Operations Management & TQM PDF

OPERATIONS MANAGEMENT & TQM S.Y. ‘24 - ‘25 | 1ST SEM | ALFRED DICDICAN OPERATIONS AND SUPPLY CHAIN MANAGEMENT type of service activity. Thus, everyone should underst...

OPERATIONS MANAGEMENT & TQM S.Y. ‘24 - ‘25 | 1ST SEM | ALFRED DICDICAN OPERATIONS AND SUPPLY CHAIN MANAGEMENT type of service activity. Thus, everyone should understand OM and be able 1.0 OPERATIONS MANAGEMENT & VALUE CHAINS to apply its tools and techniques. “Operations expertise is as big an asset for Apple as product innovation and EXAMPLES OF OM IN THE WORKPLACE marketing. They’ve taken operational excellence to a level never seen before.” - Mike Fawkes, former supply chain chief at Hewlett-Packard. After graduating from college, Shelly Decker and her sister embarked on an entrepreneurial venture to manufacture and sell natural soaps and body products. Shelly was an accounting and information systems major in college, but she was using OM skills every day: Managers and engineers often work at global supplier and manufacturer When a new product was to be introduced, the best way to produce it had sites to refine their operations, and designers work with suppliers to create Process to be determined. This involved charting the detailed steps needed to new tooling equipment. design make the product. Apple’s significant profit margins are in large part due to this big focus on its Inventory was tightly controlled to keep cost down and to avoid production global supply chain and operational excellence. Inventory that wasn't needed. Inventory was taken every four weeks and adjusted in management 1.1 OPERATIONS MANAGEMENT (OM) the inventory management system accordingly. Operations Management Production schedules were created to ensure that enough product was science & art of ensuring that goods and services are created and delivered Scheduling available for both retail and wholesale customers, taking into account such successfully to customers. factors as current inventory and soap production capacity. includes the design of goods, services, and the processes that create them; Each product was inspected and had to conform to the highest quality the day-to-day management of those processes; and the continual Quality standards. If a product did not conform to standards (e.g., wrong color, improvement of these goods, services, and processes. improper packaging, improper labeling, improper weight, size, or shape), it management The way in which goods and services, and the processes that create & was removed from inventory to determine where the process broke down support them, are designed and managed can make a difference between a and to initiate corrective action. delightful or an unhappy customer experience. Brooke Wilson began as a process manager for JPMorgan Chase in the credit card division. He was an accounting major in college. After several years of working as an operations analyst, he was promoted to a production supervisor position overseeing “plastic card production.” Among his OM-related activities are: only function by which managers can directly affect the value provided to all stakeholders— customers, employees, investors, and society Representing the plastic card production area in all meetings, developing Planning and annual budgets and staffing plans, and watching technology that might Importance of OM budgeting affect the production of plastic credit cards. What makes a company successful? Overseeing the management of inventory for items such as plastic blank “The first job we have is to turn out quality merchandise that consumers will Inventory cards; inserts such as advertisements; envelopes, postage, and credit buy and keep on buying. If we produce it efficiently and economically, we management card rules and disclosure inserts. will earn a profit, in which you will share.” - William Cooper Procter, Daily to annual scheduling of all resources (equipment, people, and grandson of the founder of Procter & Gamble told his employees in 1887. Scheduling inventory) necessary to issue new credit cards and reissue cards that are ○ This statement addresses three issues that are at the core of and capacity up for renewal, replace old or damaged cards, as well as cards that are operations management: stolen. Efficiency (a measure of how well resources are used in creating Embossing the card with accurate customer information and quickly outputs), Quality getting the card in the hands of the customer. the Cost of operations, and the Quality of the goods and services that create customer 1.3 UNDERSTANDING GOODS AND SERVICES satisfaction Companies design, produce, and deliver a wide variety of goods and ○ They all contribute to profitability and ultimately the long-run success of services that consumers purchase. a company. Good A company cannot be successful without people who understand physical product that you can see, touch, or possibly consume. Ex. cell how these concepts relate to each other, which is the essence of OM phones, appliances, food, flowers, soap, airplanes, furniture, coal, lumber, and who can apply OM principles effectively in making decisions. personal computers, paper, and industrial machines. WHAT OPERATION MANAGERS DO Durable Good Some key activities that Operation Managers perform include the following does not quickly wear out and typically lasts at least three years. Ex. Forecasting predict the future demand for raw materials, finished goods, Vehicles, dishwashers, and furniture and services. Nondurable Good Supply Chain manage the flow of materials, information, people, and money one that is no longer useful once it's used, or lasts for less than three years. Management from suppliers to customers. Ex. toothpaste, software, clothing and shoes, and food. determine the best configuration of machines, storage, offices, Goods-producing firms Facility Layout & and departments to provide the highest levels of efficiency and found in industries such as manufacturing, farming, forestry, mining, Design customer satisfaction. construction, and fishing. Technology use technology to improve productivity and respond faster to Service selection customers. any primary or complementary activity that doesn’t directly produce a ensure that goods, services, and processes will meet customer physical product. Quality management represent the nongoods part of a transaction between a buyer (customer) expectations