Operations Management BA 339 Instructor: Scott Culbertson

1. Operations Management BA 339Instructor: Scott Culbertson Jan 7th, 2002

2. General Information • Very full agenda - only have 10 class sessions. • Class time: 1) Lecture, 2) Case Discussion, 3) Industry Speaker. • Students take a large part of responsibility for learning the material. This is especially true for material that is required reading but may not be covered in lecture. • Syllabus Review • Hand Outs: • Class Syllabus • Varsity Subs - Questions due 1/14. • Prepare to discuss on 1/14: Akron Zoological Park - p. 128

3. What is Operations Management? • Finance: How to manage (raise, invest) the money. • Accounting: How to keep track of the money. • Marketing: How to convince customers to give you the money. • Operations: ?

4. Operations Management: Process View Energy Transformation (business flow) Materials Outputs (goods and services) Labor Capital Management of business processes to build capabilities that optimally convert inputs to outputs.

5. Operations Management Flows A business process flow is a collection of recurring economic activities that takes one or more kinds of inputs and creates an output that is of valued to the customer.

6. Process View: Examples Enterprise Process Package Delivery Food Delivery Oil Change Patient care Money Lending Check Processing Education Research Fed Ex McDonalds Quick Lub Hospital Bank PSU

7. Dimensions of Operations Strategy& Competitive Advantage • Time • Price • Quality • Variety • Goal of this course: How can you structure/change an operation so that these operational capabilities are best achieved? • Means to best satisfy • the customer Profit

8. Strategic Operational Audit Business Strategy Marketing Strategy Operations Strategy Finance Strategy Operations Structure Process & Resources Price, Quality Time, Variety

9. Key Elements Cycle Time The OPS Triangle Capacity Inventory

10. Key elements & Competitive Advantage Key Elements of OPS Dimensions of Competitive Advantage • Time • Price • Quality • Variety • Inventory • Capacity • Cycle Time

11. Information Flow Physical Flow PartOrders Orders on the Factory DemandInformation Assembly Sites Distribution Centers Sales Channel Part Suppliers RawMaterial Components Finished Goods FinishedGoods Cycle Time Cycle Time Cycle Time A supply chain involves a sequence of information flows, decisions, and physical flows, in order to meet a dynamic set of customer needs.

12. Supply Chain Response Supply chain responsiveness refers to your system’s ability to respond to, and recover from, a demand surprise.

13. Supply Chain Response Responsiveness of a supply chain is manifest in the height and duration of inventory excursions. Shorter supply chains are more robust to demand surprises. How much is this robustness worth?

14. Inventory’s Financial Impact Financial impact: Inventory excursions create incremental cost and lost opportunity. Inventory Profile over Product Life Cycle • Very high inventory. • High carrying costs (component depreciation, capital cost). • Very high inventory risk (time-to-consumption is high). A • Excess inventory at end-of-life creates clearance discounts, price protection. • Impacts pricing of next product. • Impacts time-to-market of next product. C Inventory Level - W.O.S. Initial Desired Inventory Level (ex: 4 WOS) B time Product Life Cycle • Stockouts begin to occur before inventory hits zero. Lost sales occur until SC adjusts. • Channel dries up, marketing momentum is lost.

15. Impact of Flow Time Shorter supply chains are more robust to demand surprises. How much is that worth?

16. Cumulative Contribution Business goal: maximize total contribution margin over the life-cycle of a product.

17. Profit Impact of Supply Chain Length How much should I invest in supply chain flexibility? What could it be worth?

18. Element Definitions • Cycle Time - Average time through a process flow • Capacity: • Design Capacity - Maximum theoretical output • Effective Capacity - The Capacity a firm expects to achieve • Inventory • Turns = Throughput/inventory • WOS = 52/turns • Measures: • Throughput = Inventory/Cycle Time • Capacity Utilization = Actual Output/Design Capacity • Efficiency = Actual Output/Effective Capacity

19. The Picante Company • The Picante Company produces Tabasco Sauce from peppers only harvested on Avery Island in the Gulf of Mexico. The bulk of the process flow of the production process is in storing the sauce in wood barrels for 2 years. The plant ships 1,000 barrels per week. • What quantity of Tabasco Sauce does Picante have in WIP inventory? Answer: if throughput = inventory/cycle time then cycle time * throughput = inventory CT = 2 years Throughput = 1K cases per week So: WIP is 52K/year * (2 years) = 104,000 cases

20. The Picante Company • The Picante Company produces Tabasco Sauce from peppers only harvested on Avery Island in the Gulf of Mexico. The bulk of the process flow of the production process is in storing the sauce in wood barrels for 2 years. The plant ships 1,000 barrels per week. • What is Picante’s WIP inventory? • How many turns does Picante achieve? Answer: Turns = through-put/inventory Throughput = 52,000/year barrels Inventory = 104,000 barrels Turns = 52,000/104,000 or .5 turns per year

21. The Picante Company • The Picante Company produces Tabasco Sauce from peppers only harvested on Avery Island in the Gulf of Mexico. The bulk of the process flow of the production process is in storing the sauce in wood barrels for 2 years. The plant ships 1,000 cases per week. • What is Picante’s WIP inventory? • How many turns does Picante achieve? • How many weeks of supply does Picante carry? Answer: WOS = 52/turns Turns = .5 so WOS = 52/.5 = 104 Weeks of supply

22. Portland International • At Portland international airport it is estimated that up to 60 planes can take off per hour. However, a plane taxis for 20 minutes on average after pushing off from the gate until finally taking off. Over the course of a day, on average 30 planes per hour actually take off. • What is the design capacity of PDX in terms of take-offs? • What is the effective capacity of PDX in terms of take-offs? • What is the average cycle time for a plane? Answer: Design capacity = 60 planes, Effective capacity = 30 planes, average cycle time per plane = 20 minutes

23. Portland International • At Portland international airport it is estimated that up to 60 planes can take off per hour. However, a plane taxis for 20 minutes on average after pushing off from the gate until finally taking off. Over the course of a day, on average 30 planes per hour actually take off. • What is the average inventory of planes trying to take off? • What is PDXs utilization? Answer: if throughput = inventory/cycle time then cycle time * throughput = inventory CT = 1/3 hour Throughput = 30 planes per hour, So: 1/3 * 30 = 10 planes Utilization = actual output/design capacity = 30/60 planes = 50%

24. Emergency Room • Patients arrive to OHSU Emergency at an average rate of 40 per hour. There are two types of patients: Those who enter the system and eventually see a doctor, and those that balk immediately without entering the system (line is perceived to be too long). Patients who enter the system first delay in a wait area before seeing a doctor. Consider the following: • Wait area = 80 Chairs • Ave Patients in wait area = 50 • Ave delay before seeing the doctor = 2 hours • Doctors on staff = 15, of which 80% are utilized on average. • What is the average rate (patients per hour) at which potential patients balk? Total throughput total = throughput balk + throughput seen by doctor • Seen by Dr. (throughput actual) = inventory/CT or 50 people / 2 hours = 25 per hour • So: 40 = X + 25 X = 15 people/hour who balk. • What is the average cycle time (in hours) spent seeing a doctor? • CT = inventory/throughput. throughput = 25 people/hour, inventory of Dr.s = .8*15 • So CT seeing a Dr = 12/25 or .48 Hours