid workers very well for 1911 ($5/day!) * ~ k1S +hih'? WCAS +¥1 GvSeN1blll1:ne -8- Evolution of Operations Management Past Milestones • Repeatability and Specialization (1800s) According to Adam Smith (1776), benefits of division of labor include: (1) worker's skill increases by repeatedly performing the same task; (2) no time lost switching from one task to another; and (3} byfocusing on one task, workers are well positioned to develop improved tools and techniques. • Automation (start of the 20thcentury) - COMPateis el': for(j., • Scientific Management (1910-1940) - Persov--ro ~how: r-reO~ \-\UJt~c • Problem of Production "Solved" (1950s, 60s) -US p-;rM-tleo..-tO ~VOthCeot Prootu,c-i,on / • Foreign Cotnpetition (1970s) -JC\-f'ovneseF-irt CCAVt0ht toe?JJC. • Operations Renaissance (1980s) -St.$ V) ~;" v1WI«'Men-t C5 CM) &ec eos~ fu(J -9- Present and Future • Analytics - bf1N) ct~J ef(- -I-etOCJ\.~feoyn p-rofri{O\-t-"O to -teir CAcAv <e X-~ • Extension to the Service Sector • Operations Strategy as a Competitive Weapon • Focus on Quality as a Key Lever - b selV0--NIM OJN\nr.qo -tt.1Ai1-esT tt-rcn'JYJ r beCotVe CUUAfI()€x.e'f5 0 • Supply Chain Management - StVC -oPerQ .t-;on5bccoMint?JMore CJ>MPren5iVe,MCJ(f C\€.&_ i""~'n~v1veotvV0\.t'I?JOC!lo rYX':on H>r • Flextbthty In Manufacturing Systenet-Wortc. Ford's Cleveland Engine Plant No. I has been outfitted with a exible powertrain manufacturing system that can be easily reprogrammed to perform new tasks with minimal disruption to production. "We shut down an entire plant in order to make major changes to the line, helping - JMfor~;hed S5tA-e-fications and keep downtime to a minimum." - ProottAcih I 5r-o._cwn itis olowr.Sr~ or< o11 t:.) STc..,tiCcouJ0- Cost c,Jut "toq,;sfcs) - Ieeot +-o F-,nclhe ~wee1 sP(+ • Just-in-Time Manufacturing (JIT) - new toPiC. frofosectb~ )evf<>1se - H'1,'nOro <AChive z.ero ihVfhtorliJ • Internationalization of Operations -10- Five Myths of Operations Management Myth 1: Operations has little impact on the bottom line. Reality: In many firms, ongoing operations account for 80-85% of annual expenses. The bulk of most companies 'assets are ) tied up in productive plant, equipment, and inventories. Not surprisingly, success with operations is one of the best predictors offinancial performance. Ferris and Lawrence: • Changes in inventory turns, asset turns, and sales/employee predict changes in ROl better than other financial measures (e.g. leverage). • Operations measures explain a significant fraction of ROI variability. Myth 2: My interests involve finance, accounting, or marketing, thus operations management has no relevance to my work. Reality: By definition, every manager is involved in either direct or indirect operations. / -11- - --=~ ~-~ ---~---~-~-- - Mvth 3: Operations is important only to manufacturing firms. Reality: Operations management is at least as important with service firms as with manufacturing businesses. Examples of service operations topics include: • Location (e.g. distribution centers, retail outlets); • Layout (e.g. banks, restaurants); • Demand