intro. of om

7/31/2019 INTRO. OF OM

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The Operations FunctionThe Operations Function

OverviewOverview

What is Operations Management?What is Operations Management?

Transformation Processes and ValueTransformation Processes and ValueChainsChains

How Operations is Connected with OtherHow Operations is Connected with Other

Business Functions and with SuppliersBusiness Functions and with Suppliers


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What is Operations Management?What is Operations Management?

What is Operations Management?What is Operations Management? design, operation, and improvement of productivedesign, operation, and improvement of productive

systemssystems

What is Operations?What is Operations? a function or system that transforms inputs into outputs ofa function or system that transforms inputs into outputs of

greater valuegreater value

What is a Transformation Process?What is a Transformation Process? a series of activities along aa series of activities along a value chainvalue chainextending fromextending from

supplier to customersupplier to customer activities that do not add value are not needed andactivities that do not add value are not needed and

should be eliminatedshould be eliminated


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INPUTMaterialMachinesLaborManagementCapital

TRANSFORMATION

PROCESS

OUTPUTGoodsServices

Feedback & RequirementsFeedback & Requirements

Operations as aOperations as a

Transformation ProcessTransformation ProcessFigure 1.1Figure 1.1


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A Value ChainA Value Chain

Manufacturer Customer Supplier

Flow of information: customer order andFlow of information: customer order anddelivery requirementsdelivery requirements

Flow of products: goods and servicesFlow of products: goods and services


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Physical:Physical:as in manufacturing operationsas in manufacturing operations

Locational:Locational:as in transportation oras in transportation orwarehouse operationswarehouse operations

Exchange:Exchange:as in retail operationsas in retail operations

Physiological:Physiological:as in health careas in health care

Psychological:Psychological:as in entertainmentas in entertainment

Informational:Informational:as in communicationas in communication

Transformation ProcessTransformation Process


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How Operations is Connected with OtherHow Operations is Connected with OtherBusiness Functions and with SuppliersBusiness Functions and with Suppliers

OperationsOperations

MarketingMarketing

Finance andFinance and

AccountingAccounting

HumanHuman

ResourcesResources OutsideOutside

SuppliersSuppliers


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Evolution of Operations andEvolution of Operations and

Supply Chain ManagementSupply Chain Management Craft productionCraft production

process of handcrafting products or services forprocess of handcrafting products or services for

individual customersindividual customers Division of laborDivision of labor

dividing a job into a series of small tasks eachdividing a job into a series of small tasks eachperformed by a different worker. Division of laborperformed by a different worker. Division of laboris used to design assembly lines.is used to design assembly lines.

Interchangeable partsInterchangeable parts standardization of parts. A necessary stepstandardization of parts. A necessary step

toward mass productiontoward mass production


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Scientific managementScientific management

systematic analysis of work methodssystematic analysis of work methods Mass productionMass production

high-volume production of a standardizedhigh-volume production of a standardized

product for a mass marketproduct for a mass market

Lean productionLean production an adaptation of mass production thatan adaptation of mass production thatemphasizes quality, flexibility, and reducedemphasizes quality, flexibility, and reduced

costscosts

Evolution of Operations and SupplyEvolution of Operations and Supply

Chain Management (cont.)Chain Management (cont.)


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Strategic PlanningStrategic Planning

Company missionCompany mission oror primary taskprimary task: what is the: what is the

company in business to do? Examples:company in business to do? Examples: Levi-Strauss: We will market and distribute the mostLevi-Strauss: We will market and distribute the most

appealing & widely worn apparel brands.appealing & widely worn apparel brands.

Dell: Dell listens to customers and deliversDell: Dell listens to customers and delivers

technology they trust and value.technology they trust and value.

AA business strategybusiness strategy explains how a companyexplains how a company

will achieve its mission.will achieve its mission.


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Key Inputs to a Business StrategyKey Inputs to a Business Strategy

Mission statementMission statement Environmental scanning (Environmental scanning (opportunitiesopportunities andand

threatsthreats)) What is going onWhat is going on outsideoutside the company that willthe company that will

affect your business?affect your business?

Internal analysis ofInternal analysis of strengthsstrengths andand weaknessesweaknesses What is going onWhat is going on insideinside the company that affectsthe company that affects

your strategic options?your strategic options?


