OM 1 Business Operations: Goods, Services, and Goals

• Operations is the part of a business responsible for producing goods and/or services.
• The goal of business operation is to harvest value from business's physical or intangible resources.
• Operations involve managing a business's inner workings for maximum efficiency.
• Operation definitions depend on the business's industry and stage.
• Improving operations includes thinking strategically about systems/processes and executing on-the-ground work.

Goods

• Goods are physical items including raw materials, parts, subassemblies, and final products.

Services

• Services are activities providing time, location, form, or psychological value.

Business Organization Goal

• The ideal situation for a business is to match supply and demand economically.
• Too much supply/capacity is wasteful, while too little can lead to lost opportunities and customer dissatisfaction.
• Key functions are operations and supply chains on the supply side, and sales and marketing on the demand side.
• Operations produces products/delivers services, requiring support from other areas.
• For retail businesses, the daily goal is to stock items customers want at prices they will pay.
• Operations perfect inventory by analyzing records, negotiating prices, and assessing customer willingness to pay.
• Software implementation can manage and optimize inventory.
• Food businesses face challenging inventory problems due to perishable products.

Food Business

• Operations applies to food businesses beyond just food items, also to purchasing, preparation, and cost of food, beverages, and labor, plus customer service and experience.

Functional Business Areas

• Business organizations have three basic functional areas: finance, marketing, and operations.

Finance

• Finance secures financial resources at good prices, allocating them across the organization.
• Financial responsibilities also include budgeting, analyzing investment proposals, and providing funds for operations.

Marketing

• Marketing assesses consumer needs and wants, selling and promoting goods or services.

Operations

• Operations produces goods or provides services.
• Operations is the core of what the organization does.

Operations Management

• Operations management manages systems/processes creating goods/services.
• Operations and supply chains are linked; organizations require both.

Supply Chain

• Supply chain is the sequence of organizations, facilities, functions, and activities that produce/deliver a product or service.
• The chain extends from basic suppliers to the customer. The facilities in the supply chain may include:
  • Warehouses
  • Factories
  • Processing centers
  • Offices
  • Distribution centers
  • Retail outlets

The functions and activities in the supply chain include: - Forecasting - Purchasing - Inventory management - Information management - Quality assurance - Scheduling - Production - Distribution - Delivery - Customer service

Supply Chain Management

• Supply chain management manages the flow of goods/services and transforms raw materials into final products.
• It streamlines supply-side activities to maximize customer value and competitive advantage.
• Supply chain management involves suppliers developing efficient/economical supply chains.
• Supply chains cover everything from production to product development and information systems.
• Supply chains are both external and internal to the organization.
• External parts provide raw materials, parts, equipment, and outputs to customers.
• Internal parts are part of the operations function, supplying operations with parts/materials and performing work.

Transformation Process

• Creating goods/services involves transforming inputs into outputs.
• Inputs like capital, labor, and information are used in transformation processes.
• A transformation process is any activity transforming inputs, adding value, and providing outputs.
• Identifying the transformation is easy with raw materials and less obvious with information or people.
• All three input types - materials, information, and customers as transformed by the same organization.

The different transformation types are: - Manufacture - physical creation of products like cars. - Transport – moving materials or customers, such as in a taxi service. - Supply - changing ownership such as in retailing. - Service – treating customers or storing materials, like in hospitals or warehouses.

• Organizations measure the transformation process for feedback, comparing it to standards for corrective action.
• Changes happen in: physical characteristics, location, ownership, storage, purpose or form, and the customer's state.
• The goods-service combination is a continuum from primarily goods to primarily service.
• Companies typically sell product packages, a mix of goods and services.
• The essence of the operations function is to add value during the transformation process.
• Value-added is the difference between the cost of inputs and the value/price of outputs.
• In nonprofit organizations, value of outputs is their value to society; greater value-added means greater effectiveness.
• In for-profit organizations, the value of outputs is what customers will pay for goods/services.
• Money from value-added is used for research, facilities, salaries, and profits.
• A higher value means more funds are available.
• Value can also be psychological like branding.

Factors for Operations Design

The factors affecting the operations design are: - Customer involvement - Technology use

• More customer involvement can make the operation more challenging to manage.
• Technology can impact productivity, costs, flexibility, quality, and satisfaction.

Goods vs Services

• Goods result in a tangible output.
• Services often imply an act, such as a physician's examination.

Breakdown of Service Jobs

The breakdown of service jobs is as follows: - Professional services (finance, healthcare, legal). - Mass services (utilities, Internet, communications). - Service shops (tailoring, appliance repair, car wash, auto maintenance). - Personal care (beauty salon, spa, barbershop). - Government (Medicare, mail, social services, police, fire). - Education (schools, universities). - Food service (catering). - Services within organizations (payroll, accounting, maintenance, IT, HR, janitorial). - Retailing and wholesaling. - Shipping and delivery (truck, railroad, boat, air). - Residential services (lawn care, painting, general repair, remodeling, interior design). - Transportation (mass transit, taxi, airlines, ambulance). - Travel and hospitality (travel bureaus, hotels, resorts). - Miscellaneous services (copy service, temporary help).

Manufacturing and Service Relationship

• Manufacturing and services are different in what is done but similar in how it is done.
• Many services involve high customer contact; it becomes a "moment of truth" to be judged anytime it occurs.
• Services have a higher labor content degree than manufacturing jobs.
• Service operations have variability of inputs.
• Manufacturing operations control variability, leading to uniform job requirements.
• Productivity can be difficult to measure for service jobs to variations of inputs.
• Quality is usually more challenging for services due to higher input variation and simultaneous delivery/consumption.
• Services have less opportunity than manufacturing to correct mistakes.
• Many services use less inventory, so inventory costs are lower.
• Services cannot be stored; they must be provided "on demand."
• Manufacturing jobs are well paid with less variation than service jobs.
• Product designs are easier to patent than service designs.

Primary Factors for Production

• Forecasting and capacity planning to match supply and demand.
• Process management.
• Managing variations.
• Monitoring and controlling costs and productivity.
• Supply chain management.
• Location planning, inventory management, quality control, and scheduling.
• Service activities are essential in goods-producing companies.

These activities include: - Training - Human resource management - Customer service - Equipment repair - Procurement - Administrative services

Operations Management Skill Set

• Operations management is the management of processes that convert inputs into outputs.
• Learning will serve you well in your career.
• Operations and sales are the two "line" functions in a business, supported by accounting, finance, marketing, IT, etc.
• A common complaint is that college graduates are too narrowly focused.
• Working together requires understanding the roles of others.
• There is significant collaboration among functional areas.
• Business decisions impact other areas with numerous interactions.

Finance and Operations Management Cooperative Activities

• Finance and operations work together, they perform tasks such as the following:
  • Budget Preparation
  • Economic Analysis of Investments
  • Funds Provisioning

Operations Interactions

Operations interacts with other functional areas: - Legal - Management information systems (MIS) - Accounting - Personnel/human resources - Public relations

• The legal department consults on contracts, liability, and environmental issues.
• Accounting provides information on costs and reports on items like scrap and inventories.
• Management information systems (MIS) provides management with information for managing.
• Management Information Systems (MIS) captures relevant information and develops decision-making tools.
• The human resources department handles recruitment, training, labor relations, and safety, including wage and salary administration.
• Public relations builds and maintains a positive public image.