PPT
Operations Management
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Systematic direction, control, and evaluation of
the entire range of processes that transform
inputs into finished goods or services.
Environmental factors-culture, political, and
market influences
Inputs-HR, capital, materials, land, energy,
information, customer
Transformations-convert inputs into outputs
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PPT
O.M. (cont)
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Outputs-goods or services, and waste
Customer Contact-customers actively
participate in transformation processes, selfservice
Performance Feedback-repair records,
customer comments
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MANAGEMENT, 8E
South-Western College Publishing
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PPT
Operations Management

Refers to the management of the production system
that transforms inputs into finished goods and services.
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Production system: the way a firm acquires inputs then
converts and disposes outputs.
Operations managers: responsible for the transformation
process from inputs to outputs.
Operations management seeks to increase the quality,
efficiency, and responsiveness of the firm.

Seeks to provide a competitive advantage.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Operations Management Concepts
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Quality: goods and services that are reliable and
perform correctly.
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Efficiency: the amount of input to produce a given
output.
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Quality allows customers to receive the performance that they
expect.
Less input required lowers cost and waste.
Responsiveness to customers: actions taken to
respond to customer needs.

Firm can react quickly and correctly to customer needs as they
arise.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Differences Between Services and
Goods
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Information Asymmetry
Intangible
Inventory
Customer Contact
Response Time
Labor Intensity
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
21.3
Typical Characteristics of Services and Goods Producers
Primarily Service
Producers
Continuum of
Characteristics
Primarily
Goods
Producers
Mixed
Intangible, nondurable
Tangible, durable
Output can’t be
inventoried
Output can be
inventoried
High customer contact
Low customer contact
Short response time
Long response time
Labor intensive
Capital intensive
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
Adapted from Table 21.1
PPT
Positioning Strategies-approach
selected for transformational
processes
many of one product
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Process Focus-layout of
plant and equipment
around each production
unit
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

custom made
Low Volume
Norwegian Ship Building
Product Focus-arranging
plant and equipment
around one or a few
output types
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South-Western College Publishing
Copyright © 1999

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Intermediate Strategyplant and equipment
layout reflects some of
both strategies
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high-volume, highly
automated
low flexibility
Factory Lines
batches of products
Kinkos, Ball Homes
Agile Strategy-mass
customization
PPT
Flexibility

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Product Flexibility-speed with which products
are created, ability to customize, ability to
modify products for special needs
Volume Flexibility-ability to respond to sudden
changes in demand, change from small to full
scale
Process Flexibility-ability to manufacture a
variety of goods in a short time, adjust to
product mix over time, ability to accommodate
changes in raw materials
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
21.5
Core Positioning Strategies
Resource flows
Continuous
process
(stable)
Product focus
Auto assembly
Mass
production
Intermediate
plant
Mail processing
Garment
Large
batch
Process focus
Sporadic
(unstable)
industry
Branch banks
Space shuttle
Legal practice
Custom products,
Mixture of custom and standard
low volume
products, moderate volume
Standard products,
high volume
Product volume
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A.,
and Wheelwright, S.C. The Perpetual Enterprise Machine: Seven
Keys to Corporate Renewal Through Successful Product and
Process Development. New York: Oxford University Press, 1994;
Upton, D.M. “The management of manufacturing flexibility.”
California Management Review, Winter 1994, 72–89.
Adapted from Figure 21.2
PPT
Improving Responsiveness to Customers
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Without customers, organizations cease to exist.
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Non-profit and for-profit firms all have customers.
Managers need to identify who the customer is and their
needs.
What do customers want? Usually customers prefer:
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A lower price to a higher price.
High quality over low quality.
Fast service over slow service.
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Also good after sale support.
Many features over few features.
Products tailored to their specific needs.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Quality-how well a product does
what the customer expects

Internal View-within the organization

External View-value customers expect

Value-the relationship between quality and price
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
21.7
Competitiveness Value Map
Higher
Relative Price
Poor
value
Premium
value
Average
value
Economy
value
Outstanding
value
Lower
Inferior
Source: Adapted from Gale,
B.T., and Buzzell, R.D. “Market
perceived quality: Key strategic
concept.” Planning
Review, March-April, 1989, 10.
Superior
Relative Quality
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
Adapted from Figure 21.3
PPT
Price v. Attributes
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Firms offering high quality, fast service and other
customer desires, often must raise price.
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Customers must tradeoff price for attributes.
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Operations management tries to push the
price/attribute curve to the right with better production.
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Provides more attributes at the same cost.
By enhancing the price/attribute relationship, the firm can
increase its competitive position.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Customer Responsive Production Systems

An output’s attributes is determined by the
production system.
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Firms must strike a balance between cost and attributes
Improving Quality: can apply to firms producing
goods and services.

