MGMT6159

1
Operational Management

Operations, Productivity, and The Global

Environment Operations Strategy
Weeks 1 (Session 2)
Operation Management, Sustainability and Supply Chain Management.
Twelfth Edition.

 What is Operation Management?
 Organizing to Produce Goods and
Services
 The Supply Chain
 Why study OM ?
 What Operation Managers Do
 Operations for Goods and Services
 The Productivity Challenge
 Current Challenges in Operations
Management
 Ethics, Social Responsibility, and
Sustainability
Outline
 A Global View of Operations and
Supply Chains
 Developing Missions and Strategies
 Achieving Competitive Advantage
Through
 Operations
 Issues in Operations Strategy
 Strategy Development and
Implementation
 Strategic Planning, Core
Competencies, and Outsourcing
 Global Operations Strategy Options
WHAT IS OPERATION
MANAGEMENT?
 What is Operation
Management?
Operation Management (OM) is a dicipline that applies to
restaurant like Hard Rock Cafe as well as to factories like
Fors and Whirpool. The techniques of OM apply throughout
the word to virtually all productive enterprises. It doesn’t
matter if the application is in an office, a hospital, a
restaurant, a department store, or a factory-the production of
goods and services requires effective applications of the
concept, tools, and techniques of OM.
ORGANIZING TO PRODUCE GOODS
AND SERVICES
 Organizing to Produce
Goods and Services
To create goods and services, all organizations perform three
function. These functions are the necessary ingredients not
only for production but also for an organization’s survival.
1. Marketing, which generates the demand, or at least takes the
order for a product or services.
2. Prodcution/ operation, which creates, produces, and delivers the
product.
3. Finance/ accounting, which tracks how well the organization is
doing, pays the bills, and collect the money.
THE SUPPLY CHAIN
 The Supply Chain
 A supply chain is a global network of organizations and activities that
supply a firm with goods and services.
 If society becomes more technologically oriented, it is increasing
specialization.
 Spezialized expert knowledge, instant communication, and cheaper
transportation also foster specialization and worldwide supply chain.
 When members of the supply chain collaborate to achieve high levels
of customer satisfaction, this is a tremendous force for efficiency and
competitive advantage.
 Competition in the 21st century is not between companies, it is
between supply chains.
WHY STUDY OPERATIONAL
MANAGEMENT?
 Why Study OM?

 All organizations market (sell), finance (account), and produce

(operate), and its important to know how the OM activity function.
OM studies how people organize themselves for productive
entreprise.
 To know how goods and services are produced.
 To understand what operations managers do. Help to explore the
numerous and lucrative career opportunities in the field.
 OM is costly part of an organization. A large precentage of the
revenue of most firms is spent in the OM function. OM provides a
major opportunity for an organization to improve its profiatability via
production function.
WHAT OPERATIONS MANAGERS
DO?
 What Operations
Managers Do?

