todays topic: operations the manufacturing, logistics and service functions, and their relationships...
TRANSCRIPT
Today’s Topic: Today’s Topic: OperationsOperations
The Manufacturing, The Manufacturing, Logistics and Service Logistics and Service functions, and their functions, and their
relationships to technical relationships to technical jobsjobs-or--or-
““if you can’t produce and if you can’t produce and deliver it, it’s unlikely that deliver it, it’s unlikely that
anyone will pay you any anyone will pay you any money”money”
Course ScheduleCourse Schedule
The Marketing Function (Lenovo)The Marketing Function (Lenovo) Sales & Sales Channels (GolfLogix)Sales & Sales Channels (GolfLogix) Internet-based Marketing (HubSpot)Internet-based Marketing (HubSpot) R&D: Product Development (Guidant)R&D: Product Development (Guidant) Operations (Crocs)Operations (Crocs)
Product Launch (Invisalign)Product Launch (Invisalign) Final Exam on Product Launch (Emotiv)Final Exam on Product Launch (Emotiv)
Last Class & Final ExamLast Class & Final Exam
Product launchProduct launch: decisions upon : decisions upon launching a new product (Invisalign launching a new product (Invisalign case); and summary of key learnings case); and summary of key learnings from the coursefrom the course
Final examFinal exam: : decisions on product decisions on product launchlaunch
(Emotiv case)…..(Emotiv case)…..Dec 20Dec 20thth , 1 – 5pm , 1 – 5pm
OperationsOperations
The function of The function of creating,creating, delivering, delivering, andand servicing servicing a a company’s products and/or company’s products and/or services….. includes all but services….. includes all but
designing, marketing and selling designing, marketing and selling themthem
Learnings: OperationsLearnings: Operations
Operations functions: manufacturing, Operations functions: manufacturing, logistics & servicelogistics & service
Characteristics of world-class Characteristics of world-class operations processesoperations processes
The Operations BalanceThe Operations Balance Impacts on operations: marketing, Impacts on operations: marketing,
sales, R&Dsales, R&D
The Operations BalanceThe Operations Balance
COGS
Inventory CustomerService
The Basic Operations The Basic Operations FlowFlow
Sales forecasts are given by Sales forecasts are given by salessales (or (or marketingmarketing) to manufacturing……) to manufacturing……
ManufacturingManufacturing produces products (“finished produces products (“finished goods”)and spare parts (“spares”) ………goods”)and spare parts (“spares”) ………and/or delivers the service (ops)……and/or delivers the service (ops)……
LogisticsLogistics (or “distribution”) handles physical (or “distribution”) handles physical distribution to end-customers and/or distribution to end-customers and/or channels, and is responsible for delivery of channels, and is responsible for delivery of spare parts and repair services…..spare parts and repair services…..
and everyone blames and everyone blames OpsOps if anything goes if anything goes wrong!wrong!
Operations: Operations: Short Term IssuesShort Term Issues
Cost of Goods/Cost of ServiceCost of Goods/Cost of Service Production schedulingProduction scheduling Manufacturing yield/quality/cycle Manufacturing yield/quality/cycle
timetime Inventory managementInventory management Logistics efficiency/costLogistics efficiency/cost Returns and repairs managementReturns and repairs management Customer service qualityCustomer service quality
Operations: Operations: Longer Term IssuesLonger Term Issues
In-house or outsourced?In-house or outsourced? Capacity planning: building capacity Capacity planning: building capacity
(just) in advance of when it will be (just) in advance of when it will be needed, with minimum capitalneeded, with minimum capital
Investing in process technologyInvesting in process technology Building supporting IT systemsBuilding supporting IT systems Regularizing the new product Regularizing the new product
introduction (NPI) processintroduction (NPI) process
Manufacturing Costs Manufacturing Costs Depend on…….Depend on…….
