Operation Management Today Role

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Write a 700- to 1,050-word paper in which you explain operation management's role in business today.

Include the following:

  • Define operations management.
  • Discuss the key factors that have contributed to the evolution of operations management.
  • Explain how operations management's role is applied to achieving an organization's strategy.

Format your paper consistent with APA guidelines

Please make sure some of the information is cited from the 2 chapters listed. Need to cite at least 5 references.

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Page 1 of 134 https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 2 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 1 1 USING OPERATIONS TO CREATE VALUE Characters perform at Cinderella’s Castle in Magic Kingdom, Orlando, Florida, USA. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 3 of 134 Disney Disney Corporation is an internationally diversified entertainment and media enterprise comprising of five business segments of media networks (e.g., ABC, ESPN networks), parks and resorts (e.g., Disneyland and Disneyworld), studio entertainment (e.g., Pixar and Marvel studios), consumer products (e.g., toys, apparel, and books), and interactive media (e.g., Disney.com). It is one of the 30 companies that has been a part of the Dow Jones Industrial Average since 1991. With annual revenues of $45 billion in 2013, Disney is particularly well known for its theme parks that had a 17 percent increase in operating income to $2.2 billion in the last fiscal year alone. Its largest park, Walt Disney World Resort opened in Orlando, Florida, in 1971 and includes the Magic Kingdom, Epcot Center, Disney Studios, and Animal Kingdom. Disney constantly evaluates and improves its processes to enhance customer experience. One of its recent innovations is a $1 billion comprehensive reservation and ride-planning system that can allow guests to book rides months in advance through a website or a smartphone app. Dubbed as MyMagic+, it works through a radio-frequency identification (RFID) chip embedded inside electronic wristbands or bracelets that guests wear once they check into a Disney theme park. Called MagicBands, they link electronically to https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 4 of 134 centralized databases and can be used as admission tickets, credit or debit cards, or hotel room keys. Just by tapping them against electronic sensors, these MagicBands also become a form of payment for food, entertainment, https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 5 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. and merchandise. Data from these wristbands can help 1 2 Disney determine when to add more staff to which rides, decide how many employees in costumes should roam around at which locations in the park, determine restaurant menus and which souvenirs should be stocked based on customer preferences, and even send e-mail or text message alerts to guests when space opens up in an expedited queue at that guest’s favorite ride such as Space Mountain or Pirates of the Caribbean. Apart from facilitating crowd control and data collection, this wearable technology helps Disney seamlessly personalize each guest’s experience and change how they play and spend at the oft-advertised “Most Magical Place on Earth.” Despite some privacy concerns surrounding the use of RFID chips that can track a guest’s identity and location within the theme parks, the new MyMagic+ system has multiple advantages. First, when visitors have well-planned schedules and forward visibility on what they are going to do on a given day on an hourly basis, they are less likely to jump ship to other theme parks in the area such as the Sea World or the popular Wizarding World of Harry Potter by Universal Studios. Second, when the logistics of moving from one attraction to another are simplified, guests have additional opportunities to spend more time and money in Disney https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 6 of 134 restaurants and shops. Finally, by using this new RFIDenabled technology, Disney can effectively increase its capacity when it is needed the most. For instance, this new system allowed Disney to handle 3,000 additional visitors to the Magic Kingdom in Orlando during the Christmas rush. With other costs more or less fixed, the incremental revenues from additional guests flow directly to the bottom line. Increased profitability through technological and operational innovations help Disney provide more value to its guests as well as maintain its leadership position in the entertainment industry on multiple dimensions. It is also one among many other reasons why despite the price of entrance tickets crossing an average of $100 per day inclusive of taxes, an increase of 45 percent since 2005, there is no end in sight to the large crowds flooding Disney’s theme parks. Sources: Christopher Palmeri, “Disney Bets $1 Billion on Technology to Track Theme Park Visitors,” Bloomberg Business Week (March 7, 2014); Justin Bachman, “Disney’s Magic Kingdom Nears $100 Tickets, and the Crowds Keep Coming,” Bloomberg Business Week (February 25, 2014); http://thewaltdisneycompany.com/about-disney/company-overview; http://en.wikipedia.org/wiki/Disney (August 18, 2014). LEARNING GOALS After reading this chapter, you should be able to: https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 7 of 134 Describe the role of operations in an organization and its historical evolution over time. Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers. Describe the supply chain view of operations in terms of linkages between core and support processes. Define an operations strategy and its linkage to corporate strategy and market analysis. Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities. Identify the latest trends in operations management, and understand how given these trends, firms can address the challenges facing operations and supply chain managers in a firm. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 8 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 2 3 Operations management refers to the systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external customers. As exemplified by Disney, it can be a source of competitive advantage for firms in both service as well as manufacturing sectors. This book deals with managing those fundamental activities and processes that organizations use to produce goods and services that people use every day. A process is any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers. For organizational purposes, processes tend to be clustered together into operations. An operation is a group of resources performing all or part of one or more processes. Processes can be linked together to form a supply chain, which is the interrelated series of processes within a firm and across different firms that produce a service or product to the satisfaction of customers.1 A firm can have multiple supply chains, which vary by the product or service provided. Supply chain management is the synchronization of a firm’s processes with those of its suppliers and customers to match the flow of materials, services, and information with customer demand. As we will learn throughout this book, all firms have https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 9 of 134 processes and supply chains. Sound operational planning and design of these processes, along with internal and external coordination within its supply chain, can create wealth and value for a firm’s diverse stakeholders. operations management The systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external, customers. process Any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers. operation A group of resources performing all or part of one or more processes. supply chain https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 10 of 134 An interrelated series of processes within and across firms that produces a service or product to the satisfaction of customers. supply chain management The synchronization of a firm’s processes with those of its suppliers and customers to match the flow of materials, services, and information with customer demand. Role of Operations in an Organization Broadly speaking, operations and supply chain management underlie all departments and functions in a business. Whether you aspire to manage a department or a particular process within it, or you just want to understand how the process you are a part of fits into the overall fabric of the business, you need to understand the principles of operations and supply chain management. Operations serve as an excellent career path to upper management positions in many organizations. The reason is that operations managers are responsible for key decisions that affect the success of the organization. In manufacturing firms, the head of operations usually holds the title chief operations officer (COO) or vice president of manufacturing https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 11 of 134 (or of production or operations). The corresponding title in a service organization might be COO or vice president (or director) of operations. Reporting to the head of operations are the managers of departments such as customer service, production and inventory control, and quality assurance. Figure 1.1 shows operations as one of the key functions within an organization. The circular relationships in Figure 1.1 highlight the importance of the coordination among the three mainline functions of any business, namely, (1) operations, (2) marketing, and (3) finance. Each function is unique and has its own knowledge and skill areas, primary responsibilities, processes, and decision domains. From an external perspective, finance generates resources, capital, and funds from investors and sales of its goods and services in the marketplace. Based on business strategy, the finance and operations functions then decide how to invest these resources and convert them into physical assets and material inputs. Operations subsequently transforms these material and service inputs into product and service outputs. These outputs must match the characteristics that can be sold in the selected markets by marketing. Marketing is responsible for producing sales revenue of the outputs, which become returns to investors and capital for supporting operations. Functions such as accounting, information systems, human resources, and engineering make the firm complete by providing essential information, services, and other managerial support. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 12 of 134 These relationships provide direction for the business as a whole and are aligned to the same strategic intent. It is important to understand the entire circle, and not just the individual functional areas. How well these functions work together determines the effectiveness of the organization. Functions should be integrated and should pursue a common strategy. Success depends on how well they are able to do so. No part of this circle can be dismissed or minimized without loss of effectiveness, and regardless of how departments and functions are individually managed; they are always linked together through processes. Thus, a firm competes not only by offering new services and products, creative marketing, and skillful finance but also through its unique competencies in operations and sound management of core processes. