MAN2021 DISCUSSION
CHAPTER 14
Operations Management: Managing Vital Operations and Processes
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Learning Objectives
1. Explain the role of operations management in achieving superior quality, efficiency, and responsiveness to customers.
2. Describe what customers want, and explain why it is so important for managers to be responsive to their needs.
3. Explain why achieving superior quality is so important.
4. Explain why achieving superior efficiency is so important.
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Operations Management and Competitive Advantage1
Operations Management.
The management of any aspect of the production system that transforms inputs into finished goods and services.
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Operations Management and Competitive Advantage2
Production System.
The system that an organization uses to acquire inputs, convert inputs into outputs, and dispose of the outputs.
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An organization strives to create a good product at a low cost; an efficient production system helps to achieve this goal.
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Operations Management and Competitive Advantage3
Operations Manager.
Manager who is responsible for managing an organization’s production system and for determining where operating improvements might be made.
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Three stages of production
Acquisition of inputs
Control of conversion processes
Disposal of goods and services
An operations manager will make the decisions affecting production to improve quality, efficiency, and customer service—always in the service of the organization’s competitive advantage.
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Operations Management and Competitive Advantage4
Quality.
Goods and services that are reliable, dependable, or psychologically satisfying.
Efficiency.
Amount of inputs required to produce a given output.
Responsiveness to Customers.
Action taken to meet the demands and needs of customers.
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Being responsive to customers means working for quality in an organization’s goods and services in an efficient way.
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Topics for Discussion1
Why is it important for managers to pay close attention to their organization’s production system if they wish to be responsive to their customers? [LO 14-1]
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The attributes of an organization’s outputs—their quality, cost, and features—are determined by the organization’s production system. The ability of an organization to satisfy the demands of its customers is derived from its production system. By monitoring this system, managers can find ways to improve quality while keeping prices low, as well as find ways to increase efficiency. Customers want value for money, and an organization whose efficient operating system creates high-quality, low-cost products is best able to deliver this value.
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The Purpose of Operations Management
Figure 14.1
Access the text alternative for this slide.
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Improving Responsiveness to Customers
Without customers, organizations would cease to exist.
Nonprofit and for-profit firms all have customers.
Managers need to identify who the customers are and their wants or needs.
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Organizations exist for customers; therefore, it is essential to identify who the customers are and then determine how best to meet their needs.
What Do Customers Want?
Most customers prefer:
A lower price to a higher price.
High-quality products to low-quality products.
Quick service to slow service.
Many features over few features.
Products that are customized or tailored to their specific needs.
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All of these customer preferences seem obvious, especially the desire for a high-quality product at a low cost. However, these demands often mean a higher-price. Some will pay the extra cost for a high-quality product with many features that might be adapted to the owner’s needs. The Apple iPhone comes to mind.
Topics for Discussion2
“Total customer service is the goal toward which most organizations should strive.” To what degree is this statement correct? [LO 14-2]
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Without customers, most organizations would cease to exist. It is important for managers to correctly identify and promote organizational strategies that respond to customer needs. To this extent, the above statement is correct. Yet organizations should not strive to have total customer service at the expense of other important factors in the production process. If an organization offers a level of responsiveness that is more than that production system can profitably sustain, the entire system will suffer in terms of efficiency and cost effectiveness. A company that customizes every product to the unique demands of the individual customers will likely see its cost structure become so high that the cost of production exceeds revenues. Also, efficiency will suffer because time and effort is required to customize and provide total customer service. To this extent, total customer service should be balanced with focus on efficiency and effectiveness.
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Designing Production Systems to Be Responsive to Customers
The attributes of an organization’s outputs—their quality, cost, and features—are determined by the organization’s production system.
Since the ability of an organization to satisfy the demands of its customers derives from its production system, managers need to devote considerable attention to constantly improving production systems.
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The text gives the example of Southwest Airlines and it’s successful low-cost production system.
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Customer Relationship Management
Customer Relationship Management (CRM).
Technique that uses IT to develop an ongoing relationship with customers to maximize the value an organization can deliver to them over time.
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Three parts of CRM systems:
sales and selling
after-sales service and support
marketing
A manager employs IT to determine if all parts of this system are working efficiently and effectively; and if not, to figure out what is failing and how to improve it.