Capacity utilizationCapacity utilization Capital costs (depreciation on capital)Capital costs (depreciation on capital) Process technology/yieldProcess technology/yield Cycle time, set-up intervals, run Cycle time, set-up intervals, run
volumesvolumes Product designs !!Product designs !! Materials costs (BOM)Materials costs (BOM) NPI process efficiencyNPI process efficiency
Operations’ Challenge is Operations’ Challenge is to to BalanceBalance….….
COGS: COP and COS COGS: COP and COS (cost of product (cost of product manufacture, cost of service, and manufacture, cost of service, and logistics expense)logistics expense)
InventoryInventory (full-stream: materials, work- (full-stream: materials, work-in- process, finished goods, spare parts)in- process, finished goods, spare parts)
Customer serviceCustomer service (delivery/response (delivery/response intervals, and quality of services)intervals, and quality of services)
The Operations BalanceThe Operations BalanceCOGS
(COP,COS)
Inventory CustomerService
Operations is impacted Operations is impacted by “inputs” from…….by “inputs” from…….
MarketingMarketing
SalesSales
R&DR&D
and others (IT, finance, HR, … )and others (IT, finance, HR, … )
Marketing: Marketing: Inputs/ImpactsInputs/Impacts
Product line/model breadthProduct line/model breadth Cost/COGS targetsCost/COGS targets Product quality targetsProduct quality targets New product strategy (big-bang New product strategy (big-bang
or incremental/inch-up)or incremental/inch-up) Customer service requirementsCustomer service requirements Sales promotions/incentivesSales promotions/incentives Sales forecasts (long-run)Sales forecasts (long-run)
Sales: Inputs/ImpactsSales: Inputs/Impacts
Sales forecasts (short-run)Sales forecasts (short-run) Warranty/return managementWarranty/return management Commitments to customers Commitments to customers Quality of Quality of
installation/maintenanceinstallation/maintenance Accuracy of customer ordersAccuracy of customer orders Ability to “level out” sales volumeAbility to “level out” sales volume
R&D: Inputs/ImpactsR&D: Inputs/Impacts
Product designs (for cost and service)Product designs (for cost and service) Design changes/modificationsDesign changes/modifications Product materials/componentsProduct materials/components Quality and timeliness of “hand-offs”Quality and timeliness of “hand-offs” Process engineering efforts (or not)Process engineering efforts (or not) Role in manufacturing engineering Role in manufacturing engineering Support for concurrent engineeringSupport for concurrent engineering
Readings Readings
Can Marketing and Manufacturing Can Marketing and Manufacturing Coexist?Coexist? -- read to understand the 8 issues -- read to understand the 8 issues listed in the article’s Exhibitlisted in the article’s Exhibit
Crocs: Revolutionizing an Industry’s Crocs: Revolutionizing an Industry’s Supply Chain Supply Chain -- an example of the -- an example of the importance of Operations in the success of a importance of Operations in the success of a businessbusiness
AssignmentAssignment
In what ways can technical people (R&D, technical In what ways can technical people (R&D, technical sales, etc) sales, etc) assist with the resolution assist with the resolution and/or and/or minimizationminimization of the marketing-manufacturing issues of the marketing-manufacturing issues cited in the first reading? Provide one cited in the first reading? Provide one thought/example for each of the 8 issues in the thought/example for each of the 8 issues in the exhibit in the “Coexist” reading.exhibit in the “Coexist” reading.
What are Crocs’ competitive advantages? Which of What are Crocs’ competitive advantages? Which of these are related to its operations function?these are related to its operations function?
To what extent do each of these growth strategies To what extent do each of these growth strategies leverage Crocs’ competitive advantages: (a) internal leverage Crocs’ competitive advantages: (a) internal manufacturing of raw materials used in compounding, manufacturing of raw materials used in compounding, (b) internal development of new products, (c) (b) internal development of new products, (c) acquiring companies to get new products, and (d) acquiring companies to get new products, and (d) acquiring companies to get new customers?acquiring companies to get new customers?
Assignment: Assignment: R&D Impacts on…?R&D Impacts on…?
