Management 11e
John Schermerhorn
Chapter 19
Operations and
Services Management
Planning Ahead — Chapter 19 Study Questions
 What are the essentials of operations and
services management?
 What is value chain management?
 How do organizations manage service
and product quality?
 How can work processes be designed for
productivity?
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Study Question 1: What are the essentials of operations and
services management?
 Operations management
 Managing productive systems that transform
resources into finished products, goods, and
services for customers.
 Typical operations management decisions include:





Resource acquisition
Inventories
Facilities
Workflows and technologies
Product quality
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Study Question 1: What are the essentials of operations and
services management?
 Manufacturing
Organizations
 Service
Organizations
 Produce physical
goods
 Produce services
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Study Question 1: What are the essentials of operations and
services management?
 Productivity
 Quantitative measure of the efficiency with which inputs are
transformed into outputs.
 Productivity = Output / Input.
 Competitive advantage
 A core competency that clearly sets an organization apart from
competitors and gives it an advantage over them in the marketplace.
 Companies may achieve competitive advantage in many ways, including:
 Product innovations
 Customer service
 Speed to market
 Manufacturing flexibility
 Product/service quality
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Study Question 1: What are the essentials of operations and
services management?
 Technology
 The combination of knowledge, skills,
equipment, computers, and work methods
used to transform resource inputs into
organization outputs.
 Manufacturing technology.
 Service technologies.
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Study Question 1: What are the essentials of operations and
services management?
 Core manufacturing technologies:
Small-batch
production
• A variety of custom
products are tailormade to order.
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Mass production
• A large number of
uniform products are
made in an
assembly-line
system.
Continuous-process
production
• A few products are
made by
continuously feeding
raw materials
through a highly
automated
production system
with largely
computerized
controls.
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Study Question 1: What are the essentials of operations and
services management?

Manufacturing technology trends
 Robotics
 Flexible manufacturing systems
 Mass customization
 Cellular layouts
 Computer-integrated manufacturing
 Lean production
 Design for disassembly
 Remanufacturing

Service-Profit chain
 All activities involved in the direct link between an organization’s
service providers and customers or clients
 Should produce
 Satisfied and loyal customers
 Efficient and productive use of resources
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Study Question 1: What are the essentials of operations and
services management?
 Core service technologies:
Intensive
technology
• Focuses the
efforts of many
people with
special
expertise on the
needs of
patients or
clients.
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Mediating
technology
• Links together
parties seeking
a mutually
beneficial
exchange of
values.
Long-linked
technology
• Functions like
mass
production,
where a client is
passed from
point to point for
various aspects
of service
delivery.
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Study Question 2: What is value chain management?
 Value chain
 Sequence of step-by-step activities resulting
in finished goods or services with customer
value.
 Supply chain management
 Supply chain management is the strategic
management of all operations relating to an
organization’s resource suppliers.
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Figure 19.1 Elements in an organization’s value chain.
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Study Question 2: What is value chain management?
 Inventory management
 Goal is to ensure that inventory is just the right size to meet
performance needs, thus minimizing the cost.
 Methods of inventory control:
 Economic order quantity
 Just-in-time scheduling
 Inventory control
 Economic order quantity (EOQ)
 Inventory replenished with fixed quantity order when inventory
falls to predetermined level.
 Just-in-time scheduling
 Materials arrive at workstation or facility ‘just-in-time’ for use.
 Virtually eliminates carrying costs of inventories.
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Figure 19.2 Inventory control by economic order quantity (EOQ).
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Study Question 2: What is value chain management?
 Break-even analysis
 Determination of the point at which sales
revenues are sufficient to cover costs.
 Break-Even Point =
Fixed Costs / (Price – Variable Costs)
 Used in evaluating:
 New products
 New program initiatives
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Figure 19.3 Graphical approach to break-even analysis.
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Study Question 3: How do organizations manage service and
product quality?
 Customer relationship management
 Establishes and maintains high standards of customer
service in order to strategically build lasting relationships
with and add value to customers.
 External customers purchase the organization’s goods or
utilize its services.
 Internal customers are the persons and groups within an
organization who depend on the results of others' work to
do their own jobs.
 Customer Relationship Management (CRM)
 Uses latest technologies for intensive customer
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communication
and collection of data regarding customer 16
Figure 19.4 The importance of external and internal customers.
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Study Question 3: How do organizations manage service and
product quality?
 Total quality management (TQM)
 Quality principles are an integral part of
organization’s strategic objectives.
 Applying them to all aspects of operations.
 Committing to continuous improvement.
 Striving to meet customers’ needs by doing things
right the first time.
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Study Question 3: How do organizations manage service and
product quality?
 ISO (International Standards
Organization) certification
 Adopted by many countries as quality
benchmark.
 Companies undergo rigorous audit to
determine if ISO requirements are met.
 Focus is on customer service and product
quality.
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Study Question 3: How do organizations manage service and product
quality?
 Quality and Continuous Improvement
 W. Edwards Deming emphasized:
 Constant innovation.
 Use of Statistical methods.
 Training in the fundamentals of quality assurance.
 Continuous improvement
 Quality circles
 Continuous improvement
 Constant search for new ways to improve current performance.
 Reduce cycle time between order receipt and delivery.
 Quality circle
 Small group of workers who meet to improve quality
 Assumes responsibility for quality
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 Taps into members’ creativity
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Study Question 3: How do organizations manage service and product
quality?
 Statistical quality control
 Uses rigorous statistical analysis for checking
processes, materials, products, and services
to ensure that they meet high standards.
 Takes random work samples
 Measures quality in samples
 Determines acceptability
 Unacceptable quality results in corrective action
 “Six Sigma” common example of SQC
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Figure 19.5 Sample control chart showing upper and lower control
limits.
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Study Question 4: How can work processes be designed for productivity?
 Process reengineering
 Systematic and complete analysis of work
processes.
 Design of new and better work processes.
 Work process
 “A related group of tasks that create a result of value
for the customer.” (Michael Hammer)
 Workflow
 Movement of work from one point to another in the
manufacturing or service delivery process.
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Study Question 4: How can work processes be designed for productivity?
 Process value analysis
 Core processes are identified and evaluated
for their performance contributions.
 Each step in workflow is examined
 Step is eliminated if not found to be important,
useful, and contributing to the value added
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Study Question 4: How can work processes be designed for productivity?
 Steps in reengineering core processes:




Identify core processes.
Map core processes in respect to workflows.
Evaluate all tasks for core processes.
Search for ways to eliminate unnecessary tasks or
work.
 Search for ways to eliminate delays, errors, and
misunderstandings.
 Search for efficiencies in how work is shared and
transferred among people and departments.
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Figure 19.6 How reengineering can streamline work processes.
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