M1. Operations Management Introduction.pptx

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1. OPERATIONS MANAGEMENT By Dr. Rajesh Chouksey Tuesday, September 12, 2023 1

2. OPERATIONS MANAGEMENT Tuesday, September 12, 2023 2 Introduction Manufacturing Resource Planning Quality Control Value Engineering & ISO Service & Supply Chain Management Process analysis Facility location Facility layout Inventory Management Aggregate Planning Manufacturing Resource Planning Sequencing Techniques Work & Method Study Quality Control

3. A Customer’s View Of the World A Firm’s Strategic Trade-Off Overcoming Inefficiencies Tuesday, September 12, 2023 3

4. Dr. Eliyahu Goldratt (1947-2011) The Goal

5. What do the following organizations have in common? Walmart FedEx Flextronics SAP Let’s start with a question:

6. What do the following organizations have in common? • Walmar t: which not only is a leading retailer in the United States but also has built a network of world-class suppliers, such as GlaxoSmithKline, Sony, and Mattel • FedEx : a service firm that provides supply chain solutions and transportation services • Flex Ltd. : a contract manufacturer that assembles everything from plug-in electric motorcycles to LCD and touch displays • SAP : the world’s largest provider of enterprise resource planning (ERP) software

7. They have at least one thing in common a strong commitment to superior operations and supply chain management

8. WHY STUDY OPERATIONS AND SUPPLY CHAIN MANAGEMENT? Every organization must make a product or provide a service that someone values Most organizations function as part of larger supply chains Organizations must carefully manage their operations and supply chains in order to prosper and, indeed, survive

9. WHY STUDY OPERATIONS AND SUPPLY CHAIN MANAGEMENT? Every organization must make a product or provide a service that someone values The operations function is the collection of people, technology, and systems within an organization that has primary responsibility for providing the organization’s products or services

10. WHY STUDY OPERATIONS AND SUPPLY CHAIN MANAGEMENT? Every organization must make a product or provide a service that someone values Most organizations function as part of larger supply chains A supply chain is a network of manufacturers and service providers that work together to create products or services needed by end users. These manufacturers and service providers are linked together through physical flows, information flows, and monetary flows .

11. Every organization must make a product or provide a service that someone values Most organizations function as part of larger supply chains Organizations must carefully manage their operations and supply chains in order to prosper and, indeed, survive Fundamental operations decisions “How many shoes should we make, and in what styles and sizes?” “What kind of people skills and equipment do we need?” “Should we locate our plants to take advantage of low-cost labor or to minimize shipping cost and time for the finished shoes?” WHY STUDY OPERATIONS AND SUPPLY CHAIN MANAGEMENT?

12. “We offer customers what they want” “We match supply with demand”! Providing customers what they want, while also making a profit. Matching supply with demand is the goal of operations management Goal of Operations Management

13. By better matching supply with demand, a firm is able to gain a significant competitive advantage over its rivals. A firm can achieve this better match through the implementation of the rigorous models and the operational strategies Goal of Operations Management

14. Operations Management

15. Supply Chain Management The traditional view of operations management still puts most of the emphasis on the activities a particular organization must perform when managing its own operations. But, as important as a company’s operations function is, it is not enough for a company to focus on doing the right things within its own four walls. Managers must also understand how the company is linked in with the operations of its suppliers, distributors, and customers—what we refer to as the supply chain.

16. Supply Chain Management

17. Professional Body

18. The Customer’s View of the World

19. W hat do customers want? Customers want better products for lower prices

20. You are hungry. Three Options McDonald’s Subway Restaurant New Organic Restaurant CASE

21. McDonald’s Cheap you can be in and out within a matter of minutes. Subway Restaurant M ake an array of sandwiches and they make them to your order Organic Restaurant Great food, S omewhat expensive, W ait of 15 minutes before being served your food. CASE

22. Economic theory suggests that you make this choice based on where you expect to obtain the highest utility the state of being useful, profitable, or beneficial functional rather than attractive Economic Theory

23. Utility A measure of the strength of customer preferences for a given product or service . Customers buy the product or service that maximizes their utility Your utility associated with each of the eating options measures the strength of your preferences for the restaurant choices available The utility measures your desire for a product or service

24. Component of Utility CONSUMPTION UTILITY PRICE INCONVENIENCE

25. Consumption Utility A measure of how much you like a product or service , ignoring the effects of price and of the inconvenience of obtaining the product or service. Consumption utility comes from various attributes of a product or service; saltiness (for food) funniness (for movies) Weight (for bicycles) pixel count (for cameras) softness (for clothing) empathy (for physicians).

