Planning for Operations

New Product Development

Organizations put a lot of time and money into new products and thus deploy various methods in an attempt to mitigate the risks.

Learning Objectives

Distinguish between minimum viable product, continuous deployment, split testing, vanity metrics, laboratory tests, expert evaluations and customer evaluations

Key Takeaways

Key Points

  • Organizations use formal systems to evaluate new products.
  • Product testing and sales forecasts are used to help diminish the risk of introducing a new product.
  • It’s possible to eliminate some of the risks associated with introducing a new product by launching the smallest amount of the product possible to test demand.
  • Several methods can be used to evaluate new products before they are launched.

Key Terms

  • minimum viable product: The minimum viable product is a product stripped down to it’s most basic, necessary features in order to get that product into the consumer’s hands in the quickest, most affordable way.
  • product placement: a form of advertising where a brand, good, or service is placed in the media, for money
  • product: Any tangible or intangible good or service that is a result of a process and that is intended for delivery to a customer or end user.
  • product differentiation: perceived differences between the product of one firm and that of its rivals so that some customers value it more

Introduction

Organizations invest a lot of money to create new products that perform effectively. Nonetheless, firms often struggle to convince people to incorporate these new products into their routines (Arts 2008). For example, it took 18 years for microwave ovens to gain acceptance in Greece (Tellis, Stremersch, and Yin 2003). The ultimate success of new products depends on consumers accepting them (Arts 2008)..

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New product: Organizations invest a lot of money to create new products that perform effectively.

Product Evaluation

The term “product” refers to both goods and services. A product is anything that can be offered to a market to satisfy a want or need. When an organization adds a new product, there is both potential benefit and risk. As a result, organizations implement formal systems for evaluating new products. In particular, there is a concerted effort to forecast projected sales and thus reduce some of the financial risk.

While evaluating new products, there is also the possibility of generating innovative ideas that can later go through the testing process. Idea generation is an essential part of marketing strategy and is critical to the success of a company. When such product ideas move further along, a key step is to create a prototype or working version of the new offering. Again, market testing is crucial at every stage in the development process.

Minimum Viable Product

A minimum viable product (MVP) is the “version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort. ” The goal of an MVP is to test fundamental business hypotheses (or leap-of-faith assumptions) and to help entrepreneurs begin the learning process as quickly as possible.

For example, Ries notes that Zappos founder Nick Swinmurn wanted to test the hypothesis that customers were ready and willing to buy shoes online. Instead of building a website and a large database of footwear, Swinmurn approached local shoe stores, took pictures of their inventory, posted the pictures online, bought the shoes from the stores at full price, and sold them directly to customers if they purchased the shoe through his website. Swinmurn deduced that customer demand was present, and Zappos would eventually grow into a billion-dollar business based on the model of selling shoes online.

Continuous Deployment

Continuous deployment is a process “whereby all code that is written for an application is immediately deployed into production,” resulting in a reduction of cycle times. Ries states that some of the companies he’s worked with deploy new code into production as often as 50 times a day. The phrase was coined by Timothy Fitz, one of Ries’s colleagues and an early engineer at IMVU.

Split Testing

A split test or A/B test is an experiment in which “different versions of a product are offered to customers at the same time. ” The goal of a split test is to observe changes in behavior between the two groups and to measure the impact of each version on an actionable metric. A/B testing can also be performed in serial fashion where a group of users one week may see one version of the product while the next week users see another.

Vanity Metrics

Vanity metrics are measurements which give “the rosiest picture possible” but do not accurately reflect the key drivers of a business. This is in contrast to actionable metrics, the measurement of which can lead to a business decision and subsequent action.

Laboratory Tests

Laboratory tests provide information regarding the performance of new products in extreme settings. For example, a new copy machine can be tested at various work loads, like numbers of copies and speed per minute to test the relationship between workload and paper jam.

Expert Evaluations

Expert evaluators can be used at all phases of the new product development process. For instance, experts can be used to estimate whether or not a new product idea will be accepted in the marketplace before a prototype even exists.

