OPERATIONS MANAGEMENT research, customer data, and

production schedules.
What is Operations Management? Transformation/Conversion
Process:
● The set of activities that creates
value in the form of goods and ○ The process of converting
services by transforming inputs into inputs into outputs. This
outputs. process can be physical (e.g.,
● The science and art of ensuring that manufacturing a product) or
goods and services are created and intangible (e.g., providing a
delivered successfully to customers. It service).
includes the design of goods, ○ Value-Added: The
services, and the processes that transformation process adds
create them. value to the inputs, making the
● The management of the direct outputs more valuable than
resources that are required to the sum of their parts.
produce and deliver an organization's
goods and services.
● Outputs:
● The business function responsible for
○ Goods: Physical products that
planning, coordinating, and
are produced through the
controlling the resources needed to
transformation process.
produce a company's products and
○ Services: Intangible products
services.
that are produced through the
● The management of the conversion
transformation process.
process that transforms inputs into
● Control:
outputs in the form of finished
○ The process of monitoring and
goods and services.
adjusting the transformation
The Transformation Process (Value-Added
process to ensure that it is
Process)
producing the desired
● Inputs: the raw materials, materials outputs.
used and needed for ○ Feedback: Measurements
production/conversion taken at various points in the
○ Land: The natural resources transformation process to
used in the production process, assess its performance.
such as water, minerals, and ○ Control: The comparison of
forests. feedback against previously
○ Labor: The human effort used established standards to
in the production process, determine if corrective action
including both physical and is needed.
mental work. The Operations Function:
○ Capital: The physical assets
○ The operations function is
used in the production process,
responsible for the
such as machinery, buildings,
transformation process. It
and tools.
involves the conversion of
○ Information: The knowledge
inputs into outputs.
and data used in the production
○ Goal: The goal of the
process, such as market
operations function is to
 produce goods and services ● Labor content of jobs
that meet customer needs and ● Uniformity of output
expectations while maximizing ● Measurement of productivity
efficiency and minimizing ● Production and delivery
costs. ● Quality assurance
● Amount of inventory
What Do Operations Managers Do? ● Evaluation of work
● Ability to patent design
● Forecasting
● Supply chain management The key differences between goods and
● Facility layout and design services are illustrated with the following
● Technology selection examples in the text:
● Quality management
1. Customer Contact: The performance
● Purchasing
of a service, such as a haircut or a
● Resource and capacity planning
doctor's appointment, often occurs at
● Process design
the point of consumption, while
● Job design
manufacturing allows for the
● Service encounter design
separation of production and
● Scheduling
consumption.
● Sustainability
2. Uniformity of Input: Services are
The Goal of Operations Management subject to greater variability of
inputs, as each customer and their
● To meet customers' satisfaction. needs can be unique, unlike
● ROI/profitability to shareholders. standardized inputs in manufacturing.
3. Labor Content of Jobs: Many
Goods and Services services involve a higher labor content
than manufacturing, which often relies
● Goods are items that are usually (but
on machinery and automation.
not always) tangible, such as pens,
4. Uniformity of Output: Manufacturing,
salt, apples, and hats.
due to its high mechanization, tends to
● Services are activities provided by
have more uniform output compared to
other people, who include doctors,
services, where the outcome can vary
lawn care workers, dentists, barbers,
depending on the interaction between
waiters, or online servers, a book, a
the service provider and the customer.
digital videogame, or a digital movie.
5. Measurement of Productivity: It is
● Many firms are trying to mix
easier to measure productivity in
products with services in an effort
manufacturing by quantifying the
to boost revenue. Products and
number of products produced,
services combined into innovative
whereas measuring productivity in
offerings can help companies attract
services can be more challenging
new customers and increase
due to the intangible nature of the
demand among existing ones by
output.
providing superior value.
6. Production and Delivery: In services,
Key Differences Between Goods and customers receive the service as it is
Services performed (e.g., a live concert), while
in manufacturing, production and
● Customer contact delivery are separate processes.
● Uniformity of input
 7. Quality Assurance: Ensuring quality Six Eras of Operations
in services is more challenging as Management:
production and consumption occur
simultaneously, unlike manufacturing 1. 1960s: Cost Minimization Era
where quality checks can be done ○ Focus: Cost and efficiency
before the product reaches the ○ Strategy: Cost minimization,
customer. mass production,
8. Amount of Inventory: Manufacturing manufacturing-based
typically involves holding more technology, focus on goods,
inventory of raw materials and finished local markets.
goods, while services often have less 2. 1970s: Quality Era
inventory as they are produced and ○ Focus: Quality
consumed on demand. ○ Strategy: Continued focus on
9. Evaluation of Work: Evaluating work cost and efficiency, but with an
in manufacturing is more increased emphasis on
straightforward as it involves improving quality to meet
assessing tangible products, customer expectations.
whereas evaluating the quality of a 3. 1980s: Customization and Design
service can be more subjective and Era
dependent on customer perception. ○ Focus: Customization and
10. Ability to Patent Design: Product design
designs are generally easier to patent ○ Strategy: Companies started to
than service designs, as services are differentiate themselves by
often based on processes and offering customized products
interactions that are harder to define and services to meet individual
and protect legally. customer needs.
I. Customer Contact: Low for goods, 4. 1990s: Time-Based Competition Era
high for services. ○ Focus: Time
II. Uniformity of Input: High for goods, ○ Strategy: Reducing lead times,
low for services. improving delivery speed, and
III. Labor Content: Lower for goods, increasing flexibility to respond
higher for services. to changing market demands.
IV. Uniformity of Output: High for goods, 5. 2000s: Service and Value Era
low for services. ○ Focus: Service and value
V. Output: Tangible for goods, intangible ○ Strategy: Shifting from a
for services. product-centric approach to a
VI. Measurement of Productivity: Easier customer-centric approach,
for goods, difficult for services. focusing on providing excellent
VII. Opportunity to Correct Problems: service and value to customers.
Higher for goods, lower for services. 6. 2010s: Sustainability Era
VIII. Inventory: More for goods, little for ○ Focus: Sustainability
services. ○ Strategy: Incorporating
IX. Evaluation: Easier for goods, difficult environmental and social
for services. responsibility into operations
X. Patentable: Usually for goods, not management, focusing on
usually for services. sustainable practices and
minimizing negative impacts on
the planet and society.
 ○ Technology: Mass Lean Production Era (1980-1995)
customization,
information-based technology, ● Just-in-Time (JIT): Taiichi Ohno's
focus on value, global markets. philosophy of minimizing waste and
improving flow.
Operations Management (OM) Timeline ● Computer-Aided Design (CAD): The
and Significant Events use of computers in design processes.
● Electronic Data Interchange (EDI):
Early Concepts (1776-1880)
The electronic exchange of business
● Labor Specialization: Adam Smith's documents.
division of labor concept and ● Total Quality Management (TQM):
Charles Babbage's further W. Edwards Deming's comprehensive
contributions. approach to quality.
● Standardized Parts: Eli Whitney's ● Baldrige Award: A national quality
idea of interchangeable parts. award established in the U.S.
● Empowerment: Giving employees
Scientific Management Era (1880-1910) more autonomy and decision-making
power.
● Process Analysis: Frederick Taylor's ● Kanbans: A visual signaling system
focus on optimizing workflows. used in JIT production.
● Gantt Charts: Henry Gantt's visual
tool for project scheduling. Mass Customization Era (1995-2010)
● Motion & Time Studies: Frank and
Lillian Gilbreth's analysis of work ● Globalization: Increased
movements. interconnectedness of economies and
businesses.
Mass Production Era (1910-1980) ● Internet: The rise of the internet
revolutionized communication and
● Moving Assembly Line: Henry Ford commerce.
and Charles Sorensen's revolutionary ● Enterprise Resource Planning
production system. (ERP): Integrated systems for
● Statistical Sampling: Walter managing business processes.
Shewhart's introduction of quality ● Learning Organization: The concept
control techniques. of organizations continuously learning
● Economic Order Quantity: Ford and adapting.
Whitman Harris's inventory ● International Quality Standards
management model. (e.g., ISO 9000): Standardized quality
● Linear Programming: George management systems.
Dantzig's mathematical optimization ● Finite Scheduling: Production
technique. scheduling method to optimize
● PERT/CPM: Project management resource utilization.
techniques developed for complex ● Supply Chain Management (SCM):
projects. Managing the flow of goods and
● Material Requirements Planning services across organizations.
(MRP): A system for managing ● Agile Manufacturing: Responding
inventory and production planning. quickly to changing customer
● Queuing Theory: Agner Krarup demands.
Erlang's mathematical study of waiting ● E-Commerce: The buying and selling
lines. of goods and services online.
 ● Build-to-Order (BTO): Manufacturing motions to eliminate unnecessary
products only when customer orders movements and improve efficiency.
are received.
Quality and Computing Advancements
Ongoing Trends (1924-1995)

