1 OPERATIONS MANAGEMENT for MBAs Second Edition Meredith and Shafer

Chapter 1: The Nature of Operations2 Chapter 1 The Nature of Operations

Chapter 1: The Nature of Operations3 Introduction

Chapter 1: The Nature of Operations4 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 Operations5 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 Operations6 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 Operations7 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 Operations8 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.

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 Characteristics of Products and Services Products Tangible Minimal customer contact Minimal customer participation Delayed consumption Equipment intensive Quality easily measured Services Intangible Extensive customer contact Extensive customer participation Immediate consumption Labor intensive Quality difficult to measure

Chapter 1: The Nature of Operations14 “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 Operations15 The Range from Services to Products

Chapter 1: The Nature of Operations16 Classification and Evolution of Economic Offerings

Chapter 1: The Nature of Operations17 Comparison of Alternative Economic Offerings Economic OfferingCommoditiesGoodsServicesExperiences Value added byExtractingProducingDeliveringStaging Form of outputFungibleTangibleIntangibleMemorable Key characteristics NaturalStandardizedCustomizedPersonalized BuyerMarketUserClientGuest

Chapter 1: The Nature of Operations18 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 Operations19 Functional View of Organizations Three core functions Operations Marketing Finance Other important functional activities Accounting Human resource management Information systems Engineering

Chapter 1: The Nature of Operations20 Process View of Organizations An Evolution

Chapter 1: The Nature of Operations21 Traditional Functional Organization

Chapter 1: The Nature of Operations22 Value-Chain Approach