1.

7 OPERATIONS TODAY
Advances in information technology and global competition have had a major
influence on operations management. While the Internet offers great potential
for business organizations, the potential as well as the risks must be clearly
understood in order to determine if and how to exploit this potential. In many
cases, the Internet has altered the way companies compete in the
marketplace.

Electronic business, or e-business , involves the use of the Internet to transact business. E-
business is changing the way business organizations interact with their customers and their suppliers.

E-Commerce , consumer–business transactions such as buying online or requesting information.

However, business-to-business transactions such as e-procurement represent an increasing share of e-
business. E-business is receiving increased attention from business owners and managers in developing
strategies, planning, and decision making.

Technology refers to the application of scientific discoveries to the development and

improvement of goods and services. It can involve knowledge, materials, methods, and equipment.

The term High Technology refers to the most advanced and developed machines and methods.
Operations management is primarily concerned with three kinds of technology: product and service
technology, process technology, and information technology (IT).
 All three can have a major impact on costs, productivity, and competitiveness.

Product and service technology refers to the discovery and development of new products
and services. This is done mainly by researchers and engineers, who use the scientific
approach to develop new knowledge and translate that into commercial applications.

Process technology refers to methods, procedures, and equipment used to produce goods
and provide services. They include not only processes within an organization but also supply
chain processes.

Information technology (IT) refers to the science and use of computers and other
electronic equipment to store, process, and send information. Information technology is
heavily ingrained in today’s business operations. This includes electronic data processing,
the use of bar codes to identify and track goods, obtaining point-of-sale information, data
transmission, the Internet, e-commerce, e-mail, and more.

Management of technology is high on the list of major trends, and it promises to be high well
into the future.

For example, computers have had a tremendous impact on businesses in many

ways, including new product and service features, process management,
medical diagnosis, production planning and scheduling, data processing, and
communication. Advances in materials, methods, and equipment also have
had an impact on competition and productivity.

Globalization the process by which businesses or other organizations develop international

influence or start operating on an international scale. Globalization the need for global supply chains
have broadened the scope of supply chain management. However, tightened border security in certain
instances has slowed some movement of goods and people. Moreover, in some cases, organizations are
reassessing their use of offshore outsourcing.

Competitive pressures and changing economic conditions have caused business organizations to
put more emphasis on:

Operations strategy in their corporate strategy. Some of them paid dearly for that neglect.
Now more and more companies are recognizing the importance of operations strategy on
the overall success of their business as well as the necessity for relating it to their overall
business strategy.

Working with fewer resources due to layoffs, corporate downsizing, and general cost
cutting is forcing managers to make trade-off decisions on resource allocation, and to place
increased emphasis on cost control and productivity improvement.

Revenue management is a method used by some companies to maximize the revenue they
receive from fixed operating capacity by influencing demand through price manipulation.
Also known as yield management, it has been successfully used in the travel and tourism
industries by airlines, cruise lines, hotels, amusement parks, and rental car companies, and
in other industries such as trucking and public utilities.
 Process analysis and improvement includes cost and time reduction, productivity
improvement, process yield improvement, and quality improvement and increasing
customer satisfaction. This is sometimes referred to as a six sigma process.

Six sigma is a process for reducing costs, improving quality, and increasing customer
satisfaction.

Some businesses use the term total quality management (TQM) to describe their
quality efforts. A quality focus emphasizes customer satisfaction and often involves
teamwork. Process improvement can result in improved quality, cost reduction, and time
reduction. Time relates to costs and to competitive advantage, and businesses seek ways to
reduce the time to bring new products and services to the marketplace to gain a
competitive edge.

Agility refers to the ability of an organization to respond quickly to demands or

opportunities. It is a strategy that involves maintaining a flexible system that can quickly
respond to changes in either the volume of demand or changes in product/service
offerings.

1.8 KEY ISSUES FOR TODAY’S BUSINESS OPERATIONS

There are a number of issues that are high priorities of many business organizations. Although
not every business is faced with these issues, many are. Chief among the issues are the following:

Economic conditions. The lingering recession and slow recovery in various sectors of the
economy has made managers cautious about investment and rehiring workers who had
been laid off during the recession.

Innovating. Finding new or improved products or services are only two of the many
possibilities that can provide value to an organization. Innovations can be made in
processes, the use of the Internet, or the supply chain that reduce costs, increase
productivity, expand markets, or improve customer service.

Quality problems. The numerous operations failures mentioned at the beginning of the
chapter underscore the need to improve the way operations are managed. That relates to
product design and testing, oversight of suppliers, risk assessment, and timely response to
potential problems.