Customer Evaluations

In later stages of development, customers can be recruited to evaluate prototypes. There is an attempt to test new products under conditions that are relatively close to actual use.

Designing the Operation

Designing effective operations is critical, and can have both short-term and long-term impacts on an organization’s longevity.

Learning Objectives

Explain the importance of operations management on the success of a business

Key Takeaways

Key Points

  • Operations management is a strategic function within an organization.
  • Operations decisions include elements needed to produce goods and services, and make them available to customers.
  • Operations management touches upon multiple areas of a business, from engineering and research & development, to human resources and accounting.

Key Terms

  • operation: The method or practice by which actions are done.
  • Operations management: An area of management concerned with overseeing, designing, controlling the process of production, and redesigning business operations in the production of goods and/or services.

Designing the Operation

Operations management is a strategic function in organizations that adds value to customers and allows businesses to successfully produce goods and deliver services. Operational decisions determine how well these goods and services meet the needs of the organization’s target market, and consequently, whether the organization will be able to survive over the long-term.

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Smooth Landing: Operations management plays a key role in the success in airline companies.

If the organization has made mostly good operational decisions in designing and executing its transformation system to meet the needs of customers, its prospects for long-term survival are greatly enhanced.

Operations management and planning are common in industries such as the airlines, manufacturing companies, service provider organizations, the military, and government. Some examples of management and planning include:

  • Scheduling airlines, including both planes and crew
  • Deciding the appropriate place to site new facilities such as a warehouse, factory, or fire station
  • Managing the flow of water from reservoirs; identifying possible future development paths for parts of the telecommunications industry
  • Establishing the information needs and appropriate systems to supply them within the health service
  • Identifying and understanding the strategies adopted by companies for their information systems

Operational Decisions

As mentioned, operations decisions have both long-term and short-term impacts on the organization’s ability to produce goods and services, and can provide added value to customers and employees. Operations management touches upon multiple areas of a business, from engineering and research & development, to human resources and accounting. Likewise, the decisions management makes when parceling technological, monetary, and people resources across the organization typically falls under the following areas:

  • Inventory decisions
  • Capacity decisions
  • Quality decisions
  • Scheduling decisions
  • Process decisions
  • Technology decisions
  • Location decisions

Most often when a company sets operational goals and objectives, they are considered relatively short term.

Capacity Planning

Capacity planning revolves around answering the question “How much? ” in both long-term and short-term situations.

Learning Objectives

Compare and contrast long-term and short-term capacity decisions

Key Takeaways

Key Points

  • Capacity planning takes place on a daily basis in some industries.
  • Organizations must closely examine the services and the cost of services offered to their customers when making capacity decisions.
  • In a grocery store or supermarket, managers must ensure that sufficient cash registers and employees are on-hand to meet check-out demand and provide good customer service.

Key Terms

  • capacity: The maximum that can be produced on a machine or in a facility or group.

Introduction

When making capacity decisions, managers must answer the simple question, “How much?” Determining the organization’s capacity to produce goods and services involves both long-term and short-term decisions. Long-term capacity decisions involve facilities and major equipment investments.

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capacity: The question managers must answer for capacity decisions is simply “How much?”

Long-term decisions

In 2007, Airbus introduced its Super Jumbo Jet that carries up to 850 passengers and costs USD 3 billion. The Super Jumbo Jet provides huge amounts of passenger carrying capacity, but before an airline purchases this jet, it needs to decide if it has enough passengers to generate the revenue to pay for the plane and earn profits for the airline. Buying a large single airplane like the Super Jumbo Jet may not be the right capacity decision for an airline that serves numerous medium-sized cities. On the other hand, an airline that serves passengers traveling between large cities like New York City, USA, and Shanghai, China might find the Super Jumbo Jet to be a perfect choice for meeting consumer demand.

Short-term decisions

Capacity decisions are also required in short-term situations. In a grocery store, the number of customers that need to pay for their groceries at any one point during the day will vary significantly. To provide good customer service, managers must make sure that sufficient cash registers and employees are on-hand to meet check-out demand at any given time.

