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production Cheat Sheet (DRAFT) by

This is a draft cheat sheet. It is a work in progress and is not finished yet.


1) Explain the concept of capacity. Capacity is the capability of a manufa­cturing or service resource such as a facility, process, workst­ation, or piece of equipment to accomplish its purpose over a specified time period. Key Capacity Issues Capacity is determined by the resources available to the organi­zat­ion­—fa­cil­ities, equipment, and labor—how they are organized, and their efficiency as determined by specific work methods. Capacity can be viewed in one of two ways: 1. As the maximum rate of output per unit of time, or 2. As units of resource availa­bility. - Can the facility, process, or equipment accomm­odate new goods and services and adapt to changing demand for existing goods and services? - How large should facility, process, or equipment capacity be? - When should capacity changes take place? 2) Describe how to compute and use capacity measures. Capacity An automobile transm­iss­ion­-as­sembly factory normally operates two shifts per day, five days per week. During each shift, 400 transm­issions can be completed under ideal condit­ions. What is the capacity of this factory? Capacity = (2 shifts­/day) (5 days/week) (400 transm­iss­ion­s/s­hift) (4 weeks/­month) = 16,000 transm­iss­ion­s/month Safety capacity Safety capacity (often called the capacity cushion) is an amount of capacity reserved for unanti­cipated events, such as demand surges, materials shortages, and equipment breakd­owns. Average safety capacity (%) = 100% − Average resource utiliz­ation % Job Shop Capacity In a job shop, setup time can be a substa­ntial part of total system capacity. Capacity Required (Ci) = Setup Time (Si) + [Proce­ssing Time (Pi) x Order Size (Qi)] = Si + [(Pi) (Qi)] 3) Describe long-term capacity expansion strate­gies. Long-Term Capacity Strategies Comple­mentary goods and services can be produced or delivered using the same resources available to the firm, but whose seasonal demand patterns are out of phase with each other. Comple­mentary goods or services balance seasonal demand cycles and therefore use the excess capacity available Capacity expansion strategies require determ­ining • Amount • Timing • Form of capacity changes 1. One large capacity increase (Exhibit 10.6a). 2. Small capacity increases that match average demand (Exhibit 10.6b). 3. Small capacity increases that lead demand (Exhibit 10.6c). 4. Small capacity increases that lag demand (Exhibit 10.6d). 4) Describe short-term capacity adjustment strate­gies. Adjust Short-Term Capacity Levels • Add or share equipment: lease equipment as needed or set up a partne­rship arrang­ement with capacity sharing. Examples: mainframe computers, CAT scanner, farm equipment. • Sell unused capacity: sell idle capacity to outside buyers and even compet­itors. Examples: computing capacity, perishable hotel rooms. • Change labor capacity and schedules: short term changes in work force levels. Examples: overtime, extra shifts, temporary employees, outsou­rcing. • Change labor skill mix: hire the right people, cross-­tra­ining. • Shift work to slack periods: Example: build up inventory during slack times and hold for peak demand times. Shift and Stimulate Demand • Vary the price of goods or services: Examples: cheaper hotel rates on weekends; sales of overstocks • Provide customers with inform­ation: Example: automated messages with best times to call or visit • Advert­ising and promotion: Examples: after-­holiday sales, manufa­cturer or service coupons • Add peripheral goods and/or services: Examples: movie theater rentals at off-peak times, extended service hours. • Provide reserv­ations: a promise to provide a good or service at some future time and place. Examples: hotels, airlines, surgeries Revenue Management Systems • A revenue management system (RMS) consists of dynamic methods to forecast demand, allocate perishable assets across market segments, decide when to overbook and by how much, and determine what price to charge different customer (price) classes. • Examples: Managing overbo­oking in airlines, hotels, and cruise lines (yield manage­ment). 5) Explain the principles and logic of the Theory of Constr­aints. The Theory of Constr­aints (TOC) is a set of principles that focuses on increasing total process throughput by maximizing the utiliz­ation of all bottleneck work activities and workst­ations. • Throug­hput: amount of money generated per time period through actual sales. • Constr­aint: anything that limits an organi­zation from moving toward or achieving its goal. • A physical constraint is associated with the capacity of a resource (e.g., machine, employee). • A bottleneck work activity is one that effect­ively limits capacity of the entire process. • A nonbot­tleneck work activity is one in which idle capacity exists. • A nonphy­sical constraint is enviro­nmental or organi­zat­ional (e.g., low product demand or an ineffi­cient management policy or proced­ure).


