Operations Management: Creating

Value Along the Supply Chain

Second Canadian Edition
Russell, Taylor, Bayley, Castillo

Chapter 1

Introduction to Operations and Supply Chain

Management
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Learning Objectives

1. Describe what the operations function is and how it relates to

other business functions.
2. Discuss the key factors that have contributed to the evolution
of operations and supply chain management.
3. Discuss how and why businesses operate globally and the
importance of globalization in supply chain management.
4. Calculate and interpret productivity measures used for
measuring competitiveness.
5. Discuss the process of developing, deploying, and monitoring
the success of an operations strategy.
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Lecture Outline

• Along the Supply Chain

• Evolution of Operations and Supply Chain Management
• Globalization and Competitiveness
• Operations
• Strategy

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Along the Supply Chain

• What is Operations Management?

o design, operation, and improvement of productive systems
• What is Operations?
o a function or system that transforms inputs into outputs of
greater value
• What is a Transformation Process?
o a series of activities along a value chain extending from
supplier to customer
o activities that do not add value are superfluous and should be
eliminated
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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

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Operations as a Transformation Process

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Operations Function

• Operations
• Marketing
• Finance and Accounting
• Human Resources
• Outside Suppliers

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How is Operations Relevant to my Major? (1 of 2)

• Accounting • “As an auditor you must understand

• Information Technology
• Management
the fundamentals of operations
management.”
• “IT is a tool, and there’s no better
place to apply it than in operations.”
• “We use so many things you learn in
an operations class—scheduling, lean
production, theory of constraints,
and tons of quality tools.”

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How is Operations Relevant to my Major? (2 of 2)

• Economics • “It’s all about processes. I live by

flowcharts and Pareto analysis.”
• “How can you do a good job
• Marketing marketing a product if you’re
unsure of its quality or delivery
status?”
• Finance • “Most of our capital budgeting
requests are from operations,
and most of our cost savings,
too.”
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Evolution of Operations and Supply Chain
Management (1 of 2)
• Craft production
o process of handcrafting products or services for individual
customers
• Division of labor
o dividing a job into a series of small tasks each performed by a
different worker
• Interchangeable parts
o standardization of parts initially as replacement parts; enabled
mass production

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Evolution of Operations and Supply Chain
Management (2 of 2)
• Scientific management
o systematic analysis of work methods
• Mass production
o high-volume production of a standardized product for a mass
market
• Lean production
o adaptation of mass production that prizes quality and flexibility

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Historical Events in Operations Management (1 of 2)
Era Events/Concepts Dates Originator

Industrial Revolution Steam engine 1769 James Walt

Division of labor 1776 Adam Smith

Interchangeable parts 1790 Eli Whitney

Scientific Management Principles of scientific management 1911 Frederick W. Taylor

Time and motion studies 1911 Frank and Lillian Gilbreth

Activity scheduling chart 1912 Henry Gantt

Moving assembly line 1913 Henry Ford

Human Relations Hawthorne studies 1930 Elton Mayo

Motivation theories 1940s Abraham Maslow

1950s Frederick Herzberg

1960s Douglas McGregor

Operations Research Linear programming 1947 George Dantzig

Digital computer 1951 Remington Rand

Simulation, waiting line theory, decision theory 1950s Operations research groups

PERT/CPM 1960s

MRP, EDI, EFT, CIM 1970s Joseph Orlicky, IBM, and others

Quality Revolution JIT (just-in-time) 1970s Taiichi Ohno (Toyota)

TQM (total quality Management) 1980s W. Edwards Deming, Joseph Juran

Strategy and operations Wickham Skinner, Robert Hayes

Reengineering 1990s Michael Hammer, James Champy

Six Sigma 1990s GE, Motorola

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Historical Events in Operations Management (2 of 2)
Era Events/Concepts Dates Originator
Internet Revolution Internet, WWW 1990s ARPANET, Tim Berners-Lee
ERP, supply chain management SAP, i2 Technologies, Oracle, Dell, Apple
E-commerce, social networking 2000s Amazon, Yahoo, eBay, Google, Facebook,
YouTube, Twitter, etc.
Globalization World Trade Organization 1900s GATT
European Union 2000s Europe
Global supply chains China, India
Outsourcing Emerging economies
Service science
Sustainability Global warming 2010s, Today Numerous scientists, statesmen, and
governments
Carbon footprint
Green products World Economic Forum, Kyoto Protocol, United
Nations
Corporate social responsibility (CSR)
UN Global Compact
Digital Revolution Big data, Internet of Things (IoT), 3D printing, Google, Apache, Procter & Gamble, MIT,
smart cities, autonomous vehicles, drones, privacy, Amazon, and others
and security

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Evolution of Operations and Supply Chain
Management
• Supply chain management
o management of the flow of information, products, and services across a network of
customers, enterprises, and supply chain partners

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Globalization

• Why “go global”?

