Operations Management for MBAs Meredith and Shafer Fifth Edition
Two themes that are central to operations
Customer Satisfaction and Competitiveness
A purposeful collection of people, objects, and procedures for operating within an environment
is concerned with transforming inputs into useful outputs according to an agreed-upon strategy and thereby adding value to some entity; this constitutes the primary activity of virtually every organization.
A mechanism for controlling the system
Occurs when one part of a systems is improved to the detriment of the other parts of the system and, perhaps, the organization as a whole
Alter: changed structurally, physical change, cut, stamped, formed, assembled. Examples are haircuts, operation to remove appendix
Transport: an item is located somewhere other than where it needs to be.
Store: Kept protected from the environment for a period of time.
Inspect: to better understand the item's properties.
Two types of outputs
Products: physical goods
Services: abstract or non-physical
Any physical entity accompanying a transformation that adds value
If there is no facilitating good, then it is a pure service
Bundles of benefits, some of which may be tangible and other intangible, and they ay be accompanied by a facilitating good or goods.
Upfront monetary investment
Other monetary life-cycle costs of using the service or product such as maintenance
The hassles involved in obtaining the product or service, such as travel, financing, or friendliness of service.
Output per worker hour
Also called "partial factor" measure of productivity because it only takes into account the worker
Total Factor Productivity
A broad measure of productivity that considers all the factors of production - labor, capital, materials, and energy - in the denominator.
Effectiveness and Efficiency
Effectiveness: Doing the right thing - measurement of achievement
Efficiency: Doing the thing right - focus on the proper task or goal
Benefits (Customer value)
Pure research - working with the basic technology to develop new knowledge
Applied research - attempting to develop new knowledge along particular lines
Attempt to utilize the findings of research and expand the possible applications, often consisting of modifications or extensions to existing outputs to meet customer interests.
Early years - Remove bugs, increase performance
Middle years - Options and variants
Late years - Prolong life of output
Two Alternatives to Research
Imitation of a new product
Outright purchase of someone else's invention
The generation of new knowledge concerning how to produce outputs
The activities of a product or service it is intended to perform, thereby providing benefits to the customer.
Conformance to specifications
External benefits of high quality
Reputation in the market
Charge a premium price
More profit and market share
Protection from competitors
Attractiveness of follow on products
Minimize risk and liability
Internal Benefits of high quality
"Do it right the first time"
Improves worker morale
Reduces scrap and waste
Reduces other costs
Two primary costs of quality
a. Prevention costs: Planning, training, product design, maintenance
b. Appraisal costs: Measuring, testing, test equipment, inspectors, reports
a. Internal cost of defects: Extra labor and materials to repair, scrap, rework, expedite
b. External cost of defects: ill will, complaints, lawsuits, recalls, warranties, insurance
W. Edwards Deming's major cause of poor quality
Offering a product or service exactly suited to a customer's desires or needs
David Upton's definition for flexibility
The ability to change or react with little penalty in time, effort, cost, or performance
Major competitive advantages of flexibility
Faster matches to customers' needs because changeover time from one product or service to another is quicker
Closer matches to customer's needs
Ability to supply the needed items in the volumes required for the markets
Faster design-to-market time
Lower cost of changing production
Ability to offer a full line of products w/o cost of stocking
Ability to meet market demands
Four Mass Customization Strategies from Harvard Business Review - Gilmore and Pine
Collaborative customizers: Dialog with customers to help articulate needs and develop customized outputs
Adaptive customizers: offer a standard product that customers can modify
Cosmetic customizers: produce a standard product presented differently to different customers
Transparent customizers: provide custom products without the customer knowing that the product has been customized for them
Prerequisites for and Advantages for Rapid Response
Sharper focus on customer - customer at the center
Better management - improving infrastructure and systems
Elimination of overhead
Faster revenue generation
Long term viability of a firm or organization
Short term - current success of a firm in the marketplace as measured by its market share or profitability
Of a nation - its aggregate competitive success in all markets
Supply Chain Management
Finding the best mix of producers and assemblers to deliver a product or service to a customer
A set of objectives, plans, and policies for the organization to compete successfully in it markets.
