Productive system and Process Approach. Operations Management in Corporate Profitability and Competitiveness

Содержание

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JAP LEARNING GOALS after these lessons you will be able to

JAP

LEARNING GOALS after these lessons you will be able to
describe

operations in terms of inputs, processes, outputs, information flows, suppliers and customers,
explain the meaning of nested processes,
identify the set of decisions that operations managers make
describe operations as a function alongside finance, accounting, marketing and human resources,
explain how operations management is fundamental to both manufacturers and service organizations,
describe the differences and similarities between manufacturing and service organizations,
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JAP LEARNING GOALS after these lessons you will be able to

JAP

LEARNING GOALS after these lessons you will be able to
7. discuss

trends in operations management, including service sector growth; productivity changes; global competition; and competition based on quality, time and technology,
8. discuss the need for operations management to develop and maintain both intraorganizational and interorganizational relationships and
9. give examples of how operations can be used as a competitive weapon.
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JAP JAP What is a Productive system (Buffa), what is a

JAP

JAP

What is a Productive system (Buffa), what is a Process (Krajewski&

Ritzman)?

Examples of
Productive systems, Processes
Products versus services
Services as part of product
Products as part of service

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JAP EXAMPLES OF PRODUCTIVE SYSTEMS: Electronics assembly Airplane manufacturing Steel production

JAP

EXAMPLES OF PRODUCTIVE SYSTEMS:
Electronics assembly
Airplane manufacturing
Steel production
Automobile assembly
Oil refining
Fast food

outlet
Hospital
Air transportation
Car seller
EDP -support
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JAP Why must a system has to be productive?

JAP

Why must a system has to be productive?

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Company’s competitiveness increasess JAP JAP Why must a system have to

Company’s competitiveness increasess

JAP

JAP

Why must a system have to be productive?

PROFITABILITY
and

continuity

Money for Improving
Quality of:
Products
Services,
Processes
Work Safety,
Environment

Money to pay:
Salaries,
Divideds,
Interests,
Investments,
Taxes,
Provide jobs,

To fullfill the expectations of different stakeholders

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JAP JAP What is a Productive system ? (Buffa means here

JAP

JAP

What is a Productive system ? (Buffa means here production system)

We define

productive systems as the means by which we transform resource inputs to create useful goods and cervices as outputs.
Productive systems resource inputs (and examples of output-input ratio)
Labor (man hour – mobile phone / man hour)
Materials (kg, m, … - phone (pc) / plastic (kg))
Investments: machines, facilities, information, storage, know how, education
Energy (Joule, KWh - Finished Products / KWh
Overall

Buffa et al.

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JAP PRODUCTIVITY (is the value of outputs (goods, services) produced and

JAP

PRODUCTIVITY (is the value of outputs (goods, services) produced and divided

by the values of input resources) IS THE RATIO OF OUTPUT TO INPUT, OR
PRODUCTIVITY =

OUTPUT
INPUT
INPUT
PRODUCTION PROCESS
OUTPUT

Not concerned by money (but sometimes yes)

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JAP example 1 / productivity Calculate the productivity for the following

JAP

example 1 / productivity

Calculate the productivity for the following operations:
a) Three

employees process 600 insurance policies in a week. They work 8 hours per day, 5 days a week.
b) A team of workers make 400 units of a product, which is valued by its standard cost of 10 € each (before profit). The accounting department report that for this job the actual costs are 400 € for labor, 1000 € for material and 300 € overhead.
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JAP Labor productivity = Processes policies / Employee hours 600 policies

JAP

Labor productivity = Processes policies / Employee hours
600 policies / week

policies
3 employees * 40 hours /employee hour

= 5

Multifactor productivity = Quantity of standard cost / (labor cost + material cost + overhead cost)

400 units * 10 € / unit 4000 €

(400 + 1000 + 300 ) € 1700 €

= 2,35

=

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JAP Problem exercise 1.2.1. / Productivity, case state ferry A state

