MGT 3121 Chapter 1-5,16 Notes PDF

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MGT 3121 Chapter 1-5,16 Notes...

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Chapter 1 supply - products or services that a business or NPO offers to their customers demand - the set of products/services that customers want - Matching supply with demand: providing customers with what they want while also making a profit - Matching supply with demand is the goal of operations mgmt - Firm is able to gain a significant competitive advantage over its rivals - Firms can match supply with demand thru the implementation of the rigorous models and operational strategies The customer’s view of the world - utility - a measure of the strength of customer preferences for a given product/service - Customers buy the product/service that maximizes their utility - Utility measures a customer’s desire for a product/service - Economic theory suggests that customers make the choice between products/services based on where they expect to obtain the highest utility - Utility is composed of three components: - consumption utility - measures how much one likes a product/service, ignoring the effects of price and the inconvenience of obtaining the product/service - Comes from various attributes of a product/service - performance attributes - features of the product/service that most people agree are more desirable - ex. “Cleaner, more durable, friendlier, more memory, roomier, more efficient” - fit attributes - features of the product/service customers do not all agree on what is best - heterogeneous preferences - the fact that not all consumers have the same utility function - Result of differences across customers in taste, color, or size - price - the total cost of owning the product/receiving the service - Includes expenses such as shipping or financing, and other price related variables such as discounts - Price includes shipping costs, financing costs, and costs of owning the product - Customers prefer to pay less rather than paying more - inconvenience - the reduction in utility that results from the effort of obtaining the product/service - transaction costs - the economic term for inconvenience of obtaining a product/service - Location and timing are the two subcomponents of inconvenience - Customers buy the products/services that maximize their utility - Look at the set of options available - Look at the option to do nothing - Demand is driven by the consumption utility of a product/service, its price, and the associated inconvenience for the customer - marketing - the academic discipline focused on understanding and influencing how customers derive utility from product/services A firm’s strategic trade-offs - Companies have capabilities that allow them to do well on some but not all of the subcomponents making up the customer utility function - capability - the dimensions of the customer’s utility function that can be satisfied - trade-off - the need to sacrifice one capability in order to increase another one - ex. Trade off between the inconvenience of obtaining their products/services with the costs of providing them - ex. Trade off between the consumption utility and costs of providing the products/services

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strategic trade-off - a trade-off between selecting inputs and resources in which the firm must choose between a set that excels in one dimension of customer utility or another, but in which no single set of inputs and resources can excel in all dimensions - ex. Trade-off between responsiveness and cost of hiring extra workers - market segment - a set of customers who have similar utility functions - Pareto domination - when a firm’s product/service is inferior to one or multiple competitors on all dimensions of the customer utility function - efficient frontier - the set of firms in an industry that are not Pareto dominated and are better on all dimensions - Restaurants on an efficient frontier have different strategic trade-offs and focus on different market segments, but no single firm dominates another on the frontier - Inefficiency is the gap between a firm and the efficient frontier. Firms that are not on the efficient frontier are considered inefficient - Operations management and the goal of matching supply with demand - Op mgmt designs the operations that match the demand of a market segment with the supply of products and services appropriate for that segment - Make a strategic trade-off to match the needs of the market segment - “Make trade-offs among the dimensions of performance” - Op mgmt seeks to utilize inputs and resources to their fullest potential - Eliminate inefficiencies and move the firm to the efficient frontier by changing inputs and resources of the firm, or managing those inputs and resources more effectively - “Reduce inefficiencies so that the business does not have to sacrifice one performance dimension vs. another, thereby moving toward the efficient frontier” - Op mgmt involves innovation to shift the efficient frontier and breaking existing trade-offs - Op mgmt is about constantly improving and looking for new ways of doing business, while also executing the current way of doing things - Innovation can be incremental or radical, but should make the firm more competitive - “Innovate and improve operations, corresponding to a shift in the efficient frontier” Overcoming inefficiencies: Three system Inhibitors - A company can only be successful if its customers are willing to pay a sufficiently high price to cover the cost of the product/service it offers - profit - the difference between the revenue a company earns and the costs it incurs - Types of costs: - Costs for input - things that a business purchases - ex. Steel, seats, tires, displays, chips, power supplies, medication, bandages, food - Costs for resources - things in a business that help transform input into output and thereby help provide supply for what customers demand - ex. Equipment, real estate, employees, plants and warehouses - Reducing inefficiencies increases the firm’s profitability - Reducing inefficiencies moves the company towards the efficient frontier and increases the customer’s utility, allowing the company to charge a higher price or decrease the cost of serving the customer - Reducing inefficiencies may allow a firm to simultaneously increase price and decrease costs - Inefficiencies are the combination of three system inhibitors - forces that create the inefficient gap between the firm’s current position and the efficient frontier model - waste - corresponds to all the consumption of inputs and resources that do not add value to the customer - Customers are not willing to pay for this