and requirements. Purchasing coordinate the acquisition of materials, supplies, and services. and a seller (supplier). Resource & capacity ensure that the right amount of resources (labor, equipment, Service-producing firms management materials, and information) is available when needed. found in industries such as banking, lodging, education, health care, and select the right equipment, information, and work methods to government. Process design The services they provide might be a mortgage loan, a comfortable and safe produce high-quality goods and services efficiently. decide the best way to assign people to work tasks and job place to sleep, a college degree, a medical procedure, or police and fire Job design protection. responsibilities. determine the best types of interactions between service GOODS & SERVICES Service encounter design providers and customers, and how to recover from service SIMILARITIES DIFFERENCES upsets. Goods are tangible, whereas services are intangible. determine when resources such as employees and equipment Goods are consumed, but services are experienced. Scheduling should be assigned to work. Goods-producing industries rely on machines and “hard decide the best way to manage the risks associated with technology” to perform work. Goods can be moved, stored, and Sustainability products and operations to preserve resources for future repaired, and generally require physical skills and expertise generations. They are driven by during production. Customers can often try them before buying. customers and provide Services, on the other hand, make more use of information 1.2 OM IN THE WORKPLACE systems and other “soft technology,” require strong behavioral value and satisfaction to Many people who are considered “Operations Managers” have titles such as customers who purchase skills, and are often difficult to describe and demonstrate. A Chief Operating Officer (COO); Hotel or Restaurant Manager, and use them. senior executive of the Hilton Corporation stated, “We sell time. Vice President of Manufacturing, Customer Service Manager, You can’t put a hotel room on the shelf.” Plant Manager, Field Service Manager, or Supply Chain Customers participate in many service processes, Manager. activities, and transactions. Many services require that the OM principles are used in accounting, human resources management, legal customer be present either physically, on a telephone, or online work, financial activities, marketing, environmental management, and every for service to commence. In addition, the customer and service PPT | LECTURE | TEXTBOOK : COLLIER & EVANS 2ND EDITION OM&TQM REVIEWER PAGE 1  OPERATIONS MANAGEMENT & TQM S.Y. ‘24 - ‘25 | 1ST SEM | ALFRED DICDICAN OPERATIONS AND SUPPLY CHAIN MANAGEMENT provider often coproduce a service, meaning that they work EXHIBIT 1.1 How Goods and Services Affect Operations Management together to create and simultaneously consume the service, as Activities would be the case between a bank teller and a customer to OM Activity Goods Services complete a financial transaction. The higher the customer Forecasts involve longer-term time participation, the more uncertainty the firm has with respect to Forecast horizons generally are horizons. Goods-producing firms service time, capacity, scheduling, quality performance, and shorter, and forecasts are more can use physical inventory as a operating cost. variable and time- dependent. Forecasting buffer to mitigate forecast errors. Service encounter Forecasting must often be done on Forecasts can be aggregated over an interaction between the customer and the service a daily or hourly basis, or larger time frames (e.g., months or provider. sometimes even more frequently. Some examples of service encounters are making a hote weeks) reservation, asking a grocery store employee where to find Goods-producing facilities can be Service facilities must be located the pickles, or making a purchase on a website. Facility located close to raw materials, close to customers/markets for Service encounters consist of one or more moments of Location suppliers, labor, or truth. convenience and speed of service. customers/markets. Moments of truth The facility must be designed for any episodes, transactions, or experiences in which a Facility Layout Factories and warehouses can be good customer interaction and customer comes into contact with any aspect of the and Design designed for efficiency because few, movement through the facility and delivery system, however remote, and thereby has an if any, customers are present. opportunity to form an impression. its processes. A moment of truth might be a gracious welcome by an Goods-producing facilities use Service facilities tend to rely more employee at the hotel check-in counter, a grocery store Technology various types of automation to on information-based employee who seems too impatient to help, or trying to produce, package, and ship navigate a confusing website. hardware and software. physical goods. Customers judge the value of a service and form Goods-producing firms can define Quality measurements must perceptions through service encounters. Therefore clear, physical, and measurable account for customer's perception employees who interact directly with customers or design service processes need to understand the importance of Quality quality standards and capture of service quality and often must service encounters. measurements using various be gathered through surveys or The demand for services is more difficult to predict than physical devices. personal contact. the demand for goods. Customer arrival rates and demand Goods-producing firms use physical Service capacity such as patterns for such service delivery systems as banks, airlines Inventory/ inventory such as raw materials and equipment or employees is the supermarkets, call centers, and courts are very difficult to Capacity finished goods as a buffer for substitute for physical inventory. forecast. The demand for services is time-dependent fluctuations in demand. especially over the short term (by hour or day). This places Customers usually participate Because customers have no many pressures on service firm managers to adequately plan extensively in service creation and participation or involvement in staffing levels and capacity. Process delivery (sometimes called goods-producing processes, the Services cannot