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Operations Management
Operations Management

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

ransformations-convert inputs into outputs

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O.M. !cont"
O.M. !cont"

Outputs-goods or services, and #aste

$ustomer $ontact-customers actively

participate in transformation processes, self-
service

%erformance &eed'ack-repair records,

customer comments
Hellriegel, Jackson, and Slocum
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Operations Management
Operations Management

Refers to the management of the production system

that transforms inputs into finished goods and services.

roduction s#stem' the #ay a firm ac(uires inputs then

converts and disposes outputs.

("erations managers' responsi'le for the transformation

process from inputs to outputs.

Operations management seeks to increase the (uality,

efficiency, and responsiveness of the firm.

Seeks to provide a competitive advantage.

Hellriegel, Jackson, and Slocum
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Operations Management $oncepts
Operations Management $oncepts

Quality: goods and services that are relia'le and

perform correctly.

)uality allo#s customers to receive the performance that they

e*pect.

Efficiency: the amount of input to produce a given

output.

+ess input re(uired lo#ers cost and #aste.

Responsiveness to customers: actions taken to

respond to customer needs.

&irm can react (uickly and correctly to customer needs as they

arise.
Hellriegel, Jackson, and Slocum
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,ifferences -et#een Services and
,ifferences -et#een Services and
.oods
.oods

Information /symmetry

Intangi'le

Inventory

$ustomer $ontact

Response ime

+a'or Intensity
Hellriegel, Jackson, and Slocum
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ypical $haracteristics of Services and .oods %roducers ypical $haracteristics of Services and .oods %roducers
/dapted from a'le 01.1
rimaril# Ser)ice rimaril# Ser)ice
roducers roducers
rimaril# Goods rimaril# Goods
roducers roducers
Continuum o* Continuum o*
Characteristics Characteristics
Intangible, nondurable
Output cant be
inventoried
High customer contact
Short response time
Labor intensive
Tangible, durable
Output can be
inventoried
Low customer contact
Long response time
Capital intensive
Mi+ed Mi+ed
,%-.
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%ositioning Strategies-approach
%ositioning Strategies-approach
selected for transformational
selected for transformational
processes
processes

%rocess &ocus-layout of
plant and e(uipment
around each production
unit

custom made

+o# 2olume

3or#egian Ship -uilding

%roduct &ocus-arranging
plant and e(uipment
around one or a fe#
output types

many of one product

high-volume, highly
automated

lo# fle*i'ility

&actory +ines

Intermediate Strategy-
plant and e(uipment
layout reflects some of
'oth strategies

'atches of products

4inkos, -all Homes

/gile Strategy-mass
customi5ation
Hellriegel, Jackson, and Slocum
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&le*i'ility
&le*i'ility

%roduct &le*i'ility-speed #ith #hich products

are created, a'ility to customi5e, a'ility to
modify products for special needs

2olume &le*i'ility-a'ility to respond to sudden

changes in demand, change from small to full
scale

%rocess &le*i'ility-a'ility to manufacture a

variety of goods in a short time, ad6ust to
product mi* over time, a'ility to accommodate
changes in ra# materials
Hellriegel, Jackson, and Slocum
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$ore %ositioning Strategies
$ore %ositioning Strategies
/dapted from &igure 01.0
Sources7 /dapted from -ro#n, H.4., $lark, 4.-., Hollo#ay, $./.,
and 8heel#right, S.$. The Perpetual Enterprise Machine: Seven
Keys to Corporate Renewal Through Successful Product and
Process Development 3e# 9ork7 O*ford :niversity %ress, 1;;<=
:pton, ,.M. >he management of manufacturing fle*i'ility.?
California Management Review! 8inter 1;;<, @0AB;.
rocess *ocus
Space shuttle
+egal practice
roduct *ocus
/uto assem'ly
plant
Mail processing
/ntermediate
.arment
industry
-ranch 'anks
roduct )olume roduct )olume
$ustom products,
lo# volume
Standard products,
high volume
Mi*ture of custom and standard
products, moderate volume
$ontinuous
process
!sta'le"
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Mass
production
+arge
'atch
Sporadic
!unsta'le"
,%-2
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
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Improving Responsiveness to $ustomers
Improving Responsiveness to $ustomers

8ithout customers, organi5ations cease to e*ist.

3on-profit and for-profit firms all have customers.

Managers need to identify #ho the customer is and their

needs.

8hat do customers #antC :sually customers prefer7

/ lo1er "rice to a higher price.

High 3ualit# over lo# (uality.

4ast ser)ice over slo# service.

/lso good after sale support.

Man# *eatures over fe# features.

roducts tailored to their specific needs.

Hellriegel, Jackson, and Slocum
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)uality-ho# #ell a product does
)uality-ho# #ell a product does
#hat the customer e*pects
#hat the customer e*pects

Internal 2ie#-#ithin the organi5ation

E*ternal 2ie#-value customers e*pect

2alue-the relationship 'et#een (uality and price

Hellriegel, Jackson, and Slocum
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$ompetitiveness 2alue Map
$ompetitiveness 2alue Map
0elati)e 5ualit# 0elati)e 5ualit#
Su"erior /n*erior
Higher
6o1er
Poor
value
/dapted from &igure 01.D
0
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Economy
value
Outstanding
value
Premium
value
Average
value
Source7 /dapted from .ale,
-.., and -u55ell, R.,. >Market
perceived (uality7 4ey strategic
concept.? Planning
Review! March-/pril, 1;B;, 1E.
,%-7
Hellriegel, Jackson, and Slocum
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%rice
%rice
v
v
/ttri'utes
/ttri'utes

&irms offering high (uality, fast service and other

customer desires, often must raise price.

