The Operations Function Overview

What is Operations Management? Transformation Processes and Value Chains How Operations is Connected with Other Business Functions and with Suppliers

What is Operations Management?

What is Operations Management?

design, operation, and improvement of productive systems a function or system that transforms inputs into outputs of greater value a series of activities along a value chain extending from supplier to customer activities that do not add value are not needed and should be eliminated

What is Operations?

What is a Transformation Process?

Operations as a Transformation Process

Figure 1.1
INPUT Material Machines Labor Management Capital

TRANSFORMATION PROCESS

OUTPUT Goods Services

Feedback & Requirements

A Value Chain

Supplier

Manufacturer

Customer

Flow of information: customer order and delivery requirements Flow of products: goods and services

Transformation Process
Physical: as in manufacturing operations Locational: as in transportation or warehouse operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication

How Operations is Connected with Other Business Functions and with Suppliers
Operations Marketing Finance and Accounting Human Resources Outside Suppliers

Evolution of Operations and Supply Chain Management

Craft production

process of handcrafting products or services for individual customers dividing a job into a series of small tasks each performed by a different worker. Division of labor is used to design assembly lines. standardization of parts. A necessary step toward mass production

Division of labor

Interchangeable parts

Evolution of Operations and Supply Chain Management (cont.)

Scientific management

systematic analysis of work methods high-volume production of a standardized product for a mass market an adaptation of mass production that emphasizes quality, flexibility, and reduced costs

Mass production

Lean production

Strategic Planning
Company mission or primary task: what is the company in business to do? Examples:

Levi-Strauss: We will market and distribute the most appealing & widely worn apparel brands. Dell: Dell listens to customers and delivers technology they trust and value.

A business strategy explains how a company will achieve its mission.

Key Inputs to a Business Strategy

Mission statement Environmental scanning (opportunities and threats)

What is going on outside the company that will affect your business? What is going on inside the company that affects your strategic options?

Internal analysis of strengths and weaknesses

Environmental Scanning - Current Situation and Future Trends

The company should look at what is going on outside the company with respect to:

Product and process technology in the industry Laws and regulations that could affect the company Economic trends Social and demographic trends Market trends and customer data Industry and competitor strategies

Environmental Scanning (2) Identify opportunities and threats

Examples of opportunities Laws requiring use of ethanol in gasoline created opportunities for ethanol producers Growing markets in China and India may create opportunities for your company. Examples of threats A competitor is introducing a product that your company cannot match. New banking regulations are being proposed. An economic recession

Environmental Scanning (3) Order qualifiers and winners

Order qualifier: what qualifies a good or service to be considered for purchase? Order winner: what characteristic of a good or service persuades customers to buy. Order qualifiers and order winners:

Change over time Depend on the target market Depend on positioning in the marketplace

Internal Company Analysis

Evaluate the company's financial, managerial, technical, and material strengths and weaknesses. Look for core competencies that the company has or could develop.

Core Competencies
Core competency (distinctive competence)

What does the firm do better than anyone else? Should create a sustainable (long-term) competitive advantage. Should be hard to imitate. Usually requires cooperation and information sharing among different business functions Often includes partnerships with suppliers or customers.

Examples of Core Competencies

Wal-Mart has maintained "everyday low prices" for decades. Nordstrom's is known for superior customer service. The Mayo Clinic is known for excellent medical care, at a low cost.

How Wal-Mart Keeps Prices Low

Demands very low prices from suppliers Limits inventory by

Requiring suppliers to deliver most merchandise directly to stores just as it is needed (vendor-managed inventory) Merchandise delivered to Wal-Mart distribution centers goes directly onto trucks for delivery to stores (cross-docking) Stocks a limited number of brands in each product category Headquarters closely monitors sales and inventory at each store

No-frills store layouts and product displays Tight controls on staffing and employee compensation

Order Qualifiers, Winners, and Core Competencies - Summary

Order qualifiers and order winners define customer requirements A company should satisfy order qualifiers in its target market A company's core competency should be an order winner in its target market

Strategic Positioning (also called Positioning)

How the company chooses to compete Sets competitive priorities for the company Considerations in Positioning

Strengths and weaknesses of the firm Present and future needs of customers Strategies of competitors Potential of technology to help the firm get and keep customers

Competitive Priorities that Operations Supports

Cost also called competing on price Quality Flexibility Speed We will discuss these priorities throughout the semester. It is hard to excel at more than two of these.

Positioning the Firm: Competing on Cost

Waste elimination

relentlessly pursuing the removal of all waste looking at the entire cost structure for reduction potential not just direct labor

Examination of cost structure

High-volume production and automation are sometimes the best alternatives. In other cases, lean production is more efficient.

Positioning the Firm: Competing on Speed

There are several ways to compete on speed. Rapid service delivery: Lens Crafters, FedEx Build-to-order production: Dell can produce a computer to order in two days Rapid new product introduction

Zara can design a new garment, manufacture it, and have it in stores in 9 15 days.

Positioning the Firm: Quality

Conformance quality ensures the consistency of a good or service.

Any good or service can have conformance quality. Conformance quality is usually an order qualifier. Since competitors are also likely to have conformance quality, this type of quality is usually not an order winner.

Positioning the Firm: Quality (2)

Companies that compete on quality focus on pleasing or delighting the customer. These companies often offer luxury goods or services with high design quality.

Nordstrom's stores Ritz Carlton Hotels Rolls-Royce automobiles Rolex watches

Positioning the Firm: Flexibility

Flexibility is the ability to adjust to changes in product mix, production volume, or product design One approach to flexibility involves responding to general changes in demand. Benetton constantly monitors sales. Production of hot-selling items will be increased, and they may be offered in new colors. Production of items that are not selling well will cease. Zara responds to changing demand by introducing more than 20,000 items per year. (Zara competes on both speed and flexibility).

Positioning the Firm: Flexibility (2)

Mass customization is the mass production of customized products using computer-aided design (CAD) and computer-aided manufacturing (CAM). This is another approach to flexibility.

National Bicycle offers more than 11 million combinations of product options for bicycles. The customized bicycles are shipped within two weeks and cost only 10% more than standard bicycles. Like Dell, National Bicycle uses a build-to-order system.

Technology and Methods for Mass Customization

Here are some of the technologies and methods that make mass customization work at Dell Computer-aided design (CAD) and computer-aidedmanufacturing (CAM). Frequent deliveries from suppliers so that Dell has the parts it needs Supply Chain Management (SCM) information systems so that suppliers know what to deliver Since Dell also ships finished computers in two days, it is competing on both technology and speed.