Lecture 1 annotated strategy and ptocess

Lecture is helpful to understand strategy and process

1. Operations Management
Class 1: Strategy and Process
1

2. Todays Outline
Part I:
Presentation of the course outline
Part II:
Process view of the organization
Inputs, outputs, resources and flow units
How to draw a process flow chart
Product attributes and process competencies
.
2

3. Course Information
Meeting times:
Two online sessions
One weekend ( 2 days)
Instructor: Prof Sridhar Seshadri
[email protected]
TA: Arun
[email protected]
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4. Instructor Bio
Name: Sridhar Seshadri ([email protected])
Education:
B Tech IIT(M), PGDM IIM(A)
PhD in Management Science UC Berkeley
Current affiliation: University of Illinois at Urbana Champaign
Title: Alan J. and Joyce D. Baltz Professor IOSA
 Health Innovation Professor, Carle Illinois College of Medicine
Research expertise: Global Supply Chain Management, Pricing and Revenue
Management, Analytics as applied to Policy Making
Our work is reported here: https://heartanalytics.github.io/about/
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5. Course Materials
Readings packet available in the LMS
Downloadable articles and cases, and class slides
on LMS
Laptop to be brought to class and used for in-
class activities, quizzes, etc.
Text
Managing Business Process and Flows by Anupindi et
al (Optional)
The Goal by Goldratt, required reading
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6. Learning Management System (LMS)
Slides
With annotations, available after end of class
Additional readings
Submissions
Grades
General Discussion Board
Group Discussion Board
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7. Evaluation
7
Your final grade in the course will be based on the following:
2 Team homework, to be assigned and submitted on LMS (2 * 15) 30%
5 Individual case writeups and problem set (5 * 6) 30%
1 Individual exam (25) 25%
Class participation 15%

8. Team setup and Individual Assignments
Team composition (?)
Individual write-ups (you may choose to do in group of 2
max – you can choose partner)
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9. Cases and assignments
Cases: Read and be prepared to discuss in class
Before and after class work
Some are to be submitted and graded, others not (see course outline)
Grade based on correctness, presentation and effort
To be discussed and submitted in groups if team assignment
Else, submit individual or in group of 2
No late assignment will be accepted
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10. Your background – Please fill zoom poll
What is your level of knowledge of operations
management?
A: none. I do not really know what it is about
B: low. I have interacted with operations managers in the past
and/or vaguely remember some notions from an
undergraduate course
C: medium. I have been closely working with operations
managers and/or have some textbook knowledge
D: high. I have been actively working as an operations manager
for a number of years and/or have a degree in operations
management
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11. Expectations: I will…
Reply to emails promptly
Be available when you request an appointment
Be open and responsive to your feedback
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12. Expectations: I expect you to…
Follow the principles of academic integrity
Do not use any outside information when preparing
assignments
Come prepared to class
Participate and ask questions
Silence your cell phone
Be punctual and do not go in and out of classroom unless
absolutely necessary
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13. Course Modules
Module 1: Operations Strategy
Module 2: Process Analysis
Module 3: Inventory Management
Module 4: Project Management
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14. Course objectives
Operations Management deals with designing, planning
and control of business processes.
Course goals:
Provide critical understanding of process management
concepts, models and methods that every manager should
know
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15. How does everything fit together?
Choosing the appropriate design and technology for producing
a product, selecting suppliers for raw materials and
components, ensuring that a product is of high quality, planning
and controlling the flow of materials or customers so that lead
times are minimized, and distributing finished goods or
services in an effective and efficient way.
Develop and applying frameworks and analytical techniques to
ensure that the right resources and products are at the right
place at the right time so as to maximize profit for any
business.
The “resources” include materials, people, money, and information,
and the “products” can be either goods or services, or some
combination of the two. Relationships.
Today and tomorrow discuss operations strategy
15

16. Course Schedule: list of topics
Class Topic Comment
Class 1 Operations Strategy Shouldice
Class 2Strategy and Process Choice Wriston Mfg Corp
(one page)
Class 3Process Analysis: Flow rate, Flow Time, and
Inventory-1
Class 4Process Analysis: Flow rate, Flow Time, and
Inventory-2
CRU Computers
(one page)
Class 5Process Analysis: Capacity and Flow TimePizza-Pazza (one
page)
Class 6Putting Things Together - NCC Case NCC (team
assignment)
Class 7Putting Things Together - Discuss The Goal
Class 8Inventory Management – Continuous Review
Model 1
Palu Gear case
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17. Course schedule -- topics
17
Class Topic Comment
Class 9Inventory Management – Continuous Review
Model 2 (safety stock discussion)
Palu Gear case
Class 10Inventory Analysis – Managing Seasonal DemandPalu Gear case
Class 11Introduction to Project Management - 1
Class 12Introduction to Project Management - 2 Campus Wedding
case