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Environmental Scanning - CurrentEnvironmental Scanning - Current

Situation and Future TrendsSituation and Future Trends The company should look at what is going onThe company should look at what is going on

outsideoutside the company with respect to:the company with respect to: Product and process technology in the industryProduct and process technology in the industry Laws and regulations that could affect the companyLaws and regulations that could affect the company

Economic trendsEconomic trends

Social and demographic trendsSocial and demographic trends

Market trends and customer dataMarket trends and customer data

Industry and competitor strategiesIndustry and competitor strategies


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Environmental Scanning (2)Environmental Scanning (2)

Identify opportunities and threatsIdentify opportunities and threats Examples of opportunitiesExamples of opportunities

Laws requiring use of ethanol in gasoline createdLaws requiring use of ethanol in gasoline created

opportunities for ethanol producersopportunities for ethanol producers Growing markets in China and India may createGrowing markets in China and India may create

opportunities for your company.opportunities for your company. Examples of threatsExamples of threats

A competitor is introducing a product that yourA competitor is introducing a product that your

company cannot match.company cannot match. New banking regulations are being proposed.New banking regulations are being proposed. An economic recessionAn economic recession


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Environmental Scanning (3)Environmental Scanning (3)

Order qualifiers and winnersOrder qualifiers and winners

Order qualifier: what qualifies a good orOrder qualifier: what qualifies a good or

service to be considered for purchase?service to be considered for purchase?

Order winner: what characteristic of a good orOrder winner: what characteristic of a good or

service persuades customers to buy.service persuades customers to buy.

Order qualifiers and order winners:Order qualifiers and order winners:

Change over timeChange over time Depend on the target marketDepend on the target market

Depend on positioning in the marketplaceDepend on positioning in the marketplace


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Internal Company AnalysisInternal Company Analysis

Evaluate the company's financial, managerial,Evaluate the company's financial, managerial,

technical, and material strengths andtechnical, and material strengths and

weaknesses.weaknesses. Look for core competencies that the companyLook for core competencies that the company

has or could develop.has or could develop.


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Core CompetenciesCore Competencies

Core competency (distinctive competence)Core competency (distinctive competence) What does the firm do better than anyone else?What does the firm do better than anyone else? Should create aShould create a sustainablesustainable (long-term) competitive(long-term) competitive

advantage.advantage. Should be hard to imitate.Should be hard to imitate. Usually requires cooperation and informationUsually requires cooperation and information

sharing among different business functionssharing among different business functions Often includes partnerships with suppliers orOften includes partnerships with suppliers or

customers.customers.


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Examples of Core CompetenciesExamples of Core Competencies

Wal-Mart has maintained "everyday low prices" forWal-Mart has maintained "everyday low prices" for

decades.decades.

Nordstrom's is known for superior customer service.Nordstrom's is known for superior customer service. The Mayo Clinic is known for excellent medicalThe Mayo Clinic is known for excellent medical

care, at a low cost.care, at a low cost.


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How Wal-Mart Keeps Prices LowHow Wal-Mart Keeps Prices Low

Demands very low prices from suppliersDemands very low prices from suppliers Limits inventory byLimits inventory by

Requiring suppliers to deliver most merchandise directly toRequiring suppliers to deliver most merchandise directly tostores just as it is needed (vendor-managed inventory)stores just as it is needed (vendor-managed inventory)

Merchandise delivered to Wal-Mart distribution centers goesMerchandise delivered to Wal-Mart distribution centers goes

directly onto trucks for delivery to stores (cross-docking)directly onto trucks for delivery to stores (cross-docking) Stocks a limited number of brands in each product categoryStocks a limited number of brands in each product category

Headquarters closely monitors sales and inventory at eachHeadquarters closely monitors sales and inventory at eachstorestore

No-frills store layouts and product displaysNo-frills store layouts and product displays Tight controls on staffing and employee compensationTight controls on staffing and employee compensation


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Order Qualifiers, Winners, andOrder Qualifiers, Winners, and

Core Competencies - SummaryCore Competencies - Summary

Order qualifiers and order winners defineOrder qualifiers and order winners define

customer requirementscustomer requirements

A company should satisfy order qualifiers in itsA company should satisfy order qualifiers in its

target markettarget market

A company's core competency should be anA company's core competency should be an

order winner in its target marketorder winner in its target market


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Strategic PositioningStrategic Positioning

(also called Positioning)(also called Positioning)

How the company chooses to competeHow the company chooses to compete

Sets competitive priorities for the companySets competitive priorities for the company

Considerations in PositioningConsiderations in Positioning Strengths and weaknesses of the firmStrengths and weaknesses of the firm

Present and future needs of customersPresent and future needs of customers

Strategies of competitorsStrategies of competitors Potential of technology to help the firm get and keepPotential of technology to help the firm get and keep

customerscustomers


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Competitive PrioritiesCompetitive Priorities

that Operations Supportsthat Operations Supports

Cost also called competing on priceCost also called competing on price QualityQuality FlexibilityFlexibility SpeedSpeed We will discuss these priorities throughoutWe will discuss these priorities throughout

the semester.the semester. It is hard to excel at more than two of these.It is hard to excel at more than two of these.


