OPNS 430

Professor Wuqin Lin

Class Material + Grading • Course Pack 1

(Cases & Readings)

• Course Pack 2

(Slides)

• The Goal • Managing Business Process Flows (MBPF) • The Course Web-Page Group Assignments 20%, Midterm 30%, Final 40%, Class Participation 10% Lin/Operations/Strategy 2

Topics – 6 Modules  Module 1 : Operations Strategy (Shouldice, Wriston)  Module 2 : Process Analysis ( CRU -Pizza Pazza, NCC )  Module 3 : Lean Operations ( Toyota )  Module 4 : Supply Chain Management (Palu Gear)  Module 5 : Services ( The BAT case )  Module 6 : Quality (Quality Wireless, FlyRock) Lin/Operations/Strategy 3

Introduction & Strategy Module  Introduction  Goals and Key Paradigms of Course » Strategic role of Ops » Process view of Ops  A Strategic Framework for Ops » Strategy: Product attributes and the Competitive Product Space » Ops: Capabilities and Processes  Aligning strategy and operations: » Focus » Relationship between process choice and strategy » Shouldice Hospital » Wriston Manufacturing Lin/Operations/Strategy 4

What do

you

mean by “Operations”?

Lin/Operations/Strategy 5

What Is Meant by “Operations”?

 “New York-based Merrill, the world's largest brokerage firm and a major investment bank, has been overhauling

operations

…”  “Microsoft splits into five groups in reorganization” – Microsoft announced a long-awaited reorganization, dividing the company to five major groups and naming two veteran executives to head its online

operations

.

Lin/Operations/Strategy 6

Goals of this course 1.

2.

Introduction to operations as a

managerial integration

function Evaluation and Improvement  We will adopt two paradigms Lin/Operations/Strategy 7

Key Paradigm of Course: 1. The Strategic Role of Ops “A company’s operations function is either a

competitive weapon

or a

corporate millstone

.

It is seldom neutral.” [

Skinner ’69

] Lin/Operations/Strategy 8

The Strategic Role of Ops…  Most operational decisions have strategic impact – IT at Walmart  Strategic decisions impact operations – FedEx-USPS Lin/Operations/Strategy 9

Key Principle of Course: 2. The Process View of Ops 

Chicago Tribune

reported: By

rethinking

the IBM Austin assembly plant and introducing

cells

, – distance traveled by a card was cut from 1.5 miles to 200 yards – floor space was reduced to half – production tripled with about the same number of workers.

[

Chicago Tribune

, July 1992.] Lin/Operations/Strategy 10

1. What is a Process?

Lin/Operations/Strategy 11

Operations & the Process View: What is a Process?

Information

structure

Inputs Process Management

Network of

Activities

and

Buffers

Flow units (customers, data, material, cash, etc.)

Outputs

Goods Services Labor & Capital

Resources

Lin/Operations/Strategy 12

Advantages of Adopting a Process View of Organizations  Properties: – Applies to any organization » Service operations (health care), manufacturing operations – Applies at any level » 1 activity, 1 clinical service group, 1 hospital, 1 health care supply chain – Is always “customer aware” and focused on outcomes  Key Property: focus on

flows

rather than

snapshots

Lin/Operations/Strategy 13

What is Operations Management?

 Management of business processes  How to structure the processes and manage resources to develop the

appropriate capabilities

to convert inputs to outputs.

– What is

appropriate

?

Lin/Operations/Strategy 14

2. What is a “good” Process?

Lin/Operations/Strategy 15

What defines a “good process”?

Performance: Financial Measures  Absolute measures:  – revenues, costs, operating income, net income – Net Present Value (NPV) = Relative measures:

t T

  0  1

C t



r



t

– ROI, ROE EBIT  Tax – ROA = Average Total Assets  Survival measure: – cash flow Lin/Operations/Strategy 16

What defines a “good process”? All organizations compete on delivered value Delivered value of process = benefit to process customers – total process cost

Price p

(Cost) Benefit driven by customer value

Quality Q:

•of product or outcome •of service

Time T:

•Rapid, reliable delivery •New product development

Variety V

(flexibility) Example: patient value priorities for – Emergency care Lin/Operations/Strategy 17

A Strategic Framework for Process Design and Improvement:Three questions competitive strategy 1.