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 13 of 134 FIGURE 1.1 Integration between Different Functional Areas of a Business 1 The terms supply chain and value chain are sometimes used interchangeably. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 14 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 3 4 Historical Evolution and Perspectives The history of modern operations and supply chain management is rich and over two hundred years old, even though its practice has been around in one form or another for centuries. James Watt invented the steam engine in 1785. The subsequent establishment of railroads facilitated efficient movement of goods throughout Europe, and eventually even in distant colonies such as India. With the invention of the cotton gin in 1794, Eli Whitney introduced the concept of interchangeable parts. It revolutionized the art of machinebased manufacturing, and coupled with the invention of the steam engine, lead to the great industrial revolution in England and the rest of Europe. The textile industry was one of the earliest industries to be mechanized. The industrial revolution gradually spread to the United States and the rest of the world in the nineteenth century and was accompanied by such great innovations as the internal combustion engine, steam-powered ships, metallurgy of iron making, large-scale production of chemicals, and invention of machine tools, among others. The foundations of modern manufacturing and technological breakthroughs were also inspired by the creation of a mechanical computer by Charles Babbage in the early part of the nineteenth century. He also pioneered the https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 15 of 134 concept of division of labor, which laid the foundation for scientific management of operations and supply chain management that was further improved upon by Frederick Taylor in 1911. The Ford Motor Company, founded in 1903, produced about one million Model T’s in 1921 alone. Three other landmark events from the twentieth century define the history of operations and supply chain management. First is the invention of the assembly line for the Model T car by Henry Ford in 1909. The era of mass production was born, where complex products like automobiles could be manufactured in large numbers at affordable prices through repetitive manufacturing. Second, Alfred Sloan in the 1930s introduced the idea of strategic planning for achieving product proliferation and variety, with https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 16 of 134 the newly founded General Motors Corporation offering “a car for every purse and purpose.” Finally, with the publication of the Toyota Production System book in Japanese in 1978, Taiichi Ohno laid the groundwork for removing wasteful activities from an organization, a concept that we explore further in this book while learning about lean systems. The recent history of operations and supply chains over the past three decades has been steeped in technological advances. The 1980s were characterized by wide availability of computer-aided design (CAD), computer-aided manufacturing (CAM), and automation. Information technology applications started playing an increasingly important role in the 1990s and started connecting the firm with its extended enterprise through Enterprise Resource Planning Systems and outsourced technology hosting for supply chain solutions. Service organizations like Federal Express, United Parcel Service (UPS), and Walmart also became sophisticated users of information technology in operations, logistics, and management of supply chains. The new millennium has seen an acceleration of this trend, along with an increased focus on sustainability and the natural environment. We cover all these ideas and topical areas in greater detail throughout this book. A Process View https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 17 of 134 You might wonder why we begin by looking at processes rather than at departments or even the firm. The reason is that a process view of the firm provides a much more relevant picture of the way firms actually work. Departments typically have their own set of objectives, a set of resources with capabilities to achieve those objectives, and managers and employees responsible for performance. Some processes, such as billing, may be so specific that they are contained wholly within a single department, such as accounting. The concept of a process, however, can be much broader. A process can have its own set of objectives, involve a work flow that cuts across departmental boundaries, and require resources from several departments. You will see examples throughout this text of companies that discovered how to use their processes to gain a competitive advantage. You will notice that the key to success in many organizations is a keen understanding of how their processes work, since an organization is only as effective as its processes. Therefore, operations management is relevant and important for all students, regardless of major, because all departments have processes that must be managed effectively to gain a competitive advantage. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 18 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 4 5 How Processes Work Figure 1.2 shows how processes work in an organization. Any process has inputs and outputs. Inputs can include a combination of human resources (workers and managers), capital (equipment and facilities), purchased materials and services, land, and energy. The numbered circles in Figure 1.2 represent operations through which services, products, or customers pass and where processes are performed. The arrows represent flows and can cross because one job or customer can have different requirements (and thus a different flow pattern) than the next job or customer. Processes provide outputs to customers. These outputs may often be services (that can take the form of information) or tangible products. Every process and every person in an organization has customers. Some are external customers, who may be end users or intermediaries (e.g., manufacturers, financial institutions, or retailers) buying the firm’s finished services or products. Others are internal customers, who may be employees in the firm whose process inputs are actually the outputs of earlier processes managed within the firm. Either way, processes must be managed with the customer in mind. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 19 of 134 external customers A customer who is either an end user or an intermediary (e.g., manufacturers, financial institutions, or retailers) buying the firm’s finished services or products. internal customers One or more employees or processes that rely on inputs from other employees or processes to perform their work. In a similar fashion, every process and every person in an organization relies on suppliers. External suppliers may be other businesses or individuals who provide the resources, services, products, and materials for the firm’s short-term and long-term needs. Processes also have internal suppliers, who may be employees or processes that supply important information or materials. external suppliers The businesses or individuals who provide the resources, services, products, and materials for the firm’s short-term and long-term needs. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 20 of 134 internal suppliers The employees or processes that supply important information or materials to a firm’s processes. Inputs and outputs vary depending on the service or product provided. For example, inputs at a jewelry store include merchandise, the store building, registers, the jeweler, and customers; outputs to external customers are services and sold merchandise. Inputs to a factory manufacturing blue jeans include denim, machines, the plant, workers, managers, and services provided by outside consultants; outputs are clothing and supporting services. The fundamental role of inputs, processes, and customer outputs holds true for processes at all organizations. Figure 1.2 can represent a whole firm, a department, a small group, or even a single individual. Each one has inputs and uses processes at various operations to provide outputs. The dashed lines represent two special types of input: participation by customers and information on performance from both internal and external sources. Participation by customers occurs not only when they receive outputs but also when they take an active part in the processes, such as when students participate in a class discussion. Information on performance includes internal reports on customer service or inventory levels and external information from market https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 21 of 134 research, government reports, or telephone calls from suppliers. Managers need all types of information to manage processes most effectively. FIGURE 1.2 Processes and Operations Nested Processes Processes can be broken down into subprocesses, which in turn can be broken down further into still more subprocesses. We refer to this concept of a process within a process as a nested process. It may be helpful to separate one part of a process from another for several reasons. One person or one department may be unable to perform all parts of the process, or different parts of the process may require different skills. Some parts of the process may be designed for routine work https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 22 of 134 while other parts may be geared for customized work. The concept of nested processes is illustrated in greater detail in Chapter 2, “Process Strategy and Analysis,” where we reinforce the need to understand and improve activities within a business and each process’s inputs and outputs. nested process The concept of a process within a process. Service and Manufacturing Processes Two major types of processes are (1) service and (2) manufacturing. Service processes pervade the business world and have a prominent place in our discussion of operations management. Manufacturing processes are also important; without them the products we enjoy as part of our daily lives would not exist. In addition, manufacturing gives rise to service opportunities. Differences Why do we distinguish between service and manufacturing processes? The answer lies at the heart of the design of competitive processes. While Figure 1.3 shows several distinctions between service and manufacturing processes along a continuum, the two key differences that we discuss in https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 23 of 134 detail are (1) the nature of their output and (2) the degree of customer contact. In general, manufacturing processes also have longer response times, are more capital intensive, and their quality can be measured more easily than those of service processes. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 24 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 5 6 Manufacturing processes convert materials into goods that have a physical form we call products. For example, an assembly line produces a 370 Z sports car, and a tailor produces an outfit for the rack of an upscale clothing store. The transformation processes change the materials on one or more of the following dimensions: 1. Physical properties 2. Shape 3. Size (e.g., length, breadth, and height of a rectangular block of wood) 4. Surface finish 5. Joining parts and materials https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 25 of 134 FIGURE 1.3 Continuum of Characteristics of Manufacturing and Service Processes The outputs from manufacturing processes can be produced, stored, and transported in anticipation of future demand. If a process does not change the properties of materials on at least one of these five dimensions, it is considered a service (or nonmanufacturing) process. Service processes tend to produce intangible, perishable outputs. For example, the output from the auto loan process of a bank would be a car loan, and an output of the order fulfillment process of the U.S. Postal Service is the delivery of your letter. The outputs of service processes typically cannot be held in a finished goods inventory to insulate the process from erratic customer demands. A second key difference between service processes and manufacturing processes is degree of customer contact. Service processes tend to have a higher degree of customer contact. Customers may take an active role in the process itself, as in the case of shopping in a supermarket, or they may be in close contact with the service provider to communicate specific needs, as in the case of a medical clinic. Manufacturing processes tend to have less customer contact. For example, washing machines are ultimately produced to meet retail forecasts. The process requires little information from the ultimate consumers (you and me), except indirectly https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 26 of 134 through market surveys and market focus groups. Even though the distinction between service and manufacturing processes on the basis of customer contact is not perfect, the important point is that managers must recognize the degree of customer contact required when designing processes. Similarities At the level of the firm, service providers do not just offer services and manufacturers do not just offer products. Patrons of a restaurant expect good service and good food. A customer purchasing a new computer expects a good product as well as a good warranty, maintenance, replacement, and financial services. Further, even though service processes do not keep finished goods inventories, they do inventory their inputs. For example, hospitals keep inventories of medical supplies and materials needed for day-to-day operations. Some manufacturing processes, on the other hand, do not inventory their outputs because they are too costly. Such would be the case with low-volume customized products (e.g., tailored suits) or products with short shelf lives (e.g., daily newspapers). When you look at what is being done at the process level, it is much easier to see whether the process is providing a service or manufacturing a product. However, this clarity is lost when https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 27 of 134 the whole company is classified as either a manufacturer or a service provider because it often performs both types of processes. For example, the process of cooking a hamburger at a McDonald’s is a manufacturing process because it changes the material’s physical properties (dimension 1), as is the process of assembling the hamburger with the bun (dimension 5). However, most of the other processes visible or invisible to McDonald’s customers are service processes. You can debate whether to call the whole McDonald’s organization a service provider or a manufacturer, whereas classifications at the process level are much less ambiguous. A Supply Chain View Most services or products are produced through a series of interrelated business activities. Each activity in a process should add value to the preceding activities; waste and unnecessary cost should be eliminated. Our process view of a firm is helpful for understanding how services or products are produced and why cross-functional coordination is important, but it does not shed any light on the strategic benefits of the processes. The missing strategic insight is that processes must add value for customers throughout the supply chain. The concept of supply chains reinforces the link between processes and performance, which includes a firm’s internal processes as well as those of its external customers and suppliers. It also focuses attention on the two main types of https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 28 of 134 processes in the supply chain, namely (1) core processes and (2) support processes. Figure 1.4 shows the links between the core and support processes in a firm and a firm’s external customers and suppliers within its supply chain. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 29 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 6 7 FIGURE 1.4 Supply Chain Linkages Showing Work and Information Flows MyOMLab Animation Core Processes A core process is a set of activities that delivers value to external customers. Managers of these processes and their employees interact with external customers and build relationships with them, develop new services and products, interact with external suppliers, and produce the service or product for the external customer. Examples include a hotel’s reservation handling, a new car design for an auto manufacturer, or Web-based purchasing for an online retailer like amazon.com. Of course, each of the core processes has nested processes within it. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 30 of 134 In this text we focus on four core processes: 1. Supplier Relationship Process. Employees in the supplier relationship process select the suppliers of services, materials, and information and facilitate the timely and efficient flow of these items into the firm. Working effectively with suppliers can add significant value to the services or products of the firm. For example, negotiating fair prices, scheduling on-time deliveries, and gaining ideas and insights from critical suppliers are just a few of the ways to create value. 2. New Service/Product Development Process. Employees in the new service/product development process design and develop new services or products. The services or products may be developed to external customer specifications or conceived from inputs received from the market in general. 3. Order Fulfillment Process. The order fulfillment process includes the activities required to produce and deliver the service or product to the external customer. 4. Customer Relationship Process, sometimes referred to as customer relationship management. Employees involved in the customer relationship process identify, attract, and build relationships with external customers and facilitate the placement of orders by customers. Traditional functions, such as marketing and sales, may be a part of this process. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 31 of 134 core process A set of activities that delivers value to external customers. supplier relationship process A process that selects the suppliers of services, materials, and information and facilitates the timely and efficient flow of these items into the firm. new service/product development process A process that designs and develops new services or products from inputs received from external customer specifications or from the market in general through the customer relationship process. order fulfillment process A process that includes the activities required to produce and deliver the service or product to the external customer. customer relationship process https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 32 of 134 A process that identifies, attracts, and builds relationships with external customers and facilitates the placement of orders by customers, sometimes referred to as customer relationship management. support process A process that provides vital resources and inputs to the core processes and therefore is essential to the management of the business. Support Processes A support process provides vital resources and inputs to the core processes and is essential to the management of the business. Processes as such are not just in operations but are found in accounting, finance, human resources, management information systems, and marketing. The human resources function in an organization provides many support processes such as recruiting and hiring workers who are needed at different levels of the organization, training the workers for skills and knowledge needed to properly execute their assigned responsibilities, and establishing incentive and compensation plans that reward employees for their performance. The legal department puts in place support processes that ensure that the firm is in compliance with the https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 33 of 134 rules and regulations under which the business operates. The accounting function supports processes that track how the firm’s financial resources are being created and allocated over time, while the information systems function is responsible for the movement and processing of data and information needed to make business decisions. Organizational structure throughout the many diverse industries varies, but for the most part, all organizations perform similar business processes. Table 1.1 lists a sample of them that are outside the operations area. All of these support processes must be managed to create as much value for the firm and its customers and are therefore vital to the execution of core processes highlighted in Figure 1.4. Managers of these processes must understand that they cut across the organization, regardless of whether the firm is organized along functional, product, regional, or process lines. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 34 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 7 8  TABLE 1.1 ILLUSTRATIVE BUSINESS PROCESSES OUTSIDE OF OPERATIONS Activity-based costing Employee benefits Help desks Asset management Employee compensation IT networks Billing budget Employee development Payroll Complaint handling Employee recruiting Records management Credit management Employee training Research and development Customer satisfaction Engineering Data warehousing Environment  Sales Security management   https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 35 of 134 Data mining External communications Waste management Disaster recovery Finance Warranty     Supply Chain Processes Supply chain processes are business processes that have external customers or suppliers. Table 1.2 illustrates some common supply chain processes. supply chain processes Business processes that have external customers or suppliers. TABLE 1.2 SUPPLY CHAIN PROCESS EXAMPLES  Process Description Outsourcing Exploring available suppliers for the best options to perform  processes in terms of price,   https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 36 of 134 Process Description  quality, delivery time, environmental issues Warehousing Receiving shipments from suppliers, verifying quality, placing in inventory, and reporting receipt for inventory records Sourcing Selecting, certifying, and evaluating suppliers and managing supplier contracts Customer Service Providing information to answer questions or resolve problems using automated information services as well as voice-tovoice contact with customers Logistics Selecting transportation mode (train, ship, truck, airplane, or pipeline) scheduling both inbound and outbound shipments,  and providing   https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 37 of 134 Process  Description intermediate inventory storage Cross-docking Packing of products of incoming shipments so they can be easily sorted more economically at intermediate warehouses