JAP

Problem exercise 1.2.1. / Productivity, case state ferry
A state ferry charges

18 € / ticket + surcharge of 3 € for paper ticket. It expects to sell 4700 tickets during summer season. During that time the labor costs are 11 100 € and material ( tickets, tourist information sheet …) cost is 1,3 €/ticket. Overhead cost is 79 000 €.
What is the multifactor productivity ratio?
What is the labor productivity?
Your job is to do a calculation sheet with parameters needed.
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JAP Problem exercise 1.2.2 / Productivity, how to measure it? You

JAP

Problem exercise 1.2.2 / Productivity, how to measure it?

You have a

workshop that manufactures
a) several items out of steel according to customers plans.
b) You produce five different types of freezers.
c) You sell computers and peripheral (auxiliary) equipment.
How would You measure productivity in each case?
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JAP Problem exercise 1.2.3. Productivity in University Student tuition at University

JAP

Problem exercise 1.2.3. Productivity in University
Student tuition at University in US

is $100 per credit point. The state supplements school revenue by matching student tuition, dollar for dollar. Average class size for a typical three credit course is 50 students. Labor costs are $4000 per class, materials costs are $20 per student per class, and overhead costs are $25000 per class.
What is the multifactor productivity ratio?
If instructors work an average of 14 hours per week for 16 weeks for each three-credit class of 50 students, what is the labor productivity ratio?
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JAP Problem exercise 1.2.4. Productivity, case garments Natalie Attired makes fashionable

JAP

Problem exercise 1.2.4. Productivity, case garments
Natalie Attired makes fashionable garments. During

a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that they were flawed). Seconds are sold for $90 each at Attired’s Factory Outlet Store. The remaining 80 garments are sold to retail distribution, at $200 each. What is the labor productivity?
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JAP Exercise 1.2.5. Productivity, case uniform manufacturing The Big Black Bird

JAP

Exercise 1.2.5. Productivity, case uniform manufacturing
The Big Black Bird Company (BBBC)

has a large order for special plastic-lined military uniforms to be used in an urgent Mideast operation. Working the normal two sifts of 40 hours, BBBC usually produces 2500 uniforms per week at standard cost of 120 €/pc. Seventy employees work the first sift and 30 the second. The contract price is 200 € per uniform. Because of the urgent need, BBBC is authorized to use around-a-clock production, six days per week. When each of the two sifts work 72 hours per week, production increases to 4000 uniform per week but at a cost of 144 € each.
Did the labor productivity ratio increase, decrease, or remain the same? If changed, by what percent did it change?
Did weekly profits increase, decrease or remain the same? What happened to profitability?
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JAP Profitable System versus Productive System cost of (money) labor materials

JAP

Profitable System versus Productive System

cost of (money)
labor
materials
machines
facilities
energy
information

capital invested

income

costs

=

profit

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JAP THE DU PONT SYSTEM, RETURN ON ASSETS net sales variable

JAP

THE DU PONT SYSTEM, RETURN ON ASSETS

net sales

variable costs

contribution margin

fixed costs

profit

net

sales

profit margin (marginal)

ROA

fixed assets

current assets

net sales

total assets

asset turnover

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JAP Fixed Assets: Machinery Equipment Facilities Current Assets: Materials Work in

JAP

Fixed Assets:
Machinery
Equipment
Facilities

Current Assets:
Materials
Work in Process
Final Products
Cash and Receivables
- Payables

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JAP THE DU PONT SYSTEM, REVENUE ON INVESTMENT (RETURN OF INVESTMENT,

JAP

THE DU PONT SYSTEM, REVENUE ON INVESTMENT (RETURN OF INVESTMENT, RETURN OF

CAPITAL EMPLOYMENT)

net sales

variable costs

contribution margin

fixed costs

profit

net sales

profit margin

ROI

STORAGES

MACHINERY

net sales

CAPITAL INVESTED

CAPITAL turnover

MONEY

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JAP INCOME STATEMENT NET TURNOVER - Variation in stock of finished

