1

COMPETING WITH
OPERATIONS

PowerPoint Slides
by Jeff Heyl
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

For Operations Management, 9e by

Krajewski/Ritzman/Malhotra
2010 Pearson Education

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Operations Management
The systematic design, direction, and
control of processes that transform inputs
into services and products for internal, as
well as external, customers
Processes can be linked together to form a
supply chain interrelated processes
within a firms and across different firms
that produce a service or product to the
satisfaction of the customers

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

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Across the Organization

Finance
Acquires financial
resources and capital
for inputs

Material &
Service Inputs

Sales
Revenue
Support Functions

Operations

Accounting
Information Systems
Human Resources
Engineering

Translates
materials and
service into
outputs
Figure 1.1

Marketing
Generates sales
of outputs

Product &
Service Outputs

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A Process View
External environment
Internal and external
customers
Inputs
Workers
Managers
Equipment
Facilities
Materials
Land
Energy

Outputs
Goods
Services

Processes and
operations
1

3
5

Information on
performance
Figure 1.2
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A Process View

More like a
manufacturing
process

Physical, durable output

Output can be inventoried
Low customer contact
Long response time
Capital intensive
Quality easily measured

More like a
service
process

Intangible, perishable output

Output cannot be inventoried
High customer contact
Short response time
Labor intensive
Quality not easily measured

Figure 1.3
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The Supply Chain View

New
service/
product
development

Supplier
relationship
process

Customer
relationship
management

Order
fulfillment
process

External customers

External suppliers

Support Processes

Figure 1.4
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The Supply Chain View

Core processes are sets of activities that
deliver value to external customers
1.

Supplier relationship process

2.

New service/product development process

3.

Order fulfillment process

4.

Customer relationship process

Support processes provide vital resources

and inputs to the core processes

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Support Processes
TABLE 1.1

EXAMPLES OF SUPPORT PROCESSES

Capital acquisition

The provision of financial resources for the

organization to do its work and to execute
its strategy

Budgeting

The process of deciding how funds will be

allocated over a period of time

Recruitment and hiring

The acquisition of people to do the work of

the organization

Evaluation and compensation

The assessment and payment of people for

the work and value they provide to the
company

Human resource support and development

The preparation of people for their current

jobs and future skills and knowledge needs

Regulatory compliance

The processes that ensure that the company

is meeting all laws and legal obligations

Information systems

The movement and processing of data and

information to expedite business operations
and decisions

Enterprise and functional management

The systems and activities that provide

strategic direction and ensure effective
execution of the work of the business

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18

Operations Strategy
Specifies the means by which operations
implements corporate strategy and helps
build a customer-driven firm
Corporate strategy provides an overall
direction that serves as the framework for
carrying out all the organization's functions

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Operations Strategy
Corporate Strategy
Environmental scanning
Core competencies
Core processes
Global strategies

Market Analysis
Market segmentation
Needs assessment
Competitive Priorities
Cost
Quality
Time
Flexibility
New Service/
Product Development
Design
Analysis
Development
Full launch

No

Yes

Performance
Gap?

Operations Strategy

Decisions
Managing processes
Managing supply chains

Competitive Capabilities
Current
Needed
Planned

Figure 1.5
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Corporate Strategy
Environmental scanning
Developing core competencies
1.

Workforce

2.

Facilities

3.

Market and financial know-how

4.

Systems and technologies

Developing core processes

Global strategies
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Market Analysis
Market segmentation
Needs assessment
Service

or product needs

Delivery
Volume
Other

system needs

needs

needs

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Competitive Priorities
TABLE 1.2

DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

PRIORITIES

COST

Definition

Process Considerations

Example

1. Low-cost
operations

Delivering a service or a
product at the lowest
possible cost

Processes must be designed and

operated to make them efficient

Costco

2. Top quality

Delivering an outstanding
service or product

May require a high level of

customer contact and may require
superior product features

Ferrari

3. Consistent
quality

Producing services or
products that meet design
specifications on a
consistent basis

Processes designed and

monitored to reduce errors and
prevent defects

McDonalds

4. Delivery speed

Quickly filling a
customers order

Design processes to reduce lead

time

Dell

5. On-time
delivery

Meeting delivery-time
promises

Planning processes to increase

percent of customer orders
shipped when promised

United Parcel
Service (UPS)

