Executive summary:
This report provides an analysis of the most three important operations management decision
which they are location strategy, product design and process design. First, the location
strategy objective is that to increase the benefit of the location to the Adidas company.
Second, the product decision is to develop and implement a strategy that meets the demands
of the market with a competitive advantage. Third, the process design strategy objective is to
make a production process that meets both product specifications and customer requirements
within cost and other managerial constraints. The purpose of this report is to analyze these
three decisions in Adidas Company which one of the most popular sport companies
worldwide. The methodology of data collection sources was by using the operation
management book written by Heizer and Barry and reliable online websites as well journals
and articles. Furthermore, we found out from the analysis we conduct top positive results
which are(……………), top negative results which are (………..). Finally, our top
recommendations to Adidas are(………… )
Adidas Background:
Adidas is one of the largest companies in the world in the manufacture of sports equipment,
especially shoes, as it was established in Germany in 1924. Adidas' fame began in the Olympic
Games in 1928, during which time it manufactured a set of special shoes for important athletes.
Adidas is the source of the idea of soccer shoes with nails to help players stabilize more on the
slippery muddy ground of the stadium. Although Adidas is the first company in Europe, it is
the second company in the world in the field of sports products, as the American Nike company
is classified as the largest sports products company in the world and is the largest competitor
of Adidas, as there is very intense competition between the two companies. Adidas has many
offers with many clubs and national teams around the world such as Real Madrid and Chelsea.
Logo, clothing and footwear designs usually feature three parallel lines that express an abstract
mountain drawing and demonstrate goals that can be achieved through pursuit and
perseverance. Today Adidas is a pioneer in its field and is a group of companies including
Reebok and Rockport.
3.1 Location of the Company:
The lead at Adidas company is taken by their headquarters in Germany and other main
additional location which are in Boston, Portland, Shanghai, Moscow, Latin America,
Amsterdam, Hong Kong, Switzerland and Dubai. Adidas company knows that if they have
additional key location, they’ll be closer to their customer and satisfy them by offering several
services at a faster and professional way. Nowadays, Adidas Company reached its level of
success globally by choosing the optimal location to benefit the firm which is by minimize the
cost of production and maximize the profit.
Adidas supply chain it considers globally and multi-layered, as they work with more than 1000
independent national and international factories and manufacture their products through 67
different major manufacturing countries such as China, Vietnam, Indonesia, Thailand, Turkey
or India. Furthermore, Adidas to keep their production cost effective they outsource 100% of
production to independent manufacturing partners, and the majority (73%) located in Asia. As
shown in Figure 1:
Adidas use effective location strategy of selection wisely their manufacturing locations in these
countries due to some factors such as for availability of supplies, lower labor costs, cheaper
location market, lower political risk, less restricted government rules, lower economic issues
and lower currency risk and other many factors. For these significant factors, Adidas operations
and location strategy decisions are always making and changing judiciously. For instance, they
shift portion of their production from China to Vietnam as the labor costs and wages lower
compared to China. Therefore, this efficient decision help Adidas to diversifying their
manufacturing and reduce the risk of sourcing largely from China. Moreover, most of Adidas
factories that deal with raw material are located in Asia countries like India, Pakistan, Indonesia
and Vietnam due to the availability of supplies and raw material factor.
3.1 product design
Adidas manufactures many products, such as sports shoes, sport uniform it's known that
most of football clubs that won the World Cup wear Adidas sports uniforms, And sports bags
that are used for several things, for instance school bags for both sexes in different sizes and
shapes, and other accessories for athletes such as dumbbells, barbel and rubber bands. But the
main product of the company is the shoes. Adidas manufactures different types of shoes, such
as walking shoes, running shoes ,soccer shoes, and sneakers shoes. The company focuses on
various aspects in the design of adidas shoes. they focus on the quality of the shoes. Adidas
uses the finest raw materials. such as leather as the company cleans the animal skin, also
interested in textiles such as cotton, polyester and nylon.in addition the rubber and foam of
the shoes, which is an important component to produce comfortable high-quality shoes that
allow the customer to walk for extended periods of time without feeling tired. On other hand,
they are also interested in designing the latest fashion footwear, where the logo of the
designers at Adidas is “Be Tomorrow” to get out of the boring traditional framework of
shoes. as well adidas company cares about the different tastes of their customers, so they
manufacture one design in more than one color to satisfy all the tastes of customers in the
market. The most important thing in this company’s design processes is that it has become an
adidas company global leader in sustainability because it uses less water, reduces energy
consumption, and helps keep plastic garbage away from the ocean. Adidas' corporate-wide
sustainability initiatives are impressive because they are broad.
3.3 Process Design:
The design process for Adidas products begins with the design stage, which is considered one
of the most important stages where designers use computers in the Adidas Design Studio to
create the idea and draw it with all the details such as choosing colors and the type of fabrics
until the design is completely completed. In this part, it is important that designs are appropriate
for the target market of Adidas, which is often targeting athletes.
New materials and designs are tested before being sent to manufacturing at Adidas
headquarters in Germany, where this headquarters is the brain of development and this test is
done by a team of makers, robots and athletes.
