Lecture 2

SESSION 2
Copyright 2014 - Fadi Kotob
Chapter 1
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Goods, Services and Operations Management
Learning Objectives
-Explain
the concept and importance of operations

management.
-Describe what operations managers do.
-Explain the differences between goods and services.
-Describe a customer benefit package.
-Explain the role of processes in OM and identify three
general types of processes.
-Summarise the historical development of OM.
-Describe current challenges facing OM.
Adapted - Boyer & Verma (2010). Operations and Supply Chain Management for the 21st Century, SouthWestern, Cengage Learning. ISBN-13: 978-0-618-74933-1
World Class Operations Management
Adapted - Fawcett, Ellram (2007). Supply Chain Management: From Vision to Implementation, Pearson Prentice
Hall, ISBN-0-13-101504-4
More On Defining Operations Management

Operations management (OM) is the science and art of ensuring
that goods and services are created and delivered successfully to
customers. It includes:
The design of goods, services, and the processes that

create them.
The day-to-day management of those processes.
The continual improvement of these goods, services, and

processes.
Adapted - Collier & Evans (2013). OM4, South-Western, Cengage Learning. ISBN-13: 978-1-133-37242-4
Operations Management Core Issues
Three Issues at the Core of Operations Management:
Efficiency
Cost
Quality
What Do Operations Managers Do?

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Forecasting
Supply chain management
Facility layout and design
Technology selection
Quality management
Purchasing
Resource and capacity management
Process design
Job design
Service encounter design
Scheduling
Sustainability
Recall Operations Management Process View

The process that effectively produce, transform, and deliver a product or
service
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What is a process?
Any activity or group of activities that takes one or more inputs, transforms
them, and provides one or more outputs for its customers.
Adapted - Krajewski, Malhotra & Ritzman (2013). Operations Management Processes And Supply Chains, Pearson Education Limited,
ISBN: 9780273766834
OM & Delivering Goods & Services

What is a good?
A good is a physical product that you can see, touch, or

possibly consume. It is divided into two categories:
A durable good is a product that typically lasts at

least three years.
Examples: Vehicles, dishwashers, and
furniture.
!
A non-durable good is perishable and generally
lasts for less than three years.
Examples are toothpaste, software, shoes,
and fruit.
OM & Delivering Goods & Services
What is a service?
A service is any primary or complementary activity that

does not directly produce a physical product.
Similarities Between Goods & Services

There are many similarities between good and services
which are:
1. Goods and services provide value and satisfaction to

customers who purchase and use them.
2. They both can be standardised or customised to individual
wants and needs.
3. A process creates and delivers each good or service, and
therefore, OM is a critical skill.
Differences Between Goods & Services

There are also many differences which are:
1. Goods are tangible while services are intangible.

2. Customers participate in many service processes, activities,
and transactions.
3. The demand for services is more difficult to predict than the
demand for goods.
4. Services cannot be stored as physical inventory.
5. Service management skills are paramount to a successful
service encounter.
6. Service facilities typically need to be in close proximity to the
customer.
7. Patents do not protect services.
Delivering The Service Encounter

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When delivering goods and services, organisations should think

about the service encounter.
As part of the service delivery part of the transaction, there is an

important service encounter where there is an interaction between
the customer and the service provider.
These encounters consist of one or more moments of truthany

episodes, transactions, or experiences in which a customer comes
into contact with any aspect of the delivery system, however remote,
and thereby has an opportunity to form an impression.
Examples:
A gracious welcome by an employee at a hotel check-in counter
A grocery store employee who seems too impatient to help
Trying to navigate a confusing Web site
Delivering
The Customer Benefit Package
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When delivering goods and services, organisations should build a
suitable customer benefit package.
A customer benefit package (CBP) is a clearly defined set of

tangible (goods-content) and intangible (service-content) features
that the customer recognises, pays for, uses, or experiences.
In simple terms, a CBP is some combination of goods and services

configured in a certain way to provide value to customers.
A CBP consists of a primary good or service, coupled with

peripheral goods and/or services.
Delivering The Customer Benefit Package Continued
A primary good or service is the core offering that

