Operations and supply management (OSM): The design, operation, and
improvement of the systems that create and deliver the firm’s primary
products and services. Functional field of business. Clear line
management responsibilities. Concerned with the management of the
entire system that produces a good or delivers a service. The three
major functions of an organization must work together for the
organization to function successfully. 1.Operations. 2.Marketing.
3.Finance. Must understand their role and the roles of the other
functions. Significant interface between the functions. Exchange of
information. Cooperative decision-making. Impact of decisions of one
function on others. Four Basic Operations Management Functions.
Planning: Provides the basis for future activities by developing
strategies, goals and objectives and establishing guidelines, actions
and schedules to meet them. Organizing: The process of bringing
together the resources (people, material, equipment, technology,
information and capital) necessary to perform planned activities.
Directing: The process of turning plans into realities by assigning
specific tasks and responsibilities to employees, motivating them and
coordinating their efforts. Controlling: Evaluating performance and
applying corrective measures to ensure that plans are achieved.
Success in today’s global markets requires a business strategy that
matches the preferences of customers with the realities of supply
networks. A sustainable strategy is critical 1.Meets the needs of
shareholders and employees. 2.Preserves the environment. Supply refers
to processes that move information and material to and from the
manufacturing and service processes of the firm. Work Involved in Each
Type of Process Planning: the processes needed to operate an existing
supply chain strategically. Sourcing: the selection of suppliers that
will deliver the goods and services needed to create the firm’s
product. Making: Where the major product is produced or the service
provided. Delivering: carriers are picked to move products to
warehouses and customers. Returning: the processes for receiving wornout, defective, and excess products back from customers. Good: a
physical product that you can see, touch, or possibly consume. Durable
good: a product that typically lasts at least three years. Non-durable
good: perishable and generally lasts for less than three years.
Service: any primary or complementary activity that does not directly
produce a physical product. Service encounter: an interaction between
the customer and the service provider. Service encounters consist of
one or more “moments of truth” in which a customer comes into contact
with any aspect of the delivery system, and thereby has an opportunity
to form an impression. Goods and services provide value and
satisfaction to customers who purchase and use them. They both can be
standardized or customized to individual wants and needs. Operations
and supply management creates and delivers good or service. 1.Goods
are tangible while services are intangible. 2.Customers participate in
many service processes, activities, and transactions. 3.The demand for
services is more difficult to predict than the demand for goods.
4.Services are perishable, time dependent and cannot be stored as
physical inventory. 5.Service management skills are paramount to a
successful service encounter. 6.Service facilities typically need to
be in close proximity to the customer. 7.Patents protect goods, they
do not protect services. Quality: the degree to which the output of a
process meets customer requirements. Goods quality: the physical
performance and characteristics of a good. Performance: a good’s
primary operating characteristics. Features: the “bells and whistles”
of a good. Reliability: the probability of a good’s surviving over a
specified period of time under stated conditions of its use.
Conformance: the degree to which physical and performance
characteristics of a good match preestablished standards. Durability:
the amount of use one gets from a good before it physically
deteriorates or until replacement is preferred. Serviceability: the
speed, courtesy and competence of repair work. Aesthetics: how a good
looks, feels, sounds, tastes or smells. Service quality: consistently
meeting or exceeding customer expectations (external focus) and
service delivery system performance (internal focus) for all service
encounters. Tangibles: physical facilities, uniforms, equipment,
vehicles, and appearance of employees. Reliability: ability to perform
the promised service dependably and accurately. Responsiveness:
willingness to help customers and provide prompt recovery to service
upsets. Assurance: knowledge and courtesy of the service-providers,
and their ability to inspire trust and confidence in customers.
Empathy: caring attitude and individualized attention provided to its
customers. Quality of Goods and Services: Three types of attributes to
evaluate the quality of goods and services. 1.Search attributes: are
those attributes that a customer can determine prior to purchasing the
goods and/or services. 2.Experience attributes: are those attributes
that can be discerned only after purchase or during consumption or
use. 3.Credence attributes: are any aspects of a good or service that
the customer must believe in, but cannot personally evaluate even
after purchase and consumption. Goods are easier to evaluate than
services. Efficiency: Doing something at the lowest possible cost.
Effectiveness: Doing the right things to create the most value for the
company. Value = Perceived benefits / Price (cost) to the customer. If
the value ratio is high, the good or service is perceived favorably by
customers, and the organization providing it is more likely to be
successful. To increase value, an organization must either: 1.
Increase perceived benefits while holding price or cost constant.
2.Decrease price or cost while holding perceived benefits constant.
