Chapter 1:

Operations and Productivity

LS201 - Innovations in Operations, Logistics, & Supply Chain Management
What is Operation Management?
• Activities that create value in the form of goods and service by
transforming inputs into outputs.
• Production is the creation of goods and service
In manufacturing firms, the production In an organization that doesn’t create a
activities that create goods are ‘Tangible tangible good or product, the activities
Products’ are known as service
Characteristics of Goods and Service
Goods Service

• Tangible Product • Intangible Product

• Consistent Product Definition • Produced and consumed at
• Production usually sperate the same time
from consumption • Often unique
• Can be inventoried • High customer interaction
• Low customer interaction • Inconsistent product definition
• Often knowledge-based
• Frequently dispersed
Goods and Service (Continued)
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

Operations for Goods and Service
The operation activities for both goods and service are often very
similar. Both have
1. Quality standards
2. designed and produced on schedule that meets customer demand
3. made in a facility where people are employed
Organizing to Produce Goods and Service

To create goods and service, all organizations perform three functions. They are necessary not
only for production, but for the organization’s survival

Three Functions

Marketing Finance/Accounting
Generates the demand, Tracks how well the Production/ Operations
takes order for a product organization is doing, creates, produces, and
or service (otherwise pays the bills, and delivers the product.
nothing will happen until collects the money
there is a sale)
Example A
Commercial Bank

Operations Finance Marketing

Teller Scheduling Investments Loans
Check Clearing Security Commercial
Collection Real estate Industrial
Transaction processing Financial
Facilities design/layout Personal
Vault operations Mortgage
Maintenance
Security Accounting

Auditing
Trust Department
Example B

Airline

Operations Finance/ accounting

Ground support Accounting
equipment Payables Marketing
Maintenance Receivables Traffic administration
Ground Operations General Ledger
Reservations
Facility Finance Schedules
maintenance Cash control Tariffs (pricing)
Catering International Sales
Flight Operations exchange
Advertising
Crew scheduling
Flying
Communications
Dispatching
Management science
Example C
Manufacturing

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply-chain management research
Funds Management
Manufacturing
Tooling; fabrication; assembly Money market
International
Design exchange
Product development and design
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel and recall
Process analysis
Development and installation of
production tools and equipment
The Supply Chain
• A supply chain is a global network of organizations and activities
that supply a firm with goods and service. When members of the
supply chain collaborate to achieve high levels of customer
satisfaction, we have tremendous force for efficiency and
competitive advantage.
So why Study Operation Management?

1. OM is one of the three major functions of

any organization; we want to study how
people organize themselves for productive
enterprise

2. To know how goods and service are

produced

3. To understand what operation managers

do

4. To reduce cost and improve profitability

What do Operation Managers do?

Planning Organizing

Staffing Leading

Controlling
Operating managers must successfully
address the 10 decisions:

Design of Managing Process and Location Layout

goods and quality capacity strategy strategy
services design
What good or How do we define What process and Where should we How should we
service should we quality? what capacity will put the facility? arrange the
offer? Who is responsible these products On what criteria facility?
How should we for quality? require? should we base How large must
design these What equipment the location the facility be to
products and and technology is decision? meet our plan?
services? necessary for
these processes?
Operating managers must successfully
address the 10 decisions:

Human Supply-chain Inventory, Intermediate Maintenance

resources and management material and short–term
job design requirements scheduling
planning, and
JIT
How do we provide Should we make or How much Are we better off How do we build
a reasonable work buy this inventory of each keeping people on reliability into our
environment? component? item should we the payroll during processes?
How much can we Who should be our have? slowdowns? Who is responsible
expect our suppliers and how When do we re- Which jobs do we for maintenance?
employees to can we integrate order? perform next?
produce? them into our
strategy?
Group Work
• In your newly created group work on the following:
• Select any company:
• Determine the company’s goods (Is it a product or service)
• Briefly show its supply chain model from start to finish
• Using what you know about the 10 different factors that manager must
address, select 5 factors that are important for the company that you have
selected.

• 10 points
• Working in Groups of 4:
• Present as a Group (2 people max).
Chapter 2:
Operations Strategy in Global
Environment
LS201 - Innovations in Operations, Logistics, & Supply Chain Management
Reasons to Globalize
Understand Attract & Retain
Reduce Cost
Markets Global Talent

Improve Improve Improve

Supply Chain Operations Products

Tangible Reasons Intangible Reasons

Reasons to Globalize
Improve Supply Chain

• Supply chains can often be improved

by locating facilities in countries where
unique resources are available.
Theses resources may be:
• Human resources
• Expertise
• low-cost labor
For example: Most of the world’s
• Raw material. perfumes essence are prepared from
the flowers of the Mediterranean and
manufactured in Grasse, France.
Reasons to Globalize
Reduce Cost and Exchange Rate

• Many international operations seek to reduce risk associated with

changing currency values (exchange rate) as well as take
advantage of the tangible opportunities to reduce their direct cost.

