3 - Operations Management Processes Flashcards
What do operating processes produce and deliver?
Goods and services to customers.
Why was managing operations considered critical in the late twentieth century?
Inspired by the remarkable results achieved by Japanese manufacturers.
What are the four operations management processes?
- Develop and sustain supplier relationships
- Produce products and services
- Distribute and deliver products and services to customers
- Manage risk
What is one objective for effective supplier relationships?
Lower the total ‘cost of ownership.’
What does the total cost of ownership include?
- Purchase price
- Costs of design and engineering
- Ordering materials
- Receiving materials
- Inspecting materials
- Returning materials
- Moving materials
- Storing materials
- Scrapping obsolete materials
- Reworking products due to defective materials
- Delays from late deliveries
- Expediting materials
True or False: The best suppliers are defined as low-price only.
False.
What does activity-based costing (ABC) enable companies to do?
Assign aggregate procurement costs to the procurement activities.
Fill in the blank: Companies strive to find suppliers that accept electronic orders and deliver products with no _______.
Defects.
What are some objectives for managing supplier relationships?
- Lower the cost of ownership
- Achieve just-in-time supplier capability
- Develop high-quality supplier capability
- Use new ideas from suppliers
- Achieve supplier partnership
- Outsource mature, noncore products and services
What initiatives have been applied to improve process performance?
- Reengineering
- Business process redesign
- Continuous improvement
- Activity-based management
- Total quality management
- Time-based management
What is a measure for improving process responsiveness?
Cycle time from start of production until product completion.
What does the distribution process aim to lower?
Cost-to-serve.
What are key objectives in risk management?
- Reduce the costs associated with financial distress
- Decrease taxes
- Reduce monitoring costs
- Provide internal funds for investment
What can effective risk management reduce for key undiversified investors?
The risks they face due to wealth concentration in the company.
Fill in the blank: Companies can manage risk by modifying their _______.
Operations.
What are some ways companies can employ to manage risk?
- Adjust capital structure
- Employ targeted financial instruments such as derivatives
What does a high level of debt influence regarding risk?
It increases the likelihood of financial distress.
True or False: Companies should seek to insulate themselves completely from all kinds of risks.
False.
What is a measure of purchasing process quality?
Percentage of orders that arrive with the correct volume and mix of items.
What percentage of purchases made electronically is used as a measure?
Percent of purchases made electronically (EDI or Internet).
Fill in the blank: The time from completion of product/service until ready for use by customer is called _______.
Lead time.
What is the cash-to-cash cycle?
Days of accounts receivable plus days of inventory less days of payables.
What does EBITDA stand for?
Earnings Before Interest, Taxes, Depreciation, and Amortization
What is the relationship between high-debt companies and profitability?
High-debt companies can benefit from the tax shield of interest payments and leverage high returns for shareholders.
What financial instruments can companies use to hedge exposure risks?
Insurance, futures, swaps, and options
What are some measures for managing financial risk?
- Bad debt percentage
- Percent of uncollectible receivables
- Exposure or losses from interest rate fluctuations
- Debt-to-equity ratio
- Interest coverage ratio
What are the four important elements of an attractive value proposition?
- Competitive prices and low total cost of supply
- Perfect quality
- Speedy, timely purchase
- Excellent selection
What is the objective of a company striving to be the low-cost producer?
To be profitable at the lowest price point in the industry
What is the ideal customer experience regarding product quality?
Zero defects with products or services
What does ‘speedy, timely purchase’ refer to in customer value?
Rapid, reliable delivery of goods and services
What is a critical measure of timely service delivery from a customer’s perspective?
Lead time experienced by the customer
What is the significance of ‘excellent selection’ in operations management?
It relates to the range of products, merchandise, and services offered to customers
What do companies use to benchmark their unit costs?
Competitors’ costs
What is the purpose of activity-based costing (ABC)?
To represent how individual products and customers use different quantities of the services supplied by indirect and support resources
What is the effect of improved operations on financial performance?
Increased revenues from satisfied customers
What is a key objective of learning and growth in operations management?
Develop skills in quality management and process improvement
What percentage of employees should achieve six sigma ‘black belt’ status?
Objective to increase the percentage of employees with this qualification
What role does technology play in operational performance?
Automates processes, provides rapid feedback, and improves quality and processing times
What organizational culture is necessary for continuous improvement?
A culture encouraging new ideas, solutions, and knowledge sharing
What is one objective related to customer satisfaction in operations management?
Deliver zero-defect products and services
Fill in the blank: Companies should measure the lead time ______.
[from order to delivery]
True or False: Companies that sell homogeneous products aim to have the highest costs per unit.
False
What is a critical measure for assessing the effectiveness of operations management?
Percent of perfect orders (defect-free products and services delivered)
What should organizations do to share best practices?
Identify innovations and disseminate them rapidly across units
What can improve asset productivity in operations?
Better capacity planning and process improvements
What is the significance of knowledge management systems in operations management?
They enable sharing of best practices and innovations
What are some measures of customer profitability?
