Chapter 1: The Nature of Operations1 Chapter 1 The Nature of Operations

Chapter 1: The Nature of Operations2 Introduction

Chapter 1: The Nature of Operations3 McDonald’s Corp Facing increased competition Smarter and more demanding customers Less brand loyal Switched to hamburger bun that does not require toasting. Customers prefer taste of new bun Saves time and money

Chapter 1: The Nature of Operations4 Olympic Flame 10,000 runners 15,000 miles through 42 states in 84 days Two years of planning Must plan for no-show runners and rush hour traffic Cost of this operation in the neighborhood of $20 million

Chapter 1: The Nature of Operations5 Kmart Versus Wal-Mart Both chains started in 1962 In 1987, Kmart had 2,223 stores to Wal-Mart’s 1,198. Kmart’s sales were $25.63 billion to Wal-Mart’s $15.96 billion By 1991, Wal-Mart’s sales exceeded Kmarts Kmart still had more stores

Chapter 1: The Nature of Operations6 Kmart Versus Wal-Mart continued In year ending January 1996, Wal- Mart’s sales were $93.6 billion to Kmart’s $34.6 billion. During this time Kmart emphasized marketing and merchandising (such as national TV ad campaigns). Wal-Mart was investing millions in its operations to lower cost.

Chapter 1: The Nature of Operations7 Kmart Versus Wal-Mart continued Wal-Mart developed sophisticated distribution system that integrated its computer system with its distribution system. Kmart’s employees lacked skills needed to plan and control inventory. Period from 1987 to 1995 Kmart's market share declined from 34.5 percent to 22.7 percent. Wal-Mart's increased from 20.1 percent to 41.6 percent

Chapter 1: The Nature of Operations8 Kmart Versus Wal-Mart continued Fast forward to 2004  Kmart appears to have adopted a new strategy Merge with Sears, Roebuck & Co.  Potential synergies between Kmart’s convenient locations and Sears’ strong brands

Chapter 1: The Nature of Operations9 Diversity and Importance of Operations Improvements in operations can simultaneously lower costs and improve customer satisfaction. Improving operations often dependent on advances in technology. Can obtain competitive advantage by improving operations. Diversity of operations

Chapter 1: The Nature of Operations10 Operations Heart of every organization Operations are the tasks that create value

Chapter 1: The Nature of Operations11 The Production System

Chapter 1: The Nature of Operations12 Systems Perspective Inputs Transformation System  Alter  Transport  Store  Inspect Outputs Environment

Chapter 1: The Nature of Operations13 Inputs Inputs include facilities, labor, capital, equipment, raw materials, and supplies. A less obvious input is knowledge of how to transform the inputs into outputs.

Chapter 1: The Nature of Operations14 Transformation System The part of the system that adds value to the inputs. Four major ways  Alter – physical change  Transport - relocate  Store - protect  Inspect – better understanding

Chapter 1: The Nature of Operations15 Outputs Two types of outputs commonly result from a production system  Services (abstract or nonphysical)  Products (physical goods)

Chapter 1: The Nature of Operations 16

Chapter 1: The Nature of Operations17 Facilitating Good Concept Often confusion in trying to classify organization as manufacturer or service Facilitating good concept avoids this ambiguity All organizations defined as service The tangible part of the service is defined as facilitating good Pure services

Chapter 1: The Nature of Operations18 The Range From Services to Products

Chapter 1: The Nature of Operations19 Classification and Evolution of Economic Offerings

Chapter 1: The Nature of Operations20 Comparison of Alternative Economic Offerings Economic OfferingCommoditiesGoodsServicesExperiences Value added by ExtractingProducingDeliveringStaging Form of outputFungibleTangibleIntangibleMemorable Key characteristics NaturalStandardizedCustomizedPersonalized BuyerMarketUserClientGuest

Chapter 1: The Nature of Operations 21

Chapter 1: The Nature of Operations22 Operations Activities Strategy Output Planning Capacity Planning Facility Location Facility Layout Aggregate Planning Inventory Management Materials Requirements Planning Scheduling Quality Control

Chapter 1: The Nature of Operations23 Functional View of Organizations Three Core Functions  Operations  Marketing  Finance/Accounting Other Important Functional Activities  Human Resource Management  Information Systems  Engineering

Chapter 1: The Nature of Operations24 Chapter in Perspective Two alternative ways for organizing work activities  Functional approach, companies organize activities on the basis of the type of work performed  Organizing activities on the basis of specific value-creating processes.

Chapter 1: The Nature of Operations25 Process View of Organizations An Evolution

Chapter 1: The Nature of Operations26 Traditional Functional Organization

Chapter 1: The Nature of Operations27 Value Chain Approach