Shifting of low-skilled jobs to another country has several potentials.

Freeing of higher cost workers to more valuable tasks.

Savings to be reinvested for improved products and facilities

Allow firms to contain currency risk depending on the economy situation.

Additional to Point No. 2
• Trade agreements help reduce tariffs by reducing the cost of operating facilities
in foreign countries
• Example:

World Trade Asia-Pacific Economic North American European Union (EU):

Organization Cooperation (APEC): Free Trade reduced trade barriers for
(WTO): Inter-governmental forum Agreement (NAFTA) participating European
reduction of for 21 member economics – for Canada, U.S. nation through
tariffs from 40% that promotes the free-trade and Mexico standardization and use
to less than 3% throughout the Asia-pacific of a common currency
since 1940 till region. (Euro,€)
now.
Reasons to Globalize
Improve Operations

• Operations learn from better understanding of management

innovations in different countries

Having international operations is Providing customers with quick

to reduce response time to meet and adequate service is often
customer’s changing product and improved by locating facilities in
service requirements. their home countries.
Reasons to Globalize
Understand Markets • Since international operations require
interaction with foreign customer, suppliers and
other competitive business, international firms
inevitably learn about opportunities for new
products and service

• Knowledge of markets not only helps firms

understand where the market is going but also
helps firms diversify their customer base,
add production flexibility, and smooth the
business cycle.
Reasons to Globalize
Improve Products

• Firms serve themselves and their customers well when they remain
open to the free flow of ideas.

2008-2021: Lithium-ion
batteries were created and
produced by the joint venture
for use in electric, plug-in
hybrid, and hybrid
automobiles.
Reasons to Globalize
Attraction and Retention of Global Talent

• Global organization can attract and

retain better employees by offering more
employment opportunities.
• They need people in all functional areas
an areas of expertise worldwide.
• In away, global firms recruit and retain
good employees because they provide
greater growth opportunities and
insulation against unemployment during
times of economics downturn.
Cultural and Ethical Issues
• Cultures can be quite different
• Attitudes can be quite different towards:
• Punctuality
• Lunch breaks
• Environment
• Intellectual Property
• Thievery
• Bribery
• Child Labor
Developing Mission and Strategies
• An effective operations management effort must have a mission, so
it knows where it is going and a strategy, so it knows how to get
there.
• Mission: we define the organization’s mission as its purpose – what
it will contribute to society.
• Mission statements provide boundaries and focus for organizations and the
concept around which the firm can rally.
• The mission states the rationale for the organization’s existence
• Once the firm’s mission statement is defined, the firm’s functional areas
determines its supporting mission.
Factors Affecting Mission

Customers
Profitability and Growth
Environment
Public Image
Philosophy and Values
Benefit to Society
Example of Apple’s Mission Statement:
• “To make the best products on earth
and to leave the world better than we
found it.”

• Key take aways from Apple’s Mission

Statement:
• Ensures each decision made by the
company aligns with the its missions
and goals.
• Leadership in Product Design: M1 chips
and ultra fast 5G.
• Carbon Neutral – reduce overall emission
by 75%.
Example of Setting a ‘Mission’
Continued Mission/Strategy
• Strategy: is an organization’s action plan to achieve the mission.
• Each functional area has a strategy for achieving its mission and for
helping the organization reach the overall mission.
• Strategies exploit opportunities and strengths, neutralize threats,
and avoid weakness

• Firms achieve missions in three conceptual ways

• (1) differentiation
• (2) cost leadership
• (3) response
Achieving Competitive Advantage Through
Operations
• Competitive advantage means the creation of a system that has a
unique advantage over competitors

01 02 03
Achieving Competitive Advantage Through
Operations

• Providing uniqueness
• Differentiation should be thought of as going
beyond both physical characteristics and service
01 attributes to encompass everything about the
product or service that influences the value the
Competing on
Differentiation
customers derive from it.
• This could mean convenience of a broad product
line, product features, or a service related to the
product
Achieving Competitive Advantage Through
Operations
• Service can do the same
by offering connivence
product delivery and
installation, or repair and
maintenance service.
• Experience
01 differentiation –
engaging the customer to
Competing on
Differentiation use people's five sense
so they become
immersed, or even an
active participant, in the
product. (example of
Disney world).
Achieving Competitive Advantage Through
Operations

