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• Operations management involves the systematic design, direction, and control of processes
• These transform inputs into services and products for both internal and external customers

Operations

• Processes are clustered together into operations for organizational purposes
• An operation is a group of resources performing all or part of one or more processed
• Processes are linked to form a supply chain
• A supply chain consists of interrelated processes within and across different firms
• The aim is to produce a service or product to satisfy customers

Learning Outcomes

• Describe operations and supply chains in terms of inputs, processes, outputs, information flows, suppliers, and customers
• Define an operations strategy and its linkage to corporate strategy, as well as its role as a source of competitive advantage in a global marketplace
• Identify nine competitive priorities used in operations strategy, and their linkage to marketing strategy
• Explain how operations can be used as a competitive weapon
• Identify the global trends and challenges facing operations management

Module participants

• 3rd Year BSA and BSBA students

Key Functions of an Organization

• Operations is a key function within an organization
• Coordination among operations, marketing, and finance is important
• Each function has unique knowledge, skills, responsibilities, processes, and decision domains
• Understanding the entire circle, not just individual functional areas is important
• Effective organizations integrate functions with common strategy

Processes

• Any process has inputs and outputs
• Inputs include human resources, capital, purchased materials, services, land, and energy
• Processes provide outputs to customers, which may be services or tangible products
• Every process and person in an organization has customers
• External customers are end users or intermediaries buying finished services or products
• Internal customers are employees within the firm whose process inputs are outputs of earlier processes
• Every process and person in an organization relies on suppliers
• External suppliers are businesses or individuals providing resources, services, products, and materials
• Internal suppliers are employees or processes supplying information or materials

Service and Manufacturing Processes

• Manufacturing processes convert materials into goods with a physical form known as products
• Transformation processes change materials' physical properties, shape, size, surface finish, and joining parts
• Manufacturing processes can be produced, stored, and transported in anticipation of future demand
• Service processes produce intangible, perishable outputs
• Service processes cannot be held in finished goods inventory to insulate the process from erratic customer demands
• Degree of customer contact is a key difference between service and manufacturing processes
• Service processes have a higher degree of customer contact
• Customers may take an active role in the service process or communicate specific needs
• Manufacturing processes have less customer contact
• Managers recognize the degree of customer contact required when designing processes

Supply Chain View

• Services or products are produced through a series of interrelated business activities
• Each activity in a process adds value to the preceding activities
• Waste and unnecessary cost should be eliminated

Core Processes

• A core process is a set of activities delivering value to external customers
• Managers and employees interact with external customers, build relationships, develop new services/products, interact with external suppliers, and produce the service/product
• Four core processes:
  • Supplier relationship process selects suppliers of services, materials, and information and facilitates the timely and efficient flow of items into the firm
  • New service/product development process designs and develops new services or products
  • Order fulfillment process includes activities required to produce and deliver the service or product to the external customer
  • Customer relationship process identifies, attracts, builds relationships, and facilitates order placement

Support Processes

• A support process provides vital resources and inputs to core processes and is essential to business management
• Firms have many support processes:
  • Human Resources: recruiting, hiring, training, and establishing incentive/compensation plans
  • Legal Department: support processes that ensure compliance with rules and regulations
  • Accounting: supports processes that track financial resource creation and allocation
  • Information Systems: responsible for data and information movement/processing

Operations Strategy

• Operations strategy specifies how operations implements corporate strategy and builds a customer-driven firm
• It links long-term and short-term operations decisions to corporate strategy
• It develops the capabilities the firm needs to be competitive and is at the heart of managing processes and supply chains
• A firm's internal processes are only building blocks
• Developing a customer-driven operations strategy begins with corporate strategy and coordinates overall goals with core processes
• It determines markets, responses to changes, resources for core competencies/processes, and international market strategy
• Market analysis categorizes customers, identifies needs, and assesses competitor strengths
• This information develops competitive priorities

Corporate Strategy Considerations

• Environmental Scanning: monitor trends for opportunities or threats
• Developing Core Competencies: unique resources and strengths like workforce, facilities, market/financial know-how, and systems/technology
• Developing Core Processes: focusing on a subset of processes to match core competencies
• Global Strategies: buying foreign services/parts, combating foreign threats, or entering new markets
  • Two effective global strategies are strategic alliances and locating abroad

Market Analysis

• Market analysis divides customers into segments and identifies their needs
  • Market Segmentation: identifying customer groups with common wants and needs and analyst determines the characteristics that clearly differentiate each segment
  • Needs Assessment: identifies segment needs and assesses how well competitors are addressing them
    • Service or Product Needs: attributes like price, quality, and customization
    • Delivery System Needs: attributes of processes, supporting systems, and resources
    • Volume Needs: attributes of demand

Competitive Priorities

• A customer-driven operations strategy requires cross-functional effort to understand external customer needs and specify operating capabilities
  • Competitive priorities are critical dimensions a process or supply chain must possess to satisfy internal/external customers
  • Competitive capabilities are the cost, quality, time, and flexibility dimensions a process/supply chain possesses
  • Management must close the priority gap or revise the priority

Order Winners

• An order winner is the criterion customers use to differentiate firms, including price, quality, time, and flexibility
• An order qualifier is a minimal level required to compete in a market segment
• Fulfilling the order qualifier only positions the firm to compete

Trends in Operations Management

• Several trends are currently impacting operations management:
  • productivity improvement, global competition, ethical
  • workforce diversity, and environmental issues
  • Accelerating information technology, e-commerce, robotics, and Internet change design of services/products as well as sales, order fulfillment, and purchasing

Productivity Improvement

• Productivity is a measure of performance for economies, industries, firms, and processes
• Improving productivity is a major trend - Productivity = Output / Input

Global Competition

• Businesses must view customers, suppliers, facility locations, and competitors globally
• Locating production facilities in foreign countries increases market penetration
• Five developments spurred the need for global strategies:
  • Improved transportation/communications
  • Loosened regulations on financial institutions
  • Increased demand for imported services/goods
  • Reduced import quotas and trade barriers (EU, NAFTA)
  • Comparative cost advantages

Operations in other countries have disadvantages

• A firm may have to relinquish proprietary technology if it turns over some of its component manufacturing to offshore suppliers/ political risks may also be involved
• Each nation can exercise nationalization and Employee skills may be lower in foreign countries, requiring additional training time

Ethical, Workforce Diversity, and Environmental Issues

• Businesses face more ethical issues due to global presence and rapid technological change
• Ethical dilemmas arise when business is conducted by different rules
• Some countries are more sensitive about conflicts of interest, bribery, discrimination, minimum-wage, and unsafe workplaces
• Environmental problems such as toxic waste, poisoned drinking water and climate change are now survival issues