BUS 644 WEEK 1 ASSIGNMENT

Operations Management

Mark A. Vonderembse The University of Toledo

Gregory P. White Southern Illinois University—Carbondale

Bridgepoint Educa�on, Inc.

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ISBN-10: 0985970154

ISBN-13: 978-0-9859701-5-4

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About the Authors

Mark A. Vonderembse

Mark A. Vonderembse is a Professor of Informa�on Opera�ons and Technology Management at The University of Toledo (UT). He earned a Bachelor of Science in Civil Engineering from The University of Toledo (1971), and a M.B.A. from The University of Pennsylvania in (1973). His Ph.D. is from The University of Michigan (1979). He has held many administra�ve posi�ons at UT including Founding Director of the Intermodal Transporta�on Ins�tute, Ph.D. Program Director, Director of the School of Healthcare Business Innova�on and Excellence, Chairman of Informa�on Opera�ons and Technology Management, and Chairman of Finance. He has been the Principal Inves�gator on more than four million dollars in research grants and contracts. He has published in academic and professional journals including Management Science, Journal of Opera�ons Management, Decision Sciences, Interna�onal Journal of Produc�on Research, and Industrial Engineering Transac�ons. His research interests are manufacturing strategy, supply chain management, and healthcare delivery.

Gregory P. White

Gregory P. White is Professor Emeritus of Opera�ons Management at Southern Illinois University Carbondale (SIUC). He earned Bachelor of Science in Mechanical Engineering (1970), M.B.A. (1971), and Ph.D. (1976) degrees from the University of Cincinna�. He has held several administra�ve posi�ons during his academic career, including Chair, Department of Management, Associate Dean, Interim Dean, and Director of the M.B.A. Program in the College of Business at SIUC. He also served as Director of the Pon�kes Center for Management of Informa�on. He has served on the Editorial Review Board of the Journal of Opera�ons Management and has published in such academic and professional journals as Journal of Opera�ons Management, Interna�onal Journal of Opera�ons and Produc�on Management, and Management Science. His research interests have included opera�ons strategy, quality management, and lean opera�ons.

Acknowledgments

From Mark A. Vonderembse:

Wri�ng is always a team effort. My wife Gayle has supported and encouraged me throughout my career, and this project was no excep�on. She helped by providing edi�ng, ideas, and mo�va�on to meet all of the deadlines. Greg White, co-author and friend, created earlier versions of several chapters. A special thanks to Anna Lus�g, sponsoring editor for coordina�ng the project and shepherding the manuscript through produc�on.

Gra�tude to the following peer reviewers for their feedback and helpful guidance:

Ronald Beach, Ashford University

Kelly Bruning, Ashford University

Kimball Bullington, Middle Tennessee State University

Mark Hanna, Georgia Southern University

James Keyes, University of Wisconsin-Stout

Kevin Kuznia, Ashford University

Omar Parks, Ashford University

Pedro Reyes, Baylor University

Sco� Shaw, Ashford University

Thank you also to the editorial team for making my life easier: Rebecca McTavish and Rebecca Paynter, Development Editors, Jessica Sarra, Assistant Editor, Lauren LePera, Editorial Assistant, Emma Hammack, Editorial Intern, Charlo�e Dudley, Produc�on Editor, and Kelly Lydick, Copyeditor.

Finally, any errors or misstatements in the manuscript are my responsibility.

Dedication

From Mark A. Vonderembse:

To my wonderful wife, life companion, and best friend, Gayle

In memory of our parents Paul Edward Vonderembse, Ruth Mary Vonderembse, and Robert L. Bauer

To Gayle's mother: Pauline M. Bauer

To our children: Leisje, Tosje, Anthony, Vanessa, Talia, Elaine, and Maryke

To our grandchildren: Jack, Ava, Lillia, Logan, Trevor, Stella, and Aubriella

Love to all.

1

©Peter Cade/Iconica/Ge�y Images

Introduction to Operations Management in a Global Environment

Learning Objec�ves A�er comple�ng this chapter, you should be able to:

Discuss the role of opera�ons in an organiza�on. Describe the differences and similari�es between producers of services and producers of goods. Explain why the approach to designing, planning, and managing opera�ons should grow from an organiza�on's goals. Discuss the impact of global compe��on upon organiza�ons and their opera�ons. Understand key ethical issues that impact organiza�ons and opera�ons. Define the systems approach to opera�ons and discuss the rela�onships between opera�ons and the other func�onal areas within an organiza�on.

Organiza�ons exist to provide u�li�es, health care, financial services and numerous other goods and services because individuals alone lack the necessary skills and resources to provide goods and services on a large scale.

©Ge�y Images/Jupiterimages/Comstock/Thinkstock

Opera�ons Management: A Hotel Case Study

1.1 Defining Operations Management

People who study business are o�en overwhelmed by details and terminologies such as the amount of the adver�sing or the defini�on of income statement. They seldom consider the purpose of organiza�ons and why they exist. Organiza�ons exist to meet the demands of society in a way that people working alone cannot. With the coordina�on mechanisms and the concentra�on of resources that organiza�ons provide, they can produce the vast array of services and goods in the large quan��es that are consumed each day. Automobiles, flat screen televisions, banking, health care, online shopping, fire protec�on, police protec�on, and housing are just a few of the goods and services that organiza�ons provide. Individuals working alone could not produce these services and products because individuals do not have the skills or access to the equipment and technology necessary to complete so many dis�nct jobs quickly and efficiently.

Opera�ons plays a cri�cal role in organiza�ons because they provide the means through which organiza�ons produce thousands of commercial aircra�, millions of so�ware programs, billions of bank transac�ons, and all other services and goods consumed in the global economy. Opera�ons for a hospital involves determining the size of the facility, deciding the type and quan�ty of equipment to purchase, arranging the facility and equipment for efficiency, determining staffing levels and schedules to provide quality care, and managing inventories of medicines and bedding. Opera�ons, therefore, refers to the processes within organiza�ons that acquire inputs and transform them into outputs that the public can consume, as

shown in Figure 1.1. Inputs include people, capital, materials, and energy, and outputs are services or goods. Opera�ons employs labor and management (people) and uses facili�es and equipment (capital) to change materials (steel and plas�cs) into finished goods (diesel locomo�ves) or to provide services (health care). Long-term success requires that the outputs of the opera�on be worth more to the consumer than the total cost of the inputs. In this way, organiza�ons create wealth for society.

Figure 1.1: Opera�ons

Opera�ons is part of both private-sector and public-sector organiza�ons. Services are intangible products, and goods are tangible products. According to classifica�ons used by the U.S. Department of Commerce, the service sector includes transporta�on, u�li�es, lodging, entertainment, health care, legal services, educa�on, communica�ons, wholesale and retail trade, banking and finance, public administra�on, insurance, and real estate. Goods are defined as ar�cles of trade, merchandise, or wares. Manufacturing is a specific term referring to the produc�on of goods. Throughout the text, the term product is used to refer to either services or goods. Table 1.1 lists many services and goods produced by private and public-sector organiza�ons. Service opera�ons currently represent about 88% of the U.S. economy, and this percentage is growing (U.S. Department of Commerce, Bureau of Economic Analysis, h�p://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm (h�p://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm) ). The service sector is also an important and growing segment of the global economy.

Table 1.1: Examples of goods and services produced by organiza�ons

Goods Services

Profit Not-for-Profit Profit Not-for-Profit

Starter motors Gasoline Air condi�oners Appliances Hair dryers Furniture

Highways Dams Flood control projects Fabrica�on and assembly completed in workshops for the handicapped

Banking Health care Stock brokerage Telephone services Educa�on Retailing

Police protec�on Health care Public welfare Parks and recrea�on Fire protec�on Educa�on

Opera�ons is part of the total organiza�on, which may also include special�es such as accoun�ng, finance, marke�ng, informa�on systems, engineering, and human resource management. When rela�onships between opera�ons, marke�ng, and engineering are strong, it is possible to design high-quality products that are well liked by customers and are cheaper and easier to produce. These capabili�es enhance the compe��veness of organiza�ons. Understanding the links among func�ons in an organiza�on is cri�cal to an employee's advancement beyond an entry-level posi�on because middle and upper-level managers have broad responsibili�es and interact with many business func�ons.

Opera�ons management refers to decision-making processes for the design, planning, and management of the many factors that affect opera�ons. Decisions can include which products to produce, how large a facility to build, how many people to hire, and what methods to use to improve quality and efficiency. Opera�ons managers apply ideas and knowledge to:

In addi�on to providing installa�on and repair services, automo�ve repair centers sell tangible items in the form of replacement components.

