LECTURE 1: OPERATIONS MANAGEMENT • Job design – decide the best way to

AND VALUE CHAINS assign people to work tasks and job

responsibilities.
Operations Management (OM) • Service encounter design – determine the
 It is the science and art of ensuring that best types of interactions between
goods and services are created and service providers and customers and how
delivered successfully to customers. to recover from services upsets.
 It includes the design of goods, and • Scheduling – determine when resources
services, and the process that create such as employees and equipment should
them; the day-to-day management of be assigned to work.
those process and the continual • Sustainability – decide the best way to
improvement of these goods, services manage the risks associated with
and processes. products and operations to preserve
 The way in which goods and services, and resources for future generations.
the processes that create and support Understanding Goods and Services
them, are designed and managed can
make the difference between delightful or • GOODS is a physical product that you
an unhappy customer experience. That is can see, touch or possibly consume.
what OM is all about! o Durable good – is one that does not
 Operations management is the only quickly wear out and typically at least
function by which managers can directly three years.
affect the value provided to all o Non durable good – is one that is no
stakeholders, customers, employees, longer useful once it’s used, or last for
investors and society. less that three years.
• SERVICE is any primary or complementary
What do Operations Managers do?
activity that does not directly produce a
• Forecasting - predict the future demand physical product.
for raw materials, finished goods, and o Services represent the non-goods part
services. of a transaction between a buyer
• Supply chain management - manage (customer) and seller (supplier).
the flow of materials, information, people, o Service-providing firms are found in
and money from suppliers to customers. industries such as banking, lodging,
• Facility layout and design - determine education, health care, and
the best configuration of machines, government.
storage, offices, and departments to
provide the highest levels of efficiency Significant differences between Goods
and customer satisfaction. and Services
• Technology selection - use technology • Goods are tangible, whereas services
to improve productivity and respond are intangible – goods are consumed
faster to customers. but services are experienced.
• Quality management – ensure that • Customers participate in many
goods, services and processes will meet service processes, activities, and
customer expectations and requirements. transaction – many services require that
• Purchasing – coordinate the acquisition the customer be present either physically,
of materials, supplies and services. on telephone, or online for service to
• Resource and capacity management commence.
– ensure that the right amount of • Service encounter – is an interaction
resources (labor, equipment, materials, between the customer and the service
and information) is available when provider.
needed. • The demand for services is more
• Process design – select the right difficult to predict that the demand
equipment, information and work for goods – customer arrival rates and
methods to produce high-quality goods demand patterns for such service delivery
and services efficiently. systems as banks, airlines, supermarket,
 call centers, and courts are very difficult a customer benefit package is based on
to forecast. an assessment by the customer of the
• Services cannot be stored as perceived benefits in relation to its price.
physical inventory – in goods-producing The customer’s cumulative judgment of
firms, inventory can be used to decouple the perceived benefits leads to either
customer demand from the production satisfaction or dissatisfaction.
process or between stages of the • If the value ratio is high, the good or
production process and ensure constant service perceived favorably by customers,
availability despite fluctuation in demand. and the organization providing it is more
For services delivery systems, availability likely to be successful.
depends on the system’s capacity. • The focus on value has forced many
• Service management skills are traditional goods-producing companies to
paramount to a successful service add services and, increasingly, digital
encounter – employees who interact content to complement their physical
with customers require service goods.
management skills suck as knowledge • A goods-producing company can no
and technical expertise (operations), longer be viewed as simply factory that
cross-selling other products and services churns out physical goods, because
(marketing), and good human interaction customer perceptions of goods are
skills (human resources). influenced highly by such facilitating
• Service management – integrates services as financing and leasing,
marketing, human resources and shipping and installation, maintenance
operation functions to plan, create, and and repair, and technical support and
deliver goods and services, and their consulting.
associated service encounter.
