Operations as a Competitive WeaponHow Operations As a Competitive Weapon fits the Operations Management PhilosophyFedExOperations Management is…Slide 5ProcessesNested ProcessesProcess View of an Ad AgencyExternal vs. Internal CustomersService Processes and Manufacturing ProcessesManufacturing and ServiceValue ChainsCore ProcessesSupport Processes Internal Value-Chain LinkagesProgressive InsuranceOperations as a Set of DecisionsSlide 17ProductivityProductivity Calculation Example 1.1Productivity Calculation Example 1.1 continuedApplicationGlobal CompetitionGlobal Competition DisadvantagesOther Challenges in Operations ManagementAddressing the Challenges in Operations ManagementSlide 26Slide 27Slide 28© 2007 Pearson EducationOperations as a Competitive WeaponChapter 1Year Expected DemandCash Flow0 80,000 ($150,000)1 90,000 $90,0002 100,000 $150,0003 110,000 $210,0004 120,000 $270,0005 130,000 $300,000© 2007 Pearson EducationHow Operations As a Competitive Weapon fits the Operations Management Philosophy Operations As a Competitive WeaponOperations StrategyProject ManagementProcess StrategyProcess AnalysisProcess Performance and QualityConstraint ManagementProcess LayoutLean SystemsSupply Chain StrategyLocationInventory ManagementForecastingSales and Operations PlanningResource PlanningScheduling© 2007 Pearson EducationFedExWhy are they successful?FastOn-time deliveriesRelatively low costTechnology in shipment tracking© 2007 Pearson EducationInputsTransformation Processes(Adding value)OutputsOperations Management is…“The systematic design, direction and control of processes that transform inputs into services and products for internal, as well as external, customers.”© 2007 Pearson EducationOperations Management as a Function© 2007 Pearson EducationProcessesProcesses should add value.Processes can be broken down into sub-processes, which in turn can be broken down further.Any process that is part of a larger process is considered a “nested process.”Each process and each nested process has inputs and outputs.© 2007 Pearson EducationNested ProcessesAdvertisement Design and Planning ProcessCreative design process•Receive work request•Assemble team•Prepare several designs•Receive inputs from Account Executive•Prepare final concept•Revise concept per client’s inputsMedia planning process•Receive work request•Prepare several media plans•Receive inputs from Account Executive•Prepare final plan•Revise plan per client’s inputs© 2007 Pearson EducationProcess View of an Ad AgencyAccounting processProduction process•Prepare ad for publication and deliver to media outletsAdvertisement design and planning process•Create the ad to the needs of the client and prepare a plan for media exposureOutput interface process•Communicate with client, get needs, and coordinate progressInputsOutputs© 2007 Pearson EducationExternal vs. Internal CustomersExternal Customers are those who purchase the goods and services.Internal Customers are those who receive the output of others within the firm. They are part of the transformation process.Inputs from other processesTransformation Processes(Adding value)Outputs to Internal or to External customers© 2007 Pearson EducationService Processes and Manufacturing ProcessesManufacturing processes change materials in one or more of the following dimensions:Physical propertiesShapeFixed dimensionsSurface finishJoining parts and materialsIf a process isn’t doing at least one of these, then it is a service (non-manufacturing) process.© 2007 Pearson EducationManufacturing and ServiceGoods ProductionTangibleCan be inventoriedLow customer contactCapital IntensiveQuality easily measuredService ProductionIntangibleCan’t be inventoriedHigh customer contactLabor IntensiveQuality hard to measureMost firms provide both goods and services.© 2007 Pearson EducationValue ChainsValue chains are an interrelated series of processes that produce a service or product to the satisfaction of customers.Value chains may have core processes or support processes.Core processes deliver value to external customers.Support processes provide vital inputs for the core processes.© 2007 Pearson EducationCore Processes1. Customer relationship processesIdentify, attract, and build relationships with external customers and facilitate the placement of orders.2. New service/product development processesDesign and develop new services or products from inputs received from external customer specifications.3. Order fulfillment processesThe activities required to produce and deliver the service or product to the external customers.4. Supplier relationship processesSelect suppliers of services, materials and information and facilitate the timely and efficient flow of these items into the firm.© 2007 Pearson EducationSupport Processes Internal Value-Chain Linkages Firms have many processes that support the core processes.External suppliersExternal customersSupport processesSupplier relationship processOrder fulfillment processNew service/ product development processCustomer relationship process© 2007 Pearson EducationProgressive InsuranceGrew from $1.3 billion to $11 in 13 years.How did they do it?Operational Innovation (Designing new processes)Immediate Response Claims Handling (24 hours a day).Streamlined claims processing, from 7-10 days to 9 hours.Web site for agents only.Web site for customer information, inquiries and routine processing.Agents quickly go to scene of accident.© 2007 Pearson EducationOperations as a Set of Decisions(1) Recognize and clearly define the problem.(2) Collect the information needed to analyze possible alternatives.(3) Choose the most attractive alternative.(4) Implement the chosen alternative.Basic Decision-making Steps© 2007 Pearson EducationOperations as a Set of DecisionsStrategic DecisionsTactical DecisionsDevelopment of new capabilitiesMaintenance of existing capabilitiesDesign of new processesDevelopment and organization of value chainsKey performance measuresProcess improvement and performance measuresManagement and planning of projectsGeneration of production and staffing plans Inventory managementResource scheduling© 2007 Pearson EducationProductivityProductivity is the value of outputs (services and products) produced, divided by the