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Topics for Discussion3
What is CRM, and how can it help improve responsiveness to customers? [LO 14-2]
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CRM is a technique that uses IT to develop an ongoing relationship with customers to maximize the value an organization can deliver to them over time. CRM IT monitors, controls, and links each of the functional activities involved in marketing, selling, and delivering products to customers, such as monitoring the delivery of products through the distribution channel, monitoring salespeople’s selling activities, setting product pricing, and coordinating after-sales service.
When a company implements after-sales service and support CRM software, salespeople are required to input detailed information about their follow-up visits to customers. Because the system tracks and documents every customer’s case history, salespeople have instant access to a record of everything that occurred during previous phone calls or visits. They are in a much better position to respond to customers’ needs and build customer loyalty, so a company’s after-sales service improves.
A CRM system can also identify the top 10 reasons for customer complaints. Finally, as a CRM system processes information about changing customer needs, this improves marketing in many ways. Marketing managers, for example, have access to detailed customer profiles, including data about purchases and the reasons why individuals were or were not attracted to a company’s products.
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Improving Quality
A firm that provides higher quality than others at the same price is more responsive to customers.
Higher quality can also lead to better efficiency through lower operating costs.
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The text gives the example of Lexus (in 2017) and it’s higher-priced yet high-quality, dependable vehicles.
Impact of Increased Quality on Organizational Performance
Figure 14.2
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Improving Efficiency1
The fewer the inputs required to produce a given output, the higher the efficiency of a production system.
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Improving efficiency is at the heart of an organization. An efficient organization has lower production costs, creating more profit and attracting more customers.
The text gives the example of personal computers: . . . in 1990 the price of the average personal computer sold in the United States was $3,000, by 1995 the price was around $1,800, and in 2017 it was around $350.35 This decrease occurred despite the fact that the power and capabilities of the average personal computer increased dramatically during this time period (microprocessors became more powerful, memory increased, and multimedia capability was added).
Improving Efficiency2
Total Factor Productivity.
Looks at how well an organization utilizes all of its resources—such as labor, capital, materials, or energy—to produce its outputs.
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One of the disadvantages of this formula is that inputs could be hours worked or materials used.
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Improving Efficiency3
Partial Productivity.
Specific measure of productivity that measures the efficiency of an individual unit.
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This formula can be used to determine if a company is using labor efficiently. In 1994, research found that a Japanese company’s labor was more efficient than in a British company.
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Facilities Layout, Flexible Manufacturing, and Efficiency1
Facilities Layout.
The operations management strategy whose goal is to design the machine-worker interface to increase production system efficiency.
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Another consideration in designing a work space is the cost of setting up the equipment needed.
Three Facilities Layouts
Figure 14.3
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Facilities Layout1
Product Layout.
Machines are organized so that each operation is performed at work stations arranged in a fixed sequence.
Example: Mass production systems are set up where workers are stationary and a belt moves work to them.
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Example: car production, food production.
Modular assembly lines: computers allow the production in small batches.
Facilities Layout2
Process Layout.
Self-contained work stations not organized in a fixed sequence.
Provides flexibility in making a wide variety of products tailored to customers.
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The text cites a custom furniture manufacturer and a hospital:
A custom furniture manufacturer might use a process layout so that different teams of workers can produce different styles of chairs or tables made from different kinds of woods and finishes. Such a layout also describes how a patient might go through a hospital from emergency room to X-ray department, to operating room, to recovery, and so on.
Facilities Layout3
Fixed-Position Layout.
The product stays in a fixed spot and components that are produced at remote stations are brought to the product for final assembly.
The assembly of large jet aircraft uses this type of layout.
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Complex products are more likely to require a fixed-position layout. In addition to airplanes, mainframe computers and gas turbines are examples.
Facilities Layout, Flexible Manufacturing, and Efficiency2
Flexible Manufacturing.
Operations management technique that attempts to reduce the setup costs associated with a production system.
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With flexible manufacturing, a company might be able to create variations on a product, but in the same time as a static system.
Facilities Manufacturing
Flexible manufacturing aims to reduce the time required to set up production equipment.
Redesigning the manufacturing process so that production equipment geared for manufacturing one product can be quickly replaced with equipment geared to make another product can dramatically reduce setup times and costs.
Flexible manufacturing increases a company’s ability to be responsive to its customers.
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The text discusses the Lansing, Michigan General Motors plant—a small, flexible, successful plant.
Just-in-Time Inventory and Efficiency1
Inventory.
The stock of raw materials, inputs, and component parts that an organization has on hand at a particular time.
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A company might employ a just-in-time (JIT) inventory system to locate defects in inputs. See next slide.
