`The Nature of Operations Management

● Operations management - is the development and administration of the activities involved

in transforming resources into goods and services
○ Historically, it has been referred to as “Production” or “manufacturing primarily
because it was so limited to the manufacture of physical goods
○ The chance from “production” to “operations” recognizer organizations that
provide services and ideas
● Manufacturing
○ Activities and processes used in making tangible products; also called production
● Production
○ Activities and processes used in making tangible products; also called
manufacturing
● Operations
○ Activities used in making both tangible and intangible products
● The transformation process
○ Converts inputs into outputs
○ Inputs - are resources such as labor, money, materials, and energy
○ Outputs - are the goods, services, and ideas that result from the conversion of inputs
● Operations Management in Service Businesses
○ Services require different transformations processes
○ Services require high customer contact
○ Ideal service provider is high tech and high touch
○ Service output is generally intangible and even perishable
○ Cannot be saved, stored, resold or returned

PLanning and Designing Operations Systems

Planning the product
○ Determined what consumers want, usually through marketing research
○ Product development can be lengthy, expensive process
■ Some firms develop products jointly
● Create a workable design; transformation process
 ○ Research and development
● Capacity Planning
○ The maximum load an organizational unit can carry or operate
○ The unit of measure can vary, including:
■ A worker
■ A machine
■ A department/branch
■ An entire plant
○ Capacity can be stated in terms of inputs or outputs
○ Operations managers need to plan for capacity need
■ Too low; unmet demand and lost customers
■ Too high; higher operating costs
● Facilities Planning
○ Where to locate a firm’s facilities
○ Selection of a facility location is significant because it is costly to move
○ Where to locate a facility involves the evaluation of many factors
■ Proximity to market
■ Availability of raw materials transportation, power, and labor
■ Climatic influences and community characteristics
■ Taxes and inducements
● Sustainability and Manufacturing
○ Sustainability deals with conducting activities in such a way as to provide for the
long-term well-being of the natural environment, including all biological entities
○ Sustainability issues increasingly important to stakeholders and consumer
● Sustainability Issues
○ Pollution of land, air, water
○ Climate change
○ Waste management
○ Deforestation
○ Urban sprawl
○ Protection of biodiversity
 ○ Genetically modified foods
● Supply Chain Management
○ Connecting and integrating all parties of the distribution system in order to satisfy
customers
■ Procurement - Process to obtain resources, also called purchasing
■ Logistics - physical distribution
● Inbound logistics
● Outbound logistics
● Third party logistics - using outside firms
○ Operations are often the most public and visible when dealing with the supply chain
● Managing Inventory
● Inventory - Is all raw materials, components, completed or partially completed products,
and pieces of equipment a firm uses
○ Finished goods inventory- products that are ready for sale, such as a fully
assembled automobile ready to ship to a dealer
○ Work-in-process inventory - consists of those products that are partly completed
or are in some stage of the transformations process
○ Raw materials inventory- includes all the materials that have been purchased to
be used as inputs for making other products
● Inventory control
○ The process of determining how many supplies and goods are needed and keeping
track of quantities on hand
● Inventory control methods:
○ Economic order quantity model (EOQ)
○ Just-in-time inventory management
○ Just-in-case inventory management
○ Material-requirements planning (MRP)
● Economic order Quantity model (EOQ)
○ Identifies the optimum number of items to order to minimize the costs of managing
them
● Managing inventory- refers to ordering, storing, and using items
 ● What's needed:
○ Production precision
○ Actual consumption
○ Small Lots
○ Low inventories
○ Waste reduction
● Just in case:
○ Production approximation
○ Anticipated usage’s
○ Large lots
○ High inventories
○ Waste

● Material-requirements planning (MRP)- a computer planning system that schedules the

precise quantity of materials needed to make the product

The Basic products:

○ A master production schedule
○ A bill of materials
○ An inventory status file

Routing
The sequencing of operations through which the product must pas
● Sequence depends on the product specifications

Lesson #12
Nature of Marketing
● *Achieving the full profit of each customer relationship should be goal of every marketing
strategy
○ Business must:
■ Find out what consumers desire
 ■ Develop the good, service, or idea to satisfy that want
■ Get the product to the customer
■ Continually alter, adapt, and add products to keep pace with changing
customer demands
● Marketing - a group of activities designed to expedite transactions
○ This is done by creating, distributing, pricing, and promoting goods, service and
ideas
■ Marketing activities create value
■ Important part of film's overall strategy
■ A systematic approach to satisfying consumers
● Marketing is not manipulating consumers to get them to buy
products they do not want
● Marketing Research - Research to help ascertain the need for new goods and services and
detect new trends and changes in consumer tastes