• Service facilities typically need to be How to Increase Value?
in close proximity to the customer – To increase value, an organization must:
when customers must physically interact
with a service facility – for example, post • increase perceived benefits while holding
offices, hotels and branch banks – they price or cost constant;
must be in a location convenient to • increase perceived benefits while
customers. A manufacturing facility, on reducing price or cost; or
the other hand, can be on the other side • decrease price or cost while holding
of the globe, as long as goods are perceived benefits constant.
delivered to customers in a timely
Customer Benefit Packages
fashion.
• Patents do not protect services – a  “Bundling” goods, services, and digital
patent on a physical good or software content in a certain way to provide value
code can provide protection from to customers not only enhances what
competitors. The intangible nature of a customers receive, but can also
service makes it more difficult to keep a differentiate the product from
competitor from copying a business competitors. Such a bundle is often called
concept. a customer benefit package.
 A customer benefit package (CBP) is
defined as set of tangible (goods-content)
and intangible (service content) features
that the customer recognizes, pays for,
uses, or experiences. The CBP is a way to
conceptualize and visualize goods and
The Concept of Value services by thinking broadly about how
goods and services are bundled and
• Value – is the perception of the benefits configured together.
associated with a good, service or bundle  CBP consists of primary goods and
of goods and services in relation to what services, coupled with peripheral goods
buyers are willing to pay for them. The and services, and sometimes variant.
decision to purchase a good or service or
 Primary goods or services is the through supply, production, and
“core” offering that attracts customers distribution processes.
and responds to their basic needs. For
example, the primary service of a Processes
personal checking account is convenient  A process is a sequence of activities that
financial transactions. intended to create a certain result, such
 Peripheral goods and services are as a physical good.
those that are not essential to the  For example, a car wash process might
primary good or service, but enhance it. consist of the following steps:
 A personal checking account might be  Check the car in, perform the wash,
supported and enhanced by such inspect the results, notify the
peripheral goods as printed monthly customer that the car is finished,
account statement designer checks, quickly deliver the car back to the
check books, a special credit card, and customer, and collect payment
such peripheral services as a customer  In designing such a process, operations
service hotline and online bills payment. managers need to consider the process
 Variant is a CBP feature that departs goals, such as speed of service, a clean
from the standard CBP and is normally car, no vehicle damage, and the quality of
location or firm specific. all service encounters. OM managers
would ask questions such as:
 Should the car be cleaned inside as
well as outside? How long should a
customer expect to wait? What types
of chemicals should be used to clean
the car? What training should the
employees who wash the cars and
interact with the customers have?
Key processes in business typically
include:
Value Chains
 Core processes - it focused on
 Value Chain is a network of facilities and producing or delivering an organization’s
processes that describes the flow of primary goods or services that create
materials, finished goods, services, value for customers, such as filling and
information, and financial transactions shipping customer’s order, assembling a
from suppliers, through the facilities and dishwasher, or providing a home
processes that create goods and services, mortgage.
and those that deliver them to the  Core processes - it focused on
customer. producing or delivering an organization’s
 Value Chain involve all major functions primary goods or services that create
in an organization. This includes not only value for customers, such as filling and
operations but also purchasing, shipping customer’s order, assembling a
marketing, sales, human resource dishwasher, or providing a home
management, finance and mortgage.
accounting, information systems and  Support processes - such as purchasing
technology, distribution, and service, materials and supplies used in
and support. manufacturing, managing inventory,
installation, health benefits, technology
Supply Chains acquisition, day care on-site services, and
 Supply Chain is the portion of the value research and development.
chain that focuses on primarily on the  General management processes -
physical movement of good and including accounting and information
materials, and supporting flows of systems, human resource management,
information and financial transactions and marketing.
 management to prepare successfully for
future business, markets, and operating
environments.
