The First Three Chapters

Admkew Haile (Assistant Professor)
yadeniadmkew @gmail.com/alemadmkew@yahoo.com
Department of Management
College of Business and Economics
Haramaya university
 9/2/2021  RVU/Harar campus  1

Chapter 1 : Introduction
 OM is The business function responsible for planning, coordinating, and
controlling the resources needed to produce products and services for a
company.
 OM: the design, operation, and improvement of productive systems.
 Operations: a function or system that transforms inputs into outputs of
greater value.
 Value chain: a series of activities from supplier to customer that add value to a
product or service

 SC is the network of all the individuals, organizations, resources, activities and
technology involved in the creation and sale of a product.
 SC encompasses everything from the delivery of source materials from the
supplier to the manufacturer through to its eventual delivery to the end user.

• SCM is to maximize customer value and achieve a sustainable competitive
advantage.
• It represents a conscious effort by the supply chain firms to develop and run
supply chains in the most effective & efficient ways possible.
• SC activities cover everything from product development, sourcing,
production, and logistics.

 SC integration is a large-scale business strategy that brings as many links of the
chain as possible into a closer working relationship with each other.
 The goal is to improve response time, production time, and reduce costs and
waste.
 Every link in the chain benefits.

Operations Interfaces

Typical Organization Chart

What is Role of OM?
• OM Transforms inputs to outputs
– Inputs are resources such as
• People, Material, and Money
– Outputs are goods and services

OM’s Transformation Process

OM’s Transformation Role
• To add value
– Increase product value at each stage
– Value added is the net increase between output product value and input
material value
• Provide an efficient transformation

– Efficiency – means performing activities well for least possible cost

Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer interaction

Characteristics of Service
 Intangible product
 Produced and consumed at same

time
 Often unique
 High customer interaction
 Inconsistent product definition
 Often knowledge-based
 Frequently dispersed

Goods Versus Services
 Attributes of Goods Attributes of Services


(Tangible Product) (Intangible Product)

Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Some aspects of quality Quality difficult to measure

measurable
Selling is distinct from  Selling is part of service
production
Product is transportable Provider, not product, is
often transportable
 Site of facility important for cost Site of facility important for
customer contact
Often easy to automate Often difficult to automate
Revenue generated primarily Revenue generated primarily

from tangible product from the intangible service
 9/2/2021  RVU/Harar campus Table 1.314

Goods and Services
 Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
 100% 75 50 25 0 25 50 75 100%
 | | | | | | | | |
 Percent of Product that is a Good Percent of Product that is a Service
 9/2/2021  RVU/Harar campus

Figure 1.415
OM Decisions
• All organizations make decisions and follow a

similar path
– First decisions very broad – Strategic decisions
• Strategic Decisions – set the direction for the entire
company; they are broad in scope and long-term in nature

OM Decisions
• Following decisions focus on specifics - Tactical decision
– Tactical decisions: focus on specific day-to-day issues like resource needs,
schedules, & quantities to produce
– are frequent
• Strategic decisions less frequent
• Tactical and Strategic decisions must align with strategic Decisions

OM Decisions

Today’s OM Environment
• Customers demand better quality, greater speed, and lower costs
• Companies implementing lean system concepts – a total systems approach to efficient
operations
• Recognized need to better manage information using ERP and CRM systems
• Increased cross-functional decision making

OM in Practice
• OM has the most diverse organizational function
• Manages the transformation process
• OM has many faces and names such as;
– V. P. operations, Director of supply chains, Manufacturing manager
– Plant manger, Quality specialists, etc.
• All business functions need information from OM in order to perform their
tasks

Business Information Flow

OM Across the Organization
• Most businesses are supported by the functions of operations, marketing,
and finance
• The major functional areas must interact to achieve the organization goals

OM Across the Organization – con’t
 Marketing is not fully able to meet customer needs if they do not understand
what operations can produce
 Finance cannot judge the need for capital investments if they do not
understand operations concepts and needs
 Information systems enables the information flow throughout the organization
 Human resources must understand job requirements and worker skills
 Accounting needs to consider inventory management, capacity information,
and labor standards

Chapter 2 - Operations Strategy and Competitiveness

 Operations strategy involves decisions that are related to the
 specifications and design of the product or service,
 design of a production process and
 the infrastructure needed to support the process,
 the role of inventory in the process, and
 locating the process.
 Operations strategy decisions are part of corporate planning process that coordinates the
goals of operations with those of marketing and that of larger organization.
 Operations strategy is concerned with setting broad policies and plans for using the
 resources of a firm to best support its long-tern business creation,

survival and competitive strategy

The Role of Operations Strategy
• The role of operations strategy is to provide a long-range plan for the use of the
company's resources in producing the company's primary goods and services.
• The role of business strategy is to serve as an overall guide for the development of the
organization's operations strategy.
• Provide a plan that makes best use of resources which;
– Specifies the policies and plans for using organizational resources
– Supports Business Strategy

