OM 4330 Test 1 TxSt David Cameron

(ch 1): operations management:

the science and art of ensuring that goods and services are created and delivered successfully to customers

OM includes:

design of goods, services and the processes that create them - the day to day management of those processes and the continual improvement of these goods, services and processes

core of OM:

efficiency, cost, and quality
-all contribute to profitability and the long-term success of a company

the way in which goods and services, and the processes that create them, can be the difference between:

a delightful customer and an unhappy one

what do OM's do; forecasting:

predict the future demand for raw materials, finished goods, and services.

what do OM's do; supply chain mgmt:

manage the flow of materials, information, people, and money from suppliers to customers

what do OM's do; facility layout and design:

determine the best configurations of machines, storage, offices, and departments to provide the highest levels of efficiency and customer satisfaction

what do OM's do; technology selection:

use technology to improve productivity and respond faster to customers

what do OM's do; quality mgmt:

ensure that goods, services, and processes will meet customer expectations and requirements

what do OM's do; purchasing:

coordinate the acquisition of materials, supplies and services

what do OM's do; resource and capacity mgmt:

ensure that the right amount of resources (labor, equipment, materials, and information) is available when needed

what do OM's do; job design:

decide the best way to assign ppl to work tasks and job responsibilities

what do OM's do; service encounter design:

determine the best types of interactions btwn service providers and customers, and how to recover from service upsets

what do OM's do; scheduling:

determine when resources such as employees and equipment should be assigned to work

what do OM's do; sustainability:

decide the best way to manage the risks associated with products and operations to preserve resources for future generations

OM's need to understand process design, inventory mgmt, scheduling, and quality mgmt:

-when a new product was to be introduced, the best way to produce it had to be determined, involved charting detailed steps needed to make the product
-inventory needs to be tightly controlled to keep cost and avoid production that wasn't needed
-production schedules were created to ensure that enough product was available for both retail and wholesale customers, taking into account such factors as current inventory and production capacity
-each product was inspected and must conform to the highest quality standards. if a product did not conform to standard, then it was removed from inventory to emetic where the process broke down and to initiate corrective action

organizational performance measures categories:

financial, customer and market, quality, time, flexibility innovation and learning, productivity and operational efficiency, sustainability

good:

physical product that you can see, touch, or possibly consume

durable good:

good that does not quickly wear out and typically lasts at least three years
EX: cars, washer, dryer

nondurable good:

is one that is no longer useful once it's used, or lasts for less than three years
EX: toothpaste, shoes, food

service:

any primary or complementary activity that does not directly produce a physical product

service providing industries:

banking, lodging, education, health care, government

similarities between goods and services:

-driven by customers and provide value and satisfaction to customers who buy them
-they can be standardized for the mass market or customized for individual needs
-created to provide customers by some type of process involving people and technology
-

differences between goods and services; goods are tangible while services are intangible:

*goods are consumed, services are experienced,
goods need to be stored, moved and repaired
-services make more use of information systems and other "soft technology"

differences between goods and services; customers participate in many service processes, activities, and transactions:

services require the customer to be present, and customer and service provider co-produce a service.

the demand for services is more difficult to predict than the demand for goods:

customer arrival rates and demand patterns for such service delivery systems as banks, airlines, supermarkets, call centers, and courts are very difficult to forecast
-demand for services is time dependent, especially over the short term.

services cannot be stored as physical inventory:

in goods-producing firms, inventory an be used to decouple customer demand from the production process or between stages of the production process and ensure constant availability despite fluctuations in demand
-service firms do not have physical inventory to absorb such fluctuations in demand. for service industries, availability depends on the the system's capacity

service management skills are paramount to a successful service encounter:

employee who interact with customers require service management skills such as knowledge and technical expertise, cross-selling other products and services, and good human interaction skills

service management:

integrates marketing, HR, and operations functions to plan, create, and deliver goods and services and their associated service encounters

service facilities typically need to be in close proximity to the customer:

EX: banks, post offices, hotels
-manufacturing facility, on the other hand, can be located on the other side of the globe, as long as goods are delivered to customers in a timely fashion

patents do not protect services:

can protect a good, but not a service

CBP:

a clearly defined set of tangible and intangible features that the customer recognizes, pays for, uses, or experiences

primary good or service:

is the "core" offering that attracts customers and responds to their basic needs

peripheral goods or services:

are those that are not essential to the primary good or service, but enhance it

variant:

is a CBP feature that departs from the standard CBP and is normal location-or firm-specific

process:

a sequence of actions that is intended to create certain results
-it is how work creates value for customers

core processes:

focused on producing or delivering an organization's primary goods or services that create value for customers, such as filing and shipping a customer's order, assembling a dishwasher, or providing a home mortgage

support processes:

such as purchasing materials and supplies used in manufacturing, managing inventory, installation, health benefits, technology acquisition, day care on-site services, and research and development

general management processes:

including accounting and information systems, human resource management, and marketing

challenges in OM; efficiency:

companies moved their factories to low-wage countries. mgrs became enamored with computers, robots, and other forms of tech.