18. Today’s Class Outline
Part I:
Presentation of the course outline
Part II:
Process view of the organization
Inputs, outputs, resources and flow units
How to draw a process flow chart
Product attributes and process competencies
18

19. The process view of organizations
A process uses resources to transform inputs into outputs
Inputs are used in the process and transformed into outputs, e.g., raw
materials
Outputs are coming out of the process, e.g., the finished products
Resources are used to transform inputs into outputs but are not
incorporated into the outputs, e.g. , labor and capital
Process
Inputs
Outputs
Resources
Note: This process view applies to production as well as service businesses
19

20. The process view: examples
Auto Manufacturing
ProcessInputs Outputs
Resources
• Steel
• Rubber
• Paint
• Utilities
• …
• Car
• Spares
• Services
• Workers
• Robots
• Factory floor
• Conveyor belts
•…
20

21. The Process View
BMW Dingolfing Plant (Virtual Plant Tour:
https://www.youtube.com/watch?v=2t1GkVAc9hs)
1.8 million square meters
More than 18,000 employees
Produce more than 1,500 cars per day (285,000 in 2019)
Product: BMW 4,5,6,7,8 series
➢In US, there were an estimated 273 million registered
automobiles in 2020. So, if this plant runs in full capacity, it can
replace about 0.1% of the automobiles in US one year.
➢Suppose the average cost to produce a car is $40,000 and the
average selling price is $50,000. What are their cost of goods
sold, revenue, and gross profit per year (360 days/year)?
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22. Answers
1500x360x40000 = 21.6
 x50000 = 27.0 5.4b/year
Profit 300000 USD per employee.. Compare with other
organizations. The secret? 104 billion euros Global
Revenue. This plant is almost 1/5
th
.of global capacity.
Centralized production.
Discuss? Risk?
22

23. Tesla Process
What is different?
https://www.youtube.com/watch?v=8_lfxPI5ObM
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10,000 employees;
36-40B –use same
sc design, similar
technology – many
innovations in
process and also
information
Centralized
production
Risk?

24. The Process View
Example 2 —Subway restaurant service process
Inputs:
Outputs:
Resources:
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Breads, meats, vegetables, cheeses, dressings, etc.
Subway sandwiches, etc.
Labors, toolkits, room space, ovens, microwaves, etc.

25. The Process View
Example 2—Subway restaurant service process
How does the service process look like, step by step, from a customer’s view?
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Cut bread, add
cheese, and meat
Add
vegetables
Get the drink &
take payment
Add dressing,
cut and wrap
toaster
oven
Waiting in
the line
Arriving
Leaving
10%?
90%?
Compare to BMW or Tesla!

26. Answers
Subwayis owned and operated by Doctor's Associates.
Thecompanydoesn't own a single location, but collects 8% of
revenue from each franchise.
2024 revenues 11.5 b. What does it owe its secret to? What is the secret?
37,000+ stores. Per US store (22,000) $458,000
It’s got more meat, it’s made to their order, they can have lettuce,
they have those veggies, they can have it with or without veggies,
as many veggie assortments as they want. It’s a whole new eating
experience. Despite that fast and keeps up to date!
Fully decentralized production!
26

27. The Process View
Example 3— Foxconn makes ipads
Inputs: Cases, motherboards, CPUs, memories, cards, cables,
etc.
Outputs: Ipads
Resources: Labor, assembly lines, toolkits, etc.
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https://www.youtube.com/watch?v=2QDRaBqdKOE
Compare to BMW or Tesla!