What is our strategic position: how do we compete & provide value in the market?

» What is the value proposition to our customers?

 Rank (

p, T, Q, V

) operations strategy 2.

Given our strategic position, what must operations do particularly well?

» Which

competencies

must ops develop?

 Rank

(c, T, Q, Flex

) Process structure & mgt 3.

Given needed competencies, how should operations processes be structured to develop competencies that support strategy?

 Process choice (structure) and management Lin/Operations/Strategy 18

Representation of Strategy: Current Position and Strategic Directions of Movement in the competitive product space

Responsiveness B

High

Price A

Low Lin/Operations/Strategy 19

Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry

Responsiveness C B A

operations frontier High Low

Price

Lin/Operations/Strategy 20

Shouldice Hospital Lin/Operations/Strategy 21

Question 1: Representation of Strategy: Strategic Position in customer value space

Variety in care B

High

Price A

Low Lin/Operations/Strategy 22

Question 2: Need competencies to deliver value proposition

Variety

High

Customer

value proposition

Price

Shouldice Low

Flexibility

Needed

Process

Competencies

B

High

Cost A

Low Lin/Operations/Strategy 23

Question 3: what is the best process design that has the right process competencies to deliver customer value proposition?

Flexibility (responsiveness)

World-class Emergency Room Productivity frontier = current state of best practice One general hospital Needed competencies for a given patient type/segment World-class specialty non-emergency Shouldice Hospital

Cost efficiency

 A

focused

process attempts to deliver one specific and narrow customer value proposition (i.e., its priority ranking is clear and constant for all patients) – – It is optimized to deliver the needed competencies for one narrow patient segment Focus does

not

imply standardization: ER is focused on providing timeliness and flexibility to patient needing emergency care Lin/Operations/Strategy 24

Wriston Manufacturing Lin/Operations/Strategy 25

Wriston’s HED Division Plant Network

7 6 5 4 3 2 1 0

Sandusky, OH Exhibit 2A

Total Burden Rates (total overhead cost / direct labor cost)

Essex, Canada Detroit, MI Saginaw, MI Lima, OH Lebanon, PA Tiffin, OH Fremont, OH Maysville, KY

Free capacity and Throughput $200 $150 $100 $50 $0 Sandusky, OH

Lin/Operations/Strategy

Essex, Canada Detroit, MI Saginaw, MI Lima, OH Lebanon, PA Tiffin, OH Fremont, OH Maysville, KY

26

Classification of Processes by process architecture  Project  Job Shop  Batch  Line Flow  Continuous Flow Job Shop Flow Shop Lin/Operations/Strategy 27

Characteristics of Processes: Comparison of Process Types Type of Process

Job Shop Product Volume Specialized Equipment Product Variety Machine Setup Frequency Labor Skills Flow Shop Variable Cost



Q: what are the typical managerial challenges in JS vs FS?

Lin/Operations/Strategy 28

Matching Process Choice with Strategy:

Process

Product-Process Matrix

Flexibility

Jumbled Flow.

Process segments loosely linked.

High JOB SHOP

(Commercial Printer, Architecture firm) Disconnected Line Flow/Jumbled Flow but a dominant flow exists.

BATCH

(Heavy Equipment, Auto Repair) Connected Line Flow (assembly line)

LINE FLOWS

(Auto Assembly, Car lubrication shop) Continuous, automated, rigid line flow.

Process segments tightly linked.

Low CONTINUOUS FLOW

(Oil Refinery)

Low

High Standardization Commodity Products High volume Lin/Operations/Strategy Few Major Products Many Products

High

Low Standardization One of a kind Low Volume

Product Variety

29

Learning Objectives

Operations & Strategy

 What is operations?

 What makes a good operations?

 Two key paradigms of course  Link between business strategy, operations strategy, and operations structure – Product Attributes / Operational Capabilities/Operations structure – Strategy vs. Operational Effectiveness – Trade-offs: – Operational Focus – Process Classification and Relationship with strategy Lin/Operations/Strategy 30