After that, in the production factories, the raw materials are collected and converted into
products, which Adidas is keen in selecting sustainable materials such as organic cotton,
recycled polyester and recycled rubber. The manufacturing process which includes cutting and
shaping is done according to the design drafts. Modern technologies are used, which are a
strong example of artificial intelligence, such as robots, 3D printers and knitting machines, as
there is a department in the company that specializes and focuses on new technologies, which
is called the Future Team.
After the assembly is completed, the workers fill and label the final products and ensure that
all the elements will not corrode and that they are strong enough to the satisfaction of the
customer, then they are shipped all over the world. When the customer sees the final product,
it is difficult to imagine all the manufacturing complications that this product has gone through.
As for the mass customization focus process, Adidas offers a customized “miAdidas” program,
which enables customers to design their own shoes and clothes themselves and in their own
style via website.
College of Business Administration
Department of Managemen
Group Research Project
Course: MGMT 410 - Operations Management
Project Announcement Date: Feb. 6, 2020
Marks: 15
Submission mode: Soft copy via Blackboard only
Submission Date April
9, 2020
PURPOSE
The purpose of this project is to describe and analyze the operations management practices of a
selected company. The project provides the students with an opportunity to link theoretical
aspects of the course with real-world situations and to learn the challenges faced by companies in
the application of the principles of operations management.
PROJECT DESCRIPTION
• Select any company of your choice working in Saudi Arabia or abroad (the company could be
Saudi or Non-Saudi) as long as you can gather sufficient information to provide a good analysis of
the company’s operations in the following areas:
1. Location of the company
2. Product design (goods or services provided by the company)
3. Process design (stages and methods of production)
• Your project should include a proper description of the above topics as practiced in the selected
company, as well as detailed analysis of the topics that involve evaluation of positive and negative
points of company practices with reference to what you studied in the course.
1
College of Business Administration
Department of Managemen
INSTRUCTIONS
1. It’s a group-based project composed of a written report, so all the group members are required to
participate equally. The number of students in each group should be between 4-5 students. Use
books, electronic databases, company websites, social media, search engines, and any other
suitable sources to collect your data.
2. The report should include an individual contribution report for each group member. And the
project report should be between 2000 and 3000 words. Students are required to submit softcopy
via Blackboard by the group leader only.
3. Submit your report as early as possible. Due dates will be firmly adhered. If the report is not
submitted by the due date, a penalty of 20% per day will be deducted from the assessment mark.
The format for the report structure is attached.
4. Writing Guidelines: Paper size: A4, Line Spacing: 1.15, Margins: 1” (inch)all sides, Font:
Times New Roman, Font Size: 12 for text 14 for heading and 13 for the subheading.
5. Your report should be grammatically correct, well punctuated, clear, neatly presented, and easy to
read. Failure to comply with these requirements will result in a significant loss of marks.
6. Referencing: Plagiarism will not be tolerated at all and will lead to serious action. All sources
must be referenced. The Harvard Referencing style must be used to support all sources of
information. Students must provide in-text references as well as reference list at the end of the
document. Harvard Referencing guide is available on blackboard.
Evaluation Criteria: Rubrics and forms for evaluation of project report and format of individual
contribution reports are provided on pages 3 and 4.
2
College of Business Administration
Department of Managemen
Report Structure
The report may follow the structure given below.
➢ Title page with project topics, company name, student names, and their IDs, section
number.
➢ Table of contents
1. Executive Summary
// Clear, concise overview/outline of the entire research report. Include objectives of the
project, the method followed to do the project, sources data collection, top results (positives
& negatives) and top recommendations
2. Company Background
// Background of the selected company (ownership, brief history, organizational structure,
products, markets)
3. Description of the selected topic in the company
// Describe the topics as practiced in your selected company. Organize this part in three
subsections:
3.1 Location of the Company: Describe what are the locations of the facilities of the
company and how they select them.
3.2 Product Design: Explain the types of products produced by the company (goods or
services), how these products are linked to the strategic objectives of the company such as
cost reduction and differentiation, as well as any environmental or ethical considerations
in the products.
3.3 Process Design: Describe how the company produces the products you mentioned above
by explaining the stages through which the products produced, the technology used in
production, and any sustainability considerations in process design.
// Use charts, diagrams, and pictures in your description.
4. Analysis
//Provide a critical analysis of the practice of the three topics in your company with respect to
the theories and guidelines offered in the Operations Management course or international
standards.
//The analysis should include both positive points and negative points of the location, product
design, and process design of the company.
5. Conclusion &Recommendation
//Brief summary of the report and your recommendations for improvement.
6. List of References (use Harvard referencing style)
7. Individual Contribution Report (Contribution of each member in the group in the activities of
the project (use the form on page 5).
3
College of Business Administration
Department of Managemen
Project Report Evaluation Form
Project Title:
_____________________________________________
Name:
_1.____________________________________________
Section No.
_____________________
Student ID
_____________________
_2.____________________________________________
_____________________
_3.____________________________________________
_____________________
_4.____________________________________________
_____________________
_5.____________________________________________
_____________________
_6.____________________________________________
_____________________
MARKING CRITERION
1. Presentation
• Fulfilled the required structure, cover sheet, word
limit, organization, design, etc.