● Customization Focus: Increasing ● Quality Control (1924): Walter A.

emphasis on tailoring products and Shewhart's introduction of statistical
services to individual customer needs. process control, followed by W.
● Quality Focus: Maintaining Edwards Deming's contributions in the
high-quality standards is essential for 1950s, which revolutionized quality
competitiveness. management.
● Cost Focus: Efficiency and cost ● Computer (1938): John Atanasoff's
reduction remain important for invention of the first electronic digital
profitability. computer laid the groundwork for the
digital revolution in OM.
● Computer-Aided Design (CAD)
The Heritage of Operations Management (1970s): The use of computers for
(OM) design and engineering, leading to
increased precision and faster
Early Foundations (1776-1922) development cycles.
● Flexible Manufacturing System
● Division of Labor (1776): Adam
(FMS) (1975): The integration of
Smith's groundbreaking concept of
computers, robots, and automation to
dividing tasks to increase
enable adaptable production
productivity, later refined by Charles
processes.
Babbage in 1852.
● Baldrige Quality Awards (1980):
● Standardized Parts (1800): Eli
Established in the U.S. to promote
Whitney's idea of interchangeable
excellence in quality management.
parts, which revolutionized
● Computer-Integrated Manufacturing
manufacturing and paved the way for
(CIM) (1990): The integration of all
mass production.
manufacturing processes through
● Scientific Management (1881):
computer systems.
Frederick W. Taylor's principles of
● Globalization (1992): The increasing
analyzing and optimizing work
interconnectedness of economies,
processes, laying the foundation for
opening up new markets and supply
modern management practices.
chains for businesses.
● Coordinated Assembly Line (1913):
● Internet (1995): The internet's
Henry Ford, along with Clarence Avery
exponential growth transformed
and Charles Sorensen, introduced the
communication, collaboration, and
moving assembly line, drastically
e-commerce, further shaping OM
reducing production time and costs.
practices.
● Gantt Charts (1916): Henry Gantt's
visual tool for project scheduling,
which remains a staple in project
Key Figures
management today.
● Motion Study (1922): Frank and ● Frederick W. Taylor (1856-1915):
Lillian Gilbreth's analysis of work Known as the "father of scientific
management" for his systematic
 approach to improving work How to Identify Core Competencies
efficiency.
● Frank (1868-1924) and Lillian Business Characteristics
Gilbreth (1878-1972): Pioneering
Core competencies stem from the
engineers who focused on motion
fundamental characteristics of a business.
study and work simplification.
These characteristics can be a combination
● Henry Ford (1863-1947): Industrialist
of:
who revolutionized mass production
with the assembly line and ● Resources: Tangible assets (e.g.,
transformed the automobile industry. technology, facilities, financial
resources) and intangible assets (e.g.,
Gantt Chart Example
brand reputation, intellectual property,
employee expertise).
● Capabilities: The organization's ability
to deploy resources effectively through
processes, systems, and employee
skills.
● Culture: The shared values, beliefs,
and behaviors that shape the
organization's approach to work and
decision-making.

These characteristics create a foundation

Competitiveness, Strategy, and upon which core competencies can be built
Productivity in Operations Management and leveraged for competitive advantage.

