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Operations ManagementOperations Management
Operations management
encompasses such topics as productivity,
value chain management,
e-manufacturing, and quality.
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Operations ManagementOperations Management
What is operations management?What is operations management?
refers to therefers to the design, operation, and controldesign, operation, and controlof the transformation processof the transformation process that convertsthat convertssuch resources as labour and raw materialssuch resources as labour and raw materials
into goods and services that are sold tointo goods and services that are sold tocustomers.customers.
In other wordsIn other words, operations management is, operations management isthe design, operations, and control of thethe design, operations, and control of thetransformation process that convertstransformation process that convertsresources into finished goods or services.resources into finished goods or services.
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Operations ManagementOperations Management
The Operations SystemThe Operations System
Inputs
People
Technology
Capital
Equipment
Materials
Information
Transformation
Process
Outputs
Goods
Services
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Operations ManagementOperations Management
Just as every organization produces something,Just as every organization produces something,
every unit in an organization also produces something.every unit in an organization also produces something.
Marketing, finance, research andMarketing, finance, research and
development, human resources, anddevelopment, human resources, andaccounting converts inputs into outputs suchaccounting converts inputs into outputs such
as sales, increased market share, high ratesas sales, increased market share, high rates
of return on capital, new and innovativeof return on capital, new and innovativeproducts, motivated and committedproducts, motivated and committed
employees, and accounting reports.employees, and accounting reports.
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Operations ManagementOperations Management
Managing ProductivityManaging Productivity
Productivity is the overall output of goods orProductivity is the overall output of goods orservices produced divided by the inputs neededservices produced divided by the inputs needed
to generate that output.to generate that output.
For countries,For countries, high productivity can lead tohigh productivity can lead toeconomic growth and development. Employeeseconomic growth and development. Employeescan receive higher wages and company profits cancan receive higher wages and company profits canincrease without causing inflation.increase without causing inflation.
For individual organizations,For individual organizations, increased productivityincreased productivitygives them a more competitive cost structure andgives them a more competitive cost structure andthe ability to offer more competitive prices.the ability to offer more competitive prices.
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Operations ManagementOperations Management
Demings 14 Points forDemings 14 Points for
Improving Managements ProductivityImproving Managements Productivity(W.E. Deming, Improvement of Quality and Productivity Through(W.E. Deming, Improvement of Quality and Productivity Through
Action by Management. National Productivity Review)Action by Management. National Productivity Review)
1.1. Plan for the long-term future.Plan for the long-term future.
2.2. Never be complacent (content) concerning theNever be complacent (content) concerning thequality of your product.quality of your product.
3.3. Establish statistical control over your productionEstablish statistical control over your productionprocesses and require your suppliers to do so asprocesses and require your suppliers to do so aswell.well.
4.4. Deal with the best and fewest number of suppliers.Deal with the best and fewest number of suppliers.
5.5. Find out whether your problems are confined toFind out whether your problems are confined toparticular parts of the production process or stemparticular parts of the production process or stem
from the overall process itself.from the overall process itself.
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Operations ManagementOperations Management
Demings 14 Points forDemings 14 Points for
Improving Managements ProductivityImproving Managements Productivity
6.6. Train workers for the job that you are asking themTrain workers for the job that you are asking them
to perform.to perform.
7.7. Raise the quality of your line supervisors.Raise the quality of your line supervisors.
8.8. Drive out fear.Drive out fear.
9.9. Encourage departments to work closely togetherEncourage departments to work closely together
rather than to concentrate on departmental orrather than to concentrate on departmental ordivisional distinctions.divisional distinctions.
10.10. Do not adopt strictly numerical goals.Do not adopt strictly numerical goals.
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Operations ManagementOperations Management
Demings 14 Points forDemings 14 Points for
Improving Managements ProductivityImproving Managements Productivity
11.11. Require your workers to do quality work.Require your workers to do quality work.
12.12.
Train your employees to understand statisticalTrain your employees to understand statistical
methods.methods.
13.13. Train your employees in new skills as the needTrain your employees in new skills as the need
arises.arises.
14.14. Make top managers responsible for implementingMake top managers responsible for implementingthese principles.these principles.
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Operations ManagementOperations Management
Strategic Role of Operations ManagementStrategic Role of Operations Management
Today, successful organizations recognize the crucialToday, successful organizations recognize the crucial
role that operations management plays as part of therole that operations management plays as part of the
overall organizational strategy to establish andoverall organizational strategy to establish and
maintain global leadership.maintain global leadership.
The strategic role that operations management playsThe strategic role that operations management plays
in successful organizational performance can bein successful organizational performance can beseen clearly as more organizations move towardseen clearly as more organizations move toward
managing their operations from a value chainmanaging their operations from a value chain
perspective.perspective.