Business/Functional Strategy

Importance of Operations Strategy
• Essential differences between operational efficiency and strategy:
– Operational efficiency is performing tasks well, even better than competitors
– Strategy is a plan for competing in the marketplace
• Operations strategy ensures all tasks performed are the right tasks

To Develop a Business Strategy
• Consider these factors and strategic decisions:
– What business in the company in (mission)
– Analyze and understand the market (environmental scanning)
– Identify the company strengths (core competencies)

Three Inputs to a Business Strategy

Key Examples
• Mission: Dell Computer- “to be the most successful computer company in the
world”
• Environmental Scanning: political trends, social trends, economic trends, market
place trends, global trends
• Core Competencies: strength of workers, modern facilities, market understanding,
best technologies, financial know-how, logistics

Developing an Operations Strategy
Operations Strategy: a plan for the design and management of operations functions
– is developed after the business strategy
– focuses on specific capabilities which give it a competitive edge – competitive
priorities

Operations Strategy – Designing the Operations Function

Competitive Priorities- The Edge
• Four Key Operations Questions:
Cost?
Quality?
Time?
Flexibility?

Competing on Cost
 Offering product at a low price relative to competition
 Typically high volume products
 Often limit product range & offer little customization
 May invest in automation to reduce unit costs
 Probably uses product focused layouts
 Layout design concerns the physical placement of resources such as equipment and storage
facilities.
 The layout is designed to facilitate the efficient flow of customers or materials through the
manufacturing or service system.
 Low cost does not mean low quality

Competing on Quality
 is the integration of all functions and processes within an organization in order to

achieve continuous improvement of the quality. The goal is customer satisfaction.
 Two major quality dimensions include
 High performance design:
 Superior features, high durability, & excellent customer service
 Product & service consistency:
 Meets design specifications
 Close tolerances
 Error free delivery
 Quality needs to address
 Product design quality – product/service meets requirements
 Process quality – error free products

Competing on Time
 Time/speed one of most important competition priorities
 First that can deliver often wins the race
 Time related issues involve
 Rapid delivery:
 Focused on shorter time between order placement and delivery
 On-time delivery:
 Deliver product exactly when needed every time

Competing on Flexibility
 Company environment changes rapidly
 Company must accommodate change by being flexible
 Product flexibility:
 Easily switch production from one item to another
 Easily customize product/service to meet specific requirements of a customer
 Volume flexibility:
 Ability to ramp production up and down to match market demands

The Need for Trade-offs
 A trade-off (or tradeoff) is a situational decision that involves diminishing or losing one quality,
quantity, or property of a set or design in return for gains in other aspects.
A tradeoff is where one thing increases, and another must decrease.
 Decisions must emphasize priorities that support business strategy
 Decisions often required trade offs
 Decisions must focus on order qualifiers and order winners
 Which priorities are “Order Qualifiers”?
 Must have excellent quality since everyone expects it

Chapter 3 - Product Design & Process Selection

Product Design & Process Selection
Product design – the process of defining all of the companies product

characteristics
◦ Product design must support product manufacturability (the ease with
which a product can be made)
◦ Product design defines a product’s characteristics of:
•appearance, •tolerances, and

•materials,
performance
standards.
•dimensions,
Process Selection – the development of the process necessary to

produce the designed product.

Design of Services versus Goods
• Service design is unique in that the service and entire service concept are
being designed
– must define both the service and concept
- Physical elements, aesthetic( artistic) & psychological benefits
e.g. promptness, friendliness, ambiance /environmental freindly
– Product and service design must match the needs and preferences of the
targeted customer group.

The Product Design Process
Idea development: all products begin with an idea whether from:
– customers,
– competitors or
– suppliers
Reverse engineering: buying a competitor’s product

Product Design Process
• Idea developments selection affects
– Product quality
– Product cost
– Customer satisfaction
– Overall manufacturability – the ease with which the
product can be made

The Product Design Process
Step1:Idea Development - Someone thinks of a need and a product/service
design to satisfy it:
 customers, marketing, engineering, competitors, benchmarking, reverse engineering
Step2: Product Screening :Every business needs a formal/structured evaluation

process:
 fit with facility and labor skills, size of market, contribution margin, break-even analysis, return on
sales
Step3:Preliminary Design and Testing - Technical specifications are developed,

prototypes built, testing starts
Step4:Final Design - Final design based on test results, facility, equipment,

material, & labor skills defined, suppliers identified.

