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COVID-19 emerged without previous notice. This external factor impacted all
organizations around the globe. External factors are unpredictable, and it is
important for managers to be ready to act when these types of events impact
operations.
Select a multinational organization in the Kingdom of Saudi Arabia and
evaluate how they managed the challenges of COVID-19 in relation to the
aspects below, to keep operations running successfully. Then, explain
whether all industries acted in the same way to these areas of operations.
Why or why not?
•
Customer satisfaction
•
Forecasting
•
Capacity planning
•
Location
•
Inventory management
•
Store layout
•
Scheduling
Embed course material concepts, principles, and theories, which require
supporting citations along with at least two scholarly, peer-reviewed references in supporting your
answer. Keep in mind that these scholarly references can be found in the Saudi
Digital Library by conducting an advanced search specific to scholarly
references.
Chapter 1
Introduction to
Operations
Management
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No
reproduction or distribution without the prior written consent of McGrawHill Education
1-1
Chapter 1: Learning Objectives
You should be able to:
LO 1.1
LO 1.2
Define the terms operations management and supply chain
Identify similarities and differences between production and service
operations
LO 1.3 Explain the importance of learning about operations management
LO 1.4 Identify the three major functional areas of organizations and explain
how they interrelate
LO 1.5 Summarize the two major aspects of process management
LO 1.6 Describe the operations function and the nature of the operations
manager’s job
LO 1.7 Explain the key aspects of operations management decision making
LO 1.8 Briefly describe the historical evolution of operations management
LO 1.9 Describe the current issues in business that impact operations
management
LO 1.10 Explain the need to manage the supply chain
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distribution without the prior written consent of McGraw-Hill Education
1-2
Operations Management
âš«What is operations?
âš«The part of a business organization that is responsible
for producing goods or services
âš«How can we define operations management?
âš«The management of systems or processes that create
goods and/or provide services
LO 1.1
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without the prior written consent of McGraw-Hill Education
1-3
Good or Service?
Goods are physical items that include raw materials, parts,
subassemblies, and final products.
• Automobile
• Computer
• Oven
• Shampoo
Services are activities that provide some combination of time, location,
form or psychological value.
• Air travel
• Education
• Haircut
• Legal counsel
LO 1.1
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without the prior written consent of McGraw-Hill Education
1-4
Supply Chain
Supply chain – a sequence of activities and
organizations involved in producing and delivering
a good or service
Suppliers’
suppliers
LO 1.1
Direct
suppliers
Producer
Distributor
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without the prior written consent of McGraw-Hill Education
Final
customers
1-5
The Transformation Process
Value-Added
Inputs
• Land
• Labor
• Capital
• Information
Measurement
and Feedback
Transformation/
Conversion
Process
Outputs
• Goods
• Services
Measurement
and Feedback
Measurement
and Feedback
Control
Feedback = Measurements taken at various points in the transformation
process = The comparison of feedback against previously established
Control
standards to determine if corrective action is needed
LO 1.1
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consent of McGraw-Hill Education
1-6
Goods-service Continuum
Products are typically neither purely service- or purely goodsbased.
Goods
Services
Surgery, Teaching
Songwriting, Software Development
Computer Repair, Restaurant Meal
Home Remodeling, Retail Sales
Automobile Assembly, Steelmaking
LO 1.2
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the prior written consent of McGraw-Hill Education
1-7
Manufacturing vs. Service
Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
1.
LO 1.2
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the prior written consent of McGraw-Hill Education
1-8
Why Study Operations Management?
âš«Every aspect of business affects or is affected by
operations
âš«Many service jobs are closely related to operations
âš« Financial services
âš« Marketing services
âš« Accounting services
âš« Information services
âš«Through learning about operations and supply
chains you will have a better understanding of:
âš« The world you live in
âš« The global dependencies of companies and nations
âš« Reasons that companies succeed or fail
âš« The importance of working with others
LO 1.3
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the prior written consent of McGraw-Hill Education
1-9
Basic Functions of the Business Organization
Organization
Marketing
LO 1.4
Operations
Finance
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without the prior written consent of McGraw-Hill Education
1-10
Function Overlap
âš«Finance & operations
âš« Budgeting
âš« Economic analysis of investment
proposals
âš« Provision of funds
âš«Marketing & operations
âš« Demand data
âš« Product and service design
âš« Competitor analysis
âš« Lead time data
LO 1.4
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without the prior written consent of McGraw-Hill Education
1-11
OM and Supply Chain Career
Opportunities
âš«Operations manager
âš«Supply chain manager
âš«Production analyst
âš«Schedule coordinator
âš«Production manager
âš«Industrial engineer
âš«Purchasing manager
âš«Inventory manager
âš«Quality manager
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written consent of McGraw-Hill Education
1-12
OM-Related Professional Societies
âš« APICS – The Association for Operations Management
âš« American Society for Quality (ASQ)
âš« Institute for Supply Management (ISM)
âš« Institute for Operations Research and Management Science
(INFORMS)
âš« The Production and Operations Management Society (POMS)
âš« The Project Management Institute (PMI)
âš« Council of Supply Chain Management Professionals (CSCMP)
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prior written consent of McGraw-Hill Education
1-13
Process Management
Process – one or more actions that transform inputs into outputs
Three Categories of Business Processes:
LO 1.5
Upper-management processes
These govern the operation of the entire
organization.