Creating Value with marketing

Customer Value = customer benefits - customer costs
● Value is a sustomer;s subjective assessment of benefits minus the costs of the
product/service. This helps determine the worth of a product
● Benefits - anything a buyer receives in exchange
○ Hotel/Motel - a room with a bed, room service, amentitles, atmosphere. Etc.
● Costs - anything a buyer gives up to obtain product’s benefits
○ Monetary price iused to find products
○ Effort used to find products
○ Effort used to produce products

Evolution of the Marketing Concept

● The production orientation - High demand for manufactured goods and lower supply
○ Second half of the 19th century
○ Industrial Revolution
○ Focused on manufacturing efficiency
 ● The sales orientation - High supply in which organizations made the products first and
then felt the need to “sell”.
○ Occurs when supply exceeds demand
○ Creates a need to “sell” products
● The Market orientation - determining what the customers want, and then producing it
○ Began in the 1950’s
○ Requires organizations to:
■ Gather information about customers’ needs
■ Share the information throughout the firm
■ Use the information to build long-term relationships with customers
○ Customer relationship management (CRM)

Developing a Marketing Strategy

● Business-to-business (B2B) marketing - Involles marketing products to customers who
will use the product for resale, direct use in daily operations, or direct use in marketing
other products
● Business-to-customer (B2C) marketing - marketing directly to the end consumer
● Total-market approach
○ Firm tries to appeal to everyone and assumers all buyers have similar needs and
wants
○ Also referred to as mass marketing
○ Ex. Sellers of salt, sugar, and many agricultural products
● Market segmentation
○ Dividing the total market unto groups that have relatively similar products beads
● Market segment
○ A collection of individuals, groups, or organizations who share one or more
characteristics and this have reltiver similar products needs and desires

Segmenting Markets
● Demographic - age, sex, tace, ethnicity, income, education, occuption, familym size,
reilgion, social class
 ○ For example, deodorants are often segmented by sex: Secert and Soft n’Dri for
women; Old Spice and Mennen for men
● Geographic - Climate, terrain, natural resources, population density, subcultural values
○ For example, climate influences consumer purchases of clothing, automobiles,
heating and air conditioning equipment, and leisure activity equipment
● Psychographic - Personality characteristics, motives, lifestyles
○ For example, soft-drink marketers provide their products in several types of
packaging, including two-liter bottles and cases of cans, to satisfy different lifestyles
and ,ltives
● Behavioristic - some characteristic of the consumer’s behavior toward the product. These
characteristics commonly include some aspects of product use. Benefit segmentation is alos
a type of begavioistiion. For instance, low-fat, low-carb food

Developing a Marketing Mix

● The marketing mix feres to four marketing activities
○ Product
○ Price
○ Place
○ Promotion
● Firms try to control these activities to achieve specific goals

Product
● The features of a product and how it satisfies a customer need
○ What does it look like
○ What size(s), color(s), and so on, should it be?
○ How will customers experience it?
○ What is it to be called?
○ How is it branded?
○ How is it different from products by your competitors

Price
● A value placed on an object exchanges between a buyer and a seller
Place
● Where the buyers look for your products or service
○ Sometimes referred as “Distribution”
○ Making products available to customers in the quantities desires
○ If they look in a store, what kind? A specialist boutique or in a
supermarket, or both? Online? Or direct, via a catalog
○ Moving products efficiently from producers to consumers or industrial
buyers
■ Transporting, warehousing, materials handling, inventory control,
packaging, and communication

Promotion
● Promotion - encourages consumers to accept products and influencing options
and attitudes
○ Includes advertising, personal selling, publicity, and sales promotion
● Will you reach your audience by advertising online, in the press, on TV, on radio,
or on billboards? By using direct marketing mailshots? Through PR? On the
Internet
● Digital advertising on websites and social media sites are growing

Marketing Research and Information Systems

● Marketing research - a systematic, objective process of getting information about
potential customers to guide marketing decision
○ Online marketing research
■ Virtual testing
■ Digital and social media sites
■ Online surveys
■ Marketing analytics

