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Operations Management

Operations Management and TQM (Polytechnic University of the Philippines)

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

CHAPTER 1: OPERATIONS MANAGEMENT IV. VALUE CHAINS

AND VALUE CHAINS Value Chain – network of facilities and processes that
describes the flow of material, finished goods, services
Operations Management – science and art of ensuring
information, and financial transactions from suppliers,
that goods and services are created and delivered
through the facilities and processes that create goods
successfully to customers.
and services, and those that deliver them to the
customer.
OM includes:
- design of goods, services, and the processes that
Supply Chain – portion of a value chain (narrower in
create them
scope).
- day-to-day management of processes
- continual improvement of goods, services, and
Process - sequence of activities that is intended to
process
create a certain result, such as a physical good, a
Depends on:
service, or information.
- Efficiency
Key processes in business:
- Cost of operations
1. Value-creation (core) – focused on producing
- Quality of goods
and delivering goods and services
(Core of operations management)
2. Support – purchasing material and supplies
3. General management - including accounting
I. ROLE OF OPERATIONS MANAGER
and information systems, human resource
- collaboration to various department
management, and marketing.
II. UNDERSTANDING GOODS AND SERVICES
V. VALUE CHAIN FRAMEWORKS
GOODS
- Physical product, tangible A. Input-Output Framework
a. Durable – goods that can last at least three years, does
not quickly wear out
b. Nondurable – can be consumed in less than a year,
perishes less than three years

SERVICE
- Primary or complementary activity
- Driven by customers and provide value and
satisfaction to customers who purchase and use
them Suppliers – retail stores, distributors
- Standardized or customized to individual wants and Inputs – transformed into value-added goods and
needs services
Value-creation processes – directly create and deliver
III. THE CONCEPT OF VALUE goods and services
Value – perceived benefits Support processes – “behind the scenes”, which support
Value = perceived benefits core process
Price General management process – needed for efficient and
Customer Benefit Package effective business performance
- A set of tangible and intangible features that Outputs – goods and services are delivered to
customers recognize, pay for, use, or experience customers
a. Primary – “core offering” that attracts customer
b. Peripheral – not essential, but enhances primary B. Preproduction and Postproduction Services
c. Variant – CBP feature that departs from the Framework
standard CBP

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

a long-term strategy to preserve resources for

future generations
a. Environmental – long-term quality of
environment
b. Social – maintain healthy communities and
society that improves quality of life
c. Economic – commitment to address current
business needs and economic vitality
7. Analytics and Big Data
Business analytics – process of transforming
Preproduction – focused on gaining customer data into actions through analysis and insights
Postproduction – focused on keeping the customer Descriptive – past and current
Predictive – patterns and relationships
C. Hierarchical Supply Chain Framework Prescriptive – identify best decision

VII. CURRENT AND FUTURE CHALLENGES

C Customers
H
A Technology Workforce
L
L Workforce
E Globalization
N
G Sustainability
E
S Optimizing supply chains

CHAPTER 2: MEASURING PERFORMANCE

IN OPERATIONS AND VALUE CHAINS
- gather information and identify opportunities for
improvement.
Distribution centers – warehouses that act as - listening and learning approaches to determine
intermediaries between factories and customers customer needs
Inventory – refers to raw materials, work-in-process, or
finished goods that are maintained to support Measurement - the act of quantifying the performance
production or satisfy customer demand of business activities
- provides an objective basis for making decisions
VI. OM: A HISTORY OF CHANGE AND CHALLENGE "How you are measured is how you perform" lead to
Seven Major Eras of Operations Management improvements.
1. Cost and Efficiency – led to development of
modern factories I. TYPES OF PERFORMANCE MEASURES
2. Quality revolution – fewer defects and reliable - these measures provide the means of assessing the
3. Customization and Design – innovative designs, effectiveness of operations along supply and value
flexible mass-production chains.
4. Time-based – developing quality products faster
than competitors 1. Financial Measures - monitoring cost and adherence
5. Service revolution – service-providing processes to budgets
6. Sustainability – organization’s ability to address - cost and revenue, for-profit organizations
current business needs and successfully develop