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Positioning the Firm:Positioning the Firm:

Competing on CostCompeting on Cost Waste eliminationWaste elimination

relentlessly pursuing the removal of all wasterelentlessly pursuing the removal of all waste

Examination of cost structureExamination of cost structure looking at the entire cost structure forlooking at the entire cost structure for

reduction potential not just direct laborreduction potential not just direct labor

High-volume production and automationHigh-volume production and automation

are sometimes the best alternatives.are sometimes the best alternatives. In other cases, lean production is moreIn other cases, lean production is more

efficient.efficient.


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Competing on SpeedCompeting on Speed

There are several ways to compete on speed.There are several ways to compete on speed.

Rapid service delivery: Lens Crafters, FedExRapid service delivery: Lens Crafters, FedEx

Build-to-order production: Dell can produce aBuild-to-order production: Dell can produce a

computer to order in two dayscomputer to order in two days

Rapid new product introductionRapid new product introduction Zara can design a new garment, manufacture it,Zara can design a new garment, manufacture it,

and have it in stores in 9 15 days.and have it in stores in 9 15 days.


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QualityQuality Conformance quality ensures theConformance quality ensures the

consistency of a good or service.consistency of a good or service. Any good or service can have conformanceAny good or service can have conformance

quality.quality. Conformance quality is usually an order qualifier.Conformance quality is usually an order qualifier. Since competitors are also likely to haveSince competitors are also likely to have

conformance quality, this type of quality isconformance quality, this type of quality isusually not an order winner.usually not an order winner.


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Quality (2)Quality (2) Companies that compete on quality focus onCompanies that compete on quality focus on

pleasing or delighting the customer.pleasing or delighting the customer.

These companies often offer luxury goods orThese companies often offer luxury goods or

services with high design quality.services with high design quality. Nordstrom's storesNordstrom's stores

Ritz Carlton HotelsRitz Carlton Hotels Rolls-Royce automobilesRolls-Royce automobiles

Rolex watchesRolex watches


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FlexibilityFlexibility Flexibility is the ability to adjust to changes inFlexibility is the ability to adjust to changes in

product mix, production volume, or product designproduct mix, production volume, or product design One approach to flexibility involves responding toOne approach to flexibility involves responding to

general changes in demandgeneral changes in demand.. Benetton constantly monitors sales. ProductionBenetton constantly monitors sales. Production

of hot-selling items will be increased, and theyof hot-selling items will be increased, and theymay be offered in new colors. Production ofmay be offered in new colors. Production ofitems that are not selling well will cease.items that are not selling well will cease.

Zara responds to changing demand byZara responds to changing demand byintroducing more than 20,000 items per year.introducing more than 20,000 items per year.(Zara competes on both speed and flexibility).(Zara competes on both speed and flexibility).


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Flexibility (2)Flexibility (2) Mass customizationMass customization is the mass production ofis the mass production of

customized products using computer-aided designcustomized products using computer-aided design

(CAD) and computer-aided manufacturing (CAM). This(CAD) and computer-aided manufacturing (CAM). Thisis another approach to flexibility.is another approach to flexibility. National Bicycle offers more than 11 millionNational Bicycle offers more than 11 million

combinations of product options for bicycles.combinations of product options for bicycles. The customized bicycles are shipped within two weeksThe customized bicycles are shipped within two weeks

and cost only 10% more than standard bicycles.and cost only 10% more than standard bicycles. Like Dell, National Bicycle uses a build-to-order system.Like Dell, National Bicycle uses a build-to-order system.


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Technology and Methods forTechnology and Methods for

Mass CustomizationMass Customization Here are some of the technologies and methods thatHere are some of the technologies and methods that

make mass customization work at Dellmake mass customization work at Dell

Computer-aided design (CAD) and computer-aided-Computer-aided design (CAD) and computer-aided-manufacturing (CAM).manufacturing (CAM).

Frequent deliveries from suppliers so that Dell hasFrequent deliveries from suppliers so that Dell has

the parts it needsthe parts it needs

Supply Chain Management (SCM) informationSupply Chain Management (SCM) informationsystems so that suppliers know what to deliversystems so that suppliers know what to deliver Since Dell also ships finished computers in two days, itSince Dell also ships finished computers in two days, it

is competing on both technology and speed.is competing on both technology and speed.

intro. of om

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