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Value Chain ManagementValue Chain Management
ValueValue
The performance characteristics, features andThe performance characteristics, features andattributes, and any other aspects of goods andattributes, and any other aspects of goods and
services for which customers are willing to give upservices for which customers are willing to give up
resources (usually money).resources (usually money).
For example,For example, when you purchase Karna Dass newwhen you purchase Karna Dass new
CD at Tic Toc, youre exchanging (giving up) moneyCD at Tic Toc, youre exchanging (giving up) money
in return for the value you need or desire from thein return for the value you need or desire from theproduct (the CD) providing music during your eveningproduct (the CD) providing music during your evening
study time.study time.
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Value Chain ManagementValue Chain Management
How is value provided to customer?How is value provided to customer?
Through the transformation of raw materials andThrough the transformation of raw materials and
other resources into some product or service that endother resources into some product or service that end
users need or desire where, when, and how theyusers need or desire where, when, and how they
want it.want it.
That seemingly simple act of turning a variety ofThat seemingly simple act of turning a variety of
resources into something that customers valueresources into something that customers value
and are willing to pay for involves a vast array ofand are willing to pay for involves a vast array ofinterrelated work activities performed by differentinterrelated work activities performed by different
participantsparticipants (suppliers, manufacturers, and even(suppliers, manufacturers, and even
customers)customers) that is, it involves the that is, it involves the value chainvalue chain..
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Value Chain ManagementValue Chain Management
TheThe value chainvalue chain isis
the entire series of organizational work activitiesthe entire series of organizational work activities
that add value at each stepthat add value at each step
beginning with the processing of raw materialsbeginning with the processing of raw materialsandand
ending with the finished productending with the finished product
in the hands of end users.in the hands of end users.
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Value Chain ManagementValue Chain ManagementValue chain managementValue chain management The process of managing the entire sequence ofThe process of managing the entire sequence of
integrated activities and information about productintegrated activities and information about productflows along the entire value chain.flows along the entire value chain.
In contrast to supply chain management, which isIn contrast to supply chain management, which is
internally oriented and focuses on efficient flow ofinternally oriented and focuses on efficient flow ofincoming materials (resources) to the organization,incoming materials (resources) to the organization,value chain management is externally oriented andvalue chain management is externally oriented andfocuses on efficient flow of incoming materials andfocuses on efficient flow of incoming materials andoutgoing products and services.outgoing products and services.
While supply chain management is efficiencyWhile supply chain management is efficiencyoriented (its goal is to reduce costs and make theoriented (its goal is to reduce costs and make theorganization more productive), value chainorganization more productive), value chain
management is effectiveness oriented and aims tomanagement is effectiveness oriented and aims tocreate the highest value for customers.create the highest value for customers.
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Value Chain ManagementValue Chain ManagementGoal of Value Chain ManagementGoal of Value Chain Management(Who has the power in the value chain?)(Who has the power in the value chain?)
Ultimately customers are the ones with power. Theyre theUltimately customers are the ones with power. Theyre theones who define what value is and how its created andones who define what value is and how its created andprovided.provided.
The goal of value chain management is to create a valueThe goal of value chain management is to create a valuechain strategy that meets and exceeds customers needschain strategy that meets and exceeds customers needs
and desires and allows for full and seamless integrationand desires and allows for full and seamless integrationamong all members of the chain.among all members of the chain. A good value chain is one in which a sequence ofA good value chain is one in which a sequence of
participants work together as a team, each adding someparticipants work together as a team, each adding somecomponent of value such as faster assembly, morecomponent of value such as faster assembly, more
accurate information, better customer response and service,accurate information, better customer response and service,and so forth to the overall process.and so forth to the overall process. The better the collaboration among the various chainThe better the collaboration among the various chain
participants, the better the customer solutions. When valueparticipants, the better the customer solutions. When valuechain is created for customers and their needs and desireschain is created for customers and their needs and desiresare satisfied, everyone along the chain benefits.are satisfied, everyone along the chain benefits.
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Value Chain ManagementValue Chain Management
Requirements for Value Chain ManagementRequirements for Value Chain Management
Six Requirements for Successful Value Chain Management
Employees
Leadership
Organizational Cultureand Attitudes
Coordination andCollaboration
ValueChain
Strategy
OrganizationalProcesses
Technology Investment(IT)
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Value Chain ManagementValue Chain Management
Six Requirements for Successful Value Chain Management
1. Coordination and Collaboration
Each partner in the value chain must identify things
they may not value but that customers do.
And sharing information and being flexible as far
as who does what in the value chain are important
steps in building coordination and collaboration.
This sharing of information and analysis requires
more open communication among the various
value chain partners.