3.Increase perceived benefits while reducing price or cost. Value
chain: a network of facilities and processes that describes the flow
of goods, services, information, and financial transactions from
suppliers through the facilities and processes that create goods and
services and deliver them to customers. A value chain is a “cradle-tograve” model of the operations function. The value chain begins with
suppliers that provide inputs. Inputs are transformed (value is added)
into outputs. Value is added through processes or networks of work
activities. The value chain outputs are goods and services. Goods and
services are delivered to customers and targeted market segments.
Current Issues in Operations and Supply Management 1.Coordinating the
relationship between mutually supportive but separate organizations.
2.Optimizing global suppliers, production, and distribution networks.
3.Managing customer touch points. 4.Raising senior management
awareness of operations as a significant competitive weapon.
5.Sustainability: the ability to maintain balance in a system. Triple
bottom line: relates to the economic, employee and environmental
viability of the firm. Strategy: a plan that integrates an
organization’s major goals, policies, and action sequences into a
cohesive whole. Core competencies: the strengths unique to that
organization. Strategic planning: the process of determining long-term
3-5 yr. goals, policies, and plans for an organization as a result of
hierarchical decisions about goals, directions, and resources. Vision:
where the organization is headed and what it intends to be. Mission:
the reason for existence for an organization. Mission Statement: the
purpose of an organization. Goals: provide detail and scope of
mission. Strategies: plans for achieving organizational goals.
Tactics: methods and actions taken to accomplish strategies. Most
large corporations have three levels of strategy: 1.Corporate
Strategy: defines the businesses in which the corporation will
participate and develops plans for the acquisition and allocation of
resources among those businesses. Businesses are often called
Strategic Business Units (SBUs). 2.Business Strategy: defines the
focus for the SBU and involves which markets to pursue and how best to
compete in those markets. 3.Functional Strategy: the set of decisions
that each functional area develops to support its particular business
strategy. 4.Operations strategy: how an organization’s processes are
designed and organized to produce the type of goods and services to
support the business strategies. The value chain can be leveraged to
provide a distinct competitive advantage, and that operations is a
core competency for the organization. Whoever has superior operational
capability over the long term is the odds-on-favorite to win the
industry shakeout. A Sustainable Strategy: The strategy should
describe how a firm intends to create and sustain value for its
current shareholders. Shareholders: individuals or companies that
legally own one or more shares of stock in the company.
Sustainability: being able to meet current needs without compromising
the ability of future generations to meet their own needs.
Stakeholders: individuals or organizations who are influenced, either
directly or indirectly, by the actions of the firm. An expanded view
of business is that a firm must not only focus on the economic
viability of its shareholders, but also consider the environmental and
social impact on key stakeholders. Triple Bottom Line: 1.Social
Responsibility: pertains to fair and beneficial business practices
toward labor, the community, and the region in which a firm conducts
its business. 2.Economic Prosperity: the firm’s obligation to
compensate shareholders who provide capital via competitive returns on
investment. 3.Environmental Stewardship: the firm’s impact on the
environment. Operations Management Decisions. Strategic decisions are
long-term decisions and concern the determination of broad policies
and plans for using the resources of a company to best support its
long-term competitive strategy. Tactical decisions primarily address
how to efficiently manage capacity, inventory and schedules within the
constraints of previously made strategic decisions. Operations
decisions are narrow and short-term by comparison and act under the
operation constraints set out by the strategic and tactical management
decisions. Three classes of customer requirements: 1.Dissatisfiers:
requirements that are expected in a good or service. If these
features are not present, the customer is dissatisfied, sometimes very
dissatisfied. 2.Satisfiers: requirements that customers say they want.
Exciters/delighters: new or innovative good or service features that
customers do not expect. Order qualifiers: basic customer
expectations (dissatisfiers and satisfiers) are generally considered
the minimum performance level required to stay in business. Order
winners: goods and service features and performance characteristics
that differentiate one firm from another, and win the customer's
business. Competitive advantage: a firm’s ability to achieve market
and financial superiority over its competitors. Driven by customer
needs and aligns the organization's resources with its business
opportunities. A strong competitive advantage is difficult to copy
often because of a firm’s culture, habits, or sunk costs. Competitive
priorities: the strategic emphasis that a firm places on certain
performance measures and operational capabilities within a value
chain. Price: make the product or deliver the service cheap. Quality:
make a great product or deliver a great service. Delivery speed: make
the product or deliver the service quickly. Delivery reliability:
deliver it when promised. Coping with changes in demand: change its
volume. Flexibility and new product introduction speed: change it.
Other Product-Specific Criteria: Technical liaison and support,
meeting a launch date, supplier after-sale support, environmental
impact. Competitive Priorities: 1)Cost Almost every industry has a low
price market segment. 2)Quality Researchers have found that:
1.Businesses offering premium quality goods usually have large market
shares and were early entrants into their markets. 2.Quality is
positively and significantly related to a higher return on investment
for almost all kinds of market situations. 3.A strategy of quality
improvement usually leads to increased market share, but at a cost in
terms of reduced short-run profitability. 4.High goods quality
producers can usually charge premium prices. 3)Time Time is perhaps
the most important source of competitive advantage. Customers demand
quick response, short waiting times, and consistency in performance.