for outgoing shipments to their final destination    These supply chain processes should be documented and analyzed for improvement, examined for quality improvement and control, and assessed in terms of capacity and bottlenecks. Supply chain processes will be only as good as the processes within the organization that have only internal suppliers and customers. Each process in the chain, from suppliers to customers, must be designed and managed to add value to the work performed. Operations Strategy Operations strategy specifies the means by which operations implements corporate strategy and helps to build a customerdriven firm. It links long-term and short-term operations decisions to corporate strategy and develops the capabilities https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 38 of 134 the firm needs to be competitive. It is at the heart of managing processes and supply chains. A firm’s internal processes are only building blocks: They need to be organized to ultimately be effective in a competitive environment. Operations strategy is the linchpin that brings these processes together to form supply chains that extend beyond the walls of the firm, encompassing suppliers as well as customers. Since customers constantly desire change, the firm’s operations strategy must be driven by the needs of its customers. operations strategy The means by which operations implements the firm’s corporate strategy and helps to build a customer-driven firm. Developing a customer-driven operations strategy is a process that begins with corporate strategy, which, as shown in Figure 1.5, coordinates the firm’s overall goals with its core processes. It determines the markets the firm will serve and the responses the firm will make to changes in the environment. It provides the resources to develop the firm’s core competencies and core processes, and it identifies the strategy the firm will employ in international markets. Based on corporate strategy, a market analysis categorizes the firm’s customers, identifies their needs, and assesses competitors’ strengths. This information is used to develop competitive https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 39 of 134 priorities. These priorities help managers develop the services or products and the https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 40 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. processes needed to be competitive in the marketplace. 8 9 Competitive priorities are important to the design of existing as well as new services or products, the processes that will deliver them, and the operations strategy that will develop the firm’s capabilities to fulfill them. Developing a firm’s operations strategy is a continuous process because the firm’s capabilities to meet the competitive priorities must be periodically checked, and any gaps in performance must be addressed in the operations strategy. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 41 of 134 FIGURE 1.5 Connection Between Corporate Strategy and Key Operations Management Decisions MyOMLab Animation Corporate Strategy Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization’s functions. It specifies the business or businesses the company will pursue, isolates new opportunities and threats in the environment, and identifies growth objectives. Developing a corporate strategy involves four considerations: (1) environmental scanning: monitoring and adjusting to changes in the business environment, (2) identifying and developing the firm’s core competencies, (3) developing the firm’s core processes, and (4) developing the firm’s global strategies. Environmental Scanning The external business environment in which a firm competes changes continually and an organization needs to adapt to those changes. Adaptation begins with environmental scanning, the process by which managers monitor trends in the environment (e.g., the industry, the marketplace, and society) for potential opportunities or threats. A crucial reason https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 42 of 134 for environmental scanning is to stay ahead of the competition. Competitors may be gaining an edge by broadening service or product lines, improving quality, or lowering costs. New entrants into the market or competitors that offer substitutes for a firm’s service or product may threaten continued profitability. Other important environmental concerns include economic trends, technological changes, political conditions, social changes (i.e., attitudes toward work), and the availability of vital resources. For example, car manufacturers recognize that dwindling oil reserves will eventually require alternative fuels for their cars. Consequently, they have designed prototype cars that use hydrogen or electric power as supplements to gasoline as a fuel. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 43 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 9 10 Developing Core Competencies Good managerial skill alone cannot overcome environmental changes. Firms succeed by taking advantage of what they do particularly well—that is, the organization’s unique strengths. Core competencies are the unique resources and strengths that an organization’s management considers when formulating strategy. They reflect the collective learning of the organization, especially in how to coordinate processes and integrate technologies. These competencies include the following: 1. Workforce. A well-trained and flexible workforce allows organizations to respond to market needs in a timely fashion. This competency is particularly important in service organizations, where customers come in direct contact with employees. 2. Facilities. Having well-located facilities (offices, stores, and plants) is a primary advantage because of the long lead time needed to build new ones. In addition, flexible facilities that can handle a variety of services or products at different levels of volume provide a competitive advantage. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 44 of 134 3. Market and Financial Know-How. An organization that can easily attract capital from stock sales, market and distribute its services or products, or differentiate them from similar services or products on the market has a competitive edge. 4. Systems and Technology. Organizations with expertise in information systems have an edge in industries that are data intensive, such as banking. Particularly advantageous is expertise in Internet technologies and applications, such as business-to-consumer and business-to-business systems. Having the patents on a new technology is also a big advantage. core competencies The unique resources and strengths that an organization’s management considers when formulating strategy. lead time The elapsed time between the receipt of a customer order and filling it. Developing Core Processes https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 45 of 134 A firm’s core competencies should drive its core processes: customer relationship, new service or product development, order fulfillment, and supplier relationship. Many companies have all four processes, while others focus on a subset of them to better match their core competencies, since they find it difficult to be good at all four processes and still be competitive. For instance, in the credit card business within the banking industry, some companies primarily specialize in finding customers and maintaining relationships with them. American Airlines’s credit card program reaches out and achieves a special affinity to customers through its marketing database. On the other hand, specialized credit card companies, such as Capital One, focus on service innovation by creating new features and pricing programs. Finally, many companies are taking over the order fulfillment process by managing the processing of credit card transactions and call centers. The important point is that every firm must evaluate its core competencies and choose to focus on those processes that provide it the greatest competitive strength. Developing Global Strategies Identifying opportunities and threats today requires a global perspective. A global strategy may include buying foreign services or parts, combating threats from foreign competitors, or planning ways to enter markets beyond traditional national boundaries. Although warding off threats from https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 46 of 134 global competitors is necessary, firms should also actively seek to penetrate foreign markets. Two effective global strategies are (1) strategic alliances and (2) locating abroad. One way for a firm to open foreign markets is to create a strategic alliance. A strategic alliance is an agreement with another firm that may take one of three forms. One form of strategic alliance is the collaborative effort, which often arises when one firm has core competencies that another needs but is unwilling (or unable) to duplicate. Such arrangements commonly arise out of buyer–supplier relationships. Another form of strategic alliance is the joint venture, in which two firms agree to produce a service or product jointly. This approach is often used by firms to gain access to foreign markets. Finally, technology licensing is a form of strategic alliance in which one company licenses its service or production methods to another. Licenses may be used to gain access to foreign markets. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 47 of 134 Capital One Financial Corp. is a U.S.-based bank holding company specializing in credit cards, home loans, auto loans, banking, and savings products. Another way to enter global markets is to locate operations in a foreign country. However, managers must recognize that what works well in their home country might not work well elsewhere. The economic and political environment or customers’ needs may be https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 48 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. significantly different. For example, the family-owned chain 10 11 Jollibee Foods Corporation became the dominant fast-food chain in the Philippines by catering to a local preference for sweet and spicy flavors, which it incorporates into its fried chicken, spaghetti, and burgers. Jollibee’s strength is its creative marketing programs and an understanding of local tastes; it claims that its burger is similar to the one a Filipino would cook at home. McDonald’s responded by introducing its own Filipino-style spicy burger, but competition is stiff. This example shows that to be successful, corporate strategies must recognize customs, preferences, and economic conditions in other countries. Locating abroad is a key decision in the design of supply chains because it affects the flow of materials, information, and employees in support of the firm’s core processes. Chapter 12, “Supply Chain Design,” and Chapter 13, “Supply Chain Logistic Networks,” offer more in-depth discussion of these other implications. Market Analysis One key to successfully formulating a customer-driven operations strategy for both service and manufacturing firms is to understand what the customer wants and how to provide https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 49 of 134 it. A market analysis first divides the firm’s customers into market segments and then identifies the needs of each segment. In this section, we examine the process of market analysis, and we define and discuss the concepts of market segmentation and needs assessment. Market Segmentation Market