Operational processes
These are core processes that make up the
value stream.
Supporting processes
These support the core processes.
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the prior written consent of McGraw-Hill Education
1-14
Supply & Demand
Operations &
Supply Chains
Supply
LO 1.5
Sales & Marketing
>
Demand
Wasteful
Costly
Opportunity Loss
Customer
Dissatisfaction
Ideal
Supply
< Demand Supply = Demand Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-15 Process Variation Four Sources of Variation: Variety of goods or services being offered The greater the variety of goods and services offered, the greater the variation in production or service requirements. Structural variation in demand These are generally predictable. They are important for capacity planning. Random variation Natural variation that is present in all processes. Generally, it cannot be influenced by managers. Assignable variation Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action. Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems. LO 1.5 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-16 Scope of Operations Management The scope of operations management ranges across the organization. The operations function includes many interrelated activities such as: ⚫ Forecasting ⚫ Capacity planning ⚫ Facilities and layout ⚫ Scheduling ⚫ Managing inventories ⚫ Assuring quality ⚫ Motivating employees ⚫ Deciding where to locate facilities ⚫ And more . . . LO 1.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-17 Role of the Operations Manager The Operations function consists of all activities directly related to producing goods or providing services. A primary function of the operations manager is to guide the system by decision making. ⚫System design decisions ⚫System operation decisions LO 1.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-18 System Design Decisions • System design – Capacity – Facility location – Facility layout – Product and service planning – Acquisition and placement of equipment • These are typically strategic decisions that • usually require long-term commitment of resources • determine parameters of system operation LO 1.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-19 System Operation Decisions • System operation • These are generally tactical and operational decisions – Management of personnel – Inventory management and control – Scheduling – Project management – Quality assurance • Operations managers spend more time on system operation decision than any other decision area • They still have a vital stake in system design LO 1.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-20 OM Decision Making ⚫ Most operations decisions involve many alternatives that can have quite different impacts on costs or profits ⚫ Typical operations decisions include: ⚫ What: What resources are needed, and in what amounts? ⚫ When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? ⚫ Where: Where will the work be done? ⚫ How: How will he product or service be designed? How will the work be done? How will resources be allocated? ⚫ Who: Who will do the work? LO 1.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-21 General Approach to Decision Making ⚫Modeling is a key tool used by all decision makers ⚫ Model - an abstraction of reality; a simplification of something. ⚫ Common features of models: ⚫They are simplifications of real-life phenomena ⚫They omit unimportant details of the real-life systems they mimic so that attention can be focused on the most important aspects of the real-life system LO 1.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-22 Understanding Models ⚫Keys to successfully using a model in decision making ⚫What is its purpose? ⚫How is it used to generate results? ⚫How are the results interpreted and used? ⚫What are the model’s assumptions and limitations? LO 1.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-23 Benefits of Models 1. Models are generally easier to use and less expensive than dealing with the real system 2. Require users to organize and sometimes quantify information 3. Increase understanding of the problem 4. Enable managers to analyze “What if?” questions 5. Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem 6. Enable users to bring the power of mathematics to bear on a problem. LO 1.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-24 Model Limitations ⚫Quantitative information may be emphasized at the expense of qualitative information ⚫Models may be incorrectly applied and the results misinterpreted ⚫This is a real risk with the widespread availability of sophisticated, computerized models are placed in the hands of uninformed users ⚫The use of models does not guarantee good decisions LO 1.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-25 Quantitative Approaches ⚫A decision-making approach that frequently seeks to obtain a mathematically optimal solution ⚫Supported by computer calculations ⚫Often work together with qualitative approaches LO 1.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-26 Metrics and Trade-Offs ⚫Performance metrics ⚫ All managers use metrics to manage and control operations ⚫Profits ⚫Costs ⚫Quality ⚫Productivity ⚫Flexibility ⚫Inventories ⚫Schedules ⚫Forecast accuracy LO 1.7 ⚫Analysis of trade-offs ⚫ A trade-off is giving up one thing in return for something else ⚫Carrying more inventory (an expense) in order to achieve a greater level of customer service Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-27 Systems Approach ⚫ System - a set of interrelated parts that must work together ⚫ The business organization is a system composed of subsystems ⚫Marketing subsystem ⚫Operations subsystem ⚫Finance subsystem ⚫ The systems approach ⚫ Emphasizes interrelationships among subsystems ⚫ Main theme is that the whole is greater than the sum of its parts ⚫ The output and objectives of the organization take precedence over those of any one subsystem LO 1.