1. 1 OPERATIONS MANAGEMENT for MBAs Second Edition Prepared by Scott M. Shafer Wake Forest University Meredith and Shafer John Wiley and Sons, Inc.

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

3. Chapter 1: The Nature of Operations3 Introduction

4. Chapter 1: The Nature of Operations4 McDonald’s Corp 4 Facing Increased Competition 4 Smarter and More Demanding Customers 4 Less Brand Loyal 4 Switched to hamburger bun that does not require toasting. 4 Customers prefer taste of new bun 4 Saves time and money

5. Chapter 1: The Nature of Operations5 Olympic Flame 4 10,000 runners 4 15,000 miles through 42 states in 84 days 4 Two years of planning 4 Must plan for no-show runners and rush hour traffic 4 Cost of this operation in the neighborhood of $20 million

6. Chapter 1: The Nature of Operations6 Kmart Versus Wal-Mart 4 Both chains started in 1962 4 In 1987, Kmart had 2,223 stores to Wal- Mart’s 1,198. 4 Kmart’s sales were $25.63 billion to Wal- Mart’s $15.96 billion 4 By 1991, Wal-Mart’s sales exceeded Kmarts 4 Kmart still had more stores

7. Chapter 1: The Nature of Operations7 Kmart Versus Wal-Mart continued 4 In year ending January 1996, Wal-Mart’s sales were $93.6 billion to Kmart’s $34.6 billion. 4 During this time Kmart emphasized marketing and merchandising (such as national TV ad campaigns). 4 Wal-Mart was investing millions in its operations to lower cost.

8. Chapter 1: The Nature of Operations8 Kmart Versus Wal-Mart continued 4 Wal-Mart developed sophisticated distribution system that integrated its computer system with its distribution system. 4 Kmart’s employees lacked skills needed to plan and control inventory.

9. Chapter 1: The Nature of Operations9 Diversity and Importance of Operations 4 Improvements in operations can simultaneously lower costs and improve customer satisfaction. 4 Improving operations often dependent on advances in technology. 4 Can obtain competitive advantage by improving operations. 4 Diversity of Operations

10. Chapter 1: The Nature of Operations10 Operations 4 Heart of every organization 4 Operations are the tasks that create value

11. Chapter 1: The Nature of Operations11 The Production System

12. Chapter 1: The Nature of Operations12 Systems Perspective 4 Inputs 4 Transformation System –Alter –Transport –Store –Inspect 4 Outputs 4 Environment

13. Chapter 1: The Nature of Operations13 Characteristics of Products and Services

14. Chapter 1: The Nature of Operations14 Facilitating Good Concept 4 Often confusion in trying to classify organization as manufacturer or service 4 Facilitating good concept avoids this ambiguity 4 All organizations defined as service 4 The tangible part of the service is defined as facilitating good 4 Pure Services

15. Chapter 1: The Nature of Operations15 The Range From Services to Products

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

17. Chapter 1: The Nature of Operations17 Comparison of Alternative Economic Offerings Economic OfferingCommoditiesGoodsServicesExperiences Value added by ExtractingProducingDeliveringStaging Form of output FungibleTangibleIntangibleMemorable Key characteristics NaturalStandardizedCustomizedPersonalized BuyerMarketUserClientGuest

18. Chapter 1: The Nature of Operations18 Operations Activities 4 Strategy 4 Output Planning 4 Capacity Planning 4 Facility Location 4 Facility Layout 4 Aggregate Planning 4 Inventory Management 4 Materials Requirements Planning 4 Scheduling 4 Quality Control

19. Chapter 1: The Nature of Operations19 Functional View of Organizations 4 Three Core Functions –Operations –Marketing –Finance 4 Other Important Functional Activities –Accounting –Human Resource Management –Information Systems –Engineering

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

21. Chapter 1: The Nature of Operations21 Traditional Functional Organization

22. Chapter 1: The Nature of Operations22 Value-Chain Approach

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