Product Screening Tool – Break-Even Analysis
• Computes the quantity of goods company needs to sell to cover its costs
QBE = F/ (SP - VC)
– QBE – Break even quantity
– F – Fixed costs
– SP – selling price/unit
– VC – Variable cost

Product Screening Tool – Break-Even Analysis con’t
• Break-even analysis also includes calculating
– Total cost – sum of fixed and variable cost
Total cost = F + (VC)*Q
– Revenue – amount of money brought in from sales
Revenue = (SP) * Q
Q = number of units sold

Factors Impacting Product Design
 Must Design for Manufacturing – DFM
 Guidelines to produce a product easily and

profitably
 Simplification - Minimize parts
 Standardization
 Design parts for multiply

applications
 Use modular design: produce a

complete product by integrating or
combining smaller parts that are
independent of each other.
 Simplify operations

Factors in Product Life Cycle
• Life-cycle of a product depends
upon the rate of technical changes
taking place in the country.
• If technical changes take place in the

country at a very high rate, the life-cycle
of the products in that country will be
very limited because new and improved
products take place of the old products.
• Product life cycle – series of changing

product demand
• Facility & process investment depends

on life cycle

Concurrent Engineering
in which the different stages run

simultaneously, rather than consecutively
Old “over-the-wall” sequential design process

should not be used
• Each function did its work and passed it to

the next function
Replace with a Concurrent Engineering process
• All functions form a design team that

develops specifications, involves customers
early, solves potential problems, reduces
costs, & shortens time to market

Remanufacturing
 Uses components of old products in the production of new ones and has:
 Environmental benefits
 Cost benefits
 Good for:
 Computers, televisions, automobiles

Types of Processes
• Intermittent processes:
– Processes used to produce a variety of products with different processing
requirements in lower volumes. (such as healthcare facility)
• Repetitive processes:
– Processes used to produce one or a few standardized products in high volume.
(such as a cafeteria, or car wash)

Process Selection
 Product design considerations must include the process
 Differences between Intermittent & Repetitive Ops:
(1) the amount of product volume produced, and
(2) the degree of product standardization.

Intermittent and Repetitive Operations

Process Selection Types
• Process types can be:
– Project process – make a one-at-a-time product exactly to customer specifications
– Batch process – small quantities of product in groups or batches based on
customer orders or specifications
– Line process – large quantities of a standard product
– Continuous process – very high volumes of a fully standard product
• Process types exist on a continuum

Underlying Process Relationship Between Volume and Standardization Continuum

Process Selection Considerations
• Process selection is based on five considerations
1. Type of process; range from intermittent to repetitive or continuous
2. Degree of vertical integration
3. Flexibility of resources
4. Mix between capital & human resources
5. Degree of customer contact

Process Design Tools
Often stages in the

production process can
be performed in parallel,
as shown here in (c) and
(d).
The two stages can produce

different products (c) or
the same product (d).

Designing Processes
• Process design tools include
– Process flow analysis
– Process flowchart
• Design considerations include
– Make-to-stock strategy
– Assemble-to-order strategy
– Make-to-order strategy

Process Performance Metrics
Process performance metrics:
Measurement of different process characteristics that tell us how a process is
performing
– Determining if a process is functioning properly is required
– Determination requires measuring performance

Process Performance Metrics

Linking Product Design & Process Selection
 Product design and process selection are directly linked
 Type of product selected defines type of operation required
 Type of operation available defines broader organizational aspects such as
 Equipment required
 Facility arrangement
 Organizational structure

Linking Design & Process Selection
• Organizational Decisions appropriate for different types of operations

Linking Product Design & Process Selection con’t
Product Design Decisions:
 Intermittent and repetitive operations typically focus on producing products in
different stages of the product life cycle.
 Intermittent is best for early in product life; repetitive is better for later when demand
is more predicable.

Linking Product Design & Process Selection, con’t
• Competitive Priorities: decisions of how a company will compete in the
marketplace. Intermittent operations are typically less competitive on cost than
repetitive operations.
• (Think “off the rack” vs. custom tailored clothing.)