What is Business Competition? Three Key Criteria for Identifying Core

Competencies
● The rivalry among businesses
operating in the same market niche. 1. Customer-Focused Approach:
● Aims to gain a larger market share, ○ A core competency should
increase profitability, and achieve deliver significant value to
sustainable growth. customers.
○ It should address their needs,
Competitiveness preferences, and pain points in
a way that differentiates the
● A firm's ability and performance business from its competitors.
relative to its competitors in selling and 2. Output/End Product Suited for
supplying goods and services. Multiple Products and Markets:
● Winning over customers to become ○ A core competency should not
the preferred choice. be limited to a single product or
● Competitive advantage is achieved by market.
offering superior value to ○ It should be versatile enough to
customers. be applied across various
offerings and customer
segments, contributing to
growth and adaptability.
 3. Hard to Imitate Products, ● Location: Strategically positioning
Processes, and Strategies: facilities for efficient operations and
○ A core competency should be customer access.
difficult for competitors to ● Quality: Delivering high-quality
replicate. products and services consistently.
○ This can be due to unique ● Quick Response: Responding
combinations of resources, promptly to customer demands and
capabilities, and knowledge that market changes.
are deeply embedded within the ● Flexibility: Adapting to fluctuations in
organization. demand and market conditions.
● Inventory Management: Maintaining
The Importance of Identifying Core optimal inventory levels to minimize
Competencies costs and meet demand.
● Supply Chain Management:
By identifying and focusing on its core
Optimizing the flow of materials,
competencies, a business can:
information, and finances throughout
● Differentiate itself: Stand out from the supply chain.
competitors and create a unique ● Service: Providing excellent customer
market position. service and support.
● Create competitive advantage: Gain ● Managers and Workers: Employing
an edge that is difficult for others to skilled and motivated personnel.
replicate.
Strategy
● Drive innovation: Leverage core
competencies to develop new ● Actions taken by managers to achieve
products, services, and processes. organizational goals.
● Enhance efficiency: Streamline ● A well-defined roadmap that outlines
operations by focusing on areas of the overall mission, vision, and
expertise. direction of an organization.
● Build resilience: Adapt to changing ● Aims to maximize strengths and
market conditions by leveraging minimize the strengths of competitors.
strengths. ● Bridges the gap between "where we
are" and "where we want to be."The
Core Competencies
Mission Statement
● Unique resources and capabilities ● The foundation of a company's identity.
that provide a strategic advantage. ● Articulates what the company
● Examples: McDonald's represents, its core values, and its
standardization, Apple's style, reason for existence.
Walmart's buying power. ● Answers the question: "What do we do
and why do we do it?"
Factors Influencing Competitiveness in ● Provides a sense of purpose and
OM direction for employees and
stakeholders.
● Product and Service Design:
Creating appealing and innovative Vision Statement
offerings.
● Cost: Managing costs effectively to ● An aspirational statement that outlines
offer competitive prices. what the company wants to achieve in
the future.
 ● Describes the desired state or ● Commitment to Quality, Innovation,
long-term goal of the company. and Respect: Upholding these values
● Answers the question: "Where do we as core principles in everything they
want to be?" do.
● Inspires and motivates employees to ● Exceeding Expectations: Striving to
work towards a common goal. surpass customer and stakeholder
expectations.
Strategy & Goals ● Rewarded with a Smile: Ultimately
aiming to create products and services
● The actionable plan for achieving the
that bring joy and satisfaction to users.
vision.
● Outlines specific steps, initiatives, and Toyota's Mission
objectives to reach the desired state.
● Answers the question: "How will we Toyota's mission is centered around providing
get there?" comprehensive mobility solutions:
● Provides a roadmap for
decision-making and resource ● Supplying a Range of Vehicles,
allocation. Parts, Accessories, and Services:
● Includes measurable goals to track Offering a complete ecosystem of
progress and success. products and services related to
mobility.
The Relationship ● Meeting Requirements: Tailoring their
offerings to meet the diverse needs
The three components are interconnected: and preferences of customers.
● Ensuring Outstanding Quality and
● The mission statement provides the
Value for Money: Delivering products
foundation upon which the vision
that are reliable, durable, and worth
statement is built.
the investment.
● The vision statement guides the
● Instilling Pride of Ownership:
development of the strategy and
Creating products that customers are
goals.
proud to own and associate with the
● The strategy and goals are the
Toyota brand.
actionable steps taken to fulfill the
mission and achieve the vision. The image illustrates the three levels of
strategy within a corporation:
Toyota's Vision
1. Corporate-Level Strategy: This is the
Toyota envisions itself as a leader in the highest level of strategy, addressing
future of mobility, focusing on: the overarching question, "What
businesses are we in?" This strategy
● Leading the Way: Being at the focuses on the organization's portfolio
forefront of innovation and of businesses and how they fit
transformation in the mobility sector. together to achieve the corporation's
● Enriching Lives: Making a positive overall goals. It involves decisions
impact on people's lives through their about which industries to enter or
products and services. exit, which businesses to invest in
● Safest and Most Responsible: or divest from, and how to allocate
Prioritizing safety and environmental resources across different business
responsibility in their solutions. units.
 2. Business-Level Strategy: This level 6. High Quality
focuses on how each individual
business unit within the corporation 7. Service
competes in its respective industry.
Key Purchasing Criteria
The question here is, "How do we
compete in each of our major 1. Price:
businesses?" Business-level ○ This criterion focuses on the
strategies address issues such as cost of the product relative to
product differentiation, cost similar offerings from
leadership, market segmentation, competitors.
and competitive positioning. ○ Customers often seek the best
3. Functional-Level Strategy: This is value for their money, so a
the most specific level of strategy, competitive price can be a
dealing with the operational aspects of significant factor in their choice.
individual functions within a business 2. Quality:
unit. The question is, "How do we best ○ Customers consider the
support each of our business product's durability, reliability,
strategies?" Functional-level strategies and overall quality.
are developed for areas like finance, ○ They often seek products that
human resources, manufacturing, are well-made, long-lasting, and
marketing, etc. These strategies free from defects.
address issues such as how to 3. Variety:
optimize processes, allocate ○ This criterion refers to the range
resources within the function, and of options or styles available for
align functional activities with the the product.
overall business strategy. ○ Some customers value the
ability to choose from a wide
selection to find the perfect fit
Common Operations Strategies for their needs and preferences.
4. Timeliness:
● Quality-based strategies: Focus on ○ Customers often prioritize
improving product design, reducing products that can be delivered
errors, and building a reputation for promptly.
quality. ○ The ability to meet delivery
● Time-based strategies: Aim to deadlines or provide fast
reduce lead time, the time it takes to service can be a deciding factor
fulfill customer orders. for many buyers.

