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Copyright 2009 John Wiley & Sons, Inc.Beni Asllani

University of Tennessee at Chattanooga

I ntroduction to Operations and

Supply Chain Management

Operations Management - 6thEdition

Chapter 1

Roberta Russell & Bernard W. Taylor, III

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Copyright 2009 John Wiley & Sons, Inc. 1-2

Lecture Outline

The Operations Function Evolution of Operations and Supply Chain

Management (SCM) Globalization Productivity Overview Strategic Planning and Operations

Strategy Outline of this Textbook

Some slides include notes beneath them.

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The Operations Function

Overview

What is Operations Management?

Transformation Processes and ValueChains

How Operations is Connected with Other

Business Functions and with Suppliers

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What is Operations Management?

What is Operations Management? design, operation, and improvement of productive

systems

What is Operations? a function or system that transforms inputs into outputs of

greater value

What is a Transformation Process? a series of activities along a value chain extending from

supplier to customer

activities that do not add value are not needed andshould be eliminated

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INPUTMaterial

Machines

Labor

Management

Capital

TRANSFORMATION

PROCESS

OUTPUT

Goods

Services

Feedback & Requirements

Operations as a

Transformation ProcessFigure 1.1

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Physical: as in manufacturing operations

Locational: as in transportation orwarehouse operations

Exchange: as in retail operations

Physiological: as in health care

Psychological: as in entertainment

Informational: as in communication

Transformation Process

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7/44Copyright 2009 John Wiley & Sons, Inc. 1-7Copyright 2006 John Wiley & Sons, Inc. 1-7

A Value Chain

Manufacturer CustomerSupplier

Flow of information: customer order anddelivery requirements

Flow of products: goods and services

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How Operations is Connected with OtherBusiness Functions and with Suppliers

Operations

Marketing

Finance andAccounting

Human

Resources Outside

Suppliers

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Evolution of Operations and

Supply Chain Management Craft production

process of handcrafting products or services for

individual customers Division of labor

dividing a job into a series of small tasks eachperformed by a different worker. Division of laboris used to design assembly lines.

Interchangeable parts standardization of parts. A necessary step

toward mass production

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Evolution of Operations and

Supply Chain Management (cont.) Supply chain management

management of the flow of information, products, and services acrossa network of customers, enterprises, and supply chain partners

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Globalization Overview

Globalizing business functions

Why companies globalize

Risks of globalization

Global statistics

Hourly compensation costs for production workers

Trade in goods as % of Gross Domestic Product

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Globalizing Business Functions

Almost any business function can beperformed outside a company's home country Marketing Operations

Purchasing from foreign suppliers

Obtaining financing from overseas banks

Having products designed in another country Having customer service or technical service

performed in another country

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Why Companies Globalize

Reduce labor costs

Reduce material costs

Gain access to new suppliers Gain access to international markets

The fastest-growing markets are emerging marketssuch as China and India. These markets have an

emerging middle class and high demand for goodsand services

Gain access to skilled people

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Why Companies Globalize (2)

Understand the requirements of overseascustomers Electrical devices must meet different standards for

voltage and plug design in various countries McDonalds sells beer in Germany BMW, a German company, built its first SUV's for

the U. S. market Gain access to new technologies

Low-cost cars designed for India and easternEurope may find a market elsewhere

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Risks of Globalization

Quality problems

Supply chain and delivery problems

Foreign suppliers that use child labor or do notcomply with labor laws in their country

Foreign suppliers that make and sell

unauthorized copies of your product. In China, this has happened to New Balance, GM,

and Volkswagen, among many others

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Trade in Goods as % of GDP

(sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)

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Measures of Productivity

In total factor productivity, the usual inputs are

labor, capital, energy, and materials.Productivity measures efficiency and is an importantmeasure of Operations performance. However, itshould not be the only measure used to evaluateOperations.

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Strategic Planning Overview

Mission and strategy

Environmental scanning Order qualifiers and order winners

Internal company analysis

Core competencies Positioning the firm

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Strategic Planning

Company mission or primary task: what is thecompany in business to do? Examples:

Levi-Strauss: We will market and distribute the mostappealing & widely worn apparel brands.

Dell: Dell listens to customers and deliverstechnology they trust and value.

A business strategy explains how a companywill achieve its mission.

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Key Inputs to a Business Strategy

Mission statement

Environmental scanning (opportunities and

threats) What is going on outside the company that will

affect your business?

Internal analysis of strengths and weaknesses What is going on inside the company that affects

your strategic options?

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Environmental Scanning - Current

Situation and Future Trends The company should look at what is going on

outside the company with respect to:

Product and process technology in the industry Laws and regulations that could affect the company

Economic trends

Social and demographic trends

Market trends and customer data

Industry and competitor strategies

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Environmental Scanning (2)

Identify opportunities and threats Examples of opportunities

Laws requiring use of ethanol in gasoline created

opportunities for ethanol producers Growing markets in China and India may create

opportunities for your company. Examples of threats

A competitor is introducing a product that yourcompany cannot match.

New banking regulations are being proposed. An economic recession

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Environmental Scanning (3)

Order qualifiers and winners

Order qualifier: what qualifies a good orservice to be considered for purchase?

Order winner: what characteristic of a good orservice persuades customers to buy.