1 Explain how organi­zations seek to gain compet­itive advantage • Compet­itive advantage denotes a firm’s ability to achieve market and financial superi­ority over its compet­itors • Creating compet­itive advantage requires: o Unders­tanding customer needs and expect­ations o Building and leveraging operat­ional capabi­lities to support desired compet­itive priori­ties. 2 Explain approaches for unders­tanding customer wants and needs • Order qualifiers are basic customer expect­ations, generally considered the minimum perfor­mance level required to stay in business • Order winners are goods and service features and perfor­mance charac­ter­istics that differ­entiate one customer benefit package from another and win the customer’s business. 3 Describe how customers evaluate goods and services • Search attributes are those that a customer can determine prior to purchasing the goods and/or services o Color, price, freshness, style, fit, feel, hardness, and smell. • Experience attributes are those that can be discerned only after purchase or during consum­ption or use. o Friend­liness, taste, wear ability, safety, fun, and customer satisf­action. • Credence attributes are any aspects of a good or service that the customer must believe in, but cannot personally evaluate even after purchase and consum­ption. o Expertise of a surgeon or mechanic, the knowledge of a tax advisor. Customers evaluate services in ways that are often different from goods, such as: o Customers seek and rely more on inform­ation from personal sources when evaluating services 4 Explain the five key compet­itive priorities Represent the strategic emphasis that a firm places on certain perfor­mance measures and operat­ional capabi­lities within a value chain. o Cost o Almost every industry has a low price market segment. Examples include Southwest Airlines, and Walmart. o Quality o Time o Flexib­ility o Manifest in mass custom­ization strategies o Mass custom­ization is being able to make whatever goods and services the customer wants, at any volume, at any time for anybody, and for a global organi­zation, from any place in the world. o Innovation


1 Describe the types of measures used for decision making Financial Measures Quality Sustai­nab­ility Customer and Market Measures o Measures of customer satisf­action reveal areas that need improv­ement and show whether changes actually result in improv­ement o It racks trend and reveals patterns of customer behavior from which the company can predict future customer needs and wants o Tracks and analyze complains Service Quality o Every service encounter provides an opport­unity for error o Errors in service creation and delivery are sometimes called services upsets or service failures. Time o Two types of perfor­mance measures o Speed of doing something  Speed can lead to a signif­icant compet­itive advantage. o Variab­ility of the process  Variab­ility is what often leads to an unhappy customer experience o Processing time = time it takes to perform some task o Queue time = wait time – the time spent waiting Flexib­ility The ability to adapt quickly and effect­ively to changing requir­ements. o Goods and service design flexib­ility is the ability to develop a wide range of customised goods and services to meet different or changing customer needs. o Measures include the rate of new product develo­pment or percent or product mix developed over the past three years o Volume flexib­ility is the ability to respond quickly to changes in the volume and type of demand o Measures include the time change machine setups or time required to “ramp up” to an increased production volume. Innovation and Learning o Measures of innovation and learning include patent applic­ations, new product develo­pment, employee training and skills develo­pment, satisf­action, work system perfor­mance, etc. Produc­tivity and Operat­ional Efficiency o Is the ratio of the output of a process to the input o Produc­tivity increases when output increases or amount of input increases o Describes how well the resources of an organi­sation are being used to produce output. 