©Stockbyte/Thinkstock

Decrease produc�on �me. Increase the speed of bringing new services and goods to market. Improve flexibility to meet rapidly changing customer needs. Enhance product quality. Improve customer service. Increase produc�vity. Reduce costs.

An organiza�on that can achieve these benefits through opera�ons will have an advantage over its compe�tors.

Much has been wri�en regarding the rela�ve importance of the service sector versus the manufacturing sector. Trying to isolate the impact of the service sector from the manufacturing sector is not produc�ve because one depends upon the other in so many ways. For example, in transporta�on, a trucking company purchases goods —tractors and trailers—from manufacturers that, in turn, buy services from consultants. Trucking companies run their tractors and trailers on public roads built by construc�on companies. Trucks carry goods; therefore, without a strong manufacturing sector, trucking companies and other forms of transporta�on would be severely hurt. The value chain of services and goods that brings products to customers is �ghtly linked.

In keeping with the close rela�onship between services and goods, most of the topics covered in this book can be applied equally to service opera�ons and manufacturing opera�ons. Examples from both service and manufacturing opera�ons will be used to illustrate key points. When there are important differences between the service sector and the manufacturing sector, these differences are clearly explained.

Similarities in Service Providers and Goods Producers

The dis�nc�on between services and goods is not necessarily as clear as the U.S. Department of Commerce list indicates. Some opera�ons classified as "services" actually provide both services and goods. For example, automo�ve repair facili�es sell and install replacement parts, so customers are purchasing something tangible as well as the labor to install them. Addi�onally, the person installing a muffler on an automobile is classified as a service worker. The person who installed the original equipment muffler at the automo�ve assembly plant is classified as a manufacturing worker. Is there a difference?

At a restaurant, customers purchase not only the food they order, but also the prepara�on of that food. It is difficult to iden�fy a substan�al difference between installing a muffler and pu�ng together a pizza in terms of goods versus services. In both cases, the ingredients or parts should be easily available for the worker, proper tools should be provided to make the job fast and easy, training should be given, and a sequence of steps to achieve a final output should be established.

When goods are purchased, services are part of the transac�on; when services are purchased, goods are o�en involved, either directly or indirectly. When a consumer buys a dishwasher, the purchase price includes

payments for retail services and audits of the manufacturer's books. When consumers pay for a taxicab or bus ride, a por�on of the money is used to pay for the purchase of vehicles. A thriving economy and an increasing standard of living depend upon strong and efficient service providers and manufacturers.

Real World Scenarios: Lima Fire Department and Trane Air Condi�oner Manufacturing

Service-producing organiza�ons and goods-producing organiza�ons have many similari�es. Consider the Lima Fire Department, which provides fire protec�on, and Trane, which produces air condi�oning units and other items for the home. Both are concerned with product improvements. For a fire department, product improvements are measured by response �me, the quality of its fire-preven�on program, and the dependability of the service. For Trane, improvements are measured by the air condi�oning unit's cooling power, energy efficiency, and special features.

Managers at the Lima Fire Department address many ques�ons directly related to opera�ons. What is the maximum �me that should elapse between a fire signal and the arrival of the fire equipment? How many fire sta�ons are required? Where should these sta�ons be located to maximize effec�veness? What type and quan�ty of equipment should be purchased? How many firefighters are required at each sta�on? What qualifica�ons are necessary, and how will they be trained? The answers to these ques�ons shape the services provided and determine the capital required to build facili�es, purchase equipment, and train personnel. Opera�ng decisions also determine the costs of providing the service.

Managers at Trane must answer a similar set of ques�ons. How are its products designed? How do the products perform? What special features—thermostat control, mul�ple- speed blower, and others—are available? How many air condi�oners should be produced each year? How can energy consump�on be reduced? What type and quan�ty of equipment is needed for efficient produc�on? How many employees are required? What type of training will they receive? How many facili�es are needed, and where will they be located? Answers to these ques�ons have a significant impact on the company's ability to compete within the marketplace.

Differences Between Service Providers and Goods Producers

Although opera�ng decisions for services and goods have many similari�es, one important difference must be noted: A good is tangible, and a service is not. This difference has two important consequences. First, a service business cannot account for inventory of finished products because a service is intangible and is performed on demand. Most service organiza�ons, however, do have suppor�ng inventory in the form of supplies. Hospitals have linens, drugs, and food; banks have forms and paper; cellular telephone providers have equipment and spare parts. Second, because a good is tangible, the product designer must deal with physical characteris�cs (height, strength, durability, etc.). This requires

Operations Management: A Hotel Case Study

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Banks provide ATMs and online banking services to increase customer sa�sfac�on, provide addi�onal service loca�ons, and make it easier for consumers to manage their funds.

©iStockphoto/Thinkstock

engineering talent to ensure the finished good is the right shape, has enough power, and is strong enough to perform its intended func�on. For an intangible service, such as health care, other skills are needed, including knowledge of anatomy, physiology, and chemistry.

Managing Service Opera�ons Without Finished Goods Inventory

Not having inventory might appear to be an advantage because inventory is expensive to maintain and �me consuming to manage. However, the inability of service organiza�ons to maintain an inventory of finished goods can be a disadvantage as well. Service organiza�ons cannot separate produc�on from consump�on. A customer can purchase a car on Saturday even though the assembly plant is closed because a dealer can sell a vehicle from inventory. This is not how services such as banking and telephone communica�ons are performed, however. The telephone company cannot provide services in an�cipa�on of demand because it has no finished goods inventory. Banks cannot perform transac�ons before a request is made. Customers of service organiza�ons must do without the service or wait un�l it can be performed.

Banks have installed automated teller machines (ATMs) to provide consumers with access to funds, and now provide online banking services for account access 24/7. These ac�ons extend service hours and relieve pressure on bank branches. Supermarkets may offer discounts to senior ci�zens who shop on slow business days, and movie theaters offer discounts to pictures shown on weekdays in the a�ernoon. In contrast, Trane can build air condi�oners Monday through Friday, a typical produc�on schedule, but the dealers can install them in customer's homes any�me, including weekends and holidays because the air condi�oners can be held in inventory. In addi�on, Trane can build the units in the slow winter months to offset demand in the spring and summer.

Clearly, then, the planning implica�ons for businesses without finished goods inventory can be significant. For example, during the morning rush, if 70 people want to ride a public hybrid bus that has only a capacity of 50, then 20 must wait for the next pickup or be turned away. The possible solu�on of adding another bus may not be cost effec�ve because the extra bus will not be heavily used. Turning customers away can result in the short-term loss of revenue and, poten�ally, long-term loss of customers because of dissa�sfac�on with the service.

Many bus lines try to relieve the capacity problem by shi�ing demand to off-peak periods. Discounts are o�en given to riders during late-morning and early-a�ernoon hours. The use of public transporta�on by high school students is scheduled so it will not conflict with the morning or a�ernoon demand peaks. Thus, when managers of service opera�ons consider capacity, they should focus on maximum demand and variability in demand, not average demand. Managers cannot use inventory to alleviate peak demand—including those peaks that occur from hour to hour.

To further complicate these challenges, some organiza�ons that are classified as service providers act more like manufacturers. For example, restaurants sell a service, food prepara�on, and a good—the food itself. A restaurant has raw materials, work in progress, and finished goods. In many retail and wholesale opera�ons, investments in inventory are substan�al, and inventory management is a cri�cal success factor. Restaurants, retail stores, and wholesale opera�ons are classified by the U.S. Departments of Commerce and Labor as service opera�ons, but have many points in common with producers of goods. These points are discussed in the chapters on capacity, material and resource planning, and inventory management.

Designing Products for Goods and Services

Designing goods requires considera�on of physical proper�es because goods are tangible and services are not. Usually, designing goods requires training in engineering because strength, durability, and performance are important. A high-speed color laser printer should consistently produce high-quality documents with limited maintenance and few, if any, breakdowns. The size and shape of products o�en influence the customers' percep�on of style and beauty. For example, a laser printer's size or the style of an automobile may influence the purchase decision.

When a service involves selling a good, such as food sold by a restaurant, the physical dimensions of the good are s�ll present. Designing a hamburger may not require an engineer, and, obviously, a hamburger need not be strong or durable. However, size and shape, as well as other physical elements, are s�ll important.

When a service, such as selling life insurance, does not provide a tangible good, the other elements of design become important. The amount of the insurance payout compared with the premiums paid for the policy is based upon sta�s�cal analysis of mortality rates and the age of the person when the policy is purchased. In some cases, lifestyle, such as smoking or career choice, is also considered. These decisions are evaluated by an actuary rather than by an engineer. Lawyers frame the policy as a contract so it is legally valid.

