Operations Management: Transforming Inputs into Outputs
Operations management involves the management of the transformation process (production function) which converts inputs into outputs that are usually referred to as goods and services. All operations should meet customer requirements and “hear the voice of the customer.” Decision making is an important element. This decision focus provides a basis for dividing operations into parts according to major decision types: process, quality, capacity, and inventory.
Three main dimensions: decisions, functions, process
Example Operations:
- Bank – inputs are tellers, staff, computer equipment, outputs are financial services.
- Restaurant – inputs are cooks, waiters, food, facilities, outputs are meals, entertainment.
- Manufacturing plant – inputs are equipment, facilities, labor, energy, raw materials, outputs are finished goods.
Supply Chain Transformation Processes
- Planning: the processes needed to operate an existing supply chain strategically
- Sourcing: the selection of suppliers that will deliver the goods and services needed to create the firm’s product
- Making: Where the major product is produced or the service provided
- Delivering: carriers are picked to move products to warehouses and customers
- Returning: the processes for receiving worn-out, defective, and excess products back from customers
Goods: tangible objects; easily transferable from one person to another; have physical dimension and take up space; often acquired in exchange for money or another good; do not require interaction with the customer
Services: intangible commodities; when you hire a person to do something; are hired or rented and cannot be owned; requires interaction with people; intangibility, perishability, inseparability, simultaneity, and variability.
Quiz
Supply chain management includes the integration of suppliers, manufacturers, and customers. The process view provides a basis for viewing an entire business as a system of interconnected processes. The contemporary operations themes signify that every operation should be externally directed to meet customer’s requirements. Best practices in operations are not best for all organizations.
Operations Strategy – a consistent pattern of decisions for operations and the associated supply chain that are linked to the business strategy and other functional strategies, leading to a competitive advantage for the firm. A strategy describes how you are different from the competition and should describe how a firm intends to create and sustain value for its shareholders. 4 elements:
- operations mission
- operations objectives – cost, quality, delivery, flexibility. (more specific than the mission, frequently measured for compliance)
- Strategic decisions-process, quality, capacity, inventory, sustainability
- Distinctive competence – competency unique to a business organization, a competency superior in some aspect than the competencies of other organizations, which enables the production of a unique value proposition in the function of the business. A distinctive competency is the basis for the development of an unassailable competitive advantage. The uniqueness differentiates this competency from all others. What operations does better than everyone else differentiator). For example, McDonald’s unique service and supply chain transformation system (drive thru).
There are three basic types of generic business strategies:
- Lower Cost: the ability of a firm to design, produce, and market a comparable product more efficiently than its competitors
- Differentiation: the ability to provide unique and superior value to the buyer in terms of production quality, special features, or after-sale service
- Focus: The geographic or product portfolios can be narrow or broad.
Supply Chain Strategy: includes consideration of customers, suppliers, purchasing, and logistics in addition to operations. There is a focus on inventories, material flow, and information throughout the supply chain from suppliers to the end user. Takes into account not only the operations strategy of the firm but also the strategies and capabilities of the suppliers and customers in the supply chain. It allows the supply chain to compete, not just the firm. Supply chain strategy should be aimed at achieving a sustainable competitive advantage for the entire supply chain. There are two fundamentals of supply chain strategies: imitation and innovation. Imitators have products similar to those of their competitors and are oriented to efficiency and low costs. Innovators differentiate their product as a way of competing and charge higher prices.