 Data and Analytics – Today all
organizations have access to enormous
amount of data and information. In OM,
data are used to evaluate operations,
performance, quality order accuracy,
OM: A History of Change and Challenge customer satisfaction, delivery, cost,
environmental compliance, and many
 Customization and Design – As the other areas of the business.
goals of low and cost and high product
quality became “givens”, companies Key Challenges
began to emphasize innovative designs  Customers – Consumers demand an
and product features to gain a increasing variety of high quality goods
competitive edge. with new and improved features that are
 Time-Based competition – As delivered faster than ever – along with
information technology matured, time outstanding service and support.
became an important source of  Technology – Technology continues to
competitive advantage. Quick response is evolve at a rapid pace. Applications in
achieved by continually improving ad re- design and manufacturing as well as the
engineering processes – that is use of information technology in services
fundamentally rethinking and redesigning have provided the ability to develop
processes to achieve dramatic innovative products and more effectively
manage and control extremely complex
improvements in cost, quality, speed, and
operations.
service.  Workforce – Today’s workforce requires
 The Service Evolution – In 1955, about new skills, continual learning, more
50% of the U.S. workforce was employed diversity, and better management.
in goods-producing industries and 50% in  Globalization – Globalization no longer
service-providing industries. means just an opportunity for
 Sustainability– It refers to an organizations to enter new markets. We
live in an era of “borderless marketplace”.
organization’s ability to strategically
 Sustainability – Performance in global
address current business needs and operations and supply chains use to mean
successfully develop a long term strategy a focus on cost, quality, and time.
that embraces opportunities and  Optimizing Supply Chains – Value
manages risk for all products, systems, chains now span across many continents.
and processes to preserve resources for Companies today face many challenges in
future generations. designing and optimizing their supply
chains
 Environmental Sustainability – is an
organization’s commitment to the long
term quality of our environment.
 Social Sustainability – is an
organization’s commitment to maintain
healthy communities and society that
improves the quality of life.
 Economic Sustainability is an
organization’s commitment to address
business needs and economic vitality,
and to have the agility and strategic
LECTURE 2: OPERATIONS STRATEGY called order winners. Order winners are
goods and service features and
Any change in strategic direction typically performance characteristics that
has significant consequences for the entire differentiate one customer benefit
value chain and for operations. package from another and win the
Gaining Competitive Advantage customer’s business.

 Competitive advantage – denotes Evaluating Goods and Services

firm’s ability to achieve market and • Research suggests that customers use
financial superiority over its competitors. three types of attributes in evaluating the
 Sustainable competitive advantage – quality of goods and services: search,
provides above average performance and experience, and credence.
is essential to the survival of the • Search attributes are those that a
business. customer can determine prior to
Creating a competitive advantage purchasing the goods and or services.
understanding of two things: • Experience attributes are those that
can be discerned only after the purchase
• Management must understand customer or during consumption or use.
needs and expectations – and how the • Credence attributes are any aspects of
value chain can best meet these through a good or service that the customer must
the design and delivery of attractive believe in but cannot personally evaluate
customer benefit packages. even after purchase and consumption.
• Management must build and leverage • Customers seek and rely more of
operational capabilities to support desired information from personal sources than
competitive priorities. from non-personal sources when
evaluating services prior to purchase.
Understanding Customers Wants and
Operations must ensure that the accurate
Needs
information is available and that
• The fundamental purpose of an experiences with prior services and
organization is to provide goods and service providers result in positive
services of value to customers, it is experiences and customer satisfaction.
important to first understand customer • Customers perceive greater risks when
desires and also to understand how buying services than when buying goods.
customers evaluate goods and services. Because services are intangible,
• A company usually cannot satisfy all customers cannot look at or touch them
customers with the same goods and prior to the purchase decision.
services. • Dissatisfaction with services is often the
• Often, customers must be segmented into result of customers’ inability to properly
several natural groups, each with unique perform or coproduce their part of the
wants and needs. These segments might service.
be based on buying behavior, geography,
Listen to your customers – creatively!
demographics, sales volume, profitability,
or expected levels of service. How Customers Evaluate Goods and
• To correctly identify what customers
expect requires being “close to
customers.
• Basic customer expectations are
generally considered the minimum
performance level required to stay in
business and are often called order
qualifiers.
