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
 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
 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.
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.
 Differences Between Services and
Goods
• Information Asymmetry
• Intangible
• Inventory
• Customer Contact
• Response Time
• Labor Intensity
 21.3

Typical Characteristics of Services and Goods Producers

Primarily
Primarily Service Continuum of Goods
Producers Characteristics Producers

Mixed
Intangible, nondurable Tangible, durable

Output can’t be Output can be

inventoried inventoried

High customer contact Low customer contact

Short response time Long response time

Labor intensive Capital intensive

Adapted from Table 21.1

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

Auto assembly
Resource flows

Mass
production plant
Intermediate
Mail processing
Garment
Large industry
batch
Process focus Branch banks

Space shuttle
Sporadic
(unstable)
Legal practice
Custom products,
Mixture of custom and standard Standard products,
low volume products, moderate volume high volume
Product volume
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.
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
 21.7

Competitiveness Value Map

Higher Premium
Poor value
value
Relative Price

Average
value

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

Adapted from Figure 21.3

 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.
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.
 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
 21.11

Total Versus Traditional Quality

Total Quality Management Traditional Quality Control

 Quality is a strategic issue  Quality is a tactical issue

 Plan for quality  Screen for quality
 Quality is everybody’s responsibility  Quality is the responsibility of the
 Strive for zero defects quality control department
 Quality means conformance to  Some mistakes are inevitable
requirements that meet or exceed  Quality means inspection
customers’ expectations
 Scrap and reworking are only a small
part of the costs of nonconformance  Scrap and reworking are the major
costs of poor quality

Adapted from Table 21.3

 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.
 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.
 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).
 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.
 21.4

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