be stored as physical inventory. In Design coproduction), requiring more They can be standardized processes can be more mechanistic goods-producing firms, inventory can be used to decouple flexibility and adaptation to special for the mass market or & controllable. customer demand from the production process or between circumstances. customized to individual stages of the production process and ensure constant Job/Service Goods-producing employees Service employees need more needs. Encounter require strong technical and behavioral and service availability despite fluctuations in demand. Service firms do no have physical inventory to absorb such fluctuations in demand Design production skills. management skills. For service delivery systems, availability depends on the Scheduling revolves around the Scheduling focuses on when to system’s capacity. For example, a hospital must have an movement and location of materials, assign employees and equipment adequate supply of beds for the purpose of meeting parts, and subassemblies and when (i.e., service capacity) to unanticipated patient demand, and a float pool of nurses when Scheduling to assign resources (i.e., accomplish the work most things get very busy. Once an airline seat, a hotel room, or an employees, equipment) to efficiently without the benefit of hour of a lawyer’s day are gone, there is no way to recapture accomplish the work most physical inventory. the lost revenue. efficiently. Service management skills are paramount to a successfu Service-providing firms focus Goods-producing firms focus mainly service encounter. Employees who interact with customers mainly on the flow of people, on the physical flow of goods, often require service management skills such as knowledge and information, and services, often in Supply Chain in a global network, with the goal of technical expertise (operations), cross-selling other products a global network, with the goal of Manage- maximizing customer satisfaction and services (marketing), and good human interaction skills maximizing customer satisfaction ment and profit, and minimizing delivery (human resources). and profit, and minimizing delivery Service management time, costs, and environmental time, costs, and environmental integrates marketing, human resources, and operations impact. impact. functions to They are created and - plan, 1.4 THE CONCEPT OF VALUE provided to customers by - create, and Today’s consumers demand innovative products, high quality, quick some type of process - deliver goods and services, and response, impeccable service, and low prices; in short, they want value in involving people and - deal with their associated service encounters. OM principles are useful in designing service encounters every purchase or experience. technology. How to Increase Value? and supporting marketing objectives. Service facilities typically need to be in close proximity to To increase value, an organization must: the customer. When customers must physically interact with a 1. increase perceived benefits while holding price or cost constant; service facility—for example, post offices, hotels, and branch 2. increase perceived benefits while reducing price or cost; or banks—they must be in a location convenient to customers. A 3. decrease price or cost while holding perceived benefits constant. manufacturing facility, on the other hand, can be located on the In addition, proportional increases or decreases in perceived benefits as well other side of the globe, as long as goods are delivered to as price result in no net change in value. Management must determine how customers in a timely fashion. In today’s Internet age, many to maximize value by designing processes and systems that create and services are only a few mouse clicks away. deliver the appropriate goods and services customers want to use, pay for, Services that do not involve and experience. significant interaction with Value Patents do not protect services. A patent on a physical good customers (e.g., credit card or software code can provide protection from competitors. The perception of the benefits associated with a good, service, or bundle of processing) can be intangible nature of a service makes it more difficult to keep a goods and services in relation to what buyers are willing to pay for them. competitor from copying a business concept, facility layout, or The decision to purchase a good or service or a customer benefit package is managed much the same service encounter design. For example, restaurant chains are based on an assessment by the customer of the perceived benefits in as goods in a factory, using proven principles of OM that relation to its price. quick to copy new menu items or drive-through concepts. have been refined over the The customer's cumulative judgment of the perceived benefits leads to years. either satisfaction or dissatisfaction. PPT | LECTURE | TEXTBOOK : COLLIER & EVANS 2ND EDITION OM&TQM REVIEWER PAGE 2  OPERATIONS MANAGEMENT & TQM S.Y. ‘24 - ‘25 | 1ST SEM | ALFRED DICDICAN OPERATIONS AND SUPPLY CHAIN MANAGEMENT One of the simplest functional forms of value is: A CBP diagram should include features selected by management that address specific customer wants and needs. CBPs can be bundled together. Example: A combined land-cruise vacation to Alaska may include: If the value ratio is high, the good or service is perceived favorably by ○ A travel agency that books the package and offers optional land customers, and the organization providing it is more likely to be successful. excursions. The focus on value has forced many traditional goods-producing companies ○ A land-tour operator that manages hotels, transportation, and baggage to add services and, increasingly, digital content to complement their handling. physical goods. ○ A cruise line that books air travel, provides meals, and entertainment. A goods-producing company can no longer be viewed as simply a factory Bundled CBPs can affect pricing strategies and partnerships. Example: that churns out physical goods, because customer perceptions of goods are ○ Firms may charge a premium for bundled CBPs compared to buying influenced highly by such facilitating services as financing and leasing, separately. shipping and installation, maintenance and repair, and technical support and ○ Partnerships between hotels and airlines may offer discounted vacation consulting. packages compared to booking separately. Today we see digital content such as apps, streaming videos, and social Many goods and services have a mix of both goods and service content. networks becoming vital to create customer value. ○ Toothpaste is primarily a good, but it includes services like customer Coordinating the operational capability to design and deliver an integrated support through a call center. package of physical and digital goods and services is the essence of ○ A bicycle may include services such as safety instructions and operations management. maintenance. 