EXAMPLE OF DIFFERENT STRATEGIES:

1. Low Cost Order Qualifiers vs. Order Winners

2. Scale-based strategies ● Order qualifiers: Minimum

requirements a product or service
3. Specialization must meet to be considered by
customers (e.g., safety features in a
4. Newness car).
● Order winners: Characteristics that
5. Flexible operations differentiate a product or service and
ultimately win the customer's order
 (e.g., exceptional warranty or lower Reasons to Globalize
price).
● Tangible Reasons: Reduce costs,
improve the supply chain.
GLOBAL STRATEGY: ● Intangible Reasons: Provide better
1. Adaptation ("One size does not fit goods and services, understand
all"): markets, learn to improve operations,
● Definition: Modifying the company's attract and retain global talent.
business model to fit the unique needs What is Productivity?
and preferences of different foreign
markets. Productivity is a measure of how
● Focus: Tailoring products, services, or effectively resources are utilized to
marketing strategies to specific produce outputs.
cultural, economic, and regulatory
contexts. In simpler terms,
● Example: McDonald's offering
vegetarian options in India to cater to Productivity
local dietary preferences.
● A measure of how efficiently resources
2. Aggregation ("One for all, all for
(inputs) are converted into outputs.
one"):
● Productivity = Outputs / Inputs
● Definition: Identifying similarities
● Can be measured for various
across national markets and creating a
resources like labor, materials, or
standardized product or service that
energy.
can be offered globally.
● Improving productivity is crucial for
● Focus: Leveraging economies of
competitiveness and profitability.
scale and efficiency by targeting
common customer needs and 1. Partial Productivity:
preferences.
● Example: Apple selling the same ● Output / Labor: This measures the
iPhone models worldwide with minimal productivity of labor, i.e., how much
modifications. output is produced per unit of labor
3. Arbitrage ("Difference counts"): input (e.g., per hour of work). It helps
● Definition: Taking advantage of assess the efficiency of the workforce.
differences in factor markets (e.g., ● Output / Energy: This measures the
labor costs, raw material availability, productivity of energy, indicating how
regulatory environments) across much output is generated per unit of
countries. energy consumed. It is important for
● Focus: Maximizing profitability by understanding energy efficiency in
sourcing, manufacturing, and selling in production.
different countries to exploit cost and ● Output / Materials: This measures the
resource disparities. productivity of materials, showing how
● Example: A clothing company much output is produced per unit of
sourcing fabric from India, raw materials used. It helps evaluate
manufacturing in Bangladesh, and the effectiveness of material utilization.
selling in the United States.
2. Multi-Factor Productivity: e-business and global competition
strategies.
● Output / (Labor + Materials): This ● Operations: Creating schedules,
considers the combined productivity of assigning workloads, planning
labor and materials, indicating the inventory, making decisions about
output generated for each unit of production (make-or-buy, outsourcing),
combined labor and material input. and designing products or services.
● Output / (Energy + Labor +
Materials): This expands the
multi-factor productivity calculation to Features Common to All Forecasts
include energy, assessing the output 1. Forecasting techniques generally
relative to all three major input factors. assume that the same underlying
3. Total Productivity: causal system that existed in the past
will continue to exist in the future.
● Output / All Inputs: This is the most 2. Forecasts are rarely perfect; predicted
comprehensive productivity measure, values usually differ from actual
considering all inputs used in the results.
production process (labor, materials, 3. Forecasts for groups of items tend to
energy, capital, etc.). It provides a be more accurate than forecasts for
holistic view of the overall productivity individual items.
of the operation. 4. Forecast accuracy decreases as the
time period covered by the forecast
increases.
Elements of A Good Forecast
What is Forecasting?
● The forecast horizon must cover the
Forecasting is a method used by time necessary to implement possible
organizations to predict business outcomes. It changes.
involves creating estimates that can help ● The degree of accuracy should be
managers develop and implement effective stated.
production strategies. Forecasts are valuable ● The forecast should be reliable; it
tools for making informed business decisions should work consistently.
and developing data-driven strategies. ● The forecast should be expressed in
meaningful units.
Uses of Forecasting
● The forecast should be in writing.
Forecasting is used in various areas of ● The forecast should be simple to
business, including: understand and use, or consistent with
historical data intuitively.
● Finance: Predicting equipment needs,
funding requirements, cost estimates,
STEPS IN FORECASTING PROCESS
profit projections, and cash
management. 1. Fix the forecasting objectives:
● Human Resources: Planning hiring Define the purpose and goals of the
activities, layoffs, and training forecast.
programs. 2. Decide what to forecast?: Determine
● Marketing: Determining pricing and the specific variables or metrics to be
promotion strategies, as well as predicted (e.g., sales, demand,
production).
 3. Determine the time frame: Set the Choosing a Forecasting Technique
time horizon for the forecast (e.g.,
short-term, medium-term, long-term). The choice of forecasting technique depends
4. Collect data for forecasting: Gather on various factors, including cost, accuracy,
relevant historical data and any other available data, computer software, time
information that may be useful for the constraints, and the ability to analyze and
forecast. prepare data. It's important to note that no
5. Select the forecasting model: single technique is universally best, and
Choose the appropriate forecasting multiple techniques may be used in
method based on the nature of the combination.
data and the desired accuracy.
Major Areas of Forecasting:
6. Build and test the forecasting
model: Develop the model using the 1. Economic Forecasting:
selected technique and validate its ○ Predicts: General business
accuracy against historical data. conditions in the future.
7. Prepare the forecasts: Generate the ○ Examples: Inflation rates,
actual forecasts for the desired time Gross National Product, Tax
horizon. rates, Levels of employment.
8. Present the forecasts: Communicate 2. Technology Forecasting:
the forecasts to relevant stakeholders ○ Predicts: The probability and/or
in a clear and understandable manner. possible future developments in
9. Compare events with the forecasts: technology.
Continuously monitor the accuracy of ○ Examples: Competitive
the forecasts and make adjustments advantage or if a firm's
as needed based on actual outcomes. competitors incorporate new
technology into their products
and processes.
Forecasting Methods 3. Demand Forecasting:
○ Predicts: The quantity and
The reference text mentions several
timing of demand for a firm's
forecasting methods:
products.
● Naïve Forecast: A simple method that
uses the last period's actuals as this
period's forecast. TWO TYPES OF FORECASTING
● Simple Moving Average: Calculates METHODS:
the average of a specific number of
recent data points. 1. Qualitative Forecasting:
● Weighted Moving Average: Assigns
● Relies on subjective opinions and
different weights to data points, giving
judgment from one or more experts.
more importance to recent data.
● Useful when historical data is limited or
● Exponential Smoothing: A weighted
unavailable.
averaging method that considers
● Often used for long-term or strategic
previous forecasts and forecast errors.
forecasting.
● Adjusted Exponential Smoothing: A
● Examples: Delphi method, market
variation of exponential smoothing that
research, expert panels.
includes a trend adjustment.
2. Quantitative Forecasting: 3. Sales Force Composite:
● Description: Salespeople are a
● Relies on data and analytical valuable source of information about
techniques. customer preferences and future
● Uses mathematical models and buying intentions. Their insights are
statistical analysis to make predictions. gathered and aggregated to create a
● Suitable when historical data is demand forecast.
available and patterns can be ● Advantage: Leverages the direct
identified. customer knowledge of the sales
● Often used for short-term or team.
operational forecasting. ● Disadvantage: Salespeople may be
● Examples: Time series analysis, biased towards optimistic forecasts to
regression analysis, causal models. meet their targets.