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A firm that provides higher quality than others at the
same price is more responsive to customers.
Higher quality can also lead to better efficiency.

Lowers waste levels and operating costs.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Total Quality Management
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The continuous process of ensuring every
aspect of production builds in product quality
Traditional Quality-product inspection during or
at the end of the transformation process
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
21.11
Total Versus Traditional Quality
Total Quality Management
Traditional Quality Control
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Quality is a strategic issue
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Quality is a tactical issue
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Plan for quality
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Screen for quality
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Quality is everybody’s responsibility
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Strive for zero defects
Quality is the responsibility of the
quality control department
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Quality means conformance to
requirements that meet or exceed
customers’ expectations
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Some mistakes are inevitable
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Quality means inspection
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Scrap and reworking are the major
costs of poor quality

Scrap and reworking are only a small
part of the costs of nonconformance
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
Adapted from Table 21.3
PPT
Improving Efficiency

Labor productivity allows labor comparisons between
organizations.

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TQM and Efficiency: TQM can lead to much higher
labor productivity.
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Improved efficiency leads to lower costs and better
performance.
When quality rises, less time is wasted on scrap.
Flexible manufacturing and efficiency: reduces the
set-up costs for production systems.
Facilities layout: seeks to design the machine-worker interface
to increase production efficiency.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Efficient Manufacturing

Most firms face major expense when setting up to
produce a product.

These costs must be paid before production begins.
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The more often products to be built change, the higher setup
costs become.
Flexible Manufacturing reduces setup costs.
Just-in-Time (JIT) inventory, while developed for
TQM, also adds to efficient production.

Many costs are reduced including warehousing, holding costs
and inventory tracking.

Firm does not have a supply of parts, but can be vulnerable to
strikes or supply problems.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Efficient Manufacturing
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Self-managed teams boost efficiency by allowing for a
flatter organization structure.
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The team takes the role of the supervisor.
Teams working together often become very skilled at enhancing
productivity.
Kaizen: Japanese term for a management philosophy
the stresses the need for continuous improvement.
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Better operations can come from many, small, continuous
improvements.
Focus on what adds value to the product and try to eliminate
steps that do not add value (such as inspection for defects).
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Reengineering

Process Reengineering: the fundamental rethinking
and radical redesign of the business process.
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Can boost efficiency by directing efforts to activities that add
value to the good or service produced.
While Kaizen focuses on continuous enhancements, process
reengineering considers wholesale change.
Top managers must support operations enhancement
tools for them to be accepted by workers.


Usually, a successful operations change means a complete
change in the organizational culture.
Without a supporting culture, change will not succeed.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
21.4
Nine Categories of Operations Management Decisions
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Product plans
Competitive Priorities
Positioning Strategies
Location
Technological Choices
Quality management and control
Inventory management and control
Materials Management
Master production scheduling
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Inventory Costs


What contributes to inventory costs?
TOTAL COST = ORDERING + CARRYING

Carrying Costs
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Warehouse
Insurance
Obsolescence
taxes
breakage
Ordering Costs
Placing the order
 Transportation
 Shortage
Hellriegel, Jackson, and Slocum

MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Inventory Terms

Lead Time

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EOQ-economic order cost
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Elapsed time between placing and receiving an order
optimum order quantity yielding the lowest total
inventory cost
Just-in-time
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

finished goods to sell
sub assemblies to be assembled
purchases of raw materials to be transformed
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MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
21.13
Cost Trade-Offs in Determining Inventory Levels
High
Average annual cost ($)
Total cost
Carrying cost
Order cost
Low
Small
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
Q1
Quantity (Q)
Large
Adapted from Figure 21.5