November 29th, 2013

Chapter 13- Operations and Supply Chain

Management

OM: Fitting into the Big Picture

Business System Components

Successful organizations understand the interconnectivity of strategy,
business structure, and
operations, and seek to ensure
that all three are integrated into
the decision making process and
that structure and operations are
aligned and in support of the
organizations strategic intent
When visualizing
interconnectivity of three
business system components:
Strategy is what we want
to accomplish
Business structure should
provide controls and formal communication and responsibility
framework that will guide organization as it seeks to realize its strategy
Operations are understood to be actual processes employed, which,
when combined with utilization of organizations capital assets, enable
strategic outcomes to be actualized
Successful businesses establish within their business systems competitive
advantages that enable them to deliver their g/s to targeted market
segments in manner superior to competitors

Responsibilities of Operations
Managers

Operations- A function or system that transforms input into outputs of

greater value (focus on productivity, competitiveness, and quality)
Operations Management- The effective design, development, and
management of the processes, procedures, and practices embedded within
an organizations business system for the purpose of achieving its strategic
intent
Major themes include:
Manufacturing vs. service operations
Productivity- efficiency, resources allocation
Quality- effectiveness, measurement
Competitiveness- strategy, flexibility, international
Cost- controls, investment decisions
Relationships- employees, customers, suppliers

November 29th, 2013

Managers are responsible for making decisions under conditions of

uncertainty about the allocation of scarce resources towards achieving the
organizations strategic objectives
Operations Management: Areas of Responsibilities (overlap as there is
interconnectivity between decisions made within each area):
Process Management
o Process Management- The design and development of the
work flow and connectivity of the transformation requirements
(processes) needed to ensure that organizations g/s are
effectively produced and delivered to marketplace
o Key outcome: how transformation process for g/s will be
designed
o Examples: Assembly line, fully automated technology
manufacturing process
Supply Chain Management
o Supply Chain Management- The management of the
interdependencies among suppliers, manufacturers, and
distributors; seeks to develop terms/conditions that will enable
all parties to efficiently/effectively meet obligations to one
another due to their business relationships
o Examples: Purchase of materials from suppliers, coordination of
just-in-time (JIT) inventory practices, etc
Product/Service Management
o Product/Service Management- Variety of activities that
commence with the design and development of potential new
products in R&D and extend to the post purchase support of g/s
now in the hands of customers
o Examples: Supporting product modifications, enhancements,
and other changes made throughout products life cycle,
decisions associated with quality and cost

The Organizations Value Chain

Value chain analysis used to maintain some order to gain fully appreciated of
complexity of interconnectivity across organization when dealing with
operations
At the centre of the value chain model is the underlying principle that
managers should seek to make decision across the activity areas in a manger
that contributes positively to the overall value of the g/s being
produced/offered (value=benefit>cost)
Value Maximization- Maximizing the benefits (price/quality comparison)
that individual or set of customers will realize as a result of using g/s; Asks:
What is it that we must do to deliver maximum value to our customers?
Two key business system activities:

Value Chain Analysis: Primary Activities

Primary Activities- Specific activities through which
development/transformation of g/s occurs as it is produced and delivered to
marketplace and these areas include:
Inbound Logistics

November 29th, 2013

Inbound Logistics- Management of supplier relationships
relating to those parts/components/finished products that are
brought into organization in order to produce finished products
for delivery to marketplace
o ipad example- Scheduling, shipping, and temporary warehousing
of glass, metal, and electronic parts/components
Operations
o Operations- Manufacturing and/or product change processes
set up to ensure that the final product organization is
manufacturing/handling is ready for market
o ipad example- Manufacturing process used to combine various
parts into ipad
Outbound Logistics
o Outbound Logistics- Getting the finished product to customer
via distribution channel that is accessible, convenient, and able
to minimize stockouts and other sales impediment factors
o Ipad example- Decisions/activities relating to shipping ipad to
Apples own stores, determining other retailers that will be
authorized to sell the product and delivering product to them
Marketing and Sales
o Marking and Sales- Those activities that create profile and
awareness for organizations g/s or brand(s) and the benefits
derived from the acquisition and use of such g/s
o Example- Apple Incs core strength is its brand strength and
ability of its marketing/sales departments to leverage this
strength and emotional tie that individuals have to the brand
Customer Service
o Customer Service- Support provided to customers before,
during, and following the purchase process
o Key outcome: maintain and enhance the value of g/s purchased
by customer
o Examples- Technical support, warranty service work, repair
support, etc
The development of strong supplier and distributor relationships is invaluable
to organization with regard to understand market trends/shifts, maintain
watchful eye on competitive innovation, and ensuring that cost control
management practices are put into place throughout the supply chain in
order to maintain competitive pricing strategies
o