forecasting (e.g. customers, calls); • Work force scheduling (e.g. nurses, tellers); • Vehicle routing/scheduling (e.g. trucking, airIi'\futW"\ f. - V\es- revenLe--M (AJ1Cl9Cl\..,_ 1 Myth 4: Pay levels for operations people are not competitive. Reality: Operations is one of the best-paying functions over the long run, and increasingly in the short run. American Society of Industrial Managers-1990Survey Position Mfg. Service I999 Update 2008 Update CEO $180,962 $178,089 $215,151 $686,064 coo $140,,491 $126,570 $160,140 $422,259 CMO $92,237 $93,304 $I26,590 $198,804 CFO $83,018 $81,770 $100,63I $297,732 Myth 5: Operations is not the way to the top in American industry. Reality: Operations is one of the best routes to the executive suite. Where CEOs learn the ropes: ·• Production/Operations-35.8% • Finance-22.5% • Marketing-20.8%) • Research-9.6% • Legal-8.8% • Other-2.5% -12- * lhcJeOvse blchM0~n ft\fucr,actf~ t IMPor+-evoPiC • •t O~IAit P ro uc tIVI y =111!!v+ ) Example: If it takes 200 hours to produce 1000 units:footuc--+"1=- o oo Cow+>~) 2-oohrCIV\flAt) Productivity increases if output increases by a higher p1rcentage than inputs increase. e) O(.A·t~Pncresse6"JU/ -c-IOoo ·(2ocr)=1,2,t115 IPK+ ;ncJesse&t:J0 ~- --oohr (/0°h)2-20ht Proc(clA.J-=i+'2oo w,;+-= c;,5.~. +.I-wLni 2- I Measurement Problems 1. quality may change 2. external factors 3. units of measurement -13- ' ' Thought Question: If inputs increase by 20% and outputs increase by 50%, what is the percentage productivity increase? o t Forrvw o._ IA.S('o:(4)( 'fOXitetVJ+'1 lheftl?~a ::.:t-xa;o • \:) -Ow-fLU-S1~:: /hficf5 1. ltt;{;ro -I It 20 °le1 Formulaforthe Percentage Productivity Increase If inputs increase by X% and outputs increase by Y%, then the % productivity increase is: *"ouH ~A :vI0i00 kh; f-7 ; hce ::t'obII)(;oc/l~ Is0 0 iVPtA.+-'201 hrs -----::cre Seat G'j 2o /c VV tJ ~, -14- Labor Costs Across Countries Example Japanese-U.S. exchange rate==200 ¥/$ U.S. wages==$20/hour Japanese wages==3200 ¥/hour I "30.0¥ ~·~ P f\1:::~20 •{$ 1:$.ItJ.,r I h-1- •zoo:!: 2oo hr What about productivity? U.S. workers produce 16 units/hour Japanese workers produce 8 units/hour ProottvC+Li:1bI<t p0otLt-Vjt-::2 U.S. workers are more productive. Japanese workers must work twice as long to produce the /same amount. "Relative" wagerate=$[Gx 2 .~3 I2h( (Fvr )c.JrAnese wor~er:s Move f(oclVtOf\ wrohol * Do no+ V\I£Ant -t-o ~se JLAf0vnes worl:=.s CoSt" MofP -15- Computing "Relative" Wage Rates W =foreign wage rate (in foreign currency I hr.) X= exchange rate (in foreign currency I $) C = converted foreign wage rate (in $ Ihr.) U =U.S. productivity (in units Ihr.) F = foreign country productivity (in unitI hr.) R = "relative" foreign wage rate accounting for productivity differences (in$ Ihr.) * Wf:v\t t-o set-it lA/ fh ~ 0enf0\.IN'% /, (Overt ever10th0n t-o So..AtlgCurreC'1 (:: 7($) 2 R:: c {f) -·--- ----~----------~- .,.___ c""~u 5 t/cae r~- :::/e'hr w ::_0 fIh( r -.:s~ ~' Iu:: trokllJIt..If-::::'oIA.Ilhr S. CCArt COnCt(Ade +h fAv'euroPe h ~5 Ctr.eer /DJor --_R -=-S . 