- Customer’s cost of ownership
- Customer’s profitability from own company’s products and services
What is the objective related to financial efficiency in operations?
Maximize use of existing assets
What is the relationship between cost reduction and customer satisfaction?
Cost reductions should lead to increased customer satisfaction and revenue
What does the term ‘wing-to-wing’ time refer to?
The total time an engine is out of service for the customer
What is a measure of the company’s operational effectiveness?
Sales/asset ratio
What is the objective behind using supply chain management software?
To reduce the cost of supplier relationships
What is the primary purpose of an ABC model?
To accurately trace organizational expenses to procurement, manufacturing, distribution, or delivery processes.
What does Activity-Based Management (ABM) aim to achieve?
Actions that increase efficiency, lower costs, and enhance asset utilization.
What are the potential financial benefits from ABM?
- Reduced costs
- Higher revenues
- Cost avoidance
What is the first step in the ABM process?
Develop the business case.
Why may managers be unaware of cost reduction opportunities?
Focus has historically been on improving frontline manufacturing and service operations.
What does collecting ABC process cost information reveal?
How much existing spending occurs in inefficient activities.
True or False: The ABC process cost information can motivate managers to launch change initiatives.
True.
What is the second step in the ABM process?
Establish priorities.
Why is it important to establish priorities in ABM?
To focus improvement programs on activities with the highest potential payoff.
Fill in the blank: The scarcest resource in an organization is _______.
[time]
What is the third step in the ABM process?
Provide cost justification.
What did managers initially think about the costs associated with Total Quality Management (TQM)?
They were skeptical that producing fewer defective items could be accomplished without increasing costs.
What happens after the initial wins in TQM implementation?
Further improvements may not always come for free.
What is the fourth step in the ABM process?
Track the benefits.
How can organizations verify whether operational improvements yield actual benefits?
By periodically refreshing and updating the ABC model.
What is the fifth step in the ABM process?
Measure performance for ongoing improvement.
What are process drivers?
Local performance indicators that employees can track and improve.
How does Activity-Based Management enable managers to achieve visible successes?
By identifying and quantifying opportunities for transformation and continuous process improvements.
What is the role of strategy maps in quality programs?
They provide a high-level, strategic context and align quality programs with organizational objectives.
What are key quality measures used in operations management?
- PPM defects
- Yield
- Number of inspections
True or False: The Balanced Scorecard provides explicit causal linkages through strategy maps.
True.
What does the BSC establish targets for?
Breakthrough performance, not merely to match existing best practices.
What is a key difference between quality models and the Balanced Scorecard?
Quality models strive to improve existing processes, while the BSC identifies entirely new processes critical for achieving strategic objectives.
What does the Balanced Scorecard (BSC) link together to drive performance?
Customer satisfaction and retention, internal process performance, human resource and information technology capabilities, and organizational alignment.
How does the BSC assist in identifying new processes?
It often reveals entirely new processes critical for achieving strategic objectives.
What is a key process for a company shifting to a differentiated customer intimacy strategy?
Working closely with targeted customers to anticipate their future needs.
What must frontline employees transition to in a financial services company shifting strategy?
From reactive transaction processors to proactive financial planners.
What does the BSC prioritize for process enhancements?
It identifies which processes must perform at or beyond current best practice levels.
What is the purpose of benchmarking in the context of the BSC?
To assess all an organization’s processes by comparing them to industry best practices.
What does the BSC provide guidance for?
Redeploying scarce resources toward processes and initiatives most critical for implementing the strategy.
What is the difference between continuous improvement and reengineering?
Continuous improvement is often insufficient when processes are inefficient or technologically obsolete, requiring reengineering or discontinuous improvement.
What does a strategy map provide to improvement programs?
Strategic focus and a clear line-of-sight impact from process improvements to important organizational outcomes.
What are the four perspectives in a strategy map?
- Customer perspective
- Internal processes perspective
- Learning and growth perspective
- Financial perspective
What was Thornton Oil’s vision for 2005?
To become a $1 billion company.
What theme did Thornton settle on for its strategy?
Marketing excellence and growing its food franchise.
What was a key objective related to customer experience for Thornton?
Providing low-price, quality gasoline.
What objective did Thornton adopt to enhance its store offerings?
To develop its own brand items, such as Thornton’s coffee and pastries.
What was one of the objectives under the theme of internal processes for Thornton?
Exploiting B2B/B2C opportunities using the Internet.
What did Thornton aim to establish for its employees?
A ‘people-first culture.’
What was one financial objective for Thornton’s strategy?
Optimize asset utilization.
What was the increase in customer-service scores achieved by Thornton?
44 percent.
What was the reduction in total turnover at Thornton after implementing the BSC?
48 percent.
Fill in the blank: The Balanced Scorecard enhances _______ programs by linking them to high-level organizational outcomes.
[reengineering]
True or False: The BSC sets performance targets that are always financial in nature.
False.
What was the impact of the BSC on Thornton’s operating expenses?
Total operating expenses were under or at budget every month.
What is the purpose of applying quality management principles to identified critical processes?
To enhance the performance of these processes.