Order qualifiers and order winners:

Change over time Depend on the target market

Depend on positioning in the marketplace

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Internal Company Analysis

Evaluate the company's financial, managerial,technical, and material strengths and

weaknesses. Look for core competencies that the company

has or could develop.

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Copyright 2009 John Wiley & Sons, Inc. 1-28Copyright 2006 John Wiley & Sons, Inc. 2-28

Core Competencies

Core competency (distinctive competence) What does the firm do better than anyone else?

Should create a sustainable (long-term) competitiveadvantage.

Should be hard to imitate.

Usually requires cooperation and information

sharing among different business functions Often includes partnerships with suppliers or

customers.

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Examples of Core Competencies

Wal-Mart has maintained "everyday low prices" fordecades.

Nordstrom's is known for superior customer service. The Mayo Clinic is known for excellent medical

care, at a low cost.

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How Wal-Mart Keeps Prices Low

Demands very low prices from suppliers

Limits inventory by

Requiring suppliers to deliver most merchandise directly tostores just as it is needed (vendor-managed inventory)

Merchandise delivered to Wal-Mart distribution centers goesdirectly onto trucks for delivery to stores (cross-docking)

Stocks a limited number of brands in each product category

Headquarters closely monitors sales and inventory at eachstore

No-frills store layouts and product displays

Tight controls on staffing and employee compensation

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Order Qualifiers, Winners, andCore Competencies - Summary

Order qualifiers and order winners definecustomer requirements

A company should satisfy order qualifiers in itstarget market

A company's core competency should be an

order winner in its target market

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Strategic Positioning

(also called Positioning)

How the company chooses to compete

Sets competitive priorities for the company

Considerations in Positioning

Strengths and weaknesses of the firm

Present and future needs of customers

Strategies of competitors Potential of technology to help the firm get and

keep customers

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Competitive Prioritiesthat Operations Supports

Cost also called competing on price

Quality

Flexibility Speed

We will discuss these priorities throughout

the semester. It is hard to excel at more than two of these.

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Positioning the Firm:

Competing on Cost Waste elimination

relentlessly pursuing the removal of all waste

Examination of cost structure looking at the entire cost structure for

reduction potential not just direct labor

High-volume production and automation

are sometimes the best alternatives. In other cases, lean production is more

efficient.

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Competing on Speed

There are several ways to compete on speed.

Rapid service delivery: Lens Crafters, FedEx

Build-to-order production: Dell can produce acomputer to order in two days

Rapid new product introduction

Zara can design a new garment, manufacture it,and have it in stores in 9 15 days.

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Quality Conformance quality ensures the

consistency of a good or service.

Any good or service can have conformancequality.

Conformance quality is usually an order qualifier.

Since competitors are also likely to have

conformance quality, this type of quality isusually not an order winner.

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Quality (2)

Companies that compete on quality focus onpleasing or delighting the customer.

These companies often offer luxury goods orservices with high design quality.

Nordstrom's stores

Ritz Carlton Hotels Rolls-Royce automobiles

Rolex watches

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Flexibility Flexibility is the ability to adjust to changes in

product mix, production volume, or product design One approach to flexibility involves responding to

general changes in demand. Benetton constantly monitors sales. Production

of hot-selling items will be increased, and theymay be offered in new colors. Production ofitems that are not selling well will cease.

Zara responds to changing demand byintroducing more than 20,000 items per year.(Zara competes on both speed and flexibility).

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Flexibility (2) Mass customization is the mass production of

customized products using computer-aided design

(CAD) and computer-aided manufacturing (CAM). Thisis another approach to flexibility. National Bicycle offers more than 11 million

combinations of product options for bicycles.

The customized bicycles are shipped within two weeks

and cost only 10% more than standard bicycles. Like Dell, National Bicycle uses a build-to-order system.

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Technology and Methods for

Mass Customization Here are some of the technologies and methods that

make mass customization work at Dell

Computer-aided design (CAD) and computer-aided-manufacturing (CAM).

Frequent deliveries from suppliers so that Dell hasthe parts it needs

Supply Chain Management (SCM) informationsystems so that suppliers know what to deliver

Since Dell also ships finished computers in two days, itis competing on both technology and speed.

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Operations Strategy

Products

Services Process

and

Technology

Capacity

Human

Resources Quality

Facilities Sourcing Operating

Systems

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Organization of This Text:

Part I

Operations Management Intro. to Operations and

Supply Chain Management: Chapter 1

Quality Management: Chapter 2 Statistical Quality Control: Chapter 3

Product Design: Chapter 4

Service Design: Chapter 5

Processes and Technology: Chapter 6 Facilities: Chapter 7

Human Resources: Chapter 8

Project Management: Chapter 9

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Supply Chain

Strategy and Design: Chapter 10

Global Supply ChainProcurement and Distribution: Chapter 11

Forecasting: Chapter 12

Inventory Management: Chapter 13

Sales andOperations Planning: Chapter 14

Resource Planning: Chapter 15

Lean Systems: Chapter 16

Scheduling: Chapter 17

Organization of This Text:

Part II

Supply Chain Management

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Copyright 2009 John Wiley & Sons, Inc.

All rights reserved. Reproduction or translation of this

work beyond that permitted in section 117 of the 1976United States Copyright Act without express permission

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not for distribution or resale. The Publisher assumes no

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Russell01_2010