attracts customers and responds to their basic needs.
For example, the primary service of a personal
checking account is the capability to do convenient
financial transactions.
Examples:
an airline flight
a checking account
a brief case
a football game
tax preparation advice
Adapted
Adapted -- Collier
Collier &
& Evans
Evans (2013).
(2013). OM4,
OM4, South-Western,
South-Western, Cengage
Cengage Learning.
Learning. ISBN-13:
ISBN-13: 978-1-133-37242-4
978-1-133-37242-4
Peripheral goods or services are those that are not

essential to the primary good or service, but enhance it.
Examples for a personal checking account:

online access and bill payment
debit card
designer checks
paper or electronic account statement
A variant is a CBP attribute that departs from the

standard CBP and is normally location- or firm-specific.
Example:
a fishing pond or pool at an automobile dealership
where kids can fish while the parents shop for
vehicles
The Customer Benefit Package Example

Exhibit 1.2 A CBP Example for Purchasing a Vehicle
The Mixed Customer Benefit Package
Nowadays, many goods and services have a mixture

of both goods and service content.
Exhibit 1.3
Examples of
Goods and
Service
Content
The Customer Benefit Package & Biztainment
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Furthermore, many organisations are increasing focusing o
the practice of Biztainment which involves adding
entertainment content to a bundle of goods and services in
order to gain a competitive advantage.
Why Biztainment?
Because the old business model of just selling and

servicing a physical vehicle is gone.
People would not buy it
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Because data shows that this approach attracts more
customers and are willing to pay higher rates
This results in higher profits.
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However, delivering all of these products and services
requires well designed processes.
The Role Of Processes To Deliver Goods & Services

What is a process?
A process is a sequence of activities that is intended to

create a certain result.
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Processes are the means by which goods and services
the components of a CBPare produced and
delivered.
Type Of Processes
These processed are divided into 3 types and often involve
networks of processes known as value chains which cross
traditional organisational boundaries. These types are:
Value creation processes, focused on producing or delivering an

organisations primary goods or services, such as filling and shipping
a customers order, assembling a dishwasher, or providing a home
mortgage.
Support processes, such as purchasing materials and supplies

used in manufacturing, managing inventory, installation, health
benefits, technology acquisition, day care on-site services, and
research and development.
General management processes, including accounting and

information systems, human resource management, and marketing.
The Seven Eras Of Operations Management

On another hand, the focus of operations management has
changed with time as can be seen in the image below.
Operations Management & Sustainability
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Nowadays, the increasing focus on sustainability is
becoming concerned with an organisations ability to
strategically address current business needs and
successfully develop a long-term strategy that embraces
opportunities and manages risk for all products, systems,
supply chains, and processes to preserve resources for
future generations.
Operations Management & Sustainability Continued

This sustainability is a challenge where organisations
are forced to focus on the different views seen below:
Environmental sustainability is an organisations

commitment to the long-term quality of our
environment.
Social sustainability is an organisations commitment
to maintain healthy communities and a society that
improves the quality of life.
Economic sustainability is an organisations
commitment to address current business needs and
economic vitality, and to have the agility and strategic
management to prepare successfully for future
business, markets, and operating environments.
Current Operations Management Challenges
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Other challenges include:
Technology
Globalisation
Changing customer expectations
Changing job designs
Quality
Global manufacturing
Thank You For Your Time
Chapter 2
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Value Chains
Learning Objectives
-Explain
the concept of value and how it can be

increased.
-Describe a value chain and the two major perspectives
that characterise it.
-Explain outsourcing and vertical integration in value
chains.
-Explain offshoring and issues that managers must
consider in offshoring decisions.
-Identify important issues associated with value chains
in a global business environment.
-Describe how sustainability plays an important role in
value chains.
The Concept Of Value
The underlying purpose of every organisation is to provide

value to its customer and stakeholders.
Value is the perception of the benefits associated with a

good, service, or bundle of goods and services (i.e., the
customer benefit package) in relation to what buyers are
willing to pay for them.
Value =
Perceived benefits
Price (cost) to the customer
Measuring Value
If the value ratio is high, the good or service is perceived
favourably by customers, and the organisation providing it is
more likely to be successful.
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To increase value, an organisation must:
(a) increase perceived benefits while holding price or cost

constant,
(b) increase perceived benefits while reducing price or cost, or
(c) decrease price or cost while holding perceived benefits
constant.
How To Deliver Value?