Value Chain Analysis: Support Activities

Support Activities- Activities within organization that are not directly
associated with actual processes that the organization uses to produce g/s
but that are an integral part of the support structure the primary activities
rely on to successfully execute strategy
Successful execution of primary activities of organization is facilitated by
support activities
Examples of support activities:
IT department collaborated with operations department on
development of new technologies in support of value chain process

November 29th, 2013

R&D + engineering department which focus on new product
development, existing produce enhancement, and process design and
development
HR department assists in recruitment, employee development and
support services for employees
Finance, accounting, legal, and environmental safety

The Operations Cycle

Operations Cycle- Alignment of the operational tasks within an organization

by its management team in order to meet the strategic outcomes defined in
organizations business strategy:

Operations managers need to understand the strategic intent of organization

and using this information, translate it into action plans that will drive the
execution of organizations strategy
Process Standardization- Design and utilization of common platforms and
task sequencing to produce/develop variety of g/s
Process Simplification- Design and utilization of minimum number of tasks
when developing g/s
Outline of alignment between strategy and operational execution:

November 29th, 2013

Operations managers must determine how best to executive operating cycle

taking 3 spheres into consideration:

Process Management
Four core decision areas in terms of process management
1. Process design, layout, and execution (HOW HANDINLING OF MATERIALS
IS PLAYED OUT)
Process Design, Layout, and Execution- Assessment and
implementation of tasks necessary to get required work
accomplished and how such tasks will be grouped and sequences to
ensure that most efficient/effective processes are utilized in product
of g/s
Examples: Fabrication process, assembly process, etc
Process management decisions will need to be made as to how the
flow of work will be sequenced and what steps must be initiated
into the process to ensure that quality, timing, performance, and
service expectations are met
Key fundamentals associated with process design, layout, and
execution:

View TPS example on page 329 to illustrate DICE ^ process

Project management analysis is also component of operations and
two project management tools to assist managers with critical
project management tasks are:
o PERT Chart- Scheduling methodology that focuses on task
sequencing and identification of critical path of steps that will

November 29th, 2013

most greatly impact ability to complete project, and length of
time needed for completion
o Gantt Chart- Methodology used to schedule the steps
associated with project and time required to complete each
step
2. Materials management (SPECIFIC TASKS ASSOCIATED WITH HANDLING
MATERIALS)
Materials Management- Management of inputs required in order
to develop g/s that organization is intent on delivering to
marketplace and associated with:
o Components of assembly purposes
o Parts for repair and maintenance of products sold
o Raw materials
o Hazardous waste disposal
o Sanitary practices for sale handling of food at restaurants
o Regulation compliance for handling of goods such as
prescription drugs
o Handing of fully finished goods that organization has
purchased with intent of reselling such items through its
retail outlets
3. Facility design and layout
Facility Design and Layout- Infrastructure layout and related
facility components that will be required to house and support the
processes and materials used by the organization
Capacity- (key decisions related to production capacity) Maximum
amount of product that can be produced or services delivered,
given facility, equipment, and process constraints
o Too little capacity- unable to meet customer demands
competitors steal market share
o Too much capacity- idle plant/equipment increases costs
and impacts cost structure
Decisions relating to capacity, plant size (footprint), and plant
layout often have to be made years in advance, based on estimated
sales forecasts given anticipated market conditions
4. Capital asset evaluation and acquisition
Capital Asset Evaluation and Acquisition- Assessment by operations
management team of the state of current capital assets and a
determination as to their applicability to meeting the needs of the
organization
Factors that influence these decisions are assessing organizations
strategic intent, conducting resource and market assessment, and
evaluating efficiency/effectiveness and competiveness of capital
asset infrastructure
Supply Chain Management
Three areas of ongoing responsibilities:
1. Supply chain planning
Supply Chain Planning- Development of supply chain structure
and accumulation of necessary information to make effective
supply chain decision
Examples of activities that form a core part of planning mode are:

November 29th, 2013

Making decisions relating to outsourcing of various supply
chain functions vs. Keeping such activities in-house
o Assessing various software and ebusiness services that will
be required to effectively manage supply chain tasks
o Analyzing sales forecasts to determine appropriate product
quantities to purchase
o Designing transportation and warehouse networks to
effectively manage the flow of products through
organizations value chain
2. Supply chain operating execution
Supply Chain Operating Execution- Execution of specific tasks
necessary to ensure that key performance results are achieved
Examples- management of inventory levels, effective use of
technology systems, etc
3. Supply chain performance evaluation
Supply Chain Performance Evaluation- Critical outcomes that
supply chain must achieve in support of organizations overall
operating performance; 2 outcomes:
o Maximum utilization of capital asset base
o Minimization of time involved within the cash operating cycle
Cash Operating Cycle (COC)-Amount of time it takes for
organization to recover the cash (product is sold and money
received) it has paid out for development, production and
distribution of products
o The shorter the cash operating cycle, the more quickly the
organization is getting back the cash it has expended on
producing its g/s and thus, the less the organization needs to
rely on cash reserves on short term debt financing to cover
the costs of the expenditures incurred
o

Product/Service Management
Three core decision areas in terms of product/service management:
1. Existing product/service changes
Product modifications/enhancements that are deemed necessary
from competitive perspective and represents assessment of current
value of existing product within market it serves
2. New product opportunities
Development of new products for market opportunities that exist
today and for which research has concluded there is near term
revenue potential
As existing products mature and decline, they must be replaced by
new products/services if organization is going to continue to grow
3. Long reach opportunities
Investment in, and development of, new product research for
potentially emerging markets of the future (allow organization to
obtain first mover advantage)

Establishing Quality Standards

November 29th, 2013

Operations managers must seek to design, develop, implement, and manage

processes vital to successful execution of organizations strategy and key
challenge: protecting the quality of g/s
Quality impact factors include: Market expectations, employee education and
training, process analysis, systematic and fact based decision approach,
effective communication of strategy and intent, and product consistency
A key weapon in this ongoing challenge to preserve quality and maintain the
product standards expected by customers in the face of pressure to reduce
costs lies with the organizations culture and development of performance
standards
Methodologies designed to assist in control of consistency and quality
standards within firm:
ISO (International Organization for Standardization)- Worlds
largest developer and publisher of international standards that
focuses on making manufacturing of g/s safer, more efficient, and
more socially responsible
Six Sigma- Focuses on philosophy of total improvement and
seekers to improve/develop such processes and implement
necessary controls for maintaining required quality levels
TQM (Total Quality Management)- Broad based approach to
managing quality within the organization which seeks to assimilate
concept of quality improvement across entire organization and
challenges organization to be customer focused and to strive for
total employee involvement to ensure that quality is fully integrated
as core component into organizations strategy, processes, and
communication messages
Successful quality initiative implementation:
Strong management support and commitment
Full team involvement
Well structured approach and development
Effective communication of progress and results

OM in Small Businesses

Challenges: operational efficiency and effectiveness since small businesses

do not have abilities/financial capabilities required to take advantage of
technologies/practices available to maximize cost effectiveness of their
business
How small business owner tackles need to create as efficient an operation as
possible:
Can incorporate many of key characteristics of successful operations
management: key is communication
Understand customer expectations and translate this into processes
designed to support customers at key interaction touch points where
businesses/customers connect
Strive to deliver consistent experience with each customer interaction
Rather than making operational decisions on the fly, make them
based on facts and via a service and do not negatively impact the
delivery of service in other areas