QUALITATIVE METHODS: 4. Customer Surveys:

1. Executive Committee Consensus: ● Description: Directly asking
● Description: A group of customers about their future
knowledgeable executives comes purchasing plans through surveys.
together to develop long- or ● Advantage: Provides valuable insights
medium-range forecasts. They share into customer demand and
their opinions and insights to reach a preferences.
consensus on the future values of the ● Disadvantage: Surveys may have low
items being forecasted. response rates and responses may not
● Advantage: Leverages the collective always be accurate.
knowledge and experience of
high-level executives.
● Disadvantage: The presence of a PRODUCT DESIGN
dominant personality in the group may
hinder reaching a true consensus. What is Product Design?

● The process of imagining, creating,

2. Delphi Method: and iterating products to solve user
● Description: Involves a group of problems or meet specific market
experts who provide individual needs.
forecasts anonymously. These ● Key: Understanding the end-user
forecasts are then shared with the customer—their habits, behaviors,
group, and each expert revises their frustrations, needs, and wants.
predictions based on the feedback. ● Scope:
The process continues until a ○ Initial user experience and
consensus is reached. product offering (pre-ideation
● Advantage: Reduces bias and research, concept development,
groupthink by allowing experts to prototyping, usability testing).
express their opinions independently. ○ Ongoing refinement of customer
● Disadvantage: Can be experience, adding new
time-consuming and requires the features seamlessly.
participation of multiple experts. ○ Maintaining brand consistency
and evolution throughout the
product's life cycle.
SERVICE DESIGN Importance of Product Design:

What is Service Design? ● Competitive advantage

● Attracts customers
● Designing services to better meet the ● Improves efficiency
needs of users and customers. ● Strengthens brand
● Examines: All activities, infrastructure,
communication, people, and material DESIGN CONSIDERATIONS
components involved in the service.
● Goals: Improve service quality and ● Product/service life cycles
interactions between the provider and ● Standardization vs. customization
customers. ● Delayed differentiation
● Product/service reliability
What Product and Service Design Do: ● Degree of newness

1. Translate customer wants and needs PRODUCT LIFE CYCLE MANAGEMENT

into requirements.
2. Refine existing products and services. ● Systematic approach to managing a
3. Develop new products and services. product's changes from conception to
4. Formulate quality goals. end-of-life.
5. Formulate cost targets. ● Phases: Development, Introduction,
6. Construct and test prototypes. Growth, Maturity, Decline

Key Questions from a Company STANDARDIZATION

Standpoint:
● Absence of variety in a product,
● Is there demand? service, or process.
● Can we do it? ● Advantages: Lower costs, economies
● What level of quality is appropriate? of scale, continuous flow, automation.
● Does it make economic sense? ● Disadvantages: Difficulty meeting
varying customer demands.
Famous Examples of Influential Product
Design: MASS CUSTOMIZATION

● Coca-Cola bottle ● Producing standardized

● Anglepoise Lamp goods/services with some degree of
● Polaroid Camera customization.
● VW Beetle
DELAYED DIFFERENTIATION
● Apple iPod Click Wheel
● Not completing a product until
Reasons for Product or Service Design:
customer preferences are known.
● Economic (reduce costs)
MODULAR DESIGN
● Social and demographic (population
shifts) ● Standardization with interchangeable
● Political or legal (new regulations) component parts.
● Competitive (newness) ● Easier diagnosis, repair, replacement,
● Cost or availability (labor/materials) manufacturing, and assembly.
● Technological (process improvements)
DEGREE OF NEWNESS ● Prototyping: Creating mockups,
storyboards, or service experience
● Modification of an existing product. blueprints (SEBs) to visualize and test
● Expansion of an existing line. the service experience.
● Clone of a competitor's product. ● Reflection: Evaluating the prototypes,
● Completely new product. gathering feedback, and iterating on
the design.
PHASES IN PRODUCT DESIGN AND
● Service Mapping/Blueprinting
DEVELOPMENT
● A visual tool for simultaneously
1. Idea Generation depicting:
2. Idea Screening ○ The service process.
3. Concept Testing ○ Points of customer contact.
4. Business Analysis ○ Evidence of service from the
5. Product Development customer's point of view.
6. Test Marketing ● Steps in Service
7. Commercialization Mapping/Blueprinting:
8. Review of Market Performance ● Identify the process to be blueprinted.
● Identify the customer or customer
segment.
SERVICE DESIGN ● Map the process from the customer's
point of view.
Service Design ● Map contact employee actions, both
onstage (visible to the customer) and
● Focus: Design according to customer backstage (behind the scenes).
needs, making the service ● Link customer and contact person
user-friendly, competitive, and activities to the necessary support
relevant. functions.
● Considers: Customer behavior, ● Add evidence of service at each
needs, and motivations. customer action step.
● Ps of Service Design:
○ People: Employees, customers,
and all stakeholders involved.
○ Processes: The steps and ● Product & Service Design
interactions that make up the ○ Product and service design are
service. interrelated to process design.
○ Props: Physical evidence and ○ Decisions made during the
tools used in the service design of a product or service
delivery. impact the process that
produces them, and vice versa.
○ Products and services should
● Service Design Process be designed for efficient
● Exploration: Understanding the creation.
customer experience through ○ Processes should be designed
research, data analysis, personas, and to accommodate all current and
customer journey mapping. future products and services.
● Ideation: Generating new service
concepts through brainstorming and
considering customer value
constellations (CVCs).
● Process and Technology equipment, and low
○ A process is a series of related employee skill
tasks with specific inputs and requirements (e.g.,
outputs, designed to create assembly lines).
value. ■ Continuous:
○ A company's process strategy High-volume,
defines its: standardized,
■ Vertical integration: The non-discrete products
extent of control over (e.g., liquids, sugar) with
inputs and outputs in the complex equipment and
production process. minimal workers.
■ Capital intensity: The
balance of capital
(equipment, automation) ● Process Analysis and Innovation
and labor resources. ○ Process analysis is the
■ Process flexibility: The systematic examination to
adaptability to changes in improve speed, efficiency, cost,
demand, technology, and customer responsiveness.
products/services, and ○ Process innovation is a
resources. complete redesign when
■ Customer involvement: continuous improvement is
The customer's role in insufficient.
production.