2. Introduction
• Background to report.
• Statement of purpose.
• Outline of the report.
3. Report Body
• Paragraph structure (topic sentences etc.).
• Main points are debated (strategy formulation,
implementation, and evaluation)
• Cohesion (logic sequence between paragraphs).
4. Conclusion
• Restate the report & relates to its purpose.
• Summarize the main points.
• Consistency between the arguments provided in the
body section and the statement of conclusion
5. Academic English
• Grammar, spelling, syntax, punctuation, expression,
tone, vocabulary, flow.
6. Critical analysis and use of evidence
• Critical approach.
• Appropriate & sufficient evidence.
• Integration of evidence & depth of analysis.
Total Mark
WEIGHT
20
MARKS
COMMENTS
10
30
10
10
20
100
4
College of Business Administration
Department of Managemen
Individual Contribution Report
Project Title:
_____________________________________________
Student Name
ID
Student General
Role in the Project
Section No.
_____________________
Detailed activities are done by the
student and evidence in the project
(page numbers)
5
5
Product Design
PowerPoint presentation to accompany
Heizer, Render, and Al-Zu’bi
Operations Management,
Arab World Edition
Original PowerPoint slides by Jeff Heyl
Adapted by Zu’bi Al-Zu’bi
5-1
Outline
•Goods and service selection
• Product decision
• Product Strategy Options Support
Competitive Advantage
• Product Life Cycles
• Life Cycle and Strategy
• Product-by-Value Analysis
5-2
Outline - Continued
• Generating New Products
• New Product Opportunities
• Product Development
• Product Development System
• Organizing for Product Development
• Manufacturability and Value Engineering
• Ethics, Environmentally Friendly Design, and
Sustainability
5-3
Outline - Continued
◆
Time-Based Competition
◆
Purchasing Technology by Acquiring a
Firm
◆
Joint Ventures
◆
Alliances
◆
Defining a Product
◆
Service Design
◆
Transition to Production
5-4
Learning Objectives
When you complete this chapter you should
be able to :
1. Define product life cycle
2. Describe a product development system
3. Describe how time-based competition is
implemented
5. Describe how products and services are
defined by operations management
6. Describe customer participation in the
design and production of services
5-5
Goods and Service Selection:
Product Decision
•
Most products have limited or predictable life
cycles.
•
Companies must constantly look for designing
and developing and offering the new products
to the market.
•
Thus companies must take product decision.
5-6
Goods and Service Selection:
Product Decision
The product decision includes:
selection, definition and design of the
products.
The objective of the product decision is to
develop and implement a product strategy that
meets the demands of the marketplace with a
competitive advantage
5-7
Product Decision
◆
Involve choosing the good or service to
provide customer
◆
Top organizations typically focus on core
products
◆
Customers buy satisfaction, not just a
physical good or particular service
◆
Fundamental to an organization's strategy
with implications throughout the operations
function
5-8
Product Strategy Options Support Competitive
Advantage
◆ Differentiation
◆ EyeHosp, Jordan
◆ Low cost
◆ Kudu, Saudi Arabia
◆ Rapid response
◆ Toyota
5-9
Product Life Cycles
◆ May be any length from a few hours
to decades.
◆ The operations function must be able
to introduce new products
successfully.
5 - 10
Sales, cost, and cash flow
Product Life Cycles
Cost of development and production
Sales revenue
Net revenue (profit)
Cash
flow
Negative
cash flow
Introduction
Loss
Growth
Maturity
Decline
Figure 5.1
5 - 11
Product Life Cycle
Introductory Phase
◆ Fine tuning may warrant
unusual expenses for
1. Research
2. Product development
3. Process modification and
enhancement
4. Supplier development
5 - 12
Product Life Cycle
Growth Phase
◆ Product design begins to
stabilize
◆ Effective forecasting of
capacity becomes necessary
◆ Adding or enhancing capacity
may be necessary
5 - 13
Product Life Cycle
Maturity Phase
◆ Competitors now established
◆ High volume, innovative
production may be needed
◆ Improved cost control,
reduction in options, paring
down of product line
5 - 14
Product Life Cycle
Decline Phase
◆ Unless product makes a
special contribution to the
organization, must plan to
terminate offering
5 - 15
Product-by-Value Analysis
◆
Lists products in descending order of
their individual dollar contribution to the
firm
◆
Lists the total annual dollar contribution
of the product
◆
Helps management evaluate alternative
strategies
5 - 16
Generating New Products
New Product Opportunities
1. Understanding the
customer
2. Economic change
3. Sociological and
demographic change
4. Technological change
5. Political/legal change
6. Market practice, professional
standards, suppliers, distributors
5 - 17
Product Development System
Ideas
Figure 5.2
Ability
Customer Requirements
Functional Specifications
Scope of
product
development
team
Product Specifications Scope for
design and
Design Review
engineering
teams
Test Market
Introduction
Evaluation
5 - 18
Organizing for Product Development
There are four common approaches to
organizing product development.
