2. 1
U N I T

3. Introduction 1 Describe Resource/Profit Model and its components
C H A P T E R
Introduction
L E A R N I N G O B J E C T I V E S
Describe Resource/Profit Model and its components
Describe the relationships among value, profitability, cost, processes, and capabilities
Describe the components of value
Differentiate between the resources that create value
Describe the changes in the business environment and the impact they have
Describe the external forces that affect the Resource/Profit Model
Explain why B2B and B2C customers may define value differently

4. Why Operations Management Is Critical to a Career in Business
What is operations management?
“The management of resources used to create salable products and services.”
Why is it important to all business majors?
Broadening of responsibilities
Need for an enterprise view
Unpredictable future opportunities

5. A New Business Environment
Technological progress
New products and services in addition to old ones
Rapid change

6. Overview of the Resource/Profit Model
An organizational model to put operations in a business context
Exhibit 1.3
The Resource/
Profit Model
Insert new graphic with Resource/Profit Model

7. Four Major Sections of the Resource/Profit Model:
Foundations for Success
Components of Value
Managing Resources Used to Create Value

8. Foundations for Success
Value
The “worth” of the product/service determined by the customer
Must exceed the cost of production in order to achieve profitability
Basis upon which business decide to make additional investment
Insert Exhibit 1.4
Strategy
Decisions about the way the firm will try to add value. How will the firm’s resources be aligned?
Who are the customers? What do they want? How will we deliver it?
Profitability
The primary business objective
Measures the long-run productivity of the business

9. Foundations for Success
Capabilities
What a company “does” for its customers
Driver of value for the firm.
Insert Exhibit 1.4
Processes
How work gets done
Firm configures processes to achieve goals and generate capabilities
Grouping of individual tasks performed by employees

10. Components of Value Quality
U N I T .
Quality
The degree of excellence of a product/service
What constitutes quality depends on the customer
Insert Exhibit 1.5
Timeliness
When and/or how fast something happens
Often considered part of quality
Major financial implications for firms
Cost
Amount of scarce resources (usually money) consumed to achieve an objective
Total Cost of Ownership (TCO) is the relevant measure

11. Managing Resources to Create Value
Inventory
Materials used to produce goods and services
Raw, WIP, Finished Goods, MRO and Supplies
Insert Exhibit 1.6
Capacity
The level of productive output of an organization in a specified period of time
What can we get out of our labor and equipment?
Resource Planning
Mechanism that obtains the correct resources, in the correct quantities, at the correct time, and at the lowest cost.
Facilities
The land and buildings that house a business
Workforce
People who do work

12. Managing Resources to Create Value
Lean Systems
A productive system that functions with little waste or excess, usually with low inventory levels
Insert Exhibit 1.6
Constraint Management
A framework for managing the constraints of a system in a way that maximizes the system’s accomplishment of its goals
Supply Chain Management
Most recent integrative framework
Resource decisions within one business affect outcomes of both suppliers and customers

13. Environmental Forces
Globalization
The Internet and Other Technologies
The Natural Environment
Regional Pressures

14. Business Outputs: Products and Services
Attributes of “Products”
Tangible
Easy to measure
Can be stored for later use
Quality can be assessed prior to customer delivery
Production processes are relatively unimportant to customers
Defective products can be repaired or scrapped
Attributes of “Service”
Intangible
Harder to measure
Cannot be stored for later use
Quality cannot be checked prior to delivery
Production processes can be very important to customers
Producers of defective services must attempt to recover to retain the customer

15. Continuum of Product and Service Providers
Product Only
Furniture
Paint
Grocery Products
Steel Mill
Mix of Product and Service
Retailer
Computer Manufacturer
Automobile Manufacturer
Restaurant
Car Rental Agency
Landscaping Firm
Print Shop
Service Only
Advertising Firm
Brokerage
Bank
Prison
Tanning Salon
Hair Stylist
Run the 1st Chicago Video

16. Customers Determine the Value Created by the Business
B2B = Business-to-Business
B2C = Business-to-Consumer
Value differs from customer to customer
Exhibit 1.9
Business Output/
Customer Matrix
Insert Exhibit 1.6