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

- minimizing costs and maximizing value, for nonprofit 7. Productivity and operational efficiency
organizations - how well the resources are being used to produce
output
2. Customer and market - surveys and ratings Productivity – ratio of the output of process to the input
- reveals areas that need improvements Operational efficiency – ability to provide goods and
- learn how satisfied customers and shareholders are services with minimum waste and maximum utilization
Customer-satisfaction measurement system - provides a of resources
company with customer ratings of specific goods and
services 8. Sustainability
- tracks trends and reveals patterns of customer Triple bottom line – measurement of environmental,
behavior social, and economic sustainability.
- tracks and analyze complaints and dissatisfaction - tracks consumption of environmental resources,
governance in workplace, community relations, and
3. Quality – measure the degree to which the output of how well the organization affects the economy
a process meets customer requirements.
Goods quality – physical performance II. ANALYTICS IN OPERATIONS MANAGEMENT
Service quality – meeting or exceeding customer Business Analytics – helps operation managers analyze
expectations and service-delivery system performance data more effectively and make better decisions.
Five key dimensions to assess service quality: Statistic – a summary measure of data
1. Tangibles - physical Descriptive statistics – methods of describing and
2. Reliability – ability to perform dependably and summarizing data
accurately “Used to determine process and design improvement for
3. Responsiveness – willingness to help customers production and quality performance”
4. Assurance – trust Spreadsheets – provide convenient way to manage and
5. Empathy – caring attitude manipulate data.
Service upsets – errors in service creation and delivery
1. Linking Internal and External Measures
4. Time – relates to speed and variability Interlinking – the quantitative modeling of cause-and-
- to know how satisfied customer are with the time of effect relationships between external and internal
delivery. performance criteria.
Speed – clock time Process, output, outcomes
Variability – quantifying the variance cost and effect between external and internal
Processing time – time it takes to perform some task performance
Queue time- wait time
Statistics – measurement for variability 2. The Value of a Loyal Customer
- economic impact of lost customers
5. Flexibility – ability to adapt quickly and effectively to Value of a loyal customer – quantifies the total revenue
changing requirements. over buyer’s life cycle.
Goods and service design flexibility – ability to develop a
wide range of customized goods and services VLC = P x CM x RF x BLC
Volume flexibility – ability to respond quickly to changes Where:
in the volume or type of demand. P = the revenue per unit
CM = contribution margin to profit and overhead
6. Innovation and learning expresses as a fraction
- focus on organization’s people and infrastructure RF = repurchase frequency, number of purchases per
Innovation – ability to create new and unique products year
Learning – modifying behaviors of employees BLC = buyer’s life cycle computed as 1/defection rate,
- Training and skills development expressed as a fraction

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

III. DESIGNING MEASUREMENT SYSTEMS IN CHAPTER 3: OPERATIONS STRATEGY

OPERATIONS “Changing a corporate strategy has many implications
- good performance measures are actionable. for operations and the entire value chain”
Actionable measures – provide the basis for decisions at Digitalization = new strategies, new facilities, new job
the level at which they are applied. design, etc.

IV. MODELS OF ORGANIZATIONAL PERFORMANCE I. GAINING COMPETITIVE ADVANTAGE

-provide frameworks for thinking about designing, Competitive Advantage – a firm’s ability to achieve
monitoring, and evaluating performance. market and financial superiority over its competitors.
Four models of organizational performance:
1. Baldrige Performance Excellence framework (Malcolm Creating a competitive advantage requires
Baldrige National Quality Award Program) – provide a management to:
framework for performance excellence through self- 1. Understand customer needs and expectation
assessment to understand strength and weaknesses. and how value chain will meet it through design
Seven categories: and delivery of attractive CBP.
a. Leadership -governance system 2. Build and leverage operational capabilities to
b. Strategy – strategic objectives and action plans support desired competitive priorities.
c. Customers – engages customers
d. Measurement, Analysis, and Knowledge II. UNDERSTANDING CUSTOMER WANTS AND
Management – how organization manage NEEDS
e. Workforce – organization’s overall needs Customers must be segmented into several natural
f. Operations – organization’s work process groups because of different preferences. These are
g. Results - performance and improvement based on:
 Buying behavior
2. Balanced Scorecard – to translate strategy into  Geography
measures that communicate your vision to organization.  Demographics
Four performance perspective:  Sales Volume
a. Financial Perspective – value to shareholders  Profitability
b. Customers Perspective – customer’s satisfaction  Expected levels of service
c. Innovation and Learning Perspective – basis of
future success infrastructure Order Qualifiers – basic customer expectations are
d. Internal Perspective – performance of internal considered the minimum performance level required to
process that drives business. stay in business.
Order Winners – goods and service features and
3. Value Chain Model – to evaluate performance at each performance characteristics that differentiate one
point in the value chain customer benefit package from another. (Unexpected
features)
Suppliers – inputs – value-creation process – outputs –
customer and market segment – support and NOTE: Order winners can eventually become order
management qualifiers as customers begin to expect them.

4. Service-Profit Chain – focuses on employees or III. EVALUATING GOODS AND SERVICES

service providers Attributes in Evaluating the quality of goods and
Cause-and-effect linkage services:
“Highly motivated employees = higher retention and 1. Search – can determine before purchasing
productivity” 2. Experience – can determine after or during
Key performance, where do they focus? consumption or use

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

3. Credence – cannot personally evaluate even after

purchase and consumption 5. Innovation
- The discovery and practical application or
commercialization of a device, method, or idea that
differs from existing norms.