The design of a medical procedure may require the medical doctors, equipment designers, pharmacist, and other medical professionals to work together to ensure that any new treatment or procedure is both safe and effec�ve. The development of a surgical procedure to place stents in coronary arteries is a good example. Medical researchers and doctors worked closely with equipment manufacturers to design equipment and a process to insert the stent by passing it through the artery and placing it at the point of the blockage.

Countless organiza�ons u�lize Microso� so�ware because it can dras�cally increase user produc�vity and improve job performance.

Steven Senne/ASSOCIATED PRESS/AP Images

1.2 Understanding Operations

If an organiza�on can produce and deliver high-quality, low-cost products that meet customer needs in a �mely manner, its probability of success is greatly increased. Opera�ons employees and managers play an important role in achieving these objec�ves because their effec�veness in designing, planning, and managing opera�ons shapes the firm's compe��veness. What factors influence the buying decision for most consumers? For most services and goods, price, quality, product features and performance, product variety, and availability of the product are important. All these factors are substan�ally influenced by ac�ons taken in opera�ons. When produc�vity increases, product costs decline and product price can be reduced or profit margins increased. For example, produc�vity improvements in the produc�on of televisions have helped lower costs. As improved methods are developed for manufacturing the product, quality and variety may increase.

Linking opera�ons and opera�ng strategy with an organiza�on's overall strategy (including financial, marke�ng, human resource management, and informa�on system strategies) can result in synergy between departments. Opera�ons becomes a posi�ve factor when facili�es, equipment, and employee training are viewed as a means of achieving organiza�onal rather than narrowly defined departmental objec�ves. In the past, the primary criterion for judging opera�ons was cost control, which is a narrowly defined opera�ng objec�ve. Controlling cost is s�ll important, but now organiza�ons are including other performance measures, such as product performance and variety, product quality, delivery �me, and customer service. When flexibility is inherent in opera�ons, an organiza�on is able to respond rapidly and inexpensively to changing customer needs.

To understand opera�ons and how it can contribute to the success of an organiza�on, it is important to understand:

The value-added nature of opera�ons. The impact that technology can have upon performance. The importance of teamwork in achieving opera�ng and organiza�onal objec�ves.

Operations Add Value

The effects of well-run opera�ons add value when consumers are willing to pay more for the finished good or service than the total cost of the inputs required to make the good or service. In the private sector, the difference between the price a consumer pays for a good or service and the cost to produce it is profit that can be reinvested to build new and be�er products, thus crea�ng wealth for society.

Without profits, a company cannot raise capital to con�nue its opera�ons and will eventually become a casualty of compe��on. With profits, technology-based companies, such as Google and Facebook, and more tradi�onal companies, such as Ci�bank and Toyota, are able to invest in new technology and new facili�es, which lead to improved opera�ons and lower prices. More efficient produc�on of services and goods allows resources (people, capital, and materials) to be used for new product development and innova�on—which makes an organiza�on stronger and more compe��ve.

In not-for-profit organiza�ons, the value added to products represents improved wealth to society. For example, fire protec�on saves more money in damages than the cost of the service. The wealth created or preserved by value-added opera�ons contributes to economic growth and makes more resources available for other wealthcrea�ng ac�vi�es. This ul�mately improves the living standard because more wealth is created than consumed.

Microso� creates the so�ware that drives the majority of computers in the world. Microso�'s global presence is the result of designing and developing so�ware that drama�cally increases the user's produc�vity. The people and companies using Microso�'s so�ware see value in the so�ware and are willing to pay more for it than the cost of its development. In total, both sides of the producer or user transac�on gain. Microso�, its founders, managers, employees, and stockholders gain through earnings and stock apprecia�on; so�ware users gain by

becoming more produc�ve, which can lead to be�er job performance and more leisure �me.

Technology

Technology is the applica�on of knowledge, usually in the form of recently developed tools, processes, and procedures, to solve problems. Advances in technology make it possible to design and build be�er products using fewer resources.

Product design is the determina�on of the characteris�cs, features, and performance of the product. Product technology is the applica�on of knowledge to improve the product. The change from compact disks to digital online music is an example of using product technology to improve product design and enhance product performance. New products like digital video recorder (DVR) units are changing the way people enjoy television while Ne�lix streaming services are changing the way people view videos and movies. In the future, these technologies will be replaced by new product technology that will provide be�er sound quality, more features, and a lower price, as has already occurred when casse�e players replaced record players, CD players replaced casse�e players, and iPods replaced CD players. There are many other examples of product design improvements that can make life be�er, as shown in Table 1.2.

Table 1.2: Product design and technology

New Product Technology Outcome

An�lock brakes Microprocessor Safer automobiles

Lasik eye surgery Laser Faster recovery Fewer complica�ons

Online banking services Smart devices, Internet, and telecommunica�ons Convenient, 24-hour service from anywhere

Evalua�on of Ford's Computer Aided Engineering: Technological Development in Business

Ted S. Warren/ASSOCIATED PRESS/AP Images

Na�onwide reserva�on system Large-scale database, for hotels, airlines, etc. Make reserva�ons from the Internet anywhere in the world

Plas�c bo�les versus glass bo�les Injec�on molding containers Cheaper, lighter cost less to ship

Another major area to which technology can be applied is process. A process describes how to accomplish a task. Process design describes how a product is made. Process technology is the applica�on of knowledge to improve a process. Process technology affects how a product is produced but may have li�le, if any, impact on the product's features and func�on. Frying is one process for cooking a hamburger, and grilling over an open flame is another. Both processes yield a cooked piece of ground beef. By contrast, a change in product design would directly affect the way a product func�ons. Adding a second pa�y of ground beef, subs�tu�ng ground turkey for ground beef, or adding bacon would involve a different product design. There are many examples of process improvements that are making life be�er (see Table 1.3). In each case the product is the same, but the way the product is produced is different.

Table 1.3: Process design and technology

New Process Technology Outcome

Wri�ng using Microso� Word Computer Easy to change text and tables; Many fonts; Easy storage and retrieval of documents

Punching a hole in a steel plate versus drilling a hole Punch press Takes less �me

Using PowerPoint so�ware for presenta�ons versus an overhead projector

Computer and video graphics Ability to deliver informa�on with words and pictures; Inexpensive to update and distribute

Product design and process design are not always independent. A product design decision may dictate the process that should be used. For example, when a bride gives a wedding planner a menu that specifies broiled cod and boiled potatoes, then the processes for cooking the fish and the potato are determined. In many industries, managers prefer that product design and process design be completed simultaneously by the same group of people working in close collabora�on. This approach, some�mes called concurrent engineering, has become more and more popular as organiza�ons a�empt to develop new high-quality designs quickly.

Technology can be important when developing new ideas and successfully implemen�ng them. For example, eBay took an old process, the auc�on, and married it to new technology, the Internet, to create a new business model that is highly successful. An auc�on creates a market by bringing together buyers and sellers. Internet technology provides easy access to millions, and eventually billions, of people around the world. It allows sellers to provide detailed descrip�ons and pictures of the products to be sold. A wide variety of goods and services, as well as collec�bles, are available for auc�on on eBay. With eBay's approach, large amounts of informa�on are easily and inexpensively available, transac�on costs are low, and buyers and sellers can easily and quickly close a transac�on.

Teamwork

In the late-19th and early-20th centuries, labor and management groups in the United States treated one another as adversaries. Management and labor believed that a gain by one group meant a loss to the other. More recently, a new era of coopera�on between labor and management has been established. The need for coopera�on was accelerated by efforts to expand global trade through free-trade agreements, which created worldwide compe��on for labor. As a result, management and labor are working together to solve quality and

produc�vity problems with each group contribu�ng to the solu�on. Labor forces once opposed produc�vity improvements because they believed produc�vity increases would result in fewer jobs. Now labor o�en supports and encourages higher produc�vity because it provides job security due to the global nature of the labor market. Managers who were once reluctant to accept sugges�ons from employees (labor) are now more likely to listen and learn from personnel. Well-managed, teamwork-oriented opera�ons provide services and goods of high quality at prices that consumers can afford. This is good for the organiza�on, labor, consumers, and management in the following ways:

For the organiza�on, the ability to meet the increasing demand for high-quality, low-cost products can lead to greater success in compe��ve world markets. For labor, well-managed opera�ons provide con�nuing job opportuni�es. An inefficient opera�on drives prices up and makes services or goods subject to compe��ve pressure from efficient producers, both foreign and domes�c. Increases in efficiency allow non-infla�onary increases in wages, which leads to growth in purchasing power. For consumers, a lower price means that more people will be able to buy the product. In addi�on, consumers will have more money remaining for other purchases. This provides the opportunity to design, produce, and sell new goods and services. For management, lower produc�on costs can lead to increased sales and higher profit.

