Part 5: Controlling
Chapter 14
Operations
and
Value Chain
Management
PowerPoint Presentation by Charlie Cook
Copyright © 2004 Prentice Hall, Inc.
All rights reserved.
LEARNING OUTCOMES
After reading this chapter, I will be able to:
1. Define operations management and the
transformation process.
2. Describe three reasons operations
management is important to all managers.
3. Differentiate between a service and a
manufacturing organization.
4. Define value chain management.
5. Explain the organizational and managerial
requirements for value chain management.
Copyright © 2004 Prentice Hall, Inc. All rights reserved.
14–2
L E A R N I N G O U T C O M E S (cont’d)
After reading this chapter, I will be able to:
6. Identify the benefits and obstacles to value
change management.
7. Discuss technology’s role in operations
management.
8. Explain what is meant by the term just-in-time
management.
9. Describe what is meant by the term quality
control.
10. Explain the concept of project management.
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14–3
The Importance Of Operations
Management
• Operations management defined
 The study and application of the transformation
process
• OM is important because it:
 Encompasses processes in all organizations—
services as well as manufacturing.
 Is important in effectively and efficiently managing
productivity.
 Plays a strategic role in an organization’s competitive
success.
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14–4
Transformation and Organizations
• Transformation process
 The process through which an organization creates
value by turning inputs (people, capital, equipment,
materials) into outputs (goods or services)
• Manufacturing organization
 Organizations that produce physical goods
• Service organization
 An organization that produces nonphysical outputs
such as educational, medical or transportation
services
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14–5
The Transformation Process
EXHIBIT 14.1
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14–6
Productivity
• Productivity defined
 The overall output of goods and services produced
divided by the inputs needed to generate that
output.
Outputs
Inputs
• Benefits of high productivity
 Fosters economic growth and development
 Increases individual wages without inflation
 Lowers costs and makes firms more competitive
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14–7
Value and the Value Chain
• Value
 The performance characteristics, features and
attributes, or any other aspects of goods and services
for which customers are willing to give up resources.
• Value chain
 The entire series of organizational work activities that
add value at each step beginning with the processing
or raw materials and ending with a finished product in
the hands of end users.
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14–8
Value Chain Management versus Supply
Chain Management
• Value chain management
 A method of improving the process of creating and
transferring documents by automating the flow of
information
• Supply chain management
 Management of the facilities, functions, and activities
involved in producing and delivering a product or
service, from suppliers to customers.
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14–9
The Goals Of Value Chain Management
• Creating customer-defined value by:
 Providing a unique combination that truly meets
customer needs and at a price that can’t be matched
by competitors.
 Having a sequence of participants work together as a
team, each adding a component of value to the
overall process.
It’s all about providing value, not
bargains, to the customer
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14–10
Value Chain Management
• Business model
 A strategic design for how a company intends to profit
from its broad array of strategies, processes, and
activities.
• Value chain management requirements
 Coordination and collaboration
 Technology investment
 Organizational processes
 Leadership
 Employees/human resources management
 Employees
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14–11
Six Requirements for Successful Value Chain
Management
EXHIBIT 14.2
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14–12
Effect of Value Chain Management on
Organizational Processes
• Better demand forecasting is necessary and
possible because of closer ties with customers
and suppliers.
• Selected functions may need to be done
collaboratively with partners in the value chain.
• New measures are needed for evaluating the
performance of activities along the value chain.
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14–13
Implementing Value Chain Management
• Benefits
 Improved customer
service
 Cost savings
 Accelerated delivery
times
 Improved quality
 Inventory reduction
 Improved logistics
management
 Increased sales
 Increased market share
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• Obstacles




Organizational barriers
Cultural attitudes
Required capabilities
People
14–14
Value Chain Benefits
Value chain survey respondents indicated the following are a “major
benefit” from sharing information with partners:
Percentage of
Companies in
Excellent or Very
Good Chains
Percentage of
Companies in
Poor
Chains
Percentage
of
All
Companies
Increased sales
41%
14%
26%
Cost savings
62%
22%
40%
Increased market share
32%
12%
20%
Inventory reductions
51%
18%
35%
Improved quality
60%
28%
39%
Accelerated delivery times
54%
27%
40%
Improved logistics management
43%
15%
27%
Improved customer service
66%
22%
44%
Source: G. Taninecz, “Forging the Chain,” Industry Week, May 15, 2000, p.44.
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EXHIBIT 14.3
14–15
Obstacles to Successful Value Chain
Management
EXHIBIT 14.4
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14–16
Contemporary Operations Management
Issues
• Technology
 How an organization will transform its inputs into
outputs.
• Just-in-time (JIT) inventory systems
 How to develop systems in which inventory items
arrive when needed in the production process instead
of being stored in stock.
• Continuous improvement and quality control
 How to ensure that what is currently produced meets
preestablished standards.
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14–17
Quality and Operations Management
• Quality control
 Monitoring quality—weight, strength, consistency,
color, taste, reliability, finish, or any one of myriad
characteristics—to ensure that it meets some
preestablished standard.
• Continuous improvement
 A comprehensive, customer-focused program to
continuously improve the quality of the organization’s
processes, products and services.
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14–18
Managing Projects
• Project
 One-time-only set of activities with a definite
beginning and ending point in time
• Project management
 Task of getting the activities done on time, within
budget, and according to specifications
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14–19
Popular Scheduling Tools
• Gantt chart
 A planning tool that shows in bar graph form when
tasks are supposed to be done and compares that
with the actual progress on each task.
• Load chart
 As modified version of a Gantt Chart, the load chart
lists either whole departments or specific resources.
 This
information allows managers to plan and control
for capacity utilization in the scheduling of individual
work stations.
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14–20
A Sample Gantt Chart
EXHIBIT 14.5
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14–21
A Sample Load Chart
EXHIBIT 14.6
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14–22
PERT
• Program evaluation and review technique
(PERT) network analysis
 A flowchart-like diagram that depicts the sequence of
activities needed to complete a project and the time
or costs associated with each activity
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14–23
PERT Components
• Events
 End points that represent the completion of major activities
• Activities
 Actions that take place
• Slack time
 The time difference between the critical path and all other
paths
• Critical path
 The longest or most time-consuming sequence of events
and activities required to complete a project in the shortest
amount of time
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14–24
Developing PERT Charts
• Identify every significant activity that must be
achieved for a project to be completed.
• Ascertain the precedence order in which these
events must be completed and create a diagram
reflecting the ordering of activities.
• Compute a weighted average time estimate
(expected time) for completing each activity.
• Insert start and finish times into the diagram and
inspect to determine the critical path.
EXHIBIT 14.7
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14–25
Major Activities in Building a Custom Home
TIME
(WEEKS)
PREDECESSOR
ACTIVITY
EVENT
DESCRPTION
A
Approve design and get permits
3
None
B
Perform excavation/lot clearing
1
A
C
Pour footers
1
B
D
Erect foundation walls
2
C
E
Frame house
4
D
F
Install windows
0.5
E
G
Shingle roof
0.5
E
H
Install brick front and siding
4
F,G
I
Install electrical, plumbing, and
heating and A/C rough-ins
6
E
J
Install insulation
0.25
I
K
Install sheetrock
2
J
L
Finish and sand sheetrock
7
K
M
Install interior trim
2
L
N
Paint house (interior and exterior)
2
H, M
O
Install all cabinets
0.5
N
P
Install flooring
1
N
Q
Final touch-up and turn over
house to homeowner
1
O, P
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EXHIBIT 14.8
14–26
A PERT Network for Building a Custom Home
Critical Path
EXHIBIT 14.9
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14–27