Similarly, hotels must make sure that they have enough employees to register arriving guests, clean hotel rooms, and provide food and beverages to customers. These decisions must be made carefully to avoid excessive labor costs that result from having an excess of employees available for the number of customers being served.

Facilities Layout

Facility layout decisions are based on criteria aimed at creating an effective and efficient workflow and high standard production.

Learning Objectives

Outline the key considerations in facility design

Key Takeaways

Key Points

  • There are three types of workflow layouts that managers can choose from.
  • Office and factory facilities are approached differently.
  • A facility manager’s industry can also influence the facilities layout design.

Key Terms

  • facilities layout: Facility layout is simply the way a facility is arranged in order to maximize processes that are not only efficient but effective towards the overall organizational goal.

Introduction

Facilities is defined as the workspace and equipment needed to carry out the operations of the organization. This includes offices, factories, computers, and trucks.

The location, design, and layout of an organizations’ facilities are central to maximising the efficiency of the overall operations system.

In this unit, we’re going to focus on facility design and layout.

Facilities Design and Layout

After choosing the facility’s location, the next stage in operations planning is to design the best physical layout for the facility. The avaliable space needs to be assessed with workstations, equipment, storage, and other amenities need to be arranged. The aim is to allow for the most efficient workflow without disruption. A workplace that has carefully arranged its layout will allow for a more effictive and efficient workflow and produce its good or services to a high standard.

There are three types of workflow layouts that managers can choose from:

  • Process layout: arranged in departments (e.g., hospitals).
  • Product layout: production line (e.g., a car assembly plant).
  • Fixed-position layout: building a large item (e.g., jumbo jet).

Facility Layout Considerations

Facility managers should consider several factors when designing the layout of a facility to achieve maximum effectiveness.

  • Does the design and layout allow for growth or change? Is there a chance that your company will experience significant growth? Could some other change come about that could influence the layout of your facility? In business, anything is possible. Make sure that same is true of your facilities layout. While making changes is a costly and undertaking them shouldn’t be taken lightly, your layout should be flexible enough to allow a redesign if the situation calls for it.
  • Is the process flow smooth? If you are running a factory, for example, the flow should be such that the raw materials enter at one end and the finished product exits at the other. The flow doesn’t have to form a straight line, but there should be no backtracking. Backtracking creates confusion. Employees get confused (“Has that been done yet? “), parts get lost, and coordination is very difficult. You need to have a smooth process to be efficient.
  • Are materials being handled efficiently? Here simplicity is best.
  • Does the facility layout aid the business in meeting its production needs? Is there enough space and is it used efficiently? Have you allowed enough space for shipping and receiving? Can different areas of the business communicate effectively? Does the layout lend itself to promotional activities? (e.g., showing the facilites to potential customers)
  • Does the layout contribute to employee satisfaction and moral? Numerous studies have linked employee moral to productivity. So managers should take this point into consideration when designing the layout of their facilities. How can this be done? Paint the walls light colors, allow for windows and space, include a cafeteria and a gym. Some of the options may cost lots of money, but if it increases productivity in the long run, it is probably worth making the investment.

Are the Facilities for an Office or a Factory?

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Office Space: An office will have different layout requirements than a factory.

Office and factory facilities are approached differently.

Factories move materials from point A to point B to produce a final products. The process uses equipment and utilities. Minimizing transportation costs may be one of the criteria of planning the layout of a factory. Another important consideration for factories in the necessity for maintenance of machinery. As such, careful consideration of enabling access to technicians is critical to ensuring minimal workflow disruptions in a scenario of updating, repairing or replacing machinery.

Offices, on the other hand, produces information. The form may be physical, electronic, or oral, but the the final result is still information. Office facility layout is harder to quantify than factory facilities layout, but the goal should be to minimize communication costs and maximize productivity.

Your industry can also influence the facilities layout design. The facility layout for service industries will differ from that of retailers and manufacturers. It all depends on organization’s needs.