1.5 CUSTOMER BENEFIT PACKAGES ○ Psychiatric services are mostly service-oriented but may include goods “Bundling” goods, services, and digital content in a certain way to provide like books, brochures, and bills that support the service. value to customers not only enhances what customers receive, but can also ○ Attending events like symphonies, plays, or movies, although mainly a differentiate the product from competitors. Such a bundle is often called a service, may include peripheral goods like brochures and discount ticket customer benefit package. stubs. Customer Benefit Package (CBP) Increasingly, digital content is being bundled with both goods and services. clearly defined set of tangible (goods-content) and intangible ○ Example: General Electric manufactures locomotives and jet engines, (service-content) features that the customer recognizes, pays for, uses, or but their future lies in intelligent machines that make smart decisions experiences. and monitor themselves for maintenance. way to conceptualize and visualize goods and services by thinking broadly ○ Netflix sells digital content in the form of movies, TV shows, and series. about how goods and services are bundled and configured together. ○ iTunes sells music. consists of a primary good or service coupled with peripheral goods and/or EXHIBIT 1.1 Biztainment—(Huh?)6 services, and sometimes variants. Entertainment involves providing hospitality, escapism, fun, excitement, and/or relaxation as Primary Good or Service people engage in daily work and activities. Customer Benefit “core” offering that attracts customers and responds to their basic needs. Packages (CBP) + Adding entertainment to a CBP creates opportunities for businesses to increase For example, the primary service of a personal checking account is Entertainment customer satisfaction and grow revenue. convenient financial transactions. is the practice of incorporating entertainment into goods and services to gain a Peripheral Good or Services Biztainment competitive advantage. not essential to the primary good or service, but enhance it. A personal BMW dealership in Fort Myers, Florida, features a putting green, private work Biztainment checking account might be supported and enhanced by such peripheral Examples areas, a movie theater, wireless Internet, massage chairs, a golf simulator, and a goods as a printed monthly account statement, designer checks and café to enhance the customer experiences. checkbooks, a special credit card, and such peripheral services as a Biztainment Applications customer service hotline and online bill payment. factory tours, customer training, virtual tours, driving schools, and short It is interesting to note that today, many business-to-business manufacturers such as Manufacturing films on product creation. custom machining or metal fabricators, think of their core offering as service-providing customized design assistance and on time delivery-with the actual goods as peripheral. online shopping with entertaining graphics, simulators, product demos, Retail Variant music, games, holiday decorations, and interactive designs. departs from the standard CBP and is normally location or firm specific. themed environments, contests, games, electronic menus, live music, Restaurants and playgrounds. pick-your-own food, mazes, grape-stomping, farm tours, and petting Agriculture zoos. kids' spas, health clubs, casinos, arcades, arts and crafts, and family Lodging games. Telecommunica entertaining text/video messaging, downloads, and designer phone - features. tions Hard Rock Café, Chuck E. Cheese, Benihana, and Verizon use Successful entertainment to enhance brand image and increase sales. Biztainment Example: Build-A-Bear Workshop earns an average of $600 per Businesses square foot in annual revenue, double the U.S. mall average. 1.6 VALUE CHAINS Value Chain The CBP attributes and features (described in the circles) are chosen by network of facilities and management to fulfill certain customer wants and needs. processes that describes For example, financing and leasing, which are peripheral services, meet the the flow of materials, customer's wants and needs of personal financial security. finished goods, services, In fact, if two vehicles have similar prices and quality levels, then the leasing information, & financial program may be the key to which vehicle the customer buys. transactions from Vehicle replacement parts, a peripheral good, meet the customer's wants suppliers, through the and needs of fast service and safety. facilities & processes that A variant might be a fishing pond where kids can fish while parents shop for create goods and vehicles. services, and those that When defining a CBP, avoid confusing features chosen by management with deliver them to the customers' actual wants and needs. customer. ○ Example: If a customer’s need is to secure their valuables in a hotel, involve all major functions in an organization; includes not only operations management might choose a room safe as the feature. The CBP but also purchasing, marketing and sales, human resource management, diagram should reflect "room safe" as the feature, not “safety of finance and accounting, information systems and technology, distribution, valuables.” and service and support. PPT | LECTURE | TEXTBOOK : COLLIER & EVANS 2ND EDITION OM&TQM REVIEWER PAGE 3  OPERATIONS MANAGEMENT & TQM S.Y. ‘24 - ‘25 | 1ST SEM | ALFRED DICDICAN OPERATIONS AND SUPPLY CHAIN MANAGEMENT Supply Chain 1.7 VALUE CHAIN FRAMEWORKS portion of the value chain that focuses primarily on the physical movement We will describe a value chain from three different perspectives: an of goods and materials, and supporting flows of information and financial input-output framework, a preproduction and postproduction services transactions through the