segmentation is the process of identifying groups of customers with enough in common to warrant the design and provision of services or products that the group wants and needs. To identify market segments, the analyst must determine the characteristics that clearly differentiate each segment. The company can then develop a sound marketing program and an effective operating strategy to support it. For instance, The Gap, Inc., a major provider of casual clothes, targets teenagers and young adults while the parents or guardians of infants to 12-year-olds are the primary targets for its GapKids stores. At one time, managers thought of customers as a homogeneous mass market but now realize that two customers may use the same product for different reasons. Identifying the key factors in each market segment is the starting point in devising a customer-driven operations strategy. Needs Assessment https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 50 of 134 The second step in market analysis is to make a needs assessment, which identifies the needs of each segment and assesses how well competitors are addressing those needs. Each market segment’s needs can be related to the service or product and its supply chain. Market needs should include both the tangible and intangible attributes and features of products and services that a customer desires. Market needs may be grouped as follows: ■ Service or Product Needs. Attributes of the service or product, such as price, quality, and degree of customization. ■ Delivery System Needs. Attributes of the processes and the supporting systems, and resources needed to deliver the service or product, such as availability, convenience, courtesy, safety, accuracy, reliability, delivery speed, and delivery dependability. ■ Volume Needs. Attributes of the demand for the service or product, such as high or low volume, degree of variability in volume, and degree of predictability in volume. ■ Other Needs. Other attributes, such as reputation and number of years in business, after-sale technical support, ability to invest in international financial markets, and competent legal services. Once it makes this assessment, the firm can incorporate the needs of customers into the design of the service or product https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 51 of 134 and the supply chain that must deliver it. We further discuss these new service and product development-related issues in Chapter 14, “Supply Chain Integration.” Competitive Priorities and Capabilities A customer-driven operations strategy requires a crossfunctional effort by all areas of the firm to understand the needs of the firm’s external customers and to specify the operating capabilities the firm requires to outperform its competitors. Such a strategy also addresses the needs of internal customers because the overall performance of the firm depends upon the performance of its core and supporting processes, which must be coordinated to provide the overall desirable outcome for the external customer. Competitive priorities are the critical operational dimensions a process or supply chain must possess to satisfy internal or external customers, both now and in the future. Competitive priorities are planned for processes and the supply chain created from them. They must be present to maintain or build market share or to allow other internal processes to be successful. Not all competitive priorities are critical for a given process; management selects those that are most important. Competitive capabilities are the cost, quality, time, and flexibility dimensions that a process or supply chain actually https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 52 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 11 12 possesses and is able to deliver. When the capability falls short of the priority attached to it, management must find ways to close the gap or else revise the priority. competitive priorities The critical dimensions that a process or supply chain must possess to satisfy its internal or external customers, both now and in the future. competitive capabilities The cost, quality, time, and flexibility dimensions that a process or supply chain actually possesses and is able to deliver. We focus on nine broad competitive priorities that fall into the four capability groups of cost, quality, time, and flexibility. Table 1.3 provides definitions and examples of these competitive priorities, as well as how firms achieve them at the process level.     https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 53 of 134 TABLE 1.3 DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE PRIORITIES Cost Definition Processes Example Considerations 1. Low-cost operations Delivering a service or a product at the lowest possible cost to the satisfaction of external or internal customers of the process or supply chain To reduce costs, processes must be designed and operated to make them efficient using rigorous process analysis that addresses workforce, methods, scrap or rework, overhead, and other factors, such as investments in new automated facilities or technologies to lower the cost per unit of the   Costco achieves low costs by designing all processes for efficiency, stacking products on pallets in warehousetype stores, and negotiating aggressively with their suppliers. Costco can provide low prices to its customers because they have designed operations  for low cost.  https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 54 of 134 Cost Definition Processes Example Considerations  service or product. Quality 2. Top quality Delivering an outstanding service or product To deliver top quality, a service process may require a high level of customer contact, and high levels of helpfulness, courtesy, and availability of servers. It may require superior product features, close tolerances, and greater durability from a manufacturing process. Rolex is known globally for creating precision timepieces.    https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 55 of 134  Cost Definition Processes Example Considerations 3. Consistent quality Producing services or products that meet design specifications on a consistent basis Processes must be designed and monitored to reduce errors, prevent defects, and achieve similar outcomes over time, regardless of the “level” of quality. McDonald’s standardizes work methods, staff training processes, and procurement of raw materials to achieve the same consistent product and process quality from one store to the next. Quickly filling a customer’s order Design processes to reduce lead time (elapsed time between the receipt of a customer order and filling it) through Netflix engineered its customer relationship, order fulfillment and supplier relationship  processes to  Time 4. Delivery speed  https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 56 of 134 Cost 5. On-time delivery  Definition Processes Example Considerations  keeping backup capacity cushions, storing inventory, and using premier transportation options. create an integrated Web-based system that allows its customers to watch multiple episodes of a TV program or movies in rapid succession. Meeting Along with delivery-time processes that promises reduce lead time, planning processes (forecasting, appointments, order promising, scheduling, and capacity planning) are used to increase percent of customer orders shipped United Parcel Services (UPS) uses its expertise in logistics and warehousing processes to deliver a very large volume of shipments on-time across the globe.   https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 57 of 134 Cost Definition Processes Example Considerations  when promised (95% is often a typical goal). 6. Quickly Development introducing a new service speed or a product Processes aim to achieve crossfunctional integration and involvement of critical external suppliers in the service or product development process. Zara is known for its ability to bring fashionable clothing designs from the runway to market quickly. Processes with a customization strategy typically have low volume, close customer contact, and an Ritz Carlton customizes services to individual guest preferences.   Flexibility 7. Satisfying the Customization unique needs of each customer by changing service or product designs  https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 58 of 134 Cost Definition Processes Example Considerations  ability to reconfigure processes to meet diverse types of customer needs. 8. Variety Handling a wide assortment of services or products efficiently Processes supporting variety must be capable of larger volumes than processes supporting customization. Services or products are not necessarily unique to specific customers and may have repetitive demands. Amazon.com uses information technology and streamlined customer relationship and order fulfillment processes to reliably deliver a vast variety of items to its customers. 9. Volume flexibility Accelerating or decelerating the rate of Processes must be designed for excess capacity and excess The United States Post Office (USPS)  can have   https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 59 of 134 Cost  Definition Processes Example Considerations production of services or products quickly to handle large fluctuations in demand inventory to handle demand fluctuations that can vary in cycles from days to months. This priority could also be met with a strategy that adjusts capacity without accumulation of inventory or excess capacity.  severe demand peak fluctuations at large postal facilities where processes are flexibly designed for receiving, sorting, and dispatching mail to numerous branch locations.   https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 60 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 12 13 At times, management may emphasize a cluster of competitive priorities together. For example, many companies focus on the competitive priorities of delivery speed and development speed for their processes, a strategy called timebased competition. To implement the strategy, managers carefully define the steps and time needed to deliver a service or produce a product and then critically analyze each step to determine whether they can save time without hurting quality. time-based competition A strategy that focuses on the competitive priorities of delivery speed and development speed. To link to corporate strategy, management assigns selected competitive priorities to each process (and the supply chains created from them) that are consistent with the needs of external as well as internal customers. Competitive priorities may change over time. For example, consider a high-volume standardized product, such as color ink-jet desktop printers. In the early stages of the ramp-up period when the printers had just entered the mass market, the manufacturing processes required consistent quality, delivery speed, and https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 61 of 134 volume flexibility. In the later stages of the ramp-up when demand was high, the competitive priorities became low-cost operations, consistent quality, and on-time delivery. Competitive priorities must change and evolve over time along with changing business conditions and customer preferences. The lavish interior lobby decor of the Ritz Carlton resort in Palm Beach, Florida, USA Order Winners and Qualifiers Competitive priorities focus on what operations can do to help a firm be more competitive and are in response to what the market wants. Another useful