1.
2.
Organization with distinct departments
◆
Traditional U.S. approach
◆
Duties and responsibilities are defined
◆
Difficult to foster forward thinking
A champion
◆
Product manager drives the product
through the product development
system and related organizations
5 - 19
Organizing for Product Development
3.
Team approach
◆
◆
Cross functional – representatives from
all disciplines or functions
These teams are called
• Product development teams,
• design for manufacturability teams,
• value engineering teams
4. Japanese “whole organization”
approach
◆
No organizational divisions
5 - 20
Manufacturability and Value Engineering
Activities that help improve a product design,
production, maintainability and use.
◆
Benefits:
1. Reduced complexity of products
2. Reduction of environmental impact
3. Additional standardization of products
4. Improved functional aspects of product
5. Improved job design and job safety
6. Improved maintainability (serviceability) of
the product
7. Robust design
5 - 21
Cost Reduction of a Bracket via Value
Engineering
Figure 5.5
5 - 22
Ethics, Environmentally Friendly Designs,
and Sustainability
◆ It is possible to enhance productivity
and deliver goods and services in an
environmentally and ethically
responsible manner
◆ In OM, sustainability means
ecological stability
◆ Conservation and renewal of
resources through the entire product
life cycle
5 - 23
Ethics, Environmentally Friendly Designs,
and Sustainability
◆ Design
◆ Polyester film and shoes
◆ Production
◆ Prevention in production and
packaging
◆ Destruction
◆ Recycling in automobiles
5 - 24
The Ethical Approach
◆ View product design from a
systems perspective
◆ Inputs, processes, outputs
◆ Costs to the firm/costs to
society
◆ Consider the entire life cycle of
the product
5 - 25
The Ethical Approach
◆ Goals
1. Developing safe end environmentally
sound practices
2. Minimizing waste of resources
3. Reducing environmental liabilities
4. Increasing cost-effectiveness of
complying with environmental
regulations
5. Begin recognized as a good
corporate citizen
5 - 26
Guidelines for Environmentally Friendly
Designs
1.
Make products recyclable
2.
Use recycled materials
3.
Use less harmful ingredients
4.
Use lighter components
5.
Use less energy
6.
Use less material
5 - 27
Time-Based Competition
◆ Product life cycles are becoming
shorter and the rate of technological
change is increasing
◆ Developing new products faster can
result in a competitive advantage
5 - 28
Product Development Continuum
EXTERNAL DEVELOPMENT
STRATEGIES
Figure 5.6
Alliances
Joint ventures
Purchase technology or expertise
by acquiring the developer
INTERNAL DEVELOPMENT STRATEGIES
Migrations of existing products
Enhancements to existing products
New internally developed products
Internal
Lengthy
High
Cost of product development
Speed of product development
Risk of product development
Shared
Rapid and/
or Existing
Shared
5 - 29
Acquiring Technology
◆ By Purchasing a Firm
◆ Speeds development
◆ Issues concern the fit between the acquired
organization and product and the host
◆ Through Joint Ventures
◆ Both organizations learn
◆ Risks are shared
◆ Through Alliances
◆ Cooperative agreements between
independent organizations
5 - 30
Defining a Product
◆ First definition is in terms of
functions
◆ Rigorous specifications are
developed during the design phase
◆ Manufactured products will have an
engineering drawing
◆ Bill of material (BOM) lists the
components of a product
5 - 31
Service Design
◆ Service typically includes direct
interaction with the customer
◆ Increased opportunity for customization
◆ Reduced productivity
◆ Cost and quality are still determined at
the design stage
◆ Delay customization
◆ Modularization
◆ Reduce customer interaction, often
through automation
5 - 32
Service Design
Figure 5.12
5 - 33
Service Design
Figure 5.12
5 - 34
Transition to Production
◆
◆
Know when to move to production
◆
Product development can be viewed as
evolutionary and never complete
◆
Product must move from design to
production in a timely manner
Most products have a trial production period
to insure producibility
◆
Develop tooling, quality control, training
◆
Ensures successful production
5 - 35
Transition to Production
◆
Responsibility must also transition as the
product moves through its life cycle
◆
◆
Line management takes over from
design
Three common approaches to managing
transition
◆
Project managers
◆
Product development teams
◆
Integrate product development and
manufacturing organizations
5 - 36
7
Process Design
PowerPoint presentation to accompany
Heizer, Render, and Al-Zu’bi
Operations Management, Arab World Edition
Original PowerPoint slides by Jeff Heyl
Adapted by Zu’bi Al-Zu’bi
Instructor:
Dr. Tariq Altayeb
Outline
◆ Process Strategy
◆ Four Process Strategies
◆ Process Focus
◆ Repetitive Focus
◆ Product Focus
◆ Mass Customization Focus
◆ Comparison of Process Choices
Outline – Continued
◆ Process Analysis and Design
◆
◆
◆
◆
◆
Flowchart
Time-Function Mapping
Value-Stream Mapping
Process Charts
Service Blueprinting
◆ Special Consideration for Service
Process Design
◆ Process Redesign
◆ Sustainability
Learning Objectives
When you complete this chapter you should be able to:
1. Describe four production processes
2. Compute crossover points for
different processes
3. Use the tools of process analysis
4. Describe customer interaction in
process design
5. Discuss the 4 Rs of sustainability
Process Strategies
The objective of a process strategy is
to build a production process that
meets customer requirements and
product specifications within cost
and other managerial constraints.
