Today`s Topic: “Operations” - Stevens Institute of Technology

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Today’s Topic:
Operations
The Manufacturing, Logistics
and Service functions, and
their relationships to
technical jobs
-or“if you can’t produce and deliver
it, it’s unlikely that anyone will
pay you any money”
Course Schedule
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The Marketing Function (Lenovo)
Sales & Sales Channels (GolfLogix)
Internet-based Marketing (HubSpot)
R&D: Product Development (Guidant)
Operations (Crocs)
Product Launch (Invisalign)
Final Exam on Product Launch (Emotiv)
Last Class & Final Exam
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Product launch: decisions upon launching
a new product (Invisalign case); and
summary of key learnings from the course
Final exam: decisions on product launch
(Emotiv case)…..Dec 20th , 1 – 5pm
Operations
The function of creating, delivering,
and servicing a company’s products
and/or services….. includes all but
designing, marketing and selling them
Learnings: Operations
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Operations functions: manufacturing,
logistics & service
Characteristics of world-class operations
processes
The Operations Balance
Impacts on operations: marketing, sales,
R&D
The Operations Balance
COGS
Inventory
Customer
Service
The Basic Operations Flow
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Sales forecasts are given by sales (or
marketing) to manufacturing……
Manufacturing produces products (“finished
goods”)and spare parts (“spares”)
………and/or delivers the service (ops)……
Logistics (or “distribution”) handles physical
distribution to end-customers and/or
channels, and is responsible for delivery of
spare parts and repair services…..
and everyone blames Ops if anything goes
wrong!
Operations:
Short Term Issues
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Cost of Goods/Cost of Service
Production scheduling
Manufacturing yield/quality/cycle time
Inventory management
Logistics efficiency/cost
Returns and repairs management
Customer service quality
Operations:
Longer Term Issues
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In-house or outsourced?
Capacity planning: building capacity (just)
in advance of when it will be needed, with
minimum capital
Investing in process technology
Building supporting IT systems
Regularizing the new product introduction
(NPI) process
Manufacturing Costs Depend
on…….
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Capacity utilization
Capital costs (depreciation on capital)
Process technology/yield
Cycle time, set-up intervals, run volumes
Product designs !!
Materials costs (BOM)
NPI process efficiency
Operations’ Challenge is to
Balance….
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COGS: COP and COS (cost of product
manufacture, cost of service, and logistics
expense)
Inventory (full-stream: materials, work-inprocess, finished goods, spare parts)
Customer service (delivery/response
intervals, and quality of services)
The Operations Balance
COGS
(COP,COS)
Inventory
Customer
Service
Operations is impacted by
“inputs” from…….
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Marketing
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Sales
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R&D
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and others (IT, finance, HR, … )
Marketing:
Inputs/Impacts
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Product line/model breadth
Cost/COGS targets
Product quality targets
New product strategy (big-bang or
incremental/inch-up)
Customer service requirements
Sales promotions/incentives
Sales forecasts (long-run)
Sales: Inputs/Impacts
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Sales forecasts (short-run)
Warranty/return management
Commitments to customers
Quality of installation/maintenance
Accuracy of customer orders
Ability to “level out” sales volume
R&D: Inputs/Impacts
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Product designs (for cost and service)
Design changes/modifications
Product materials/components
Quality and timeliness of “hand-offs”
Process engineering efforts (or not)
Role in manufacturing engineering
Support for concurrent engineering
Readings
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Can Marketing and Manufacturing Coexist? -read to understand the 8 issues listed in the
article’s Exhibit
Crocs: Revolutionizing an Industry’s Supply
Chain -- an example of the importance of
Operations in the success of a business
Assignment
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In what ways can technical people (R&D, technical sales, etc)
assist with the resolution and/or minimization of the
marketing-manufacturing issues cited in the first reading?
Provide one thought/example for each of the 8 issues in the
exhibit in the “Coexist” reading.
What are Crocs’ competitive advantages? Which of these are
related to its operations function?
To what extent do each of these growth strategies leverage
Crocs’ competitive advantages: (a) internal manufacturing of
raw materials used in compounding, (b) internal development
of new products, (c) acquiring companies to get new
products, and (d) acquiring companies to get new
customers?
Assignment:
R&D Impacts on…?
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Capacity planning
Production scheduling
Logistics/distribution
Quality assurance
Breadth of product line
Costs (COGS: COP and COS)
New Product Introduction
Customer service
Can Marketing and
Manufacturing Coexist?
