Using Operations To Create Value: Eleventh Edition

Operations Management Processes
and Supply Chains

Eleventh Edition
Chapter 1
Using Operations
to Create Value
Copyright © 2016, 2013, 2010 Pearson Education, Inc. All Rights Reserved.
What is Operations Management?
• Operations Management
– The systematic design, direction, and control of
processes that transform inputs into services and
products for internal, as well as external,
customers
• Process
– Any activity or group of activities that takes one or
more inputs, transforms them, and provides one or
more outputs for its customers
• Operation
– A group of resources performing all or part of one or
more processes
Role of Operations in an Organization
Figure 1.1 Integration between Different Functional Areas of a Business
How Processes Work (1 of 2)
Figure 1.2 Processes and Operations
How Processes Work (2 of 2)
• Every process and every person in the organization
has customers
– External customers
– Internal customers
• Every process and every person in the organization
relies on suppliers
– External suppliers
– Internal suppliers
Service and Manufacturing Processes
Differ Across Nature of Output and Degree of Customer Contact
Figure 1.3 Continuum of Characteristics of Manufacturing and Service Processes
• Physical, durable output • Intangible, perishable output

• Output can be inventoried • Output cannot be inventoried
• Low customer contact • High customer contact
• Long response time • Short response time
• Capital intensive • Labor intensive
• Quality easily measured • Quality not easily measured
Competitive Priorities and Capabilities
Competitive Priorities Competitive Capabilities
• The critical dimensions that a • The cost, quality, time, and
process or supply chain must flexibility dimensions that a
possess to satisfy its internal process or supply chain actually
or external customers, both possesses and is able to deliver.
now and in the future.
Order Winners and Qualifiers
Order Winners Order Qualifiers
• A criterion customers use to • Minimum level required from
differentiate the services or a set of criteria for a firm to
products of one firm from do business in a particular
those of another. market segment.
Order Winners and Qualifiers (1 of 3)
Table 1.3 Definitions, Process Considerations, and Examples
of Competitive Priorities
Cost Definition Process Considerations Example
1. Low-cost Delivering a service or Processes must be designed Costco
operations a product at the lowest and operated to make them
possible cost efficient
Quality blank Blank blank
2. Top quality Delivering an May require a high level of Rolex
outstanding service or customer contact and may
product require superior product
features
3. Consistent Producing services or Processes designed and McDonald’s
quality products that meet monitored to reduce errors
design specifications and prevent defects
on a consistent basis
Table 1.3 [continued]

Time Blank Blank Blank
4. Delivery Quickly filling a Design processes to reduce Netflix
speed customer’s order lead time
5. On-time Meeting delivery-time Planning processes used to United
delivery promises increase percent of customer Parcel
orders shipped when Service
promised (UPS)
6. Development Quickly introducing a Cross-functional integration Zara
speed new service or a and involvement of critical
product external suppliers
Table 1.3 [continued]

Flexibility Blank Blank Blank
7. Customization Satisfying the unique Low volume, close Ritz Carlton
needs of each customer contact, and (luxury hotel)
customer by changing easily reconfigured
service or product
designs
8. Variety Handling a wide Capable of larger volumes Amazon.com
assortment of services than processes supporting
or products efficiently customization
9. Volume Accelerating or Processes must be The United
flexibility decelerating the rate of designed for excess States Postal
production of services capacity and excess Service (USPS)
or products quickly to inventory
handle large
fluctuations in demand
Measuring Productivity
Example 1.1 (1 of 2)
Calculate the Productivity for the following operations:
a. Three employees process 600 insurance policies in a
week. They work 8 hours per day, 5 days per week.
Example 1.1 (2 of 2)
Calculate the Productivity for the following operations:
b. A team of workers makes 400 units of a product, which is
sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.
Application 1.1
blank This Year Last Year Year Before Last
Factory unit sales 2,762,103 2,475,738 2,175,447
Employment (hrs) 112,000 113,000 115,000
Sales of manufactured $49,363 $40,831 —
products ($)
Total manufacturing $39,000 $33,000 —
cost of sales ($)
• Calculate the year-to-date labor productivity:

blank This Year Last Year Year Before Last
factory unit sales 2,762,103 divided by 2,475,738 divided by 2,175,447 divided by
divided by equipment 112,000 equals 24.66 per 113,000 equals 21.91 per 115,000 equals $18.91
hour hour per hour
• Calculate the multifactor productivity:

blank This Year Last Year
sales of manufacturing products $49,363 divided by $40,831 divided by
divided by total manufacturing
cost $39,000 equals 1.27 $33,000 equals 1.24
Solved Problem 1 (1 of 3)
Student tuition at Boehring University is $150 per semester
credit hour. The state supplements school revenue by $100 per
semester credit hour. Average class size for a typical 3-credit
course is 50 students. Labor costs are $4,000 per class,
material costs are $20 per student per class, and overhead
costs are $25,000 per class.
a. What is the multifactor productivity ratio for this course process?
b. If instructors work an average of 14 hours per week for 16 weeks
for each 3-credit class of 50 students, what is the labor
productivity ratio?
a. Multifactor productivity is the ratio of the value of output
to the value of input resources.
b. Labor productivity is the ratio of the value of output to
labor hours. The value of output is the same as in part
(a), or $37,500/class, so
Natalie Attire makes fashionable garments. During a
particular week employees worked 360 hours to produce
a batch of 132 garments, of which 52 were “seconds”
(meaning that they were flawed). Seconds are sold for
$90 each at Attire’s Factory Outlet Store. The remaining
80 garments are sold to retail distribution at $200 each.
What is the labor productivity ratio of this manufacturing
process?

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Operations Management Processes

and Supply Chains

• Physical, durable output • Intangible, perishable output

Cost Definition Process Considerations Example

Cost Definition Process Considerations Example

• Calculate the year-to-date labor productivity:

• Calculate the multifactor productivity:

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