2 Explain the use of analytics in OM and how internal and external measures are related Analytics in Operations Management – Interl­inking o Interl­inking: quanti­tative modelling of such relati­onships between external and internal perfor­mance criteria o With interl­inking models, managers can object­ively make internal decisions that impact external outcomes. o i.e., determ­ining the effects of adding resources or changing the operating system to reduce waiting time, and thereby increase customer satisf­action Linking internal and external perfor­mance measures o The value of a loyal customer (VLC) quantifies the total revenue or profit each target market customer generates over the buyer’s life cycle o By multip­lying the VLC times the absolute number of customer gained or lost, the total market value can be found Value of a Loyal Customer (VLC) customer defection rate =1 − customer retention rate Buying life-cycle (BLC) = 1/ Defection rate VLC=(P­)(R­F)(­CM)­(BLC) where P=the revenue per unit RF=re-­pur­chase frequency CM=con­tri­bution margin BLC= Buying life-cycle 3 Describe four models of organi­zat­ional perfor­mance Baldrige Perfor­mance Excellence Framework • Provide a framework for perfor­mance excellence through Self-a­sse­ssment to understand an organi­zat­ion’s strengths and weakne­sses, thereby setting priorities for improv­ement • Organi­zations in manufa­ctu­ring, small business, service, education, health­care, and non-profit sectors may receive the Malcolm Baldrige Award. The Balanced Scorecard Model • Translate strategy into measures that uniquely commun­icate an organi­zat­ion’s vision • Perspe­ctives • Financial - Value to shareh­olders • Customer - Customer satisf­action and market growth • Innovation and learning - People and infras­tru­cture • Internal - Processes that drive the business The Value Chain Model • Evaluates perfor­mance throughout the value chain by identi­fying measures associated with: • Suppliers • Inputs • Value creation processes • Goods and service outputs and outcomes • Customers and market segments • Supporting management processes The value chain model is probably the dominant perfor­mance measur­ement model, especially for operations managers. Servic­e-p­rofit Chain Model • Focuses on employees or service enviro­nments • Based on a set of cause and effect linkages between internal and external perfor­mance • Defines the key perfor­mance measur­ements on which servic­e-based firms should focus • Theory - Employees driven through the service delivery system, create customer value and drive profit­ability


1 Explain the concept of supply chain management Supply Chain o Key subsystem of a value chain that focuses on physical movement of goods and materials - Support inform­ation through the supply, produc­tion, and distri­bution processes o Coordi­nates the flow of materials, services, and inform­ation among the elements of the supply chain to maximize customer value o Key functions: purchasing and procur­ement of materials and supplies, sales and order proces­sing, operat­ions, inventory and materials manage­ment, transp­ort­ation and distri­bution, inform­ation manage­ment, finance, and customer service Supply Chain Management (SCM) o Management of all activities that facilitate the fulfilment of a customer order for manufa­ctured goods - To achieve satisfied customers at a reasonable cost o Includes managing: materials within supply chain, flows of inform­ation and money that are necessary to coordinate activities within the supply chain 2 Describe the key issues in designing supply chains Designing the Supply Chain o A contract manufa­cturer is a firm that specia­lises in certain types of goods-­pro­ducing activi­ties, such as customised design, manufa­ctu­ring, assembly, and packaging. o Advant­ages: access to advanced manufa­cturing techno­logies, faster product time-t­o-m­arket, custom­ization of goods in regional markets, lower total costs resulting from economies of scale o A third-­party logistics (3PL) providers provide integrated services that might include: packaging, wareho­using, inventory manage­ment, and inbound or outbound transp­ort­ation o Leverage business intell­igence to create effici­encies and economies of scale in the supply chain Designing the Supply Chain: Two Strategic perspe­ctives o Efficient supply chains: designed for efficiency and low cost by minimising inventory and maximizing effici­encies in process flow o Responsive supply chains focus on flexib­ility and responsive service. Has the ability to react quickly to changing market demand and requir­ements Designing the Supply Chain: Efficient supply chains o Seek to balance capacity and demand, resulting in low levels of inventory o Might use only a few large distri­bution centres to generate economies of scale o Use optimi­sation models that minimise costs of routing products from factory through distri­bution centres o Example: Walmart Designing the Supply Chain: Responsive Supply Chains o Have the ability to quickly respond to market changes and conditions faster than tradit­ional supply chains o Are supported by inform­ation technology that provides real-time, accurate inform­ation to managers across the supply chain o Use inform­ation to identify market changes and redirect resources to address these changes o Example: Apple Push and Pull Systems o A push system produces goods in advance of customer demand