Problem Area
Typical
marketing
comment
Typical
manufacturing
comment
Capacity
planning and
long-range
sales
forecasting
“Why don’t we
have enough
capacity?”
“Why didn’t we
have accurate
sales
forecasts?”
Can Marketing and
Manufacturing Coexist?
Problem Area Typical
marketing
comment
Typical
manufacturing
comment
Production
scheduling
and shortrange sales
forecasting
“We need realistic
customer
commitments and
sales forecasts that
don’t change like
wind direction”
“We need
faster
response. Our
lead times are
ridiculous.”
Can Marketing and
Manufacturing Coexist?
Problem Area
Typical
marketing
comment
Typical
manufacturing
comment
Delivery and
physical
distribution
“Why don’t we
ever have the
right
merchandise in
inventory?”
“We can’t keep
everything in
inventory”
Can Marketing and
Manufacturing Coexist?
Problem Area Typical
marketing
comment
Typical
manufacturing
comment
Quality
assurance
“Why must we
always offer options
that are too hard to
manufacture and
that offer little
customer utility?”
“Why can’t
we have
reasonable
quality at
reasonable
cost?”
Can Marketing and
Manufacturing Coexist?
Problem Area
Typical
marketing
comment
Typical
manufacturing
comment
Breadth of
product line
“Our customers “The product
demand
line is too broad
variety”
– all we get are
short,
uneconomical
runs.”
Can Marketing and
Manufacturing Coexist?
Problem Area Typical
marketing
comment
Typical
manufacturing
comment
Cost control
“We can’t provide
fast delivery, broad
variety, rapid
response to
change, and high
quality at low cost.”
“Our costs are
so high that
we are not
competitive in
the
marketplace”
Can Marketing and
Manufacturing Coexist?
Problem Area
Typical
marketing
comment
Typical
manufacturing
comment
New product
introduction
“New products “Unnecessary
are our
design changes
lifeblood”
are prohibitively
expensive.”
Can Marketing and
Manufacturing Coexist?
Problem Area
Typical
marketing
comment
Adjunct services “Field service
such as spare
costs are too
parts inventory high.”
support,
installation, and
repair
Typical
manufacturing
comment
“Products are
being used in
ways for which
they weren’t
designed.”
Crocs case: questions
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What are Crocs’ competitive advantages? Which
of these are related to its operations function?
To what extent do each of these growth
strategies leverage Crocs’ competitive
advantages: (a) internal manufacturing of raw
materials used in compounding, (b) internal
development of new products, (c) acquiring
companies to get new products, and (d)
acquiring companies to get new customers?
Core Competencies
vs.
Competitive Advantages
Core
Competencies
Competitive
Advantages
- capability
- process
- skill
- position
Crocs Supply Chain Characteristics
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Global manufacturing
Vertical integration
“Postponement” (JIT production)
Warehouses at production facilities
“Excess” capacity and inventory
Simple products (initially)
Short lead times
Production throughout selling season
Growth Alternatives
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internal manufacturing of raw materials
used in compounding
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internal development of new products
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acquiring companies to get new products
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acquiring companies to get new customers
Identifying Competitive
Options
Products
Current
products
Current
Position
Current
target
customers
Customers
Competitive Options
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Protect & defend current customer/product segment
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Increase market share in current segment
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Selectively extend (whole) product offerings
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Selectively extend target customer set
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Become a broad-line supplier
Our Last Assignment:
Product Launch
Invisalign
A new technology ( ~ 2000)
for aligning teeth
Product Launch Assignment:
Align Technology in 2001
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Invisalign straightens teeth via a series of clear
plastic retainers designed and made specifically
for each patient
Higher price and higher COGS than traditional
metal braces, but “better”
Product available for about 2 years
Annual revenues ~$50M but OI ~($100M)
Adoption rate by orthodontists is insufficient to
support future growth
Arguably, the product needs to be “re-launched”
Assignment for Next Week
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Which of the three end-customer (patient) segments
identified should be Align’s target? Why?
Which of the promotion and sales tasks (promotion,
selling, fulfillment, service) should be done by Align? By
the dentists? By the orthodontists?
What are the orthodontist’s “channel economics” for
Invisalign vs. standard braces?
What barriers are preventing increased adoption of
Invisalign by orthodontists?
How should Invisalign be positioned with orthodontists?
(write a positioning statement)
By what methods should Invisalign be promoted to
dentists? To orthodontists?

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