All goods managers perform the basic functions of

the management process. The management
process consists of planning, organizing, staffing,
leading, and controlling. Managers apply this
management process to the decions they make in
the OM function.
 Ten Strategic Operations
Management Decision
1. Design of goods and services: defines much of what is required of operations
in each of the other OM decisions.
2. Managing quality: determines the customer’s quality expectations and
establishes policies and procedures to identify and achieve that quality.
3. Process and capacity strategy: determines how goods or service is produced
and commits management to specific technology, quality, human resources,
and capital investment that determine much of the firm’s basic structure.
4. Location strategy: requires judgements regarding nearness to customers,
suppliers, and talent, while considering costs, infrastructure, logistics, and
governement.
5. Layout strategy: requires integrating capacity needs, personnel levels,
technology, and inventory requirements to determine the efficient flow of
materials, people, and information.
 Ten Strategic Operations
Management Decision
(continued)
6. Human resources and job design: determine how to recruit, motivate, and
retain personnel with the required talent, while considering costs,
infrastructure, logistics, and government.
7. Supply chain management: decides how to integrate the supply chain into
the firm’s strategy, including decisions that determine what is to be
purchased, from whom, and under what conditions.
8. Inventory management: considers inventory ordering and holding decisions
and how to optimize them as customer satisfaction, supplier capability, and
production schedules are considered.
9. Scheduling: determines and implements intermediate and short term
schedules that effectively and efficiently utilize both and personnel and
facilities while meeting customer demands.
10. Maintenance: Requires decisions that consider facility capacilty, production
demands, and personnel necessary to maintain a reliable and stable process.
OPERATION FOR GOODS AND
SERVICES
 Operation for Goods
and Services
 Many manufactures produce a tanglible product, while
service products are often intangible. Many products are
combination of a good and a service, which complicates the
definition of a service.
 Services include repair and maintenance, goverment, food
and lodging, transportation, insurance, trade, finacial, real
estate, education, legal, medical, entertaintment, and other
professional occupations.
 Differences Between Goods
and Services
 Characteristics of Services
 Characteristics of Goods
1. Intangible: Ride in an airline seat 1. Tangible: The seat itself
2. Produced and consumed 2. Produst can usually be kept in inventory
simultaneously: Beauty salon produces
(beauty care products)
haircut that is consumed as it is
produced 3. Similar produst (iPods)
3. Unique: The investments and medical 4. Limited customer involvement in
care are unique production
4. High customer interaction: Often what 5. Product standardized (iPhone)
the custoemr is paying for (consulting,
education)
5. Inconsistent product definition: Auto
insurance change with age and type of
car
 Differences Between Goods
 Characteristics of Services
6. Often knowledge based: legal,
education, and medical services
are hard to automate.
7. Services dispersed: service may
occur at retail store, local office,
house call, or via internet.
8. Quality may be hard to evaluate:
consulting, education, and
medical services.
9. Reselling is unusual: Musical
concert or medical care.
and Services (continued)
Characteristics of Goods
6. Standard tangible product tends to
make automation feasible.
7. Product typically produced at a fixed
facility.
8. Many aspects of quality for tangible
products are easy to evaluate
(strength of a bolt)
9. Product often has some residual
value.
THE PRODUCTIVITY CHALLENGE
 The Productivity
Challenge
 The creation of goods and services requires changing resources
into goods and services. The more efficiently make the change, is
the more productive and the more value is added to the goods or
services provided.
 Productivity is the ratio of outputs (goods and services) divided
by the inputs (resources, such as labor and capital). The operation
manager’s job is to enhance (improve) this ratio of outputs to
inputs. Improving productivity means improving efficiency.
 The improvement can be achieved in two ways: reducing inputs
while keeping output constant or increasing output while keeping
inputs constant.
 CURRENT CHALLENGES IN
OPERATIONS MANAGEMENT
 Current Challenges in
Operations Management

1. Globalization
2. Supply-chain partnering
3. Sustainabilty
4. Rapid product development
5. Mass customization
6. Lean Operations
ETHICS, SOCIAL RESPONSIBILITY,
AND SUSTAINABILITY
 Ethics, Social
Responsibility, and
Sustainability
 To identify ethical and socially responsible response while
developing sustainable processes that are also effective and
efficient productive challenged to:
1. Develop and produce safe, high-quality green products.
2. Train, retain, and motivate employees in a safe workplace
3. Honor stakeholders commitments
A GLOBAL VIEW OF OPERATIONS
AND SUPPLY CHAINS
 Global Strategies and
Supply Chain

▶ Boeing – is competitive because both its sales and supply

chain are worldwide
▶ Benetton – moves inventory to stores around the world
faster than its competition by building flexibility into design,
production, and distribution
▶ Sony – purchases components from suppliers in Thailand,
Malaysia, and around the world
 Global Strategies and
Supply Chain

▶ Volvo – considered a Swedish company, recently purchased by

a Chinese company, Geely. The current Volvo S40 is
assembled in Belgium, South Africa, Malaysia and China on a
platform shared with the Mazda 3 (built in Japan) and the Ford
focus (built in Europe).
▶ Haier – A Chinese company, produces compact refrigerators (it
has one-third of the US market) and wine cabinets (it has half of
the US market) in South Carolina
 Reasons to Globalize