Intermittent VS. Repetitive Facility Layouts

Product and Service Strategy
• Type of operation is directly related to product and service strategy
• Three basic strategies include
1. Make-to-stock; in anticipation of demand
2. Assemble-to-order; built from standard components on order
3. Make-to-order; produce to customer specification at time of order

Degrees of Vertical Integration & Make or Buy
 Vertical integration refers to the degree a firm chooses to do processes itself- raw
material to sales
◦ Backward Integration means moving closer to primary operations
◦ Forward Integration means moving closer to customers
 A firm’s Make-or-Buy choices should be based on the following considerations:

◦ Strategic impact
◦ Available capacity
◦ Expertise
◦ Quality considerations
◦ Speed
◦ Cost (fixed cost + variable cost)make = Cost (fixed cost + Variable cost)buy

Technology Decisions
Information Technology
• Simplify first then apply appropriate technology
 ERP, GPS, RFID
 Automation
 Automated Material Handling: Automated guided vehicles (AGV), Automated
storage & retrieval systems (AS/RS)
 Flexible Manufacturing Systems (FMS)
 Robotics & Numerically-Controlled (NC) equipment

E-manufacturing
• Web-based environment creates numerous business opportunities to include;
– Product design collaboration
– Process design collaboration
• Computer-aided design – uses computer graphics to design new products
• Computer-integrated manufacturing – integration of product design, process planning,
and manufacturing using an integrated computer system

Designing Services: How do they Differ from Manufacturing?
 Services are different from manufacturing as they;
 Produce intangible products
 Involve a high degree of customer contact
 Type of service is classified according to degree of customer contact

Designing Services
• Service Characteristics
– Pure services
– Quasi-Manufacturing:
having multiple manufacturing
companies that produce the same
type of products.
– Mixed services
• Service Package
– The physical goods
– The sensual benefits
– The psychological benefits
• Differing designs
– Substitute technology for people
– Get customer involved
– High customer attention
Product Design and Process Selection Across the Organization
• Strategic and financial of product design and process selection mandates operations
work closely across the organization
– Marketing is impacted by product that is produced
– Finance is integral to the product design and process selection issues due to
frequent large financial outlays
– Information services has to be developed to match the needs of the production
process
– Human resources provides important input to the process selection decisions
for staffing needs

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Admkew Haile (Assistant Professor)

College of Business and Economics

 9/2/2021  RVU/Harar campus  1

 OM is The business function responsible for planning, coordinating, and

controlling the resources needed to produce products and services for a

 OM: the design, operation, and improvement of productive systems.

 Operations: a function or system that transforms inputs into outputs of

 9/2/2021  RVU/Harar campus  2

 SC encompasses everything from the delivery of source materials from the

 9/2/2021  RVU/Harar campus  3

supply chains in the most effective & efficient ways possible.

• SC activities cover everything from product development, sourcing,

production, and logistics.

 9/2/2021  RVU/Harar campus  4

chain as possible into a closer working relationship with each other.

 Every link in the chain benefits.

 9/2/2021  RVU/Harar campus  5

 9/2/2021  RVU/Harar campus  7

 9/2/2021  RVU/Harar campus  8

• OM Transforms inputs to outputs

– Inputs are resources such as

• People, Material, and Money

– Outputs are goods and services

 9/2/2021  RVU/Harar campus  9

 9/2/2021  RVU/Harar campus  10

• Provide an efficient transformation

 9/2/2021  RVU/Harar campus  11

 Low customer interaction

 Produced and consumed at same

 High customer interaction

 Inconsistent product definition

 9/2/2021  RVU/Harar campus  13

 Attributes of Goods Attributes of Services

(Tangible Product) (Intangible Product)

Some aspects of quality Quality difficult to measure

Revenue generated primarily Revenue generated primarily

 9/2/2021  RVU/Harar campus Table 1.314

Restaurant meal/auto repair

 Percent of Product that is a Good Percent of Product that is a Service

 9/2/2021  RVU/Harar campus

• All organizations make decisions and follow a

 9/2/2021  RVU/Harar campus  16

• Following decisions focus on specifics - Tactical decision

– Tactical decisions: focus on specific day-to-day issues like resource needs,

schedules, & quantities to produce

• Strategic decisions less frequent

• Tactical and Strategic decisions must align with strategic Decisions

 9/2/2021  RVU/Harar campus  17

 9/2/2021  RVU/Harar campus  18

• Customers demand better quality, greater speed, and lower costs

• Companies implementing lean system concepts – a total systems approach to efficient

• Increased cross-functional decision making

 9/2/2021  RVU/Harar campus  19

• OM has the most diverse organizational function

• Manages the transformation process

• OM has many faces and names such as;

– V. P. operations, Director of supply chains, Manufacturing manager