4- Ltt-sIJ,r k> IA-hi-fs/~( ::~ 12l "'r -16- Cost of development and production I Salerevenue ) ~ .......... Introduc1•Growth Maturity Decline r Operations Issues t & Product Life Cycle t Introduction Product design& development t critical; many process changes High production costs t Growth Forecasting critical lf11provproduct; increase capacity& distribution Maturity Standardize product ex: hovrx. roc/< Long production runs Ce>vf-eCA._++-he N1oMen+ Decline Reduce product line, lower costs -17- Competitive Priorities >f-tt COMP(\VJ CDvh be ;A MlU-le f('I . Cost 1. Low-cost operations ex.\ Quality 2. High-performance deSign 3. Consisten. qua.i c~n1'y ~ '~- Time 4. Fast e Ivery ttrpe ~~;h, ·. Johnson Controls getsrelease Ford and delivers the order 4 hours later, starting from the raw materials 5. On-time deliver eYy-.~C:hoi'S An auto suppliero,ooneJ.££J.£.1.W.Mo<w delivers late to its customer's assembly 6. Development speedeJ'.. Flexibility 7. Customization -webs·,tt options at their Gothenburg plant. A bar attached to each chassis contains the testJID: parameters for that vehicle. Readers automatically scan the code and adjust testing instruments with no downtime. / 8. Volume flexibility Location 9. Labor 10. Convenient location Service 11. Transaction service 12. After-sales service ( ~ VVCA tht Vteoto C/0(+l +heY c:.r:A.weu -18- J Competitive Priorities J >fOt\t WMPC\Y\VjCDvh be :" M~ [te J 1. Low-cost operations ex.wo-v" 'r-t\J Cost • IVOOVtOt5 Quality 2. Htgh-performance destgn e'fq,ffte ] . I. "-~~~ 3. Conststent qua tty ~-"t'e)ll )-~, ne:5J Time 4. Fastd e tvery ttpe\~c- -_i"r-~-~-.W_- Johnson Controls gets a seat order release from Ford and delivers the orde1, Az(p's later, starting from the raw mFe~'f:ls.}oaJPie --'--"--····· ~-··-;;-·---·- 5. On-time delivery*c :,lowrr~nc; An auto supplier pays $10,00'0per tnttute if it delivers late to its customer's assembly line. 6. Development speeder-..e.-l+ron;cs Flexibility 7. Customization -webs 1t' de5i((1ne6 Volvo has 6,000 combinations of dashboard options at their Gothenburg plant. A bar code attached to eacn cnassts contatns tne tesung parameters for that vehicle. Readers automatically scan the code and adjust the testing instruments downtime. J Volume flexibility J Location Labor 10. Convenient location J Service 11. Transaction service 12.AfLt;r-salt:service ~ VVCAt ecl vlecto +h~~ r);ellIN e11 -18- L~ L: Manufacturing Strategies • Make-to-Stock90ooL For !Yletss f(cdLA(Oo{ucA. 6[Ach So We lcnow hIV Mt.tCto frooeucu/hth we S8llS'l+In CAvJhc~l IerooPo-.+ot~' JoS/ert'1, rCAA,heefer+a MO'vtCon.not resfon oi vehe McJ~ leentor1cost-cw beh~0 MhOre Por hwoltAbvR • Make-to-Order Nlevk.erAS Soohev.Jt-he or(){erJ coMe !hIeJ<.:A.StoMizPro~~ 1Ae-cv5.c o:flo 1 e."cessnvetor'1CDLn cvsr,ze. con r~n ou.:t P frooftAlose l>'le 1:~lwoot1veri1CCt-n6e reCAJI!J ex.r veM ore Fof ~re{VJrue I • Assemble-to-Orderh':)b s~rcr?'An emMfl e l.s the d._eCtAS+-M;bl Cot1fLer, ke &aJX-Q_ beO\( vvortSh1f learn- &'1c{ohq ( N'V5-tPor oLie:;/-1-evJ frdU,ctlre0v1S&CA cSversic-tnevJreas ..~te~r) Mare F-orSoFtWC/v(e


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