Introduction to the Field
Strategic Planning
Mission
and Vision
Corporate
Strategy
Marketing
Strategy
Operations
Strategy
Financial
Strategy
What Operations Management……
• What is operations?
– A function or system that transforms inputs into
outputs of greater value
• What is operations management?
– Design, operation, and improvement of
productive systems
• What is a transformation process?
– A series of activities along a value chain
extending from supplier to customer
Transformation Process
• Physical: as in manufacturing operations
• Locational: as in transportation or
warehouse operations
• Exchange: as in retail operations
• Physiological: as in health care
• Psychological: as in entertainment
• Informational: as in communication
Operations as a Transformation Process
INPUT
•Material
•Machines
•Labor
•Management
•Capital
TRANSFORMATION
PROCESS
Feedback & Requirements
OUTPUT
•Goods
•Services
Positioning the Firm
•
•
•
•
Cost
Quality
Speed
Flexibility
Positioning the Firm: Cost
• Waste elimination
• Examination of cost structure
– looking at the entire cost structure for reduction
potential
• Lean production
– providing low costs through disciplined
operations
Positioning the Firm: Speed
• Fast moves, fast adaptations, tight linkages
• Internet - conditioned customers to expect
immediate responses
• Service organizations - always competed on
speed (McDonald’s, LensCrafters, and Federal
Express)
• Manufacturers - time-based competition: buildto-order production and efficient supply chains
• Fashion industry - two-week design-to-rack lead
time of Spanish retailer, Zara
Positioning the Firm: Quality
• Minimizing defect rates or conforming to
design specifications; please the customer
• Ritz-Carlton - one customer at a time
– Service system is designed to “move heaven
and earth” to satisfy customer
– Every employee is empowered to satisfy a
guest’s wish
– Teams at all levels set objectives and devise
quality action plans
– Each hotel has a quality leader
Positioning the Firm: Flexibility
• Ability to adjust to changes in product mix,
production volume, or design
• Astra Honda Motor (AHM)
– Production capacity 3,5 million units per year
– mass customization: the mass production of
customized parts
% Perubahan Pekerjaan 2004-2009
40%
31.96%
29.44%
30%
% Perubahan
20%
14.21%
13.96%
10.13%
10%
8.52%
5.96%
1.55%
0%
-10%
-8.26%
-20%
Industri
Pertanian, Kehutanan, Perburuan dan Perikanan
Pertambangan dan Penggalian
Industri Pengolahan
Listrik, Gas, dan Air
Bangunan
Perdagangan Besar, Eceran, Rumah Makan, dan Hotel
Angkutan, Pergudangan dan Komunikasi
Keuangan, Asuransi, Usaha Persewaan Bangunan, Tanah, dan Jasa Perusahaan
Jasa Kemasyarakatan, Sosial dan Perorangan
Sumber: Survei Angkatan Kerja Nasional 2004, 2005, 2006, 2007, 2008 and 2009
Indonesian household spending makes way for
growth of non-food sector
Businesses in non-food segments will benefit from the
shift in consumer expenditure patterns: Businesses in
a wide range of non-food sectors including
communications and household goods and services
will see an increase in business. The education sector
will also grow as more people are taking post-graduate
degrees in order to advance their careers and more
parents are sending their children to good schools.
Indonesian people will also spend more on transport,
leisure and recreation and hotels and catering.
http://www.euromonitor.com/Indonesian_household_spending_makes_way_for_growth_of_non_food_sector
Author: An Hodgson, Date published: 6 Dec 2007
What is a Service and What is a Good?
• “If you drop it on your foot, it won’t hurt
you.” (Good or service?)
• “Services never include goods and goods
never include services.” (True or false?)
The Goods-Services Continuum
Proportion of Goods & Services in Purchase Bundle
Goods
Services
100%
75
50
25
0
25
50
75
100%
Self-service gasoline…………….
Personal computer……………
Office copier………………….