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Just-in-Time Inventory and Efficiency2
Just-in-Time (JIT) Inventory.
A system in which parts or supplies arrive at an organization when they are needed, not before.
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In a JIT system, inventory holding costs are reduced. This includes the cost of warehousing, or storage.
Just-in-Time Inventory and Efficiency3
One drawback of JIT systems is that they leave an organization without a buffer stock of inventory.
Although buffer stocks of inventory can be expensive to store, they can help an organization when it is affected by shortages of inputs brought about by a disruption among suppliers.
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Without a buffer stock, a company might be caught off guard if a sudden customer demand occurs.
Self-Managed Work Teams
The use of empowered self-managed teams can increase productivity and efficiency.
Cost savings arise from eliminating supervisors and creating a flatter organizational hierarchy, which further increases efficiency.
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A company can see a 30% increase in efficiency if they use self-managed teams. The text mentions the success of the GE Aviation plant in Durham, North Carolina.
Process Reengineering and Efficiency1
Process Reengineering.
The fundamental rethinking and radical redesign of the business process to achieve dramatic improvement in critical measures of performance such as cost, quality, service, and speed
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The text gives the example of the Ford manager discovering the efficient, yet small accounts payable department at Mazda in Japan. The discovery led Ford to reengineer their procurement process.
Process Reengineering and Efficiency2
Process reengineering can boost efficiency because it eliminates the time devoted to activities that do not add value.
Top management’s role is to encourage efficiency improvements by emphasizing the need for continuous improvement or reengineering.
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Topics for Discussion4
What is efficiency, and what are some of the techniques that managers can use to increase it? [LO 14-4]
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Efficiency refers to the amount of inputs required to produce a given output. Inputs may include labor, component parts, skills, knowledge, or time. Outputs can be any goods and services that the customer wants. These may be products or they may be intangible things, like customer service.
Managers can increase efficiency in several ways. One is to improve quality. When quality rises, less employee time is spent making defective products that have to be discarded or repaired. Designing products with fewer parts can increase efficiency since fewer parts to assemble reduces the total assembly time and makes products easier to assemble (e.g. less effort.) Managers can also change their facilities layout, or the way in which machines, robots, and people are grouped together. One layout may be more effective than another, depending on the product. Flexible manufacturing can also increase efficiency by reducing the time required to set up production equipment. Yet another tactic is just-in-time inventory, which reduces inventory holding costs and frees capital that would otherwise be tied up in inventory. Another way is to implement self-managed teams.
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Operations Management: Some Remaining Issues
Achieving superior responsiveness to customers through quality and efficiency often requires a profound shift in management operations and in the culture of an organization.
Making JIT work can pose a significant challenge.
By using JIT, employees may see the demands of their job increase or they may see themselves reengineered out of a job.
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A manager may need to balance the ethics of using JIT, flexible manufacturing, and reengineering when it impacts costs to employees, such as being reengineered out of their jobs.
BE THE MANAGER
What kinds of techniques discussed in the chapter can help these managers to increase efficiency?
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When hiring people, it will be important to screen for teamwork skills and the ability to work in a cross-functional type of team setting. The production facility should be designed to incorporate flexible manufacturing technologies and to use a just-in-time inventory system in order to adapt to changing market conditions and customer demands.
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Accessibility Content: Text Alternatives for Images
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The Purpose of Operations Management, Text Alternative
The graphic shows the production system at the top of the chart. The three stages underneath are input stage, conversion stage, and output stage. The input stage includes raw materials, component parts, and labor. The conversion stage includes skills, machines, and computers. And the output stage includes goods and services. Operations management techniques are used during each stage of production to increase efficiency, quality, and responsiveness to customers in order to give the organization a competitive advantage.
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Impact of Increased Quality on Organizational Performance, Text Alternative
A flow chart shows the impact of increased quality on organizational performance. Increased quality can lead to increased reliability, higher prices, and higher profit, or it can lead to increased productivity, lower costs, and higher profits.
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Three Facilities Layouts, Text Alternative
A group of three diagrams is shown, with each diagram showing a facility layout. Diagram A shows a product layout, diagram B show a process layout, and diagram C shows a fixed-position layout.
Diagram A, the product layout, is linear, showing 3 items that lead to a final product.
Diagram B, the process layout, is square, showing 4 items that relate in a linear fashion and diagonally with each other. They all result in the final product.
Diagram C, the fixed-position layout, has the final product in the middle and four items relating to it.
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