28. Answers
In the fourth quarter of 2020, iPad sales generated
about 6.8 billion U.S. dollars in revenue, an
increase of more than 2 billion U.S. dollars from
the fourth quarter of 2019.
8.4 B in 1
st
Q 2021 (one b increase) The secret?
Low level automation. Hi seasonality and swings
Central – central. Decentral decentral. Central some
what decentral! BMW may not be able to move
things around. Who creates more variety.
Responsiveness? Quality? time? Labor needed?
What drives these choices?
28

29. Example 4: process view can be smaller
too!
ProcessInputs Outputs
Resources
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Dining hall at a campus – dining process

30. Quiz 1 (zoom)
Question : What are the (empty) plastic trays used by
diners to dish up the food from the buffet?
A.Inputs
B.Resources
C.Outputs
30

31. Process Flow Diagram
We now zoom in on the process and analyze it in more detail
We draw a process flow diagram
▪A process flow diagram (or chart) is a graphical
representation of all the elements that make up a process.
▪Process flow diagrams were originally developed to
coordinate large projects involving complex sets of
activities and considerable resources
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32. Process Flow Diagram
We take the point of view of a flow unit: a “physical item (e.g., a
piece of material, a customer)” or a “virtual content (e.g., an
order for a PC)” that is transformed from inputs to outputs
and label one thread of the process
Some processes can have multiple types of flow units
In a process we distinguish:
Activities or tasks that add value to the flow unit
Buffers or work-in-process inventories that do not add value
and are not always necessary (typically waiting steps)
Arrows that indicate the flows and directions of the flow unit
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33. Process flow chart
The process flow chart is a graphical way to describe the
process
Use to describe activities or tasks
Use to indicate buffers or work-in-process inventories
Use to indicate the flow of the flow units
e.g. means task 2 cannot be done
until task 1 is finished
Write down the (main) resource(s) used for each activity under
each rectangle (and possibly also triangle)
Task 1 Task 2
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34. Dining Hall example: Process flow chart
Flow unit =
34

35. Process flow chart of Shouldice hospital
Flow unit =
Medical
exam
(waiting
room)
Go to
room,
unpack,
shave,
change
Nurse
orientation
Dinner,
recreation,
tea &
cookies
(exam room,
surgeon)
(patient
room)
(nurse)
Sleep
Awaken,
receive
sedation
(patient
room)
Receive
Demerol
Receive
Novocain
(patient
room, nurse)
(pre-op
room, nurse)
(operating
room, surgeon)
Surgery
(operating
room, surgeon)
Walk to post
op room
(nurse)
Tea &
cookies
Stay for 2
more
days
Discharge
35

36. Process flow chart: Conventions
There is not a unique correct process flow chart for a
particular flow unit. But here are some guidelines:
Put a buffer between every pair of activities done by different resources
unless you know for sure that flow units CANNOT wait in between.
Also put a buffer at the end (for finished goods inventory)
Use different colors for the arrows if there are multiple flow units
You may group successive tasks that are performed by the same (set of)
resource(s) sequentially into one rectangle
E.g.,
Add rice &
naan OR Add rice Add naan
36

37. Resources in parallel
If some resources are performing the same activity and flow
units go through only one of them indifferently, we say that the
resources are in parallel.
The group of resources in parallel are also called a resource
pool. Each resource in a resource pool is called a resource
unit.
In the dining hall example:
37

38. View Matters: PC Assembly Process
•Customer’s view
•Let’s look at the process to fulfill an order from the manager’s view!!
•Manager’s view
Processing timeOrders PCs
Workers
Waiting time
Anxious
customers
☺ Customers
Workers
38

39. Practice: PC Assembly Process
•Main activities
–Examine Order & Request Materials: by Worker A
–Assemble Motherboard: to assemble CPU, memories, video/sound
cards, cables, etc. to the motherboard; by Worker B
–Assemble Case: to assemble motherboard, hard/DVD/Floppy drives,
power, etc. to the case; by Worker C who needs a Toolkit
–Softwares & Test: to connect the case, keyboard, mouse and
monitor together, install softwares, and test; by Workers D1 & D2
who can perform the same job with the same quality
–Package: by Worker E
39

40. Practice: PC Assembly Process
• Flow unit = a customer’s order with one PC
Examine Order &
Request Materials
Assemble
Motherboard
Software & Test
Waiting,
Order
Assemble Case
(Worker A) (Worker B)
(Worker C & Toolkit)
(Worker D2)
Waiting,
Order
Waiting,
Order
Package
(Worker E) Waiting,
Order
Waiting,
Order
Order
Waiting for
pickup
Software & Test
(Worker D1)
40