To deliver value, an organisation needs to organise its
value chain by focusing on all pre and postproduction
services to create and deliver the entire customer benefit
package.
There are 2 views of the value chain which are

highlighted next:
The Value Chain Input-Output Model View

The Value Chain Pre And Postproduction Services View
Both of these views will be covered next.
The Value Chain Input-Output Model
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This model explains how value begins with
suppliers providing inputs that are transformed
into value-added goods and services.
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This is achieved through processes that are
supported by resources such as equipment and
facilities, labor, money, and information.
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These goods and services are delivered or
provided to customers and targeted market
segments.
The Value Chain Input-Output Model Graph

Exhibit 2.1 An Input-Output Perspective of a Value Chain
The Value Chain Pre And Postproduction Services Perspective
This model explains the pre and postproduction

services processes which complete the ownership cycle
for the good or service.
Pre-production services are focused on gaining a

customer.
Postproduction services focus on keeping the

customer.
This view of the value chain emphasises the notion that

service is a critical component of traditional
manufacturing processes.
The Value Chain Pre And Postproduction Services Perspective Graph
Exhibit 2.4 Pre- and Post-Service View of the Value Chain
So, What Is A Value Chain & How Does It Differ From A Supply Chain?
Many organisations use the terms value chain and

supply chain interchangeably; however, the two terms
are differentiated in the book.
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So what is different between the two?

A value chain is broader in scope than a supply chain, and
encompasses all pre- and postproduction services to create
and deliver the entire customer benefit package.
A supply chain is more internally-focused on the creation of

physical goods.
Defining Both Terms
A value chain is a network of facilities and processes that

describes the flow of goods, services, information, and
financial transactions from suppliers through the facilities
and processes that create goods and services and deliver
them to customers.
A supply chain is the portion of the value chain that focuses

primarily on the physical movement of goods and materials,
and supporting flows of information and financial
transactions through the supply, production, and distribution
processes.
The Value Chain Integration Decisions
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A successful value chain should focus on integration.
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What is integration?
The process of managing information, physical goods,

and services to ensure their availability at the right place,
at the right time, at the right cost, at the right quantity,
and with the highest attention to quality.
The Value Chain Integration Decisions Continued
Many organisations choose to invest in vertical

integration which refers to the process of acquiring
and consolidating elements of a value chain to achieve
more control. Integration may include:
Backward integration refers to acquiring

capabilities toward suppliers
Forward integration refers to acquiring

capabilities toward distribution or even
customers.
The Value Chain Outsourcing Decision
Other organisations choose to outsource and invest in the

process of having suppliers provide goods and services that
were previously provided internally.
Why outsource?
Focus on core business strategy

Reduce control costs while improving functionality
Improve competitiveness
Provide better management control
Improve flexibility
Free up resources for core functions
Outsourcing Considerations
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Some important considerations when outsourcing?
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Choosing an organisation with a good cultural fit, a commitment
to continuous improvement, a willingness to be flexible, and an
intent to develop a long-term relationships and trustworthiness
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A good contract is essential to outsourcing success because the
contract helps to establish a balance of power between the
client and the vendor
Outsourcing Risks Continued
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The risks of outsourcing include?
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Shipping delays
Unavailability of shipping capacity
Customs issues while physically transporting goods
Vendors security practices
Cultural differences especially in the customer service
industry
Costs of transferring knowledge to vendors
Outsourcing Risks Response
However, organisations will need to be manage the

major risk that can arise out of outsourcing.
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These risks include the degradation of critical business

attributes such as quality, reliability, integrity, and
security.
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- Example: Dell outsourcing
The Value Chain Offshoring Decisions
Other organisations choose to offshore their operations which involves

building, acquiring, or moving process capabilities from a domestic
location to another country location while maintaining ownership and
control. Considerations when offshoring are divided into 2 categories.
Exhibit 2.7 Things to Consider When Making Offshore Decisions