using a forecast of sales and moves them through supply chain to points of sale where they are stored as finished goods inventory o A pull system produces only what is needed at upstream stages in the supply chain in response to customer demand signals from downstream stages o Push-pull boundary: point in the supply chain that separates the push system from the pull system o Postpo­nement: process of delaying product custom­ization until the product is closer to the customer at the end of the supply chain Green Sustai­nable supply chain o Purpose – reduce costs while helping the enviro­nment o The process of using enviro­nme­ntally friendly inputs and transf­orming these inputs through change agents – whose by-pro­ducts can improve or be recycled within the existing enviro­nment Manufa­ctured Good Recovery o Developing options to recover manufa­ctured goods that will be discarded or stable o Reuse or resell, repair, refurbish, remanu­fac­ture, cannib­alize parts, recycle goods, incine­ration or landfill disposal o Reverse Logistics: managing the flow of finished goods, materials, or components that can be unusable or discarded o Through supply chain from customers toward either suppliers, distri­butors, or manufa­cturers o For the purpose of reuse, resale, or disposal o 3 Define metrics used in evaluating supply chain perfor­mance Measuring Supply Chain Perfor­mance o Delivery reliab­ility, respon­siv­eness, custom­er-­related measures, supply chain efficiency measures, sustai­nab­ility measures, financial measures 4 Describe the role of transp­ort­ation, supplier evalua­tion, techno­logy, and inventory in supply chain management Managing Supply Chains o Requires numerous operat­ional decisions o Global sourcing, selecting transp­ort­ation services, incorp­orating techno­logy, managing inventory (vendor managed inventory VMI) o Vendor­-ma­naged inventory (VMI) o Advant­ages: optimize production operat­ions, better control on inventory and capacity, reduce total supply chain costs o Disadv­ant­ages: results in higher than necessary customer invent­ories Selecting transp­ort­ation services o A complex decision, as varied services are available – rail, motor carrier, air, water, and pipeline. o Most consumer items are shipped via rail, motor, carrier, and air. 5 Explain important factors and decisions in locating facilities Location Decisions in Value Chains o Profound effect on supply chain perfor­mance and a firm’s compet­itive advantage o Type of facility and its location affect the supply chain structure o Service organi­zations operate large numbers of similar facilities - Multisite manage­ment: process of managing geogra­phi­cally dispersed servic­e-p­rov­iding facilities Critical Factors in Location Decisions o Economic factors - Facility costs – constr­uction, utilities, insurance, taxes, deprec­iation, and mainte­nance - Operating costs – fuel, direct labour, and admini­str­ative personnel - Transp­ort­ation costs - associated with moving goods and services from the origins to the final destin­ations o Noneco­nomic factors - Availa­bility of labour, transp­ort­ation services and utilities - Climate, community enviro­nment, and quality of life o State and local legal and political factors Center of Gravity Method o Determines the X and Y coordi­nates (location) for a single facility - Takes into account locations, demand, and transp­ort­ation costs to arrive at the best location - Cx= ΣXiWi/ΣWi - Cy= Σ YiWi/ΣWi o Where  Cx = x coordinate of the center of gravity  Cy = y coordinate of the center of gravity  Xi = x coordinate of location i  Yi = y coordinate of location i  Wi = Volume of goods and service moved to or from location i


1 Describe the steps involved in designing goods and services • Strategic mission and vision • Strategic and market analysis, and unders­tanding compet­itive priorities • Customer benefit package design and config­uration • Detailed goods, service, and process design • For manufa­ctured goods - Manufa­ctured design and develo­pment - Process selection and design • For services - Service and service delivery design - Service encounter design • Market introd­uct­ion­/de­plo­yment • Market­place evaluation 2 Explain the concept and applic­ation of quality function deployment Customer requir­ements - Wants and needs are reflected through the design of good or service • Voice of the customer: Customer requir­ements, as expressed in the customer’s own terms • Quality function deploy­men­t(QFD): Approach to guide the design, creation, and marketing of goods and services by: - Integr­ating the voice of the customer into all decisions • Determine customer requir­ements through the voice of the customer (VOC) • Define technical requir­ements of the product • Determine