Introduction to the Field

Strategic Planning Mission and Vision Mission and Vision Corporate Strategy Corporate Strategy Operations Strategy Operations Strategy Marketing Strategy Marketing Strategy Financial Strategy Financial Strategy Voice of the Business Voice of the Customer

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 OUTPUT Goods Services Feedback & Requirements

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: build- to-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 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. 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?) The Goods-Services Continuum “Services never include goods and goods never include services.” (True or false?)

Proportion of Goods & Services in Purchase Bundle Goods Services 100% % Self-service gasoline……………. Personal computer…………… Office copier…………………. Fast-food restaurant………… Gourmet restaurant………… Auto repair…………………… Airline flight……………………. Haircut………………………….

Goods versus Services  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  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. Good Service

Something to remember! Customer conduct transactions directly with the service provider, most often in person Customer must rely on the reputation of the service firm. Customer can play an active part in the process. Service can’t be inspected before delivery. You can’t make happy guests with unhappy employess. In the service business, ………

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 Intangibility: creative advertising, no patient protection, importance of reputation Perishability Perishability: cannot inventory, opportunity loss of idle capacity, need to match supply with demand Heterogeneity Heterogeneity: customer participation in delivery process results in variability Simultaneity Simultaneity: opportunities for personal selling, interaction creates customer perceptions of quality Customer Participation in the Service Process: Customer Participation in the Service Process: attention to facility design but opportunities for co- production

The Service Process Matrix Degree of Interaction and Customization LowHigh Services Factory:Service Shop: Degree of Labor Intensity Low AirlinesHospitals TruckingAuto repair HotelsOther repair services Resort & Recreation High Mass Service:Professional Service: RetailingDoctors WholesalingLawyers SchoolsAccountants Retails Aspects of Com-Architects mercial Banking

Challenges for Service manager Service Factory Service Shop Mass Service Professional Service Low Labor Intensity: Capital decisions Technological advance Managing demand peaks/off-peaks Scheduling service delivery 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 Low Interaction/Customization: Marketing Making service “warm” Attentions to physical surroundings Maintaining SOP

Stages of Economic Development Features Pre- Use of Standard dominant human Unit of of living Society Game activity labor social life measure Structure Technology Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools power Authoritative Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical nature Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent Intellectual of health, Global education, recreation

The New Experience Economy EconomyAgrarianIndustrialServiceExperience Function ExtractMakeDeliverStage Nature FungibleTangibleIntangibleMemorable Attribute NaturalStandardizedCustomizedPersonal Method of supply Stored in bulk Inventoried Delivered on demand Revealed over time Seller TraderManufacturerProviderStager Buyer MarketUserClientGuest

The Four Realms of an Experience

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 “Membership” relationship No formal relationship Insurance Radio station Telephone subscription Police protection Continuous delivery College enrollment Lighthouse of service Banking Public Highway American Automobile association Long-distance phone calls Restaurant Theater series subscription Mail service Discrete transactions Commuter ticket or transit pass Toll highway Sam’s Wholesale Club Movie theater Egghead computer software Public transportation

Strategic Service Classification (Method of Service Delivery) Availability of Service Outlets Nature of Interaction between Customer and Service Organization Single site Multiple site Customer goes to Theater Bus service service organization Barbershop Fast-food chain Service organization Lawn care service Mail delivery comes to customer Pest control service AAA emergency repairs Taxi Customer and service organization transact at Credit card company Broadcast network arm’s length (mail or Local TV station Telephone company electronic communications)

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 Evaluation Consumer arrivals Consumer participant departures Criteria (input) Consumer-Provider ( output) Measurement interface Control Monitor Customer demand Service operations manager Service personnel Production function: Perceived needs Alter Monitor and control process Schedule Empowerment Location demand Marketing function: supply Training Interact with consumers Attitudes Control demand Modify as necessary Define standard Service package Supporting facility Communicate Facilitating goods Basis of by advertising Explicit services selection Implicit services