What the competitive advantage will be and how to achieve it and sustain it
Resource-based view of strategy
A business strategy formation that considers the set of resources available to the organization as the primary driver of the business strategy
Expresses the organization's values and aspirations
Expresses the organization's purpose or reason for existence.
External forces that affect strategy
Environment - economy, government regulations, and climate
Competitors - new product introductions, industry consolidation, new entrants
Internal Forces that affect strategy
Organization's core competencies/capabilities
Represents the organization's underlying core logic and strategic choices for creating and capturing value within a network.
Life Cycle Curve of strategy
Introduction and early adoption
Acceptance and growth of the market
Maturity with market saturation
Four Product Development strategies by Maidique and Patch
First to market
Second to market
Cost of minimization or late to market
Attempt to have their products available before the competition
Strong applied research required
Higher Prices give large short term profits
Lower prices give more market share and larger long term profits
Try to quickly imitate successful outputs by first-to-market organizations
Less emphasis on applied research and more emphasis on fast development.
Learn from mistake of first-to-market and offer improved or advanced version of original products.
Cost minimization or Late-to-Market
Wait until a product becomes fairly standardized and demand is large.
Compete on the basis of cost as opposed to features
Focus of R&D is on improving the production process to make it cheaper/quicker
Focus is on niche markets with specific needs
Applied engineering skills and flexible manufacturing systems needed
A curve representing two factors and comparing operational strategies of companies.
Example Unit cost v. output variety
Plot company strategy
Use technology to move the curve for your company.
Streamline operations and make cost-variety trade offs, moving down the performance frontier curve toward competitor. Adoption of new technologies.
Adopt new technology without streamlining operations and move to a new frontier.
Two major attributes of focus - Mckinsey & Company Research
Stressing one key business value
Sticking to what is known best
The focused organization
An organization that chooses to stress one or two key areas of strength
Adopting a focus strategy means knowing not only what customers to concentrate on, but also knowing what customer you do not want.
Common areas of organizational focus
Innovations: new products and services to market quickly
Customization: quickly redesign and produce
Flexibility of output: switch between variants quickly
Flexibility of volume: switch between high and low volumes quickly
Performance: outputs with unique valuable features
Quality: better craftsmanship or consistancy
Reliability: customer count on performance
Reliability of delivery: never late
Response: short leadtimes
Service: help and support
A characteristic of a product or service that is required if the product is even to be considered.
A prerequisite to enter the market
A characteristic that will win the bid or purchase
Most common reason for loss of focus
The focus was never really clearly defined to start with
Sand cone model of focus
There is a preferred order in developing strengths on various competitive dimensions
1. Quality products
2. Delivery dependability
The collective knowledge and skills an organization has that distinguish it from the competition
Become the building block fro organizational practices and business processes referred to as core capabilities
Derived from their strong relationship to an organization's ability to integrate a variety of technologies and skills in the development of new products and services.
Provide the basis for developing new products and service and are a primary factor in determining an organization's long-term competitiveness
Characteristics and Advantages of Core Capabilites
Provide the basis for developing new products and services
provide access to new markets
strongly related to the benefits provided by the product or service that customers value
difficult to imitate
Three characteristics that hinder imitation
Bartmess & Cerny
It is complex and requires organizational learning over a long period of time
It is based on multiple functional areas, both internal and external to the organization
It is the result of how the functions interact rather than the skills/knowledge within the functions themselves.
Subcontracting out certain activities or services
Strategically important capabilities
They are strongly related to what customers perceive to be the key characteristics of the product or service
They require highly specialized knowledge and skills - core capability
They require highly specialized physical assets, and few suppliers possess them
The organization has a technological lead or is likely to obtain one.
Creeping breakeven phenomenon
As outputs are outsourced, the remaining outputs appear to be more expensive to produce in-house