MODULE I – GOODS, SERVICES, AND OPERATIONS

MANAGEMENT

Operations Management (OM)

-science and art of ensuring that goods and services are
created and delivered successfully to customers.

- applying the principles of OM entails a solid understanding of

people, process and technology and also to create value

- Essential in providing high quality goods and services,

Motivating and developing the skills of the people,
Maintaining efficient operations,
Ensure an adequate return on investment, and
Protecting the environment

 You need not have the title of “Operations Manager” to do

operations management

 Things are done successfully (with strategies) through the ideas

and methods of OM

1.2 – OM IN THE WORKPLACE

 Forecasting
- predict the future demands

 Supply chain management

- manage the flow of materials, info, people and money
from suppliers to customers

 Facility layout and design

- determine the best configuration of machines,storage,
offices and departments to provide the highest levels of
efficiency and customer satisfaction.

 Technology Selection
 - use technology to improve productivity and respond
faster to customers
 Quality Management
- meet customers’ expectations and requirements

 Purchasing
- coordinate the acquisition of materials, supplies and
services

 Resource and capacity management

- ensure that the right amount of resources is available
when needed

 Process Design
- select the right equipment, information and work
methods to produce high quality goods and services efficiently.

 Job Design
- assign people to work task and job responsibilities

 Service encounter design

- determine the best types of interactions between
service providers and customers
- determine how to recover from service upsets

 Scheduling
- determine when resources (employees and
equipment) should be assigned to work

 Sustainability
- best way to manage the risk to preserve resources for
future generations
1.3 – UNDERSTANDING GOODS AND SERVICES

 Good
- physical product that you can see, touch or possibly
consume.

 Durable Good
- a product that typically lasts at least three years

 Non- Durable Good

- perishable and generally lasts for less than a year

 Service
- primary or complementary the non-goods part of a
transaction between a buyer (customer) and seller (employee)

Goods and Services

- driven by customers
- provide value and satisfaction
- can be standardized for the mass market or customized
individual needs

 Good are tangible, service are intangible

 Services that do not involve significant interaction with

customers can be managed much the same goods in a factory.

 The demand for services is more difficult to predict than the

demand for goods

 Services cannot be stored as physical inventory

 Customers participate in many service processes, activities and

transactions
  Service management skills are paramount for successful
service encounter

 Service facility typically need to be in close proximity to the

customer

 Patents do not protect services

1.4 – A History and Challenge

Five Eras of Operations Management

1. Focus on Efficiency
- technology was viewed primarily as a method of reducing
costs and distracted from the importance of improving quality.

2. Quality Revolution
- they use statistical tools to identify causes of quality problems
to reduce defects and pay attention to consumer’s needs.
- Japanese firms captured major shares of world market
- quality became an obsession with top managers.

3. Customization and Design

- Quality means offering consumers new and innovative
products.
 Inflexible mass production methods
- produced high volumes of standardized goods and
service using unskilled or semiskilled workers and expensive single-
purpose equipment

4. Time- Based Competition

- respond quickly to changing customers needs to win
competitive advantage.
 - time became an important source of competitive advantage as
information technology matured.
5. Service Revolution
- service industry were quietly growing and creating many jobs.

Evolution of Operation Management

Pre-Industrial Revolution

 Adam Smith
- father of modern economics
- Scottish Philosopher
- wrote “The Wealth of Nations” – described the division of
labor
-if workers divided their tasks, then they could produce their
products more efficiently than if the same number of workers
each built products from start to finish.

 Frederick Winslow Taylor

- father of Scientific Management also known as “Taylorism”
- he believes that it was the role and responsibility of
manufacturing plant managers to determine the best way for
the worker to do a job, and to provide the proper tools and
training

Human Resource Management

- human relations means managers interact with their
employees

 Elton Mayo
- his theory states that employees are motivated far more by
relational factors such as attention and camaraderie than by
monetary rewards or environmental factors
- he developed matrix

Management Science
  Henri Fayol/ Max Weber
- wrote the scientific management era in America
Computer Age
- usage of technology ensured that organizations are able to
reduce cost, improve the delivery process, standardize and improve
quality and focus on customization, thereby creating value for
customers.

Environmental Issues
- in business, it refers to practices related to the use of natural
resources, waste, toxicity, and pollution
- in manufacturing companies, it can be large, and efforts are
generally made to reduce waste, toxicity, and pollution within the
manufacturing process.

JIT and TQM

 Just-in- time (JIT)
- focuses on producing what is necessary or when it is
needed in the manufacturing process.
- allows the pursue of quality, cost minimization, delivery
time and waste reduction.

 Total Quality Management (TQM)

- process of detecting and reducing or eliminating errors.
- aims to improve quality by continuous improvements of
operations to guarantee free defects products.

