CH 1-OPERATIONS
MANAGEMENT &
VALUE CHAINS
MAN1033
C. Vandenende
LEARNING OUTCOMES
1.
Explain the concept and importance of operations management.
2.
3.
4.
Explain the differences between goods and services.
Illustrate differences and similarities between manufacturing and service activities
Define the concept of value and explain how the value of goods and services can
be enhanced.
Explain how organizations seek to gain competitive advantage and the five key
competitive priorities.
Discuss the strategic importance of supply chain management (SCM) and why it is
critical to an organization’s survival and success
Summarize the historical development of OM
5.
6.
7.
8.
Describe key challenges facing the operations and supply chain management
industry
ASSIGNED CHAPTER
READINGS
Chapter 1
1-1 (p. 1-2)
1-3, 1-4, 1-5, 1-6 (p. 5-12)
1-8, 1-9 (p. 20- 25)
Chapter 3
3-4 (p.63-66)
INTRO TO OPERATIONS
MANAGEMENT
LO1
DISCUSSION STARTER:
WHAT IS OPERATIONS MANAGEMENT?
What do you expect from your
service when you go to a restaurant?
What you expect from your
service when you go to a hospital?
What were the commonalities??
WHAT IS OPERATIONS MANAGEMENT
•Science and art of ensuring that goods and services
are created and delivered successfully to customers
• Includes:
• Design of goods, services, and the processes that create
them
• Day-to-day management of processes
• Continual improvement of goods, services, and processes
•Goal is to improve:
(1) Efficiency, (2) Cost of operations, and (3) Quality of goods
OPERATIONS STRATEGY
The process that effectively produces, transforms, and delivers a product or service
INPUTS
(land, labour, capital)
PROCESSES
(Manufacturing,
Assembly, Location
change, Exchange,
Storage)
OUTPUTS
(goods and services)
EVERY organization is an operation that needs to be managed!
https://www.youtube.com/watch?v=nG5-52a5lRo
OPERATIONS STRATEGY- BREWERY
OUTPUTS
INPUTS
PROCESSES
KEY ACTIVITIES OF AN OPERATIONS MANAGER
Forecasting
Facility location
Facility layout
and design
Technology
Quality
management
Scheduling and
capacity
management
Process design
Inventory
management
Job/service
encounter
Design
Planning and
budgeting
Supply chain
management
GOODS & SERVICES
LO2 & LO3
GOODS VS. SERVICE
• Good: Physical product that a person
sees, touches, or consumes
• Service: Primary or complementary
activity that does not directly produce
a physical product
• 80% of jobs and sales in developed
countries (including Canada) are services!
• Many companies use services to
differentiate products
SMALL GROUP DISCUSSION:
BRAINSTORM THE DIFFERENCES BETWEEN A
PRODUCT (MANUFACTURING) AND A SERVICE
MANUFACTURING VS. SERVICE ACTIVITIES
Goods
Services
• Tangible
• Do not require direct involvement with
customers
• Do not require service management
skills
• Demands are easier to predict
• Stored as physical inventory
• Manufacturing facilities can be located
anywhere in the world
• Protected by patents
• Intangible
• Require direct involvement with
customers (service encounters)
• Require efficient service management
skills
• Demands are difficult to predict
• Cannot be stored as physical inventory
• Facilities typically need to be in close
proximity to the customer
• Not protected by patents
CREATING VALUE
LO4
VALUE
▪Today’s customers want value in every purchase or experience
(more demanding than ever before!)