The selected process will have long
term effect on:
❖ Efficiency and flexibility of
production
❖ Cost and quality
Process Strategies
◆ How to produce a product or
provide a service that
◆ Meets or exceeds customer
requirements
◆ Meets cost and managerial goals
◆ Has long term effects on
◆ Efficiency and production flexibility
◆ Costs and quality
Process Strategies
Four basic strategies
1. Process focus
2. Repetitive focus
3. Product focus
4. Mass customization
Within these basic strategies there are
many ways they may be implemented
Process Focus
◆ Facilities are organized around specific
activities or processes
◆ General purpose equipment and skilled
personnel
◆ High degree of product flexibility
◆ Typically high costs and low equipment
utilization
◆ Product flows may vary considerably
making planning and scheduling a
challenge
Process Focus
(low volume, high variety,
intermittent processes)
Many inputs
(surgeries, sick patients,
baby deliveries, emergencies)
Many departments and
many routings
New Mowasat Hospital
Figure 7.2(a)
Many different outputs
(uniquely treated patients)
Repetitive Focus
◆ Facilities often
organized as assembly lines
◆ Characterized by modules with parts
and assemblies made previously
◆ Modules may be combined for many
output options
◆ Less flexibility than process-focused
facilities but more efficient
Repetitive Focus
Raw materials and
module inputs
(multiple engine models,
wheel modules)
Few
modules
(modular)
Harley Davidson
Figure 7.2(b)
Modules combined for many
Output options
(many combinations of cars)
Product Focus
Few Inputs
(corn, potatoes, water,
seasoning)
(High-volume, low variety,
continuous process)
Lays
Figure 7.2(c)
Output variations in size,
shape, and packaging
(3-oz, 5-oz, 24-oz package
labeled for each material)
Product Focus
◆ Facilities are
organized by product
◆ High volume but low
variety of products.
◆ Long, continuous production runs
enable efficient processes.
◆ Typically high fixed cost but low
variable cost.
◆ Generally less skilled labor.
Mass Customization
◆ The rapid, low-cost production of
goods and service to satisfy
increasingly unique customer
desires
◆ Combines the flexibility of a
process focus with the efficiency
of a product focus
Mass Customization
Item
Vehicle models
Vehicle styles
Bicycle types
Software titles
Websites
Movie releases per year
New book titles
TV channels
Breakfast cereals
Items (SKUs) in
supermarkets
LCD TVs
Number of Choices
1970s
21st Century
140
18
8
0
0
267
40,530
5
160
14,000
286
1,212
211,000
400,000
162,000,000
765
300,000
185
340
150,000
0
102
Table 7.1
Mass Customization
Many parts and
component inputs
(chips, hard drives,
software, cases)
Many modules
(high-volume, high-variety)
Dell Computer
Figure 7.2(d)
Many output versions
(custom PCs and notebooks)
Comparison of Processes
Process Focus
Repetitive
Focus
(low-volume,
high-variety)
(modular)
Product Focus
Mass
Customization
(high-volume,
low-variety)
(high-volume,
high-variety)
1.
Small
quantity
and large
variety of
products are
produced
1.
Long runs,
usually a
standardized
product with
options,
produced
from
modules
1.
Large
quantity
and small
variety of
products
are
produced
1.
Large
quantity and
large variety
of products
are produced
2.
Equipment
used is
general
purpose
2.
Special
equipment
aids in use
of an
assembly
line
2.
Equipment
used is
special
purpose
2.
Rapid
changeover
on flexible
equipment
Table 7.2
Comparison of Processes
Process Focus
(low-volume,
high-variety)
Repetitive Focus
(modular)
Product Focus
Mass
Customization
(high-volume,
low-variety)
(high-volume,
high-variety)
3.
Operators
are broadly
skilled
3.
Employees
are modestly
trained
3.
Operators
are less
broadly
skilled
3.
Flexible
operators are
trained for
the necessary
customization
4.
There are
many job
instructions
because
each job
changes
4.
Repetitive
operations
reduce
training and
changes in
job
instructions
4.
Work orders
and job
instructions
are few
because they
are
standardized
4.
Custom
orders require
many job
instructions
Table 7.2
Comparison of Processes
Process Focus
(low-volume,
high-variety)
Repetitive Focus
(modular)
Table 7.2
Product Focus
Mass
Customization
(high-volume,
low-variety)
(high-volume,
high-variety)
5.
Rawmaterial
inventories
highly
relative to
the value of
the product
5.
JIT
procurement
techniques
are used
5.
Raw
material
inventories
are low
relative to
the value
of the
product
5.
Raw material
inventories
are low
relative to
the value of
the product
6.
Work-inprocess is
high
compared to
output
6.
JIT inventory
techniques
are used
6.