● Technology Decisions
● Process Planning and Selection ○ Technology decisions involve
○ Process Selection Types: significant investments and
■ Projects: One-time impact cost, speed, quality, and
events with high flexibility.
customization, resource ○ Financial justification includes
use, and complexity purchase cost, operating costs,
(e.g., construction, ERP annual savings, revenue
implementation). enhancement, replacement
■ Batch: Producing groups analysis, and risk assessment.
of identical products
regularly, with less
● Facility Layout
variety than job shops
○ Layout is the arrangement of
(e.g., baked goods,
equipment, departments, or
aircraft parts).
work centers to streamline
■ Job Shop: Unique,
production and eliminate waste.
made-to-order products
○ Layout Types:
with intermittent
■ Fixed position:
production and highly
Product/project remains
skilled workers (e.g.,
stationary, resources
custom cakes, guitars).
move.
■ Repetitive: Standardized
■ Process (functional):
products with high
Departments arranged
output, specialized
by function.
 ■ Product (line): Capacity:
Standardized operations
for smooth, high-volume ● Definition: The ability of a system to
flow. produce output within a specific time
period.
● Types:
○ Layout Objectives: ○ Design Capacity: The
■ Smooth flow of work, theoretical maximum output
materials, people, and under ideal conditions.
information. ○ Effective Capacity: The
■ Minimize movement and realistic maximum output,
material handling costs. considering factors like
■ Efficient space utilization. maintenance, breaks, and
■ Facilitate communication realistic operating conditions.
and interaction. ○ Actual Output: The actual
■ Reduce cycle times. production achieved, which
■ Eliminate waste. can't exceed effective capacity.
■ Facilitate entry, exit, and Capacity Planning:
placement.
■ Incorporate safety and ● Definition: The process of
security. determining the optimal level of
■ Provide visual control capacity needed to meet demand.
and flexibility. ● Key Questions:
○ How much capacity is needed?
○ When is it needed?
● Specific Layouts: ○ What kind of capacity is
○ Office Layout: Focus on needed?
collaboration, flexibility, and ● Reasons:
reduced paper use. ○ Changes in demand
○ Retail Layout: Maximize sales ○ Changes in technology
per square foot by studying ○ Environmental changes
traffic patterns. ○ Perceived threats
○ Warehouse Layout: Optimize ○ New opportunities
space use, considering goods ● Factors Affecting Capacity
flow, storage, and special Planning:
requirements. ○ Production facility layout,
design, location
○ Product line or matrix
● Importance of Process Design and ○ Production technology
Facility Layout ○ Human resources (job design,
○ Process design is essential as compensation)
every firm uses a process to ○ Operational structure
transform inputs into outputs. (scheduling, quality)
○ Facility layout is crucial for ○ External factors (policy,
efficient operations and regulations)
workflow.
Utilization and Efficiency: ● Standard Processing Time per Unit
(hrs): The time required to produce
● Utilization: The percentage of design one unit on a machine.
capacity that is actually achieved. ● Processing Time Needed (hrs): The
○ Formula: (Actual Output / total time needed to produce the
Design Capacity) * 100% annual demand on a single machine
● Efficiency: The percentage of (Annual Demand * Standard
effective capacity that is actually Processing Time per Unit).
achieved.
○ Formula: (Actual Output / The calculation involves:
Effective Capacity) * 100%
1. Calculating annual capacity:
Example: Multiplying the number of working
hours per day (8) by the number of
The image provides an example of a trucking working days per year (250) to get
company with: 2000 hours.
2. Calculating the number of machines
● Design Capacity: 50 trucks/day
required: Dividing the total processing
● Effective Capacity: 40 trucks/day
time needed (5800 hours) by the
● Actual Output: 36 trucks/day
annual capacity per machine (2000
This leads to: hours) to get 2.9 machines.
3. Rounding up: Since you cannot have
● Efficiency: 90% (36/40 * 100%) a fraction of a machine, the company
● Utilization: 72% (36/50 * 100%) needs 3 machines to handle the
required volume.
Determinants of Effective Capacity:
2. Developing Capacity Alternatives:
The image lists various factors that can
influence effective capacity, including: This section focuses on strategies to address
capacity planning challenges:
● Facilities
● Product and service factors 1. Design flexibility into systems:
● Process factors Create systems that can adapt to
● Human factors changes in demand or product mix.
● Policy factors 2. Take stage of life cycle into
● Operational factors account: Consider the product's life
● Supply chain factors cycle stage when planning capacity
● External factors (e.g., higher capacity needed during
growth phase).
1. Calculating Processing Requirements: 3. Take a "big picture" approach:
Analyze the impact of capacity
This section illustrates how to determine the
changes on the entire supply chain
number of machines needed to meet
and other parts of the organization.
production demand. It uses the following
4. Prepare to deal with capacity
information:
"chunks": Capacity increases often
● Annual Demand: The total quantity of occur in discrete steps or "chunks"