JAP

INCOME STATEMENT

NET TURNOVER
- Variation in stock of finished goods and

work in progress
- Work performed by undertaking its own purposes and capitalized
+ Other operating income
- Raw material and consumables
Purchases during the accounting period
Variation in stock
- Other external charges
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JAP - Staff costs Wages and salaries social security costs +-

JAP

- Staff costs
Wages and salaries
social security costs
+- Value adjustments
in respect of

tangible and intangible assets
of current assets
- Other operating charges
= OPERATING PROFIT OR LOSS
+ Interests receivable and similar income
- Interest payable and similar charges
= PROFIT OR LOSS BEFORE TAXES
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JAP JAP EXAMPLE / ROA Your firm wants to have ROA

JAP

JAP

EXAMPLE / ROA

Your firm wants to have ROA (return on assets)

minimum of 20 %. You are planning a new production line which would cost € 2,5 million and the profit margin (per year) for those products produced would be round 10 %.
How much should the turnover (net sales) be?
Is there enough capacity for manufacturing those products if the contribution margin ratio is 40 % and fixed costs (per year) are 1,5 million €?
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JAP JAP EXAMPLE / Profitability a) ROA = Net profit /

JAP

JAP

EXAMPLE / Profitability
a) ROA = Net profit / capital invested
net profit

= 20 % * 2,5 million €
Profit margin (10%) = net profit (20%*2,5 million) / turn over (net sales)
turn over = 500 000 / 10 %
b) contribution margin ratio = contribution margin / turn over (net sales)
=> contribution margin = 40 % * 5 000 000 €
contribution margin – fixed costs >= profit minimum ( 500 000 €/year)
there is just enough capacity in the production line to earn the profit wanted.
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JAP Problem exercise 1.2.6. / Profitability Your job is to plan

JAP

Problem exercise 1.2.6. / Profitability
Your job is to plan and actually

do a calculation table for aggregate planning. By the table you should be able to test different physical and financial possibilities for a year’s plan.
Normal situation: sales 115 000, variable costs 36750, fixed costs 50 125, fixed assets 163 000, current assets 22 792. What are the profit, profit margin ratio, assets turnover and ROA? What are the sequences if one factor changes 5 % at time?
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JAP Exercise 7 / Profitability As a president of Mölkky Oy

JAP

Exercise 7 / Profitability
As a president of Mölkky Oy you find

that one of your pressing problems is to understand how the plant is doing financially. The owners of the company have hired you to run the business and it is your responsibility to make sure that the business is financially sound.
There is a great problem ahead. You need to know how individual product lines perform. Is each line profitable or not?.
How can you add this new calculation to your ROA/ROI program.
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JAP help for exercises 1.2.6 and 1.2.7

JAP

help for exercises 1.2.6 and 1.2.7

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JAP Problem exercise 1.2.8. /Profitability How can You reach a 100%

JAP

Problem exercise 1.2.8. /Profitability
How can You reach a 100% increase in

profit when the following facts of Your company:
Sales (per period) 100
- Direct materials 50
- Direct labor 15
= Prime cost
- Manufacturing overhead 15
- Other overhead costs 15
= Profit 5
Compare the impact of each variable to the profit and try to figure out how difficult it would be to reach such development in practical life.
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JAP Target Costing Market Price (an estimate or real price of

JAP

Target Costing
Market Price (an estimate or real price of a product

a company is interested to develop and launch on the market) – Owner’s expectation of profitability (ROI and Profit percentage, EBIT =Earnings before interest and taxes)
= Target Cost, that is the cost of developing a product and production system, including machinery, facilities …
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JAP Euros Target Cost Production Cost Money we can use for

JAP

Euros

Target Cost

Production Cost

Money we can use for development

Throughput time

Cost

This figure is

based on believe that production cost depends on throughput time
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JAP Example of New Production Method development project at planning at

JAP

Example of New Production Method development project
at planning at half
phase way
Estimated
Output (sales) 5

M € 5 M €
Estimated 3 M € 6 M €
Target cost (need 3 M more
and 3 is used)
Profit estimate 2 M € -1 M €

Is it wise to continue?