supply, production, and distribution processes. framework, and a hierarchical supply chain perspective. Value Chain vs Supply Chain 1.7a VALUE CHAINS: INPUT-OUTPUT FRAMEWORK Many organizations use “value chain” and “supply chain” interchangeably, but there is a distinction: Value Chain Value Chain is broader in scope and Supply Chain is more narrowly can be viewed as a “cradle-to-grave” input-output model of the operations applies to both service-providing and focused on the logistics and flow of function. goods-producing organizations. goods. It begins with suppliers providing inputs to a goods- or service-producing Operations management plays a key role in the design and management of process or network of processes. value chains. Organizations must balance cost, quality, service, and sustainability to create value for customers and stakeholders. Coordination of activities within the value chain is crucial for success. Modern companies deliver goods and services to multiple markets and operate in a global business environment. Many firms have reconfigured value chains by moving some operations abroad to stay competitive, improve profitability, and enhance customer service. A global approach to resources is necessary to compete effectively in international markets, as highlighted by a CFO in a CFO Magazine survey: “You cannot compete globally unless you use global resources.” Understanding the global business environment and local culture is Suppliers can include: essential for designing and managing value chains effectively. Retail stores, distributors, employment agencies, dealers. 1.6a PROCESSES Financing and leasing agents, information and Internet companies. Process Field maintenance and repair services, architectural and engineering design sequence of activities that is intended to create a certain result, such as a firms. physical good, a service, or information. Contractors and manufacturers of materials and components. A practical definition is how work creates value for customers. (AT&T) Input can be: Processes are the means by which goods and services are produced and Physical goods (e.g., automobile engines, microprocessors for an delivered. assembly plant, or food ingredients for a restaurant). For example, a car wash process might consist of the following steps: check People (provided by universities and technical schools). the car in, perform the wash, inspect the results, notify the customer that the Information (e.g., market research or a medical diagnosis). car is finished, quickly deliver the car back to the customer, and collect Transformation processes payment. convert inputs into value-added goods and services. In designing such a process, operations managers need to consider the supported by resources like equipment, facilities, labor, money, and process goals, such as speed of service, a clean car, no vehicle damage, information. and the quality of all service encounters. transformation examples include people in a hospital, physical goods in an OM managers would ask questions such as: Should the car be cleaned oil refinery, or information in an e-publishing business. inside as well as outside? How long should a customer expect to wait? What Value Chain Processes can include: types of chemicals should be used to clean the car? What training should Value-creation processes: Directly create and deliver goods and the employees who wash the cars and interact with the customer have? services. Key processes in business typically include: Support processes: Operate behind the scenes to support core 1. Value-creation (core) processes focused on producing or delivering processes. an organization’s primary goods or services that create value for General management processes: Ensure efficient and effective customers, such as filling and shipping a customer’s order, assembling a business performance. dishwasher, or providing a home mortgage. Example: 2. Support processes such as purchasing materials and supplies used in Value creation: Surgery and drug administration transform sick people into manufacturing, managing inventory, installation, health benefits, technology healthy ones. acquisition, day care on-site services, and research and development. Support processes: Lab testing and purchasing enable successful surgeries 3. General management processes, including accounting and and drug administration. information systems, human resource management, and marketing. Value chain outputs—goods and services—are delivered to customers Almost every major activity within an organization involves a process that and target markets. spans across traditional organizational boundaries. The success of the value chain relies on: Example: An order fulfillment process might include: ○ Effective design and management. ○ Salesperson placing the order. ○ Performance measurement & feedback to improve all aspects of the ○ Marketing representative entering the order in the system. value chain. ○ Finance performing a credit check. EXHIBIT 1.6 Examples of Goods and Service-Providing Value Chains ○ Distribution and logistics handling picking, packaging, and shipping. Organizatio Value-creation Customers & Suppliers Inputs Outputs n Process Market Segments ○ Finance invoicing the customer. Engine plant Economy ○ Field service engineers installing the product. Auto Tires Labor Welding Luxury A process does not necessarily reside within a single department or assembly Frame Energy Machining Automobiles Rental Axles Auto parts Assembly Trucks Trucking management function. plant Paint Specifications Painting Ambulance Exhibit 1.4 illustrates how value-creation processes ensure that customer Seats Police wants and needs translate into customer-perceived benefits. Pharmaceutical Patients Admissions Heart clinics General management and support processes play a key role in coordinating companies Beds Lab testing Healthy people Pediatrics Equipment Doctor diagnosis Lab results and supporting value creation and delivery. suppliers Staff Food service Accurate bills Emergency and trauma Hospital Drugs services Food suppliers Surgery Community Diagnostic Ambulatory services Organ donors Schedules health equipment Medical specialties and Medical Drug administration education Knowledge hospital wards suppliers Rehabilitation Highway and Labor Health care benefits Disabled people building Good use of Energy Food stamps Low-income people contractors