- ex. Double wrapping sandwiches, unnecessary labor - variability - corresponds to changes in either demand or supply over time - Variability in demand - Customer arrivals: a form of demand variability in which customers come at very different times of day - Customer requests: a form of demand variability in which the number of customers requiring food and the particular menu items being requested by the customer in a given day are unknown - Customer behavior: a form of demand variability in which two different customers ordering the same product/service may not have the same reaction or level of satisfaction with the product - Variability in supply - Time to serve a customer: a form of supply variability in which employers work at their own pace and are prone to distractions and/or fatigue - Disruption: a form of supply variability in which sometimes an employer is faster or slower, or just doesn’t show up at all - ex. Sickness, bad weather, poor motivation, absence, equipment malfunctions, slow computer systems - Defects: a form of supply variability in which things go wrong in a business - Orders delivered incorrectly, overcooked food, misplaced bills - inflexibility - the inability of an operation to quickly and cheaply change in response to new info - Flexibility is the operation’s ability to react to variability - ex. Rigid staffing levels, long delivery times, lack of inpatient housing Operations mgmt at work - Op mgmt is about improving the way we and/or other do their work - Op mgmt is considered to be the “science for the better” - Although someone may not exactly work in the op mgmt field, op mgmt may still be important in their field of work. Employees have two jobs: do their work, and improve their work - Jobs that are in the field of op mgmt include - Employee and mgmt positions in charge of acquiring the inputs and managing the resources they need to serve their customers - Consulting companies that act as external help when it comes to improving the way they work - How can employees improve their work? - Overcome system inhibitors by eliminating waste, reducing variability, and trying to overcome inflexibility - Be on the lookout for operations that could benefit from further improvement Summary - Matching supply with demand while making a profit is complicated by three system inhibitors - Wasting inputs and resources (supply) - Variability in supply and demand - Supply may be inflexible - Matching supply with demand needs to happen at many levels and in many areas of a business - Op mgmt requires knowing ho wot use an assortment of tools rather than just one - Process analysis and improvement - How should we provide the products/services we provide to customers? - How can we improve our processes? - Process productivity and quality - How do we improve the productivity of the process?

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How do we respond to the heterogeneous preferences of customers without sacrificing too much productivity? - How can we consistently deliver the products/services - Anticipation of customer demand - How much of the products should we produce and how many customers should we serve? - How do we design a supply chain and distribution system? - How can we predict demand? - Response to customer demand - How can we quickly respond to the customer demand of one customer? - How can we quickly respond to customer demand of many customers? - What products/services best meet the needs of our customers? Key questions in op mgmt - What is the product/service? - Who are the customers and what are their heterogeneous needs? - How much do we charge? - How efficiently are the products/services delivered? - Where will the demand be fulfilled? - When will the demand be fulfilled?

Chapter 2 Key questions for a manager of a process - Is the process performing well? - How can we make the process better? Process, scope, and flow units - process - a set of activities that takes a collection of inputs, performs some work or activities with those inputs, and then yields a set of outputs - process flow diagram - a graphical representation of a process - Uses boxes to depict resources - a group of people and/or equipment that transforms inputs into outputs - Uses arrows to depict flows - Uses triangles to depict inventory location - process scope - the set of activities included in a process - flow unit - the basic unit that moves thru a process - Generally associated with the outputs of a process - ex. In a process where people donate type AB blood to a blood donation center, the flow units are pints of type AB blood - ex. In a process where milk is sent to a processing plant to become milk powder, the flow units are pounds of milk powder - ex. In a process where people buy tickets at a theater, the flow unit is revenue from ticket sales - ex. In a process where patients are admitted to a hospital, the flow units are number of treated patients - Rules to defining flow units: - Choose a flow unit that corresponds to what you want to track and measure with respect to the process - Stick with the flow unit initially defined. - Choose a flow unit that can be used to measure and describe all of the activities within the process. - ex. For a triathlon, “distance traveled” is not an appropriate measure of the activities performed because athletes must bike, swim, and run in a triathlon. Instead, consider a unifying flow unit such as “minutes of workout”, “calories burned”, or some other measure of power - In a business, currency is a common flow unit that can be used to span all of the things and activities in a process Key process metrics - process metric - a scale or measure of process performance and capability - Three key process metrics - inventory - the number of flow units within a process - ex. Dollars, kilograms, people - Inventory does not always have to be a physical thing, can refer to whatever flow unit someone is interested in tracking - Tells us how much “stuff” is in the process - Useful to know because inventory generally takes up space and may cost money - flow rate - the rate at which flow units travel thru a process - Measured in “flow units” per “unit of time” - ex. Dollars per week, kg/hr, people per month - Without the unit of time attached, it would just be inventory - Tells us how much stuff moves thru the process per unit of time

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More units flowing thru a process is generally more desirable because the point of the process is to produce output - Average flow rate = Total inventory / (End time - Beginning time) - The flow rate into a process must equal the flow rate out of a process - flow time - the time a flow unit spends in a process from start to finish - Typical units include minutes, hours, days, weeks, months, and even years - Tells us how much time stuff spends in the process - Flow time may be calculated in a process by subtracting departure/end time from arrival/beginning time Little’s Law: Linking process metrics together - Little’s Law: Inventory = Flow rate x Flow time - I=RxT - If we know any 2 of three process metrics, we can derive the third - Little’s Law applies even if there are fluctuations in inventory, flow rates, or flow times Summary - A process is a set of activities performed on a collection of inputs to yield useful outputs - As a manager of a process, measure its performance and then improve on its performance - Improvement cannot happen without tracking performance - For any process, the three fundamental metrics to evaluate performance are inventory, flow rate, and flow time - The three fundamental metrics are linked via Little’s Law, which says that Inventory = Flow rate x Flow time

