TOMS 5302 – Operations
Management
Module 1: Creating Value through
operations
Chapter 1:
Operations Management and
Value Chains
Learning Objectives
Upon completing this module, students should be able to:
• Articulate the role, importance, and
evolution of operations management
in service and manufacturing
organizations
• Articulate what operations managers
do
• Classify products within goods,
services, or a combination of both
• Design or evaluate a customer
benefit package configuration
• Map a company’s value chain
• Articulate the role and importance
of operations strategy in the
organization
• Analyze an organization’s
operations strategy
Why study Operations Management?
Operations
Management is
everywhere:
– Products/Goods
– Services
OM Defined
¬ Operations/Production: creation of goods and services
¬ Science and art of ensuring that goods and services are
created and delivered successfully to customers.
−
−
−
Design of goods, services, and the processes that create them.
Management of processes used to design, supply, produce,
and deliver valuable goods and services to customers
Continual improvement of these goods, services, and
processes.
¬ Set of activities that create value in the form of goods and
services by transforming inputs into outputs
Operations Management as a
transformation process
¬ OM is a system that
transforms inputs into
outputs to create value.
¬ The transformation
process can be:
o
o
o
o
o
o
Source: Venkataraman R. R., Pinto J. K. (2019): Operations Management: Managing Global Supply
Chains, Second edition, Sage Publications.
Physical,
Locational,
Transactional,
Physiological,
Psychological,
Informational
OM decisions: What? How? When?
Where? Who?
Design of goods
and services
Human resources
and job design
Managing quality
Supply-chain
management
Process and
capacity strategy
Inventory
management
Location strategy
Scheduling
Layout strategy
Maintenance
Understanding Goods and Services
¬ A good is a physical product that you can see, touch, or
possibly consume.
o A durable good is a product that does not quickly wear out and
o
typically lasts at least three years.
A non-durable good is a product that is perishable and generally
lasts less than three years..
¬ A service is any primary or complementary activity that
does not directly produce a physical product.
Goods vs Services (1 of 2)
Goods
Services
Tangible
Intangible
Do not require direct
involvement with customers
Require direct involvement with
customers
Service encounter: interaction between
customers and service providers
Demands are less difficult to
predict
Demands are difficult to predict
Cannot be stored as physical
inventory
Cannot be stored as physical inventory
Goods vs Services (2 of 2)
Goods
Services
Do not require efficient service
management skills
Require efficient service
management skills
Manufacturing facilities an be
located anywhere in the world
Facilities typically need to be in
close proximity to the customer
Protected by patent
Not protected by patent
Similarities Between Goods and Services
¬ provide value and satisfaction to customers
¬ Can be standardized or customized
¬ Require a creation and delivery process
Goods – Services Continuum
David A. Collier, and James R. Evans (2020): Operations and Supply Chain Management; 2nd edition; Cengage; 686
pages.
Customer Benefit Packages
A customer benefit package
(CBP) is a clearly defined set of
tangible (goods-content) and
intangible (service-content)
features that the customer
recognizes, pays for, uses, or
experiences.
Examples of CBP (Automobile, Checking
Account)
Source: David A. Collier, and James R. Evans (2020): Operations and Supply Chain Management; 2nd edition; Cengage; 686
pages.
Process and Process thinking
• A process is a sequence of
activities that is intended to
create a certain result. (a
system of activities that
transforms inputs into
valuable outputs)
Source: Krajewski L.J., Malhotra M.K., Ritzman L.P.,: Operations
Management - Processes and Supply Chains, 12/E, Pearson, 2019.
Business process types
Source: David A. Collier, and James R. Evans (2020):
Operations and Supply Chain Management; 2nd edition;
Cengage; 686 pages.
Operations, Supply Chains,Value Chains,
• Value Chain:
Value
Chains
Supply
Chains
Operations
– network of facilities and processes
– describes the flow of materials, finished goods, services,
information, and financial transactions from suppliers
– through the facilities and processes create goods and
services, and those that deliver them to the customer.
– involves all major functions in an organization
(operations & others)
• Supply chain:
– portion of the value chain that focuses on (a) the physical
movement of goods and materials, and (b)supporting
flows of information and financial transactions through the
supply, production, and distribution processes.
• A value chain is broader in scope than a supply
chain.
Value Chain Framework
Value
Chains
Supply
Chains
Operations
1. input-output framework
2. Pre- and postproduction
servces framework
3. Supply chain perspective
Input-Output Framework of a Value Chain
Source: David A. Collier, and James R. Evans (2020):
Operations and Supply Chain Management; 2nd edition;
Cengage; 686 pages.
Pre- and Postservice View of the Value Chain (1 of 2)
Source: David A. Collier, and James R. Evans (2020): Operations and Supply Chain Management; 2nd edition; Cengage; 686 pages.
Pre- and Postservice View of the Value Chain (2 of 2)
Source: David A. Collier, and James R. Evans (2020): Operations and Supply Chain Management; 2nd edition; Cengage; 686 pages.
Supply Chain View of the Value Chain
Source: David A. Collier, and James R.
Evans (2020): Operations and Supply
Chain Management; 2nd edition; Cengage;
686 pages.
Organizing to Produce Goods and
Services
1. Marketing – generates demand
2. Operations – creates the
product
3. Finance/accounting – tracks
how well the organization is
doing, pays bills, collects the
money
Source: Krajewski L.J., Malhotra M.K., Ritzman L.P.,: Operations
Management - Processes and Supply Chains, 12/E, Pearson, 2019.
Options for Increasing Contribution
(Illustrative Example)
OM: History of Change
With contributions
from:
o industrial
engineering,
o statistics,
o management,
o economics,
o physical sciences,
o Information
technology
Current challenges in OM
Sustainability
•
• Sustainability: organization’s
ability to strategically address
current business needs and
successfully develop a long-term •
strategy that embraces
opportunities and manages risk
for all products, systems, supply •
chains, and processes to
preserve resources for future
generations.
Environmental sustainability: organization’s
commitment to the long-term quality of our
environment.
Social sustainability: organization’s
commitment to maintaining healthy
communities and society that improve the
quality of life.
Economic sustainability: organization’s
commitment to addressing current business
needs and economic vitality, and to have the
agility and strategic management to prepare
successfully for future business, markets, and
operating environments.
Examples of Sustainability Practices
Source: David A. Collier, and James R. Evans (2020): Operations and Supply Chain Management; 2nd edition; Cengage;
686 pages.