way to examine a firm’s ability to be successful in the marketplace is to identify the order winners and order qualifiers. An order winner is a criterion https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 62 of 134 that customers use to differentiate the services or products of one firm from those of another. Order winners can include price (which is supported by low-cost operations) and other dimensions of quality, time, and flexibility. However, order winners also include criteria not directly related to the firm’s operations, such as after-sale support (Are maintenance service contracts available? Is there a return policy?); technical support (What help do I get if something goes wrong? How knowledgeable are the technicians?); and reputation (How long has this company been in business? Have other customers been satisfied with the service or product?). It may take good performance on a subset of the order-winner criteria, cutting across operational as well as nonoperational criteria, to make a sale. order winner A criterion customers use to differentiate the services or products of one firm from those of another. Order winners are derived from the considerations customers use when deciding which firm to purchase a service or product from in a given market segment. Sometimes customers demand a certain level of demonstrated performance before even contemplating a service or product. Minimal level required from a set of criteria for a firm to do business in a particular market segment is called an order https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 63 of 134 qualifier. Fulfilling the order qualifier will not ensure competitive success; it will only position the firm to compete in the market. From an operations perspective, understanding which competitive priorities are order qualifiers and which ones are order winners is important for the investments made in the design and management of processes and supply chains. order qualifier Minimal level required from a set of criteria for a firm to do business in a particular market segment. FIGURE 1.6 Relationship of Order Winners and Order Qualifiers to Competitive Priorities MyOMLab Animation Figure 1.6 shows how order winners and qualifiers are related to achieving the competitive priorities of a firm. If a https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 64 of 134 minimum threshold level is not met for an order-qualifying dimension (consistent quality, for example) by a firm, then it would get disqualified from even being considered further by its customers. For example, there is a level of quality consistency that is minimally tolerable by customers in the auto industry. When the subcompact car Yugo built by Zastava Corporation could not sustain the minimal level of quality, consistency, and reliability expected by customers, it had to exit the U.S. car market in 1991 despite offering very low prices (order winner) of under $4,000. However, once the https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 65 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. firm qualifies by attaining consistent quality beyond the 13 14 threshold, it may only gain additional sales at a very low rate by investing further in improving that order-qualifying dimension. In contrast, for an order-winning dimension (i.e., low price driven by low-cost operations), a firm can reasonably expect to gain appreciably greater sales and market share by continuously lowering its prices as long as the order qualifier (i.e., consistent quality) is being adequately met. Toyota Corolla and Honda Civic have successfully followed this route in the marketplace to become leaders in their target market segment. Order winners and qualifiers are often used in competitive bidding. For example, before a buyer considers a bid, suppliers may be required to document their ability to provide consistent quality as measured by adherence to the design specifications for the service or component they are supplying (order qualifier). Once qualified, the supplier may eventually be selected by the buyer on the basis of low prices (order winner) and the reputation of the supplier (order winner). Using Competitive Priorities: An Airline Example https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 66 of 134 To get a better understanding of how companies use competitive priorities, let us look at a major airline. We will consider two market segments: (1) first-class passengers and (2) coach passengers. Core services for both market segments are ticketing and seat selection, baggage handling, and transportation to the customer’s destination. The peripheral services are quite different across the two market segments. First-class passengers require separate airport lounges; preferred treatment during check-in, boarding, and deplaning; more comfortable seats; better meals and beverages; more personal attention (cabin attendants who refer to customers by name); more frequent service from attendants; high levels of courtesy; and low volumes of passengers (adding to the feeling of being special). Coach passengers are satisfied with standardized services (no surprises), courteous flight attendants, and low prices. Both market segments expect the airline to hold to its schedule. Consequently, we can say that the competitive priorities for the first-class segment are top quality and on-time delivery, whereas the competitive priorities for the coach segment are low-cost operations, consistent quality, and on-time delivery. The airline knows what its collective capabilities must be as a firm, but how does that get communicated to each of its core processes? Let us focus on the four core processes: (1) customer relationship, (2) new service or product development, (3) order fulfillment, and (4) supplier https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 67 of 134 relationship. Competitive priorities are assigned to each core process to achieve the service required to provide complete customer satisfaction. Table 1.4 shows some possible assignments just to give you an idea of how this works. Identifying Gaps between Competitive Priorities and Capabilities Operations strategy translates service or product plans and competitive priorities for each market segment into decisions affecting the supply chains that support those market segments. Even if it is not formally stated, the current operations strategy for any firm is really the pattern of decisions that have been made for its processes and supply chains. As we have previously seen in Figure 1.5, corporate strategy provides the umbrella for key operations management decisions that contribute to the development of the firm’s ability to compete successfully in the marketplace. Once managers determine the competitive priorities for a process, it is necessary to assess the competitive capabilities of the process. Any gap between a competitive priority and the capability to achieve that competitive priority must be closed by an effective operations strategy. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 68 of 134 Flight attendants welcoming passengers aboard a commercial airline. Developing capabilities and closing gaps is the thrust of operations strategy. To demonstrate how this works, suppose the management of a bank’s credit card division decides to embark on a marketing campaign to significantly increase its business, while keeping costs low. A key process in this division is billing and payments. The division receives credit transactions from the merchants, pays the merchants, assembles and sends the bills to the credit card holders, and processes payments. The new marketing effort is expected to significantly increase the volume of bills and payments. In assessing the capabilities, the process must have to serve the bank’s customers and to meet the https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 69 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 14 challenges of the new market campaign; management assigns 15 the following competitive priorities for the billing and payments process: ■ Low-Cost Operations. It is important to maintain low costs in the processing of the bills because profit margins are tight. ■ Consistent Quality. The process must consistently produce bills, make payments to the merchants, and record payments from the credit card holders accurately. ■ Delivery Speed. Merchants want to be paid for the credit purchases quickly. ■ Volume Flexibility. The marketing campaign is expected to generate many more transactions in a shorter period of time.  TABLE 1.4 COMPETITIVE PRIORITIES ACROSS DIFFERENT CORE PROCESSES FOR AN AIRLINE    https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 70 of 134  CORE PROCESSES Priority Supplier New Service Order Relationship Development Fulfillment Low Cost Operations Costs of acquiring inputs must be kept to a minimum to allow for competitive pricing. Top Quality Airlines compete on price and must keep operating costs in check. New services must be carefully designed because the future of the airline industry depends on them. High quality meal and beverage service delivered by experienced cabin attendants ensures that the service provided to first-class passengers is kept top notch.    https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 71 of 134 CORE PROCESSES  Priority Supplier New Service Order Relationship Development Fulfillment Consistent Quality Quality of the inputs must adhere to the required specifications. In addition, information provided to suppliers must be accurate. Once the quality level is set, it is important to achieve it every time. Inputs must be delivered to tight schedules. The airline strives to arrive at  destinations  Delivery Speed On time delivery  https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 72 of 134 CORE PROCESSES Priority  Supplier New Service Order Relationship Development Fulfillment on schedule, otherwise passengers might miss connections to other flights. Development Speed It is important to get to the market fast to preempt the competition. Customization The process must be able to create unique services. Variety  Many different inputs must be acquired, Maintenance operations are required  for a variety  https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 73 of 134  CORE PROCESSES Priority Supplier New Service Order Relationship Development Fulfillment including maintenance items, meals and beverages. Volume Flexibility of aircraft models. The process must be able to handle variations in supply quantities efficiently.    Management assumed that customers would avoid doing business with a bank that could not produce accurate bills or payments. Consequently, consistent quality is an order qualifier for this process. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 74 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 15 16 TABLE 1.5 OPERATIONS STRATEGY ASSESSMENT OF THE BILLING AND PAYMENT PROCESS Competitive Priority Low-cost operations Measure ■ Cost per billing statement ■ Weekly postage Capability  Gap ■ $0.0813 ■ Target is ■ $17,000 $0.06 ■ Target is $14,000 ■ ■ Consistent quality  ■ Percent ■ 0.90% ■ 0.74% errors in bill information ■ Percent errors in posting payments ■ Acceptable ■ ■ Acceptable ■ ■ Acceptable ■  https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 75 of 134 Competitive Priority Delivery speed Volume flexibility Measure Capability ■ Lead time to process merchant payments ■ 48 hours ■ Utilization ■ 98%  Gap  ■ Too high ■ to support rapid ■ increase in volumes   Is the billing and payment process up to the competitive challenge? Table 1.5 shows how to match capabilities to priorities and uncover any gaps in the credit card division’s operations strategy. The procedure for assessing an operations strategy begins with identifying good measures for each priority. The more quantitative the measures are, the better. Data are gathered for each measure to determine the current capabilities of the process. Gaps are identified by comparing each capability to management’s target values for the measures, and unacceptable gaps are closed by appropriate actions. The credit card division shows significant gaps in the process’s capability for low-cost operations. Management’s https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 76 of 134 remedy is to redesign the process in ways that reduce costs but will not impair the other competitive priorities. Likewise, for volume flexibility, management realized that a high level of utilization is not conducive for processing quick surges in volumes while maintaining delivery speed. The recommended actions will help build a capability for meeting more volatile demands. Addressing the Trends and Challenges in Operations Management Several trends are currently having a great impact on operations management: productivity improvement; global competition; and ethical, workforce diversity, and environmental issues. Accelerating change in the form of information technology, e-commerce, robotics, and the Internet is dramatically affecting the design of new services and products as well as a firm’s sales, order fulfillment, and purchasing processes. In this section, we look at these trends and their challenges for operations managers. Productivity Improvement Productivity is a basic measure of performance for economies, industries, firms, and processes. Improving productivity is a major trend in operations management because all firms face pressures to improve their processes and supply chains so as https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 77 of 134 to compete with their domestic and foreign competitors. Productivity is the value of outputs (services and products) produced divided by the values of input resources (wages, cost of equipment, etc.) used: Productivity = Output Input   productivity The value of outputs (services and products) produced divided by the values of input resources (wages, costs of equipment, etc.). Manufacturing employment peaked at just below 20 million in mid-1979, and shrunk by nearly 8 million from 1979 to 2011.2 However, the manufacturing productivity in the United States has climbed steadily, as more manufacturing capacity and output has been achieved efficiently with a leaner work force. It is interesting and even surprising to compare productivity improvements in the service and manufacturing sectors. In the United States, employment in the service sector has grown rapidly, outstripping the manufacturing sector. It now employs about 90 percent of the workforce. But service-sector https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 78 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. productivity gains have been much lower. If productivity 16 17 growth in the service sector stagnates, so does the overall standard of living regardless of which part of the world you live in. Other major industrial countries, such as Japan and Germany, are experiencing the same problem. Yet signs of improvement are appearing. The surge of investment across national boundaries can stimulate productivity gains by exposing firms to greater competition. Increased investment in information technology by service providers also increases productivity. 2Paul Wiseman, “Despite China’s Might, US Factories Maintain Edge,” The State and The Associated Press (January 31, 2011). Measuring Productivity As a manager, how do you measure the productivity of your processes? Many measures are available. For example, value of output can be measured by what the customer pays or simply by the number of units produced or customers served. The value of inputs can be judged by their cost or simply by the number of hours worked. Managers usually pick several reasonable measures and monitor trends to spot areas needing improvement. For https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 79 of 134 example, a manager at an insurance firm might measure office productivity as the number of insurance policies processed per employee per week. A manager at a carpet company might measure the productivity of installers as the number of square yards of carpet installed per hour. Both measures reflect labor productivity, which is an index of the output per person or per hour worked. Similar measures may be used for machine productivity, where the denominator is the number of machines. Accounting for several inputs simultaneously is also possible. Multifactor productivity is an index of the output provided by more than one of the resources used in production; it may be the value of the output divided by the sum of labor, materials, and overhead costs. Here is an example: EXAMPLE 1.1 Productivity Calculations 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. 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. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 80 of 134 MyOMLab Tutor 1.1 in MyOMLab provides a new example for calculating productivity. SOLUTION a. Labor productivity = = Policies processed Employee hours 600policies = 5policies/hours (3employees)(40hours/employee)  Multifactor productivity = b. = Value of output Labor cost+Materials cost+Overhead cost (400units)($10/unit) $400+$1,000+$300 = $4,000 $1,700   = 2.35  DECISION POINT We want multifactor productivity to be as high as possible. These measures must be compared with performance levels in prior periods and with future goals. If they do not live up to expectations, the process should be investigated for improvement opportunities. The Role of Management The way processes are managed plays a key role in productivity improvement. Managers must examine https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 81 of 134 productivity from the level of the supply chain because it is the collective performance of individual processes that makes the difference. The challenge is to increase the value of output relative to the cost of input. If processes can generate more output or output of better quality using the same amount of input, productivity increases. If they can maintain the same level of output while reducing the use of resources, productivity also increases. Global Competition Most businesses realize that, to prosper, they must view customers, suppliers, facility locations, and competitors in global terms. Firms have found that they can increase their market penetration by locating their production facilities in foreign countries because it gives them a local presence that reduces customer https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 82 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. aversion to buying imports. Globalization also allows firms to 17 18 balance cash flows from other regions of the world when economic conditions are less robust in the home country. Sonoco, a $5-billion-a-year industrial and consumer packaging company in Hartsville, South Carolina, has nearly 20,000 employees in 335 locations worldwide spread across 33 countries. These global operations resulted in international sales and income growth even as domestic sales were stumbling during 2007. How did Sonoco do it?3 Locating operations in countries with favorable tax laws is one reason. Lower tax rates in Italy and Canada helped in padding the earnings margin. Another reason was a weak dollar, whereby a $46 million boost came from turning foreign currencies into dollars as Sonoco exported such items as snack bag packaging, and tubes and cores used to hold tape and textiles, to operations it owned in foreign countries. The exchange rate difference was more than enough to counter the added expense of increased raw materials, shipping, and energy costs in the United States. Most products today are composites of materials and services from all over the world. Your Gap polo shirt is sewn in Honduras from cloth cut in the United States. Sitting in a Cineplex theater (Canadian), you munch a Nestle’s Crunch bar (Swiss) while watching a Columbia Pictures movie (Japanese). https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 83 of 134 Five developments spurred the need for sound global strategies: (1) improved transportation and communications technologies; (2) loosened regulations on financial institutions; (3) increased demand for imported services and goods; (4) reduced import quotas and other international trade barriers due to the formation of regional trading blocks, such as the European Union (EU) and the North American Free Trade Agreement (NAFTA); and (5) comparative cost advantages. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 84 of 134 Sonoco is a global supplier of innovative packaging solutions including packages for Chips Ahoy cookies, M&M’s, Pringles Potato Crisps, flexible brick packs for coffee, and many other products. Comparative Cost Advantages China and India have traditionally been the sources for lowcost, but skilled, labor, even though the cost advantage is diminishing as these countries become economically stronger. In the late 1990s, companies manufactured products in China to grab a foothold in a huge market, or to get cheap labor to produce low-tech products despite doubts about the quality of the workforce and poor roads and rail systems. Today, however, China’s new factories, such as those in the Pudong industrial zone in Shanghai, produce a wide variety of products that are sold overseas in the United States and other regions of the world. U.S. manufacturers have increasingly abandoned low profit margin sectors like consumer electronics, shoes, and toys to emerging nations such as China and Indonesia. Instead, they are focusing on making expensive goods like computer chips, advanced machinery, and health care products that are complex and which require specialized labor. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 85 of 134 Foreign companies have opened tens of thousands of new facilities in China over the past decade. Many goods the United States imports from China now come from foreignowned companies with operations there. These companies include telephone makers, such as Nokia and Motorola, and nearly all of the big footwear and clothing brands. Many more major manufacturers are there as well. The implications for competition are enormous. Companies that do not have operations in China are finding it difficult to compete on the basis of low prices with companies that do. Instead, they must focus on speed and small production runs. What China is to manufacturing, India is to service. As with the manufacturing companies, the cost of labor is a key factor. Indian software companies have grown sophisticated in their applications and offer a big advantage in cost. The computer services industry is also affected. Back-office operations are affected for the same reason. Many firms are using Indian companies for accounting and bookkeeping, preparing tax returns, and processing insurance claims. Many tech companies, such as Intel and Microsoft, are opening significant research and development (R&D) operations in India. 3Ben Werner, “Sonoco Holding Its Own,” The State (February 7, 2008); http://www.sonoco.com, 2008. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 86 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 18 19 Disadvantages of Globalization Of course, operations in other countries can have disadvantages. A firm may have to relinquish proprietary technology if it turns over some of its component manufacturing to offshore suppliers or if suppliers need the firm’s technology to achieve desired quality and cost goals. Political risks may also be involved. Each nation can exercise its sovereignty over the people and property within its borders. The extreme case is nationalization, in which a government may take over a firm’s assets without paying compensation. Exxon and other large multinational oil firms are scaling back operations in Venezuela due to nationalization concerns. Further, a firm may actually alienate customers back home if jobs are lost to offshore operations. Employee skills may be lower in foreign countries, requiring additional training time. South Korean firms moved much of their sports shoe production to low-wage Indonesia and China, but they still manufacture hiking shoes and in-line roller skates in South Korea because of the greater skills required. In addition, when a firm’s operations are scattered globally, customer response times can be longer. We discuss https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 87 of 134 these issues in more depth in Chapter 12, “Supply Chain Design,” because they should be considered when making decisions about outsourcing. Coordinating components from a wide array of suppliers can be challenging. In addition, as Managerial Practice 1.1 shows, catastrophic events such as the Japanese earthquake affect production and operations in Europe and United States because connected supply chains can spread disruptions rapidly and quickly across international borders. MANAGERIAL PRACTICE 1.1 Japanese Earthquake and Its Supply Chain Impact Northeast Touhoku district of Japan was struck by a set of massive earthquakes on the afternoon of March 11, 2011, which were soon followed by a huge tsunami that sent waves higher than 33 feet in the port city of Sendai 80 miles away and traveling at the speed of a jetliner. At nearly 9.0 on the Richter scale, it was one of the largest recorded earthquakes to hit Japan. It shifted the Earth’s axis by 6 inches with an impact that was felt 250 miles inland in Tokyo, and which moved Eastern Japan 13 feet toward North America. Apart from huge loss of life and hazards of nuclear radiation arising from the crippled Daiichi nuclear reactors in Fukushima, the damage to the manufacturing plants in Japan exposed the https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 88 of 134 hazards of interconnected global supply chains and their impact on factories located half way around the globe. The impact of the earthquake was particularly acute on industries that rely on cutting edge electronic parts sourced from Japan. Shin-Etsu Chemical Company is the world’s largest producer of silicon wafers and supplies 20 percent of the global capacity. Its centralized plant located 40 miles from the Fukushima nuclear facility was damaged in the earthquake, causing ripple effects at Intel and Toshiba that purchase wafers from Shin-Etsu. Similarly, a shortage of automotive sensors from Hitachi slowed or halted production of vehicles in Germany, Spain, and France, while Chrysler reduced overtime at factories in Mexico and Canada to conserve parts from Japan. Even worse, General Motors stopped production altogether at a plant in Louisiana and Ford closed a truck plant in Kentucky due to the quake. The supply of vehicles such as Toyota’s Prius and Lexus were limited in the United States because of production disruptions in its Japanese factories. China was affected too, where ZTE Corporation faced shortages of batteries and LCD screens for its cell phones. Similarly, Lenovo in China faced reduced supplies of components from Japan for assembly of its tablet computers. These disruptions due to reliance on small concentrated network of suppliers in Japan and globally connected production and logistics systems have caused https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 89 of 134 worker layoffs an increase in prices of affected products, and economic losses that have been felt around the world. Devastation caused by the strong earthquake in Kobe, the sixthlargest city in Japan located approximately 19 miles west of Osaka on the north shore of Osaka Bay. Sources: Don Lee and David Pearson, “Disaster in Japan Exposes Supply Chain Weakness,” The State (April 8, 2011), B6-B7; “Chrysler Reduces Overtime to Help Japan,” The Associated Press (April 8, 2011) printed in The State (April 6, 2011), B7; Krishna Dhir, “From the Editor,” Decision Line, vol. 42, no. 2, 3. Strong global competition affects industries everywhere. For example, U.S. manufacturers of steel, appliances, household durable goods, machinery, and chemicals have seen their market share decline in both domestic and international markets. With the value of world trade in commercial services now at more than $4.3 trillion per year, banking, data https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 90 of 134 processing, airlines, and consulting services are beginning to face many of the same international pressures. Regional trading blocs, such as EU and NAFTA, further change the competitive landscape in both services and manufacturing. Regardless of which area of the world you live in, the challenge is to produce services or products that can compete in a global market and to design the processes that can make it happen. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 91 of 134 PRINTED BY: honeybun58@email.phoenix.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 19 20 Ethical, Workforce Diversity, and Environmental Issues Businesses face more ethical quandaries than ever before, intensified by an increasing global presence and rapid technological change. As companies locate new operations and acquire more suppliers and customers in other countries, potential ethical dilemmas arise when business is conducted by different rules. Some countries are more sensitive than others about conflicts of interest, bribery, discrimination against minorities and women, minimum-wage levels, and unsafe workplaces. Managers must decide whether to design and operate processes that do more than just meet local standards. In addition, technological change brings debates about data protection and customer privacy. In an electronic world, businesses are geographically far from their customers, so a reputation of trust is paramount. In the past, many people viewed environmental problems, such as toxic waste, poisoned drinking water, poor air quality, and climate change as quality-of-life issues; now, many people and businesses see them as survival issues. The automobile industry has seen innovation in electric and hybrid cars in response to environmental concerns and economic benefits https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 92 of 134 arising from using less expensive fuels. Industrial nations face a particular burden because their combined populations consume proportionally much larger resources. Just seven nations, including the United States and Japan, produce almost half of all greenhouse gases. Now China and India have added to that total carbon footprint because of their vast economic and manufacturing expansion over the past decade. Apart from government initiatives, large multinational companies have a responsibility as well for creating environmentally conscious practices, and can do so profitably. For instance, Timberland has over 110 stores in China because of strong demand for its boots, shoes, clothes, and outdoor gear in that country. It highlights its environmental credentials and corporate social responsibility through investments such as the reforestation efforts in northern China’s Horqin Desert. Timberland hopes to double the number of stores over the next 3 years by environmentally differentiating itself from the competition. We discuss these issues in greater detail in Chapter 15, “Supply Chain Sustainability.” The challenge is clear: Issues of ethics, workforce diversity, and the environment are becoming part of every manager’s job. When designing and operating processes, managers should consider integrity, respect for the individual, and customer satisfaction along with more conventional https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 93 of 134 performance measures such as productivity, quality, cost, and profit. A Chinese consumer looks at Timberland products at a department store in Shanghai, China, November 11, 2010. Timberland seeks to benefit from rising incomes in the worlds fastest-growing major economy, and will also invest in its Hong Kong shops. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 94 of 134 Designing and Operating Processes and Supply Chains How can firms meet challenges today and in the future to adequately recognize these trends and take advantage of opportunities in a global market place? One way is to recognize challenges as opportunities to improve existing processes and supply chains or to create new, innovative ones. The management of processes and supply chains goes beyond designing them; it requires the ability to ensure they achieve their goals. Firms should manage their processes and supply chains to maximize their competitiveness in the markets they serve. We share this philosophy of operations management, as illustrated in Figure 1.7. We use this figure at the start of each chapter to show how the topic of the chapter fits into our philosophy of operations management. In addition, this text also contains several chapter supplements that are not explicitly shown in Figure 1.7. Figure 1.7 shows that all effective operations decisions follow from a sound operations strategy. Consequently, our text has three major parts: “Part 1: Managing Processes,” Part 2: “Managing Customer Demand,” and “Part 3: Managing Supply Chains.” The flow of topics reflects our approach of first understanding how a firm’s operations can help provide a solid foundation for competitiveness before tackling the essential process design decisions that will support its https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 95 of 134 strategies. Each part begins with a strategy discussion to support the decisions in that part. Once it is clear how firms design and improve processes, we try to understand how they implement those designs to satisfactorily meet customer demand. Finally we examine the design and operation of supply chains that link processes, whether they are internal or external to the firm. The performance of the supply chains determines the firm’s outcomes, which include the services or products the firm produces, the financial results, and feedback from the firm’s customers. These outcomes, which are considered in the firm’s strategic plan, are discussed throughout this text. https://jigsaw.vitalsource.com/api/v0/books/9781323302231/prin... 1/18/2019 Page 96 of 134 FIGURE 1.7 Managing Processes, Customer Demand, and Supply Chains Part 1: Managing Processes In Part 1, we focus on analyzing processes and how they can be improved to meet the goals of the operations strategy. We begin by addressing the strategic aspects of process design and then present a six-step systematic approach to process analysis. Each chapter in this part deals with some aspect of that approach. We discuss the tools that help managers analyze processes, and we r...
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