Introduction to Operations Management PDF

Introduction to Operations Management  Operations Management at Work 1 Process Analysis and Improvement Business or Organization Supply: products or services offered to our customers Supply: Products or services a business offers to its customers...

Introduction to Operations Management  Operations Management at Work 1 Process Analysis and Improvement Business or Organization Supply: products or services offered to our customers Supply: Products or services a business offers to its customers 1-3  Operations Management at Work 2 Process Analysis and Improvement Customer (or Consumer) Demand is created by our customers. Demand: is the set of products and services our customers want 1-4  Operation Design The goal of operations management is to match supply with demand. By better matching supply with demand, a firm can gain a competitive advantage relative to its competitors. A better match can be achieved through the implementation of the models and operational strategies outlined in this book. 1-5  Drivers of Customer Utility Utility is a measure of the customer preference of a product or service. Utility is composed of three components: A. Consumption Utility B. Price C. Inconvenience 1-6  Drivers of Customer Utility A. Consumption Utility: A measurement of how much you like a service, ignoring the effects of price and its inconvenience Consumption utility comes from various attributes such as Performance & Fit. 1-7  Drivers of Customer Utility Performance Definition of Performance: Subcomponent capturing how much a customer desires a product or service Example: Airline passengers prefer roomy seats, good meals, and fast boarding 1-8  Drivers of Customer Utility Fit Definition of Fit: Subcomponent of consumption utility that captures how well the product or service matches the uniqueness of a given consumer Example: Different customers prefer different cereal flavors 1-9  Drivers of Customer Utility Price B. Price: The total cost of owning a product or receiving the service, including purchase, shipping, financing, etc. With everything else remaining the same, customers prefer to pay less rather than more. 1-10  Drivers of Customer Utility Inconvenience C. Inconvenience: The reduction in utility resulting from the effort needed to obtain a product or service All else equal, you prefer your food here (versus three miles away) and now (versus waiting 30 minutes). Economists refer to it as transaction costs. Therefore, the two main subcomponents of inconvenience are location and timing. 1-11 Consumer Utility and Its Components and Subcomponents 1-12  A Firm’s Strategic Trade-Offs Capabilities: The dimensions of the customer’s utility function a firm is able to satisfy. Capabilities allow a company to do well on some but not all utility components. Trade-offs: The need to sacrifice one capability in order to increase another one. Strategic trade-off: When selecting inputs and resources, the firm must choose between a set that excels in one direction of customer utility or another, but no single set of inputs and resources can excel in all dimensions. Market Segments: A set of customers who have similar utility functions. 1-13 The Strategic Trade-Off Between Responsiveness and Productivity 1-14 Restaurant C: An Underperforming Operation 1-15 Definition of the Efficient Frontier 1-16 Restaurant D: A High-Performing Operation Pareto dominated: A firm’s product or service is inferior to competitors on all dimensions of the customer utility function. Efficient Frontier: The set of firms that are not Pareto dominated Inefficiency: The gap between a firm’s current position and the efficient frontier A high-performing operation (Restaurant D) enters the market 1-17  Overcoming Inefficiencies: Three System Inhibitors A company can only be successful if its customers are willing to pay a sufficiently high price to cover the cost of the product or service offered. The difference between the revenue earned and the costs incurred is profit. There are two types of costs: Costs for inputs: Inputs are the things a business purchases. A fast food restaurant must purchase meat, salad, buns, soda, etc. Car manufacturers must purchase steel, seats and tires. Computer makers must purchase displays, chips and power supplies. Hospitals must purchase medications and bandages. Costs for resources: Resources are the things that help a business transform inputs into outputs and, thus, help to provide supply for what customers demand. In a fast food restaurant, resources are the cooking equipment, the restaurant land, and the employees. Car manufacturers 1-18 and computer makers have plants, warehouses and employees. Hospitals must pay for doctors, nurses, and buildings.  Three System Inhibitors Combination of forces: Waste: The consumption of inputs and resources which do not add value to the customer Variability: Predictable or unpredictable changes in supply or demand over time Inflexibility: The inability to adjust to quickly or cheaply respond to variability 1-19  Additional Dimensions in the Efficient Frontier Additional factors (dimensions) may exist and our two- dimensional efficient frontier may need to be expanded. What are the effects of our operations on the environment? Sustainability: maintaining an ecological balance by not depleting finite natural resources, such as clean air, clean water, and biodiversity Ethical issues also should be considered. For example, are we engaging in questionable business practices, such as using illegal or immoral labor practices? 1-20  Operations Management at Work At Toyota, a company known for great operations, it is often said that “Everybody has two jobs: (1) do their work and (2) improve their work.” Some jobs are all about operations management, such as factory managers and employees, quality control managers and employees, warehouse managers and employees, and consultants who specialize in operations improvement. Even if you end up not working in the operations field, the tools in this textbook can help you improve your work by overcoming the three system inhibitors discussed before. The largest operations management professional organization defines operations management simply as “The Science for 1-21 the Better.” Activities Reference: Cachon Gerard, and Terwiesch Christian (2023) Operations Management 3rd Edition, Mc Graw Hill Education