Work-inprocess
inventory is
low
compared
to output
6.
Work-inprocess
inventory
driven down by
JIT, kanban,
lean
production(Wast
e reduction)
Comparison of Processes
Process Focus
Repetitive
Focus
(low-volume,
high-variety)
(modular)
Product Focus
Mass
Customization
(high-volume,
low-variety)
(high-volume,
high-variety)
7.
Units move
slowly
through the
facility
7.
Assembly is
measured in
hours and
days
7.
Swift
movement of
units
through the
facility is
typical
7.
Goods move
swiftly
through the
facility
8.
Finished
goods are
usually
made to
order and
not stored
8.
Finished
goods made
to frequent
forecast
8.
Finished
goods are
usually
made to
forecast and
stored
8.
Finished
goods are
often buildto-order
(BTO)
Table 7.2
Comparison of Processes
Process Focus
Repetitive
Focus
(low-volume,
high-variety)
9.
10.
Scheduling
is complex,
concerned
with tradeoffs
between
inventory,
capacity,
and
customer
service
Fixed costs
tend to be
low and
variable
costs high
(modular)
9.
Scheduling
is based on
building
various
models from
a variety of
modules to
forecasts
10.
Fixed costs
dependent
on
flexibility of
the facility
Table 7.2
Product Focus
Mass
Customization
(high-volume,
low-variety)
(high-volume,
high-variety)
9.
Scheduling
is relatively
simple,
concerned
with
establishing
output rate
sufficient to
meet
forecasts
10.
Fixed costs
tend to be
high and
variable
costs low
9.
10.
Sophisticated
scheduling is
required to
accommodate
custom orders
Fixed costs
tend to be
high,
variable
costs must
be low
Process Analysis and Design
◆ Is the process designed to achieve a
competitive advantage?
◆ Does the process eliminate steps that
do not add value?
◆ Does the process maximize customer
value?
◆ Will the process win orders?
Process Analysis and Design Tools
◆ Flowchart - Shows the movement of
materials
◆ Time-Function Mapping - Shows flows and
time frame
◆ Value-Stream Mapping - Shows flows and
time and value added beyond the
immediate organization
◆ Process Chart - Uses symbols to show
key activities
◆ Service Blueprinting - focuses on
customer/provider interaction
Flowchart
Figure 7.5
Time-Function Map
Print
Wait
WIP
Warehouse
Plant B
Extrude
Wait
Move
Transport
Figure 7.5
Wait
Product
WIP
Plant A
Product
Wait
Order
Production
control
Product
Process
order
WIP
Sales
Receive
product
WIP
Order
product
Order
Customer
12 days
13 days
1 day
4 days
1 day 10 days
52 days
Move
1 day
0 day
1 day
Value-Stream Mapping
Figure 7.6
Process Chart
Figure 7.7
Service Blueprint
Personal Greeting
Level
#1
Service Diagnosis
Perform Service
Customer arrives
for service.
(3 min)
Friendly Close
Customer departs
F
Warm greeting
and obtain
service request.
(10 sec)
Level
#2
No
Standard
request.
(3 min)
Direct customer
to waiting room.
F
Level
#3
Determine
specifics.
(5 min)
Can
service be
done and does
customer
approve?
(5 min)
F
F
Yes
Yes
Notify
customer
and recommend
an alternative
provider.
(7min)
Customer pays bill.
(4 min)
F
F
Notify
customer the
car is ready.
(3 min)
No
F
Perform
required work.
(varies)
F
Prepare invoice.
(3 min)
Figure 7.8
Special Considerations for Service Process
Design
◆
Some interaction with customer is
necessary, but this often adversely affects
performance
◆
The better these interactions are
accommodated in the process design, the
more efficient and effective the process
◆
Find the right combination of cost and
customer interaction
Service Process Matrix
Degree of Customization
Figure 7.9
High
Low
Mass Service
Professional Service
Traditional
orthodontics
Private
banking
High
Commercial
banking
Degree of Labor
Full-service
stockbroker
Generalpurpose law firms
Digital
orthodontics
Boutiques
Retailing
Service Factory
Law clinics
Specialized
Limited-service
hospitals
stockbroker
Low
Warehouse and
catalog stores
Fast-food
restaurants
Airlines
No-frills
airlines
Service Shop
Fine-dining
restaurants
Hospitals
Improving Service Productivity
Strategy
Technique
Example
Separation
Structure service so
customers must go
where the service is
offered
Bank customers go to a
manager to open a new
account, to loan officers
for loans, and to tellers
for deposits
Self-service
Self-service so
customers examine,
compare, and evaluate
at their own pace
Supermarkets and
department stores
Internet ordering
Table 7.3
Improving Service Productivity
Strategy
Technique
Example
Postponement
Customizing at delivery
Customizing vans at
delivery rather than at
production
Focus
Restricting the offerings
Limited-menu
restaurant
Modules
Modular selection of
service
Investment and
insurance selection
Modular production
Prepackaged food
modules in restaurants
Table 7.3
Improving Service Productivity
Strategy
Technique
Example
Automation
Separating services that Automatic teller
