What is Operations Management?

Operations
Management
The systematic design,
direction, and control of
processes that
transform inputs into
services and products
for internal, as well as
external, customers
 Operations Management
Process
Any activity or group of activities that takes one
or more inputs, transforms them, and provides
one or more outputs for its customers

Operation
A group of resources performing all or part of
one or more processes
What is Supply Chain Management?
Supply Chain
Management
The synchronization of
a firms processes with
those of its suppliers
and customers to
match the flow of
materials, services, and
information with
customer demand
 Supply Chain Management
Supply Chain
An interrelated series of processes within and
across firms the produces a service or product to
the satisfaction of customers
 Role of Operations in an Organization

Integration
between
Different
Functional
Areas of a
Business

Figure 1.1
 How Processes Work

Figure 1.2
 How Processes Work
Every process and every person in the
organization has customers
External customers
Internal customers

Every process and every person in the

organization relies on suppliers
External suppliers
Internal suppliers
 Nested Processes
Nested Process
The concept of a process within a process
 Service and Manufacturing Processes
Differ Across Nature of Output and Degree of
Customer Contact

More like a More like

manufacturing a service
process process

Physical, durable output Intangible, perishable output

Output can be inventoried
Low customer contact
Long response time
Capital intensive
Quality easily measured
Figure 1.3
Output cannot be inventoried
High customer contact
Short response time
Labor intensive
Quality not easily measured
 A Supply Chain View
Each activity in a process should add value to the
preceding activities; waste and unnecessary cost
should be eliminated.

Figure 1.4
 The Supply Chain View
Supplier relationship process A process that selects the
suppliers of services, materials, and information and facilitates
the timely and efficient flow of these items into the firm

Figure 1.4
 The Supply Chain View
New service/product development A process that designs and
develops new services or products from inputs from external
customer specifications or from the market

Figure 1.4
 The Supply Chain View
Order fulfillment process A process that includes the
activities required to produce and deliver the service or
product to the external customer

Figure 1.4
 The Supply Chain View
Customer relationship process A process that identifies, attracts
and builds relationships with external customers and facilitates
the placement of orders by customers
(customer relationship management)

Figure 1.4
 The Supply Chain View
Support Processes - Processes like Accounting, Finance, Human
Resources, Management Information Systems and Marketing
that provide vital resources and inputs to the core processes

Figure 1.4
 Supply Chain Process
Supply Chain Processes
Business processes that have external customers
or suppliers
Examples
Outsourcing
Warehousing
Sourcing
Customer Service
Logistics
Crossdocking
 Operations Strategy
Operations Strategy
The means by which operations implements the
firms corporate strategy and helps to build a
customer-driven firm
 Corporate Strategy
Corporate Strategy
Provides an overall direction that serves as the
framework for carrying out all the organizations
functions
Environmental Scanning
Core Competencies
Core Processes
Global Strategies
 Competitive Priorities and Capabilities

Competitive Competitive
Priorities Capabilities
The critical dimensions The cost, quality, time, and
that a process or flexibility dimensions that a
supply chain must process or supply chain
possess to satisfy its actually possesses and is
internal or external able to deliver.
customers, both now
and in the future.
 Competitive Priorities and Process
Capabilities
COST Definition Process Considerations Example
1.Low-cost Delivering a service Processes must be Big Bazaar
operations or a product at the designed and operated to
lowest possible cost make them efficient

QUALITY

2.Top quality Delivering an May require a high level of Rolex

outstanding service customer contact and may
or product require superior product
features
3.Consistent Producing services or Processes designed and McDonalds
quality products that meet monitored to reduce errors
design specifications and prevent defects
on a consistent basis

Table 1.3
 Competitive Priorities and Process
Capabilities
TIME Definition Process Considerations Example

4.Delivery speed Quickly filling a Design processes to reduce Netflix

customers order lead time

5.On-time Meeting delivery- Planning processes used to United Parcel

delivery time promises increase percent of Service (UPS)
customer orders shipped
when promised

6.Development Quickly Cross-functional integration Li & Fung

speed introducing a new and involvement of critical
service or a external suppliers
product

Table 1.3
 Competitive Priorities and Process
Capabilities
FLEXIBILITY Definition Process Considerations Example
7.Customization Satisfying the unique Low volume, close Ritz Carlton
needs of each customer customer contact, and
by changing service or easily reconfigured
product designs
8.Variety Handling a wide Capable of larger Amazon.com
assortment of services variety than processes
or products efficiently supporting
customization
9.Volume Accelerating or Processes must be The United
flexibility decelerating the rate of designed for excess States Postal
production of services capacity and excess Service (USPS)
or products quickly to inventory
handle large
fluctuations in demand

Table 1.3
 Operations Strategy
OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS

Competitive Priority Measure Capability Gap Action

Low-cost operations Cost per billing $0.0813 Target is $0.06 Eliminate microfilming
statement and storage of billing
statements
Weekly postage $17,000 Target is Develop Web-based
$14,000 process for posting bills

Consistent quality Percent errors in 0.90% Acceptable No action

bill information
Percent errors in 0.74% Acceptable No action
posting
payments
Delivery speed Lead time to 48 hours Acceptable No action
process
merchant
payments
Volume flexibility Utilization 98% Too high to Acquire temporary
support rapid employees
increase in Improve work methods
volumes

Table 1.5