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Value Chain ManagementValue Chain Management
Six Requirements for Successful Value Chain Management
2. Technology Investment
The payoff from the investment is that information
technology can be used to restructure the value
chain to better serve end users.
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Value Chain ManagementValue Chain Management
Six Requirements for Successful Value Chain Management
3. Organizational Processes
Value chain management radically changes
organizational processes that is, the ways that
organizational work is done.
Managers must critically evaluate all organizational
processes from beginning to end by looking at core
competencies the organizations major skills,capabilities, and resources to determine where
value is being added. Non-value-adding activities
should be eliminated.
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Value Chain ManagementValue Chain Management
Six Requirements for Successful Value Chain Management
3. Organizational Processes
Three important conclusions about organizational processes
can be made:
Better demand forecasting is necessary andpossible
because of closer ties with customers and suppliers.
Selected functions may need to be done collaboratively with
other partners in the value chain. This collaboration mayeven extend to sharing employees.
New measures are needed for evaluating performance of
various activities along the value chain.
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Value Chain ManagementValue Chain Management
Six Requirements for Successful Value Chain Management
4. LeadershipStrong and committed leadership is necessary to
identify what value is, how that value can best be
provided, and how successful those efforts have been.
Managers should start with a vision or mission statement that
expresses the organizations commitment to identifying,
capturing, and providing the highest possible value to customers.
They should clarify expectations regarding each employees role
in the value chain.
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Value Chain ManagementValue Chain Management
Six Requirements for Successful Value Chain Management
5. Employees/Human Resources
The three main human resource requirements for
value chain management are
flexible approaches to job design,
an effective hiring process, and
ongoing training.
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Value Chain ManagementValue Chain Management
Six Requirements for Successful Value Chain Management
6. Organizational Culture and Attitudes
Those cultural attitudes include sharing, collaborating,
openness, flexibility, mutual respect, and trust.
These attitudes encompass not only the internal
partners in the value chain, but extend to external
partners as well.
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Value Chain ManagementValue Chain Management
Benefits of Value Chain Management
Collaborating with external and internal partners inCollaborating with external and internal partners in
creating and managing a successful value chaincreating and managing a successful value chain
strategy requires significant investments in time,strategy requires significant investments in time,
energy, and other resources, and a seriousenergy, and other resources, and a seriouscommitment by all chain partners.commitment by all chain partners.
The major benefit can beThe major benefit can beimproved customer service.improved customer service.
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Value Chain ManagementValue Chain Management
Obstacles to Value Chain Management
People
OrganizationalBarriers
CulturalAttitudes
Obstacles to ValueChain Management
RequiredCapabilities
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Value Chain ManagementValue Chain Management
Obstacles to Value Chain Management
Organizational BarriersOrganizational Barriersinclude refusal or reluctanceinclude refusal or reluctanceto share information, reluctance to shake up the statusto share information, reluctance to shake up the status
quo, and security issues (system and Internetquo, and security issues (system and Internet
securities).securities).
Cultural AttitudesCultural Attitudes
Unsupportive cultural attitudes especially trust andUnsupportive cultural attitudes especially trust and
control. Too much trust also can be a problem. Justcontrol. Too much trust also can be a problem. Justabout any organization is vulnerable to theft ofabout any organization is vulnerable to theft of
intellectual propertyintellectual property that is, proprietary company that is, proprietary company
information thats critical to its efficient and effectiveinformation thats critical to its efficient and effective
functioning and competitiveness.functioning and competitiveness.
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Value Chain ManagementValue Chain Management
Obstacles to Value Chain Management
Required CapabilitiesRequired Capabilities
A number of capabilities that value chain managementA number of capabilities that value chain management
must have.must have.
Several of these areSeveral of these are
coordination and collaboration,coordination and collaboration,
the ability to configure products to satisfy customersthe ability to configure products to satisfy customersand suppliers, andand suppliers, and
the ability to educate internal and external partners.the ability to educate internal and external partners.
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Value Chain ManagementValue Chain Management
Obstacles to Value Chain Management
PeoplePeople the organizational members the organizational members if refuse to beif refuse to beflexible, its going to be difficult to make the necessaryflexible, its going to be difficult to make the necessary
changes to meet changing situational demands.changes to meet changing situational demands.
Value chain management takes an incredible amountValue chain management takes an incredible amount
of time and energy by an organizations employees.of time and energy by an organizations employees.
Managers must motivate those high levels of effortManagers must motivate those high levels of effort
from employees, which isnt easy to do.from employees, which isnt easy to do.
Another major problem is the lack of experiencedAnother major problem is the lack of experienced
managers who are able to lead value chainmanagers who are able to lead value chain
management initiatives.management initiatives.
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Quality InitiativesQuality Initiatives
One of the issues in operations management.One of the issues in operations management.
