Copyright 2009 John Wiley & Sons, Inc.

Beni Asllani
University of Tennessee at Chattanooga
I ntroduction to Operations and
Supply Chain Management
Operations Management - 6
th
Edition
Chapter 1
Roberta Russell & Bernard W. Taylor, III
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Lecture Outline
The Operations Function
Evolution of Operations and Supply Chain
Management (SCM)
Globalization
Productivity Overview
Strategic Planning and Operations
Strategy
Outline of this Textbook

Some slides include notes beneath them.
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The Operations Function
Overview
What is Operations Management?
Transformation Processes and Value
Chains
How Operations is Connected with Other
Business Functions and with Suppliers

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What is Operations Management?
What is Operations Management?
design, operation, and improvement of productive
systems
What is Operations?
a function or system that transforms inputs into outputs of
greater value
What is a Transformation Process?
a series of activities along a value chain extending from
supplier to customer
activities that do not add value are not needed and
should be eliminated
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INPUT
Material
Machines
Labor
Management
Capital
TRANSFORMATION
PROCESS
OUTPUT
Goods
Services
Feedback & Requirements
Operations as a
Transformation Process
Figure 1.1
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Physical: as in manufacturing operations
Locational: as in transportation or
warehouse operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication
Transformation Process
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A Value Chain
Manufacturer Customer Supplier
Flow of information: customer order and
delivery requirements
Flow of products: goods and services
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How Operations is Connected with Other
Business Functions and with Suppliers
Operations
Marketing
Finance and
Accounting
Human
Resources
Outside
Suppliers
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Evolution of Operations and
Supply Chain Management
Craft production
process of handcrafting products or services for
individual customers
Division of labor
dividing a job into a series of small tasks each
performed by a different worker. Division of labor
is used to design assembly lines.
Interchangeable parts
standardization of parts. A necessary step
toward mass production
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Scientific management
systematic analysis of work methods
Mass production
high-volume production of a standardized
product for a mass market
Lean production
an adaptation of mass production that
emphasizes quality, flexibility, and reduced
costs
Evolution of Operations and
Supply Chain Management (cont.)
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Evolution of Operations and
Supply Chain Management (cont.)
Supply chain management
management of the flow of information, products, and services across
a network of customers, enterprises, and supply chain partners
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Globalization Overview
Globalizing business functions
Why companies globalize
Risks of globalization
Global statistics
Hourly compensation costs for production workers
Trade in goods as % of Gross Domestic Product


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Globalizing Business Functions
Almost any business function can be
performed outside a company's home country
Marketing
Operations
Purchasing from foreign suppliers
Obtaining financing from overseas banks
Having products designed in another country
Having customer service or technical service
performed in another country
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Why Companies Globalize
Reduce labor costs
Reduce material costs
Gain access to new suppliers
Gain access to international markets
The fastest-growing markets are emerging markets
such as China and India. These markets have an
emerging middle class and high demand for goods
and services
Gain access to skilled people
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Why Companies Globalize (2)
Understand the requirements of overseas
customers
Electrical devices must meet different standards for
voltage and plug design in various countries
McDonalds sells beer in Germany
BMW, a German company, built its first SUV's for
the U. S. market
Gain access to new technologies
Low-cost cars designed for India and eastern
Europe may find a market elsewhere
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Risks of Globalization
Quality problems
Supply chain and delivery problems
Foreign suppliers that use child labor or do not
comply with labor laws in their country
Foreign suppliers that make and sell
unauthorized copies of your product.
In China, this has happened to New Balance, GM,
and Volkswagen, among many others
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Risks of Globalization (2)
Product safety problems, such as lead paint on
toys made in China
Public concern about jobs lost as a result of
outsourcing overseas
Poor corporate image
Unexpected changes in the value of a foreign
currency may increase costs or reduce
revenue
Hourly Compensation Costs for Production Workers
Trade in Goods as % of GDP
(sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
Measures of Productivity
In total factor productivity, the usual inputs are
labor, capital, energy, and materials.
Productivity measures efficiency and is an important
measure of Operations performance. However, it
should not be the only measure used to evaluate
Operations.
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Strategic Planning Overview
Mission and strategy
Environmental scanning
Order qualifiers and order winners
Internal company analysis
Core competencies
Positioning the firm
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Strategic Planning
Company mission or primary task: what is the
company in business to do? Examples:
Levi-Strauss: We will market and distribute the most
appealing & widely worn apparel brands.
Dell: Dell listens to customers and delivers
technology they trust and value.
A business strategy explains how a company
will achieve its mission.
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Key Inputs to a Business Strategy
Mission statement
Environmental scanning (opportunities and
threats)
What is going on outside the company that will
affect your business?
Internal analysis of strengths and weaknesses
What is going on inside the company that affects
your strategic options?
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Environmental Scanning - Current
Situation and Future Trends
The company should look at what is going on
outside the company with respect to:
Product and process technology in the industry
Laws and regulations that could affect the company
Economic trends
Social and demographic trends
Market trends and customer data
Industry and competitor strategies
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Environmental Scanning (2)
Identify opportunities and threats
Examples of opportunities
Laws requiring use of ethanol in gasoline created
opportunities for ethanol producers
Growing markets in China and India may create
opportunities for your company.
Examples of threats
A competitor is introducing a product that your
company cannot match.
New banking regulations are being proposed.
An economic recession
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Environmental Scanning (3)
Order qualifiers and winners
Order qualifier: what qualifies a good or
service to be considered for purchase?
Order winner: what characteristic of a good or
service persuades customers to buy.
Order qualifiers and order winners:
Change over time
Depend on the target market
Depend on positioning in the marketplace
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Internal Company Analysis
Evaluate the company's financial, managerial,
technical, and material strengths and
weaknesses.
Look for core competencies that the company
has or could develop.
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Core Competencies
Core competency (distinctive competence)
What does the firm do better than anyone else?
Should create a sustainable (long-term) competitive
advantage.
Should be hard to imitate.
Usually requires cooperation and information
sharing among different business functions
Often includes partnerships with suppliers or
customers.
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Examples of Core Competencies
Wal-Mart has maintained "everyday low prices" for
decades.
Nordstrom's is known for superior customer service.
The Mayo Clinic is known for excellent medical
care, at a low cost.
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How Wal-Mart Keeps Prices Low
Demands very low prices from suppliers
Limits inventory by
Requiring suppliers to deliver most merchandise directly to
stores just as it is needed (vendor-managed inventory)
Merchandise delivered to Wal-Mart distribution centers goes
directly onto trucks for delivery to stores (cross-docking)
Stocks a limited number of brands in each product category
Headquarters closely monitors sales and inventory at each
store
No-frills store layouts and product displays
Tight controls on staffing and employee compensation
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Order Qualifiers, Winners, and
Core Competencies - Summary
Order qualifiers and order winners define
customer requirements
A company should satisfy order qualifiers in its
target market
A company's core competency should be an
order winner in its target market