There may be no be�er example of teamwork between labor and management than Southwest Airlines. Many tradi�onal airlines have lost money and gone out of business (Eastern Air Lines), have sought mergers (Delta and Northwest), or acquired bankruptcy

Evaluation of Ford's Computer Aided Engineering From Title:

Technological Development in Business (https://fod.infobase.com/PortalPlaylists.aspx? wID=100753&xtid=33536)

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Southwest Airlines is, arguably, one of the most successful airlines in the world because of posi�ve employee-management rela�onships and commitment to con�nuous improvement.

protec�on (United, which recently merged with US Airways). Many people regard Southwest as the most successful airline in the United States—and possibly the world. Southwest focuses on the basics of air travel, and has an effec�ve strategy and planning process. Its success is due to the quality with which its employees work. Employees do the extras that help passengers enjoy a nicer trip. They work in ways that make company processes faster and more efficient. Planes are on �me, baggage is rarely lost, and passengers appreciate low fares and no cost for the first checked bag. Southwest employees own a part of the company, which drives employees and, in turn, is one reason for the company's success.

1.3 Global Trade and Competition

It is impossible to ignore the impact of the global marketplace and free trade on organiza�ons and their opera�ons. The North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) were designed to reduce or eliminate tariffs and other trade restric�ons. Since these have been enacted, several others have been approved, including recent agreements between the United States and Korea, Colombia, and Panama. These agreements increase the opportuni�es for countries to focus on areas of trade and commerce in which they have a rela�ve advantage. Free trade can lead to mergers and acquisi�ons that bridge rela�ons between na�ons and con�nents.

Relative Advantage

A country that wants to enhance the living standard of its people will engage in global trade. The country imports goods and services that are not available locally, or cost more to make at home than their foreign-made counterparts. When a country is the most efficient producer of all goods and services, it would be beneficial for that country to engage in global trade because the rela�ve advantage in one product—for example, pitchforks—is greater than its rela�ve advantage in another product—for example, furniture. Rela�ve advantage is defined as the difference between the lowest cost producer and the next-lowest cost producer. The country with the pitchfork produc�on advantage should produce pitchforks for the global market and may import to meet some or all of its furniture needs.

As barriers to trade (such as import quotas and tariffs) decline and countries be�er understand the benefits of interna�onal trade, trade between na�ons will con�nue to increase. Recently, global trade in goods and services reported by governments outpaced growth in the world's total produc�on (U.S. Department of Commerce, Bureau of Economic Analysis, h�p://www.bea.gov/interna�onal/index.htm (h�p://www.bea.gov/interna�onal/index.htm) ). When growth in global trade outpaces world produc�on, the percentage of world produc�on moving between na�ons must be increasing.

Creating Global Markets

Markets for many items, such as those produced by the electronics, steel, automo�ve, tex�le, and photographic equipment industries, are world markets dominated by mul�na�onal firms. In order for firms to compete, they must be among the best in the world, not simply the best in their na�on. These firms must compete with firms from other countries where the labor costs, material costs, material availability, culture, and sociopoli�cal environment are substan�ally different. These differences can make a manager's job more challenging.

Real World Scenarios: Ford Motor Company's Rebound

A�er World War II and un�l the late 1970s, when Ford Motor Company's primary compe�tors were General Motors and Chrysler, Ford had the same workforce and labor cost per hour, nearly the same material costs, and the same set of government regula�ons as its compe�tors. In many cases, execu�ves from one firm had also worked at the other firms; therefore, each company had similar ideas and approaches to management. More recently, Ford has faced global compe�tors that have substan�ally different cost factors and management styles. Organiza�ons that are successful in the 21st century will develop an understanding of global marke�ng, distribu�on systems, financial and capital markets, accoun�ng, and opera�ons, rather than na�onal strategies. Global compe��on has had, and will con�nue to have, a tremendous impact upon opera�ons and opera�ons managers. Product performance, product quality, efficiency, and delivery lead �me are all elements of compe��on affected by opera�ons. Ford has risen to the challenge by designing and building new products that are high quality and cost compe��ve. These products have been designed using resources and ideas from around the world. Ford has and will con�nue to build vehicles in China, India, and other countries to sell in global markets.

Job markets are also becoming global. Before NAFTA and GATT, it was common to see blue-collar jobs move from one country to another as firms moved produc�on facili�es in search of low-cost labor. Today, engineering, informa�on technology, and management jobs are becoming global. Companies are outsourcing product design and informa�on systems development ac�vi�es to India and China to achieve lower costs or greater work capacity. As the cost of the workforce in India and China has increased, some of the jobs that were once outsourced are returning to the United States, and others are moving to other low-cost countries (MSNBC News Report, h�p://video.msnbc.msn.com/rock- center/46198559#46198559) (h�p://video.msnbc.msn.com/rock-center/46198559#46198559) .

1.4 Systems Approach to Operations

Substan�al interdependencies exist between func�onal areas within organiza�ons, between organiza�ons that must cooperate to create and deliver innova�ve products to customers, and between organiza�ons and government agencies. Within organiza�ons, func�onal barriers to integra�on are eliminated as managers create cross-func�onal teams to tackle difficult problems such as product design, produc�vity improvement, and facility design. To encourage coopera�on between organiza�ons, managers are building strategic alliances with suppliers that increase the exchange of informa�on and ideas for the benefit of both. Organiza�ons are responding to concerns by government agencies regarding employee rights, environmental impact, and product safety. These social, legisla�ve, ethical, and legal issues are growing in importance.

How do opera�ons fit into this systems view of the organiza�on and its environment? Opera�ons management is only one part of the organiza�on, which, in turn, is a part of the larger economic and governmental system. A system is a group of items, events, or ac�ons in which no item, event, or ac�on occurs independently. Thus, no item studied in isola�on will act in the same way as it would within the system. For example, a study that focuses on minimizing transporta�on costs might suggest that materials be ordered in larger quan��es to reduce the number of trips and save transporta�on costs. However, larger shipments will require more storage capacity, and the increase in storage costs could be greater than the decrease in transporta�on costs. When making decisions, a manager should examine each issue as it impacts system-wide and organiza�onal level outcomes.

A system can be divided into a series of parts or subsystems, and any system may be a component of a larger system. Understanding the rela�onships among the various subsystems is an integral part of the study of opera�ons management.

Figure 1.2 illustrates that an organiza�on is part of the global economic and government system. In turn, the organiza�on is composed of several subsystems, one of which is opera�ons. Opera�ons managers work with managers in marke�ng, finance, accoun�ng, engineering, and other departments to reach the goals set by top management. Because of the many func�ons it encompasses, the opera�ons subsystem is divided into yet another series of subsystems. When studying the opera�ons management subsystem, it is important to keep in mind the en�re opera�on, the organiza�on, and the external environment.

Figure 1.2 A systems view of opera�ons, the organiza�on, and the organiza�on's environment

In order to design, plan, and manage opera�ons effec�vely, managers should be aware that:

An organiza�on is part of the global economic and government system. Opera�ons are an integral part of the organiza�on. Opera�ons are composed of a series of related subsystems.

1.5 The Organization as Part of the Economic and Government System

Organiza�ons operate in an environment that includes several interest groups: stockholders, management, labor, consumers, and the general public. These groups are o�en called stakeholders because they are affected by (or have a stake in) decisions made by the organiza�on. Business leaders have realized that to achieve long-term success and to be good corporate neighbors, an organiza�on should serve all of these interests. Thus, leaders should be responsive to issues involving wage rates, working condi�ons, pollu�on, product safety, and global compe��on—as well as the stockholders' return on their investment. All of these factors are part of the larger economic and government system within which organiza�ons operate. This larger economic and government system is broadly defined to include the legal, poli�cal, social, and educa�onal subsystems.

The importance of these broader subsystems and the factors that impact their opera�ng systems are discussed in more detail in Table 1.4.

Table 1.4: Factors, interest groups and the impact of opera�ng decisions

Factor Decisions Interest Group Impact of Opera�ng Decisions

Wage rates and working condi�ons Labor and middle management Good working condi�ons and fair wages can be posi�ve factors in employee performance.

Pollu�on General public Well-managed opera�ons should not cause pollu�on.

Product safety Consumers When products are well designed, consumers are safer and more sa�sfied.

Global compe��on Stockholders, labor, middle management When opera�ons are well managed, costs are not excessive. If this is coupled with high quality, the organiza�on becomes compe��ve.