challenges in OM; quality:

japan made steady progress in reducing defects and paid careful attn to what customers wanted.

challenges in OM; customization and design:

innovative designs gained a competitive edge. quality meant offering consumers new and innovative products that not only met their exception but also surprised and delighted them. new operating systems emerged that enabled companies to manufacture goods and services better, cheaper, and faster than their competitors, while facilitating innovation and increasing variety

challenges in OM; time based competition:

companies that do not respond quickly to changing customer needs will lose out to competitors that do

challenges in OM; the service revolution:

today, about 4/5 jobs are in services.

challenges in OM; sustainability:

refers to an organization's ability to strategically address current business needs and successfully develop a long-term strategy that embraces opportunities and manages risk for all products, systems, supply chains, and processes to preserve resources for future generations

challenges in OM; environmental sustainability:

is an organization's commitment to the long-term quality of our environment
EX: waste mgmt, energy optimization, transportation optimization, tech upgrades, air quality, sustainable product design

challenges in OM; social sustainability:

is an organization's commitment to maintain healthy communities and a society that improves the quality of life
EX: product saftey, workforce health and safety, ethics and gov'ts, community

challenges in OM; economic sustainability:

is an organization's commitment to address current business needs and economic vitality, and to have the agility and strategic management to prepare successfully for future business, markets, and operating environments
EX: performance excellence, financial management, resource management, emergency preparedness

challenges in OM; data and analytics - business analytics:

is a process of transforming data into actions thru analysis and insights in the context of organizational decision making and problem-solving

current challenges in OM; technology:

as technology continues to evolve, OM has to find ways to leverage and exploit it

current challenges in OM; globalization:

has changed the way companies do business and must manage their operations. value chains now span across many continents. OMs must continue to find better ways to manage and improve global value chains to compete against those of competitors

current challenges in OM; consumers' expectations:

continually rise. they demand increasing variety of high-quality goods with new and improved features that are delivered faster than ever - along with outstanding service and support

current challenges in OM; engaging the workforce:

requires continual learning, new decision making skills, more diversity, and better performance management.

current challenges in OM; quality:

organizations cannot take quality for granted and must continue to focus on it when designing goods and services

current challenges in OM; innovation and agility:

manufactures must stay ahead on consumers' needs by increasing product innovation, speeding up tim to market, and operating highly effective global supply-chains.

(ch 2) value chain:

is a network of facilities and processes that describes the flow of materials, finished goods, services, information, and financial transactions from suppliers, through the facilities and processes that create goods and services, and those that deliver them to the customer
-involves purchasing, marketing and sales, HR management, finance and accounting, etc

supply chain:

is the portion of the value chain that focuses primarily on the physical mvmt of goods and materials, and supporting flows of informations and financial transactions through the supply, production, and distribution processes

value chain input/output auto assembly plant example:

-suppliers: engine plant, tires, frames, axles, paint, seats
-inputs: labor, energy, auto parts, specifications
-transformation process: welding, assembly, machining, painting
-outputs: automobiles, trucks
-customers and market segments: economy, luxury, rental, trucking, ambulance, police

example of a value chain of a company which provides stamped metal parts to many industries:

estimating > sales > engineering > tooling > inspection > production > finishing > assembly and packaging > final audit inspection > shipping

pre/post service perspective:

gaining customers > creating value > keeping the customer

vertical integration:

refers to the process of acquiring and consolidating elements of a value chain to achieve more control

backward integration:

refers to acquiring capabilities toward suppliers

forward integration:

reders to acquiring capabilities toward distribution or even customers

value chain integration:

process of managing information, physical goods, and services to ensure their availability at the right place, at the right time, at the right cost, at the right quantity, and with the highest attn to quality

outsourcing:

the process of having suppliers provide goods and services that were previously provided internally

(ch 3) measurement:

the act of quantifying the performance of organizational units, goods and services, processes, people, and other business activities
-provides a basis for making decisions

cost and revenue:

often take the top priority in for-profit organiztions

customer-satisfaction measurement system:

provides a company with customer ratings of specific goods and service features and indicates the relationship between those ratings and the customer's likely future buying behavior
-tracks trends and reveals patterns of customer behavior from which the company can predict future customer needs and wants

quality:

measures the degree to which the output of a process meets customer requirements
-applies to both goods and services

good quality:

relates to the physical performance and characteristics of a good

service quality:

consistently meeting or exceeding customer expectations and service-delivery system performance for all service encounters

5 key dimensions to assess service quality:

tangibles: physical facilities, uniforms, equipment, vehicles and appearance of employees
reliability: ability to perform the promised service dependently and accurately
responsiveness: willingness to help customers and provide prompt recovery to service upsets
assurance: knowledge and courtesy of the service providers and their ability to inspire trust and confidence in customers
empathy: caring attitude and individualized attention provided to customers

service failures:

errors in service creation and delivery

processing time:

the time it takes to perform some task

wait time:

the time spent waiting

flexibility:

the ability to adapt quickly and effectively to changing requirements
-as new products are being introduced faster and customers expect more customization, operations managers must design value chains that are highly flexible

goods and service design flexibility:

is the ability to develop a wide range of customized goods or services to meet different or changing customer needs
EX: Dell's ability to provide a wide range of customized computer hardware to accommodate home users, small businesses, and large company's server needs.