• Once driver of a low-cost strategy is a facility that

02 is effectively used.
• Identifying the optimum size (and investment)
Competing on
Cost allows firms to spread overhead cost, providing a
cost advantage
Achieving Competitive Advantage Through
Operations
• WALMART: Save Money. Live Better
• Continues to pursue its low-cost strategy
with superstores, open 24 hours a day for
20 years and has successfully grabbed
market share
• Has driven down store overhead cost,
shrinkage, and distribution cost.
• Rapid transformation of goods, reduced
02 warehousing cost and direct shipment from
manufacturers results in high inventory
turnover and made it a low-cost leader.
Competing on
Cost
• Low-Cost Leadership: Achieving
maximum value as defined by your
customer.
Achieving Competitive Advantage Through
Operations

• Flexible response: ability to match

changes in the marketplace where design
innovations and volumes fluctuates
03 substantially.
1. Sustainable Competitive Advantage
Competing on 2. Reliability of Scheduling
Response
3. Response on Quickness
Product Life Cycle
Product Life Cycle (Explanation)
SWOT Analysis
Strategy Development Process
Strategy Development and Implementation

• Identify key success factors

• Build and staff the organization
• Integrate Operation Management (OM)
with other activities
• Operation Manager’s job is the implement
OM strategy, provide competitive
advantage, and increase productivity.
Core Competencies
• Unique set of skills, talents, and capabilities in which a firm is
particularly strong at.
• A core competency may be the ability to perform the Key Success
Factors (KSF), or a combination of KSF.
• The operation manager begins this inquiry by asking:
• What task must be done particularly well for a given strategy to succeed?
• Which activities provide a competitive advantage?
• Which elements contains the likelihood of failure, and which require
additional commitment of managerial, monetary, technological and human
resources?
Key Success Factors
Example: Honda
• Honda’s core competence is the design and manufacture of gas
power engines. This competence has allowed Honda to become a
leader in the design and manufacturer of wide range of gas-
powered products. Tens of millions of these products are produced
and shipped around the world.
Core Competencies and Outsourcing:

Company’s core
Core Activities competencies (Mission,
Goals Strategies)

Business

Non-Core Possibility of being

Activities outsourced
Outsourcing
• Transferring a firm's activities that have been traditionally been
internal to external suppliers.
• Outsourcing occurs due to three global trends which all leads to
lower cost and specialization.

1. Increased technological expertise

2. More reliable and cheaper transportation

3. Rapid development and deployment of

advancements in telecommunications and computers.
Risk of Outsourcing:
Advantages Disadvantages

• Cost savings • Increased logistics and inventory

• Gaining outside expertise that cost
comes with specialization • Loss of control in term of quality,
• Improving operations and delivery etc.
service • Potential creation of future
• Maintaining a focus on core competition
competencies • Negative impact on employees
• Accessing outside technology • Possibility of risk arising in future
years.
Global Operation Strategy Options
• Firms that are an international business
deals in international trade or investment
• Multinational Corporation (MNC’s) with
extensive international business
• Buy resources, create goods and services and
sell goods or services in a variety of countries
• Example: IBM imports electrical components from over 50
countries, exports to over 150 countries and has facilities in
45 countries. Most than half of their earnings are from
abroad.
Global Operations Strategy Options
International Strategy
• Uses exports and license to
penetrate the global area
• Least advantageous, with little
local responsiveness and little
cost advantage.
• Easiest to operate
• Exports require little change in
existing operations
• Licensing agreements often
leave risk to the licensee
Multidomestic Strategy
• Decentralized authority with
substantial autonomy at each
business
• Subsidiaries, franchises or
Joint ventures with significant
independence
• Maximizing competitive
response for local market but
has little to no cost advantage.
• “We were successful in the
home market; let’s export the
management talent process, to
accommodate another market.”
• Example: Heinz
Global Strategy
• Operating decisions are
centralized, and headquarters
coordinates the standardization
and learning between facilities
• Strategic focus is cost
reduction
• Little responsiveness in which
demand for local
responsiveness.
• End products are similar
around the world
Transnational Strategy
• Combines the benefits of
global-scale efficiencies with
the benefit of local
responsiveness.
• Core-Competencies exist
anywhere around the world not
just in home country
• Able to pursue all three
operational strategies
(differentiation, low cost, and
response)
Global Operations Strategy Options