may lend themselves to machines
some type of
automation
Scheduling
Precise personnel
scheduling
Scheduling ticket counter
personnel at 15-minute
intervals at airlines
Training
Clarifying the service
options
Investment counselor,
funeral directors
Explaining how to avoid
problems
After-sale maintenance
personnel
Table 7.3
Process Redesign
◆ The fundamental rethinking of business
processes to bring about dramatic
improvements in performance
◆ Relies on reevaluating the purpose of the
process and questioning both the
purpose and the underlying assumptions
◆ Requires reexamination of the basic
process and its objectives
◆ Focuses on activities that cross
functional lines
◆ Any process is a candidate for redesign
Sustainability
◆ Sustainability in production
processes
1. Resources
2. Recycling
3. Regulations
4. Reputation
8
Location Decisions
PowerPoint presentation to accompany
Heizer, Render, and Al-Zu’bi
Operations Management, Arab
World Edition
Instructor:
Dr. Tariq Altayeb
8-1
Outline
◆ The Strategic Importance of Location
◆Location and Costs
◆Location and Innovation
◆ Factors That Affect Location Decisions
◆ Labor Productivity
◆ Exchange Rates and Currency Risk
◆ Costs
◆ Political Risk, Values, and Culture
◆ Proximity to Markets
◆ Proximity to Suppliers
◆ Proximity to Competitors (Clustering)
8-2
Outline – Continued
◆ Methods of Evaluating Location
Alternatives
◆ The Factor-Rating Method
◆ Locational Break-Even Analysis
◆ Transportation Model
◆Service Location Strategy
8-3
Learning Objectives
When you complete this chapter you should be able to:
1. Identify and explain seven major factors
that effect location decisions
2. Compute labor productivity
3. Apply the factor-rating method
4. Complete a locational break-even
analysis graphically and mathematically
5. Understand the differences between
service- and industrial-sector location
strategies
8-4
Location Strategy
The objective of location strategy is
to maximize the benefit of location
to the firm
8-5
Location Strategy
◆ One of the most important decisions a
firm makes
◆ Increasingly global in nature
◆ Significant impact on fixed and
variable costs
◆ Decisions made relatively infrequently
◆ The objective is to maximize the
benefit of location to the firm
8-6
Location and Costs
◆ Location decisions based on low
cost require careful consideration
◆ Once in place, location-related
costs are fixed in place and
difficult to reduce
◆ Determining optimal facility
location is a good investment
8-7
Location and Innovation
◆ Cost is not always the most important
aspect of a strategic decision
◆ Four key attributes when strategy is
based on innovation:
◆ High-quality and specialized inputs
◆ An environment that encourages
investment and local rivalry
◆ A sophisticated (developed/mature) local
market
◆ Local presence of related and supporting
industries
8-8
Location Decisions
Country Decision
Key Success Factors
1. Political risks, government
rules, attitudes, incentives
2. Cultural and economic
issues
3. Location of markets
4. Labor talent, attitudes,
productivity, costs
5. Availability of supplies,
communications, energy
Figure 8.1
6. Exchange rates and
currency risks
8-9
Location Decisions
Region/ Community
Decision
Key Success Factors
1. Corporate desires
2. Attractiveness of region
3. Labor availability and costs
4. Costs and availability of utilities
5. Environmental regulations
6. Government incentives and
fiscal policies
7. Proximity to raw materials and
customers
Figure 8.1
8. Land/construction costs
8 - 10
Location Decisions
Site Decision
Key Success Factors
1. Site size and cost
2. Air, rail, highway, and
waterway systems
3. Zoning restrictions
4. Proximity of services/
supplies needed
5. Environmental impact
issues
Figure 8.1
8 - 11
Factors That Affect Location Decisions
◆ Labor productivity
◆ Wage rates are not the only cost
◆ Lower productivity may increase total cost
Labor cost per day
= Cost per unit
Production (units per day)
Beirut
$70
= $1.17 per unit
60 units
Different Location
$50
= $1.20 per unit
40units
8 - 12
Factors That Affect
Location Decisions
◆ Exchange rates and currency risks
◆ Can have a significant impact on costs
◆ Rates change over time
◆ Costs
◆ Tangible - easily measured costs such as
utilities, labor, materials, taxes
◆ Intangible - less easy to quantify and
include education, public transportation,
community, quality-of-life
8 - 13
Factors That Affect
Location Decisions
◆ Political risk, values, and culture
◆ National, state, local governments
attitudes toward private and intellectual
property, zoning, pollution, employment
stability may be in fluctuating
◆ Worker attitudes towards turnover, unions,
absenteeism
◆ Global cultures have different attitudes