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Strategic Positioning
(also called Positioning)
How the company chooses to compete
Sets competitive priorities for the company
Considerations in Positioning
Strengths and weaknesses of the firm
Present and future needs of customers
Strategies of competitors
Potential of technology to help the firm get and
keep customers
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Competitive Priorities
that Operations Supports
Cost also called competing on price
Quality
Flexibility
Speed
We will discuss these priorities throughout
the semester.
It is hard to excel at more than two of these.
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Positioning the Firm:
Competing on Cost
Waste elimination
relentlessly pursuing the removal of all waste
Examination of cost structure
looking at the entire cost structure for
reduction potential not just direct labor
High-volume production and automation
are sometimes the best alternatives.
In other cases, lean production is more
efficient.
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Positioning the Firm:
Competing on Speed
There are several ways to compete on speed.
Rapid service delivery: Lens Crafters, FedEx
Build-to-order production: Dell can produce a
computer to order in two days
Rapid new product introduction
Zara can design a new garment, manufacture it,
and have it in stores in 9 15 days.
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Positioning the Firm:
Quality
Conformance quality ensures the
consistency of a good or service.
Any good or service can have conformance
quality.
Conformance quality is usually an order qualifier.
Since competitors are also likely to have
conformance quality, this type of quality is
usually not an order winner.
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Positioning the Firm:
Quality (2)
Companies that compete on quality focus on
pleasing or delighting the customer.
These companies often offer luxury goods or
services with high design quality.
Nordstrom's stores
Ritz Carlton Hotels
Rolls-Royce automobiles
Rolex watches
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Positioning the Firm:
Flexibility
Flexibility is the ability to adjust to changes in
product mix, production volume, or product design
One approach to flexibility involves responding to
general changes in demand.
Benetton constantly monitors sales. Production
of hot-selling items will be increased, and they
may be offered in new colors. Production of
items that are not selling well will cease.
Zara responds to changing demand by
introducing more than 20,000 items per year.
(Zara competes on both speed and flexibility).
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Positioning the Firm:
Flexibility (2)
Mass customization is the mass production of
customized products using computer-aided design
(CAD) and computer-aided manufacturing (CAM). This
is another approach to flexibility.
National Bicycle offers more than 11 million
combinations of product options for bicycles.
The customized bicycles are shipped within two weeks
and cost only 10% more than standard bicycles.
Like Dell, National Bicycle uses a build-to-order system.
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Technology and Methods for
Mass Customization
Here are some of the technologies and methods that
make mass customization work at Dell
Computer-aided design (CAD) and computer-aided-
manufacturing (CAM).
Frequent deliveries from suppliers so that Dell has
the parts it needs
Supply Chain Management (SCM) information
systems so that suppliers know what to deliver
Since Dell also ships finished computers in two days, it
is competing on both technology and speed.
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Operations Strategy
Products
Services Process
and
Technology
Capacity
Human
Resources
Quality
Facilities
Sourcing Operating
Systems
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Organization of This Text:
Part I Operations Management
Intro. to Operations and
Supply Chain Management: Chapter 1
Quality Management: Chapter 2
Statistical Quality Control: Chapter 3
Product Design: Chapter 4
Service Design: Chapter 5
Processes and Technology: Chapter 6
Facilities: Chapter 7
Human Resources: Chapter 8
Project Management: Chapter 9
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Supply Chain
Strategy and Design: Chapter 10
Global Supply Chain
Procurement and Distribution: Chapter 11
Forecasting: Chapter 12
Inventory Management: Chapter 13
Sales and
Operations Planning: Chapter 14
Resource Planning: Chapter 15
Lean Systems: Chapter 16
Scheduling: Chapter 17
Organization of This Text:
Part II Supply Chain Management
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Copyright 2009 John Wiley & Sons, Inc.
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