Legal, Environmental, and Ethical Issues

Today, managers and organiza�ons are facing a staggering array of problems that their predecessors largely ignored. The managers of the past o�en viewed labor rela�ons and worker safety, environmental pollu�on, and product safety as outside their area of concern. They o�en made decisions that were in the best interest of the organiza�on's stockholders but detrimental to labor, to the environment, and even to the customer. For example, organiza�ons have designed and built unsafe products and have avoided taking correc�ve ac�on when problems with the products were apparent.

As a result of this neglect, organiza�ons face labor unions, environmental advocates, and consumer groups that have been successful in passing legisla�on to define labor management rela�ons, regulate the safety of the workplace, shape environmental and sustainability programs, and protect consumers. In addi�on, the threat of a consumer boyco� and the nega�ve publicity associated with poor corporate ci�zenry are causing many companies to act responsibly. Government, therefore, now plays a significant role in regula�ng organiza�ons and their opera�ons. Companies opera�ng globally must understand the legisla�ve and ethical requirements for compe�ng in each country.

Each of these areas of concern is directly related to opera�ons. Normally, opera�ons has the highest number of workers in order to build the products that consumers purchase and is o�en the focus of union ac�vity. Opera�ons is the most likely place where workers can be injured and has the greatest poten�al for crea�ng environmental pollu�on.

It is necessary for organiza�ons to develop a set of standards for ethical behavior that meets the expecta�ons of the community. It is also reasonable to expect those standards to increase as the standard of living increases. Product safety issues are more prominent, be�er understood, and be�er managed in a developed country with more resources than in an undeveloped or underdeveloped country.

Today, managers need to search for solu�ons where all of the stakeholders—stockholders, management, labor, consumers, and the general public—can benefit. Fortunately, the new genera�on of managers has recognized the need to develop these approaches, and some impressive strides have been made.

Labor Relations

As late as the 1930s in the United States, many businesses required their produc�on employees to work long hours for rela�vely low pay. Working six days each week was considered normal, and up to this �me, labor unions only had limited bargaining abili�es. These businesses wanted to keep costs low and increase their return on investment. In addi�on, many manufacturing plants had poor or unsafe working condi�ons. In many cases, workers rebelled against management. They fought hard and o�en engaged in ba�les with management for be�er pay, be�er working condi�ons, and the right to form unions. Eventually, labor was able to unionize because the federal government passed laws in the late 1930s that permi�ed and protected unions. From these conflicts, labor unions and businesses developed an adversarial rela�onship that s�ll exists today in some organiza�ons. It has taken almost 80 years to reduce the adversarial rela�onship between management and labor in the United States to allow all stakeholders to work together and make a firm more compe��ve in global markets.

Both groups are learning that their security lies in coopera�ve efforts, primarily in the effort to make be�er quality products with be�er performance at a lower unit cost. Such quality and produc�vity improvements will help secure jobs in the United States and make its products compe��ve in world markets. Organiza�ons are responding by working with labor to develop employee involvement teams. These teams, which include both management and labor personnel, are o�en led by labor. The group's goals are established by the en�re group and are not vehicles through which managers can control the labor force, or set the direc�on for the group. These teams appear to work best when labor feels free to express ideas, suggest changes, and maintain a leadership role in process implementa�on.

Environment and Sustainability

In the 1920s and 1930s, many business leaders did not consider pollu�on a problem, nor did they see the value of recycling materials. At that �me, waste from opera�ons was something to dispose of at the least cost possible. Sustainability was not a factor to consider because easily accessible resources were inexpensive and seemingly endless. When pollu�on problems began to arise in the 1950s and 1960s, some businesses were reluctant to change. Businesses in the United States now operate under some of the most restric�ve environmental pollu�on laws and repor�ng procedures in the world.

Due to low wages, unsafe working condi�ons, and long hours, employees rallied together in the 1930s to establish labor unions. Although they can be adversaries, management and labor forces can work together within unions to stay compe��ve in the global market.

©K.J. Historical/Corbis

Since the 1960s, concern for the environment has grown substan�ally in the United States and other developed countries. Today, many organiza�ons take proac�ve steps to reduce emissions from facili�es and move their opera�ons toward sustainability by reducing the consump�on of materials and energy, reusing materials whenever possible, and recycling materials.

Companies are discovering "win-win" opportuni�es in which an organiza�on can cut costs and increase profits by recapturing pollutants and reducing solid waste. In other cases, organiza�ons have begun to recognize that a polished corporate image has increased sales. Fast-food restaurants have begun recycle and reuse programs, including joining efforts to transform cooking oil into biodiesel fuel, and many have changed packaging materials in response to concern from consumers. Being a good corporate ci�zen and protec�ng a company's renewable resources can be mutually beneficial. For example, most large forest product companies have major efforts underway to replant trees that have been cut for lumber and paper.

Highlight: Making Pollu�on Preven�on Pay

Making Pollu�on Preven�on Pay (Huisingh & Bailey, 1983) has benefited many organiza�ons. These firms understand that environmental protec�on and economic progress can go hand-in-hand. Sauder Woodworking Co. is le� with about 300 tons of sawdust each day a�er workers cra� ready-to-assemble furniture. For years, the bulk of the sawdust was sent to a landfill at a cost to Sauder of $55 to $60 per ton. Today, Sauder operates a $15 million co-genera�on plant using that sawdust to produce enough power for 3,878 homes. The co-genera�on plant idea was established a�er Sauder and Toledo Edison Company agreed that the furniture company could supply power to the u�lity's grid.

Companies all around the world are discovering that recycling and recapturing byproducts, scrap, and even heat can be profitable. Companies are also finding that be�er results are achieved when environmental factors are considered during the ini�al design of a facility. Retrofi�ng facili�es with pollu�on control equipment can be an expensive alterna�ve to though�ul analysis and careful design.

Product Safety

Because product design and produc�on are part of opera�ons, opera�ons management decisions play a significant role in determining product safety. Companies such as Black & Decker and Procter & Gamble owe their excellent reputa�ons partly to their concern for product safety. These companies realize that high quality and safety are compa�ble with high profits and long-term success.

If global and domes�c compe��on is not sufficient to keep out unsafe products, then consumer groups and legisla�ve ac�on will. The power of consumer advocates and efforts to protect consumer interest, evaluate products, and educate the consumer has risen over the past 40 years. Consumer groups have challenged organiza�ons in the courts as they seek to force companies to remove dangerous products from the market.

Toyota's sudden accelera�on problem, silicone breast implants, and asbestos are just three examples of consumer victories over unsafe products. Toyota's sudden accelera�on problem is a classic case. Evidence was discovered that engineers at Toyota understood the sudden accelera�on problem as much as 18–24 months before the problem was addressed. It is unclear why Toyota took so long to respond to the problem; it's likely that bureaucra�c incompetence was a larger factor than callous disregard for safety. Toyota suffered lost sales and market share as a result, and Toyota (and other companies) learned that product safety is a key compe��ve element for producing and selling cars and trucks.

Asbestos li�ga�on has forced many companies into bankruptcy, including Owens Corning, maker of pink fiberglass insula�on. In this case, the company was unaware of the consequences of producing asbestos. Owens Corning stopped producing asbestos more than 40 years ago, but law suits running into billions of dollars forced it into bankruptcy. A substan�al part of Owens Corning's liability was acquired when it purchased another firm that made asbestos. In fact, during bankruptcy, Owens Corning had record earnings, which were dwarfed by the size of the resul�ng se�lement.

Organiza�ons must understand the implica�ons of ac�ons that are detrimental to the consumer and respond by demonstra�ng an honest concern for the customer. This approach creates a sense of trust between the consumer and the company, which can have substan�al economic value.

When Toyota failed to address a sudden accelera�on problem in its vehicles, the company incurred lost sales and decreased market share. Concerned consumers eventually benefi�ed when Toyota recalled the faulty vehicles.

Design Pics/Thinkstock

Ethical Behavior

Ethics are a sense of what is right and wrong that guide behavior. This set of standards is o�en more stringent than legal standards. For example, if a representa�ve of a company claims that a service or good is capable of something and it is not, the customer may have criminal or civil legal recourse. If an individual is unaware of the true value of something, and has set an asking price that is only a small percent of its value, the buyer faces an ethical dilemma.

Managers must use judgment to decide how far a company should go to ensure product safety. Should a Jet Ski™ contain a warning that all riders should wear life vests? Should a lawn tractor have a shut–off device that disables the mower if the rider weighs less than 100 pounds? Should microwave ovens have a label that states operators should not try to dry their cat in the oven? In product safety, what is sensible and what is silly? These are difficult ques�ons for which no right answer exists. Managers must con�nue to grapple with these issues as they develop a set of standards with which they feel comfortable when making decisions.

