unit 13 and 14

13.2 - Operations Management and the Transformation Process

Operations management transforms inputs (labor, capital, equipment, land, buildings,

materials and information) into outputs (goods and services) that provide added value

to customers.

Figure 1 summarizes the transformation process. The arrow labeled "Transformation

System" is the critical element in the model that will determine how well the

organization produces goods and services that meet customer needs. It does not matter

whether the organization is a for-profit company, a non-profit organization (religious

organizations, hospitals, etc.), or a government agency; all organizations must strive to

maximize the quality of their transformation processes to meet customer needs.

Example: Strategic Importance of Operations Management

The 3M Company is a good example of the strategic importance of transforming inputs

into outputs that provide competitive advantage in the marketplace.

3M manufactures a top-quality adhesive tape called "Magic Tape". Magic Tape is used

for everyday taping applications, but it offers attractive features that most other tapes do

not, including:

• Smooth removal from the tape roll • An adhesive that is sticky enough to hold items in place (but not too sticky

that it cannot be removed and readjusted if necessary!) • A non-reflective surface

For several decades, 3M has enjoyed a substantial profit margin on its Magic Tape

product because 3M engineers make the manufacturing equipment and design the

manufacturing processes that produce Magic Tape. In other words, 3M enjoys a

commanding competitive advantage by controlling the transformation processes that

turn raw material inputs into the high value-added Magic Tape product.

Controlling the transformation process makes it extremely difficult for competitors to

produce tape of the same quality as Magic Tape, allowing 3M to reap significant profits

from this superior product.

An opposite example of the strategic implications of the input/output transformation

process is 3M's decision in the 1980s to stop manufacturing VHS tape for video players

and recorders.

In the VHS tape market 3M had no proprietary manufacturing advantage, as there were

many Asian competitors that could produce high-quality VHS tape at lower cost. Since

3M had no proprietary control over the transformation process for VHS tape that would

allow the company to protect its profit margins for this product, it dropped VHS tape

from its offerings.

The two 3M examples of Magic Tape and VHS tape show how important the

transformation process and operations management can be to providing and protecting

an organization's competitive advantage.

Example of a typical transformation process

Source: Boundless. "A Study of Process." Boundless Business Boundless, 26 May. 2016. Retrieved 22 Apr. 2017 from https://www.boundless.com/business/textbooks/boundless-business-textbook/operations- management-10/introduction-to-operations-management-69/a-study-of-process-328-7195/