Transformation from inputs to outputs Operations Function Transformation from inputs to outputs Inputs Labour Materials Capital Operations Outputs Products Services

Operations Function Interfaces Personnel Purchasing Operations Marketing Finance

Operations Strategy Operations strategy is the means by which operations implements the firm’s corporate strategy and helps to build a customer-driven firm. It links long-term and short-term operations decisions to corporate strategy. It is the core of managing processes and value chains.

Customer-Driven Operations Strategy Corporate strategy views the organization as a system of interconnected parts, each working with the others to achieve desired goals. Operations Strategy supports the corporate strategy and requires continuous cross-functional interaction. The operations strategy should be customer driven.

Competitive Priorities Cost 1. Low-cost operations Quality 2. Top quality 3. Consistent quality Time 4. Delivery speed 5. On-time delivery 6. Development speed Flexibility 7. Customization 8. Variety 9. Volume flexibility

Competitive Capabilities The Competitive Capabilities are the cost, quality, time and flexibility dimensions of competitive priorities that a process or value chain actually possesses and is able to deliver. Low Cost means delivering a service or product at the lowest possible cost to the satisfaction of the customer.

Quality as a Competitive Capability Top Quality: Delivering an outstanding service or product. Considerable interaction with the customers may be required to determine what that means. Consistent Quality: Producing services or products that meet design specifications on a consistent basis.

Time as a Competitive Capability Delivery Speed is quickly filling a customer’s order. Lead Time is the time between receipt of an order and filling the order. On-Time Delivery means meeting the delivery time promises. Development Speed is quickly introducing a new service or product. Time-Based Competition is a strategy that focuses on development speed and delivery speed.

Flexibility as a Competitive Capability Customization means satisfying the unique needs of each customer by changing the service or product designs. Variety involves handling a wide assortment of services or products efficiently. Volume Flexibility requires accelerating or decelerating the rate of production quickly to handle large fluctuations in demand.

Corporate Strategy and Key Operations Management Decisions Operations strategy Decisions Managing Processes Managing Value Chains Market analysis Competitive priorities New Service/ Product Development Capabilities Performance Gap? No Yes

Measuring Productivity Productivity is a measure of how efficiently inputs are converted to outputs Productivity = output/input Total Productivity Measure: Total Productivity = (total output)/(total of all inputs) Partial Productivity Measure: Partial Productivity = (total output)/(single input) Multifactor Productivity Measure: Multi-factor Productivity = (total output)/(several inputs) © Wiley 2010

Total Productivity: example Bluegill Furniture makes kitchen chairs. The weekly dollar value of its output, including finished goods and work-in-progress, is $14,280. The value of inputs (labor, materials, capital) is approximately $16,528. What is the total productivity measure for Bluegill? Total productivity = output/input = $14,280/$16,528 = .864 or 86.4% © Wiley 2010

Partial Productivity: example Bluegill Furniture has hired 2 new workers to paint chairs. Together they have painted 10 chairs in 4 hours. What is labor productivity for the pair? Labor productivity = output/labor = (10 chairs)/(2 x 4 hr) = (10 chairs)/(8 hr) or 1.25 chairs/hr © Wiley 2010

Multifactor Productivity: example Bluegill Furniture averages 35 chairs/day. Labor costs average $480, material costs are typically $200, and overhead cost is $250. Bluegill sells the chairs to a retailer for $70/unit. Find multifactor productivity. Multifactor productivity = (value of output)/(labor + material + overhead costs) = ($70/chair x 35 chairs)/(480+200+250) = ($2450)/($930) or 2.63 © Wiley 2010

Service Sector and Manufacturing-Key Differences Intangibility: They can’t be touched, tasted, felt as in case of manufacturing Heterogeneity : No two services are exactly alike. The difference is due to the difference in service receivers, service providers and other service delivery system Simultaneous production and consumption: Most often services are produced on demand or the customer is involved at the time of service production © Wiley 2010

Productivity and the Service Sector Measuring service sector productivity is a unique challenge Traditional measures focus on tangible outcomes Service industries primarily produce intangible outcomes Measuring intangibles is challenging © Wiley 2010

Factors affecting Operations Management today Global Competition Quality, customer service and cost challenges Rapid expansion of advanced technologies Continued growth of service sector(70-80% of business now is service oriented) Scarcity of operations resources Social responsibility issues