▪Value: Perception of the benefits associated with a good, service,
or bundle of goods and services in relation to what a buyer pays
Goods or services are perceived favourably by customers if the ratio of
perceived benefits to price to the customer is high
𝐏𝐞𝐫𝐜𝐞𝐢𝐯𝐞𝐝 𝐛𝐞𝐧𝐞𝐟𝐢𝐭𝐬
𝐏𝐞𝐫𝐜𝐞𝐢𝐯𝐞𝐝 𝐕𝐚𝐥𝐮𝐞 =
𝐏𝐫𝐢𝐜𝐞 𝐜𝐨𝐬𝐭 𝐭𝐨 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫
CUSTOMER BENEFIT PACKAGE (CBP)
Bundling goods, services and digital
content is one way to add value and
differentiate from competition
Customer Benefit Package: Clearly
defined set of tangible and intangible
features that a customer recognizes, pays
for, uses, or experiences
CUSTOMER BENEFIT PACKAGE (CBP)
Primary good or service
• Core offering that attracts customers and responds to their basic needs
Peripheral goods or services
• Offerings that are not essential to the primary good or service, but enhance it
Variant
• CBP attribute that departs from the standard CBP and is location- or firmspecific
CUSTOMER BENEFIT PACKAGE (CBP)
Primary good
Peripheral
good
Variant
Peripheral
service
COMPETITIVE PRIORITIES
LO5
COMPETITIVE PRIORITIES
▪ Goal of every organization is to develop a strong competitive
advantage
▪ Driven by customer needs and aligns the organization’s resources
with its business opportunities
▪ 5 main types of strategic competitive priorities:
Cost
Quality
Time
Flexibility
Innovation
SETTING COMPETITIVE PRIORITIES IS IMPORTANT,
BUT MORE IMPORTANT ARE ALIGNING YOUR PRIORITIES WITH YOUR
CAPABILITIES!
What do these two companies
have in common??
LOW-COST GOODS AND SERVICES
▪ Cost is often the first thing that companies think of when they
are developing an operations strategy
▪ Lowering prices will lead to reduced profits or even losses
▪Low prices can be achieved by:
High-productivity, High-capacity utilization, Automation, Economies of
scale, Efficient design and operation of the supply chain, Low wage
countries and more!
Cost
Quality
Time
Flexibility
Innovation
QUALITY
▪ Quality involves offering a product or service that is
superior to the alternatives in the eyes of the customer.
Two Key Aspects of Quality:
Consistent quality involves meeting the product specifications
and the promises made to customers with high reliability
Superior quality is a term describing a product or service that
clearly is better than another in one or more aspects.
Cost
Quality
Time
Flexibility
Innovation
TIME/DELIVERY
Important source of competitive advantage
Customers demand quick responses, short waiting times, and consistency in
performance
Speeding up processes in supply chains improves customer response
Time Reductions:
Accomplished by streamlining and simplifying processes and value chains
Drive improvements in quality, cost, and productivity
Cost
Quality
Time
Flexibility
Innovation
FLEXIBILITY
Can include both demand flexibility and design flexibility
Customization is the ability to make a product to exactly fit
customer needs.
Mass customization the process in which products are
produced in high volume at roughly the same cost as
standard products, but are customized to individual customer
tastes.
Can be achieved through postponement- keeping products in a
standard format and then adding unique components for the individual
customer at the last possible moment.
Cost
Quality
Time
Flexibility
Innovation
INNOVATION
Discovery and practical application or
commercialization of a device, method, or idea that
differs from existing norms
Innovative companies focus on:
Outstanding product research, design, and development
High product quality
Ability to modify production facilities to produce new products frequently
Cost
Quality
Time
Flexibility
Innovation
WHAT WOULD THESE COMPANIES'
COMPETITIVE PRIORITIES BE?
WHAT WOULD THESE COMPANIES'
COMPETITIVE PRIORITIES BE?
SUPPLY CHAIN MANAGEMENT
LO6
WHAT IS SUPPLY CHAIN MANAGEMENT?
SUPPLY CHAIN
The flow of materials,
finished goods, services,
information, and financial
transactions from
suppliers, production and
distribution processes
OM VS. SCM?
Operations Management
refers to processes within a
SINGLE firm.
Supply Chain Management
refers to processes and
exchanges across MULTIPLE
firms.
THE HISTORY AND EVOLUTION OF OM
LO7
EXHIBIT 1.10SEVEN ERAS OF
OPERATIONS
MANAGEMENT
SUSTAINABILITY
▪ The most important issue organizations face
• Defined as: An organization’s ability to
strategically address current business needs and
develop a long-term strategy to:
• Embrace opportunities and manage risks for
products, systems, supply chains, and processes
• Preserve resources for future generations
▪ Includes environmental, social and economic
sustainability (aka the Triple Bottom Line)
CURRENT CHALLENGES IN OM
LO8
CURRENT CHALLENGES IN SCM
Customer
expectations
Evolving
technology
Managing
workforce
Globalization
Sustainability
Optimizing
supply chains
REVIEW YOUR KNOWLEDGE
Take Chapter 1 Practice Test to
test your knowledge!
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