Capacity planningCapacity planning Production schedulingProduction scheduling Logistics/distributionLogistics/distribution Quality assuranceQuality assurance Breadth of product lineBreadth of product line Costs (COGS: COP and COS)Costs (COGS: COP and COS) New Product IntroductionNew Product Introduction Customer service Customer service
Can Marketing and Can Marketing and Manufacturing Coexist?Manufacturing Coexist?
Problem AreaProblem Area Typical Typical marketing marketing commentcomment
Typical Typical manufacturinmanufacturing commentg comment
Capacity Capacity planning and planning and long-range long-range sales sales forecastingforecasting
““Why don’t Why don’t we have we have enough enough capacity?”capacity?”
““Why didn’t Why didn’t we have we have accurate accurate sales sales forecasts?”forecasts?”
Can Marketing and Can Marketing and Manufacturing Coexist?Manufacturing Coexist?
Problem Problem AreaArea
Typical Typical marketing marketing commentcomment
Typical Typical manufacturing manufacturing commentcomment
Production Production scheduling scheduling and short-and short-range sales range sales forecastingforecasting
““We need We need faster faster response. response. Our lead Our lead times are times are ridiculous.”ridiculous.”
““We need We need realistic realistic customer customer commitments commitments and sales and sales forecasts that forecasts that don’t change like don’t change like wind direction”wind direction”
Can Marketing and Can Marketing and Manufacturing Coexist?Manufacturing Coexist?
Problem AreaProblem Area Typical Typical marketing marketing commentcomment
Typical Typical manufacturinmanufacturing commentg comment
Delivery and Delivery and physical physical distributiondistribution
““Why don’t Why don’t we ever have we ever have the right the right merchandise merchandise in inventory?”in inventory?”
““We can’t We can’t keep keep everything in everything in inventory”inventory”
Can Marketing and Can Marketing and Manufacturing Coexist?Manufacturing Coexist?
Problem Problem AreaArea
Typical Typical marketing marketing commentcomment
Typical Typical manufacturing manufacturing commentcomment
Quality Quality assuranceassurance
““Why can’t Why can’t we have we have reasonable reasonable quality at quality at reasonable reasonable cost?”cost?”
““Why must we Why must we always offer always offer options that are options that are too hard to too hard to manufacture and manufacture and that offer little that offer little customer utility?”customer utility?”
Can Marketing and Can Marketing and Manufacturing Coexist?Manufacturing Coexist?
Problem AreaProblem Area Typical Typical marketing marketing commentcomment
Typical Typical manufacturinmanufacturing commentg comment
Breadth of Breadth of product lineproduct line
““Our Our customers customers demand demand variety”variety”
““The product The product line is too line is too broad – all we broad – all we get are short, get are short, uneconomical uneconomical runs.”runs.”
Can Marketing and Can Marketing and Manufacturing Coexist?Manufacturing Coexist?
Problem Problem AreaArea
Typical Typical marketing marketing commentcomment
Typical Typical manufacturing manufacturing commentcomment
Cost controlCost control ““Our costs Our costs are so high are so high that we are that we are not not competitive competitive in the in the marketplacemarketplace””
““We can’t We can’t provide fast provide fast delivery, broad delivery, broad variety, rapid variety, rapid response to response to change, and high change, and high quality at low quality at low cost.”cost.”
Can Marketing and Can Marketing and Manufacturing Coexist?Manufacturing Coexist?
Problem AreaProblem Area Typical Typical marketing marketing commentcomment
Typical Typical manufacturing manufacturing commentcomment
New product New product introductionintroduction
““New New products are products are our our lifeblood”lifeblood”
““Unnecessary Unnecessary design changes design changes are are prohibitively prohibitively expensive.”expensive.”
Can Marketing and Can Marketing and Manufacturing Coexist?Manufacturing Coexist?
Problem AreaProblem Area Typical Typical marketing marketing commentcomment
Typical Typical manufacturing manufacturing commentcomment
Adjunct Adjunct services such services such as spare parts as spare parts inventory inventory support, support, installation, installation, and repairand repair
““Field Field service costs service costs are too are too high.”high.”
““Products are Products are being used in being used in ways for ways for which they which they weren’t weren’t designed.”designed.”
