Operations as a Competitive Weapon

Chapter 1 Operations as a Competitive Weapon Chapter 1 Year Expected Demand 0 80,000 Cash Flow How Operations As a Competitive Weapon fits the ...
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Chapter 1

Operations as a Competitive Weapon Chapter 1


Expected Demand



Cash Flow

How Operations As a Competitive Weapon fits the Operations Management Philosophy

Operations As a Competitive Weapon Operations Strategy Project Management

















© 2007 Pearson Education

Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems

Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling

© 2007 Pearson Education


Operations Management is…

¾Why are they successful?

“The systematic design, direction and control of processes that transform inputs into services and products for internal, as well as external, customers.”

¾Fast ¾On-time deliveries ¾Relatively low cost ¾Technology in shipment tracking

© 2007 Pearson Education


Transformation Processes (Adding value)


© 2007 Pearson Education

Operations Management as a Function

Processes ¾ Processes should add value. ¾ Processes can be broken down into sub-processes, which in turn can be broken down further. ¾ Any process that is part of a larger process is considered a “nested process.” ¾ Each process and each nested process has inputs and outputs.

© 2007 Pearson Education

Operations as a Competitive Weapon

© 2007 Pearson Education


Chapter 1

Process View of an Ad Agency

Nested Processes Advertisement Design and Planning Process

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

Receive work request Assemble team Prepare several designs Receive inputs from Account Executive • Prepare final concept • Revise concept per client’s inputs


Media planning process

• • • •

Advertisement design and planning process

Output interface process • Communicate with client, get needs, and coordinate progress

• Create the ad to the needs of the client and prepare a plan for media exposure


Creative design process

Accounting process

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

© 2007 Pearson Education

© 2007 Pearson Education

External vs. Internal Customers ¾ External Customers are those who purchase the goods and services. ¾ Internal Customers are those who receive the output of others within the firm. They are part of the transformation process. Inputs from other processes

Transformation Processes (Adding value)

Outputs to Internal or to External customers

© 2007 Pearson Education

Service Processes and Manufacturing Processes Manufacturing processes change materials in one or more of the following dimensions: ¾ Physical properties ¾ Shape ¾ Fixed dimensions ¾ Surface finish ¾ Joining parts and materials If a process isn’t doing at least one of these, then it is a service (non-manufacturing) process. © 2007 Pearson Education

Manufacturing and Service Goods Production ¾ ¾ ¾ ¾ ¾

Tangible Can be inventoried Low customer contact Capital Intensive Quality easily measured

Service Production ¾ ¾ ¾ ¾ ¾

Intangible Can’t be inventoried High customer contact Labor Intensive Quality hard to measure

Most firms provide both goods and services. © 2007 Pearson Education

Operations as a Competitive Weapon

Value Chains ¾ Value chains are an interrelated series of processes that produce a service or product to the satisfaction of customers. ¾ Value chains may have core processes or support processes.

¾ Core processes deliver value to external customers. ¾ Support processes provide vital inputs for the core processes. © 2007 Pearson Education


Chapter 1

Support Processes

Core Processes

Internal Value-Chain Linkages ¾ Firms have many processes that support the core processes.

1. Customer relationship processes ¾

Identify, attract, and build relationships with external customers and facilitate the placement of orders.

Support processes

Design and develop new services or products from inputs received from external customer specifications.

3. Order fulfillment processes ¾

The activities required to produce and deliver the service or product to the external customers.

4. Supplier relationship processes ¾

Select suppliers of services, materials and information and facilitate the timely and efficient flow of these items into the firm.

© 2007 Pearson Education

New service/ product development process

Supplier relationship process

Customer relationship process

Order fulfillment process

External customers


External suppliers

2. New service/product development processes

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Operations as a Set of Decisions

Progressive Insurance

¾ Grew from $1.3 billion to $11 in 13 years.

Basic Decision-making Steps

¾ How did they do it? ¾ Operational Innovation (Designing new processes)

(1) Recognize and clearly define the problem.

¾ Immediate Response Claims Handling (24 hours a day).

(2) Collect the information needed to analyze

¾ Streamlined claims processing, from 7-10 days to 9 hours. ¾ Web site for agents only. ¾ Web site for customer information, inquiries and routine processing.

possible alternatives. (3) Choose the most attractive alternative. (4) Implement the chosen alternative.

¾ Agents quickly go to scene of accident. © 2007 Pearson Education

© 2007 Pearson Education

Operations as a Set of Decisions Tactical Decisions

Strategic Decisions ¾ ¾ ¾ ¾ ¾

Development of new capabilities Maintenance of existing capabilities Design of new processes Development and organization of value chains Key performance measures

¾ ¾ ¾ ¾ ¾

Process improvement and performance measures Management and planning of projects Generation of production and staffing plans Inventory management Resource scheduling

© 2007 Pearson Education

Operations as a Competitive Weapon

Productivity ¾ Productivity is the value of outputs (services and products) produced, divided by the value of input resources(wages, costs of equipment, etc.)

Productivity =

Output Input

© 2007 Pearson Education


Chapter 1

Productivity Calculation

Productivity Calculation Example 1.1 1. Single factor Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. Calculate the productivity in policies per hour. Labor productivity =

Policies Processed Employee Hours

600 Policies = (3 Employees) (40 hours/employee) = 5 policies/hr © 2007 Pearson Education

Example 1.1


2. Multifactor A team of workers makes 400 units of a product, valued by its standard cost of $10 each (before markups for other expenses and profit). The accounting department reports that the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead. Calculate the productivity. Quality at standard cost Multifactor productivity = Labor cost + Materials Cost + Overhead cost =

(400 units) ($10/unit) $4,000 = $400 + $1000 + $300 1,700

= 2.35

¾ These figures must be compared with performance levels in prior periods and with future goals. © 2007 Pearson Education


Global Competition ¾ Businesses accept the fact that, to prosper, they must view customers, suppliers, facility locations, and competitors in global terms.

Calculate the year-to-date labor productivity:

¾ Most products today are composites of materials and services from all over the world. ¾Forces that created increased global competition: ¾ Improved Transportation and Information Technologies

Calculate the multifactor productivity:

¾ Loosened regulations on Financial Institutions ¾ Increased Demand for Imported Services and Goods ¾ Reduced Import Quotas and other Trade Barriers ¾ Comparative Cost Advantages

© 2007 Pearson Education

© 2007 Pearson Education

Global Competition Disadvantages ¾ May have to relinquish proprietary technology. ¾ Political risks. ¾ Alienate U.S. customers by sending jobs overseas. ¾ Lower skill levels in some areas. ¾ Difficulty with cross-functional coordination. ¾ Harder to produce products and services that can compete. © 2007 Pearson Education

Operations as a Competitive Weapon

Other Challenges in Operations Management ¾Rapid technological change ¾Ethical issues across cultures ¾Increasing diversity of the workforce ¾Environmental impact issues

© 2007 Pearson Education


Chapter 1

Addressing the Challenges in Operations Management Managing Value Chains Managing Processes Using Operations to Compete

Operations As a Competitive Weapon

Supply Chain Strategy Process Strategy


Process Analysis

Inventory Management

Operations Strategy

Process Performance & Quality


Project Management

Constraint Management

Sales & Operations Planning

Process Layout

Lean Systems

Resource Planning Scheduling

© 2007 Pearson Education

Operations as a Competitive Weapon


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