Buying Behavior
 ● Buying Behavior - refers to the decision proceeds and actions people take when
purchasing products
○ Includes both consumer and business buying behavior
■ Both psychological and social variables are important to an understanding
of buying behavior

Psychological Variables of Buying Behavior

● Perception- interpreting information received from your senses.
○ For example: Touching a pillow a blanket in the store before you buy it
● Motivation - is an inner drive that directs you to your goals
● Learning - brings about changes in a person’s behavior based on information and
experience
● Attitude - is knowledge and positive or negative feelings about something
● Personality - refers top the organization of an individual’s distinguishing character traits,
attitudes, or habits
○ Some markets believe that the type of car or clothing a person's buys reflects his or
her personality

Social Variables of Buying Behavior

● Social roles - a set of expectations for individuals based on some position they occupy
○ Example: Mother, wife, student, etc…
● Reference groups - includes families, professional groups, civic organizations, and other
groups with whom buyer identify and whose values or attitudes they adopt
○ People may use these groups to compare information
● Social Classes - determined by ranking people into higher or lower positions of respect
● Culture - the integrated, accepted pattern of human behavior, including thought, speech,
beliefs, actions, and artifacts

Buying Behavior
● Coffee shops and restaurants attempts to influence consumers’ buying behavior by offering
a nice place to sit, and free wifi etc…

Products Failures
 ● The museum of failure in LA is the largest collection of failed products and services sih as
Colgate Beef Lasagna, which was originally launched in the 1980’s

Pricing Strategy
● Psychological Pricing - Encouraging purchases based on emotion
○ Even/odd pricing - $9.99 looks better than $10
○ Symbolic/prestige pricing - Higher price means better quality
● Reference Pricing - making the item appear less expensive compared to alternatives
● Price Discounting - Offering lower prices for things like quantity, seasonal etc
● Marketing Channels
○ A group of organizations that moves products from their producers to customers
● Middlemen
○ Also called intermediaries, these organizations bridge the gap between a product’s
manufacturer and the final consumers
● Retailers
 ○ Intermediaries who buy products from manufacturers ( or other intermediaries) and
sell them to consumers for home and household use rather than for resale or for use
in producing other products
● Wholesalers
○ Intermediaries who buy from producers or from other wholesalers and sell to
retailers
○ Help consumers and retailers by buying in larger quantities, then selling to retailer
in smaller quantities

Promotion Strategy
● The Promotion Mix
○ ASdvesting, personal selling, publicity, and sales promotion
■ A strong promotion mix program results from the careful selection and
blending of these elements

Publicity
● Non-personal communication transmitted through the mass media but not paid for directly
by the firm
● Message is presented as a news story and the company is not seen as the originator of the
message
● Many companies have a public relations department that tries to gain favorable publicity
and minimize negative publicity

Advertising
● A paid form of nonpersonal communication transmitted through a mass medium, such as
television commercials, magazine advertisements, or online ads

Objectives of Promotion
● Stimulate demand
● Stabilize sales
● Inform,remind, and reinforce customers

Promotional Positioning
 ● Use of promotion to create and maintain an image of a product in buyers’ minds

Using Digital media in Business

● Utilizing Social Media firms can create almost instance communication with precisely
defined consumer groups
● Firms can use real-time exchanges to create and utilize
○ Learn more accurately about consumer and supplier needs
○ Improved communication within/between businesses
○ Forge closer relationships
○ Fast and inexpensive communication
○ Interactive communication
Linkedin
● Top networking site for businesses and business professionals

Online Monitoring and Analytics

● Social Media monitoring- involves activities to track, measure, and evaluate a firmś digital
marketing initiatives
○ Metrics develop from listening and tracking
○ Key performance indicators (KPI) should be embedded at the outset of social media
strategy
○ Comprehensive performance evaluation can be done by analytics platform
monitoring
■ Google analytics
○ Analyzing traffic data allows marketers to better understand customers

Using Digital Media to Learn about COnsumers

Digital media and social networking sites help gather useful information about consumers and their
preferences

Ways to gather information on customers preferences

● Crowdsourcing
 ○ Describes how marketers use digital media to find out the opinions or needs of the
crowd (or potential customers)
● Consumer feedback
○ Digital media forms allow businesses to closely monitor what customers are saying

Lesson #13

Sole proprietorship
Sole proprietorship- Businesses owned and operated by one individual

● Most common form of business organization in the United States

● Typically employ fewer than 50 people
● Comprise nearly three-quarters of all U.S. businesses