26. Performance A subcomponent of the consumption utility that captures how much an average consumer desires a product or service Performance attributes are features of the product or service that most (if not all) people agree are more desirable

27. Fit A subcomponent of the consumption utility that captures how well the product or service matches with the unique characteristics of a given consumer With some attributes, customers do not all agree on what is best

28. Fit : Heterogeneous Preferences The fact that not all consumers have the same utility function.

29. Price The total cost of owning the product or receiving the service.

30. Inconvenience The third and final component of the customer’s utility function It is the inconvenience of obtaining the product or receiving the service The reduction in utility that results from the effort of obtaining the product or service. Two major subcomponents of inconvenience

31. Location The place where a consumer can obtain a product or service

32. Timing The amount of time that passes between the consumer ordering a product or service and the consumer obtaining the product or service

33. Figure 1

34. Customers buy the products or services that maximize their utility They look at the set of options available to them, including the option of doing nothing (make their own lunch or stay hungry) Define “ the demand of a business as the products or services that customers want ; that is, those products that are maximizing their utility ” Definition

35. Demand is driven by the consumption utility of our product or service its price the associated inconvenience for our customers Conclusion

36. Understanding how customers derive utility from products or services is at the heart of marketing What drives your utility in terms of choosing a restaurant in Mumbai? As a business, however, it is not enough to just understand our customers; we also have to provide them the goods and services they want . Conclusion

37. A Firm’s Strategic Trade-Off

38. Who stops you? Provide outstanding products and services to all customers Tailor them to the heterogeneous needs of every single one of your customers Deliver them consistently where and when the customer wants Offer all of that at very little cost

39. McDonald’s Subway Starbucks Food and Hospitality Industry

40. Serve customers in a matter of three minutes They make the burgers before customers ask for them This keeps costs low (you can make many burgers at once) and waiting times short But because McDonald’s makes the burger before you ask for it, you cannot have the food your way . McDonald

41. Charge a small premium and has customers willing to wait a little longer because they appreciate having sandwiches made to their order Ingredients that can be prepared ahead of time (precut vegetables, cheeses, meats, etc.) Subway

42. Provides a fancy ambiance in its outlets Making it a preferred place for many students It also provides a wide array of coffee-related choices that can be further customized to individual preferences Charge a very substantial price premium compared to a coffee at McDonald’s. Starbucks

43. Capabilities Companies have capabilities that allow them to do well on some but not all of the subcomponents making up the customer utility function Capabilities is the one of dimensions of the customer’s utility function a firm is able to satisfy

44. Trade-offs The need to sacrifice one capability in order to increase another one.

45. The y-axis shows how responsive the restaurant is to our food order high responsiveness (short wait time) is at the top while low responsiveness (long wait time) is at the bottom Two Fast Food Restaurants

46. The price of the food as another dimension High prices are, of course, undesirable for customers Let us assume for now that the restaurants have the same profit per unit Assume they charge customers a price of $2 above costs, leaving them with $2 of profit per customer So, instead of showing price, the x-axis Figure shows cost efficiency how much it costs a restaurant to serve one customer . Cost performance increases along the x-axis. Two Fast Food Restaurants

47. Two Fast Food Restaurants

48. Assuming the restaurants are identical on all other dimensions of your utility function cooking skills food selection Location ambience of the restaurant Which restaurant would you prefer as a customer? Dilemma

49. We refer to trade-offs such as the one between responsiveness and costs as a strategic trade-off W hen selecting inputs and resources, the firm must choose between a set that excels in one dimension of customer utility or another, but no single set of inputs and resources can excel in all dimensions Strategic Trade-off

50. Low cost (and low price) with poor responsiveness Higher costs (higher prices) with good responsiveness W hich restaurant will be more successful?

51. We have two different market segments of consumers in the industry The answer to that question strongly depends on the size and dynamics of these market segments Budget-conscious will prefer restaurant A For high paying capacity individuals , the segment served by restaurant B is more attractive Which restaurant does better financially?

