1 COMPETING WITH

OPERATIONS

For Operations Management, 9e by

PowerPoint Slides
Krajewski/Ritzman/Malhotra
by Jeff Heyl © 2010 Pearson Education
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Operations Management

 The systematic design, direction, and control of

processes that transform inputs into services and
products for internal, as well as external,
customers

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Integration between Different
Functional Areas of a Business
Finance
Acquires financial
resources and capital
for inputs

Material & Sales

Service Inputs Revenue

Support Functions
• Accounting
• Information Systems
• Human Resources
Operations • Engineering Marketing
Translates Generates sales
materials and of outputs
service into
outputs
Product &
Figure 1.1 Service Outputs
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A Process View
External environment

Internal and external

customers

Inputs Outputs
Processes and
• Workers operations • Goods
• Managers • Services
• Equipment 1 3
• Facilities
5
• Materials
• Land 2 4
• Energy

Information on
performance

Figure 1.2

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External customers
A customer who is either an end user or an intermediary(e.g., manufacturers,
financial institutions, or retailers) buying the firm’s finished services or products.
Internal customers
One or more employees or processes that rely on inputs from other employees or
processes in order to perform their work.
External suppliers
The businesses or individuals who provide the resources, services, products, and
materials for the firm’s short-term and longterm needs.
Internal suppliers
The employees or processes that supply important information or materials to a
firm’s processes.

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A Process View

More like a More like a

manufacturing service
process process

• Physical, durable output • Intangible, perishable output

• Output can be inventoried • Output cannot be inventoried
• Low customer contact • High customer contact
• Long response time • Short response time
• Capital intensive • Labor intensive
• Quality easily measured • Quality not easily measured

Figure 1.3
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The Supply Chain View:
It focuses attention on the two main types of processes in the supply chain, namely (1)
core processes and (2) support processes.

Support Processes

New
service/ Customer

External customers
External suppliers

product relationship
development management

Supplier Order
relationship fulfillment
process process

Figure 1.4

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The Supply Chain View

 Core processes are sets of activities that

deliver value to external customers.

1. Supplier relationship process

2. New service/product development process
3. Order fulfillment process
4. Customer relationship process

 Support processes provide vital resources

and inputs to the core processes.

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1. Supplier Relationship Process:
Employees in the supplier relationship process select the suppliers of
services, materials, and information and facilitate the timely and efficient
flow of these items into the firm.
Working effectively with suppliers can add significant value to the services
or products of the firm. For example, negotiating fair prices, scheduling on-
time deliveries, and gaining ideas and insights from critical suppliers are
just a few of the ways to create value.
2. New Service/Product Development Process: Employees in the new
service/product development process design and develop new services or
products. The services or products may be developed to external customer
specifications or conceived from inputs received from the market in
general.

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3. Order Fulfillment Process:
The order fulfillment process includes the activities required to produce and
deliver the service or product to the external customer.
4. Customer Relationship Process:
Sometimes referred to as customer relationship management.
Employees involved in the customer relationship process identify, attract, and
build relationships with external customers, and facilitate the placement of orders
by customers. Traditional functions, such as marketing and sales, may be a part of
this process.

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Support Processes
TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES
Capital acquisition The provision of financial resources for the
organization to do its work and to execute
its strategy
Budgeting The process of deciding how funds will be
allocated over a period of time
Recruitment and hiring The acquisition of people to do the work of
the organization
Evaluation and compensation The assessment and payment of people for
the work and value they provide to the
company
Human resource support and development The preparation of people for their current
jobs and future skills and knowledge needs
Regulatory compliance The processes that ensure that the company
is meeting all laws and legal obligations
Information systems The movement and processing of data and
information to expedite business operations
and decisions
Enterprise and functional management The systems and activities that provide
strategic direction and ensure effective
execution of the work of the business

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Operations Strategy

 Specifies the means by which operations

implements corporate strategy and helps
build a customer-driven firm

 Corporate strategy provides an overall

direction that serves as the framework for
carrying out all the organization's functions

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Operations Strategy
Corporate Strategy
• Environmental scanning Market Analysis
• Core competencies • Market segmentation
• Core processes • Needs assessment
• Global strategies
Competitive Priorities
• Cost
• Quality
Fig. 1.5. Connection • Time
• Flexibility
Between Corporate Strategy
and Key Operations New Service/
Management Product Development
• Design
Decisions • Analysis
• Development
• Full launch
Perfo
Yes G
Operations Strategy

Competitive C
Decisions
• Current
• Managing processes
• Needed
• Managing supply chains
• Planned

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Corporate Strategy:

Corporate strategy provides an overall direction that

serves as the framework for carrying out all
the organization’s functions. It consists of:
1. Environmental scanning
The process by which managers monitor trends in the environment (e.g., the
industry, the marketplace, and society) for potential opportunities or threats.
Important environmental concerns include economic trends, technological changes,
political conditions, social changes (i.e., attitudes toward work), and the availability
of vital resources. For example, car manufacturers recognize that dwindling oil
reserves will eventually require alternative fuels for their cars

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 Developing core competencies
1. Workforce
2. Facilities
3. Market and financial know-how
4. Systems and technologies

 Developing core processes

Firm’s core competencies should drive its core processes: customer relationship, new
service/product development, order fulfillment, and supplier relationship.