Reductions in flow time serve two purposes: 1.Speed up work processes
so that customer response is improved. Deliveries can be made faster,
and more often on-time 2.Reductions in flow time can be accomplished
only by streamlining and simplifying processes and value chains to
eliminate non-value-added steps such as rework and waiting time. Flow
time reductions often drive simultaneous improvements in quality,
cost, and productivity. 4)Flexibility Mass customization: being able
to make whatever goods and services the customer wants, at any volume,
at any time for anybody, and for a global organization, from any place
in the world. High-levels of flexibility might require special
strategies such as modular designs, interchangeable components, and
postponement strategies. Flexible operations require sharing
manufacturing lines and specialized training for employees. Flexible
operations may also require attention to outsourcing decisions,
agreements with key suppliers, and innovative partnering arrangements,
because delayed shipments and a complex supply chain can hinder
flexibility. 5)Innovation: the discovery and practical application or
commercialization of a device, method, or idea that differs from
existing norms. Innovations in all forms encapsulate human knowledge.
Innovations take many forms, such as: 1.Physical goods such as
telephones, automobiles, refrigerators, computers, optical fiber,
satellites, and cell phones. 2.Services such as self-service, allsuite hotels, health maintenance organizations, and Internet banking.
3.Manufacturing such as computer-aided design, robotic automation, and
smart tags. 4.Management practices such as customer satisfaction
surveys, quantitative decision models, and Six Sigma. Trade-offs occur
when activities are incompatible so that more of one thing
necessitates less of another. Operations cannot excel simultaneously
on all competitive dimensions. Management must decide which parameters
of performance are critical to the firm’s success and concentrate on
those. Strategic Fit: All the activities that make up a firm’s
operation relate to one another. To be efficient, must minimize total
cost without compromising on customer needs. Straddling: Firm seeks to
match competitors by offering new tech, service, product. While
maintaining existing position, It may fail re tradeoffs and probs.
Activity-system maps: show how a company’s strategy is delivered
through a set of tailored activities. Productivity: A measure of the
effective use of resources, expressed as the ratio of output of a
process to the input. Productivity is a common measure of how well an
organization is using its resources and is fundamental to
understanding operations-related performance. Planning workforce
requirements, scheduling equipment, financial analysis. Productivity
is a relative measure. Can be compared with similar operations within
its industry and/or over time. Productivity may be expressed as:
1.Partial measures: output to one input. 2.Multifactor measures:
output to a group of inputs. 3.Total measures: output to all inputs.
Managers must understand the cause and effect linkages between key
measures of performance to explain the impact of operational
performance on external results. Interlinking: the quantitative
modeling of cause and effect relationships between external and
internal performance criteria. Value of a Loyal Customer (VLC):
quantifies the total revenue or profit each target market customer
generates over some time frame. By multiplying the VLC times the
absolute number of customers gained or lost, the total market value
can be found. How Does Wall Street Evaluate Operations Performance?
Comparing firms from an operations view is important to investors.
Earnings growth is a function of profitability. Profits can increase
through higher sales or lower costs. Highly efficient firms shine
during recession periods. When evaluating large productivity, it is
important to look for unusual explanations, want to avoid one-time
events. Lead time: the time needed to respond to a customer order.
Customer order decoupling point: where inventory is positioned to
allow entities in the supply chain to operate independently. The
closer this point is to the customer, the quicker the customer can be
served. Could be in either raw materials at the manufacturing site or
the supplier inventory. Types of Firms: Make-to-stock firms: firms
that serve customers from finished goods inventory. Assemble-to-order
firms: firms that combine a number of preassembled modules to meet a
customer’s specifications. Make-to-order firms: firms that make the
customer’s product from raw materials, parts, and components.
Engineer-to-order firm: firm that will work with the customer to
design and then make the product. Make-to-stock firms: (TVs, clothing,
foods) firms that serve customers from finished goods inventory.
Essential issue in satisfying customers is to balance the level of
inventory against the level of customer service. Easy with unlimited
inventory but inventory costs money. Trade-off between the costs of
inventory and level of customer service must be made. Use lean
manufacturing to achieve higher service levels for a given inventory
investment. Assemble-to-order firms: (Dell) firms that combine a
number of preassembled modules to meet a customer’s specifications. A
primary task is to define a customer’s order in terms of alternative
components since these are carried in inventory. One capability
required is a design that enables as much flexibility as possible in
combining components. There are significant advantages from moving the
customer order decoupling point from finished goods to components.
