PPT

Operations Management

Systematic direction, control, and evaluation of

the entire range of processes that transform
inputs into finished goods or services.
Environmental factors-culture, political, and
market influences
Inputs-HR, capital, materials, land, energy,
information, customer
Transformations-convert inputs into outputs

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

O.M. (cont)

Outputs-goods or services, and waste

Customer Contact-customers actively
participate in transformation processes, selfservice
Performance Feedback-repair records,
customer comments

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Operations Management

Refers to the management of the production system

that transforms inputs into finished goods and services.

Production system: the way a firm acquires inputs then

converts and disposes outputs.
Operations managers: responsible for the transformation
process from inputs to outputs.

Operations management seeks to increase the quality,

efficiency, and responsiveness of the firm.

Seeks to provide a competitive advantage.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Operations Management Concepts

Quality: goods and services that are reliable and

perform correctly.

Efficiency: the amount of input to produce a given

output.

Quality allows customers to receive the performance that they

expect.

Less input required lowers cost and waste.

Responsiveness to customers: actions taken to

respond to customer needs.

Firm can react quickly and correctly to customer needs as they

arise.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Differences Between Services and

Goods
Information Asymmetry

Intangible
Inventory
Customer Contact
Response Time
Labor Intensity

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

21.3

Typical Characteristics of Services and Goods Producers

Primarily Service
Producers

Continuum of
Characteristics

Primarily Goods
Producers

Mixed
Intangible, nondurable

Tangible, durable

Output cant be
inventoried

Output can be
inventoried

High customer contact

Low customer contact

Short response time

Long response time

Labor intensive

Capital intensive

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

Adapted from Table 21.1

PPT

Positioning Strategies-approach
selected for transformational
many of one product
high-volume, highly

processes
Process Focus-layout of
automated

plant and equipment

around each production
unit

custom made
Low Volume
Norwegian Ship Building

Product Focus-arranging
plant and equipment
around one or a few output
types

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

Intermediate Strategy-plant
and equipment layout
reflects some of both
strategies

low flexibility
Factory Lines

batches of products
Kinkos, Ball Homes

Agile Strategy-mass
customization

PPT

Flexibility

Product Flexibility-speed with which products are

created, ability to customize, ability to modify
products for special needs
Volume Flexibility-ability to respond to sudden
changes in demand, change from small to full
scale
Process Flexibility-ability to manufacture a
variety of goods in a short time, adjust to product
mix over time, ability to accommodate changes in
raw materials

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

21.5

Core Positioning Strategies

Resource flows

Continuous
process
(stable)

Product focus

Auto assembly

Mass
production

Intermediate

Garment
Large
batch

Sporadic
(unstable)

Process focus

plant
Mail processing

industry
Branch banks

Space shuttle
Legal practice
Custom products,
Mixture of custom and standard
low volume
products, moderate volume

Standard products,
high volume

Product volume
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A.,

and Wheelwright, S.C. The Perpetual Enterprise Machine: Seven
Keys to Corporate Renewal Through Successful Product and
Process Development. New York: Oxford University Press, 1994;
Upton, D.M. The management of manufacturing flexibility.
California Management Review, Winter 1994, 7289.

Adapted from Figure 21.2

PPT

Improving Responsiveness to Customers

Without customers, organizations cease to exist.

Non-profit and for-profit firms all have customers.

Managers need to identify who the customer is and their
needs.

What do customers want? Usually customers prefer:

A lower price to a higher price.

High quality over low quality.
Fast service over slow service.

Also good after sale support.

Many features over few features.

Products tailored to their specific needs.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Quality-how well a product does

what
the customer expects
Internal View-within the organization

External View-value customers expect

Value-the relationship between quality and price

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

21.7

Competitiveness Value Map

Higher

Relative Price

Poor
value

Premium
value

Average
value
Economy
value

Outstanding
value

Lower
Inferior

Superior

Source: Adapted from Gale,

B.T., and Buzzell, R.D. Market
perceived quality: Key strategic
concept. Planning
Review, March-April, 1989, 10.

