Chapter 1-operations-as-a-competitive-weapon

1. Mah Rukh Hina
Operations ManagementOperations Management

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Operations Management
“… deals with processes that produce goods
and services that people use everyday.”
“ Effective management of processes can give
companies a competitive edge.”

3. Mah Rukh Hina
Production Management
What is “Production”?
 The act of producing
 To bring into existence
 To create something having exchange value

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Operations Management
VS
Production Management
Production management was traditionally associated with
goods production.
Operations management was created for the management
of production of services.
Operations Management is now used for both goods and
services production.

5. Mah Rukh Hina
Operations as aOperations as a
Competitive WeaponCompetitive Weapon
Chapter 1

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In This Chapter…
 What is a Process?
 What is a Value-Chain?
 What is Operations Management?
 Trends and Challenges in OM

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Inputs
Transformation Processes
(Adding value)
Outputs
What is a Process?
“… any activity or group of activities that takes one or
more inputs, transforms and adds value to them, and
provides one or more outputs for its customers.”

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Processes
 Processes should add value.
 Processes can be broken down into sub-processes, which
in turn can be broken down further.
 Any process that is part of a larger process is considered
a “nested process.”
 Each process and each nested process has inputs and
outputs.

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Manufacturing
Inputs and Outputs
INPUTS
 Raw Materials
 Employees
 Plant
 Equipment
 Financing
OUTPUTS
 Consumer Goods
 Materials for purchase by other
firms
 Services
 Payments to employees

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University
Inputs and Outputs
INPUTS
 Students
 Faculty and Staff
 Facilities
 Equipment and Supplies
 Financing
OUTPUTS
 Educated citizens
 Research
 Public service
 Payments to employees

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Examples of Processes
 Manufacturing something
 Warehousing of raw materials
 Processing insurance claims
 Teaching a class
 Getting a product to the customer

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A Process View
 How do we know if an organization is running effectively
or not?
 It is important to take a Process View

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Process View
of an Ad Agency
Accounting process
Production process
• Prepare ad for publication
and deliver to media
outlets
Advertisement
design and
planning process
• Create the ad to the
needs of the client
and prepare a plan
for media exposure
Client interface
process
• Communicate with
client, get needs, and
coordinate progress
Inputs
Clients

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Nested Processes
Advertisement Design and Planning Process
Creative design process
• Receive work request
• Assemble team
• Prepare several designs
• Receive inputs from
Account Executive
• Prepare final concept
• Revise concept per
client’s inputs
Media planning process
• Receive work request
• Prepare several media
plans
• Receive inputs from
Account Executive
• Prepare final plan
• Revise plan per client’s
inputs
“The concept of a process within a process.”

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 External Customer: A customer who is either an end user or an
intermediary buying the firm’s finished goods or services.
 Internal Customer: An employee or process that relies on inputs
from other employees or processes in order to perform their work.
 External Supplier: The businesses or individuals who provide the
resources, services, products, and materials for the firm’s short and
long term needs.
 Internal Supplier: The employees or processes that supply
important information or materials to a firm’s process.
Customer-Supplier
Relationships

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Manufacturing
and Service Process
Goods Production
 Tangible
 Can be inventoried
 Low customer contact
 Capital Intensive
 Quality easily measured
Service Production
 Intangible
 Can’t be inventoried
 High customer contact
 Labor Intensive
 Quality hard to measure
Most firms provide both goods and services.
Two major type of Processes

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What is a Process?
 A Process View
 Nested Processes
 Customer-supplier Relationships
 Service And Manufacturing Processes

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Value Chains
 Value chains are an interrelated series of processes that produce a
service or product to the satisfaction of customers.
 Value chains may have core processes or support processes.
 Core processes deliver value to external customers.
 Support processes provide vital inputs for the core processes.

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Core Processes
1. Customer relationship process
 Identify, attract, and build relationships with external customers
and facilitate the placement of orders.
1. New service/product development process
 Design and develop new services or products from inputs
received from external customer specifications.
1. Order fulfillment process
 The activities required to produce and deliver the service or
product to the external customers.
1. Supplier relationship process
 Select suppliers of services, materials and information and
facilitate the timely and efficient flow of these items into the
firm.