$ustomers must tradeo** "rice *or attri!utes.

Operations management tries to "ush the

"rice8attri!ute cur)e to the right #ith 'etter production.

%rovides more attri'utes at the same cost.

-y enhancing the priceFattri'ute relationship, the firm can

increase its competitive position.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
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$ustomer Responsive %roduction Systems
$ustomer Responsive %roduction Systems

/n outputGs attri'utes is determined 'y the

production system.

&irms must strike a 'alance 'et#een cost and attri'utes

Improving Quality: can apply to firms producing

goods and services.

/ firm that provides higher (uality than others at the

same price is more responsive to customers.

Higher (uality can also lead to 'etter efficiency.

+o#ers #aste levels and operating costs.

Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
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otal )uality Management
otal )uality Management

he continuous process of ensuring every

aspect of production 'uilds in product (uality

raditional )uality-product inspection during or

at the end of the transformation process
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
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otal 2ersus raditional )uality
otal 2ersus raditional )uality
/dapted from a'le 01.D

Quality is a strategic issue

lan !or "uality

Quality is everybodys responsibility

Strive !or #ero de!ects

Quality means con!ormance to

re"uirements that meet or e$ceed
customers e$pectations

Scrap and rewor%ing are only a small

part o! the costs o! noncon!ormance
raditional )uality $ontrol raditional )uality $ontrol otal )uality Management otal )uality Management

Quality is a tactical issue

Screen !or "uality

Quality is the responsibility o! the

"uality control department

Some mista%es are inevitable

Quality means inspection

Scrap and rewor%ing are the ma&or

costs o! poor "uality
,%-%%
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
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Improving Efficiency
Improving Efficiency

6a!or "roducti)it# allo#s la'or comparisons 'et#een

organi5ations.

Improved efficiency leads to lo#er costs and 'etter

performance.

T5M and E**icienc#7 )M can lead to much higher

la'or productivity.

8hen (uality rises, less time is #asted on scrap.

4le+i!le manu*acturing and e**icienc#7 reduces the

set-up costs for production systems.
4acilities la#out7 seeks to design the machine-#orker interface
to increase production efficiency.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
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Efficient Manufacturing
Efficient Manufacturing

Most firms face ma6or e*pense #hen setting up to

produce a product.

hese costs must 'e paid 'efore production 'egins.

he more often products to 'e 'uilt change, the higher setup

costs 'ecome.

&le*i'le Manufacturing reduces setup costs.

Just-in-Time (JIT) inventory! #hile developed for

)M, also adds to efficient production.

Many costs are reduced including #arehousing, holding costs

and inventory tracking.

&irm does not have a supply of parts, 'ut can 'e vulnera'le to
strikes or supply pro'lems.
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
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Efficient Manufacturing
Efficient Manufacturing

elf-managed teams 'oost efficiency 'y allo#ing for a

flatter organi5ation structure.

he team takes the role of the supervisor.

eams #orking together often 'ecome very skilled at enhancing

productivity.

!ai"en: Hapanese term for a management philosophy

the stresses the need for continuous improvement.

-etter operations can come from many, small, continuous

improvements.

&ocus on #hat adds value to the product and try to eliminate

steps that do not add value !such as inspection for defects".
Hellriegel, Jackson, and Slocum
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Reengineering
Reengineering

Process Reengineering: the fundamental rethinking

and radical redesign of the 'usiness process.

$an 'oost efficiency 'y directing efforts to activities that add

value to the good or service produced.

8hile 4ai5en focuses on continuous enhancements, process

reengineering considers #holesale change.

op managers must support operations enhancement

tools for them to 'e accepted 'y #orkers.

:sually, a successful operations change means a complete

change in the organi5ational culture.

8ithout a supporting culture, change #ill not succeed.

Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
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3ine $ategories of Operations Management ,ecisions
3ine $ategories of Operations Management ,ecisions

%roduct plans

$ompetitive %riorities

%ositioning Strategies

+ocation

echnological $hoices

)uality management and control

Inventory management and control

Materials Management

Master production scheduling

,%-9
Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
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Inventory $osts
Inventory $osts

8hat contri'utes to inventory costsC

T(TA6 C(ST : (0;E0/NG < CA00=/NG

$arrying $osts

8arehouse

Insurance

O'solescence

ta*es

'reakage

Ordering $osts

%lacing the order

ransportation

Shortage
Hellriegel, Jackson, and Slocum
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Inventory erms
Inventory erms

+ead ime

Elapsed time 'et#een placing and receiving an order

EO)-economic order cost

optimum order (uantity yielding the lo#est total

inventory cost

Hust-in-time

finished goods to sell

su' assem'lies to 'e assem'led

purchases of ra# materials to 'e transformed

Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College u!lishing
Co"#right $ %&&&
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5uantit# >5? 5uantit# >5?
High High
6o1 6o1
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Total cost
Carr#ing cost
(rder cost
Small Small
6arge 6arge
5
%
/dapted from &igure 01.I
$ost rade-Offs in ,etermining Inventory +evels
$ost rade-Offs in ,etermining Inventory +evels
,%-%.