52. Introduction of Restaurant C

53. Restaurant C : Pareto Dominated  Pareto dominated means that a firm’s product or service is inferior to one or multiple competitors on all dimensions of the customer utility function Inefficient

54. Efficient Frontier It is the set of firms in the industry that are not Pareto dominated Firms that are on the efficient frontier have no firms in the industry to their upper right (i.e., are better on all dimensions)

55. Matching supply with demand First Operations management designs the operations that match the demand of a market segment with the supply of products and services appropriate for that segment Operations management helps to execute on that strategy by building an operation appropriate for that market segment The Goal

56. Second S eeks to utilize inputs and resources to their fullest potential Restaurant C is not doing this simply because restaurants A and B can provide a better customer experience (fast responsiveness) for a lower price Applying operations management to restaurant C means figuring out how to eliminate inefficiencies (and thereby move the firm to the efficient frontier ) Changing the inputs and resources it currently has, or it might mean managing more effectively The First Goal

57. Let us introduce another Restaurant to better understand the third Goal. Consider restaurant D Restaurant D offers a meal within three minutes and operates with an average cost of $3 per customer (so the price is $5) The restaurant is faster ( higher responsiveness ) and has lower costs ! It is able to get more out of its resources along all dimensions relative to the other firms in the industry The Third Goal

58. The Third Goal

59. Third Keep innovating to shift the efficient frontier Restaurant D must have gone beyond just eliminating inefficiencies and moving toward the frontier Instead, it broke the existing cost–responsiveness trade-off. Operations management is not just about executing the current way of doing things but about constantly improving and looking for new ways of doing business The Important Goal

60. As a firm reduces inefficiencies it moves toward the efficient frontier I t increases the customer’s utility (and thus is able to charge a higher price) or It decreases the cost of serving the customer Sometimes, reducing inefficiencies allows a firm to simultaneously increase price and decrease costs Either way, reducing inefficiencies will increase the firm’s profitability Conclusion

61. Why aren’t all firms in the upper right corner? Why would a company ever carry out its operations inefficiently and be Pareto dominated? What do such inefficiencies look like? Why?

62. The figure shows how much U.S. air carriers can charge for each mile they transport a passenger (y-axis) as a function of what costs they incur to provide that mile (x-axis). Figure (b) was the situation in 2000 CASE

63. Figure (a) was the situation in 2012 CASE

64. Overcoming Inefficiencies

65. An Abstract definition of inefficiency being the gap between the firm’s current position and the efficient frontier We find it helpful to think of inefficiencies as a combination of three forces :  Waste Variability Inflexibility Three System Inhibitors

66. Waste  The consumption of inputs and resources that do not add value to the customer Variability  Predictable or unpredictable changes in the demand or the supply process Inflexibility  The inability to adjust to either changes in the supply process or changes in customer demand Three System Inhibitors

67. Every work requires operations The word operations comes from the Latin word opus , opus means “work.” “operations management” is about improving the way we and/or others do their work Operations

68. At Toyota, a company that is often associated with great operations, it is often said that “ Everybody has two jobs : DO THEIR WORK IMPROVE THEIR WORK The Toyota Way

69. COMPETITIVE ADVANTAGE We assume here that effective logistics and supply chain management can provide a major source of competitive advantage

70. COMPETITIVE ADVANTAGE

71. COMPETITIVE ADVANTAGE Cost Advantage Value Advantage Or Both

72. COST ADVANTAGE

73. VALUE ADVANTAGE An axiom in marketing that ‘ customers don’t buy products, they buy benefits ’ The product is purchased not for itself but for the promise of what it will ‘deliver’ Soap, Mixer and Raw Materials

74. Commodity Concept What are the means by which such value differentiation may be gained? Market Segment Approach Value Segments or Benefits Segments Service : An Augmented Offers VALUE ADVANTAGE

75. SEEKING THE HIGH GROUND

76. SEEKING THE HIGH GROUND

77. A particularly useful way of determining the relative importance of competitive factors is to distinguish between what have been termed ‘order-winners’ and ‘qualifiers’ Order qualifiers are necessary attributes that a product must possess for it to be entered into competition. Order winners, however, are the 'winning' attributes that lead to customers buying a product. ORDER WINNERS AND QUALIFIERS

78. Product Life Cycle One way of generalizing the market requirements is to link it to the life cycle of the products or services that the operation is producing The exact form of product/service life cycles will vary, but generally they are shown as the sales volume passing through four stages – introduction, growth, maturity and decline Introduction stage Growth stage Maturity stage

79. Product Life Cycle Introduction stage – When a product or service is first introduced Growth stage – In the growing market, standardized designs emerge that allow the operation to supply the rapidly growing market Maturity stage – Eventually demand starts to level off as the market becomes dominated by a few larger companies with standardized designs Decline stage – After time, sales will decline. the market will be dominated by price competition

80. Product Life Cycle

81. Product Life Cycle Volume Customers Competitors Variety of product/service design Likely order-winners Likely qualifiers Dominant process performance objectives

82. Thank You! Tuesday, September 12, 2023 85