Operations Management Essentials for Competitive Advantage

1. Chapter 19 Operations and Services Management

2. Planning Ahead — Chapter 19 Study Questions • What are the essentials of operations management? • What is value chain management? • How do organizations manage service and product quality? • How can work processes be designed for productivity?

3. Chapter 19 Learning Dashboard • Operations Management Essentials • Productivity and competitive advantage • Operations technologies • Value Chain Management • Value chain analysis • Supply chain management • Inventory management • Break-even analysis

4. Chapter 19 Learning Dashboard • Service and Product Quality • Customer relationship management • Quality management • Statistical quality control • Work Processes • Work process analysis • Process reengineering

5. Takeaway 1: Operations Management Essentials Operations management • Managing productive systems that transform resources into finished products, goods, and services for customers. • Typical operations management decisions include: • Resource acquisition • Inventories • Facilities • Workflows • Technologies • Product quality

6. Takeaway 1: Operations Management Essentials • Manufacturing Organizations • Produce physical goods • Service Organizations • Produce services

7. Takeaway 1: Operations Management Essentials • Productivity • Quantitative measure of the efficiency with which inputs are transformed into outputs. • Productivity = Output / Input. • Competitive advantage • A core competency that allows an organization to outperform competitors

8. Takeaway 1: Operations Management Essentials Companies may achieve competitive advantage in many ways, including: • Product innovations • Customer service • Speed to market • Manufacturing flexibility • Product/service quality

9. Takeaway 1: Operations Management Essentials Technology • The combination of knowledge, skills, equipment, computers, and work methods used to transform resource inputs into organization outputs. • Manufacturing technology • Service technology

10. Takeaway 1: Operations Management Essentials Core manufacturing technologies:

11. Takeaway 1: Operations Management Essentials Manufacturing technology trends • Robotics • Flexible manufacturing systems • Mass customization • Cellular layouts • Computer-integrated manufacturing • Lean production • Design for disassembly • Remanufacturing

12. Takeaway 1: Operations Management Essentials Service-Profit chain • All activities involved in the direct link between an organization’s service providers and customers or clients • Should produce • Satisfied and loyal customers • Efficient and productive use of resources

13. Takeaway 1: Operations Management Essentials Core service technologies:

14. Management 12e Chapter 19 Takeaway 2: Value Chain Management • Value creation • Occurs when the result of a work or task activity makes a product/service worth more • Value chain • Sequence of activities that creates products and services with value for customers • Supply chain management • The strategic management of all operations relating to an organization’s resource suppliers.

15. Figure 19.1 Elements in an organization’s value chain

16. Takeaway 2: Value Chain Management • Inventory is an amount of materials or products kept in storage • Inventory management • Goal is to ensure that inventory is just the right size to meet performance needs, thus minimizing the cost. • Methods of inventory control: • Economic order quantity • Just-in-time scheduling

17. Takeaway 2: Value Chain Management Inventory control • Economic order quantity (EOQ) • Inventory replenished with fixed quantity order when inventory falls to predetermined level. • Just-in-time scheduling • Materials arrive at workstation or facility ‘just-in-time’ for use. • Virtually eliminates carrying costs of inventories.

18. Figure 19.2 Inventory control by economic order quantity (EOQ)

19. Takeaway 2: Value Chain Management • Break-even analysis • Determination of the point at which sales revenues are sufficient to cover costs. • Break-Even Point = Fixed Costs / (Price – Variable Costs) • Used in evaluating: • New products • New program initiatives

20. Figure 19.3 Graphical approach to break-even analysis

21. Takeaway 3: Service and Product Quality Customer relationship management • Establishes and maintains high standards of customer service in order to strategically build lasting relationships with and add value to customers. • External customers purchase the organization’s goods or utilize its services. • Internal customers are the persons and groups within an organization who depend on the results of others' work to do their own jobs.

22. Takeaway 3: Service and Product Quality Customer Relationship Management (CRM) • Uses latest technologies for intensive customer communication and collection of data regarding customer needs and desires. • Establishes and maintains high standards of customer service.

23. Figure 19.4 The importance of external and internal customers

24. Takeaway 3: Service and Product Quality • Total quality management (TQM) • Quality principles are an integral part of organization’s strategic objectives. • Applying them to all aspects of operations • Committing to continuous improvement • Striving to meet customers’ needs by doing things right the first time • Malcolm Baldrige award • Given to business, health care, education, and nonprofit organizations that meet quality criteria

25. Takeaway 3: Service and Product Quality ISO (International Standards Organization) certification • Adopted by many countries as quality benchmark. • Companies undergo rigorous audit to determine if ISO requirements are met. • Focus is on customer service and product quality.

26. Takeaway 3: Service and Product Quality Quality and Continuous Improvement • W. Edwards Deming emphasized: • Constant innovation. • Use of Statistical methods. • Training in the fundamentals of quality assurance. • Continuous improvement • Quality circles

27. Takeaway 3: Service and Product Quality Continuous improvement • Constant search for new ways to improve current performance. • Reduce cycle time between order receipt and delivery.

28. Takeaway 3: Service and Product Quality Statistical quality control • Uses rigorous statistical analysis for checking processes, materials, products, and services to ensure that they meet high standards. • Takes random work samples • Measures quality in samples • Determines acceptability • Unacceptable quality results in corrective action • “Six Sigma” common example of SQC

29. Figure 19.5 Sample control chart showing upper and lower control limits.

30. Takeaway 4: Work Processes • Process reengineering • Systematic and complete analysis of work processes. • Design of new and better work processes. • Work process • “A related group of tasks that create a result of value for the customer.” (Michael Hammer) • Workflow • Movement of work from one point to another in the manufacturing or service delivery process.

31. Takeaway 4: Work Processes Process value analysis • Core processes are identified and evaluated for their performance contributions. • Each step in workflow is examined • Step is eliminated if not found to be important, useful, and contributing to the value added

32. Takeaway 4: Work Processes Steps in reengineering core processes: • Identify core processes. • Map core processes in respect to workflows. • Evaluate all tasks for core processes. • Search for ways to eliminate unnecessary tasks or work. • Search for ways to eliminate delays, errors, and misunderstandings. • Search for efficiencies in how work is shared and transferred among people and departments.

33. Figure 19.6 How reengineering can streamline work processes