The Operations Function Overview

 What is Operations Management?  Transformation Processes and Value Chains  How Operations is Connected with Other Business Functions and with Suppliers

What is Operations Management?
 What is Operations Management?

design, operation, and improvement of productive systems a function or system that transforms inputs into outputs of greater value 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

 What is Operations?

 What is a Transformation Process?
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1 INPUT •Material •Machines •Labor •Management •Capital TRANSFORMATION PROCESS OUTPUT •Goods •Services Feedback & Requirements .Operations as a Transformation Process Figure 1.

A Value Chain Supplier Manufacturer Customer Flow of information: customer order and delivery requirements Flow of products: goods and services .

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 .

How Operations is Connected with Other Business Functions and with Suppliers  Operations  Marketing  Finance and Accounting  Human Resources  Outside Suppliers .

A necessary step toward mass production  Division of labor   Interchangeable parts  . standardization of parts.Evolution of Operations and Supply Chain Management  Craft production  process of handcrafting products or services for individual customers dividing a job into a series of small tasks each performed by a different worker. Division of labor is used to design assembly lines.

and reduced costs  Mass production   Lean production  . flexibility.)  Scientific management  systematic analysis of work methods high-volume production of a standardized product for a mass market an adaptation of mass production that emphasizes quality.Evolution of Operations and Supply Chain Management (cont.

 A business strategy explains how a company will achieve its mission. Dell: Dell listens to customers and delivers technology they trust and value. .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.

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? What is going on inside the company that affects your strategic options?  Internal analysis of strengths and weaknesses  .

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 .

 An economic recession .  Examples of threats  A competitor is introducing a product that your company cannot match.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.  New banking regulations are being proposed.

 Order qualifiers and order winners:    Change over time Depend on the target market Depend on positioning in the marketplace .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.

and material strengths and weaknesses. . managerial. technical.  Look for core competencies that the company has or could develop.Internal Company Analysis  Evaluate the company's financial.

. Usually requires cooperation and information sharing among different business functions Often includes partnerships with suppliers or customers.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.

The Mayo Clinic is known for excellent medical care.Examples of Core Competencies    Wal-Mart has maintained "everyday low prices" for decades. at a low cost. . Nordstrom's is known for superior customer service.

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 .

Order Qualifiers. and Core Competencies . Winners.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 .

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 .

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.

 In other cases. . lean production is more efficient.Positioning the Firm: Competing on Cost  Waste elimination  relentlessly pursuing the removal of all waste looking at the entire cost structure for reduction potential – not just direct labor  Examination of cost structure   High-volume production and automation are sometimes the best alternatives.

. manufacture it. 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. and have it in stores in 9 – 15 days.Positioning the Firm: Competing on Speed There are several ways to compete on speed.  Rapid service delivery: Lens Crafters.

Positioning the Firm: Quality  Conformance quality ensures the consistency of a good or service. .    Any good or service can have conformance quality. this type of quality is usually not an order winner. Conformance quality is usually an order qualifier. Since competitors are also likely to have conformance quality.

 These companies often offer luxury goods or services with high design quality.     Nordstrom's stores Ritz Carlton Hotels Rolls-Royce automobiles Rolex watches .Positioning the Firm: Quality (2)  Companies that compete on quality focus on pleasing or delighting the customer.

and they may be offered in new colors.000 items per year.Positioning the Firm: Flexibility  Flexibility is the ability to adjust to changes in product mix. production volume.  Benetton constantly monitors sales. or product design  One approach to flexibility involves responding to general changes in demand. Production of hot-selling items will be increased. (Zara competes on both speed and flexibility). Production of items that are not selling well will cease. .  Zara responds to changing demand by introducing more than 20.

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. . The customized bicycles are shipped within two weeks and cost only 10% more than standard bicycles. National Bicycle uses a build-to-order system. Like Dell.    National Bicycle offers more than 11 million combinations of product options for bicycles.

it is competing on both technology and speed.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-aidedmanufacturing (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.