 Global strategies
 A global strategy may include buying foreign services or parts, combating threats from
foreign competitors, or planning ways to enter markets beyond traditional national
boundaries

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Market Analysis

 Market segmentation

 Needs assessment
 Service or product needs
 Delivery system needs
 Volume needs
 Other needs

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Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE
PRIORITIES
COST Definition Process Considerations Example
1. Low-cost Delivering a service or a Processes must be designed and Costco
operations product at the lowest operated to make them efficient
possible cost
QUALITY
2. Top quality Delivering an outstanding May require a high level of Ferrari
service or product customer contact and may require
superior product features
3. Consistent Producing services or Processes designed and McDonald’s
quality products that meet design monitored to reduce errors and
specifications on a prevent defects
consistent basis
TIME
4. Delivery speed Quickly filling a Design processes to reduce lead Dell
customer’s order time
5. On-time Meeting delivery-time Planning processes to increase United Parcel
delivery promises percent of customer orders Service (UPS)
shipped when promised
6. Development Quickly introducing a new Cross-functional integration and Li & Fung
speed science or a product involvement of critical external
suppliers

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Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE
PRIORITIES
FLEXIBILITY Definition Process Considerations Example
7. Customization Satisfying the unique Low volume, close customer Ritz Carlton
needs of each customer contact, and easily reconfigured
by changing service or
products designs
8. Variety Handling a wide Capable of larger volumes than Amazon.com
assortment of services or processes supporting
products efficiently customization
9. Volume Accelerating or Processes must be designed for The United States
flexibility decelerating the rate of excess capacity Postal Service
production of service or (USPS)
products quickly to
handle large fluctuations
in demand

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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
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Using Competitive Priorities

At an airline
We will consider two market segments:
(1)first-class passengers and
(2)(2) coach passengers

 Core services for both market segments are

ticketing and seat selection, baggage handling,
and transportation to the customer’s destination.

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 The peripheral services are quite different across the two market segments.
 First-class passengers require separate airport lounges; preferred treatment
during check-in, boarding, and deplaning; more comfortable seats; better meals
and beverages; more personal attention (cabin attendants who refer to customers
by name); more frequent service from attendants; high levels of courtesy; and
low volumes of passengers (adding to the feeling of being special).
 Coach passengers are satisfied with standardized services (no surprises),
courteous flight attendants, and low prices.
 Consequently, we can say that the competitive priorities for the first class
passengers are top quality and on-time delivery, whereas the competitive
priorities for the coach segment are low-cost operations, consistent quality, and
on-time delivery.

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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
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 Competitive priorities are assigned to each core process to achieve the service
required to provide complete customer satisfaction.
 Supplier relationship
 Low-cost operations
 Consistent quality
 On-time delivery
 Variety
 Volume flexibility
 New Service Development
 Top Quality
 Development Speed
 Customization

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Using Competitive Priorities

At an airline
 Order fulfillment
 Low-cost operations
 Top quality
 Consistent quality
 On-time delivery
 Variety
 Customer Relationship
 Top Quality
 Consistent Quality
 Delivery Speed
 Variety

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Trends in Operations Management

Several trends are currently having a great impact on

operations management:
1.Productivity improvement;
2.global competition; and
3.ethics
4.workforce diversity,
5.and environmental issues.

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Trends in Operations Management

1. Productivity improvement
Productivity is a major trend in operations management because
all firms face pressures to improve their processes and supply
chains so as to compete with their domestic and foreign competitors.
Productivity is the value of outputs (services and products)
produced divided by the values of input resources (wages, cost of
equipment, and so on) used.

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Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:

a. Three employees process 600 insurance policies in a week.

They work 8 hours per day, 5 days per week.

SOLUTION
Policies processed
a. Labor productivity =
Employee hours

600 policies
= = 5 policies/hour
(3 employees)(40 hours/employee)

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Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:

b. A team of workers makes 400 units of a product, which is

sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.

SOLUTION
Value of output
a. Multifactor productivity =
Labor cost + Materials cost
+ Overhead cost

(400 units)($10/unit) $4,000

= = = 2.35
$400 + $1,000 + $300 $1,700

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2. Global Competition:
Most businesses realize that, to prosper, they must view customers, suppliers,
facility locations, and competitors in global terms.
Firms can increase their market penetration by locating their production facilities
in foreign countries because it gives them a local presence that reduces customer
aversion to buying imports.
Globalization also allows firms to balance cash flows from other regions of the
world when economic conditions are less robust in the home country.
Example:
Sonoco a South Carolina based company has 335 locations worldwide in
Australia, China, Europe, Mexico, New Zealand, and Russia. These global
operations resulted in international sales and income growth even as domestic sales
were stumbling during 2007.

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3. Ethical Issues:
Potential ethical dilemmas arise when business is conducted by different rules. Some
countries are more sensitive than others about conflicts of interest, bribery,
discrimination against minorities and women, minimum-wage levels, and unsafe
workplaces.
In addition, technological change brings debates about data protection and customer
privacy
4. Environmental Issues
Many people and businesses see environmental issue as survival issues. The
automobile industry has seen innovation in electric and hybrid cars in response to
environmental concerns and economic benefits arising from using less expensive fuels.
Large multinational companies have a responsibility as well for creating
environmentally conscious practices, and can do so profitably. For instance, Timberland
has over 110 stores in China because of strong demand for its boots, shoes, clothes, and
outdoor gear in that country. It highlights its environmental credentials and corporate
social responsibility through investments such as the reforestation efforts in northern
China’s Horqin Desert.

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