Make-to-order firms: (ships, subway)) firms that make the customer’s
product from raw materials, parts, and components. Engineer-to-order
firm: firm that will work with the customer to design and then make
the product. Production process mapping: develop a high-level map of a
supply chain process. Useful to understand how material flows and
where inventory is held. First step in analyzing the flow of material
through a production process. Types of Inventory Raw materials (RM):
component parts, subassemblies, and supplies are inputs to
manufacturing and service-delivery processes. Work-in-process (WIP):
partially finished products in various stages of completion that are
awaiting further processing. Finished goods (FG): completed products
ready for distribution or sale to customers. Total average value of
inventory: the sum of the value (at cost) of the raw material, work-in
process, and finished goods inventory. Commonly tracked in accounting
systems and reported in financial statements. Not particularly useful
for evaluating the performance of a process. Inventory turns: the cost
of goods sold divided by the average inventory value. Provides a
relative measure that has comparability. Days of supply: the inverse
of inventory turn scaled to days. Little’s law: there is a long-term
relationship between the inventory (WIP), throughput (R), and flow
time (T) of a production system in steady state. WIP = R × T.
Throughput (R): the long term average rate that items are flowing
through the process. Flow time (T): the time that it takes a unit to
move through the process from beginning to end. Process Selection: the
strategic decision of selecting which kind of production processes to
use to make a product or provide a service. Five basic structures:
1.Project: the product remains in a fixed location and manufacturing
equipment is moved to the product. 2.Workcenter (job shop): similar
equipment or functions are grouped together. 3.Manufacturing cell: a
dedicated area where products that are similar in processing
requirements are produced. 4.Assembly line: work processes are
arranged according to the progressive steps by which the product is
made. 5.Continuous process: assembly line only the flow is continuous
such as with liquids. Utilization (U): the fraction of time a
workstation or individual is busy over the long run. Break-even
analysis: a standard approach to choosing among alternative processes
or equipment – the model seeks to determine the point in units
produced where total revenue and total cost are equal. Project Layout:
the product remains in a fixed location (ship, building, bridge). A
high degree of task ordering is common. A project layout may be
developed by arranging materials according to their assembly priority.
Workcenter: most common approach to developing this type of layout is
to arrange workcenters in a way that optimizes the movement of
materials. Optimal placement often means placing workcenters with
large interdepartmental traffic adjacent to each other. Sometimes is
referred to as a department and is focused on a particular type of
operation. Manufacturing Cell: formed by allocating dissimilar
machines to cells that are designed to work on products that have
similar shapes and processing requirements. Three steps: 1.Group parts
into families that follow a common sequence of steps. 2.Identify
dominant flow patterns for each part family. 3.Machines and the
associated processes are physically regrouped into cells. Assembly
Line: for standardized products, a layout design for the special
purpose of building a product by going through a progressive set of
steps, done in areas called “stations”. Typically the stations are
linked by some form of material handling device, can be shut down.
Continuous process: similar to an assembly line except the product
continuously moves through the process. Can’t be (easily) shut down.
Gas refinery. Service organizations are classified according to who is
the customer and the service they provide. Customer contact: the
physical presence of the customer in the system. Service systems with
a high degree of customer contact are more difficult to control.
Creation of the service: the work process involved in providing the
service itself. Service Org defines by WHO customer is and WHAT type
of service. In Services capacity becomes the dominant issue. Too much
capacity leads to excessive costs. Insufficient capacity leads to lost
customers. Services with high degree of customer contact more
difficult to control and standardize. Waiting line models provide a
powerful mathematical tool for analyzing many common service
situations. Service encounters can be configured in a number of ways
using the Service-System Design Matrix. Horizontal axis shows degree
of customer/server contact. Left side addresses marketing – the great
the amount of contact, the greater sales opportunity. Right side
addresses the impact on production efficiency as customers exerts more
influence on the process. As the degree of customer/service system
contact changes, other changes are necessary. Pure virtual customer
contact: where companies enable customers to interact with one another
in an open environment. (ebay, second life) Mixed virtual (youtube,
Wikipedia) and actual customer contact: where customers interact with
one another in a server-moderated environment such as product
discussion groups. In these environments, the operations management
challenge is to keep the technology functioning and up to date and to
provide a policing function though monitoring the encounters that take
place. Service blueprint: the standard tool for service process design
is the flowchart. A unique feature of the service blueprint is the
distinction made between the high customer contact aspects of the
service and those activities that the customer does not see. Made with
a “line of visibility” on the flowchart. Fail-Safe: designed to make
a machine or piece of equipment stop working if part of it stops
operating normally.(Warnings, Task, Treatment, Tangible) Poka-yokes:
procedures that block the inevitable mistake from becoming a service
defect. Warning methods, Physical or visual contact methods, The
“Three T’s”: Task to be done. Treatment accorded to the customer.
Tangible features of the service facility.