1. Operations Management: Managing Vital Operations and Processes
Chapter Fourteen
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives
LO1 Explain the role of operations management in achieving superior quality, efficiency, and responsiveness to customers.
LO2 Describe what customers want, and explain why it is so important for managers to be responsive to their needs.

3. Learning Objectives (cont.)
LO3 Explain why achieving superior quality in an organization’s operations and processes is so important.
LO4 Explain why achieving superior efficiency is so important.

4. Operations Management
The management of any aspect of the production system that transforms inputs into finished goods and services
14-4

5. Operations Management
Production System
The system that an organization uses to acquire inputs, convert inputs into outputs, and dispose of the outputs

6. Operations Management
Operations Manager
Manager who is responsible for managing an organization’s production system and for determining where operating improvements might be made

7. Question?
What is action taken to meet the demands and needs of customers?
Quality
Efficiency
Responsiveness to customers
Effectiveness
The correct answer is “C” – responsiveness to customers. See slide 14-9.

8. Operations Management
Quality
goods and services that are reliable, dependable, or psychologically satisfying
Efficiency
amount of inputs required to produce a given output

9. Operations Management
Responsiveness to customers
action taken to meet the demands and needs of customers
14-9

10. The Purpose of Operations Management
Figure 14.1
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11. Improving Responsiveness to Customers
Without customers, organizations would cease to exist.
Non-profit and for-profit firms all have customers.
Managers need to identify who the customer is and their needs. 5

12. What do customers want? Usually customers prefer:
A lower price to a higher price
High-quality products to low-quality products
Quick service to slow service
Many features over few features.
Products that are customized or tailored to their specific needs 5

13. Designing Production Systems to Be Responsive to Customers
The attributes of an organization’s outputs—their quality, cost, and features—are determined by the organization’s production system
Since the ability of an organization to satisfy the demands of its customers derives from its production system, managers need to devote considerable attention to constantly improving production systems

14. Customer Relationship Management
Customer relationship management (CRM)
technique that uses IT to develop an ongoing relationship with customers to maximize the value an organization can deliver to them over time

15. Improving Quality
The concept of quality applies the products of both manufacturing and service firms
A firm that provides higher quality than others at the same price is more responsive to customers.
Higher quality can also lead to better efficiency through lower waste levels and operating costs. 9

16. Impact of Increased Quality on Organizational Performance
Figure 14.2
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17. Improving Efficiency
The fewer the inputs required to produce a given output, the higher the efficiency of a production system
14-17 15

18. Improving Efficiency
A common measure of the organization’s efficiency of turning all of the inputs into outputs is called total factor productivity:

19. Improving Efficiency
A comparison measure of a single input (such as labor) to total output is called partial productivity:

20. Facilities Layout, Flexible Manufacturing, and Efficiency
The operations management technique whose goal is to design the machine-worker interface to increase production system efficiency.
14-20 16

21. Facilities Layout, Flexible Manufacturing, and Efficiency
Operations management techniques that attempt to reduce the setup costs associated with a production system. 16

22. Three Facilities Layouts
Figure 14.3
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23. Discussion Question Which facilities layout is best? Product layout
Process Layout
Fixed-Position Layout
There is no one best answer. Students can discuss the situation best suited for each layout.

24. Facilities Layout Product layout
Machines are organized so that each operation is performed at work stations arranged in a fixed sequence.
Example: mass production systems where workers are stationary and a belt moves work to them. 18

25. Facilities Layout Process Layout
Self contained work stations not organized in a fixed sequence.
Provides flexibility in making a wide variety of products tailored to customers. 18

26. Facilities Layout Fixed-Position Layout
The product stays in a fixed spot and components produced at remote stations are brought the product for to final assembly.
Large jet aircraft assembly uses this type of layout. 18

27. Changing a Facilities Layout
Figure 14.4
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28. Flexible Manufacturing
Most firms face major expenses when setting up to produce a product.
These costs must be paid before production begins.
The more often products to be built change, the higher setup costs become. 19

29. Flexible Manufacturing
Flexible manufacturing reduces setup costs by reducing the time required to reset the production line for a different product.
Using easily replaced manufacturing equipment
Redesigning the production system itself to be more productive.

