Introduction to the Field CHASE AQUILANO JACOBS Operations Management For Competitive Advantage Chapter 1 Introduction to the Field ninth edition

Chapter 1 Overview: Introduction to the Field Operations Management Why Study Operations Management? Production System Defined Operations as a Service Plan of This Book Historical Development of OM Current Issues in OM

What is Operations Management? Defined Operations management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services.

Operations Perspectives Primary Transformation Input Process Output Macro OM Micro OM Service to Transformation Some Examples: CIS Department H.R. Department

Why Study Operations Management? Business Education Systematic Approach to Org. Processes Career Opportunities Cross-Functional Applications

What is a Production System? Defined A production system is defined as a user of resources to transform inputs into some desired outputs. 4

OM involves management of the entire system that produces a good or service Material Money Information

Transformations Physical--manufacturing Locational--transportation Exchange--retailing Storage--warehousing Physiological--health care Informational--telecommunications 7

What is a Service and What is a Good? “If you drop it on your foot, it won’t hurt you.” (Good or service?) “Services never include goods and goods never include services.” (True or false?)

Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction © 1995 Corel Corp.

Characteristics of Services Intangible product Inconsistent product definition Produced & consumed at same time Cannot be inventoried High customer interaction © 1995 Corel Corp.

Core Services Definition Core services are basic things that customers want from products they purchase.

Core Services Performance Objectives Operations Management Flexibility Quality Speed Price (or cost Reduction)

Value-Added Services Defined Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way.

Value-Added Service Categories Operations Management Information Problem Solving Sales Support Field Support

Historical Development of OM Carefully read this section in the Text Carefully read this section in the Text for Exam Review

Manufacturing’s Role in Corporate Strategy Stage 1--Internally Neutral Stage II--Externally Neutral Stage III--Internally Supportive Stage IV-- Externally Supportive The role of the operations management function (i.e., to minimize production costs) remained virtually unchanged throughout the 1950s and early 1960s. By the late 1960s, at the Harvard Business School, C. Wickham Skinner (who is often called the grandfather of operations strategy) recognized this weakness among U.S. manufacturers and suggested the need for an operations strategy to complement existing marketing and finance strategies. In one of his initial articles on the subject, Skinner referred to manufacturing as the missing link in corporate strategy. Subsequent work in this area by Harvard Business School researchers (including William Abernathy, Kim Clark, Robert Hayes, and Steven Wheelwright) continued to emphasize the importance of using the strengths of a firm's manufacturing facilities as a competitive weapon in the marketplace. They also argued that a firm could not be competitive in the long run if manufacturing's strategic role was limited to stage 1 or 2.

Manufacturing’s Role in Corporate Strategy Stage 1--Internally Neutral Not involved at all in corporate strategy Operations is a necessary evil Stage II--Externally Neutral Not involved in corporate strategy but recognized as necessary Allowed to keep up with the competition, but no more Steel mills as an example Stage III--Internally Supportive Not involved in the corporate strategic development but: Recognized for their importance to the strategy Asked to support the strategy dictated by corporate Given tools as required to meet or exceed Stage IV-- Externally Supportive World class Operations is totally involved in the corporate strategy The role of the operations management function (i.e., to minimize production costs) remained virtually unchanged throughout the 1950s and early 1960s. By the late 1960s, at the Harvard Business School, C. Wickham Skinner (who is often called the grandfather of operations strategy) recognized this weakness among U.S. manufacturers and suggested the need for an operations strategy to complement existing marketing and finance strategies. In one of his initial articles on the subject, Skinner referred to manufacturing as the missing link in corporate strategy. Subsequent work in this area by Harvard Business School researchers (including William Abernathy, Kim Clark, Robert Hayes, and Steven Wheelwright) continued to emphasize the importance of using the strengths of a firm's manufacturing facilities as a competitive weapon in the marketplace. They also argued that a firm could not be competitive in the long run if manufacturing's strategic role was limited to stage 1 or 2.

Four Stages of Service Firm Competitiveness Stage I. Available for Service Stage II. Journeyman Stage III. Distinctive Competence Achieved Stage IV. World Class Service Delivery Here are some additional comments about the framework: First, the stage attained by any given firm is a composite. Every service delivery system embodies a unique set of choices about service quality, workforce policies, and so forth. A company may be at a different stage for a given dimension, or have service units that are further or less advanced than others. Second, a firm can be very competitive (Stage III or even Stage IV) even if it is not outstanding on all dimensions. This could happen when it is doing an exceptional job on its critical success factors. Third, it is difficult or impossible to skip a stage in moving up the ladder. A company obviously must achieve journeyman performance before distinctive competence, and must attain distinctive competence before becoming world class. (However, a firm can move through the stages relatively rapidly. For example, Scandinavian Airlines System (SAS) instituted some 120 service improvements that moved it from Stage I to Stage III within a year and a half. ValuJet seems to be there already, as the Breakthrough box on ValuJet relates. Finally, it is all too easy to slip back a stage. The Los Angeles Police Department (LAPD), for example, was viewed as being equivalent to a Stage III law enforcement organization before the Rodney King incident was made public.

Current Issues in OM Effectively consolidating the operations resulting from mergers (with cultural and technology differences) Developing flexible supply chains to enable mass customization of products and services (variety and delivery worldwide) Managing global supplier, production and distribution networks (ERP systems) 14

Current Issues in OM (cont’d) Increased “commiditization” of suppliers use of standard internet connections Achieving the “Service Factory” providing personalized service to each customer Achieving good service from service firms use of information 15