interr­ela­tio­nships between the technical requir­ements • Relati­onship matrix defines what technical requir­ements satisfy VOC needs • Customer priorities and compet­itive evaluation help select which VOC requir­ements the product should focus on 3 Describe how the Taguchi loss function, reliab­ility, design for manufa­ctu­rab­ility, and design for sustai­nab­ility are used for designing manufa­ctured goods Tolerance Design and the Taguchi Loss Function o Determ­ining the acceptable tolerance o “goal post model” o For most manufa­ctured goods, design blueprints specify a target dimension (called the nominal), along with a range of permis­sible variation (called the tolerance) o Narrow tolerances vs. Wide tolerances  Improved product functi­onality & perfor­mance vs. increased manufa­cturing cost o Taguchi Loss Function o Argued that the smaller the variation about nominal specif­ica­tion, the better is the quality o In turn, products are more consis­tent, would fail less freque­ntly, and thus, be less costly in the long run. o L(x) = k(x – T )2 o Where  L(x) - Monetary value of the loss associated with deviating from the target, T  x - Actual value of the dimension  k - Constant that translates the deviation into dollars 4 Explain the five elements of service delivery system design Facility location and layout o Location creates customers’ conven­ience o Great store layout, process design, and service encounter design are meanin­gless if the store is in the wrong location. o The internet is making physical locations less important for some inform­ati­on-­int­ensive services Servic­escape o All of the physical evidence a customer might use to form an impression o Provides the behavi­oural setting where service encounters take place o Standa­rdi­zation – enhances effici­ency, especially for multiple site organi­zations o For eg, McDonald’s Restau­rants, Subway o Types of Servic­escapes o Lean servic­escape enviro­nments: provide service using simple designs  Eg, FedEx drop-off kioks o Elaborate servic­escape enviro­nments: provide service using more compli­cated designs and service systems  Eg, Hospitals, airports, univer­sities Process and job design, technology and inform­ation support systems, organi­zat­ional structure 5 Describe the four elements of service encounter design Service Encounter Design o Focuses on the intera­ction, directly or indire­ctly, between the service provid­er(s) and the customer. o Principle elements: o Customer contact behaviour and skills  Physical or virtual presence of the customer in the service delivery system during service experience  Measured by the percentage of time the customer must be in the system relative to the total time it takes to provide the service  High-c­ontact system vs. low-co­ntact systems o Service Provider Selection, Develo­pment and Empowe­rment  Recruit and train employees to exceed customer expect­ations  Empowe­rment: giving people authority to make decisions based on what they feel is right, to have control over their work, to take risks and learn from mistakes, and to promote change. o Recogn­ition and reward o Service recovery and guarantees


1 Describe four layout patterns and when they should be used Facility Layout is the Specific arrang­ement of physical facilities • Layout studies are necessary whenever: - New facility is constr­ucted - Signif­icant change in demand or throughput volume - New good or service is introduced to the customer benefit package - Different processes, equipment, and/or technology are installed Product Layout An arrang­ement based on the sequence of operations that are performed during the manufa­cturing of a good or delivery of a service. Smooth and logical flow where all goods or services move in a continuous path from one process stage to the next using the same sequence of work tasks and activi­ties. Examples: Winemaking industry, credit card proces­sing, Subway sandwich shops, etc. Advant­ages: Lower work-i­n-p­rocess invent­ories, less Material handling, lower labor skills, and simple Planning and control systems. Disadv­ant­ages: A breakdown at one workst­ation can Cause the entire process to shut down; a change in Product design or the introd­uction of new products May require major changes in the layout, limiting flexib­ility. Process Layout Consists of a functional grouping of equipment or activities that do similar work. Depending on the processing they require, tasks may be moved in different sequences among depart­ments Examples: Job Shops, Legal offices, shoe manufa­ctu­ring, and hospitals Advant­ages: Compared to product layouts, process layouts provide more flexib­ility and require a lower investment in equipment. If a piece of equipment fails, it generally does not affect the entire