Transcript Chapter 1

OPERATIONS MANAGEMENT
for MBAs Second Edition
Meredith and Shafer
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Chapter 1
The Nature of Operations
Chapter 1: The Nature of Operations
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Introduction
Chapter 1: The Nature of Operations
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McDonald’s Corp
Facing increased competition
 Smarter and more demanding
customers
 Less brand loyal
 Switched to hamburger bun that does
not require toasting.
 Customers prefer taste of new bun
 Saves time and money
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Olympic Flame
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10,000 runners
15,000 miles through 42
states in 84 days
Two years of planning
Must plan for no-show
runners and rush hour traffic
Cost of this operation in the
neighborhood of $20 million
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Kmart Versus Wal-Mart
Both chains started in 1962
 In 1987, Kmart had 2,223 stores to WalMart’s 1,198.
 Kmart’s sales were $25.63 billion to
Wal-Mart’s $15.96 billion
 By 1991, Wal-Mart’s sales exceeded
Kmarts
 Kmart still had more stores
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Kmart Versus Wal-Mart continued
In year ending January 1996, WalMart’s sales were $93.6 billion to
Kmart’s $34.6 billion.
 During this time Kmart emphasized
marketing and merchandising (such as
national TV ad campaigns).
 Wal-Mart was investing millions in its
operations to lower cost.
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Kmart Versus Wal-Mart continued
Wal-Mart developed sophisticated
distribution system that integrated its
computer system with its distribution
system.
 Kmart’s employees lacked skills needed
to plan and control inventory.
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Diversity and Importance of
Operations
Improvements in operations can
simultaneously lower costs and improve
customer satisfaction.
 Improving operations often dependent
on advances in technology.
 Can obtain competitive advantage by
improving operations.
 Diversity of operations
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Operations
Heart of every organization
 Operations are the tasks that create
value
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The Production System
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Systems Perspective
Inputs
 Transformation System
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Alter
Transport
Store
Inspect
Outputs
 Environment
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Characteristics of
Products and Services
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Products
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Tangible
Minimal customer
contact
Minimal customer
participation
Delayed consumption
Equipment intensive
Quality easily measured
Services
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Intangible
Extensive customer
contact
Extensive customer
participation
Immediate consumption
Labor intensive
Quality difficult to
measure
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“Facilitating Good” Concept
Often confusion in trying to classify
organization as manufacturer or service
 Facilitating good concept avoids this
ambiguity
 All organizations defined as service
 The tangible part of the service is defined
as facilitating good
 Pure services
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The Range from Services to
Products
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Classification and Evolution
of Economic Offerings
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Comparison of Alternative
Economic Offerings
Economic
Offering
Commodities
Goods
Services
Experiences
Value added by
Extracting
Producing
Delivering
Staging
Form of output
Fungible
Tangible
Intangible
Memorable
Key
characteristics
Natural
Standardized
Customized
Personalized
Buyer
Market
User
Client
Guest
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Operations Activities
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Strategy
Output Planning
Capacity Planning
Facility Location
Facility Layout
Aggregate Planning
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Inventory
Management
Materials
Requirements
Planning
Scheduling
Quality Control
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Functional View
of Organizations
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Three core functions
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Operations
Marketing
Finance
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Other important
functional activities
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Accounting
Human resource
management
Information systems
Engineering
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Process View of
Organizations
An Evolution
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Traditional Functional
Organization
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Value-Chain Approach
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