taxpayers' Information Legal services Criminals and prisons Employment monies State Trash Prisons Corporate taxes agencies Safety net Govern- Crimes Trash removal Boat licenses Food suppliers Security ment Disputes Park services Building inspections Equipment Reallocate taxes Sick people License services Weekend vacationers suppliers Clean, safe, and Low-income Police services Child custody services Other fun parks people lax services Legal court services governments PPT | LECTURE | TEXTBOOK : COLLIER & EVANS 2ND EDITION OM&TQM REVIEWER PAGE 4  OPERATIONS MANAGEMENT & TQM S.Y. ‘24 - ‘25 | 1ST SEM | ALFRED DICDICAN OPERATIONS AND SUPPLY CHAIN MANAGEMENT 1.7b VALUE CHAIN AT BUHRKE INDUSTRIES INC Preproduction Services (focus: “gaining a customer”) Customized and team-oriented product design. Consulting services. Contract negotiations. Product and service guarantees. Customer financing for product purchase. Customer training for product use and maintenance. Purchasing and supplier services. Other front-end services. Postproduction Services (focus: "keeping the customer") Customer Value Chain On-site installation or application services. Beyond manufacturing, Buhrke prides itself on offering the best service Maintenance and repair in the field. available. Servicing loans and financing. Service Components Warranty and claim services. Partnering with customers for personalized service. Warehouse and inventory management (for both company and customers). Fast, accurate responses. Training and telephone service centers. Customized engineering designs. Transportation and delivery services. Preventive maintenance systems. Postsale visits by sales and technical support staff. Experienced, highly trained, long-term employees. Recycling and remanufacturing initiatives. Troubleshooting by a knowledgeable sales staff. Other back-end services. Value Chain Inputs Importance of Service People: Trained employees, sales staff, engineers. service is a critical part of traditional manufacturing. It’s a key differentiator Information: Engineering blueprints and specifications. for many manufacturing firms in the eyes of customers. Physical Goods: Rolled steel, factory equipment, lubricants, pallets, Ford Motor Company, for example: and boxes. ○ Preproduction services: Engineering design, supplier, sales, and Services: Employment agencies, inbound shipping, outside training, & leasing processes. industrial marketing firms. ○ Postproduction services: Financing, maintenance, repair, warranty, Value-Creation Processes claims, customer education, and training programs. Tooling, Inspection, Production, Finishing: Involves the creation of Buhrke Industries Example: stamped metal parts and sometimes complete subassemblies. ○ Buhrke’s value chain can also be viewed using the preservice and Secondary and Finishing Operations: Includes heat-treating, powder postservice framework. coating, and tapping. ○ Enhances management’s understanding of where and how value is Outputs created for customers. Stamped Metal Parts: Core products provided by Buhrke. Automobile Industry Example: Post-Sale Service: Includes out-in-the-field consulting and ○ Companies like Ford might use the preservice and postservice model to troubleshooting by company employees. highlight service processes and customer service experiences. General Management Processes Coordinate processes across different functional areas to ensure 1.7d VALUE CHAIN AT AMAZON efficient operation. Support Processes Include hiring, medical benefits, and accounting to support the core operations. Stages of Buhrke’s Value Chain Customer Request for Quotation: Estimating department processes job parameters like specifications, metals, finishing or packaging services, presses, and deadlines. Sales Engineer Assignment: Monitors each stamping job from start to finish, serving as the single point of contact for the customer. Preproduction Services (Gaining a Customer) Engineering Design: Engineers design tooling using Product Variety: Amazon offers a vast range of products, including its own computer-assisted design (CAD) to ensure precision and timely Kindle e-book reader and Kindle Store. Virtual storefront provides greater completion. selection than typical physical stores. Tool Maintenance: Tools are maintained in an on-site tool room, with a Amazon.com Website: Facilitates the customer experience with features strict maintenance regimen. like product search, browsing history, account management, and order Production: Metal parts are produced on presses ranging from 15 to management. Efficient order entry utilizes customer labor. 200 tons, with speeds of up to 1,500 parts per minute. Low Prices: Through operational efficiencies & economies of scale. Inspection: Raw materials, work-in-process, and finished products are Seller and Distributor Partnerships: Partners with third-party sellers and inspected to ensure zero defects. transportation firms (e.g., UPS, FedEx) to expand offerings and provide Secondary Operations: Heat-treating, powder coating, and other competitive prices and services. finishing processes add value to the products. Value-Creation Processes and Location Decisions Assembly: At customer request, Buhrke can assemble stampings with Order Fulfillment: Efficient picking and packaging at fulfillment centers other components and procure necessary parts. using IT, barcode sorting, and order-matching. Information system manages Packaging and Final Audit Inspection: Before shipping, products product locations and creates pick routes. undergo final audit inspection. Distribution Center Location: Centers near major metropolitan markets for Shipping: Buhrke offers flexibility in shipping the finished product faster service and reduced transportation costs. where and when customers want. Shipping Options: Free shipping for orders over $35. Amazon Prime offers VALUE CHAINS: PREPRODUCTION & POSTPRODUCTION unlimited two-day shipping and optional next-day delivery for an annual fee. 1.7c SERVICES FRAMEWORK Customer Pickup Locations: Pickup points at locations like college Value Chain campuses (e.g., Purdue University) for secure and convenient product can be viewed from the preservice and postproduction services framework. collection. This framework completes the ownership cycle for the good or service. Seller Support: Amazon WebStore provides tools for business customers to design and manage e-commerce