Chapter 1

The Nature of Operations

Chapter 1: The Nature of Operations

Introduction

Chapter 1: The Nature of Operations

McDonalds Corp

Facing increased competition Smarter and more demanding customers Less brand loyal Switched to hamburger bun that does not require toasting. Customers prefer taste of new bun Saves time and money
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Olympic Flame

10,000 runners 15,000 miles through 42 states in 84 days Two years of planning Must plan for no-show runners and rush hour traffic Cost of this operation in the neighborhood of $20 million
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Kmart Versus Wal-Mart

Both chains started in 1962 In 1987, Kmart had 2,223 stores to Wal-Marts 1,198. Kmarts sales were $25.63 billion to Wal-Marts $15.96 billion By 1991, Wal-Marts sales exceeded Kmarts Kmart still had more stores
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Kmart Versus Wal-Mart continued

In year ending January 1996, WalMarts sales were $93.6 billion to Kmarts $34.6 billion. During this time Kmart emphasized marketing and merchandising (such as national TV ad campaigns). Wal-Mart was investing millions in its operations to lower cost.
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Kmart Versus Wal-Mart continued

Wal-Mart developed sophisticated distribution system that integrated its computer system with its distribution system. Kmarts employees lacked skills needed to plan and control inventory. Period from 1987 to 1995 Kmart's market share declined from 34.5 percent to 22.7 percent. Wal-Mart's increased from 20.1 percent to 41.6 percent
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Kmart Versus Wal-Mart continued

Fast forward to 2004

Kmart appears to have adopted a new strategy

Merge with Sears, Roebuck & Co.

Potential synergies between Kmarts convenient locations and Sears strong brands

Chapter 1: The Nature of Operations

Diversity and Importance of Operations

Improvements in operations can simultaneously lower costs and improve customer satisfaction. Improving operations often dependent on advances in technology. Can obtain competitive advantage by improving operations. Diversity of operations
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Operations

Heart of every organization Operations are the tasks that create value

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The Production System

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Systems Perspective

Inputs Transformation System

Alter Transport Store Inspect

Outputs Environment
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Inputs

Inputs include facilities, labor, capital, equipment, raw materials, and supplies. A less obvious input is knowledge of how to transform the inputs into outputs.

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Transformation System

The part of the system that adds value to the inputs. Four major ways

Alter physical change Transport - relocate Store - protect Inspect better understanding
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Outputs

Two types of outputs commonly result from a production system

Services (abstract or nonphysical) Products (physical goods)

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Facilitating Good Concept

Often confusion in trying to classify organization as manufacturer or service Facilitating good concept avoids this ambiguity All organizations defined as service The tangible part of the service is defined as facilitating good Pure services
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The Range From Services to Products

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Classification and Evolution of Economic Offerings

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Comparison of Alternative Economic Offerings

Economic Offering
Value added by Form of output Commodities Extracting Goods Producing Services Delivering Experiences Staging

Fungible

Tangible

Intangible

Memorable

Key characteristics Buyer

Natural

Standardized

Customized

Personalized

Market

User

Client

Guest

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Operations Activities

Strategy Output Planning Capacity Planning Facility Location Facility Layout Aggregate Planning

Inventory Management Materials Requirements Planning Scheduling Quality Control

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Functional View of Organizations

Three Core Functions

Operations Marketing Finance/Accounting Human Resource Management Information Systems Engineering

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Other Important Functional Activities

Chapter in Perspective

Two alternative ways for organizing work activities

Functional approach, companies organize activities on the basis of the type of work performed Organizing activities on the basis of specific value-creating processes.

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Process View of Organizations

An Evolution

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Traditional Functional Organization

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Value Chain Approach

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