The Importance Of Operations Management• Operations management defined

The study and application of the transformation process

• OM is important because it:Encompasses processes in all organizations—

services as well as manufacturing. Is important in effectively and efficiently

managing productivity.Plays a strategic role in an organization’s

competitive success.

Transformation and Organizations• Transformation process

The process through which an organization creates value by turning inputs (people, capital, equipment, materials) into outputs (goods or services)

• Manufacturing organizationOrganizations that produce physical goods

• Service organizationAn organization that produces nonphysical

outputs such as educational, medical or transportation services

The Transformation Process

Exhibit 14.1

Productivity

• Productivity definedThe overall output of goods and services

produced divided by the inputs needed to generate that output.

• Benefits of high productivityFosters economic growth and development Increases individual wages without inflationLowers costs and makes firms more competitive

InputsOutputs

Value and the Value Chain

• ValueThe performance characteristics, features and

attributes, or any other aspects of goods and services for which customers are willing to give up resources.

• Value chainThe entire series of organizational work

activities that add value at each step beginning with the processing or raw materials and ending with a finished product in the hands of end users.

Value Chain Management versus Supply Chain Management• Value chain management

A method of improving the process of creating and transferring documents by automating the flow of information

• Supply chain managementManagement of the facilities, functions, and

activities involved in producing and delivering a product or service, from suppliers to customers.

The Goals Of Value Chain Management

• Creating customer-defined value by:Providing a unique combination that truly

meets customer needs and at a price that can’t be matched by competitors.

Having a sequence of participants work together as a team, each adding a component of value to the overall process.

It’s all about providing value, not bargains, to the customer

Value Chain Management• Business model

A strategic design for how a company intends to profit from its broad array of strategies, processes, and activities.

• Value chain management requirementsCoordination and collaborationTechnology investmentOrganizational processesLeadershipEmployees/human resources managementStrong culture and attitudes

Six Requirements for Successful Value Chain Management

Exhibit 14.2

Effect of Value Chain Management on Organizational Processes• Better demand forecasting is necessary and

possible because of closer ties with customers and suppliers.

• Selected functions may need to be done collaboratively with partners in the value chain.

• New measures are needed for evaluating the performance of activities along the value chain.

Implementing Value Chain Management• Benefits

Improved customer service

Cost savings Accelerated delivery

times Improved quality Inventory reduction Improved logistics

management Increased sales Increased market

share

• Obstacles Organizational

barriers Cultural attitudes Required capabilities People

Value Chain BenefitsValue chain survey respondents indicated the following are a “major benefit” from sharing information with partners:

Percentage of Percentage of PercentageCompanies in Companies in of

Excellent or Very Poor All Good Chains Chains Companies

Increased sales 41% 14% 26%

Cost savings 62% 22% 40%

Increased market share 32% 12% 20%

Inventory reductions 51% 18% 35%

Improved quality 60% 28% 39%

Accelerated delivery times 54% 27% 40%

Improved logistics management 43% 15% 27%

Improved customer service 66% 22% 44%

Source: G. Taninecz, “Forging the Chain,” Industry Week, May 15, 2000, p.44.Exhibit 14.3

Obstacles to Successful Value Chain Management

Exhibit 14.4

Contemporary Operations Management Issues • Technology

How an organization will transform its inputs into outputs.

• Just-in-time (JIT) inventory systemsHow to develop systems in which inventory

items arrive when needed in the production process instead of being stored in stock.

Quality and Operations Management

• Quality controlMonitoring quality—weight, strength,

consistency, color, taste, reliability, finish, or any one of myriad characteristics—to ensure that it meets some preestablished standard.

• Continuous improvementA comprehensive, customer-focused program

to continuously improve the quality of the organization’s processes, products and services.

Managing Projects

• ProjectOne-time-only set of activities with a definite

beginning and ending point in time• Project management

Task of getting the activities done on time, within budget, and according to specifications

Popular Scheduling Tools• Gantt chart

A planning tool that shows in bar graph form when tasks are supposed to be done and compares that with the actual progress on each task.

• Load chartAs modified version of a Gantt Chart, the load

chart lists either whole departments or specific resources. This information allows managers to plan and control for

capacity utilization in the scheduling of individual work stations.

A Sample Gantt Chart

Exhibit 14.5

A Sample Load Chart

Exhibit 14.6

PERT

• Program evaluation and review technique (PERT) network analysisA flowchart-like diagram that depicts the

sequence of activities needed to complete a project and the time or costs associated with each activity

PERT Components• Events

End points that represent the completion of major activities

• Activities Actions that take place

• Slack time The time difference between the critical path and

all other paths• Critical path

The longest or most time-consuming sequence of events and activities required to complete a project in the shortest amount of time

Developing PERT Charts

• Identify every significant activity that must be achieved for a project to be completed.

• Ascertain the precedence order in which these events must be completed and create a diagram reflecting the ordering of activities.

• Compute a weighted average time estimate (expected time) for completing each activity.

• Insert start and finish times into the diagram and inspect to determine the critical path.

Exhibit 14.7

TIME PRECEDINGEVENT DESCRPTION (WEEKS) ACTIVITY

A Approve design and get permits 3 NoneB Perform excavation/lot clearing 1 AC Pour footers 1 BD Erect foundation walls 2 CE Frame house 4 DF Install windows 0.5 EG Shingle roof 0.5 EH Install brick front and siding 4 F,GI Install electrical, plumbing, and

heating and A/C rough-ins 6 EJ Install insulation 0.25 IK Install sheetrock 2 JL Finish and sand sheetrock 7 KM Install interior trim 2 LN Paint house (interior and exterior) 2 H, MO Install all cabinets 0.5 NP Install flooring 1 NQ Final touch-up and turn over

house to homeowner 1 O, P

Major Activities in Building a Custom Home

Exhibit 14.8

A PERT Network for Building a Custom Home

Critical PathCritical Path

Exhibit 14.9