1.5 – Current Challenges in OM

 Technology
- has one of the most important influences on the growth
and development of OM
 Globalization
- changed the way companies do business and must
manage their operations
  Changing Customer Expectations

 Changing Workforce
-they demand increasing levels of empowerment and
more meaningful work

 Loss of Manufacturing Jobs

 Sustainability
- organizations ability to strategically address current
business needs and successfully develop a long term strategy.
- embraces opportunities and manages risk for all
products, systems, supply chains, and process, to preserve
resources for future generations

MODULE 2 – VALUE CHAIN

2.1 – The Concept of Value Chain

Value Chain
- network of facilities and processes that describe the flow of
goods, services and information and financial transactions from
suppliers.

Value
- perception of the benefits associated with a good servicein
relation to what buyers are willing to pay for.

Simplest functional forms of value:

Perceived benefits
Value=Price (cost) to the customer
 If the value is high, the good or service is perceived favourably
by customers

How to increase Value?

  Increase perceived benefits while holding price or cost
constant
 Increase perceived benefits while reducing the price or cost
 Decrease price or cost while holding perceived benefits
constant

Value Proposition
- a competitively dominant customer experience
- the focus on value has forced many traditional goods-
producing companies to add services to their customer benefit
packages.

2.2– Value Chain Perspectives

Value Chain
-begins with suppliers who provide inputs to a goods-
producing or service providing process or network of processes.

 Inputs
- transformed into value-added goods and service
through processes or networks of work activities.

The Value Chain Outputs

- goods and services are provided or delivered to customers
and targeted market segments.

2.3– Supply Chains

Supply Chains
- focuses primarily on the physical movement of goods and
materials and supporting flows of information and financial transactions
through the supply, production and distribution processes.
- become a critical focus for almost every company today.

REMEMBER!
 Value chain views an organization from the customer’s perspective
– the integration of goods and services to create value.

 Supply chain is more internally focused on the creation of physical

goods. It makes it easier to apply to service- providing organizations
as well as to goods- producing firms.

2.4– Offshoring & Outsourcing

Offshoring
- building, acquiring, or moving of process capabilities from a
domestic location to another country location while maintaining
ownership and control.

 Companies often offshore manufacturing or services to countries

where:
 The hourly wage rate is significantly lower
 Creates more skilled employment opportunities
 Reduces risk for companies
 Maintain complete control over the operation and
production
 Creates new revenues

Outsourcing
- a company entrusts a part of their business process to an
outside vendor
- reduce overhead costs and increase profit margins
- can save costs (reduction in costs while still receiving high
quality services)
- increase efficiency by entrusting business processes
- focus on the core areas of their business and improve their
brand by freeing up time, energy and resources

 Outsourcing relies on an outside vendor to complete tasks

  Offshoring relies only on those within the same company

MODULE 3 – MEASURING PERFORMANCE IN OPERATIONS AND

STRATEGY

Measurement
- act of quantifying the performance criteria (metrics) of
organizational units, goods and services, processes, people and other
business activities.

 “Scorecard” of performance
- help identify performance gaps and make
accomplishments visible to the workplace, the stock market and
other stakeholders

Key Categories of Performance Measures

1. Financial
- revenue, ROI, operating profit, pretax profit margin, asset
utilizaition, growth, revenue from new goods and services, earnings per
share, and other liquidity measures.

2. Customer and Market

- Customer Measures: Customer satisfaction, customer
retention, gains and losses of customers and customer accounts,
customer complaints, warranty claims, measures of perceived value,
loyalty, positive referral and customer relationship building.

- Market Measures: Market share, business growth, new

product and geographic markets entered, percentage of new product
sales.

 Customer- satisfaction measurement system

- provides a company with customer ratings of specific
goods and service features and indicates the relationship
 between those ratings and the customer’s likely future buying
behavior.

3. Safety
- vital to all organizations, as the well- being of its employees
and customers
- enhances employee productivity and morale

4. Quality
- measures the degree to which the output of a process meets
customer requirements.
- Goods quality relates to the physical performance and
characteristics of a good
- Service quality is consistently meeting or exceeding
customer expectations (external focus) and service delivery system
performance (internal focus) for all service encounters.
- every service encounter provides an opportunity for error.

 Service upsets or Service failures

- error in service creation and delivery

5. Time
- Processing time is the time it takes to perform some task
- Queue time is a fancy word for wait time- the time spent
waiting
 Two types of performance measures
1. the speed of doing something
2. the variability of the process

6. Flexibility
- ability to adapt quickly and effectively to changing
requirements
- Goods and service design flexibility is the ability to develop
a wide range of customized goods and services to meet different or
changing customer needs.
 - measures include the rate of new product development or
percent of product mix developed over the past three years.
- Volume flexibility is the ability to respond quickly to changes in
the volume and type of demand.
Measures include the time to change machine setups or time
required to “ramp up” to an increased production
volume.