Operations

Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Operations Management
 Systematic direction, control, and evaluation of
the entire range of processes that transform
inputs into finished goods or services.
 Environmental factors-culture, political, and
market influences
 Inputs-HR, capital, materials, land, energy,
information, customer
 Transformations-convert inputs into outputs

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O.M. (cont)
 Outputs-goods or services, and waste
 Customer Contact-customers actively
participate in transformation processes, self-service
 Performance Feedback-repair records,
customer comments

MANAGEMENT, 8E
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Operations Management
 Refers to the management of the production system
that transforms inputs into finished goods and services.
 Production system: the way a firm acquires inputs then
converts and disposes outputs.
 Operations managers: responsible for the transformation
process from inputs to outputs.
 Operations management seeks to increase the quality,
efficiency, and responsiveness of the firm.
 Seeks to provide a competitive advantage.

MANAGEMENT, 8E
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Operations Management Concepts
 Quality: goods and services that are reliable and
perform correctly.
 Quality allows customers to receive the performance that they
expect.
 Efficiency: the amount of input to produce a given
output.
 Less input required lowers cost and waste.
 Responsiveness to customers: actions taken to
respond to customer needs.
 Firm can react quickly and correctly to customer needs as they
arise.

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Differences Between Services and
Goods
 Information Asymmetry
 Intangible
 Inventory
 Customer Contact
 Response Time
 Labor Intensity

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Typical Characteristics of Services and Goods Producers
Adapted from Table 21.1
Primarily Service
Producers
Primarily
Goods
Producers
Continuum of
Characteristics
Intangible, nondurable
Output can’t be
inventoried
High customer contact
Short response time
Labor intensive
Tangible, durable
Output can be
inventoried
Low customer contact
Long response time
Capital intensive
Mixed
21.3

PPT Positioning Strategies-approach
selected for transformational
processes
 Process Focus-layout of
plant and equipment
around each production
unit
 custom made
 Low Volume
 Norwegian Ship Building
 Product Focus-arranging
plant and equipment
around one or a few
output types
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 many of one product
 high-volume, highly
automated
 low flexibility
 Factory Lines
 Intermediate Strategy-plant
and equipment
layout reflects some of
both strategies
 batches of products
 Kinkos, Ball Homes
 Agile Strategy-mass
customization

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Flexibility
 Product Flexibility-speed with which products
are created, ability to customize, ability to
modify products for special needs
 Volume Flexibility-ability to respond to sudden
changes in demand, change from small to full
scale
 Process Flexibility-ability to manufacture a
variety of goods in a short time, adjust to
product mix over time, ability to accommodate
changes in raw materials

Process focus
Space shuttle
Legal practice
Custom products,
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Core Positioning Strategies
Product focus
Auto assembly
plant
 Intermediate Mail processing
Garment
industry
Branch banks
Adapted from Figure 21.2
Product volume
low volume
Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A.,
and Wheelwright, S.C. The Perpetual Enterprise Machine: Seven
Keys to Corporate Renewal Through Successful Product and
Process Development. New York: Oxford University Press, 1994;
Upton, D.M. “The management of manufacturing flexibility.”
California Management Review, Winter 1994, 72–89.
Standard products,
high volume
Mixture of custom and standard
products, moderate volume
Continuous
process
(stable)
Resource flows
Mass
production
Large
batch
Sporadic
(unstable)
21.5

MANAGEMENT, 8E
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Improving Responsiveness to Customers
 Without customers, organizations cease to exist.
 Non-profit and for-profit firms all have customers.
 Managers need to identify who the customer is and their
needs.
 What do customers want? Usually customers prefer:
 A lower price to a higher price.
 High quality over low quality.
 Fast service over slow service.
 Also good after sale support.
 Many features over few features.
 Products tailored to their specific needs.

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Quality-how well a product does
what the customer expects
 Internal View-within the organization
 External View-value customers expect
 Value-the relationship between quality and price

Premium
value
Average
value
Inferior Superior
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Competitiveness Value Map
Relative Quality
Higher
Lower
Poor
value
21.7
Relative Price
Economy
value Outstanding
value
Source: Adapted from Gale,
B.T., and Buzzell, R.D. “Market
perceived quality: Key strategic
concept.” Planning
Review, March-April, 1989, 10.