o favorable cost
o access to international markets
o response to changes in demand
o reliable sources of supply
o latest trends and technologies
• Increased globalization
o results from the Internet and falling trade barriers

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Hourly Compensation

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GDP per Capita in US$ Trillions

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Trade in Goods, % of GDP

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Manufacturing Output

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Productivity and Competitiveness

• Competitiveness
o degree to which a nation can produce goods and services that meet
the test of international markets
• Productivity
o ratio of output to input
• Output
o sales made, products produced, customers served, meals delivered,
or calls answered
• Input
o labor hours, investment in equipment, material usage, or square
footage
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Measures of Productivity

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Cunningham Industries

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Productivity Growth

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Strategy and Operations

• How the mission of a company is accomplished

• Provides direction for achieving a mission
• Unites the organization
• Provides consistency in decisions
• Keeps organization moving in the right direction

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Strategy Formulation

1. Defining a primary task

o What is the firm in the business of doing?
2. Assessing core competencies
o What does the firm do better than anyone else?
3. Determining order winners and order qualifiers
o What qualifies an item to be considered for purchase?
o What wins the order?
4. Positioning the firm
o How will the firm compete?
5. Deploying the strategy
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Strategic Planning

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Order Winners and Order Qualifiers

Order Qualifiers
what qualifies an item to be considered for purchase
characteristics of product or service to be considered
Order Winners
what wins the order characteristics of product or service that
customer wants

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Positioning the Firm

• Cost
• Speed
• Quality
• Flexibility

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Positioning the Firm: Cost

• Waste elimination
o relentlessly pursuing the removal of all waste
• Examination of cost structure
o looking at the entire cost structure for reduction potential
• Lean production
o providing low costs through disciplined operations

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Positioning the Firm: Speed

• Fast moves, Fast adaptations, Tight linkages

• Internet
o Customers expect immediate responses
• Service organizations
o always competed on speed (McDonald’s, LensCrafters, and Federal
Express)
• Manufacturers
o time-based competition: build-to-order production and efficient supply
chains
• Fashion industry
o two-week design-to-rack lead time of Spanish retailer, Zara
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Positioning the Firm: Quality

• A way to please the customer

• Minimizing defect rates or conforming to design specifications
• Ritz-Carlton - one customer at a time
o Service system designed to “move heaven and earth” to satisfy
customer
o Employees empowered to satisfy a guest’s wish
o Teams set objectives and devise quality action plans
o Each hotel has a quality leader

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Positioning the Firm: Flexibility

• Ability to adjust to changes in product mix, production

volume, or design
• Mass customization: the mass production of customized parts

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Policy Deployment (1 of 2)

• Policy deployment
o translates corporate strategy into measurable objectives
• Hoshins
o action plans generated from the policy deployment process

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Policy Deployment (2 of 2)

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Balanced Scorecard (1 of 2)

• Balanced scorecard
o measuring more than financial performance
1. finances
2. customers
3. processes
4. learning and growing
• Key performance indicators
o set of measures to help managers evaluate performance in
critical areas

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 Balanced Scorecard Worksheet
Goal for KPI Results Mean
Dimension Objectives Key Performance Indicator 2022 to Date Score Performance
Finances Productivity Become industry cost leader % reduction in cost per unit 20% 10% 50% 65%
Finances Growth Increase market share Market share 50% 40% 80% 65%
Customers Quality Zero defects % good quality first pass 100% 80% 80% 87%
Customers Timeliness On-time delivery % on-time deliveries 95% 90% 95% 87%
Processes Suppliers Integrate into production % orders delivered to assembly 50% 40% 80% 73%
Processes Suppliers Reduce inspections % suppliers ISO 9000 certified 90% 60% 67% 73%
Processes Products Reduce time to produce Cycle time 10 mins. 12 mins. 83% 52%
Processes Products Improve quality # warranty claims 200 1000 20% 52%
Processes Distribution Reduce transportation costs % Full truckload shipments 75% 30% 40% 40%
Processes Service Improve response to customer inquiries % queries satisfied on first pass 90% 60% 67% 67%
Processes Risk Reduce inventory obsolescence Inventory turnover 12 6 50% 50%
Processes Risk Reduce customer backlog % order backlogged 10% 20% 50% 50%
Learning & Growing Human capital Develop quality improvement skills # Six Sigma Black Belts 25 2 8% 35%
Human capital Develop quality improvement skills % trained in statistical process control 80% 50% 63% 35%
Learning & Growing Information capital Provide technology to improve Processes % customers who can track orders 100% 60% 60% 61%
Information capital Provide technology to improve processes % suppliers who use EDI 80% 50% 63% 61%
Learning & Growing Organizational capital Create innovative culture # employee suggestions 100 60 60% 55%
Organizational capital Create innovative culture % products new this year 20% 10% 50% 55%

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Balanced Scorecard (2 of 2)

Radar Chart Dashboard

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Operations Strategy

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Copyright

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