Crocs case: questionsCrocs case: questions
What are Crocs’ competitive advantages? What are Crocs’ competitive advantages? Which of these are related to its Which of these are related to its operations function?operations function?
To what extent do each of these growth To what extent do each of these growth strategies leverage Crocs’ competitive strategies leverage Crocs’ competitive advantages: (a) internal manufacturing of advantages: (a) internal manufacturing of raw materials used in compounding, (b) raw materials used in compounding, (b) internal development of new products, (c) internal development of new products, (c) acquiring companies to get new products, acquiring companies to get new products, and (d) acquiring companies to get new and (d) acquiring companies to get new customers?customers?
Core CompetenciesCore Competenciesvs.vs.
Competitive AdvantagesCompetitive Advantages
CoreCompetencies
CompetitiveAdvantages - capability - process - skill - position
Crocs Supply Chain Crocs Supply Chain CharacteristicsCharacteristics
Global manufacturingGlobal manufacturing Vertical integrationVertical integration ““Postponement” (JIT production)Postponement” (JIT production) Warehouses at production facilitiesWarehouses at production facilities ““Excess” capacity and inventoryExcess” capacity and inventory Simple products (initially)Simple products (initially) Short lead timesShort lead times Production throughout selling seasonProduction throughout selling season
Growth AlternativesGrowth Alternatives
internal manufacturing of raw materials internal manufacturing of raw materials used in compoundingused in compounding
internal development of new productsinternal development of new products
acquiring companies to get new productsacquiring companies to get new products
acquiring companies to get new acquiring companies to get new customerscustomers
Identifying Competitive Identifying Competitive OptionsOptions
Products
Customers
Current
Position
Currentproducts
Current target customers
Competitive OptionsCompetitive Options
Protect & defend current customer/product Protect & defend current customer/product segmentsegment
Increase market share in current segmentIncrease market share in current segment
Selectively extend (whole) product offeringsSelectively extend (whole) product offerings
Selectively extend target customer setSelectively extend target customer set
Become a broad-line supplierBecome a broad-line supplier
Our Last Assignment:Our Last Assignment:Product LaunchProduct Launch
InvisalignInvisalign
A new technology ( ~ 2000)A new technology ( ~ 2000)
for aligning teethfor aligning teeth
Product Launch Product Launch Assignment:Assignment:
Align Technology in 2001Align Technology in 2001 Invisalign straightens teeth via a series of clear Invisalign straightens teeth via a series of clear
plastic retainers designed and made plastic retainers designed and made specifically for each patientspecifically for each patient
Higher price and higher COGS than traditional Higher price and higher COGS than traditional metal braces, but “better”metal braces, but “better”
Product available for about 2 yearsProduct available for about 2 years Annual revenues ~$50M but OI ~($100M)Annual revenues ~$50M but OI ~($100M) Adoption rate by orthodontists is insufficient to Adoption rate by orthodontists is insufficient to
support future growthsupport future growth Arguably, the product needs to be “re-Arguably, the product needs to be “re-
launched”launched”
Assignment for Next Assignment for Next WeekWeek
Which of the three end-customer (patient) segments Which of the three end-customer (patient) segments identified should be Align’s target? Why?identified should be Align’s target? Why?
Which of the promotion and sales tasks (promotion, Which of the promotion and sales tasks (promotion, selling, fulfillment, service) should be done by Align? selling, fulfillment, service) should be done by Align? By the dentists? By the orthodontists?By the dentists? By the orthodontists?
What are the orthodontist’s “channel economics” for What are the orthodontist’s “channel economics” for Invisalign vs. standard braces?Invisalign vs. standard braces?
What barriers are preventing increased adoption of What barriers are preventing increased adoption of Invisalign by orthodontists?Invisalign by orthodontists?
How should Invisalign be positioned with How should Invisalign be positioned with orthodontists? (write a positioning statement)orthodontists? (write a positioning statement)
By what methods should Invisalign be promoted to By what methods should Invisalign be promoted to dentists? To orthodontists?dentists? To orthodontists?