V. OM AND STRATEGIC PLANNING

Strategy – pattern or plan that integrates an
organization’s major goals, policies, and action
sequences into a cohesive whole.
NOTE:
Goods – easier to evaluate, high in search attributes Strategic Planning – process of determining long-term
Services – difficult to evaluate, high in experience and goals, policies, and plans for an organization
credence attributes
Three levels of Strategy:
IV. COMPETITIVE PRIORITIES 1. Corporate – corporation will participate and develop
Competitive priorities – represent the strategic plans for acquisition and allocation of resources
emphasis that a firm places on certain performance 2. Business – which competitive priorities the firm
measures and operational capabilities within a value should pursue
chain. 3. Functional – set of decisions that each functional
area develops to support its business strategy
Five Key Competitive Priorities
1. Cost VI. OPERATIONS STRATEGY
- Low cost = high productivity and high-capacity Operations strategy – set of decisions across the value
utilization chain that supports the implementation of higher-level
- It focuses on cost and design and management of business strategies.
operations. 1. Well-balanced supply chain
2. High quality and flexibility
2. Quality
- High-quality = higher return of investment and A. Sustainability and Operations Strategy
increase market share “Sustainability is an organizational strategy – it is
broader than a competitive priority”
Consumers would pay more for brand that contribute to
a better environment

B. Global Supply Chains and Operations Strategy

Multinational enterprise – an organization that sources,
markets, and produces products in several countries to
minimize costs, and to maximize profit, customer
satisfaction, and social welfare.

3. Time VII. FRAMEWORK FOR OPERATIONS STRATEGY

- Quick response and delivery = improves quality, Hill’s Strategy Development Framework
cost, and productivity

4. Flexibility
Mass customization – ability to make whatever
product the customer wants, at any volume, time,
and place.

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

5. Work must be scheduled to meet shipping

commitments
6. Quality must be ensured

A. COMPUTER-INTEGRATED MANUFACTURING
SYSTEMS (CIMS)
- Represents the union of hardware, software,
database management, and communications to
automate and control production activities
Operations design choices – management decisions as Roots of CIM:
to what type of process structure produce products. 1. Numerical Control – duplicated machinist’s skills
Infrastructure – non process features and capabilities of by a programmable device
the organization. 2. Computer numerical control – NC machines
driven by a computer
3. Robot – programmable machine
CHAPTER 4: TECHNOLOGY AND
OPERATIONS MANAGEMENT Types of CIMS:
“Internet of Things (IoT)” – physical products with 1. Computer-aided design (CAD) – software to aid
embedded sensors that are connected to the internet. in design processes
2. Computer-aided manufacture (CAM) – software
I. UNDERSTANDING TECHNOLOGY IN OPERATIONS to automate a manufacturing process
Hard Technology – equipment and devices that perform 3. Flexible manufacturing systems (FMS) –
variety of task in the creation and delivery of products. computer-controlled machines to adapt
Soft Technology – application of the internet, computer adjustments when needed
software, and information systems to facilitate the
creation and delivery of products. B. ADVANCES IN MANUFACTURING TECHNOLOGY
RFID tags – modern successor to bar codes, tiny “Nanotechnology, 3D printing”
computer chips.
Information technology – provides the ability to Additive manufacturing – process of producing a three-
integrate all parts of the value chain through better dimensional solid object from a digital model file.
management of data and information. Rapid prototyping – produce physical model from digital
Integrated operating systems (IOS) – technology to CAD drawing.
create better and more customized products.
C. SERVICE TECHNOLOGY
I computer-integrated manufacturing system E-service – using internet to provide services
O enterprise resource planning systems “Most common service technology involves the
S customer relationship management system Internet”

MANUFACTURING TECHNOLOGY II. TECHNOLOGY IN VALUE CHAINS

1. The right technology must be selected for the Customer relationship management – a business
goods that are produced strategy designed to learn more about customer
2. Process resources must be set up and demands and behavior to build customer relationships.
configured in a logical fashion to support “Loyalty cards”
production efficiency
3. Labor must be trained to operate the
III. BENEFITS AND CHALLENGES OF TECHNOLOGY
equipment
4. Process performance must be continually
improved

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

I. DESIGNING GOODS AND SERVICES

IV. TECHNOLOGY DECISIONS AND

IMPLEMENTATION
Sociotechnical system – operations manager providing
the best synthesis of technology, people, and processes.