Ethical behavior is a corporate issue that affects the company's bo�om line. The answer is complex, but it can be par�ally understood by reviewing earlier points on labor rela�ons, the environment, and the customer. Some organiza�ons have a�empted to maximize short-term earnings per share to the stockholder by cu�ng corners on plant safety or environmental compliance. Usually, these ac�ons have separated management from labor, the consumer, and the general public.

In the longer term, such ac�ons alienated these interest groups and forced them to take ac�on. The ac�ons, o�en legal or legisla�ve, helped to create an adversarial environment that has forced an increase on costs and made some industries vulnerable to global compe��on. For many years, the steel industry did not respond adequately to environmental and safety concerns. This diverted management �me and company resources away from important decisions and key investments in new technology. Over �me, compe��veness declined, and companies suffered a decline in sales and market share. Today, the steel industry has responded to these important issues in a �mely manner. Global compe��on has not nega�vely affected industries such as paper and oil because these industries have had a more balanced view for many years, and have focused on both long-term objec�ves and short-term performance. Companies in these industries have made significant efforts to deal with labor, environmental, and product safety concerns as part of their ini�al planning process rather than as problems arise.

Links between opera�ons and the rest of the organiza�on should be built into the planning process by developing consistent opera�ons strategies.

Stockbyte/Thinkstock

1.6 Operations as Part of the Organization

While an organiza�on is part of the larger economic and government system, it is also a system containing subsystems such as marke�ng, finance, accoun�ng, personnel, and engineering, in addi�on to opera�ons. These subsystems, o�en called func�onal areas or disciplines, should be linked together by common organiza�onal goals and a means of communica�ng these goals. These common goals are part of an organiza�on's strategy. Strategy consists of the organiza�onal goals and the methods for implemen�ng the goals, called key policies. Strategy defines how the organiza�on chooses to compete within the framework dictated by the external environment. Communica�ng and deciding how to implement a strategy typically occurs during the budge�ng and planning process, which most organiza�ons do annually.

Selec�ng a strategy and key policies leads to the crea�on of key business (organiza�onal) processes that a firm uses to sa�sfy customer needs. A business process is a set of work ac�vi�es with a preferred order, an iden�fiable beginning and end, inputs, and clearly defined outputs that add value to the customer. A business process is cross- func�onal and leads to outcomes the customer desires, such as delivering quality products that meet specific customer needs in a �mely manner.

Strategy

Opera�ons should be linked to the rest of the organiza�on by developing strategies consistent with the organiza�on's overall strategy. Links between opera�ons and the rest of the organiza�on can be built into the planning process. A plan is a list of ac�ons that management expects to take. A plan is the method for alloca�ng the organiza�on's resources in rela�on to opportuni�es and problems present in the environment. Resources allocated by opera�ons managers should help the organiza�on achieve its goals.

The links between strategy and opera�ons can be illustrated by comparing a fast-food restaurant with a four-star restaurant. Customers expect fast-food restaurants to deliver good-quality food at a low price, with a wait of only a few minutes. This implies a limited menu, some advance prepara�on, and a service opera�on with a smooth and simple means of communica�ng orders and delivering food. The training of counter workers and cooks should emphasize speed, efficient movement, and uniform performance of du�es.

Compare these requirements with those of a four-star restaurant with a heavy tourist trade. Here, customers expect food of excep�onal quality and variety, higher prices, and a leisurely dinner. These expecta�ons imply a wide selec�on on the menu, comfortable and pleasant surroundings, entertainment, and li�le or no advance food prepara�on. All opera�ons, from training cooks to food procurement, are different from those in a fast-food restaurant. Four-star restaurants do not have counter help. The emphasis is on service to the individual customer rather than on uniformity and quick response. This comparison illustrates two different approaches to successfully opera�ng a restaurant. Success in a fast-food restaurant is based on providing quality products at low prices and maintaining high customer volume. Success in a four-star restaurant is based on providing entertainment and atmosphere, as well as quality food. The alloca�on of resources in the design and planning of these restaurants should reflect the differences.

Organizational Structure

The development of strategy leads to the ques�on of organiza�onal structure. Organiza�onal structure is the infrastructure of formal rela�onships among different func�ons or subsystems, such as marke�ng, finance, and opera�ons. Organiza�onal structure defines the lines of communica�on. Many organiza�ons have substan�ally reduced their administra�ve staffs and altered their lines of communica�on. IBM, Ford, Bank of America, and other organiza�ons have cut hundreds of thousands of white-collar workers. In a few cases, the objec�ve is simply to cut costs. In most cases, organiza�ons are seeking a leaner, more compe��ve structure that will enable them to make be�er decisions and to respond more quickly to opportuni�es in the environment.

Decentralizing decision making can result in fewer levels of hierarchy with more cross-func�onal teams. Elimina�ng the func�onal silos that tradi�onal organiza�ons o�en have enables teams to share knowledge and understand the organiza�on-wide implica�ons of a decision. Decisions are made based upon corporate interests rather than narrow func�onal interests, and they are made with more knowledge and understanding of the broad effects rather than in isola�on. In this environment, organiza�ons not only make be�er decisions, but they can also make them more quickly because problems are uncovered early and resolved expediently. All managers, including managers of opera�ons, must be able to work on the cri�cal cross-func�onal decisions that organiza�ons face.

Operations and Marketing Interface

One of the most important cross-func�onal rela�ons in an organiza�on is between opera�ons and marke�ng. The marke�ng func�on is responsible for inves�ga�ng and crea�ng demand for services and goods. The opera�ons func�on is responsible for producing these services and goods and managing the supply chain that provides the incoming resources. The opera�ons manager's role is essen�al because without products, the organiza�on has no means of achieving its purpose.

Figure 1.3 illustrates the opera�ons and marke�ng interface. The interac�on begins with market research, which is an effort to measure customers' needs and preferences. Market research must iden�fy and determine new markets for exis�ng products and to discover demand for new products. Market research leads to product designs that can sa�sfy consumers' needs at a reasonable cost and a high level of quality. As a product is being designed, the process for making that product should also be designed. A�er the process has been designed, it is necessary to acquire resources—material, trained people, and equipment. The produc�on of the product includes concern for quality, cost, and on-�me comple�on. It also involves iden�fying suppliers and working with those suppliers providing goods and services to meet the needs of the organiza�on. Lastly, marke�ng and distribu�on of the product take place. At this point, the customer's reac�on to the product is measured, and another round of market research should occur in order to monitor changing customer needs.

Figure 1.3: The opera�ons and marke�ng interface

The opera�ons subsystem works in a cycle. Market research informs product and process design, which leads to resource acquisi�on and produc�on. Then, the product is marketed and distributed to the customer. Finally, more market research is conducted to improve the product for future releases.

The role of opera�ons is to produce goods and services, while the role of marke�ng is to inves�gate product demand and establish distribu�on chains. Links between opera�ons and marke�ng include cost or price, schedule and delivery promise, flexibility and customer sa�sfac�on, and high quality and repeat sales.

Figure 1.4 illustrates how decisions within opera�ons can affect marke�ng. Product cost must be covered by the market price with enough le� over to pay for overhead, administra�ve, and selling expenses and to provide the organiza�on's profit. Effec�ve scheduling helps the organiza�on deliver products on �me. Flexibility permits opera�ons to deliver specially designed products at a low cost, making marke�ng's job easier. High-quality products pay dividends in repeat sales and new customers.

Figure 1.4: Marke�ng and opera�ons are important subsystems in an organiza�on

Processes Versus Functions

Currently, a revolu�on is taking place in the business sector. Businesses are shi�ing from organizing by business func�ons, such as opera�ons, marke�ng, finance, and informa�on systems, to organizing by business process, such as strategy formula�on, product development, and order fulfillment. Business processes span many func�onal areas. For example, product development requires inputs from marke�ng, engineering, finance, opera�ons, and others.

Advocates of the business process approach argue that organizing by func�ons is inappropriate for today's fast-paced and fast-changing environment. Decision making is very slow as complicated decisions wind through the maze of groups that exist in the func�onal organiza�on. As a result, companies that are organized by func�on can be inefficient and slow to respond. Organizing by process tends to focus a�en�on on ac�vi�es that customers value and allows the organiza�on to make decisions quickly.