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-28 Establishing Priorities ⚫In nearly all cases, certain issues or items are more important than others ⚫Recognizing this allows managers to focus their attention to those efforts that will do the most good ⚫ Pareto Phenomenon - a few factors account for a high percentage of occurrence of some event(s) ⚫The critical few factors should receive the highest priority ⚫This is a concept that is appropriately applied to all areas and levels of management LO 1.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-29 Historical Evolution of OM ⚫Industrial Revolution ⚫Scientific management ⚫Human relations movement ⚫Decision models and management science ⚫Influence of Japanese manufacturers LO 1.8 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-30 Industrial Revolution ⚫ Pre-Industrial Revolution ⚫ Craft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods ⚫ Some key elements of the industrial revolution ⚫ Began in England in the 1770s ⚫ Division of labor - Adam Smith, 1776 ⚫ Application of the “rotative” steam engine, 1780s ⚫ Cotton gin and interchangeable parts - Eli Whitney, 1792 ⚫ Management theory and practice did not advance appreciably during this period LO 1.8 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-31 Scientific Management ⚫Movement was led by efficiency engineer, Frederick Winslow Taylor ⚫ Believed in a “science of management” based on observation, measurement, analysis and improvement of work methods, and economic incentives ⚫ Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperation between management and workers, and separating management activities from work activities ⚫ Emphasis was on maximizing output LO 1.8 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-32 Human Relations Movement ⚫The human relations movement emphasized the importance of the human element in job design ⚫ Lillian Gilbreth – applications of psychology ⚫ Elton Mayo – Hawthorne studies on worker motivation, 1930 ⚫ Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954 ⚫ Frederick Hertzberg – Two Factor Theory, 1959 ⚫ Douglas McGregor – Theory X and Theory Y, 1960s ⚫ William Ouchi – Theory Z, 1981 LO 1.8 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-33 Decision Models & Management Science ⚫ F.W. Harris – mathematical model for inventory management, 1915 ⚫ Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s ⚫ Tippett – statistical sampling theory, 1935 ⚫ Operations Research (OR) Groups – OR applications in warfare ⚫ George Dantzig – linear programming, 1947 LO 1.8 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-34 Influence of Japanese Manufacturers ⚫Refined and developed management practices that increased productivity ⚫ Credited with fueling the “quality revolution” ⚫ Just-in-Time production LO 1.8 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-35 Key Issues for Operations Managers Today ⚫Economic conditions ⚫Innovating ⚫Quality problems ⚫Risk management ⚫Competing in a global economy LO 1.9 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-36 Environmental Concerns ⚫Sustainability ⚫Using resources in ways that do not harm ecological systems that support human existence ⚫Sustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision making ⚫All areas of business will be affected ⚫Product and service design ⚫Consumer education programs ⚫Disaster preparation and response ⚫Supply chain waste management ⚫Outsourcing decisions LO 1.9 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-37 Ethical Issues in Operations Ethical issues that may arise in many aspects of operations management: ⚫Financial statements ⚫Worker safety ⚫Product safety ⚫Quality ⚫The environment ⚫The community ⚫Hiring and firing workers ⚫Closing facilities ⚫Workers’ rights LO 1.9 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-38 The Need for Supply Chain Management ⚫In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems: ⚫Oscillating inventory levels ⚫Inventory stockouts ⚫Late deliveries ⚫Quality problems LO 1.10 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-39 Supply Chain Issues 1. 2. 3. 4. 5. 6. 7. 8. The need to improve operations Increasing levels of outsourcing Increasing transportation costs Competitive pressures Increasing globalization Increasing importance of e-business The complexity of supply chains The need to manage inventories LO 1.10 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 1-40 Chapter 2 Competitiveness, Strategy, and Productivity Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-41 Chapter 2: Learning Objectives You should be able to: LO 2.1 List several ways that business organizations compete LO 2.2 Name several reasons that business organizations fail LO 2.3 Define the terms mission and strategy and explain why they are important LO 2.4 Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two LO 2.5 Describe and give examples of time-based strategies LO 2.6 Define the term productivity and explain why it is important to organizations and to countries LO 2.7 Describe several factors that affect productivity Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-42 A Cold Hard Fact Better quality, higher productivity, lower costs, and the ability to respond quickly to customer needs are more important than ever, and… the bar is getting higher LO 2.1 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-43 Chapter Focus ⚫This chapter focuses on three separate, but related ideas that are vitally important