Operations

Management
&
Value Chains
Operations Management
➢ the science and art of ensuring that goods and
services are created and delivered successfully to
customers
➢ Includes:
1. Design of goods, services, and the processes that
create them
2. Day-to-day management of processes
3. Continual improvement of goods, services, and
processes
Key Activities of an Operations Manager
Key Activities of an Operations Manager
 Goods vs Services
Good: a physical product that you can see, touch, or possibly consume
Durable: does not quickly wear out and typically lasts at
least three years
Nondurable: no longer useful once it’s used or lasts for less than
three years

Service: any primary or complementary activity that does not directly

produce a physical product

Similarities:
1. Driven by customers and provide value and satisfaction to customers who
purchase and use them.
2. Standardized or customized to individuals wants and needs.
3. Created and provided to customers by some type of process involving
people and technology.
 Goods vs Services
GOODS SERVICES
Tangible Intangible
consumed experienced
Do Not require direct involvement with Require direct involvement with customers
customers Service Encounter: Interaction
between customers and service
providers
Demands are easier to predict Demands are difficult to predict
Stored as physical inventory Cannot be stored as physical inventory
Do not require service management skills Require efficient service management skills
Manufacturing facilities can be located Facilities typically need to be in close
anywhere in the world proximity to the customer
Protected by patents Not protected by patents
 SERVICE MANAGEMENT
Integrates marketing, human resources, and operations
functions to:
❖ Plan
❖ Create
❖ Deliver goods and services
❖ Deal with service encounters

Moments of Truth: episodes, transactions, or

experiences in which customer encounters the delivery
system and forms impressions
 VALUE
Value: the perception of the benefits associated with a good,
service, or bundle of goods and services in relation to what
buyers are willing to pay for them

Functional Form: Perceived benefits____

Value = Price (cost) to the customer
Goal: Increase Value

To Increase Value:
• increase perceived benefits while holding price or cost constant;
• increase perceived benefits while reducing price or cost; or
• decrease price or cost while holding perceived benefits constant.
 CUSTOMER BENEFIT PACKAGE
Customer Benefit Package (CBP): a clearly defined set of
tangible (goods-content) and intangible (service-content)
features that the customer recognizes, pays for, uses, or
experiences.
 VALUE CHAINS
❖A network of facilities and processes
❖Describes the:
▪ flow of materials
▪ finished goods & services
▪ information, and
▪ financial transactions from suppliers
through the facilities and processes that create
goods and services and those that deliver them
to the customer.
 SUPPLY CHAIN
❖Portion of the Value Chain
❖Focuses primarily on the:
▪ physical movement of goods and materials
▪ Supporting flows of information and
financial transactions through the supply,
production, and distribution processes
Key Business Processes
Value Chain Framework:
Input-Output
Value Chain Framework: Input-Output
 Value Chain Framework:
Pre- and Postproduction Services
Value Chain Framework:
Hierarchical Supply Chain
 Goods-Producing Supply Chain
Activities include shipping finished goods to
Distribution Centers (DCs)

Distribution Centers (DCs): warehouses that act as

intermediaries between factories and customers and
ship directly to customers of to retail stores

Inventory: raw materials, work-in-process, or finished

goods that are maintained to support production or
satisfy customer demand
 OM History
Exhibit 1.11 Seven Eras of Operations Management
 Sustainability
Sustainability: refers to an organization’s
ability to strategically address current
business needs and successfully develop a
long-term strategy that embraces
opportunities and manages risk for all
products, systems, supply chains, and
processes to preserve resources for future
generations.
 Sustainability
Sustainability: refers to an organization’s
ability to strategically address current
business needs and successfully develop a
long-term strategy to:
▪ embrace opportunities and manage risks
for products, systems, supply chains, and
processes
▪ preserve resources for future generations
 Sustainability Perspectives
Environmental Sustainability: commitment to the
long-term quality of the environment

Social Sustainability: commitment to maintain healthy

communities and a society that improves the quality of
life
Economic Sustainability: commitment to address
current business needs and economic vitality, and to
have the agility and strategic management to prepare
successfully for future business, markets, and operating
environments.
 Analytics and Big Data
❖Used to evaluate: operations performance,
quality, order accuracy, customer satisfaction,
delivery, cost, environmental compliance, etc.

❖Make decision using Business Analytics

Business Analytics: a process of transforming
data into actions through analysis and
insights in the context of organizational
decision making and problem solving
Current Challenges in OM