30. Just-in-Time Inventory and Efficiency
the stock of raw materials, inputs, and component parts that an organization has on hand at a particular time
14-30

31. Just-in-Time Inventory and Efficiency
Just-in-Time (JIT) Inventory
System in which parts arrive at an organization when they are needed, not before 19

32. Just-in-Time Inventory and Efficiency
A drawback to JIT is that a firm does not maintain a large buffer stock of parts which makes the firm vulnerable to strikes or supply problems that can quickly deplete on-hand inventories. 19

33. Self-Managed Work Teams
Self-managed teams boost efficiency by allowing for a flatter organization structure.
The team takes on the role of the supervisor.
Teams working together often become very skilled at enhancing productivity.

34. Question
What is the rethinking and redesign of the business process to achieve dramatic improvement in critical measures of performance?
Corporate efficiency
Process redesign
Process re-qualification
Process reengineering
The correct answer is “D” – Process Reengineering. See slide

35. Process Reengineering and Efficiency
The fundamental rethinking and radical redesign of the business process to achieve dramatic improvement in critical measures of performance such as cost, quality, service, and speed

36. Process Reengineering and Efficiency
Boosts efficiency by directing efforts to activities that add value to the good or service produced
Top managers must support efficiency improvements for them to be accepted by workers

37. Video Case: CVS
How can a company like CVS grow in size yet maintain its organizational agility?
How does CVS respond to its customers?
Name: CVS
BusinessWeek TV’s Destination CEO
CEO of Company: Tom Ryan
Themes: Strategy, Organizational Responsiveness
Suggested chapters: 4, 9
Short paragraph about the video.
Ever wonder what CVS stands for? CVS was originally known as Consumer Value Stores, a small New England retail drug chain. It grew, and today CVS is the nation’s #1 pharmacy chain in terms of number of stores. If CEO Tom Ryan has his way, CVS will overtake its chief competitor Walgreens to become the top drug retailer in terms of profit. After a series of strategic acquisitions including Revco, Eckerd, and the Sav-On and Osco stores located in Chicago and California, CVS has approximately 6,000 stores in 40 states.
Early in his career, Ryan worked as a pharmacy delivery driver. Later, he graduated from pharmacy school and became a pharmacist. Ryan learned the importance of listening to customers. He has conducted an intense study of CVS shoppers. According to his research, over 80 percent of CVS customers are female. Based on feedback from shoppers, CVS has lowered its shelves, widened its aisles, and added upscale products. It appears its prescription to increase sales is working. (CVS :NYSE)
Note: CVS Corporation merged with Caremark RX in 2007 and is now called CVS Caremark Corporation. It has over 6,200 stores in 43 states.
3-4 multiple choice questions with answers regarding video topics
Before graduating from pharmacy school, Tom Ryan worked as a ________.
waiter
delivery driver
factory worker
construction worker
CVS recently acquired with which of the following companies?
Wal-Mart
Rite Aid
Revco
Dominick’s
Based on a strategic analysis of market feedback from customers, Ryan has decided to incorporate the following:
Lower prices
Extend store hours
Carry upscale products
Improve customer service
2-3 essay or discussion questions with suggested answers regarding video topics
Perform a SWOT analysis on CVS.
Students’ responses will vary. Typical answers include the following. Strengths: name brand recognition, availability of stores, attractiveness and convenience of product displays; Weaknesses: unable to compete with big box stores on price, lower profit levels than competition Walgreens, Opportunities: potential to grow internationally, Threats: online pharmacies provide additional competition, vulnerability to changing laws and regulations regarding prescription drugs, rising health care costs.
How can a company like CVS grow in size yet maintain its organizational agility? Students’ responses will vary. One method that large companies use as they increase in size is to put both formal and informal structures into place so that they can maintain information sharing, employee morale, and customer focus. These companies reinforce a small-company culture so that they benefit from the values that made it successful as it continues to grow. Organizing around team-based units and using decentralized decision making also helps promote agility as companies grow.