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Copyright 2009 John Wiley & Sons, Inc.

Beni Asllani
University of Tennessee at Chattanooga
I ntroduction to Operations and
Supply Chain Management
Operations Management - 6
th
Edition
Chapter 1
Roberta Russell & Bernard W. Taylor, III
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Lecture Outline
 The Operations Function
 Evolution of Operations and Supply Chain
Management (SCM)
 Globalization
 Productivity Overview
 Strategic Planning and Operations
Strategy
 Outline of this Textbook

Some slides include notes beneath them.
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The Operations Function
Overview
 What is Operations Management?
 Transformation Processes and Value
Chains
 How Operations is Connected with Other
Business Functions and with Suppliers

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What is Operations Management?
 What is Operations Management?
 design, operation, and improvement of productive
systems
 What is Operations?
 a function or system that transforms inputs into outputs of
greater value
 What is a Transformation Process?
 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
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INPUT
•Material
•Machines
•Labor
•Management
•Capital
TRANSFORMATION
PROCESS
OUTPUT
•Goods
•Services
Feedback & Requirements
Operations as a
Transformation Process
Figure 1.1
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 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
Transformation Process
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A Value Chain
Manufacturer Customer Supplier
Flow of information: customer order and
delivery requirements
Flow of products: goods and services
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How Operations is Connected with Other
Business Functions and with Suppliers
 Operations
 Marketing
 Finance and
Accounting
 Human
Resources
 Outside
Suppliers
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Evolution of Operations and
Supply Chain Management
 Craft production
 process of handcrafting products or services for
individual customers
 Division of labor
 dividing a job into a series of small tasks each
performed by a different worker. Division of labor
is used to design assembly lines.
 Interchangeable parts
 standardization of parts. A necessary step
toward mass production
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 Scientific management
 systematic analysis of work methods
 Mass production
 high-volume production of a standardized
product for a mass market
 Lean production
 an adaptation of mass production that
emphasizes quality, flexibility, and reduced
costs
Evolution of Operations and
Supply Chain Management (cont.)
Copyright 2009 John Wiley & Sons, Inc. 1-11
Evolution of Operations and
Supply Chain Management (cont.)
 Supply chain management
 management of the flow of information, products, and services across
a network of customers, enterprises, and supply chain partners
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Globalization Overview
 Globalizing business functions
 Why companies globalize
 Risks of globalization
 Global statistics
 Hourly compensation costs for production workers
 Trade in goods as % of Gross Domestic Product


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Globalizing Business Functions
 Almost any business function can be
performed outside a company's home country
 Marketing
 Operations
 Purchasing from foreign suppliers
 Obtaining financing from overseas banks
 Having products designed in another country
 Having customer service or technical service
performed in another country
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Why Companies Globalize
 Reduce labor costs
 Reduce material costs
 Gain access to new suppliers
 Gain access to international markets
 The fastest-growing markets are emerging markets
such as China and India. These markets have an
emerging middle class and high demand for goods
and services
 Gain access to skilled people
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Why Companies Globalize (2)
 Understand the requirements of overseas
customers
 Electrical devices must meet different standards for
voltage and plug design in various countries
 McDonalds sells beer in Germany
 BMW, a German company, built its first SUV's for
the U. S. market
 Gain access to new technologies
 Low-cost cars designed for India and eastern
Europe may find a market elsewhere
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Risks of Globalization
 Quality problems
 Supply chain and delivery problems
 Foreign suppliers that use child labor or do not
comply with labor laws in their country
 Foreign suppliers that make and sell
unauthorized copies of your product.
 In China, this has happened to New Balance, GM,
and Volkswagen, among many others
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Risks of Globalization (2)
 Product safety problems, such as lead paint on
toys made in China
 Public concern about jobs lost as a result of
outsourcing overseas
 Poor corporate image
 Unexpected changes in the value of a foreign
currency may increase costs or reduce
revenue
Hourly Compensation Costs for Production Workers
Trade in Goods as % of GDP
(sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
Measures of Productivity
In total factor productivity, the usual inputs are
labor, capital, energy, and materials.
Productivity measures efficiency and is an important
measure of Operations performance. However, it
should not be the only measure used to evaluate
Operations.
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Strategic Planning Overview
 Mission and strategy
 Environmental scanning
 Order qualifiers and order winners
 Internal company analysis
 Core competencies
 Positioning the firm
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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.
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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?
 Internal analysis of strengths and weaknesses
 What is going on inside the company that affects
your strategic options?
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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
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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
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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
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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.
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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.
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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.
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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
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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

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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
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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.
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Positioning the Firm:
Competing on Cost
 Waste elimination
 relentlessly pursuing the removal of all waste
 Examination of cost structure
 looking at the entire cost structure for
reduction potential – not just direct labor
 High-volume production and automation
are sometimes the best alternatives.
 In other cases, lean production is more
efficient.
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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.
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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.
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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
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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).
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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.
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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-aided-
manufacturing (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.
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Operations Strategy
Products
Services Process
and
Technology
Capacity
Human
Resources
Quality
Facilities
Sourcing Operating
Systems
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Organization of This Text:
Part I – Operations Management
 Intro. to Operations and
Supply Chain Management: Chapter 1
 Quality Management: Chapter 2
 Statistical Quality Control: Chapter 3
 Product Design: Chapter 4
 Service Design: Chapter 5
 Processes and Technology: Chapter 6
 Facilities: Chapter 7
 Human Resources: Chapter 8
 Project Management: Chapter 9
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 Supply Chain
Strategy and Design: Chapter 10
 Global Supply Chain
Procurement and Distribution: Chapter 11
 Forecasting: Chapter 12
 Inventory Management: Chapter 13
 Sales and
Operations Planning: Chapter 14
 Resource Planning: Chapter 15
 Lean Systems: Chapter 16
 Scheduling: Chapter 17
Organization of This Text:
Part II – Supply Chain Management
Copyright 2009 John Wiley & Sons, Inc. 1-44
Copyright 2009 John Wiley & Sons, Inc.
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