businesses using Amazon's technology. Amazon's Value Chain Illustration Order Tracking: E-mail updates and website access to view order status and history. Customer Service and Returns: Returns accepted for new, unopened items within 30 days; damaged or defective items replaced or exchanged. Return labels and authorization forms provided. PPT | LECTURE | TEXTBOOK : COLLIER & EVANS 2ND EDITION OM&TQM REVIEWER PAGE 5  OPERATIONS MANAGEMENT & TQM S.Y. ‘24 - ‘25 | 1ST SEM | ALFRED DICDICAN OPERATIONS AND SUPPLY CHAIN MANAGEMENT Product Suggestions: Customized recommendations based on past orders 1.8 OM: A HISTORY OF CHANGE & CHALLENGE and searches. "Wish List" feature for future reference. Operations management (OM) has evolved more than any other business Customer Loyalty: Amazon Prime offers additional benefits like free function in the last century, influencing competitiveness. Understanding OM is movies and e-book lending library. Prime members typically spend more, crucial for business students. enhancing customer loyalty. Payment Management: Easy management of credit and gift cards, and storing shipping and payment information for quick purchases. VALUE CHAINS: HIERARCHICAL SUPPLY CHAIN 1.7e FRAMEWORK Distribution centers (DCs) are warehouses that act as intermediaries between factories and customers, shipping directly to customers or to retail stores where products are made available to customers. At each factory, distribution center, and retail store, inventory generally is maintained to improve the ability to meet demand quickly. Inventory raw materials, work-in-process, or finished goods that are maintained to support production or satisfy customer demand. 1.8a A FOCUS ON EFFICIENCY Industrial Revolution Introduction of inventions that enhanced manufacturing efficiency. 1940s Toyota’s innovations in manufacturing efficiency. Last 50 years Technology and computers revolutionized operations. 1.8b THE QUALITY REVOLUTION After World War II Japanese companies adopted statistical tools and management practices to enhance quality. By the 1970s, the world noted Japanese products for their reliability and Supply Chains and Value Chains fewer defects. Foundation: Supply chains form the basis of most value chains. The Malcolm Baldrige Award was established in 1987 by the US Example: Hewlett-Packard (HP) spends around $50 billion (about 64% of its government to emphasize quality. revenue) on supply chain activities. Supply chain optimization impacts customer satisfaction, stock price, and profitability. 1.8c CUSTOMIZATION AND DESIGN Purpose of a Supply Chain Emphasis on Innovation Objective: Coordinate the flow of materials, services, and information to As the goals of low cost and high product quality became “givens,” maximize customer value. companies began to emphasize innovative designs and product features to Key Functions: gain a competitive edge ○ Purchasing and procurement of materials and supplies. Shift from mass production to emphasis on innovative designs and product ○ Sales and order processing. features. ○ Operations. Emergence of new operating systems to enhance product variety and ○ Inventory and materials management. continual improvement. ○ Transportation and distribution. 1.8d TIME-BASED COMPETITION ○ Information management. Time as competitive advantage ○ Finance. As information technology matured, time became an important source of ○ Customer service. competitive advantage through improved process design and quicker Goods-Producing Supply Chain responses. Structure: Quick response is achieved by continually improving and reengineering ○ Suppliers: Provide raw materials and components. processes—that is, fundamentally rethinking and redesigning processes to ○ Manufacturers: Produce and assemble finished goods. achieve dramatic improvements in cost, quality, speed, and service. ○ Distributors: Operate distribution centers (DCs) & manage 1.8e THE SERVICE REVOLUTION warehousing. Shift from goods-producing to service-providing jobs ○ Retailers: Sell products to customers. In 1955, about 50 percent of the U.S. workforce was employed in ○ Customers: End-users of the products. goods-producing industries and 50 percent in service-providing industries. Process Today, about four of every five U.S. jobs are in services. Raw materials are ordered from suppliers and transported to manufacturing Estimates are that at least 50 percent of the jobs in goods-producing facilities. industries are service- and information-related, such as human resources Finished goods are shipped to distribution centers. management, accounting, financial, legal, advertising, purchasing, Distribution centers act as intermediaries, shipping goods to customers or engineering, and so on. retail stores. Service and information-related jobs now dominate the U.S. job market. Inventory is maintained at each stage (factory, DC, retail store) to meet demand and support production. 1.8f SUSTAINABILITY Orders are sent upstream for replenishing stock as inventory levels diminish. Sustainability Examples of Supply Chains refers to an organization’s ability to strategically address current business Simple Supply Chain needs and successfully develop a long-term strategy that embraces Fresh fish supplied to a Boston restaurant. Direct purchase from fishermen opportunities and manages risk for all products, systems, supply chains, and and in-house processing (cutting and filleting). processes to preserve resources for future generations. Slightly Complex Supply Chain can be viewed from three perspectives also referred to as the “triple Fish supplied to a Midwest restaurant. Includes processing and packaging bottom line.”: environmental, social, and economic. by a seafood wholesaler and air transportation. ○ Environmental sustainability - an organization’s commitment to Complex Supply Chain the long-term quality of our environment. Environmental concerns are Fish sold at a grocery store. Includes wholesale delivery, storage by the placing increased pressure on all goods and service-providing retailer, and complex logistics. organizations across the globe. PPT | LECTURE | TEXTBOOK : COLLIER & EVANS 2ND EDITION OM&TQM REVIEWER PAGE 6  OPERATIONS MANAGEMENT & TQM S.Y. ‘24 - ‘25 | 1ST SEM | ALFRED DICDICAN OPERATIONS AND SUPPLY CHAIN MANAGEMENT ○ Social sustainability - an organization’s commitment to maintain These systems are evolving at an exponential pace