“A key factor that affect technology decisions is

scalability”

Scalability – measure of the contribution margin

required to deliver a product as the business grows and
volumes increase. (Revenue – variable costs)
a. High – capability to serve additional customers
at low costs
b. Low – serving additional customers requires
high invariable costs
Step 1 & 2: Strategic Mission, Analysis, and Competitive
ANALYTICAL METHODS FOR TECHNOLOGY DECISIONS Priorities
“Making technology decisions is not always easy” - requires significant amount of research and innovation
to support the firm’s mission and vision. Also provides
2 Simple Techniques for applying analytics key input for designing the final customer benefit
1. Decision Analysis – formal study of how people package
make decisions, collection of techniques to support
the analysis of decision problems. Step 3: Customer benefit Package Design and
2. Break-even Analysis – simple approach to analyze Configuration
profit or loss, to make decision. - solid understanding of customer needs and target
Formula: markets, as well as the value that customer place on
a. Total cost = Fixed cost + Unit cost x Quantity such attributes
b. Cost difference = Total cost A – Total cost B a. Time
b. Place
c. Information
CHAPTER 5: GOODS AND SERVICE DESIGN
d. Entertainment
China and India – developing markets
e. Exchange
Low-cost with high quality, reliability, and style to meet
f. Form
their needs = value
Step 4: Detailed Goods, Services, and Process Design

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

- focus on detailed design and implementation Technical feature priorities – technical features that
a. Goods – focus on physical characteristics, mostly have the strongest relationships to customer
done by artists and engineers requirements
b. Services – service delivery system and service
encounter III. DESIGNING ANUFACTURED GOODS
Prototype Testing – the process by which a model is - Step 4 of designing goods
constructed to test the product’s performance under 1. Tolerance Design and the Taguchi Loss Function
actual operating conditions and consumer reactions to - Involves determining the acceptable tolerance
the prototypes. Target dimension – nominal
Permissible variation - tolerance
Step 5: Market Introduction/Development a. Narrow – improve functionality and
- the final bundle of goods and services and CBPs is performance, but raise manufacturing cost
advertised, marketed, and offered to customers b. Wide – reduce cost, but may have negative
impact on performance
Step 6: Marketplace Evaluation Goal-post Model:
- evaluating how well the products are selling, and L(x) = k(x-T)2
customer’s reaction to it. L(x) – monetary value of the loss associated with
deviating from the target, T
II. CUSTOMER-FOCUSED DESIGN X – the actual value of dimension
“The design of a good or service should reflect customer K – constant that translate the deviation into dollars
wants and needs”
Voice of the customer – customer requirements 2. Design for Reliability
expressed in words Reliability – the probability that goods perform its
Quality function deployment (QFD) – an approach to intended function
guide the design, creation, and marketing of goods and Rs = (p1)(p2)(p3)…(pn)
services by integrating the voice of the customer into all
decisions. 3. Design for Manufacturability
The House of Quality - Process of designing a product for efficient
production at the highest level of quality
Product simplification – process if trying to simplify
designs to reduce cost, thus improve quality
“The simpler the design, the fewer opportunities for
error”

4. Design for Sustainability

Design for Environment (DfE) – explicit
consideration of environmental concerns during the
design of products and processes

IV. SERVICE-DELIVERY SYSTEM DESIGN

- includes facility location and layout, the service
process and job design, and technology and information
Competitive evaluation - Evaluating how technical support systems.
feature relates to customer requirements 1. Facility Location and Layout
Interrelationships – refining a design and evaluate trade- - Facilities depend on good location decisions and
offs in design decisions affects process flow, costs, and customer
Customer requirement priorities – helps to identify perception and satisfaction
‘selling points”, differentiate the product from the 2. Servicescape
competitors’

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OPERATIONS AND SUPPLY CHAIN MANAGEMENT

David A. Collier – James R. Evans
2nd Edition

- All physical evidence a customer might use to b. Implicit – implied in everything the service
form an impression provider does
Dimensions: Service recovery – process of correcting a service upset
a. Ambient conditions – designed to please five and satisfying the customer
human senses
b. Spatial layout and functionality - settings
c. Signs, symbols, and artifacts – signals that
communicate an image about a firm
Lean – very simple
Elaborate – more complicated

3. Service Process and Job Design

Service process design – activity of developing an
efficient sequence of activities to satisfy both internal
and external customer requirements

4. Technology and Information Support Systems

- Hard and soft technologies to ensure speed,
accuracy, customization, and flexibility

V. SERVICE-ENCOUNTER DESIGN
- focuses on the interaction between the service
providers and the customer
1. Customer-Contact Behavior and Skills
Customer contact – physical service experience
a. High
b. Low contact
Customer-contact requirements – measurable
performance levels or expectations that define the
quality of customer contact with representatives of an
organization

2. Service-provider
Empowerment – giving people authority to make
decisions on what they feel is right
“Companies must carefully select customer-contact
employees, train them well, and empower them to meet
and exceed customer expectations.”

3. Recognition and Reward

- Compensations from achieving a high-
performance workplace

4. Service Guarantees and Recovery

Service upset – problem a customer has
Service guarantee – promise to reward and compensate
a customer if a service upset occurs
a. Explicit – writing

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