1. 1 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Operations management (OM) is the science and art of ensuring that goods and services are created and delivered successfully to customers. The principles of OM help one to view a business enterprise as a total system, in which all activities are coordinated, not only vertically throughout the organization, but also horizontally across multiple functions. Chapter 1 Goods, Services, and Operations Management

2. 2 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Understanding Goods and Services A good is a physical product that you can see, touch, or possibly consume. Examples of goods include: oranges, flowers, televisions, soap, airplanes, fish, furniture, coal, lumber, personal computers, paper, and industrial machines. A durable good is a product that typically lasts at least three years. Vehicles, dishwashers, and furniture are some examples of durable goods. Chapter 1 Goods, Services, and Operations Management

3. 3 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Understanding Goods and Services A non-durable good is perishable and generally lasts for less than three years. Examples are toothpaste, software, shoes, and fruit. A service is any primary or complementary activity that does not directly produce a physical product. Chapter 1 Goods, Services, and Operations Management

4. 4 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Exhibit 1.1 How Goods and Services Affect Operations Management Activities

5. 5 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Exhibit 1.2 A CBP Example for Purchasing a Vehicle

6. 6 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Exhibit Extra Another Example of Consumer Benefit Package

7. 7 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Exhibit 1.5 Five Eras of Operations Management

8. 8 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Value Chains The underlying purpose of every organization is to provide value to its customer and stakeholders. Value is the perception of the benefits associated with a good, service, or bundle of goods and services (i.e., the customer benefit package) in relation to what buyers are willing to pay for them. Chapter 2 Value Chains

9. 9 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. One of the simplest functional forms of value is: Value = Perceived benefits/Price (cost) to the customer If the value ratio is high, the good or service is perceived favorably by customers, and the organization providing it is more likely to be successful. To increase value, an organization must: (a) increase perceived benefits while holding price or cost constant, (b) increase perceived benefits while reducing price or cost, or (c) decrease price or cost while holding perceived benefits constant. Chapter 2 Value Chains

10. 10 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Value Chains A value chain is a network of facilities and processes that describes the flow of goods, services, information, and financial transactions from suppliers through the facilities and processes that create goods and services and deliver them to customer. A value chain is a “cradle-to-grave” model of the operations function (see Exhibit 2.1). Chapter 2 Value Chains

11. 11 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Exhibit 2.1 The Value Chain

12. 12 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Exhibit 2.2 Examples of Goods-Producing and Service-Providing Value Chains (slide 1)

13. 13 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Exhibit 2.2 Examples of Goods-Producing and Service-Providing Value Chains (slide 2)

14. 14 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Exhibit 2.3 Pre- and Postservice View of the Value Chain

15. 15 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Chapter 2 Value Chains Value and Supply Chains A supply chain is the portion of the value chain that focuses primarily on the physical movement of goods and materials, and supporting flows of information and financial transactions through the supply, production, and distribution processes. Many organizations use the terms “value chain” and “supply chain” interchangeably; however, we differentiate these two terms in this book.

16. 16 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part. Solution VC 1 = Variable cost/unit if produced = $20 VC 2 = Variable cost/unit if outsourced = $35 FC = fixed costs associated with producing the part = $250,000 Q = quantity produced Using Equation 2.1 we obtain: Q = 250,000/($35 - $20) = 16,667 In this case, because the customer order is for only 12,000 units, which is less than the break-even point, the least cost decision is to outsource the component. Chapter 2 Value Chains