9-1 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Value Chain Management Development of a set of functional-level strategies that increase the performance of the operating system a company uses to transform inputs into finished goods and services

9-2 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Operating System Various functional activities an organization uses to acquire inputs, convert inputs into outputs, and dispose of outputs

9-3 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Value Chain Refers to the idea that a company is chain of functional activities that transform inputs into an output of goods and services that customers value  Production function  Marketing and Sales  Service function  Materials management function  Information systems function

9-4 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Functional Strategies and Competitive Advantage 1. To attain superior efficiency 2. To attain superior quality 3. To attain superior speed, flexibility, and innovation 4. To attain superior responsiveness to customers

9-5 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Improving Responsiveness to Customers Without customers, organizations would cease to exist.  Non-profit and for-profit firms all have customers.  Managers need to identify who the customer is and their needs.

9-6 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Price versus Attributes An output’s attributes is determined by the production system.  Firms must strike a balance between cost and attributes  Firms offering high quality, fast service and other attributes customers desire, often must raise prices to cover their additional costs. Operations management focuses on improving production to lower costs or produce more attributes at the same cost. By enhancing the price/attribute relationship, a firm can increase its competitive position.

9-7 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Improving Quality The concept of quality applies the products of both manufacturing and service firms  A firm that provides higher quality than others at the same price is more responsive to customers.  Higher quality can also lead to better efficiency through lower waste levels and operating costs.

9-8 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Impact of Increased Quality on Organizational Performance Figure 9.4

9-9 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Total Quality Management Total Quality Management (TQM)  A management technique that focuses all activities on improving the quality of a firm’s goods or services.  TQM is a company-wide management philosophy developed by Deming, Juran, and Feigenbaum.  The TQM philosophy is that the customer defines quality.

9-10 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Steps to Successful TQM Implementation Build organizational commitment to quality Focus on the customer Find ways to measure quality Set goals and create incentives Solicit input from employees Identify defects and trace to source. Introduce just-in-time (JIT) inventory systems. Work closely with suppliers. Design for ease of production. Break down barriers between functions.

9-11 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Improving Efficiency The fewer the inputs required to produce a given output, the higher the efficiency of a production system.  A common measure of the organization’s efficiency of turning all of the inputs into outputs is called total factor productivity:

9-12 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Improving Efficiency  A comparison measure of a single input (such as labor) to total output is called partial productivity:

9-13 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Improving Efficiency Calculating labor productivity allows labor comparisons between organizations. Improved efficiency leads to lower costs and better performance. TQM and Efficiency  TQM can lead to much higher labor productivity. When quality rises, less is wasted on scrap.

9-14 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Facilities Layout, Flexible Manufacturing, and Efficiency Facilities Layout  The operations management technique whose goal is to design the machine-worker interface to increase production system efficiency. Flexible Manufacturing  Operations management techniques that attempt to reduce the setup costs associated with a production system.

9-15 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Facilities Layout Product layout  Machines are organized so that each operation is performed at work stations arranged in a fixed sequence. Example: mass production systems where workers are stationary and a belt moves work to them. Process Layout  Self contained work stations not organized in a fixed sequence. Provides flexibility in making a wide variety of products tailored to customers.

9-16 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Facilities Layout Fixed-Position Layout  The product stays in a fixed spot and components produced at remote stations are brought the product for to final assembly. Large jet aircraft assembly uses this type of layout.

9-17 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Flexible Manufacturing Most firms face major expenses when setting up to produce a product.  These costs must be paid before production begins. The more often products to be built change, the higher setup costs become.  Flexible manufacturing reduces setup costs by reducing the time required to reset the production line for a different product. Using easily replaced manufacturing equipment Redesigning the production system itself to be more productive.

9-18 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Just-in-Time Inventory and Efficiency Just-in-Time (JIT) Inventory  Originally developed for TQM, also adds to efficient production. JIT reduces inventory holding costs for warehousing, storage, inventory tracking, and the cost of capital tied up in inventory. A drawback to JIT is that a firm does not maintain have a large buffer stock of parts which makes the firm vulnerable to strikes or supply problems that can quickly deplete on-hand inventories.

9-19 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Efficient Manufacturing Self-managed teams boost efficiency by allowing for a flatter organization structure. The team takes on the role of the supervisor. Teams working together often become very skilled at enhancing productivity.

9-20 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Process Reengineering and Efficiency Process Reengineering  The fundamental rethinking and radical redesign of the business process to achieve dramatic improvement in critical measures of performance. Boosts efficiency by directing efforts to activities that add value to the good or service produced. Top managers must support efficiency improvements for them to be accepted by workers.

9-21 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Value Chain Management Boundary-Spanning roles – Interacting with individuals and groups outside the organization to obtain valuable information from the environment Gatekeeping – Deciding what information to allow into the organization and what information to keep out