Chapter 3 process analysis - a rigorous framework for understanding the detailed operations of a business - Determines the process capacity and utilization - process capacity - how many flow units can be processed per unit of time - utilization - how busy the resources of the process are - Identifies and analyzes all the activities involved in serving one unit of demand or in providing one unit of supply - Framework can be used for anyone running a business, including the owner, managers, or consultants - Vice President of Operations, Chief Operating Officer, Director of Operations, Operations Expert etc. - Despite these titles, it can be argued that everyone in the business should have an interest in making it better - The purpose of process analysis is to make the business better process flow diagram - a graphical way of describing a process - Uses boxes to depict resources, arrows to depict flows, and triangles to depict inventory location - Triangles are specifically buffer inventory - buffer inventory - flow units waiting in the process without being worked on - resources - a group of people and/or equipment that transforms inputs into outputs - Shown by rectangular boxes in the diagram - upstream - the parts of the process that are at the beginning of the process flow - downstream - the parts of the process that are at the end of the process flow - Process flow diagrams capture some useful info that can be used as the starting point for quantitative analysis

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a) Three parallel processes, each with its own dedicated waiting line. - ex. Supermarket checkout process - A flow unit only visits one single box - Each customer is served by only one employee b) Three parallel processes, but a common waiting line

- ex. Basic airline baggage check in process - Flow unit at the front of the waiting line is served by the next available resource - Each flyer checks their bags in with one of multiple employees - c) Three step process without a waiting line - ex. Drive-thru restaurant with no space for waiting cars - Customer can only start the process if there is room at the first station - If there is no room at the first station, the customer leaves and is lost as a flow unit - d) Seating arrangements after paying for a product/service - There may be more than one process flow happening in a business, and as such different process flow diagrams for each process - Processes may also differ due to the chosen flow unit being analyzed. For example, at a restaurant, - If waiting customers is the flow unit, then the diagram starts with a triangle - If food is the flow unit, there is either - A demand for the food which suggests customers are the flow unit, or - A supply of the food waiting for demand, which means the food is the flow unit Capacity for a one-step process - capacity - the maximum number of flow units that can flow thru that resource per unit of time - Capacity = Number of workers at resource / Processing time - When considering just 1 employee, Capacity = 1 / Processing time - It may be necessary to convert this calculation to a longer period of time in order for the result to make sense or be measurable - processing time - the time it takes a resource to complete one flow unit - Normally formatted as a rate, ex. 4 hours per patient, 45 mins per transaction, 4 sec per customer - process capacity - the maximum flow rate a process can provide per unit of time - Determines the maximum supply of the process - Smallest capacity of all resources in the process Computing flow rate, utilization, and cycle time - demand rate - the number of flow units that customers want per unit of time - Flow rate is the lesser of: - Demand, or - Process capacity - The limiting factor to flow rate is the process capacity - capacity-constrained - the scenario in which demand exceeds supply and the flow rate is equal to process capacity - Flow rate is less than demand rate - demand-constrained - the scenario in which process capacity exceeds demand and the flow rate is equal to the demand rate - A process that is demand constrained cannot have a utilization of 100% - Flow rate is less than the capacity of the process - throughput - a synonym for flow rate, the number of flow units flowing thru the process per unit of time - utilization - the ratio between the flow rate and the process capacity - The ratio between how fast the process is currently operating and how fast the process could be operating if there was sufficient demand - Utilization = Flow rate / Capacity

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Utilization can be defined at the level of an individual resource or at the level of the entire process - cycle time - measures the time between completing two consecutive flow units - Cycle time = 1 / Flow rate - Ultimately expressed in units of time per unit - lead time - measures the time between when an order is placed and when it is received - Process lead time is the same as flow time, the time it takes a flow unit to get thru the process - Expressed simply in units of time - Flow time = Inventory x Cycle time - Derived from I = R x T and Cycle time = 1 / R Analyzing a multistep process - When there are multiple employees serving one customer, there are three different processing times - Each processing time has a separate capacity calculation, but uses the same formula - The process capacity is then the lowest of the three capacities calculated - Multiple utilization calculations are also required - Process capacity, flow rate, and cycle time remain singular for the entire process - bottleneck - the resource with the lowest capacity in a process - Based on the idea that a chain is only as strong as its weakest link - It is not possible to get more customer thru the process than what we have capacity for at the bottleneck - It does not matter if a resource comes first or last, what matters is the capacity of that resource - For inventory to accumulate in a process, the bottleneck must be downstream - A resource will have idle time if it comes after the bottleneck resource - When there is a bottleneck, the p...