Biz Ops Seminar 1

Biz Ops
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  Seminar 1: Introduction to Operations, Operations Strategy Soh Yu Hong Jonathan 1 What is operations management?    OM deals with the design, operation and improvement of the production system that create the firm’s primary products or services.      Operations include any process that accepts inputs and use resources to transform these inputs into valuable outputs- strategic  (next 20 years), tactical   (next 1 or 2 years) and operational   (now) decisions.    All physical products used and all services used was created/impacted by operations. Importance of OM    Bottom line and profitability of every business are affected by how well it manages its operations, be it a manufacturing or service organisation.    Improving and streamlining and business processes and operations can have a significant impact to the shareholder value.    Good operations can contribute to the top line (corporate sales/revenue). Challenges facing OM    Product proliferation (variety: customers may not always see the difference)      Decreasing profit margins      Short product life cycles (new products produced quickly)      Long supply chains- coordination issues    Continuous new product launches to meet market place requirements      Being on top of innovation curve  OM in the organisation    Marketing: generates sales revenue from product and service outputs      Finance: acquires financial resources and capital for inputs      Operations: translates materials and service into outputs      Support functions: accounting, info systems, engineering, HR.  Operations strategy    Involves configuring and developing business processes that will enable the firm to produce and deliver the products specified by the business strategy      Internal processes and interfaces between inputs and output markets (means by which operations implements corporate strategy & helps build a customer driven firm)  4 perspectives on operations strategy    Top down: what business wants operations to do      Mkt reqt: what the market position requires operations to do      Bottom up: what day-to-day experiences suggests operations should do      Operation resource: what operation resources can do  Competitive priorities    Cost    o   Low cost: process must be designed and operated to make them efficient (eg Costco)      Quality   o   Top quality: may require a high level of customer contact and may require superior product features (eg Ferrari)   o   Consistent quality: processes designed and monitored to reduce errors and prevent defects (eg Mcdonald’s)      Time    Seminar 1: Introduction to Operations, Operations Strategy Soh Yu Hong Jonathan 2 o   Delivery speed: design processes to reduce lead time (eg Dell)   o   On-time delivery: planning processes to increase percent of customer orders shipped when promised (eg United Parcel Service)   o   Development speed: cross-functional integration and involvement of critical external suppliers (eg Li & Fung)      Flexibility   o   Customisation: low volume, close customer contact and easily configured (eg Ritz Carlton)   o   Variety: capable of larger volumes than processes supporting customization (eg Amazon)   o   Flexibility: processes must be designed for excess capacity (eg UPS)  Benefits of excelling at four objectives    Cost: min cost, max value (internal). Min price, highest value (external)      Quality: error free processes (internal). Error-free products and services (external)      Speed: Fast throughput (movement of inputs and outputs through a production process) (internal). Quick delivery (external)      Flexibility: ability to change (internal). Frequent new products, maximum choice (external)  Efficient frontier view of trade-offs    X axis: cost efficiency. Y axis: variety      Improvements can be made through focus on increasing variety, increasing cost efficiency or overcoming trade-offs between variety and cost efficiency      All performance objectives, to some extent, trade-off against each other  Order winners and qualifiers    Order winner: increasing focus increases sales (eg cost, quality)      Order qualifier increasing focus has little increase in sales (eg features of product). If achievement of competitive priority falls below the threshold, there will be zero sales.  Breakeven analysis    F: fixed cost, constant regardless of changes in levels of output       c: variable cost per unit, varies directly with volume of output       p: price per unit       Q: quantity      Choose quantity that costs the least    Breakeven formula:      Make or buy decisions    Finds quantity for which the total costs for two alternatives are equal      Same price: Cost of making= F m  + c m Q. Cost of buying= F b  + c b Q.      Different price: Cost of making= p m Q –  (F m  + c m Q). Cost of buying= p b Q- (F b  + c b Q).      If cost of making < cost buying then make!      If expected demand > Q then make. Expected demand < Q then buy.   Formula: Q = (F m -F b )/(c b -c m )
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