41. Practice: PC Assembly Process
• Multiple types of flow units: Imagine a customer’s order contains TWO PCs
with different configuration. (e.g., one with monitor+Windows 10 & one without
monitor+Linux)
Examine Order &
Request Materials
Assemble
Motherboard
Software & Test
Waiting,
Order
Assemble Case
(Worker A) (Worker B)
(Worker C & Toolkit)
(Worker D2)
Waiting,
Order
Waiting,
Order
Package
(Worker E) Waiting,
Order
Waiting,
Order
Order
Waiting for
pickup
Software & Test
(Worker D1)
41

42. So far
42

43. Product attributes
The products are the desired set of process outputs
Tangible or intangible (services)
Key product attributes:
Product cost: purchase price + service/maintenance costs +
final disposal cost
Product availability: Delivery-response time = time to wait
before receiving product
Product variety: range of choices offered
Breadth and depth
Product quality: degree of excellence that determines how
well the product performs
43

44. Process competencies
Four dimensions for measuring the competence of
processes to deliver the four product attributes:
Process cost: total cost incurred in producing and delivering
outputs
Process flow time: total time needed to transform inputs
into outputs
Process flexibility: ability to produce and delivery the
desired product variety; depends on flexibility of resources
Process quality: accuracy (precision) in producing products
that conform to design specification and reliability of the
process.
44

45. There is a one-to-one correspondence between product
attributes and process competencies:
Product attributes and process
competencies
Product attribute Process competencies
Product cost Process cost
Product availability Process flow time
Product variety Process flexibility
Product quality Process quality
45

46. Business and operations strategy
Business strategy / Strategic positioning:
Determine competitive priorities in terms of product
attributes; what is different and better than the competition?
Operations strategy:
Determine the necessary process competencies
Design internal processes to develop the desired process
competencies
Strategic fit: consistency between the strategic
positioning and process competencies
46

47. Strategic fit example: Walmart
Product attributes
Product cost
Product availability
Product variety
Product quality
Processes to achieve desired process competencies:
47

48. Your responses
48

49. Some Answers
Processes:
cross-docking system
very elaborate IT system to analyze POS data
very low inventory (high inventory turnover rate)
push vs pull, scale, variety localized, pressure continuous on
supply chain
Saturation on growth. Strategy for large stores ? Further
possible via localization? Internet. What will it do to its
competencies? Investment in predictive analytics
Stiil 79% say best supply chain in the world. Vulnerability???
Germany. India. Mismatch? – customer and supply chain.
Total workers 123 million, retail. 6% in Walmart (1.5 million)
but has 44% (down from 55% in 2020) share
49

50. Shouldice hospital
https://www.shouldice.com/about/
50

51. Strategic fit example: Shouldice hospital
Processes to achieve desired process competencies:
Look at survey responses . What strikes you from those?
Product attributes
Product cost
Product availability
Product variety
Product quality
51

52. Your responses
52

53. Some answers
Processes
-Pick healthy low risk patients
-Standard procedure
-Trained specialized doctors, learning together
-Self-service
-Early patient movements (no TV in rooms)
-Eating
-Hospital design/ambiance – socialization (guests allowed)
-Low housekeeping staff (low cost), nurses 1:15 ratio (inpatient
typical 1:4)
53

54. Some answers
Low cost (5240 vs (650 + 300x4) ) + re-admission
Low availability (denial strategy)
Low variety 80-20 rule and
High quality (interesting why when cost is low?)
54

55. Summary
Process view of the organization
Inputs, outputs, resources and flow units
How to draw a process flow chart?
Product attributes and process competencies
Does location matter? Please read shared article, “How
Singapore got its Manufacturing Mojo back”
55

56. Next
Wriston Manufacturing
Process performance measures
Operational measures of process performance
Linking them via Little’s law
Linking operational measures to financial measures
Please submit one-page on Wriston: “Why do overhead costs (in
Exhibit 2) vary so much from plant to plant?” (ask ChatGPT “how overhead
costs are calculated in a manufacturing plant? In a Service Operation?”)
56

57. Additional thoughts
What is Shouldice offering (service concept)?
Management Control Actions
How do the stakeholders do?
57

58. Profitability
58

59. Analysis of Shouldice Options
Admit patients on Saturday
Add 45 more beds
New additional facility
59

60. Some thoughts on innovation
Need for change
Types of innovation
Who suggests
Evaluation
Implementation
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