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JAP What is a Process? We define process to be any

JAP

What is a Process?

We define process to be any activity or

group of activities that take one or more inputs, transforms and adds value to them, and provides one or more outputs for its customers.
External customer either is an end user or an intermediary (such as manufacturers, wholesalers, or retailers) buying the firm’s finished products and services.
Internal customer is an other employee who rely on inputs from earlier processes in order to perform processes in the next shop, office or department.
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JAP PROCESSES AND OPERATIONS Inputs: Workers Managers Equipment Facilities Materials Services

JAP

PROCESSES AND OPERATIONS

Inputs:
Workers
Managers
Equipment
Facilities
Materials
Services
Land
Energy

Outputs:
services
goods

1

3

6

5

2

4

Information on performance

Managing the processes and operations is managers

job
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JAP NESTED PROCESSES, the concept of a process within a process.

JAP

NESTED PROCESSES, the concept of a process within a process.
Processes can

be broken down into subprocesses.
Слайд 35

JAP LOGISTICS PROCESS (DEMAND-SUPPLY CHAIN) Order – Delivery Process PRODUCT AND

JAP

LOGISTICS PROCESS (DEMAND-SUPPLY CHAIN)
Order – Delivery Process

PRODUCT AND SERVICE PROCESSES

CUSTOMER PROCESS

MAIN

BUSINESS PROCESSES

MANAGING PROCESS

Слайд 36

JAP DEMAND-SUPPLY CHAIN AND SUBPROCESSES PRODUCT (PLANNING) KONFIQURATION PURCHASING TIMING THE

JAP

DEMAND-SUPPLY CHAIN AND SUBPROCESSES

PRODUCT (PLANNING) KONFIQURATION

PURCHASING

TIMING THE PRODUCTION

(MANUFACTURING)
PRODUCTION Process

DISPATCH
Delivery

ORDER HANDLING- PROCESS

Слайд 37

JAP CASE NOKIA: CUSTOMER SATISFACTION PROCESS is a process for systematic

JAP

CASE NOKIA:
CUSTOMER SATISFACTION PROCESS is a process for systematic customer satisfaction

and competition/competitor evaluations.
CONCURRENT ENGINEERING is a parallel and cooperative product development process using continuous development principle.
GLOBAL LOGISTICS process controls material- ,information and money flows internationally.
COMPETENCE AND SYSTEM DEVELOPMENT is a supportive process which aims to develop staff’s skills and cooperation.
Слайд 38

JAP What is Operations Management / Process Management (Krajewski & Ritzman)?

JAP

What is Operations Management / Process Management (Krajewski & Ritzman)?
Operations Management

term refers to direction and control of the processes that transforms the inputs into products and services.
Process management is defined as following: The selection of the inputs, operations, work flows, and methods that transform inputs into outputs (Krajewski & Ritzman 2002 p.93).
In manufacturing, operations management is responsible for decisions concerning plant and factory layout, capacity, production process and its quality, and controlling systems planning and aggregate planning and timing of production.
Слайд 39

JAP Major Process for manufacturing/production process decisions: Process choice: A process

JAP

Major Process for manufacturing/production process decisions:
Process choice: A process decision that

determines whether resources are organized around products or processes. What type of production system??
Vertical integration: The degree to which a firm’s own production system or service facility handles the entire supply chain. Subcontracting??
Resource flexibility: The ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions.
Customer involvement: The ways in which customers become part of process and the extent of their participation. Need of customization??
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JAP Logistics (vertical) Integration SUPPLIERS SUPPLIERS SUPPLIERS CUSTOMERS CUSTOMERS CUSTOMERS OPERATIONS