products to be produced in a year. rather than smooth increments. Plan
accordingly.
 5. Attempt to smooth out capacity Key Aspects of Supply Chain Management
requirements: Use strategies like ● Determining the appropriate level of
level production or demand outsourcing.
management to reduce fluctuations in ● Managing procurement.
capacity needs. ● Managing suppliers.
6. Identify the optimal operating level: ● Managing customer relationships
Determine the production level that ● Being able to quickly identify problems
minimizes average unit cost and and respond to them.
maximizes resource utilization.
Additional Information based on the image
provided:
Supply Chain Management (SCM)
Distribution Channels
Supply Chains & SCM Defined
1. Producer > Wholesaler > Retailer >
Consumer
● A supply chain is a network of
2. Producer > Retailer > Consumer
activities involved in delivering a
3. Producer > Consumer
finished product/service to the
customer. These channels represent the various paths a
● Sourcing of raw product can take from its manufacturing origin
materials to the end consumer. The goal is to make
● Assembly products available to consumers in the most
● Warehousing efficient way possible.
● Order entry
● Distribution Purchasing Activities
● Delivery ● Sourcing strategy
● SCM is a vital business function that ● Logistics
coordinates all of the network links. ● Procurement
- Coordinates the movement of
goods through the supply chain These activities involve acquiring the
from suppliers to manufacturers necessary resources and materials to
to distributors. produce goods and services.
- Promotes information sharing
along the chain, like forecasts, Purchasing Processes
sales data, & promotions. ● Market analysis
● Supplier qualification
● Supplier selection
What is Supply Chain Management?
● Negotiation/Contracting
● The strategic management of activities
● Supplier management
involved in the acquisition and
conversion of materials to finished These processes ensure the right suppliers
products delivered to the customer. are chosen and managed effectively to
maintain a smooth supply chain.
Logistics
Purchasing Tools
● The movement of goods, services,
cash, and information in the supply ● Total cost ownership
chain. ● Functional analysis
● Cost breakdown analysis
● E-procurement/Reverse auction
These tools assist in analyzing costs and ○ Lead Times/Delivery: Evaluate
optimizing the purchasing process. their ability to meet delivery
deadlines.
○ Other Factors: Consider
dependencies on other
Supply Chain Alignment & Purchasing
customers or potential risks.
Strategy Formulation
Choosing the Right Supplier
● Benefits of Effective Supply Chain
Choosing a Supplier: Management (SCM):
● Sources of Information Campbell Soup: Doubling inventory
○ Word of mouth: turnover means they're selling and
Recommendations from other replenishing stock much faster,
businesses are often the best reducing holding costs and improving
source. cash flow.
○ Trade associations: Hewlett-Packard: Cutting supply
Industry-specific directories and costs by 75% significantly improves
"approved supplier lists." profitability.
○ Exhibitions: Traditional way to Samsung: Reducing inventory buffers
meet multiple suppliers at once. means they're holding less excess
○ Trade press & websites: stock, freeing up capital and reducing
Publications and online storage costs.
resources for specific markets. Walmart: Their dominance in retail is
○ Directories: General listings largely attributed to their sophisticated
(e.g., Yellow Pages) are good supply chain, allowing them to offer
for commodity suppliers. lower prices and greater product
○ Direct marketing & availability.
advertising: Promotional
Need for Supply Chain Management:
materials from suppliers
themselves. ● Improve operations: Streamlining
processes to enhance efficiency and
reduce costs.
● Factors to Consider
● Increasing levels of outsourcing:
○ Quality and Quality
Managing a network of external
Assurance: Look for suppliers
suppliers effectively.
with robust quality control
● Increasing transportation costs:
processes.
Optimizing logistics to mitigate rising
○ Flexibility: Assess their ability
expenses.
to handle changes in schedules,
● Competitive pressures: Gaining an
quantities, or specifications.
edge through superior supply chain
○ Location: Consider proximity
performance.
for logistical and communication
● Increasing globalization: Managing
ease.
complex global supply chains.
○ Price: Ensure prices are
● Increasing importance of
competitive and negotiable.
e-commerce: Meeting the demands of
○ Reputation and Financial
online retail.
Stability: Research their track
record and financial health.
 ● Complexity of supply chains: labor and transportation costs can
Coordinating multiple interconnected differ significantly, service costs are
processes. relatively uniform across locations.
● Manage inventories: Balancing stock ● Production/service occurs together
levels to meet demand while with consumption: Services are often
minimizing costs. delivered directly to the customer,
making proximity a key factor in
attracting business.
● Location affects customer contact
The objective of location strategy
and volume: The more accessible a
● Maximize the benefits of location of the service is, the more customers it can
firm attract and serve.