and transforming healthy communities and a society that improves the quality of life. goods-producing and service-providing industries. Every organization must protect the health and well-being of all 1.9 CURRENT AND FUTURE CHALLENGES stakeholders and their respective communities, treat all stakeholders OM is continually changing, and all managers need to stay abreast of the fairly, and provide them with essential services. challenges that will define the future workplace. Here are some issues facing ○ Economic sustainability - an organization’s commitment to address contemporary OM: current business needs and economic vitality, and to have the agility and Customers Expectation strategic management to prepare successfully for future business, Demand for Variety: Consumers expect a wide range of high-quality markets, and operating environments. Staying in business for the long products with innovative features. term, expanding markets, and providing jobs are vital to national Speed and Service: There is a greater emphasis on rapid delivery and economies. exceptional service. Examples of Sustainability Practices Market Leadership: Being first to market is increasingly critical, and OM Environmental Social Economic Sustainability plays a key role in achieving this. Sustainability Sustainability Evolving Technology PERFORMANCE Rapid Evolution: Technology advances in design, manufacturing, and IT PRODUCT SAFETY: WASTE MANAGEMENT: EXCELLENCE: Build a impact operations management. Ensure consumer Future Technologies: Emerging technologies such as artificial intelligence, Reduce waste and manage high-performing organization safety in using goods 3-D printing, IoT, nanotechnology, smart cities, genetic design, and recycling efforts with a capable leadership and and services quantum computing are anticipated to transform OM. workforce WORKFORCE FINANCIAL MANAGEMENT: Leverage Technology: OM must continually adapt to and utilize these ENERGY OPTIMIZATION: technological advancements. HEALTH & SAFETY: Make sound financial plans to Reduce consumption during Workforce Ensure a healthy and ensure long-term peak energy demand times Skills and Learning: There is a need for new skills, continuous learning, safe work environment organizational survival and diverse talent in the workforce. TRANSPORTATION ETHICS & Management: Operations managers are responsible for managing these OPTIMIZATION: Design GOVERNANCE: evolving workforce demands. efficient vehicles and routes Ensure compliance Flexibility: Organizations must be adaptable in workforce management, RESOURCE MANAGEMENT: to save fuel with legal and especially in global value chains. Acquire and manage all TECHNOLOGY regulatory Globalization resources effectively and UPGRADES: Develop requirements and Borderless Marketplace: Globalization now involves competing in a market efficiently improvements to save energy transparency in without traditional borders. and clean and reuse water in management Cost Differences: Labor costs vary significantly across regions, with much manufacturing processes. decisions lower costs in Asia, Mexico, and South America compared to the U.S. AIR QUALITY: Reduce Cultural Challenges: Managing operations across diverse cultures poses COMMUNITY: EMERGENCY additional challenges. greenhouse gas emissions Improve the quality of PREPAREDNESS: Have Sustainability SUSTAINABLE PRODUCT life through plans in place for business, DESIGN: Design goods industry-community environmental, and social Performance Areas: In addition to cost, quality, and time, sustainability is whose parts can be recycled partnerships now a critical performance area. emergencies Global Sourcing: Companies must ensure suppliers adhere to sustainable or safely disposed of Sustainability practices improve public perception, productivity, and practices, avoiding issues like child labor and environmental pollution. competitiveness. Optimizing Supply Chains Global Value Chains: Supply chains extend across multiple continents, 1.8g ANALYTICS AND BIG DATA requiring careful design and optimization. Data in Operations Management Sourcing and Risks: Challenges include choosing the best sources for raw Data is used to assess operations performance, quality, order accuracy, materials and components, managing transportation, and mitigating risks customer satisfaction, delivery, cost, environmental compliance, and many such as intellectual property theft and disruptions from natural events. other areas of the business. Leveraging such data is fast becoming a Cost Coordination: Efficient coordination to minimize total costs is an necessity in creating competitive advantage. ongoing challenge. Business Analytics process of transforming data into actions through analysis and insights in the context of organizational decision making and problem solving through: ○ Descriptive Analytics: Understanding past and current performance. ○ Predictive Analytics: Forecasting future trends. ○ Prescriptive Analytics: Identifying optimal decisions. Big Data massive amounts of business data from a wide variety of sources, much of which is available in real time. helps retailers make optimum inventory decisions to ensure that their warehouses are stocked with the right products at the right time. A study by the McKinsey Global Institute noted that, “The effective use of big data has the potential to transform economies, delivering a new wave of productivity growth and consumer surplus. Using big data will become a key basis of competition for existing companies, and will create new competitors who are able to attract employees that have the critical skills for a big data world.” Data such as social media trends, purchasing patterns, and market changes help predict what products need to be stocked and where. Big data, such as weather and traffic data, also helps supply chains to improve routing and delivery decisions. also helps improve manufacturing, process flow, quality, and preventive maintenance. For services, it is analyzed, for example, to create a custom ad focused on an individual’s behavior and preferences. Big data analytics also supports service businesses such as virtual banking, remote medical diagnosis by artificial intelligence, self-driving vehicles, virtual movie actors, and National Basketball Association player and team performance. PPT | LECTURE | TEXTBOOK : COLLIER & EVANS 2ND EDITION OM&TQM REVIEWER PAGE 7