The Global Value Chain Challenges

Regardless of whether an organisation chooses to integrate, outsource or
offshore, the global nature of the value chain makes achieving the
required objectives challenging.
Some challenging questions include:
1.
2.
3.
4.
How to design a value chain to meet the slower growth of

industrialised countries and more rapid growth of emerging
economies.
Where to locate manufacturing and distribution facilities around the
globe to capitalise on value chain efficiencies and improve customer
value.
What performance metrics to use in making critical value chain
decisions.
How to decide if partnerships should be developed with competitors
to share engineering, manufacturing, or distribution technology and
knowledge.
The Sustainable Role In Value Chains

In addition to the global supply chain challenges, there are
specific challenges relating to delivering sustainability in
value chains.
The terms green operations, green manufacturing, and

green practices are often used to describe sustainability
activities that involve operations and the value chain.
Sustainability improves the organisations perception among

consumers, and improves the bottom line through reduced costs.
Sustainable practices can lead to increased revenues. For

example, organisations that emit greenhouse gases like factories
and electrical utilities may one day buy and sell carbon credits in
a commodities-type stock market.
Many customers favour products and services that are designed

and produced in a sustainable way.
OM Practices Used To Deliver Environmental Sustainability

To deliver sustainability, there are many practices that can
be used. These include:
Designing goods and services using recyclable and

environmentally-friendly materials.
Remanufacturing.
Designing facilities and using equipment that conserve energy.
Using electronic media and technology to reduce paper and fuel.
Using transportation modes that minimise costs and carbon
output.
Cleaning and reusing water used for manufacturing.
Final Notes - Your Tasks For This Week
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Review the lecture slides and the notes you have taken
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Read chapters 4 and 6
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Review the Learning The Basics Of Harvard Referencing activity and explanation
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Review the Conventions Of Harvard Referencing exercise and reference well in
assignments 1 and 2
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Review The Research Information Matrix document
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Complete assignment 2, part 1
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Work with your group members on assignment 1
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Do your pre-readings for the articles which will be used in tutorial 3. These articles are
required to do assignment 1.
Thank You For Your Time

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SESSION 2

Copyright 2014 - Fadi Kotob

Copyright 2014 - Fadi Kotob

the concept and importance of operations

World Class Operations Management

More On Defining Operations Management

The design of goods, services, and the processes that

The day-to-day management of those processes.

The continual improvement of these goods, services, and

Operations Management Core Issues

Three Issues at the Core of Operations Management:

What Do Operations Managers Do?

Recall Operations Management Process View

Copyright 2014 - Fadi Kotob

OM & Delivering Goods & Services

A good is a physical product that you can see, touch, or

A durable good is a product that typically lasts at

OM & Delivering Goods & Services

A service is any primary or complementary activity that

Similarities Between Goods & Services

1. Goods and services provide value and satisfaction to

Differences Between Goods & Services

1. Goods are tangible while services are intangible.

Delivering The Service Encounter

When delivering goods and services, organisations should think

As part of the service delivery part of the transaction, there is an

These encounters consist of one or more moments of truthany

A customer benefit package (CBP) is a clearly defined set of

In simple terms, a CBP is some combination of goods and services

A CBP consists of a primary good or service, coupled with

Delivering The Customer Benefit Package Continued

A primary good or service is the core offering that

Delivering The Customer Benefit Package Continued

Peripheral goods or services are those that are not

Examples for a personal checking account:

Delivering The Customer Benefit Package Continued

A variant is a CBP attribute that departs from the

The Customer Benefit Package Example

The Mixed Customer Benefit Package

Nowadays, many goods and services have a mixture

The Customer Benefit Package & Biztainment

Because the old business model of just selling and

The Role Of Processes To Deliver Goods & Services

A process is a sequence of activities that is intended to

Value creation processes, focused on producing or delivering an

Support processes, such as purchasing materials and supplies

General management processes, including accounting and

The Seven Eras Of Operations Management

Operations Management & Sustainability

Operations Management & Sustainability Continued

Environmental sustainability is an organisations

Current Operations Management Challenges

Thank You For Your Time

Copyright 2014 - Fadi Kotob

Copyright 2014 - Fadi Kotob

the concept of value and how it can be

The Concept Of Value

The underlying purpose of every organisation is to provide

Value is the perception of the benefits associated with a

To increase value, an organisation must:

(a) increase perceived benefits while holding price or cost

How To Deliver Value?

There are 2 views of the value chain which are