volume flexibility:

is the ability to respond quickly to changes in the volume and type of demand
EX: hospitals may have intensive-care nurses on standby in case of a dramatic increase in patient demand because of an accident

innovation:

refers to the ability to create new and unique goods and services that delight customers and create competitive adv

learning:

refers to creating, acquiring, and transferring knowledge, and modifying the behavior of ee's in response to internal and external change
EX: when something goes wrong in an office or division, can the organization ensure that the mistake is not repeated chains and does not occur in other offices or divisions

productivity:

the ratio of the output of a process to the input
- as output increases for a contact level of input, or as the amount of input decrease for a constant level of output, productivity increases

productivity=

quantity of output/quantity of input

operational efficiency:

is the ability to provide goods ad service to customers with minimum waste and maximum utilization of resources
EX: time it takes to fill orders, times to set up machinery and equipment, times to change from one product to another on an assembly line, etc.

triple bottom line:

refers to the ability to measure environmental, social and economic sustainability

interlinking:

the quantitative modeling of cause and effect relationships between external and internal performance criteria
-tries to quantify the performance relationships between all parts of the value chain - the process (how), goods and serves output (what), and customer experiences and outcomes (why)

value of a loyal customer:

quantifies the total revenue or profit each target market customer generates over the buyer's life cycle
-costs 3-5 times more to acquire a new customer than keep an existing customer

customer defection rate:

1-customer retention rate

EX of computing the average value of a loyal customer:

annual customer retention rate is 80%, which means that 20% of customers who purchase a computer will not buy from it again. fixed costs are 35% and the manufacturer makes a before-tax profit margin of 10%. therefore, the incremental contribution to profit and overhead is a total of 45%. we also assume that customers buy a new computer every 2 years, or 0.5 times per year, at an average cost of $1000.
on an annual basis, the avg contribution to profit and overhead of a new customer is ($1000)(.45)(.5) = $225.
if 20% of customers do not return each year, then, on average, the buying life of a customer is 5 years (1/0.2 = 5). therefor, the avg value of a loyal customer over his or her average buying life is ($225 over year)(5 years) = $1,125.
now suppose that the customer defection rate can be reduced 10% by improving operations and ee's service management skills. in this case, the avg buying life doubles, and the avg value of a loyal customer increases to ($225 per year)(10 years) = $2250. if goods and service improvements can also lead to a market share increase of 10,000 customers, the total contribution to profit and overhead would be $22,500,000 = (1,000)(.45)(.5)(10)(10,000).

VLC =

(P)(CM)(RF)(BLC)
p: the revenue per unit
cm: the contribution margin to profit and overhead expressed as a fraction
rf: repurchase frequncy (# of purchases per year)
blc: buyer's life cycle, computed as 1/defection rate, expressed as a fraction (1/0.2 = 5 years, 1/0.1 = 10 years, etc.)

actionable measures:

provide the basis for decisions at the level at which they are applied

Malcom Baldrige performance excellence framework:

leadership, strategic planning, customer focus, measurement and analysis and knowledge management, workforce focus, operations focus, results.
-this criteria framework represents a macro-level interlinking model that relates management practices to business results
EX: if senior management understands their customers, and lead the strategic planning processing planning effectively (1,2,3) and then translate plans into actions through the workforce and operations (5,6) then positive business results should follow (7).

robert kaplan and david norton - the balanced scorecard:

purpose is to translate strategy into measures that uniquely communicate your visions to the organization
-financial perspective, customer perception, innovation and learning perspective, internal perspective
-internal perspective is most meaningful to operations managers, as they deal with the day-today decisions that revolve around creating and delivering goods and services

value chain model:

-most dominant model
-measuring goods and service outcomes tell a company whether its processes are providing the levels of quality and service that customers expect
-through customer and market info, an organization can learn how satisfied customers and stakeholders are with its goods and services and performance and how best to configure the goods and services.

service-profit chain:

most applied to service environments
-the theory is that employees, through the service-delivery system, create customer value and drive profitability
-model is based on a set of cause and effect linkages between internal and external performance, and in this fashion, defines the key performance measurements on which service based firms should should focus.

(ch 4) competitive advantage:

denotes a firm's ability to achieve market and financial superiority over its competitors
-in the long run, it provides above average performance
-creating a competitive advantage requires understanding of customers needs and expectation, and management must build leverage and operational capabilities to support desired competitive priorities

customer wants and needs:

a company cannot usually satisfy all customers with one good/service. they are segmented into groups to better help the company meet their needs
-need to be close to the customer to determine their wants and needs

order qualifiers:

basic customer expectations are generally considered the minimum performance level required to stay in business
EX: radio and airbag for a car

order winners:

are goods and service features and performance characteristics that differentiate one customer benefit package from another and win the customer's business
EX: free internet and gaming devices in a hotel

search attributes:

are those that a customer can determine prior to purchasing the goods/service.

experience attributes:

are those that can be discerned only after purchasing or during consumption or use