• The unexpected features that surprise,
entertain, and delight customers by going
Services
beyond the expected often make the
difference in closing a sale; those are Competitive Priorities
• Every organization is concerned with OM and Strategic Planning
building and sustaining a competitive
advantage in its markets. • Strategy is a pattern or plan that
• A strong competitive advantage is driven integrates an organization’s major goals,
by customer needs and aligns the policies, and action sequences into a
organization’s resources with its business cohesive whole.
opportunities. • Effective strategies develop around a few
• Competitive advantage can be achieved key competitive priorities such as low
in different ways such as outperforming cost or fast service time, which provide a
competitors on price or quality, focus for the entire organizations and
responding quickly to changing customer exploit organization’s core competencies,
needs in designing goods and services, or which are the strengths that are unique to
providing rapid designs or delivery. that organization.
• Competitive priorities represent the • Strategic planning is the process of
strategic emphasis that a firm places on determining long-term goals, policies, and
certain performance measures and plans for the organization. The objective
operational capabilities within a value of strategic planning is to build a position
chain. that is so strong in selected ways that the
organization can achieve its goals despite
Five key competitive priorities unforeseeable external forces that may
arise.
1. Cost – Low cost can result from high • Strategy is the result of series of
productivity and high-capacity utilization. hierarchical decisions about goals,
2. Quality – The role of quality in achieving directions, and resources.
competitive advantage was demonstrated
by several research studies. Operations Strategy
a. Businesses offering premium-
quality goods usually have large • An operations strategy is the set of
market shares and were early decision across the value chain that
entrants into their markets. supports the implementation of higher-
b. Quality is positively and level business strategies
significantly related to a higher Two types of business strategies for a
return on investment for almost all manufacturer:
kinds of markets situations.
c. A strategy of quality improvement 1. Produce a well-defined set of products in
usually leads to increased market a fairly stable market environment as a
share, but a cost in terms of cost leader.
reduced short-run profitability. 2. Provide high product variety and
Producers of high-quality goods can customization in a turbulent market that
usually charge premium prices requires innovative designs to meet
3. Time – Time is perhaps the most customer-specific requirements.
important source of competitive
Sustainability and Operations Strategy
advantage. Customers demand quick
response, short waiting times, and • Sustainability is organizational strategy –
consistency in performance. it is competitive priority.
4. Flexibility – Flexibility is manifest in
mass-customization strategies are A Framework for Operations Strategy
becoming increasingly prevalent today. • Operations designs choices are the
Mass customization is being able to make decisions management must make as to
whatever goods and services the what type of process structure is best
customer wants, at nay volume, and suited to produce goods or create
anytime for anybody, and for a global services.
organization, for any place in the world. • Infrastructure focuses on the non-
5. Innovation – It is the discovery and process features and capabilities of the
practical application or commercialization organization and includes the workforce,
of a device, method, or idea that differs operating plans, and control systems,
from existing norms.
 quality control, organization structure,
compensations systems, learning and
innovation systems, and support services.
• The ultimate objective of operational
excellence is satisfied customers.
Operational excellence includes the value
chain, process, equipment, and job
efficiencies, as well as superior people
related performance – all focused to
support the service encounter level.
LECTURE 3: TECHNOLOGY AND Manufacturing Technology
OPERATIONS MANAGEMENT
• The right technology must be selected for
What is Technology? the goods that are produced.
• Process resources such as machine and
• It has both physical and information – it employees, must be set-up and
has dramatically changed how work is reconfigured in a logical fashion to
accomplished in every industry, from support production efficiency.
mining to manufacturing, to education to • Labor must be trained to operate the
health care. equipment.
• It is the enabler that makes today’s • Process performance must be continually
service and manufacturing systems improved.
operate productively and meet customer • Work must be scheduled to meet shipping
needs better than ever. commitments/ customer promise dates.
Technology • Quality must be ensured.

