©The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin Chapter 1 Introduction: Why Operations Management?

2-2 Learning Objectives Describe the relationships among value, profitability, cost, processes, and capabilities Describe the components of value Differentiate between the resources that create value Describe the changes in the business environment and the impact they have Describe the external forces that affect the business Explain the differences between service and product outputs Explain why B2B and B2C customers may define value differently Describe how operations concepts will affect you in your field

2-3 Why Operations Management Is Critical to a Career in Business What is operations management? –“The management of resources used to create salable products and services.” Why is it important to all business majors? –Businesses have broadened employee responsibilities –This creates a need for an “enterprise view” –College graduates face unpredictable future opportunities

2-4 Technological progress is moving at a tremendous rate There are many new products and services in addition to old ones Rapid change is the norm A New Business Environment

2-5 A New Business Environment Businesses try to break down the “silos” that used to define business functions.

2-6 The Resource/Profit Model serves as an organizational model to put operations in a business context Exhibit 1.3 The Resource/Profit Model Overview of the Resource/Profit Model

2-7 Chapter 2 is devoted to Profitability It is the primary business objective It measures the long-run productivity of the business It is the outcome of effective strategy and value creation Chapter 3 focuses on Strategy and Value Strategy consists of decisions about the way the firm will try to add value. How will the firm’s resources be aligned? Who are the customers? What do they want? How will value be delivered? Value is determined by the customer Value created must exceed the cost of creating it, or there will be no profitability. Value is the basis upon which customers decide to purchase and the basis on which a business competes. Foundations for Success Chapter 4 examines Processes Processes are used to organize resources so that they create value Effective Processes give rise to capabilities, which are valued by customers

2-8 Chapter 5 examines Cost Cost is the amount of scarce resources (usually money) consumed to achieve an objective Cost has a huge impact on the customer’s perception of value. Chapters 6 and 7 are focused on Quality Chapter 6 examines quality and its impact on value, while Chapter 7 presents the commonly- used tools associated with quality improvement. The customer determines is a product or service is high quality. Chapter 8 looks at Timeliness Timeliness includes when and/or how fast something happens Scheduling a project management are key topics Timeliness has an impact on financial performance Timeliness is also a part of value for customers Components of Value

2-9 Chapter 10 examines Demand Forecasting A projection of future demand is necessary to determine resource requirements and obtain them in the correct quantities, at the correct time, and at the lowest cost. Managing Resources to Create Value Supply Chain Management is the topic of Chapter 9 SCM recognizes that decisions within one business affect suppliers and customers Chapter 11 covers Inventory Materials used to produce goods and services Raw, WIP, Finished Goods, MRO and Supplies Chapter 13 is devoted to Lean Systems A productive system that functions with little waste or excess, usually with low Logistics is the topic of Chapter 12 Logistics is the movement and storage of goods in a supply chain.

2-10 Chapter 15 focuses on Constraint Management Constraint Management is a framework for managing the constraints of a system in a way that maximizes the system’s accomplishment of its goals. Managing Resources to Create Value Chapter 14 is devoted to Capacity Capacity is the level of productive output in a specified period of time Chapter 16 is devoted to Facilities decisions. Facilities are the land and buildings that house a business The decisions include location and layout decisions The topic of Chapter 17 is Workforce The employees are a critical resource contributing to value creation

2-11 Environmental forces affect the business –Globalization –The Internet and Other Technologies –The Natural Environment –Regional Pressures Environmental Forces

2-12 Product Characteristics Tangible Easy to measure Can be stored for later use Quality can be assessed prior to customer delivery Production processes are relatively unimportant to customers Defective products can be repaired or scrapped Service Characteristics Intangible Harder to measure Cannot be stored for later use Quality cannot be checked prior to delivery Production processes can be very important to customers Producers of defective services must attempt to recover to retain the customer Business Outputs: Products and Services

2-13 Product Only Furniture Paint Grocery Products Steel Mill Mix of Product and Service Retailer Computer Manufacturer Automobile Manufacturer Restaurant Car Rental Agency Landscaping Firm Print Shop Service Only Advertising Firm Brokerage Bank Prison Tanning Salon Hair Stylist Continuum of Product and Service Providers

2-14 B2B = Business-to-Business B2C = Business-to-Consumer Value differs from customer to customer Exhibit 1.9 Business Output/Customer Matrix Insert Exhibit 1.6 The Type of Customer Determines the Value that Must be Created by the Business