6. Development
speed

Quickly introducing a new

science or a product

Cross-functional integration and

involvement of critical external
suppliers

Li & Fung

QUALITY

TIME

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Competitive Priorities
TABLE 1.2

DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE

PRIORITIES

FLEXIBILITY

Definition

Process Considerations

Example

7. Customization

Satisfying the unique

needs of each customer
by changing service or
products designs

Low volume, close customer

contact, and easily reconfigured

Ritz Carlton

8. Variety

Handling a wide
assortment of services or
products efficiently

Capable of larger volumes than

processes supporting
customization

Amazon.com

9. Volume
flexibility

Accelerating or
decelerating the rate of
production of service or
products quickly to
handle large fluctuations
in demand

Processes must be designed for

excess capacity

The United States

Postal Service
(USPS)

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Order Winners and Qualifiers

Sales ($)

Order Winner

Low

High

Achievement of competitive priority

Sales ($)

Order Qualifier

Low

Threshold

High

Achievement of competitive priority

Figure 1.6
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Using Competitive Priorities

At an airline
Customer relationship
Top

quality

Consistent
Delivery

quality

speed

Variety

New service development

Development

speed

Customization
Top

quality

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Using Competitive Priorities

At an airline
Order fulfillment
Low-cost

operations
Top quality
Consistent quality
On-time delivery
Variety

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Using Competitive Priorities

At an airline
Supplier relationship
Low-cost

operations
Consistent quality
On-time delivery
Variety
Volume flexibility

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Operations Strategy
TABLE 1.3

OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS

Competitive Priority

Measure

Capability

Gap

Action

Low-cost operations

Cost per
billing
statement

$0.0813

Target is
$0.06

Eliminate microfilming and

storage of billing statements

Weekly
postage

$17,000

Target is
$14,000

Develop Web-base process for

posting bills

Percent
errors in
bill
information

0.90%

Acceptable

No action

Percent
errors in
posting
payments

0.74%

Acceptable

No action

Delivery speed

Lead time
to process
merchant
payments

48 hours

Acceptable

No action

Volume flexibility

Utilization

98%

Too high to
support
rapid
increase in
volumes

Acquire temporary employees

Consistent quality

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Improve work methods

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Trends in Operations Management

Productivity improvement
Global competition
Ethical, workforce, and environmental
issues

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Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:
a. Three employees process 600 insurance policies in a week.
They work 8 hours per day, 5 days per week.
SOLUTION
Policies processed
a. Labor productivity = Employee hours
600 policies
= (3 employees)(40 hours/employee) = 5 policies/hour

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Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:
b. A team of workers makes 400 units of a product, which is
sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.
SOLUTION
a. Multifactor productivity =

Value of output
Labor cost + Materials cost
+ Overhead cost

(400 units)($10/unit)
$4,000
=
= 2.35
$400 + $1,000 + $300
$1,700

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Application
This Year

Last Year

Year Before Last

Factory unit sales

2,762,103

2,475,738

2,175,447

Employment (hrs)

112,000

113,000

115,00

Sales of manufactured
products ($)

$49,363

$40,831

Total manufacturing
cost of sales ($)

$39,000

$33,000

Calculate the year-to-date labor productivity:

This Year
factory unit sales

2,762,103

employment

112,000

Last Year

= 24.66/hr

2,475,73
8

Year Before Last

2,175,447

= 21.91/hr

113,000

115,000

= $18.91/hr

Calculate the multifactor productivity:

This Year
sales of mfg products

$49,363

total mfg cost

$39,000

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

= 1.27

Last Year
$40,831
$33,000

= 1.24

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OM as a Set of Decisions
In practice, managers
make strategic and
tactical decisions

USING OPERATIONS TO COMPETE

Competing with Operations
Project Management

MANAGING PROCESSES

1.

Each part of the

organization designs
and operates
processes

Process Strategy
Process Analysis
Quality and Performance
Capacity Planning
Lean Systems

MANAGING SUPLY CHAINS

2.

Each function is
connected through
shared resources

Supply Chain Design

Supply Chain Integration
Location
Inventory Management
Forecasting
Operations Planning and Scheduling
Resource Planning

Figure 1.7
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