JAP

Logistics (vertical) Integration

SUPPLIERS

SUPPLIERS

SUPPLIERS

CUSTOMERS

CUSTOMERS

CUSTOMERS

OPERATIONS

OPERATIONS

OPERATIONS

LOGISTICS ACTIVITIES

A) Separate functions within an organisation

B) Integration within

the organisation

C) Logistics with external integration -> Supply Chain Management

OUTSOURCED
LOGISTICS ACTIVITIES

Слайд 41

JAP Enterprise Competitiveness and Operations Function There are four (five) dimensions

JAP

Enterprise Competitiveness and Operations Function

There are four (five) dimensions of competitiveness

that measure the effectiveness of the operations function:
Cost effectiveness (-> emphasized in Lean Production)
Quality + CONTROL ON VARIATION
- Time ( off-the-shelf availability or logistical speed (delivery time) and on-time delivery)
Dependability as a Supplier
Flexibility / Service (-> Agile Production)
Relate competitive priorities to market segments

Customers are willing to pay more or wait for the product

Слайд 42

JAP cost reduction by organizational learning improved production methods and tools

JAP

cost reduction by organizational learning

improved production methods and tools
improved product design

-> manufacturability
Standardization + modular product structure
improved material utilization
reduction of system inventories
improved layout and flow
economics of scale
improved organization
improvement in quality costs

20-50 percent cost/year of an average storage

Слайд 43

JAP Quality is a wide phenomena but in production it means:

JAP

Quality is a wide phenomena but in production it means:

1. Quality of product and
production =
no defects (internal or
external) and on time
and quick delivery
2. Quality of processes –
stability and “zero”defects
3. Quality of organization:
competent and motivated people
Слайд 44

JAP High-performance design: Determination of the level of operations performance required

JAP

High-performance design: Determination of the level of operations performance required in

making a product or performing a service.
Consistent quality: Measurement of the frequency with which the product or service meets design specifications.
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JAP “Time is money”: Short delivery time: The elapsed time between

JAP

“Time is money”:
Short delivery time: The elapsed time between receiving a

customer’s order and filling it.
Lead time: The way industrial buyers often refer to delivery time.
On-time delivery: Measurement of the frequency with which delivery-time promises are met.
Development speed: Measurement of how quickly a new product or service is introduced, covering the elapsed time from idea generation through final design and production.
Слайд 46

JAP Time based competition: The process by which managers define the

JAP

Time based competition: The process by which managers define the steps

and time needed to deliver a product or service, and then critically analyze each step to determine whether they can save time without hurting quality.
TBM (Time based Management) term was used by many companies such as ABB… The basic idea was that by cutting the throughput time to half 25 % of costs will disappear (will be cut down).
Concurrent engineering: A process during which design engineers, manufacturing specialists, marketers, buyers, and quality specialists work jointly to design a product or service and select the production process.
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JAP JAP Measuring the Supply Chain – SCOR-model and Production as a part of it

JAP

JAP

Measuring the Supply Chain – SCOR-model and Production as a part

of it
Слайд 48

JAP Flexibility of Production means: Capability to produce several different products

JAP

Flexibility of Production means:
Capability to produce several different products with the

machinery (customization).
Capability to adjust the rate of production to the market need (fluctuation). Volume flexibility is the ability to accelerate or decelerate the production rate. Change production capacity!
Capability to speed up the production cycle time (throughput time) when necessary. Change production speed!
Слайд 49

JAP Problem 1.2.9 Productivity A health –check clinic has five employees

JAP

Problem 1.2.9 Productivity
A health –check clinic has five employees and “processes”

200 patients per week. Each Employee works 35 hours a week. The clinic’s total wage bill is € 3900 and its total overhead expenses are € 2000 per week. What are the clinic’s single factor labor productivity and its multi-factor productivity?
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