Location Choice and Site Planning

An organization’s location choice impacts its efficiency and effectiveness, so it is important for it to properly weigh the various factors.

Learning Objectives

Outline the key considerations for deciding the location of facilities

Key Takeaways

Key Points

  • There are many factors that can determine where an organization will locate its facilities. For any given situation, some factors become more important than others in how facility location affects an organization’s efficiency and effectiveness.
  • The factors determining where a company chooses to locate its facilites include supply, customer, community, and labor considerations.
  • An essential part of choosing a location is doing proper research to verity that the location matches an organization’s strategic requirements.

Key Terms

  • facility: The physical means or contrivances to make something (especially a service) possible; the required equipment, infrastructure, location etc.

Introduction

There are many factors that can determine where an organization will locate its facilities. For any given situation, some factors become more important than others in how facility location affects an organization’s efficiency and effectiveness.

Key Factors

  • Proximity to sources of supply: Firms that process bulk raw materials usually locate close to the source of supply to reduce transportation costs. Paper mills locate close to forests, canneries are built close to farming areas, and fish processing plants are located close to the harbors where the fishing vessels dock.
  • Proximity to customers: There are several reasons why an organization would locate close to end customers. Service firms need to be close to customers to be convenient, as is the case for grocery stores, gas stations, fast food restaurants, and hospitals. Transportation costs can also require proximity to customers, as in the case of concrete manufacturing. Perishable products often require that they be produced close to the final market, as is the case for bakeries and fresh flowers.
  • Community factors: Communities may offer a number of incentives to entice companies, including waiving or reducing taxes, and providing access roads, water and sewer connections, and utilities. Community attitudes can also play a role in an organization’s location decision. Some communities may actively discourage companies that might bring more pollution, noise, and traffic to the area. Some communities may not want a prison to be located in their community. Other communities may welcome such firms because of the jobs, tax revenues, and economic diversity they promise.
  • Labor factors: Research shows that the majority of location decisions are largely based on labor factors, since labor is a critical variable for many firms. Labor factors include the prevailing wage rate in a community for similar jobs, the supply of qualified workers, and the average education level of the local population (percentage of high school graduates, etc.). Other labor factors can include the degree of union organizing and the general work ethic of a community, as well as other measures of absenteeism, and worker longevity in a job can play a strong role when a firm makes a location decision.
  • Other factors: Many other factors can play a role in the location decision, including quality of life (crime rates, good schools, climate, and recreation options), access to major transportation arteries, construction costs, proximity of the competition, and opportunities for future expansion.

As mentioned earlier, the importance of any location factor can vary greatly, depending on the circumstances of the decision.

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Colorado river: Colorado is beautiful, but it might not be the best location for all organizations.

In the 1990s, MCI, a major US telecommunications company, decided to relocate its engineering services division from MCI’s headquarters in Washington DC to Colorado Springs, Colorado to reduce labor and facility costs. The decision was largely unsuccessful due to the high costs of employee relocation and the fact that much of the ethnically diverse engineering workforce did not want to live in Colorado Springs.

Unlike Washington DC, Colorado Springs did not have cultural diversity to match with its diverse and highly educated workforce, it lacked employment options for spouses, and the work ethic was more relaxed due to the beautiful natural setting that provided unlimited options for outdoor recreation.

In short, if MCI had put more effort into researching how well the Colorado Springs location matched its strategic requirements, it probably could have saved itself millions of dollars and a great deal of internal disruption to the organization.

Sustainability Initiatives

Sustainability initiatives consider every dimension of how a business operates in the social, cultural, and economic environment.

Learning Objectives

Explain the principles of corporate sustainability

Key Takeaways

Key Points

  • Transparency deals with the idea that having an engaging and open environment within the company, as well as the community, will improve performance and increase profits.
  • Employee development involves the idea that people are the most important renewable resource and, therefore, are the strongest asset to any organization.
  • Resource efficiency refers to that fact that companies must adapt to a rapidly changing environment by being prepared to change and implement new creative ideas related to sustainability.
  • Essential principles of a sustainability initiative include triple top-line value production, nature-based knowledge and technology, products of service and products of consumption, renewable energy, local economies, and continuous improvement.