Customers are not concerned about discipline or func�on-related issues such as how accoun�ng values inventory, how financial managers analyze investments in facili�es, or whether an opera�on has the lowest transporta�on costs. Customers are concerned about how the outputs of the organiza�on meet their needs. The customer requirements shown in Figure 1.5 include mee�ng specific needs for product performance and features, price, and service a�er the sale. The organiza�on should develop compe��ve capabili�es to meet these customer requirements. The capabili�es of the organiza�on are the result of processes such as strategy development, product development, design of systems to produce services or goods, and order fulfillment. Order fulfillment ranges from order entry through produc�on to delivery and a�er-the-sale service. The processes listed here are illustra�ve and not exhaus�ve.

Figure 1.5: Rela�onship between func�ons, processes, and outcomes

Employees from func�onal areas such as accoun�ng, marke�ng, and engineering complete various business processes such as product development and order fulfillment. These processes form the company's compe��ve capabili�es, which serve customer requirements, including quick responses, pricing, and service.

As illustrated in Figure 1.5, business processes work across func�ons to create compe��ve capabili�es. People trained in the disciplines work on teams to design, implement, and operate processes that produce the outcomes that customers want.

Customers don't care whether a company is organized by func�on or discipline. They care about value. For example, an organiza�on that is the industry leader in sales and profit may have the highest distribu�on costs in the industry because it provides the shortest �me from order to delivery. If that fast delivery adds value to the customer, then the customer may be willing to pay more for the product or to buy more of the product. A process that reduces distribu�on costs and increases the �me from order to delivery reduces value to the customer.

Related Subsystems Within Operations

Early sec�ons describe the rela�onships between the organiza�on and its environment. These sec�ons also describe the organiza�on as a series of related subsystems with opera�ons as one subsystem. As illustrated earlier, in Figure 1.2, opera�ons can be divided into different parts or subsystems, including quality management, inventory, and scheduling.

To facilitate understanding of the subsystems, and to make the rela�onships between these parts clear, an overview of opera�ons is provided in Figure 1.6. Looking forward, here is an overview regarding how this book is organized:

1. Building Capabili�es to Compete Globally 2. Designing the System to Produce Services and Goods 3. Planning and Managing Opera�ons

The sec�on on building capabili�es covers how firms use opera�ons to gain a compe��ve advantage, including the strategic importance of opera�ons and the applica�ons of computers and technology. This discussion also describes the importance of flexibility, �me, produc�vity, quality, and supply chain management as cri�cal dimensions of compe��on, and explains how these capabili�es can be obtained. These topics are discussed in Chapter 2.

Figure 1.6: Overview of the systems approach to opera�ons

Later chapters on designing the system to produce services and goods discuss the ways that organiza�ons can build effec�ve opera�ons to increase produc�vity, improve quality, and integrate ac�ons within an organiza�on and its supply chains. They describe ways to forecast demand, to select the process for producing the services and goods, to locate and arrange facili�es, and to set capacity requirements. These decisions are interrelated because the type of product that an organiza�on chooses to produce will impact how and how many of a product will be made. These topics are covered in Chapters 3–8.

Planning and managing opera�ons describes how an organiza�on expects to use its facili�es, people, and materials to meet demand. It includes developing and execu�ng produc�on plans and coping with different planning horizons. The key areas of material requirements, planning, inventory management, and just-in-�me scheduling are explained. These topics are covered in Chapters 9–12.

Chapter Summary

Opera�ons is the processes through which people, capital, and material are combined to produce the services and goods consumed by the public. Products should be value- added; that is, the services and goods should be worth more to the customer than the cost of the inputs. Opera�ons can be designed and used in a manner to gain compe��ve advantage. Service opera�ons have many similari�es with and some differences from manufacturing opera�ons. Global compe��on will strengthen organiza�ons and increase living standards worldwide. Ethical issues are important business issues. A system is a group of items, events, or ac�ons in which no item, event, or ac�on occurs independently. The systems approach is a central theme within this text. The organiza�on must compete within the constraints presented by its external environment. These constraints include compe�tors, economic condi�ons, and government regula�ons. Successful opera�ons management requires teamwork among opera�ons and other func�onal areas (subsystems) within an organiza�on. These areas include marke�ng, finance, accoun�ng, engineering, and informa�on systems. Opera�ons is composed of many parts or subsystems, which should be effec�vely coordinated to build the organiza�on's compe��ve posi�on. Organiza�ons should design business processes to achieve compe��ve capabili�es rather than focusing on func�onal specializa�on.

Case Studies

Our Lady of Lourdes Hospital

As a management trainee for a large consul�ng firm, you are part of a team that has been assigned to study opera�ons at Our Lady of Lourdes Hospital (OLL). Recently, OLL was purchased by a for-profit health care provider. The team is tasked with repor�ng on opera�ons and making recommenda�ons to enhance revenues and reduce expenses.

Before it was sold, OLL had begun many of the outreach programs that are common in health care. An alcohol and drug rehabilita�on center, a women's health center, and a sleep therapy center exist, but all have lost money. Following are summaries of key points from interviews the team had with the directors of marke�ng, opera�ons, and medicine.

Director of Marke�ng:

1. A major problem has been the lack of a budget for adver�sing these centers. These projects need large sums of up-front money for adver�sing and promo�on. 2. We are having trouble ge�ng the kind of coopera�on necessary to make these programs work. Basic opera�ons, from meal prepara�on to cleaning and maintenance, have not been

done well. Medical problems at these centers are given a lower priority by the medical staff because the pa�ents "are not really sick." 3. What we need is �me to iden�fy problems and implement efficient solu�ons to these programs.

Director of Opera�ons:

1. I do not have any problems that could not be solved if I had an unlimited supply of money. Major renova�on efforts are needed to improve food prepara�on areas, the laundry, and the hea�ng system. These three improvements could probably save enough to cover OLL's annual deficit.

2. If these problems are not bad enough, my people are saddled with several new responsibili�es. These new centers require more work than the administrators think. Sufficient opera�ng funds were not allocated to cover the expenses. Several of the centers are off the main site, making it difficult for my supervisors to do a proper job.

3. In my opinion, these centers are a drain on resources.

Director of Medicine:

1. The medical staff requires be�er support. Certain key medical equipment requires immediate replacement, and the laboratories need upda�ng. To a�ract the best doctors, we need to purchase equipment we have never had before.

2. The new centers are taking �me away from the medical staff. We don't get proper credit for the work we do in those centers. 3. We need to pull back and reexamine our commitment to these new efforts.

The leader for the consultants has asked each member of the team to review the interview summaries and to report on the following points by tomorrow:

1. What are the major areas of conflict that exist in the organiza�on? 2. Do you think having scarce resources is typical of most organiza�ons? 3. Are key administrators working together to make these new centers successful? 4. How would you propose to direct all parts of the organiza�on toward common goals?

Flick Fabrica�on, Inc.

Flick Fabrica�on, Inc. is responsible for providing sheet metal parts to assembly plants in the home appliance industry. One set of parts used in the door of a dishwasher passes through a stamping department, where the metal is bent into the proper shape. Next, the welding department a�aches threaded fasteners that will accept a bolt during final assembly at a customer's plant.

Engineers at Flick, working to improve produc�vity and reduce manufacturing costs, have redesigned a threaded fastener so it can be used to eliminate a welding opera�on. The new equipment will cost Flick $100,000. In addi�on, there will be a $.05 increase in material costs for each set of parts. A�aching the new threaded fastener to the sheet metal will increase assembly costs by $.01 per unit. Also, modifica�on to the dies used in the stamping press will require an addi�onal investment of $25,000.

Savings generated by this change include a $.035 reduc�on in welding labor and a $.005 reduc�on in welding materials. Opera�ng expenses for stamping will decline by $.03 per set of parts. Engineering es�mates that changing the fastener will allow Flick's customers to reduce their assembly labor by $.06 because quicker loca�on and fastening techniques can be used. Flick's engineers also believe this method will provide a be�er-quality product with less chance of failure in assembly at customers' plants and a�er the dishwasher is purchased for home use.

Prepare a report that addresses the following:

1. List the benefits and costs that will result if this change is implemented. Do not limit your search for benefits to Flick's opera�ons. 2. What are the risks to Flick if it proceeds with this process improvement? What are the risks if it does not? 3. If Flick produces 2 million sets of parts in 1 year, can it recover the total investment in 5 years? (Consider only those savings internal to Flick.) 4. With the costs and benefits given in the case, how long will it take Flick to pay for the investment? (Hint: How many units have to be sold to earn back the ini�al $125,000

investment?) 5. Why is it important to understand the systems concept to work effec�vely within the organiza�on? 6. How should Flick consider the savings generated for its customers?

Discussion Ques�ons

Click on each ques�on to reveal the answer.