1. Improve the supply chain

Can often be improved by locating facilities in countries where unique resource are
available
2. Reduce costs (labor, taxes, tariffs, etc.)
The tangible opportunities to reduce their costs.
3. Improve operations
For example: Japanese manufacturing has improved inventory management
4. Understand markets
Because international operations require interaction with foreign customers, suppliers
and other competitive businesses.
5. Improve products
Learning does not take place in isolations
6. Attract and retain global talent
Can attract and retain better employees by offering more employemt opportunities
DEVELOPING MISSIONS AND
STRATEGIES
 Developing Missions and
Strategies

Mission the purpose or rationale for an

organization’s existence
Three conceptual ways:
 differentiation
 Cost leadership
 response

Strategy how an organization expects tow

to achieve its missions and goals
 MERCK

The mission of Merck is to provide society with superior products

and services—innovations and solutions that improve the quality of
life and satisfy customer needs—to provide employees with
meaningful work and advancement opportunities and investors with
a superior rate of return.
 PepsiCo

Our mission is to be the world's premier consumer products company

focused on convenient foods and beverages. We seek to produce
financial rewards to investors as we provide opportunities for growth
and enrichment to our employees, our business partners and the
communities in which we operate. And in everything we do, we strive
for honesty, fairness and integrity.
 Arnold Palmer Hospital

Our mission is to be the world's premier consumer products company

focused on convenient foods and beverages. We seek to produce
financial rewards to investors as we provide opportunities for growth
and enrichment to our employees, our business partners and the
communities in which we operate. And in everything we do, we strive
for honesty, fairness and integrity.
 Competitive Advantage

1. Competing on Differentiation
Distinguishing the offerings of an organization in a way that the
customer perceives as adding value

2. Competing on Cost leadership

Achieving maximum value, as perceived by the customer

3. Competing on Response
A set of value related to rapid, flexible and reliable performance
ACHIEVING COMPETITIVE
ADVANTAGE THROUGH
 Achieving Competitive Advantage
through Operations

10 Operations
Competitive
Decisions Strategy Example
Advantage DIFFERENTIATION:
Product
Innovative design Safeskin’s innovative gloves
Broad product line Fidelity Security’s mutual funds
Quality After-sales service Caterpillar’s heavy equipment
service
Process Experience Hard Rock Café’s dining
experience
Location
COST LEADERSHIP: Differentiation
Low overhead Franz-Colruyt’s warehouse-type (better)
Layout stores
Effective capacity Southwest Airline’s
Human use aircraft utilization
Resource
Response
Inventory Walmart’s sophisticated
Supply chain management distribution system (faster)

Inventory Cost leadership

RESPONSE:
Flexibility Hewlett-Packard’s response to (cheaper)
Scheduling volatile world market
Reliability FedEx’s “absolutely, positively, on
Maintenance time”
Quickness Pizza Hut’s 5-minute guarantee
at lunchtime
OPERATIONS
ISSUES IN OPERATIONS STRATEGY
Product Life Cycle
STRATEGY DEVELOPMENT AND
IMPLEMENTATION
 Strategy Development and
Implementation

SWOT Analysis

http://id.wikipedia.org/wiki/Berkas:SWOT_en.svg
STRATEGIC PLANNING, CORE
COMPETENCIES, AND
OUTSOURCING
 Key Success Factors and Core
Competencies

Key Success Factors (KSFs) activities or

factors that are key to achieving
competitive advantage

Core Competencies a set of skills, talents,

and capabilities in which a firm is particularly
strong
 Key Success Factors
Support a Core Competence and Implement Strategy by
Identifying and Executing the Key Success Factors in the Functional Areas

Marketing Finance/Accounting Production/Operations

Service Leverage
Distribution Cost of capital
Promotion Working capital
Channels of distribution Receivables
Product positioning Payables
(image, functions) Financial control
Lines of credit