to business organizations ⚫Competitiveness ⚫Strategy ⚫Productivity LO 2.1 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-44 Competitiveness ⚫Competitiveness: ⚫How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services ⚫Organizations compete through some combination of their marketing and operations functions • What do customers want? • How can these customer needs best be satisfied? LO 2.1 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-45 Marketing’s Influence ⚫Identifying consumer wants and/or needs ⚫Pricing and quality ⚫Advertising and promotion LO 2.1 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-46 Businesses Compete Using Operations Product and service design 2. Cost 3. Location 4. Quality 5. Quick response 6. Flexibility 7. Inventory management 8. Supply chain management 9. Service 10. Managers and workers 1. LO 2.1 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-47 Why Some Organizations Fail 1. 2. 3. 4. 5. 6. 7. Neglecting operations strategy Failing to take advantage of strengths and opportunities and/or failing to recognize competitive threats Too much emphasis on short-term financial performance at the expense of R&D Too much emphasis in product and service design and not enough on process design and improvement Neglecting investments in capital and human resources Failing to establish good internal communications and cooperation Failing to consider customer wants and needs LO 2.2 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-48 Hierarchical Planning Mission Goal s Organizational strategies Functional strategies Tactics LO 2.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-49 Mission, Goals, and Strategy ⚫Mission ⚫ The reason for an organization’s existence ⚫ It answers the question “What business are we in?” ⚫Goals ⚫ Provide detail and the scope of the mission ⚫Goals can be viewed as organizational destinations ⚫Strategy ⚫ A plan for achieving organizational goals ⚫Serves as a roadmap for reaching the organizational destinations ⚫ The organizational strategy guides the organization by providing direction for, and alignment of, the goals and strategies of the functional units ⚫ The organizational strategy is a major success/failure factor LO 2.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-50 Mission ⚫Mission ⚫The reason for an organization’s existence ⚫Mission statement ⚫States the purpose of the organization ⚫The mission statement should answer the question of “What business are we in?” LO 2.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-51 FedEx Mission Statement ⚫ FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx Corporation will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards. LO 2.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-52 Goals ⚫The mission statement serves as the basis for organizational goals ⚫Goals ⚫Provide detail and the scope of the mission ⚫Goals can be viewed as organizational destinations ⚫Goals serve as the basis for organizational strategies LO 2.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-53 Strategies ⚫Strategy ⚫ A plan for achieving organizational goals ⚫Serves as a roadmap for reaching the organizational destinations ⚫ Organizations have ⚫Organizational strategies ⚫ Overall strategies that relate to the entire organization ⚫ Support the achievement of organizational goals and mission ⚫Functional level strategies ⚫ Strategies that relate to each of the functional areas and that support achievement of the organizational strategy LO 2.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-54 Tactics and Operations ⚫Tactics ⚫The methods and actions taken to accomplish strategies ⚫The “how to” part of the process ⚫Operations ⚫The actual “doing” part of the process LO 2.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-55 Core Competencies ⚫Core competencies The special attributes or abilities that give an organization a competitive edge ⚫To be effective core competencies and strategies need to be aligned LO 2.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-56 Sample Operations Strategies Organizational Strategy Operations Strategy Examples of Companies or Services Low Price Low cost U.S. first-class postage Wal-Mart Short processing times McDonald’s restaurants On-time delivery FedEx High performance design and/or high quality processing Sony TV Consistent quality Coca-Cola Differentiation: Newness Innovation 3M, Apple Differentiation: Variety Flexibility Burger King (Have it your way”) Volume McDonald’s (“Buses Welcome”) Differentiation: Service Superior customer service Disneyland Differentiation: Location Convenience Responsiveness Differentiation: High Quality LO 2.4 IBM Supermarkets; mall stores Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-57 Strategy Formulation ⚫Effective strategy formulation requires taking into account: ⚫Core competencies ⚫Environmental scanning ⚫SWOT ⚫Successful strategy formulation also requires taking into account: ⚫Order qualifiers ⚫Order winners LO 2.4 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-58 Strategy Formulation (cont.) ⚫Order qualifiers ⚫Characteristics that customers perceive as minimum standards of acceptability for a product or service to be considered as a potential for purchase ⚫Order winners ⚫Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition LO 2.4 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-59 Environmental Scanning ⚫Environmental scanning is necessary to identify ⚫Internal factors ⚫Strengths and weaknesses ⚫External factors ⚫Opportunities and threats LO 2.4 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-60 Key External Factors 1. 2. 3. 4. 5. 