Fast-food restaurant…………
Gourmet restaurant…………
Auto repair……………………
Airline flight…………………….
Haircut………………………….
Goods versus Services
Good
 Can be resold
 Can be inventoried
 Some aspects of quality
measurable
 Selling is distinct from
production
 Product is transportable
 Site of facility important for cost
 Often easy to automate
 Revenue generated primarily
from tangible product
Service
Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service
Provider, not product is
transportable
 Site of facility important for
customer contact
 Often difficult to automate
 Revenue generated primarily
from intangible service.





Something to remember!
In the service business, ………
You can’t make happy guests with unhappy employess.
Customer can play an active part in the process.
Service can’t be inspected before delivery.
Customer must rely on the reputation of the service firm.
Customer conduct transactions directly with the service provider, most often in person
Service Definitions
“Services are economic activities that produce time,
place, form, or psychological utility for the consumer”
(Robert G. Murdick, Barry Render, & Roberta S. Russel)
“Services are deeds, processes, and performances”
(Valarie Zeithaml & Mary Jo Bitner)
“A Service is a Time-perishable, Intangible Experience
Performed for a Customer Acting in the Role of a
Coproducer”
(James Fitzsimmons)
Definition of Service Firms
Service Enterprises are Organizations that
Facilitate the Production and Distribution of
Goods, Support Other Firms in Meeting Their
Goals, and Add Value to Our Personal Lives.
(James Fitzsimmons)
The Service Package
Supporting Facility: The physical resources that must be in place
before a service can be sold. Examples are golf course, ski lift,
hospital, airplane.
Facilitating Goods: The material purchased or consumed by the
buyer or items provided by the consumer. Examples are food
items, auto parts, legal documents, golf clubs.
Information: Data of information that is provided by the customer
to enable efficient and customized service. Examples patient
medical records, customer preferences from prior visit.
Explicit Services: Benefits readily observable by the senses. The
essential or intrinsic features. Examples are quality of meal,
attitude of the waiter, on-time departure.
Implicit Services: Psychological benefits or extrinsic features
which the consumer may sense only vaguely. Examples are
privacy of loan office, security of a well lighted parking lot.
Unique Characteristics of Services
Intangibility: creative advertising, no patient protection,
importance of reputation
Perishability: cannot inventory, opportunity loss of idle
capacity, need to match supply with demand
Heterogeneity: customer participation in delivery
process results in variability
Simultaneity:
opportunities for personal selling,
interaction creates customer perceptions of quality
Customer Participation in the Service Process:
attention to facility design but opportunities for coproduction
The Service Process Matrix
Degree of Interaction and Customization
Low
Low
High
Services Factory:
Service Shop:
Airlines
Hospitals
Trucking
Auto repair
Hotels
Other repair services
Resort & Recreation
Degree
of Labor
Intensity
High
Mass Service:
Professional Service:
Retailing
Doctors
Wholesaling
Lawyers
Schools
Accountants
Retails Aspects of Com-
Architects
mercial Banking
Challenges for Service manager
•
•
•
•
•
•
•
•
Low Interaction/Customization:
Marketing
Making service “warm”
Attentions to physical surroundings
Maintaining SOP
•
•
•
•
Low Labor Intensity:
Capital decisions
Technological advance
Managing demand peaks/off-peaks
Scheduling service delivery
Service
Factory
Service
Shop
Mass
Service
Professional
Service
High Labor Intensity:
Hiring
Training & Method of development
Employee’s welfare
Scheduling workforce
•
•
•
•
High Interaction/Customization:
Fighting cost increases
Maintain quality
Response to customer interactions
Gaining employee loyalty
Stages of Economic Development
Features
Society
Game
Predominant
activity
Use of
human
labor
Unit of
social life
Standard
of living
measure
PreIndustrial
Against
Nature
Agriculture
Mining
Raw
muscle
power
Extended
household
Industrial