10 OM Decisions Sample Options Chapter

Product Customized, or standardized; sustainability 5, S5

Quality Define customer expectations and how to achieve them 6, S6
Process Facility size, technology, capacity, automation 7, S7
Location Near supplier or near customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10
Supply chain Single or multiple suppliers 11, S11
Inventory When to reorder, how much to keep on hand 12, 14, 16
Schedule Stable or fluctuating production rate 13, 15
Maintenance Repair as required or preventive maintenance 17

© 2017 Pearson Education

 Activity Mapping at
Southwest Airlines
Not seat assignment

Automated ticketing
machines Courteous, but Lower gate costs at secondary
Limited Passenger airports
Service
Short Haul, Point-to-
Lean,
Point Routes, Often
Productive
to Secondary
Employees
Airports
Competitive
Advantage:
Low Cost
High Frequent,
Aircraft Reliable
Utilizatio Standardized Schedules
n Fleet of Boeing
737 Aircraft
Pilot training required on only
Flexible employees / unions and one type of aircraft
standard planes air scheduling © 2017 Pearson Education
 Implementing the 10
strategic OM Decision
BRAND NAME DRUGS, INC. GENERIC DRUGS CORP.
COMPETITIVE
ADVANTAGE PRODUCT DIFFERENTIATION STRATEGY LOW COST STRATEGY
Product selection Heavy R&D investment; extensive labs; focus on Low R&D investment; focus on development of
and design development in a broad range of drug categories generic drugs
Quality is major priority, standards exceed Meets regulatory requirements on a country-by-
Quality
regulatory requirements country basis, as necessary
Product and modular production process; tries to Process focused; general production processes;
Process have long product runs in specialized facilities; “job shop” approach, short-run production; focus
builds capacity ahead of demand on high utilization
Recently moved to low-tax, low-labor-cost
Location Still located in city where it was founded
environment
Layout supports automated product-focused Layout supports process-focused “job shop”
Layout
production practices
Very experienced top executives provide direction;
Human resources Hire the best; nationwide searches
other personnel paid below industry average
Supply chain Long-term supplier relationships Tends to purchase competitively to find bargains
Maintains high finished goods inventory primarily Process focus drives up work-in-process inventory;
Inventory
to ensure all demands are met finished goods inventory tends to be low
Scheduling Centralized production planning Many short-run products complicate scheduling
Maintenance Highly trained staff; extensive parts inventory Highly trained staff to meet changing demands
GLOBAL OPERATIONS STRATEGY
OPTIONS
 Global Operations Strategy
Options

4
Strategies:
1. International strategic
A strategy in which global markets are penetrated using exports and licenses
2. Multidomestic strategic
A strategy in which operating decisions are decentralized to each country to
exchange local responsiveness
3. Global strategic
A strategy in which operating decisions are centralized and headquarters
coordinates the standardization and learning between facilities.
4. Transnational strategic
A strategy that combines the benefits of global-scale efficiencies with benefits
of local responsiveness.

High Global strategy
(eg, Caterpillar
Texas Instruments (eg, Coca-Cola, Nestlé)
Otis Elevator)
• Standardize product
• Economies of scale
• Cross-cultural learning
Cost Reduction
Global Operations
Strategy Options
Transnational
strategy
• Move material,
people, ideas across
national boundaries
• Economies of scale

• Cross-cultural
learning

Multidomestic
International strategy
strategy (eg, Heinz, McDonald’s
(eg, Harley-Davidson The Body Shop
U.S. Steel) Hard Rock Cafe)
• Import/export or • Use existing domestic
license existing model globally
product • Franchise, joint ventures,

subsidiaries
Low
Low High
Local Responsiveness
(Quick Response and/or Differentiation)
© 2017 Pearson Education
• Text Book

Operation Management, Sustainability

and Supply Chain Management. Twelfth
Edition.
Jay Heizer, Barry Render, and Chuck
Munson. 2017
PEARSON

50
Thank You