Advantages of Sole proprietorships

● Ease and cost of formation
● Secrecy
● Distribution and use of profits
● Flexibility and control of the business
● Government regulation
● Taxation
● Closing the business
Disadvantages of Sole Proprietorships
● Unlimited liability- is responsible to pay back all debts even if it means
using personal assets
● Limited sources of funds- harder to get money from external funds like
banks
● Owner must possess a lot of skills including management, finance,
accounting, bookkeeping, etc.
● The survival of the business is tied solely to the owner
● Lack of qualified employees because it is harder to pay competitive wages
and benefits
● Taxation- wealthy sole proprietors pay a higher tax rate than they would
under the corporate form of business
Partnership
● Partnership - a form of business organization defined by the Uniform Partnership Act as
“an association of two or more persons who carry on as co-owners of a business for profit”
○ Least used form of business
○ Typically larger than sole proprietorships but smaller than
corporations
● Advantages of Partnership
○ Easily formed
○ Availability of capital and credit - partners can pool resources
together
○ Combined knowledge and skills
● Disadvantages of Partnerships
○ Unlimited liability - business owners are legally obligated to repay
the debt obligations of their companies
 ○ Bad partner decisions- bad decisions by one partner can leave others
at risk
○ Life of the partnership- one of the partners withdraws from the
partnership
○ Distribution of profits - how do you distribute profits to reflect the
amount of work done by each partner?

Corporations
● A legal entity, created by the state, whose assets and liabilities are separate
from its owners
○ Has many of the rights, duties, and powers of a person
■ Can own and transfer property
■ Can enter into contracts
■ Can sued and be sued in court
○ Stock
○ Dividends
● As owners, the stockholders are entitled to all profits that are left after all
the corporation's other obligations have been paid. These profits may be
distributed in the form of cash payments called dividends

Creating a Corporation
● Incorporators- The individual creating the corporation
● Each state has a specific procedure called chartering the corporation
● Incorporators file articles of incorporation
● State issues a corporate charter to the company
 ○ Corporate charter- is a legal document that the state issues to a
company based on information the company provides in the articles
of incorporation
○ Owners establish bylaws and elect a board of directors
Types of corporations
● DOmestic corporation
○ Conducts business in the state in which it is chartered
● Foreign corporation
○ Conducts business outside the state in which is chartered
● Alien corporation
○ Conducts business outside the nation in which it is incorporated
● Private corporation
○ Owned by just one or a few people closely involved in managing
the business
○ No stock is sold to public
○ Not required to disclose financial information publicly
○ May become public via initial public offering (IPO) - means its
going public
Public Corporations
● A corporation whose stock anyone may buy, sell, or trade
● May be taken private when all firm’s stock is purchased and can no longer
be sold publicly
● Three types of public corporations
○ Quasi-public - are owned and operated by the federd, state, or local
government. The focus of these entities is to provide a service to
citizens, such as mail delivery, rather than earning a profit
 ○ Nonprofit
○ For Profit
Advantages of Corporations
● Limited liability - assets and liabilities are separate from owners
● Ease of transfer of ownership - stock can easily be transferred
● Raising money is easier than other forms of business
● Expansion potential - expanding into new business is easier
Disadvantages of Corporations
● Double taxation - company pays income tax and owners pay second tax on
profits received as dividends
● Forming a corporation can be very expensive
● Disclosure of information - annual reports flied to the SEC (Securities and
Exchange) are available to the public
Board of Directors
● Elected by stockholders
● Sets long-range objectives of the corporation
● Ensures objectives are met on schedule
● Hired corporate officers
○ Outside directors - Outside directors are often top executives from
other companies, lawyers, bankers, even professors
○ Inside directors - Employees of the company. Usually, the officers
responsible for running the company
Other types of ownership
● Limited Liability Companies (LLCs)
 ○ Form of ownership that provides limited liability and taxation like a
partnership but places fewer restrictions on members
● Cooperatives
○ Organizations composed of individuals or small businesses that band
together to reap the benefits of belonging to a larger organization
● Joint Ventures
○ A partnership established for a specific project or for a limited time
● S Corporations
○ Corporation taxed as though it were a partnership with restrictions
on shareholders
Mergers and Acquisitions aka (M&A)
● Mergers - Occurs when two companies (usually corporations) combine to
form a new company
● Acquisitions - occurs when one company purchases another, generally by
buying most of its stock
○ The acquired company may become a subsidiary of the buyer