towards punctuality, legal, and ethical
issues
8 - 14
Factors That Affect
Location Decisions
◆ Proximity to markets
◆ Very important to services
◆ JIT systems or high transportation costs
may make it important to manufacturers
◆ Proximity to suppliers
◆ Perishable goods, high transportation
costs, bulky products
8 - 15
Factors That Affect
Location Decisions
◆ Proximity to competitors
◆ Called clustering
◆ Often driven by resources such as natural,
information, capital, talent
◆ Found in both manufacturing and service
industries
8 - 16
Methods of Evaluating Location
Alternatives
Factor-Rating Method
◆ Popular because a wide variety of factors can be
included in the analysis
◆ Six steps in the method
1. Develop a list of relevant factors called key
success factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor for each
location
6. Recommend the location with the highest point
score
8 - 17
Factor-Rating Example
Key
Success
Factor
Labor
availability
and attitude
People-tocar ratio
Per capita
income
Tax structure
Education
and health
Totals
Scores
(out of 100)
Weight France Denmark
Weighted Scores
France
Denmark
.25
70
60
.05
50
60
.10
.39
85
75
80
70
(.10)(85) = 8.5 (.10)(80) = 8.0
(.39)(75) = 29.3 (.39)(70) = 27.3
.21
60
70
(.21)(60) = 12.6 (.21)(70) = 14.7
1.00
(.25)(70) = 17.5 (.25)(60) = 15.0
(.05)(50) = 2.5
70.4
(.05)(60) = 3.0
68.0
Table 8.4
8 - 18
Locational
Break-Even Analysis
◆ Method of cost-volume analysis used for
industrial locations
◆ Three steps in the method
1. Determine fixed and variable costs for
each location
2. Plot the cost for each location
3. Select location with lowest total cost for
expected production volume
8 - 19
Locational Break-Even Analysis Example
Three locations:
Selling price = $120
Expected volume = 2,000 units
City
Ramtha
Allan
Nahle
Fixed Variable
Cost
Cost
$30,000
$75
$60,000
$45
$110,000
$25
Total
Cost
$180,000
$150,000
$160,000
Total Cost = Fixed Cost + (Variable Cost x Volume)
8 - 20
Annual cost
Locational Break-Even Analysis Example
Figure 8.2
–
$180,000 –
–
$160,000 –
$150,000 –
–
$130,000 –
–
$110,000 –
–
–
$80,000 –
–
$60,000 –
–
–
$30,000 –
–
$10,000 –
|
–
0
Ramtha
lowest
cost
Allan lowest cost
|
|
|
|
|
500
1,000
1,500
2,000
2,500
Nahle
lowest
cost
|
3,000
Volume
8 - 21
Locational Break-Even Analysis Example
Three locations:
Selling price = $120
Expected volume = 500 units
City
Ramtha
Allan
Nahle
Fixed Variable
Cost
Cost
$30,000
$75
$60,000
$45
$110,000
$25
Total
Cost
$67,500
$82,500
$122,500
Total Cost = Fixed Cost + (Variable Cost x Volume)
8 - 22
Locational Break-Even Analysis Example
Three locations:
Selling price = $120
Expected volume = 3000 units
City
Ramtha
Allan
Nahle
Fixed Variable
Cost
Cost
$30,000
$75
$60,000
$45
$110,000
$25
Total
Cost
$255,000
$195,000
$185,000
Total Cost = Fixed Cost + (Variable Cost x Volume)
8 - 23
Transportation Model
◆ Finds amount to be shipped from
several points of supply to several
points of demand
◆ Solution will minimize total
production and shipping costs
◆ A special class of linear
programming problems
8 - 24
Worldwide Distribution of Volkswagens and
Parts
Figure 8.4
8 - 25
Service Location Strategy
1.
Purchasing power of customer-drawing area
2.
Service and image compatibility with demographics
of the customer-drawing area
3.
Competition in the area
4.
Quality of the competition
5.
Uniqueness of the firm’s and competitors’ locations
6.
Physical qualities of facilities and neighboring
businesses
7.
Operating policies of the firm
8.
Quality of management
8 - 26
Class Exercise: Factor-Rating
Subway is planning for a new restaurant in Muscat,
Oman. Three locations are being considered. The
following table gives the factor for each site.
Factor
Weight
Downtown
Dahiya
Muala
Space
0.30
60
70
80
Cost
0.25
40
80
30
Traffic Density
0.20
50
80
60
Residents’ Income
0.15
50
70
40
Zoning Laws
0.10
80
20
90
Q1. At which site should Subway open the new restaurant?
Q2. If the weights for space and Traffic Density are
reversed, how would this affect the decision?
8 - 27
Solution Q1:
Factor
Space
Cost
Traffic Density
Residents’ Income
Zoning Laws
Total Scores
Weight
0.3
0.25
0.2
0.15
0.1
Downtown
18
10
10
7.5
8
53.5
Dahiya Muala
21
20
16
10.5
2
69.5
24
7.5
12
6
9
58.5
• Formula: Weight x location score,
for example; Space 0.3 * downtown score 60 = 18
Thus Subway should open a new restaurant in
Dahiya.
8 - 28
Solution Q2: weights for space and Traffic
Density are reversed
Factor
Space
Cost
Traffic Density
Residents’ Income
Zoning Laws
Total Scores
Weight Downtown
0.2
0.25
0.3
0.15
0.1
Dahiya
Muala
12
10
15
7.5
8
14
20
24
10.5
2
16
7.5
18
6
9
52.5
70.5
56.5
Dahiya’s location is even more preferred.
8 - 29
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