Against
fabricated
nature
Goods
production
Machine
tending
Individual
Postindustrial
Among
Persons
Services
Artistic
Community
Creative
Intellectual
Structure
Technology
Subsistence
Routine
Traditional
Authoritative
Simple hand
tools
Quantity
of goods
Bureaucratic
Hierarchical
Machines
Interdependent
Global
Information
Quality of
life in terms
of health,
education,
recreation
The New Experience Economy
Economy
Agrarian
Industrial
Service
Experience
Function
Extract
Make
Deliver
Stage
Nature
Fungible
Tangible
Intangible
Memorable
Attribute
Natural
Standardized
Customized
Personal
Method of
supply
Stored in
bulk
Inventoried
Delivered on
demand
Revealed over
time
Seller
Trader
Manufacturer
Provider
Stager
Buyer
Market
User
Client
Guest
The Four Realms of an Experience
Customer Participation
Environmental
Relationship
Absorption
Immersion
Passive
Active
Entertainment Education
(Movie)
(Language)
Esthetic
Escapist
(Tourist)
(Skydiving)
Service Process Orientation
Customer as Co-producer
Front and Back Office Perspectives
Service Profit Chain Focus on Internal and External
Customers
Quality (perceptions vs expectations)
Focus on Both Efficiency and Effectiveness
Use IT as Productivity Enabler for Both Internal and
External Customers
Strategic Service Classification
(Relationship with Customers)
Type of Relationship between Service Organization and
Its Customers
Nature of
Service Delivery
Continuous delivery
of service
Discrete transactions
“Membership” relationship
No formal relationship
Insurance
Telephone subscription
Radio station
Police protection
College enrollment
Lighthouse
Banking
American Automobile association
Public Highway
Long-distance phone calls
Theater series subscription
Restaurant
Mail service
Commuter ticket or transit pass
Sam’s Wholesale Club
Egghead computer software
Toll highway
Movie theater
Public transportation
Strategic Service Classification
(Method of Service Delivery)
Availability of Service Outlets
Nature of Interaction
between Customer and
Service Organization
Single site
Customer goes to
service organization
Theater
Barbershop
Service organization
comes to customer
Lawn care service
Pest control service
Taxi
Customer and service
organization transact at
arm’s length (mail or
electronic communications)
Credit card company
Local TV station
Multiple site
Bus service
Fast-food chain
Mail delivery
AAA emergency repairs
Broadcast network
Telephone company
Dimensions of Service Quality
Time and timeliness: How long a customer must wait for service, and if it is
completed on time. For example, is an overnight package delivered overnight?
Completeness: Is everything the customer asked for provided? For example, is a
mail order from a catalog company complete when delivered?
Courtesy: How customers are treated by employees. For example, are catalog
phone operators at Lands' End nice and are their voices pleasant?
Consistency: Is the same level of service provided to each customer each time? Is
your newspaper delivered on time every morning?
Accessibility and convenience: How easy it is to obtain the service. For example,
when you call Lands' End or L. L. Bean does the service representative answer
quickly?
Accuracy: Is the service performed right every time? Is your bank or credit card
statement correct every month?
Responsiveness: How well the company reacts to unusual situations, which can
happen frequently in a service company. For example, how well a telephone
operator at L.L. Bean is able to respond to a customer's questions about a catalog
item not fully described in the catalog.
Open Systems View of Service Operations
Service Process
Consumer arrivals
(input)
Consumer participant
Consumer-Provider
interface
Control
Customer demand
Perceived needs
Location
Consumer
Evaluation
departures
( output)
Criteria
Measurement
Monitor
Service operations manager
Production function:
Alter
Monitor and control process
Schedule
demand Marketing function:
supply
Interact with consumers
Control demand
Modify as necessary
Define standard
Communicate
by advertising
Service package
Supporting facility
Facilitating goods
Explicit services
Implicit services
Basis of
selection
Service personnel
Empowerment
Training
Attitudes