Key Terms

  • stewardship: The act of caring for or improving with time.
  • geothermal: Pertaining to heat energy extracted from reservoirs in the earth’s interior.
  • sustainability: The capacity to support, maintain, or endure.

Sustainability, in a general sense, is the capacity to support, maintain, or endure. Since the 1980s, human sustainability has been related to the integration of environmental, economic, and social dimensions towards global stewardship and responsible management of resources.

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Sustainability: Sustainability is related to the integration of environmental, economic, and social dimensions towards global stewardship and responsible management of resources.

Corporate sustainability is a business approach that creates long-term consumer and employee value by not only creating a “green” strategy aimed towards the natural environment, but taking into consideration every dimension of how a business operates in the social, cultural, and economic environment. It also involves formulating strategies to build a company that fosters longevity through transparency and proper employee development. Three key principles that should form the foundation of a corporate sustainability initiative are: transparency, employee development, and resource efficiency.

Transparency deals with the idea that having an engaging and open environment within the company, as well as the community, will improve performance and increase profits. An open culture promotes employee involvement in regards to the innovation and creative processes. Reaching out to the community creates a much bigger team and provides evaluation from all angles. Companies are looking inward and realizing changes must be made to fulfill environment needs such as energy efficiency, limiting product waste and toxicity, and designing innovative products.

Employee development involves the idea that people are the most important renewable resource and, therefore, are the strongest asset to any organization. A strong development program could be the underlying factor for a company’s success or failure. Employees are the concrete foundation for the company and must be thoroughly analyzed and evaluated to tap into their true motivations and desires. For a company that wants to reach its greatest potential, employees must work towards improvement rather than perfection. Programs should be implemented that reward star performers, foster the creative learning process, and provide comprehensive training and evaluating.

Resource efficiency refers to that fact that companies must adapt to a rapidly changing environment by being prepared to change and implement new creative ideas related to sustainability. Companies should not throw away old products and materials, but rather be prepared with upgraded technology that can transform the product. New solutions that improve recycling and waste redirecting can ultimately reduce costs and increase profits. For example, Wal-Mart Stores Inc. has redirected more than 64% of the waste generated by stores and Sam’s Club facilities. In 2009 alone, they recycled more than 1.3 million pounds of aluminum, 120 million pounds of plastics, 11.6 million pounds of mixed paper, and 4.6 billion pounds of cardboard. On an annual basis, they expect to save around $20 million and prevent 38 million pounds of waste being sent to landfills.

Essential Principles of a Sustainability Initiative

  1. Triple top-line value production: This establishes three simultaneous requirements of sustainable business activities: 1) financial benefits for the company, 2) natural world betterment, and 3) social advantages for employees and members of the local community—with each of these three components recognized as equal in status.
  2. Nature-based knowledge and technology: This biomimicry-based principal involves the conscious emulation of natural-world genius in terms of growing our food, harnessing our energy, construction, conducting business, healing ourselves, processing information, and designing our communities.
  3. Products of service and products of consumption: Products of service are durable goods routinely leased by the customer that are made of technical materials and are returned to the manufacturer and re-processed into a new generation of products when they are worn out. Products of consumption are shorter lived items made only of biodegradable materials. This principal requires that we manufacture only these two types of products and necessitates the gradual but continual reductions of products of service and their replacement with products of consumption as technological advancements allow.
  4. Solar, wind, geothermal, and ocean energy: This principal advocates employing only sustainable energy technology—solar, wind, ocean, and geothermal—that can meet our energy needs indefinitely without negative effects for life on Earth.
  5. Local-based organizations and economies: This principle calls for durable, beautiful, and healthy communities with locally-owned and operated businesses and locally-managed non-profit organizations, along with regional corporations and shareholders working together in a dense web of partnerships and collaborations.
  6. Continuous improvement process: This principle suggests that operational processes inside successful organizations include provisions for constant advancements and upgrade as the company does its business.