• Technological innovation in goods, Computer – Integrated Manufacturing

services, manufacturing, and service Systems
delivery is a competitive necessity • It represent the union of hardware,
Understanding Technology in software, database management, and
Operations communications to automate and control
production activities, from planning and
• Hard Technology – refers to equipment design to manufacturing and
and devices that perform a variety of distributions. It also includes many hard
tasks in the creation and delivery of and soft technologies with a wide variety
goods and services. (e.g., computers, of acronyms, vendors, and applications,
microprocessors, optical switches, and are essential to productivity and
satellites, sensors, robots, ATM, bar-code efficiency in modern manufacturing.
scanners, RFID)
• Soft Technology – refers to the What is robot?
application of the internet, computer • A robot is a programmable machine
software, and information systems to designed to handle materials or tools in
provide data, information and analysis the performance of their tasks.
and to facilitate the creation and delivery • Robots can be “taught” a large number of
of goods and services. (e.g., database, AI sequences of motions and operations and
programs, and voice recognition.) even to make certain logical decisions
• Information Technology provides the
ability to integrate all parts of the value Computer Aided Design (CAD) /
chain through better management of Computer Aided Engineering (CAE)
information. This leads to more effective
strategic and operational decisions to • Enables engineers to design, analyze,
design better CBP, that support test, simulate, and “manufacture”
customers’ wants and needs, achieve products before they physically exist, thus
competitive priorities, and improve the ensuring that a product can be
design and operation of all processes in manufactured to specifications when it is
the value chain. released to the shop floor.

Effect of Hard and Soft Technology in Computer Aided Machine (CAM)

the Operations • It involves computer control of the
• Allowing managers to make better manufacturing process, such as
decisions. • Share information across the determining tool movements and cutting
value chain. (Samples: CRM, Integrated speeds.
Operation System, Enterprise Resource Flexible manufacturing systems (FMSs)
Planning) hat create better and more
customized goods and services and • It consists of two or more computer-
deliver them faster at lower prices controlled machines or robots linked by
 automated handling devices such as behaviors, in order to build customer
transfer machines, conveyors, and relationships and loyalty, and ultimately
transport systems. Computers direct the enhance revenue and profits.
overall sequence of operations and route
the work to the appropriate machine, CRM helps firms gain and maintain
select and load the proper tools, and competitive advantage by:
control the operations performed by the • Segmenting markets based on
machine. demographic and behavioral
Advances in Manufacturing Technology characteristics.
• Tracking sales trends and advertising
• Nanotechnology involves the effectiveness by customer and market
manipulation of matter on atomic, segment.
molecular, and supramolecular scales, • Identifying which customer should be the
thus bringing with it super-precision focus of targeted marketing initiatives
manufacturing. with predicted high customer response
rates, efficiency
Examples of application in nanotechnology: • Forecasting customer retention rates and
1. Faster Computer processing. providing feedback as to why customers
2. Superconductive materials based on leave the company.
carbon nanotubes lifting magnetic cars • Identifying which transactions are likely to
and trains. be fraudulent.
3. Smaller memory cards that have more • Studying which goods and services are
memory space. purchased together, and what might be
4. Clothes that last longer and keep the the good waysto bundle them (i.e., CBP)
wearer cool in the summer. 5. • Studying and predicting that Web
Bandages that heal wounds faster. characteristics are most attractive to
customers and how the website might be
Service Technology improved; and
• Linking the previous information to
• Technology is used in many services
competitive priorities by market segment
including downloading music, banking,
and process and value chain
automated car washes, voice recognition
performance.
in telephone menus, medical procedures,
hotel and airline kiosks, and Technology and Decisions
entertainment faster. Implementation
E-Service • The goal of the operations manager is to
provide the best synthesis of technology,
• It refers to using the internet and
people, and this interaction is often called
technology to provide services that create
the sociotechnical system.
and deliver time, place, information,
• Scalability – It is a measure of the
entertainment, and exchange value to
contribution margin (revenue minus
customers and/or support the sale of
variable costs) required to deliver a good
goods.
service as the business grows and
Technology in Value Chains volumes increase.
• High scalability is the capability to serve
• Technology, especially the Internet and e additional customers at zero or extremely
communications, is changing the low incremental costs.
operation, speed, and efficiency of the • Low Scalability implies that serving
value chain and presents many new additional customers requires high
challenges to operations managers. incremental variable costs.
Computer Relationship Management
(CRM)
• It is a business strategy designed to learn
more about customer’s wants, needs, and