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Price v. Attributes
 Firms offering high quality, fast service and other
customer desires, often must raise price.
 Customers must tradeoff price for attributes.
 Operations management tries to push the
price/attribute curve to the right with better production.
 Provides more attributes at the same cost.
 By enhancing the price/attribute relationship, the firm can
increase its competitive position.

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Customer Responsive Production Systems
 An output’s attributes is determined by the
production system.
 Firms must strike a balance between cost and attributes
 Improving Quality: can apply to firms producing
goods and services.
 A firm that provides higher quality than others at the
same price is more responsive to customers.
 Higher quality can also lead to better efficiency.
 Lowers waste levels and operating costs.

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Total Quality Management
 The continuous process of ensuring every
aspect of production builds in product quality
 Traditional Quality-product inspection during or
at the end of the transformation process

Total Quality Management Traditional Quality Control
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Total Versus Traditional Quality
Adapted from Table 21.3
 Quality is a strategic issue
 Plan for quality
 Quality is everybody’s responsibility
 Strive for zero defects
 Quality means conformance to
requirements that meet or exceed
customers’ expectations
 Scrap and reworking are only a small
part of the costs of nonconformance
 Quality is a tactical issue
 Screen for quality
 Quality is the responsibility of the
quality control department
 Some mistakes are inevitable
 Quality means inspection
 Scrap and reworking are the major
costs of poor quality
21.11

MANAGEMENT, 8E
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Improving Efficiency
 Labor productivity allows labor comparisons between
organizations.
 Improved efficiency leads to lower costs and better
performance.
 TQM and Efficiency: TQM can lead to much higher
labor productivity.
 When quality rises, less time is wasted on scrap.
 Flexible manufacturing and efficiency: reduces the
set-up costs for production systems.
Facilities layout: seeks to design the machine-worker interface
to increase production efficiency.

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Efficient Manufacturing
 Most firms face major expense when setting up to
produce a product.
 These costs must be paid before production begins.
 The more often products to be built change, the higher setup
costs become.
 Flexible Manufacturing reduces setup costs.
 Just-in-Time (JIT) inventory, while developed for
TQM, also adds to efficient production.
 Many costs are reduced including warehousing, holding costs
and inventory tracking.
 Firm does not have a supply of parts, but can be vulnerable to
strikes or supply problems.

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Efficient Manufacturing
 Self-managed teams boost efficiency by allowing for a
flatter organization structure.
 The team takes the role of the supervisor.
 Teams working together often become very skilled at enhancing
productivity.
 Kaizen: Japanese term for a management philosophy
the stresses the need for continuous improvement.
 Better operations can come from many, small, continuous
improvements.
 Focus on what adds value to the product and try to eliminate
steps that do not add value (such as inspection for defects).

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Reengineering
 Process Reengineering: the fundamental rethinking
and radical redesign of the business process.
 Can boost efficiency by directing efforts to activities that add
value to the good or service produced.
 While Kaizen focuses on continuous enhancements, process
reengineering considers wholesale change.
 Top managers must support operations enhancement
tools for them to be accepted by workers.
 Usually, a successful operations change means a complete
change in the organizational culture.
 Without a supporting culture, change will not succeed.

MANAGEMENT, 8E
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Nine Categories of Operations Management Decisions
 Product plans
 Competitive Priorities
 Positioning Strategies
 Location
 Technological Choices
 Quality management and control
 Inventory management and control
 Materials Management
 Master production scheduling
21.4

MANAGEMENT, 8E
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Inventory Costs
 What contributes to inventory costs?
 TOTAL COST = ORDERING + CARRYING
 Carrying Costs
 Warehouse
 Insurance
 Obsolescence
 taxes
 breakage
 Ordering Costs
 Placing the order
 Transportation
 Shortage

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Inventory Terms
 Lead Time
 Elapsed time between placing and receiving an order
 EOQ-economic order cost
 optimum order quantity yielding the lowest total
inventory cost
 Just-in-time
 finished goods to sell
 sub assemblies to be assembled
 purchases of raw materials to be transformed

Operations

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