Relative Quality
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

Adapted from Figure 21.3

PPT

Price v. Attributes

Firms offering high quality, fast service and other

customer desires, often must raise price.

Customers must tradeoff price for attributes.

Operations management tries to push the

price/attribute curve to the right with better production.

Provides more attributes at the same cost.

By enhancing the price/attribute relationship, the firm can

increase its competitive position.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Customer Responsive Production Systems

An outputs attributes is determined by the

production system.

Firms must strike a balance between cost and attributes

Improving Quality: can apply to firms producing

goods and services.

A firm that provides higher quality than others at the

same price is more responsive to customers.
Higher quality can also lead to better efficiency.

Lowers waste levels and operating costs.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Total Quality Management

The continuous process of ensuring every

aspect of production builds in product quality
Traditional Quality-product inspection during or
at the end of the transformation process

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

21.11

Total Versus Traditional Quality

Total Quality Management

Traditional Quality Control

Quality is a strategic issue

Quality is a tactical issue

Plan for quality

Screen for quality

Quality is everybodys responsibility

Strive for zero defects

Quality is the responsibility of the

quality control department

Quality means conformance to

requirements that meet or exceed
customers expectations

Some mistakes are inevitable

Quality means inspection

Scrap and reworking are the major

costs of poor quality

Scrap and reworking are only a small

part of the costs of nonconformance

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

Adapted from Table 21.3

PPT

Improving Efficiency

Labor productivity allows labor comparisons between

organizations.

TQM and Efficiency: TQM can lead to much higher

labor productivity.

Improved efficiency leads to lower costs and better

performance.

When quality rises, less time is wasted on scrap.

Flexible manufacturing and efficiency: reduces the

set-up costs for production systems.
Facilities layout: seeks to design the machine-worker interface
to increase production efficiency.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Efficient Manufacturing

Most firms face major expense when setting up to

produce a product.

These costs must be paid before production begins.

The more often products to be built change, the higher setup

costs become.

Flexible Manufacturing reduces setup costs.

Just-in-Time (JIT) inventory, while developed for

TQM, also adds to efficient production.

Many costs are reduced including warehousing, holding costs

and inventory tracking.

Firm does not have a supply of parts, but can be vulnerable to

strikes or supply problems.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Efficient Manufacturing

Self-managed teams boost efficiency by allowing for a

flatter organization structure.

The team takes the role of the supervisor.

Teams working together often become very skilled at enhancing
productivity.

Kaizen: Japanese term for a management philosophy

the stresses the need for continuous improvement.

Better operations can come from many, small, continuous

improvements.
Focus on what adds value to the product and try to eliminate
steps that do not add value (such as inspection for defects).

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Reengineering

Process Reengineering: the fundamental rethinking

and radical redesign of the business process.

Can boost efficiency by directing efforts to activities that add

value to the good or service produced.
While Kaizen focuses on continuous enhancements, process
reengineering considers wholesale change.

Top managers must support operations enhancement

tools for them to be accepted by workers.

Usually, a successful operations change means a complete

change in the organizational culture.
Without a supporting culture, change will not succeed.

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

21.4

Nine Categories of Operations Management Decisions

Product plans
Competitive Priorities
Positioning Strategies
Location
Technological Choices
Quality management and control
Inventory management and control
Materials Management
Master production scheduling

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Inventory Costs

What contributes to inventory costs?

TOTAL COST = ORDERING + CARRYING

Carrying Costs

Warehouse
Insurance
Obsolescence
taxes
breakage

Ordering Costs

Placing the order

Transportation
Shortage

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

Inventory Terms

Lead Time

EOQ-economic order cost

Elapsed time between placing and receiving an order

optimum order quantity yielding the lowest total
inventory cost

Just-in-time

finished goods to sell

sub assemblies to be assembled
purchases of raw materials to be transformed

Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

PPT

21.13

Cost Trade-Offs in Determining Inventory Levels

High

Average annual cost ($)

Total cost

Carrying cost

Order cost

Low
Small
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright 1999

Q1

Quantity (Q)

Large
Adapted from Figure 21.5