6. Economic conditions Political conditions Legal environment Technology Competition Markets LO 2.4 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-61 Key Internal Factors 1. 2. 3. 4. 5. 6. 7. 8. Human resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers Other LO 2.4 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-62 Operations Strategy ⚫Operations strategy ⚫The approach, consistent with organization strategy, that is used to guide the operations function LO 2.4 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-63 Strategic OM Decision Areas Decision Area What the Decisions Affect Product and service design Costs, quality, liability, and environmental issues Capacity Cost, structure, flexibility Process selection and layout Costs, flexibility, skill level needed, capacity Work design Quality of work life, employee safety, productivity Location Costs, visibility Quality Ability to meet or exceed customer expectations Inventory Costs, shortages Maintenance Costs, equipment reliability, productivity Scheduling Flexibility, efficiency Supply chains Costs, quality, agility, shortages, vendor relations Projects Costs, new products, services, or operating systems LO 2.4 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-64 Quality-Based Strategies ⚫Quality-based strategy ⚫Strategy that focuses on quality in all phases of an organization ⚫Pursuit of such a strategy is rooted in a number of factors: ⚫Trying to overcome a poor quality reputation ⚫Desire to maintain a quality image ⚫A desire to catch up with the competition ⚫A part of a cost reduction strategy Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-65 Time-Based Strategies ⚫Time-based strategies ⚫Strategies that focus on the reduction of time needed to accomplish tasks ⚫It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved LO 2.5 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-66 Time-Based Strategies (cont.) ⚫Areas where organizations have achieved time reductions: ⚫Planning time ⚫Product/service design time ⚫Processing time ⚫Changeover time ⚫Delivery time ⚫Response time for complaints LO 2.5 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-67 Agile Operations ⚫Agile operations ⚫A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change ⚫Involves the blending of several core competencies: ⚫Cost ⚫Quality ⚫Reliability ⚫Flexibility Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-68 The Balanced Scorecard Approach ⚫ A top-down management system that organizations can use to clarify their vision and strategy and transform them into action ⚫ Develop objectives ⚫ Develop metrics and targets for each objective ⚫ Develop initiatives to achieve objectives ⚫ Identify links among the various perspectives ⚫ Finance ⚫ Customer ⚫ Internal business processes ⚫ Learning and growth ⚫ Monitor results Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-69 The Balanced Scorecard Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-70 Productivity ⚫Productivity ⚫A measure of the effective use of resources, usually expressed as the ratio of output to input ⚫Productivity measures are useful for ⚫Tracking an operating unit’s performance over time ⚫Judging the performance of an entire industry or country LO 2.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-71 Why Productivity Matters ⚫High productivity is linked to higher standards of living ⚫ As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to maintain high standards of living ⚫Higher productivity relative to the competition leads to competitive advantage in the marketplace ⚫ Pricing and profit effects ⚫For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry LO 2.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-72 Productivity Measures LO 2.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-73 Productivity Calculation Example Units produced: Standard price: Labor input: Cost of labor: Cost of materials: Cost of overhead: 5,000 $30/unit 500 hours $25/hour $5,000 2x labor cost What is the multifactor productivity? LO 2.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-74 Solution What is the implication of an unitless measure of productivity? LO 2.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-75 Productivity Growth Example: Labor productivity on the ABC assembly line was 25 units per hour in 2014. In 2015, labor productivity was 23 units per hour. What was the productivity growth from 2014 to 2015? LO 2.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-76 Service Sector Productivity ⚫Service sector productivity is difficult to measure and manage because ⚫It involves intellectual activities ⚫It has a high degree of variability ⚫A useful measure related to productivity is process yield ⚫Where products are involved ⚫Ratio of output of good product to the quantity of raw material input ⚫Where services are involved, process yield measurement is often dependent on the particular process: ⚫Ratio of cars rented to cars available for a given day ⚫Ratio of student acceptances to the total number of students approved for admission LO 2.6 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-77 Factors Affecting Productivity Methods Capital Technology LO 2.7 Quality Management Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-78 Improving Productivity 1. Develop productivity measures for all operations 2. Determine critical (bottleneck) operations 3. Develop methods for productivity improvements 4. 5. Establish reasonable goals Make it clear that management supports and encourages productivity improvement 6. Measure and publicize improvements 7. Don’t confuse productivity with efficiency LO 2.7 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 2-79 Purchase answer to see full attachment

  
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