The need for location decisions Factors Influencing Service Location

Choices
● Location decisions arise for a variety of
reasons: ● Proximity to Markets/Customers:
○ Addition of new facilities ○ Government Agencies: Police
○ As part of a marketing strategy and fire departments, post
to expand markets offices need to be easily
○ Growth in demand accessible for public safety and
○ Depletion of basic inputs service.
requires relocation ○ Retail and Service
○ Shift in markets Businesses: Restaurants,
○ Cost of doing business at a supermarkets, gas stations rely
particular location on high foot traffic and customer
convenience.
Factors affecting location decisions ○ Professional Services:
Doctors, lawyers, and other
● Proximity to source of supply: service providers need to be
○ Reduce transportation costs of located where their target
perishable or bulky raw clients live or work.
materials ● Transportation Costs of Finished
● Proximity to customers: Goods vs. Materials:
○ E.g.: High population areas, ○ Locate Close to Customers: If
close to JIT partners transporting finished goods is
● Proximity to labor: more costly than transporting
○ Local wage rates, attitude materials, businesses like
toward unions, availability of bottling plants, breweries, and
special skills (e.g.: Silicon power plants will prioritize
Valley) customer proximity.
● Proximity to Suppliers or Materials:
Service Location Decisions: A Revenue
○ Necessity: Some businesses,
Focus
like mining, fishing, and farming,
In the service sector, location is a critical must be located close to their
revenue driver. This is because: sources of raw materials.
○ Transportation Costs of
● Costs vary little between market Materials: If transporting
areas: Unlike manufacturing, where materials is more expensive
 than transporting finished ■ Labor: Availability of
products, businesses like skilled workers, labor
seafood processing, steel costs, productivity, and
production, lumber mills, and cultural attitudes towards
paper production will locate work.
near their suppliers. ■ Infrastructure:
Availability of reliable
Combining Industrial and Service supplies, communication
Perspectives networks, and energy
sources.
Both industrial and service location decisions
■ Financial Factors:
share a common goal: maximizing profit.
Exchange rates,
However, they differ in their emphasis:
currency risks, and
● Industrial: Often prioritize cost potential tax incentives.
minimization due to the high costs of 2. Regional Factors:
shipping and varying production costs. ○ Once a country is chosen, the
● Service: Prioritize revenue next step is to identify the best
maximization due to the importance of region within that country.
customer proximity and accessibility. ○ Key regional factors include:
■ Location of Raw
Location Decisions: A Multi-Layered Materials: Proximity to
Approach suppliers can reduce
transportation costs and
The process of choosing a location involves ensure a steady supply
several interconnected levels, each with its of inputs.
own set of factors: ■ Location of Markets:
Similar to the
1. Country Decision:
country-level factor, but
○ This is the broadest level,
more focused on regional
where a company decides
demand patterns.
which country to operate in.
■ Labor Factors: Regional
○ Key factors influencing this
variations in labor
decision include:
availability, skills, and
■ Political Risks:
costs can be significant.
Government stability,
■ Climate and Taxes:
regulations, and attitudes
These factors can impact
towards foreign
operating costs and the
investment.
overall business
■ Cultural and Economic
environment.
Issues: Compatibility
3. Community Considerations:
with the company's
○ Within a chosen region, the next
values and business
step is to select a specific
model, as well as
community or city.
economic conditions and
○ Key community considerations
potential market size.
include:
■ Location of Markets:
■ Quality of Life: Factors
Proximity to target
like education,
customers and potential
healthcare, crime rates,
demand.
 and cultural amenities Multiple Plant Strategies
can influence employee
attraction and retention. There are three main types:
■ Services: Availability of
● Product Plant Strategy: Each plant
infrastructure like
focuses on a specific product or
transportation, utilities,
product line.
and public services.
● Market Area Plant Strategy: Each
■ Taxes and Regulations:
plant serves a specific geographical
Local taxes and
market.
regulations can
● Process Plant Strategy: Each plant
significantly impact
specializes in a particular stage of the
operating costs and
production process.
profitability.
■ Attitudes: The Global Locations
community's attitude
towards the company ● Globalization
and its industry can be ● Facilitating Factors:
crucial for smooth ○ Trade agreements
operations and ○ Technology
community support. ● Benefits:
4. Site-Related Factors: ○ Markets
○ The final step is to choose a ○ Cost savings
specific site within the chosen ○ Legal and regulatory
community. ○ Financial
○ Key site-related factors include:
■ Transportation: Access Disadvantages:
to highways, railways,
● Transportation costs: Shipping
airports, or seaports can
goods across borders can be
be vital for logistics and
expensive, impacting profitability.
supply chain
● Security: Supply chains can be
management.
vulnerable to disruptions like theft,
■ Environmental:
piracy, and natural disasters.
Consideration of
● Unskilled labor: While labor costs
environmental impact
may be lower in some countries, the
and regulations is
workforce may lack the necessary
increasingly important.
skills and training.
■ Land Cost and
● Import restrictions: Trade barriers
Availability: The price
like tariffs and quotas can hinder
and availability of
access to markets and increase costs.
suitable land can be a
● Criticisms: Globalization can be
major constraint.
criticized for contributing to inequality,
■ Utilities: Access to
environmental damage, and job losses
reliable water, electricity,
in developed countries.
and other utilities is
essential for operations. Risks:

● Political: Government policies,

instability, and corruption can create
 uncertainty and hinder business transportation infrastructure can
operations. vary significantly between
● Terrorism: The threat of terrorism can countries.
disrupt supply chains and create
security concerns. Factor-Rating Method
● Legal: Differing legal systems and
● Widely used rating technique: Used
regulations across countries can
for both service and industrial
create compliance challenges.
locations.
● Cultural: Cultural differences can lead
● Key elements:
to misunderstandings, communication
○ Identifies various factors
barriers, and difficulties in managing a
(qualitative and quantitative).
diverse workforce.
○ Develops a scale for each
Foreign Government Considerations factor.
○ Assigns weights to each factor
Companies operating in foreign countries based on importance.
need to be aware of the following ○ Scores each location on each
government-related factors: factor.
○ Multiplies scores by weights
● Policies on foreign ownership of and sums the results for each
production facilities: location.
○ Local content: Some countries ○ Chooses the location with the
require a certain percentage of highest composite score.
local content in products to
promote domestic industries. Evaluating Location Alternatives
○ Import restrictions: These can
limit the availability of imported ● Two primary approaches:
goods and services. 1. Locational Break-Even
● Stability issues: Analysis:
○ Political instability can create ■ Determines the location
uncertainty and risk for with the lowest total cost
businesses. for a specific output level.
● Cultural differences: ■ Identifies fixed and
○ These can affect workplace variable costs for each
practices, communication location.
styles, and consumer ■ Plots total cost lines for
preferences. each location and
● Customer preferences: compares them.
○ Understanding local tastes and 2. Choosing based on maximum
preferences is crucial for profit:
successful product marketing ■ Calculates the profit for
and sales. each location at various
● Labor: demand levels.
○ Local labor laws, skill levels, ■ Selects the location that
and cultural attitudes towards offers the highest profit.
work need to be considered.
● Resources:
○ The availability and quality of
raw materials, energy, and
Center of Gravity Method

● Focus: Minimizing distribution costs

from a single facility to multiple
destinations.
● Applications:
○ Suitable for services (e.g.,
warehouses, distribution
centers) and retail locations.
● Requirements:
○ Location coordinates of existing
destinations (e.g., markets,
customers).
○ Volume or quantity to be
shipped to each destination.
○ Shipping distance or cost
information.

Transportation Model

● Focus: Optimizing the movement of

raw materials or finished goods
between multiple sources and
destinations to minimize total
transportation costs.
● Applications:
○ Primarily used for industrial
locations.
● Methodology:
○ Employs linear programming to
find the optimal shipping
quantities while considering:
■ Production capacity at
each source location.
■ Demand requirements at
each destination location.
■ Transportation costs
between each
source-destination pair.