1. What is the role of opera�ons in an organiza�on? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

Opera�ons are the processes by which people, capital, and material are combined to produce the services we consume. Organiza�ons exist to meet the needs of society that people working alone cannot. It takes organiza�ons to produce the tremendous array of products in the vast quan��es we consume each year. Opera�ons are an integral part of an organiza�on because opera�ons produce the services and goods marketed by the organiza�on. As a result, opera�ons managers should work closely with marke�ng managers and other func�onal area managers to achieve organiza�onal goals.

2. What does value-added opera�ons mean? How would it apply to not-for-profit organiza�ons? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

Consumers should be willing to pay more for services and goods than the total cost of the inputs. The difference between input costs and value to the customer is profit to the private sector, which can be reinvested to build new and be�er products. Reinves�ng profits enables the organiza�on to increase efficiency, which frees resources for new product development and innova�on. This is a way to increase our standard of living. Crea�ng value-added products generates wealth for society.

In the not-for-profit sector, value-added opera�ons also create wealth for society. Services such as police and fire protec�on should produce benefits that exceed the costs of providing the service. In not-for-profit service opera�ons, many of the benefits are not measurable in dollars, so it is o�en difficult to compare costs and benefits. However, the efforts to do so should s�ll be made. Also the �tle, not-for-profit, is really a misnomer because the benefits that go to society should be greater than the costs of the resources consumed. That is society's profit.

3. Explain the major differences between producers of services and producers of goods? How do these differences affect opera�ons? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

A good is tangible, and a service is not. This has two impacts on opera�ons. First, a service organiza�on cannot inventory finished goods because the service is intangible and is performed on demand. Second, because a good is tangible the product design has physical characteris�cs to consider such as height, weight, strength, elas�city, durability, etc.

There is a major disadvantage in service organiza�ons not being able to store finish goods. When demand is greater than capacity for even a short period of �me, customers must be turned away or there demands must be sa�sfied at another �me when capacity is available. Producers of goods, even with a small amount of finished goods inventory, can cope with uneven demand by sa�sfying peak demand from inventory.

4. Agree or disagree with the following statement and support your posi�on: Study of opera�ons management issues should be narrowly focused on for-profit producers of goods, such as Microso�, Ford, and General Electric (GE). (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

Opera�ons management issues and problems should not be narrowly focused on large for-profit producers of goods. Opera�ons management problems exist in small as well as large organiza�ons. Service organiza�ons face significant challenges in facility design, capacity planning, scheduling, and other areas within opera�ons. Many organiza�ons are a blend of tangible and intangible products. Restaurants are a good example of organiza�ons providing both goods and services.

Whether a manager is responsible for producing services or goods, similar ques�ons are usually addressed. Ques�ons concerning which products to produce, how it should be produced, where it should be produced, how the facility should be organized, what skills employees must possess, and what materials are needed are all involved in key opera�ng decisions made by managers responsible for producing goods or services.

5. What impact has global compe��on had on opera�ons? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

Global compe��on is causing organiza�ons to pay more a�en�on to opera�ons. When the level of global trade is low, an organiza�on needs only be among the best in the na�on not the best in the world. Compe�ng in na�onal markets, these firms o�en have the same labor costs, material costs, government regula�ons, and management styles. Interna�onal compe��on increases the number of factors that affect success. It causes opera�ons to play a more central role in determining how successful an organiza�on will become.

6. What is meant by the systems approach to opera�ons? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

A system is a group of items, events, or ac�ons in which no item, event, or ac�on occurs independently. The systems approach to opera�ons implies that decisions made by opera�ons managers will have an impact on other parts of the organiza�on. For example, decisions involving produc�on scheduling affect the availability of product for delivery by marke�ng. When the systems approach is understood, the rela�onships between the organiza�on and its environment, and opera�ons and the other func�onal areas in the organiza�on become clear. In addi�on, opera�ons, itself, is a system that can be separated into subsystems for more detailed analysis.

7. Why should an organiza�on have a strategy? Should opera�ng strategy be a part of this overall strategy? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

An organiza�on should have a strategy because a strategy provides overall direc�on for the organiza�on. Strategy consists of the organiza�onal goals and the methods for achieving the goals. Strategy defines how the organiza�on chooses to compete within the framework dictated by the firm's external environment. Opera�ons should be linked to the organiza�on by developing opera�ng strategies, which are consistent with the organiza�on's strategy.

8. What is the basic framework for opera�ons management presented in this chapter? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

Opera�ons management can be organized into building compe��ve capabili�es to compete globally, designing the system so it is consistent with achieving these compe��ve capabili�es, and planning and managing opera�ons. Understanding customer requirements and achieving compe��ve advantage in our global environment requires that managers understand flexibility, produc�vity, quality, and �me. It also requires that managers understand how to redesign business processes to cope with a rapidly changing environment.

9. How do ethical issues impact organiza�ons and opera�ons? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

In the past, managers o�en made decisions that were in the best interest of the stockholders without considering their long-term impact. As a result, organiza�ons face a staggering array of problems related to labor rela�ons and worker safety, environmental pollu�on, and product safety. Many of these legal and ethical issues are becoming central themes in the management of organiza�ons. Organiza�ons are looking to recycling to cope with pressure from consumer groups and in some cases as a means to reduce costs. Designers are paying more a�en�on to customer safety and comfort by adding air bags and other safety features to cars and other products. Management is responding to labor and government concerns for a safer working environment by focusing a�en�on on a detailed design of the workplace.

Ini�ally, management fought these changes because it felt these would add costs but have no benefits. A�er further review, it appears that most of these efforts have significant benefits and that in many cases the benefits exceed the costs. For example, recycling has been used to enhance a firm's marke�ng effort by claiming that the firm's product will not harm the environment. Concerns for worker safety o�en leads to solu�ons that cause less fa�gue and greater produc�vity. Designing safe and comfortable products adds value to customers.

10. How is a business process different from a business func�on? (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644

A business func�on is a group of people with similar training such as accountants that focus on solving problems that relate to that func�on or discipline. So, accountant might a�empt to improve the payroll or accounts payable system. A business process is a set work ac�vi�es with a preferred order, an iden�fiable beginning and end, inputs, and clearly defined outputs that add value to the customer. Business processes generally cross-func�onal boundaries. Organizing by processes requires teams of individuals from different disciplines working to solve customer-focused problems. A cross-func�onal process team might a�empt to design a new product to meet a specific customer need.

Key Terms

Click on each key term to see the defini�on.

business process (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A set of work ac�vi�es with a preferred order, an iden�fiable beginning and end, inputs, and clearly defined outputs that add value to the customer. A business process is usually cross-func�onal.

ethics (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A sense of what is right and wrong that guides behavior. This set of standards is o�en more stringent than legal standards.

func�onal areas (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The parts or subsystems of an organiza�on such as accoun�ng, marke�ng, finance, and engineering.

goods (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Physical products.

key policies (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Methods or guidelines for achieving an organiza�on's goals.

manufacturing (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A produc�on process that produces goods.

market research (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The study of consumer needs so the organiza�on can determine new markets for exis�ng products and discover demand for new products.

opera�ons (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The processes by which people, capital, and material (inputs) are combined to produce the services and goods the public can consume (outputs). Opera�ons employs labor and management (people), and uses facili�es and equipment (capital) to change materials into finished goods (farm tractors) or to provide services (computer so�ware development).

opera�ons management (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Decision making involving the many factors that affect opera�ons. Decisions that need to be made can include which products to produce, how large a facility to build, and how many people to hire on first shi�.

organiza�onal structure (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The formal rela�onship between different func�on areas or subsystems.

process (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Describes how to accomplish a task.

process design (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Describes how a product is made.

process technology (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The applica�on of knowledge to improve a process.

product (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Refers to either a good or a service.

product design (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The determina�on of the characteris�cs and features of a product, i.e., how does it func�on?

product technology (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The applica�on of knowledge to improve a product.

rela�ve advantage (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The difference between the lowest-cost producer and the next-lowest cost producer.

services (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Intangible products.

stakeholders (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Groups of people that are affected by a decision; that is, they have a stake in the decision. In a business organiza�on, stakeholders would include stockholders, management, labor, consumers, and the general public.

strategy (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Consists of the organiza�onal goals and the methods for implemen�ng the goals, called key policies. Strategy defines how an organiza�on chooses to compete within the framework dictated by the external environment.

system (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A group of items, events, or ac�ons in which no item, event, or ac�on occurs independently of at least one other. Accordingly, no item that is studied in isola�on will act in the same way it would in the normal environment.

technology (h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The applica�on of knowledge, usually in the form of recently developed tools, processes, and procedures, to solve problems.