Operations as a

Competitive Weapon
 Operations Management
▪ Operations Management is:
The management of systems or processes
that create goods and/or provide services

▪ Operations Management affects:

▪ Companies’ ability to compete
▪ Nation’s ability to compete internationally

1-2
 SC and Flows in Firms
. Material (goods) flow

Supplier Custom
er

Storag
Storag
Suppli Custom
Casherflow Proc Mfg. Dist. Retailer

e
e

er

Suppli Info flow Custom

er er
 Value-Added Process

The operations function involves the conversion of

inputs into outputs
Value
Inputs added
Transformation Outputs
Land
/ Conversion Goods
Labor

process Services
Capital Feedbac
k
Contro
Feedback l Feedback
 Value-Added & Product
Packages
▪ Value-added is the difference between the
cost of inputs and the value or price of
outputs.
▪ Product packages are a combination of
goods and services.
▪ Product packages can make a company
more competitive.

1-5
 Process View of an Ad Agency
Accounting process

Advertisement design Client interface process

and planning process • Communicate with client,

Clients
Inputs

• Create the ad to the get needs, and coordinate

needs of the client and progress
prepare a plan for media
exposure

Production process
• Prepare ad for publication
and deliver to media outlets

Figure 1.1
 Nested Processes
Advertisement Design and Planning Process

Creative design process Media planning process

• Receive work request
• Create team
• Prepare several designs
• Receive inputs from
Account Executive
• Prepare final concept
• Revise concept per client’s
inputs
• Receive work request
• Prepare several media
plans
• Receive inputs from
Account Executive
• Prepare final plan
• Revise plan per client’s
inputs

Figure 1.2
 Internal Value-Chain Linkages Showing
Work and Information Flows
Support processes

External customers
External suppliers

New service/
product Customer
development relationship
process process

Supplier Order
relationship fulfillment
process process

Figure 1.3
 Support Processes
Table 1.1 Examples of Support Processes
Capital Acquisition The provision of financial resources for the organization to do its
work and to execute its strategy
Budgeting The process of deciding how funds will be allocated over a period of
time
Recruitment and The acquisition of people to do the work of the organization
Hiring
Evaluation and The assessment and payment of the people for the work and value
Compensation they provide to the company
Human Resource The preparation of the people for their current jobs and future skill
Support and and knowledge needs
Development
Regulatory The process that insure the company if meeting all laws and legal
Compliance obligations
Information Systems The movement and processing of data and information to expedite
business operations and decisions
Enterprise and The systems and activities that provide strategic direction and ensure
Functional effective execution of the work of the business
Management
Production of Goods vs. Delivery of
Services
▪ Production of goods – tangible output
▪ Delivery of services – an act
▪ Service job categories
▪ Government
▪ Wholesale/retail
▪ Financial services
▪ Healthcare
▪ Personal services
▪ Business services
▪ Education
 Key Differences

1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
 Key Differences

6. Production and delivery

7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
 Goods vs Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual1-13
 Scope of Operations Management

▪ Operations Management includes:

▪ Forecasting
▪ Capacity planning
▪ Scheduling
▪ Managing inventories
▪ Assuring quality
▪ Motivating employees
▪ Deciding where to locate facilities
▪ Supply chain management
▪ And more . . .
 Types of Operations

Operation Example
s Producing
Goods s
Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis,
hotels, airlines
buses,
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
 Key Decisions of Operations
Managers
▪ What
What resources/what amounts
▪ When
Needed/scheduled/ordered
▪ Where
Work to be done
▪ How
Designed
▪ Who
To do the work
 Operations Interfaces
Industria
Engineerin
l
g
Maintenanc
Distributio e
n

Purchasin Public
g Operation Relation
s s

Lega
l
Personne
l
Accountin MI
g S
 Trends in Business and
Operations
▪ Major trends
▪ The Internet, e-commerce, e-business
▪ Management technology
▪ Globalization
▪ Management of supply chains
▪ Outsourcing
▪ Agility
▪ Ethical behavior
▪ Operations should comply the trends
 Management Technology
▪ Technology: The application of scientific
discoveries to the development and
improvement of goods and services
▪ Product and service technology
▪ Process technology
▪ Information technology
 Types of OM Decisions
 Strategic choices
 New Processes
 Quality
 Value Chains
 Operating Decisions
 Process
Management
 Project Management
 Inventory
 Scheduling
Productivity

Output
Productivity =
Input
 Productivity

Policies processed
Labor productivity =
Employee hours

Example 1.1a
 Productivity

600 policies
Labor productivity =
(3 employees)(40 hours/employee)

Example 1.1a
 Productivity

Labor productivity = 5 policies/hour

Example 1.1a
 Productivity

Labor productivity = 5 policies/hour

Multifactor productivity =

Quantity at standard cost

Labor cost + Materials cost + Overhead cost

Example 1.1b
 Productivity

Labor productivity = 5 policies/hour

Multifactor productivity =

(400 units)($10/unit) $4000

= = 2.35
$400 + $1000 + $300 $1700

Example 1.1b
Operations Roadmap
Competing with Operations Outcomes

Operations As a
Competitive Weapon
Designing and 1
Improving Processes Operating Value Chains

Operations Strategy
Process Analysis 2 Information Technology
4 and Value Chains
12

Process Design Strategy

Process 3
Performance and Forecasting
Quality 13
5

Designing Value Chains Aggregate Planning

14
Process Process
Capability Layout
6 7
Supply Chain Inventory Resource
Design Management Planning
9 15 16
Planning and
Managing Projects
8
Location Lean Systems Scheduling
10 11 17