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Support Processes
Internal Value-Chain Linkages
 Firms have many processes that support the core processes.
Externalsuppliers
Externalcustomers
Support processes
Supplier
relationship
process
Order
fulfillment
process
New service/
product
development
process
Customer
relationship
process

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Capital
Acquisition
The provision of financial resources for the organization to do
its work and to execute its strategy
Budgeting The process of deciding how funds will be allocated over a
period of time
Recruitment and
Hiring
The acquisition of people to do the work of the organization
Evaluation and
Compensation
The assessment and payment of the people for the work and
value they provide to the company
Human Resource
Support and
Development
The preparation of the people for their current jobs and future
skill and knowledge needs
Regulatory
Compliance
The process that insure the company if meeting all laws and
legal obligations
Table 1.1 Examples of Support ProcessesTable 1.1 Examples of Support Processes
Support Processes

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What is Operations
Management ?
“The systematic design, direction, and control
of processes that transform inputs into
services and products for internal as well as
external customers.”

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Operations Management
As a Function

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Operations as
A Set of Decisions
(1) Recognize and clearly define the problem
(2) Collect the information needed to analyze
possible alternatives
(3) Choose the most attractive alternative
(4) Implement the chosen alternative
Basic Decision-Making Steps

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Operations as
A Set of Decisions
Strategic Decisions Tactical Decisions
 Development of new
capabilities
 Maintenance of existing
capabilities
 Design of new processes
 Development and organization
of value chains
 Process improvement and
performance measures
 Management and planning of
projects
 Inventory management
 Resource scheduling

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Trends and Challenges in
Operations Management
 Productivity Improvement
 Global Competition
 Rapid Technological Change
 Ethical, Workforce Diversity, and Environmental Issues

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Productivity Improvement
Productivity =
Output
Input
Measuring Productivity
 Single Factor method
 Multifactor method
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Single Factor Method
Labor productivity =
Policies processed
Employee hours
Productivity Improvement

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Three employees process 600 insurance policies in a week. They
work8 hours per day, 5 days per week. Calculate the productivity in
policies per hour.
Labor productivity = Policies Processed / Employee Hours
= 600 Policies / (3 Employees) (40 hours/employee)
= 5 policies/hr
Productivity Improvement
Single Factor Method

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Multifactor Method
Multifactor
productivity =
Quantity at standard cost
Labor cost + Materials cost + Overhead cost
Productivity Improvement

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A team of workers make 400 units of a product, valued by its standard
cost of $10 each (before markups for other expenses and profit). The
accounting department reports that the actual costs are $400 for
labor, $1,000 for materials, and $300 for overhead. Calculate the
productivity.
Multifactor productivity = (400 units) ($10/unit)
$400 + $1000 + $300
= $4,000
$1,700
= 2.35
Productivity Improvement
Multifactor Method

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Decision Point
These types of productivity figures must be compared with
performance levels in prior periods and with future goals in order
to have meaning.
Productivity Improvement

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How to Improve Productivity?
 Decrease input relative to output
 Speed up the through-put
 Increase output relative to input
Productivity Improvement

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Global Competition
 Businesses must accept the fact that, to prosper, they must
view customers, suppliers, facility locations, and
competitors in global terms.
 Most products today are composites of materials and
services from all over the world.
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Global Competition
Forces that created increased global competition:
 Improved Transportation and Information Technologies
 Loosened regulations on Financial Institutions
 Increased Demand for Imported Services and Goods
 Reduced Import Quotas and other Trade Barriers
 Comparative Cost Advantages

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 May have to relinquish proprietary technology.
 Political risks.
 Lower skill levels in some areas.
 Difficulty with cross-functional coordination.
 Harder to produce products and services that can compete.
Global Competition Disadvantages
Global Competition

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Rapid Technological
Change
Benefits
 Better Quality
 Increased Efficiency
 Fast Communication
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Challenges
 Process redesigns
 Employee attitudes
 Employee training

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Other Challenges in
Operations Management
 Ethical issues across cultures
 Increasing diversity of the workforce
 Environmental impact issues

39. Mah Rukh Hina
So We’ve Discussed…
 What is a Process?
 What is a Value-Chain?
 What is Operations Management?
 Trends and Challenges in OM