Risk management. The need for managing risk is underscored by recent events that include
the crisis in housing, product recalls, oil spills, and natural and man-made disasters, and
economic ups and downs. Managing risks starts with identifying risks, assessing
vulnerability and potential damage (liability costs, reputation, demand), and taking steps to
reduce or share risks.

Competing in a global economy. Low labor costs in third-world countries have increased
pressure to reduce labor costs. Companies must carefully weigh their options, which
include outsourcing some or all of their operations to low-wage areas, reducing costs
internally, changing designs, and working to improve productivity.
Three other key areas require more in-depth discussion: environmental concerns, ethical conduct, and
managing the supply chain.

ENVIRONMENTAL CONCERNS
Concern about global warming and pollution has had an increasing effect on how businesses
operate. Stricter environmental regulations, particularly in developed nations, are being imposed.

Business organizations are coming under increasing pressure to reduce their

carbon footprint (the amount of carbon dioxide generated by their operations
and their supply chains) and to generally operate sustainable processes.

Sustainability refers to service and production processes that use resources in ways that do not
harm ecological systems that support both current and future human existence. Sustainability measures
often go beyond traditional environmental and economic measures to include measures that
incorporate social criteria in decision making.

ETHICAL CONDUCT
Ethics is a standard of behavior that guides how one should act in various situations. The need
for ethical conduct in business is becoming increasingly obvious, given numerous examples of
questionable actions in recent history. In making decisions, managers must consider how their decisions
will affect shareholders, management, employees, customers, the community at large, and the
environment.

Five Principles for Thinking Ethically:

• Utilitarian Principle is that the good done by an action or inaction should outweigh any
harm it causes or might cause. An example is not allowing a person who has had too much
to drink to drive.

• Rights Principle is that actions should respect and protect the moral rights of others. An
example is not taking advantage of a vulnerable person.

• Fairness Principle is that equals should be held to, or evaluated by, the same standards.
An example is equal pay for equal work.

• The Common Good Principle is that actions should contribute to the common good of the
community. An example is an ordinance on noise abatement.

• The Virtue Principle is that actions should be consistent with certain ideal virtues.
Examples include honesty, compassion, generosity, tolerance, fidelity, integrity, and self-
control.

THE NEED TO MANAGE THE SUPPLY CHAIN

Supply chain management is being given increasing attention as business organizations face
mounting pressure to improve management of their supply chains.
 In the past, most organizations did little to manage their supply chains. Instead,
they tended to concentrate on their own operations and on their immediate
suppliers. Moreover, the planning, marketing, production and inventory
management functions in organizations in supply chains have often operated
independently of each other.

Supply chains experienced a range of problems that were seemingly beyond the control of
individual organizations. The problems included large oscillations of inventories, inventory stockouts,
late deliveries, and quality problems. These and other issues now make it clear that management of
supply chains is essential to business success.

The other issues include the following:

1. The need to improve operations. Efforts on cost and time reduction, and productivity
and quality improvement, have expanded in recent years to include the supply chain.
Opportunity now lies largely with procurement, distribution, and logistics—the supply
chain.

2. Increasing levels of outsourcing. Outsourcing is the buying goods or services instead of

producing or providing them in-house. Organizations are increasing their levels of
outsourcing, buying goods or services instead of producing or providing them themselves.
As outsourcing increases, organizations are spending increasing amounts on supply-related
activities (wrapping, packaging, moving, loading and unloading, and sorting). A significant
amount of the cost and time spent on these and other related activities may be
unnecessary.

3. Increasing transportation costs. Transportation costs are increasing, and they need to be
more carefully managed.

4. Competitive pressures. Competitive pressures have led to an increasing number of new

products, shorter product development cycles, and increased demand for customization.
And in some industries, most notably consumer electronics, product life cycles are relatively
short. Added to this are adoption of quick-response strategies and efforts to reduce lead
times.

5. Increasing globalization. Increasing globalization has expanded the physical length of

supply chains. A global supply chain increases the challenges of managing a supply chain.
Having far-flung customers and/or suppliers means longer lead times and greater
opportunities for disruption of deliveries. Often currency differences and monetary
fluctuations are factors, as well as language and cultural differences. Also, tightened border
security in some instances has slowed shipments of goods.

6. Increasing importance of e-business. The increasing importance of e-business has added

new dimensions to business buying and selling and has presented new challenges.

7. The complexity of supply chains. Supply chains are complex; they are dynamic, and they
have many inherent uncertainties that can adversely affect them, such as inaccurate
forecasts, late deliveries, substandard quality, equipment breakdowns, and canceled or
changed orders.