system. Also, the diversity of jobs inherent in a process layout can lead to increased worker satisf­action. Disadv­ant­ages: High material handling costs, more compli­cated planning and control systems, low equipment utiliz­ation, higher in-process inventory, and higher worker­-skill requir­ements. Fixed-­Pos­ition Layout Consol­idates the resources necessary to manufa­cture a good or deliver a service, such as people, materials, and equipment, in one physical location. Examples: The production of large items such as heavy machine tools, airplanes, buildings, locomo­tives, and ships. Servic­e-p­rov­iding examples include major hardware and software instal­lat­ions, sporting events, and concerts. Advant­ages: Work remains statio­nary, reducing movement. Disadv­ant­ages: High level of planning and control required. Cellular Layout The design is not according to the functional charac­ter­istics of equipment, but rather self-c­ont­ained groups of equipment (called cells), needed for producing a particular set of goods or services. First developed by Toyota. Cellular layouts facilitate the processing of families of parts with similar processing requir­ements. Examples: Legal services such as labor law, bankru­ptcy, divorce; medical specia­lties such as maternity, oncology, surgery. Advant­ages: Reduced materi­als­-ha­ndling requir­ements, quicker response to quality problems, more efficient use of floor space, more worker respon­sib­ility increasing morale. Disadv­ant­ages: Duplic­ation of equipment among cells, greater worker skills requir­ements. 2 Explain how to design product layouts using assembly line balancing Flow-b­locking delay occurs when a work center completes a unit but cannot release it because the in-process storage at the next stage is full. The worker must remain idle until storage space becomes available. Lack-o­f-work delay occurs whenever one stage completes work and no units from the previous stage area waiting proces­sing. These sources of delay can be minimized by attempting to “balance” the process by designing the approp­riate level of capacity at each workst­ation. This is often done by adding additional workst­ations in parallel. Assembly line balancing is a technique to group tasks among workst­ations so that each workst­ation has, in the ideal case, the same amount of work. Cycle Time • Interval between successive outputs coming off the assembly line • Cycle time (CT) is related to the output (R) by the following equation: - CT = A/R - A - Available time to produce the output - Output (R) - Demand forecast in units, adjusted for on-hand inventory, or orders released to the factory - Both A and R must have the same time units of measure If the required cycle time is smaller than the larger task time Then, the work content must be redefined by splitting some tasks into smaller elements Minimum number of workst­ations required= Sum of task times/­Cycle time = Σt/CT Total time available = (Number of work stations) × (Cycle Time) = (N)(CT) Total idle time = (N)(CT) - Σt Assemb­ly-line efficiency = Σt/(N ×CT) Balance delay = 1 - Assemb­ly-line efficiency Designing Process Layouts • Arrang­ement of depart­ments or work centers relative to each other • Approaches • Focuses on the cost associated with moving materials • Used when it is difficult to obtain data on costs or volumes moved between depart­ments Workplace Design • Well-d­esigned workplace allows for maximum efficiency and effect­iveness as the work task or activity is performed • Needs to facilitate service management skills in high-c­ontact, front-­office enviro­nments The Human Side of Work • Job: Set of tasks an individual performs • Job design involves: - Determ­ining the specific job tasks and respon­sib­ilities - Work enviro­nment - Methods by which the tasks will be carried out to meet the goals of operations • Two broad objectives in job design: i. To meet the firm's compet­itive priori­tie­s—cost, effici­ency, flexib­ility, quality, and so on ii. To make the job safe, satisf­ying, and motivating for the worker. • Job enlarg­ement: Horizontal expansion of the job to give the worker more variety although not necess­arily more respon­sib­ility. For example, giving a produc­tio­n-line worker the task of building an entire product rather than a small subass­embly, or rotating nurses among hospital wards or flight crews on different airline routes. • Job enrich­ment: Vertical expansion of job duties to give the worker more respon­sib­ility - Highly effective approach to job enrichment is to use teams • Natural work teams • Virtual teams • Self-m­anaged teams (SMTs) For example, an assembly worker may be given the added respon­sib­ility of testing a completed assembly, so that he or she acts also as a quality inspector.