Quality problems are expensive.Quality problems are expensive. Example, itExample, it
cost Toshiba Corporation $2.1 billion to settle acost Toshiba Corporation $2.1 billion to settle a
lawsuit over defects in its laptop computers.lawsuit over defects in its laptop computers.
Quality can be defined as the ability of aQuality can be defined as the ability of a
product or service to reliably do what itsproduct or service to reliably do what its
supposed to do and to satisfy customersupposed to do and to satisfy customerexpectations.expectations.
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Quality InitiativesQuality Initiatives
Quality Dimension of Goods and ServicesQuality Dimension of Goods and Services
Product Quality DimensionsProduct Quality Dimensions
1.1. Performance Operating characteristicsPerformance Operating characteristics
2.2. Features Important special characteristicsFeatures Important special characteristics
3.3. Flexibility Meeting operating specifications over someFlexibility Meeting operating specifications over someperiod of timeperiod of time
4.4. Durability Amount of use before performance deterioratesDurability Amount of use before performance deteriorates
5.5. Conformance Match with pre-established standards.Conformance Match with pre-established standards.
6.6. Serviceability Ease and speed of repair or normal serviceServiceability Ease and speed of repair or normal service
7.7. Aesthetics How a product looks and feelsAesthetics How a product looks and feels
8.8. Perceived quality Subjective assessment of characteristicsPerceived quality Subjective assessment of characteristics
(product image)(product image)
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Quality InitiativesQuality Initiatives
Quality Dimension of Goods and ServicesQuality Dimension of Goods and Services
Service Quality DimensionsService Quality Dimensions
1.1. Timeliness Performed in promised period of timeTimeliness Performed in promised period of time
2.2. Courtesy Performed cheerfullyCourtesy Performed cheerfully
3.3. Consistency Giving all customers similar experiences eachConsistency Giving all customers similar experiences eachtimetime
4.4. Convenience Accessibility to customersConvenience Accessibility to customers
5.5. Completeness Fully serviced, as requiredCompleteness Fully serviced, as required
6.6. Accuracy Performed correctly each timeAccuracy Performed correctly each time
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Quality InitiativesQuality Initiatives
How is quality achieved?How is quality achieved?
A good way to address quality initiatives is to think inA good way to address quality initiatives is to think interms of the management functionsterms of the management functions planning, planning,
organizing and leading, and controlling organizing and leading, and controlling that need tothat need to
take place.take place.
Planning for QualityPlanning for Quality
Managers must have quality improvement goalsManagers must have quality improvement goals
and strategies and plans formulated to achieveand strategies and plans formulated to achieve
those goals.those goals.
Goals can help focus everyones attention towardGoals can help focus everyones attention toward
some objective quality standard.some objective quality standard.
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Quality InitiativesQuality Initiatives
How is quality achieved?How is quality achieved?
Organizing and Leading for QualityOrganizing and Leading for Quality
Organizations with extensive and successful qualityOrganizations with extensive and successful quality
improvement programs tend to rely on twoimprovement programs tend to rely on two
important people approaches:important people approaches:
cross-functional work teams andcross-functional work teams and
self-directed or empowered work teams.self-directed or empowered work teams.
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Quality InitiativesQuality Initiatives
How is quality achieved?How is quality achieved?
Controlling for QualityControlling for Quality
Quality improvement initiatives arent possibleQuality improvement initiatives arent possible
without having some way to monitor and evaluatewithout having some way to monitor and evaluate
their progress.their progress.
Whether it involves standards for inventory control,Whether it involves standards for inventory control,
defect rate, raw materials procurement, or any otherdefect rate, raw materials procurement, or any other
operations management area, controlling for qualityoperations management area, controlling for quality
is important.is important.
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Quality InitiativesQuality Initiatives
ISO 9000ISO 9000 is a series of international quality managementis a series of international quality management
standards established by the International Organization forstandards established by the International Organization forStandardization, which set uniform guidelines for processesStandardization, which set uniform guidelines for processes
to ensure that products conform to customer requirements.to ensure that products conform to customer requirements.
This type of certification is becoming a pre-requisite forThis type of certification is becoming a pre-requisite fordoing business globally. Gaining ISO 9000 certificationdoing business globally. Gaining ISO 9000 certification
provides proof that a quality operations system is in place.provides proof that a quality operations system is in place.
The 2002 survey of ISO 9000 certificates showed that theThe 2002 survey of ISO 9000 certificates showed that thenumber of registered sites worldwide exceeded 561,000,number of registered sites worldwide exceeded 561,000,
an increase of almost 10 percent from the previous year.an increase of almost 10 percent from the previous year.
And these certificates had been awarded in 159 countries.And these certificates had been awarded in 159 countries.