1 Explain the concept of value and how it can be increased • The underlying purpose of every organi­zation is to provide value to its customer and stakeh­olders • Value is the perception of the benefits associated with a good, service, or bundle of goods and services in relation to what buyers are willing to pay for them. 2 Describe a value chain and the two major perspe­ctives that charac­terize it Value Chain Network of facilities and processes that describes the flow of goods, services, inform­ation, and financial transa­ctions from suppliers through the facilities and process that o Create goods and services and deliver them to customers o Views an organi­zation from the customer’s perspe­ctive Pre-and Postpr­odu­ction Services o Prepro­duction services “gaining a customer” include customized and team-o­riented product design, consulting services, contract negoti­ations, product and service guarantees o Postpr­odu­ction services “keeping the customer” include on-site instal­lation or applic­ation services, mainte­nance and repair Value Chain Decisions o The operat­ional structure of a value chain is the config­uration of resources such as suppliers, factories, wareho­uses, distri­butors, technical support centers, engine­ering design and sales offices, and commun­ication links. o Centra­lized vs. Decent­ralized (decision making) 3 Explain outsou­rcing and vertical integr­ation in value chains o Vertical integr­ation refers to the process of acquiring and consol­idating elements of a value chain to achieve more control. o Backward integr­ation: acquiring capabi­lities toward suppliers o Forward integr­ation: acquiring capabi­lities toward customers o Outsou­rcing is the process of having suppliers provide goods and services that were previously provided intern­ally. (not the core function of the business) The Economics of Outsou­rcing VC1= Variable cost/unit if produced VC2 = Variable cost/unit if outsourced FC = Fixed costs associated with producing the part Q = Quantity produced (volume) Total cost of production = (VC1) Q + FC Total cost of outsou­rcing = (VC2) Q Find the breakeven point: (VC2) Q = (VC1) Q + FC Q*= FC/ VC2− VC1 4 Explain offshoring and reshoring, and issues that managers must consider in making these decisions Offshoring is the building, acquiring, or moving of process capabi­lities from a domestic location to another country location while mainta­ining ownership and control. Reshoring is the process of moving operations back to company’s domestic location Things to Consider When Making Offshore Decisions • Low labor costs • Lower import duties and fees • Lower capital costs • Grow global market share • Avoid national currency fluctu­ations • Preempt compet­itors from entering global market • Hire worldwide skills and knowledge workers • Build robust value chain networks for global markets • Build relati­onships with government officials • Negative impact and media attention on remaining employees • Potential loss of intell­ectual property • Loss control of key processes • Develop secure sources of supply and reduce risks • Build relati­onships with suppliers • Avoid enviro­nmental regula­tions and laws • Possible political instab­ility in offshore country • Lack of commun­ication and/or technical skills • Learn foreign markets and cultures 5 Identify important issues associated with value chains in a global business enviro­nment Issues for Managing Global Value Chains • Global value chains face higher levels of risk and uncert­ainty, requiring more inventory and day-to-day monitoring to prevent product shortages. o Workforce disrup­tions, such as labor strikes and government turmoil in foreign countries, can create inventory shortages and disrupting surges in orders. • Transp­ort­ation is more complex in global value chains o For example, tracing global shipments normally involves more than one mode of transp­ort­ation and foreign company. • The transp­ort­ation infras­tru­cture may vary consid­erably in foreign countries • Global purchasing can be a difficult process to manage when sources of supply, regional economies, and even govern­ments change o Daily changes in intern­ational currencies necess­itate careful planning and in the case of commod­ities, consid­eration of future contracts. • The pre-pl­anning, response, and recovery from natural or man-made disasters is another important part of value chain manage­ment. Challenges facing Multin­ational Enterp­rises 1. How to design a value chain to meet the slower growth of indust­ria­lized countries and more rapid growth of emerging economies. 2. Where to locate manufa­cturing and distri­bution facilities around the globe to capitalize on value chain effici­encies and improve customer value 3. What perfor­mance metrics to use in making critical value chain decisions 4. How to decide if partne­rships should be developed with compet­itors to share engine­ering, manufa­ctu­ring, or distri­bution technology and knowledge. 6 Describe how sustai­nab­ility plays an important role in value chains Sustai­nable Value Chains o The terms green operat­ions, green manufa­ctu­ring, and green practices are often used to describe sustai­nab­ility activities that involve operations and the value chain. o Sustai­nab­ility improves the organi­zat­ions’ perception among consumers, and improves the bottom line through reduced costs. o Many customers favor products and services that are designed and produced in a sustai­nable way.


Types of Goods and Services Custom, or make-t­o-o­rder, goods and services are generally produced and delivered as one-of­-a-kind or in small quanti­ties, and are designed to meet specific customers’ specif­ica­tions. Option, or assemb­le-­to-­order, goods and services are config­ura­tions of standard parts, subass­emb­lies, or services that can be selected by customers from a limited set. Standard, or make-t­o-s­tock, goods and services are made according to a fixed design, and the customer has no options from which to choose. 1 Describe the FOUR TYPES OF PROCESSES used to produce goods and services PROJECTS are large-­scale, customized initia­tives that consist of many smaller tasks and activities that must be coordi­nated and completed to finish on time and within budget. Often used for custom goods and services. − Charac­ter­istics: One-of­-a-­kind, large scale, complex, resources brought to site; wide variation in specs and tasks. − Examples: Legal defense prepar­ation, constr­uction, customer jewelry, consul­ting, and software develo­pment. JOB SHOP PROCESSES are organized around particular types of genera­l-p­urpose equipment that are flexible and capable of custom­izing work for individual customers. Often used for custom of option types of products. Produce a wide variety of goods and services, often in small quanti­ties. − Charac­ter­istics: Signif­icant setup and/or changeover time, batching, low to moderate volume, many routes, many different products, high work-force skills, and customized to customer’s specs. − Examples: Many small manufa­cturing companies are setup as job shops, as are hospitals, and some restau­rants. FLOW SHOP PROCESSES are organized around a fixed sequence of activities and process steps, such as an assembly line, to produce a limited variety of similar goods or services. − Charac­ter­istics: Little or no setup time, dedicated to small range of goods or services that are similar, similar sequence of process steps, moderate to high volume. − Examples: Assembly lines that produce automo­biles and applia­nces, production of insurance policies and checking account statem­ents, and hospital laboratory work. A CONTINUOUS FLOW PROCESS creates highly standa­rdized goods or services, usually around the clock in very high volumes. − Charac­ter­istics: Very high volumes in a fixed processing sequence, high investment in system­,24­-ho­ur/­7-day continuous operation, automated, dedicated to a small range of goods or services. − Examples: Chemical, gasoline, paint, steel factories; electronic funds transfer, and credit card author­iza­tions. 2 Explain the logic and use of the PRODUC­T-P­ROCESS MATRIX A model that describes the alignment of process choice with the charac­ter­istics of the manufa­ctured good. 3 Explain the logic and use of the SERVIC­E-P­OSI­TIONING MATRIX • Custom­er-­routed services: Offer customers extensive freedom to select the pathways that are best suited for themselves Customer’s immediate needs and wants from pathways through the service delivery system • Provid­er-­routed services: Limited number of predefined pathways through the service system that customers can follow 4 Describe how to apply process and value stream mapping for process design Process map (flowc­hart) describes the sequence of all process activities and tasks necessary to create and deliver a desired output or outcome. - Documents how work is accomp­lished, and how the transf­orm­ation process creates value. Process boundary: the beginning or end of a process. -Makes it easier to obtain management support, assign process ownership, and identify where perfor­mance measures should be taken. Value stream: all value-­added activities involved in designing, producing, and delivering goods and services to customers. A value stream map(VSM) shows the process flows in a manner similar to an ordinary process map; however, the difference lies in that value stream maps: - Highlight value-­added versus non-va­lue­-added activities - Include costs associated with work activities 5 Explain how to improve process designs and analyze process maps Process design activities involve redesi­gning an existing process to improve perfor­mance Strategies to improve process designs usually focus on increa­sing: • Revenue • Agility • Product and/or service quality • Strategies to improve process designs usually focus on decrea­sing: • Costs • Process flow time • Carbon footprint • Reengi­nee­ring: Fundam­ental rethinking and radical redesign of business processes to: • Achieve dramatic improv­ements in critical, contem­porary measures of perfor­mance 6 Describe how to compute resource utiliz­ation and apply Little’s Law Utiliz­ation • Fraction of time a workst­ation or individual is busy over the long run. Utiliz­ation (U) = Resources Used/ Resources Available or Utiliz­ation (U) = Demand Rate/ [Service Rate ×Number of Servers] Little’s Law • Flow time, or cycle time: Average time it takes to complete one cycle of a process • Simple formula that explains: • Relati­onship among flow time (T) • Throughput (R) • Work-i­n-p­rocess (WIP) - Work-i­n-p­rocess = Throughput × Flow Time ▸ WIP = R × T Throughput • Average number of entities completed per unit time from a process • Measured as parts per day, transa­ctions per minute, or customers per hour, depending on the context Bottleneck • Work activity that effect­ively limits throughput of the entire process • Identi­fying and breaking process bottle­necks is an important part of process design and improv­ement - Increase the speed of the process - Reduces waiting and work-i­n-p­rocess inventory - Uses resources more effici­ently