The Importance Of Operations Management Operations management defined  The study and application of the transformation process OM is important because it:  Encompasses processes in all organizations—services as well as manufacturing.  Is important in effectively and efficiently managing productivity.  Plays a strategic role in an organization’s competitive success.

Transformation and Organizations Transformation process  The process through which an organization creates value by turning inputs (people, capital, equipment, materials) into outputs (goods or services) Manufacturing organization  Organizations that produce physical goods Service organization  An organization that produces nonphysical outputs such as educational, medical or transportation services

The Transformation Process Exhibit 14.1

Productivity Productivity defined  The overall output of goods and services produced divided by the inputs needed to generate that output. Benefits of high productivity  Fosters economic growth and development  Increases individual wages without inflation  Lowers costs and makes firms more competitive

Value and the Value Chain Value  The performance characteristics, features and attributes, or any other aspects of goods and services for which customers are willing to give up resources. Value chain  The entire series of organizational work activities that add value at each step beginning with the processing or raw materials and ending with a finished product in the hands of end users.

Value Chain Management versus Supply Chain Management Value chain management  A method of improving the process of creating and transferring documents by automating the flow of information Supply chain management  Management of the facilities, functions, and activities involved in producing and delivering a product or service, from suppliers to customers.

The Goals Of Value Chain Management Creating customer-defined value by:  Providing a unique combination that truly meets customer needs and at a price that can’t be matched by competitors.  Having a sequence of participants work together as a team, each adding a component of value to the overall process. It’s all about providing value, not bargains, to the customer

Value Chain Management Business model  A strategic design for how a company intends to profit from its broad array of strategies, processes, and activities. Value chain management requirements  Coordination and collaboration  Technology investment  Organizational processes  Leadership  Employees/human resources management  Strong culture and attitudes

Six Requirements for Successful Value Chain Management Exhibit 14.2

Effect of Value Chain Management on Organizational Processes Better demand forecasting is necessary and possible because of closer ties with customers and suppliers. Selected functions may need to be done collaboratively with partners in the value chain. New measures are needed for evaluating the performance of activities along the value chain.

Implementing Value Chain Management Benefits  Improved customer service  Cost savings  Accelerated delivery times  Improved quality  Inventory reduction  Improved logistics management  Increased sales  Increased market share Obstacles  Organizational barriers  Cultural attitudes  Required capabilities  People

Value Chain Benefits Value chain survey respondents indicated the following are a “major benefit” from sharing information with partners: Percentage of Percentage of Percentage Companies in Companies inof Excellent or VeryPoorAll Good Chains Chains Companies Increased sales41%14%26% Cost savings62%22%40% Increased market share32%12%20% Inventory reductions51%18%35% Improved quality60%28%39% Accelerated delivery times54%27%40% Improved logistics management43%15%27% Improved customer service66%22%44% Source: G. Taninecz, “Forging the Chain,” Industry Week, May 15, 2000, p.44. Exhibit 14.3

Obstacles to Successful Value Chain Management Exhibit 14.4

Contemporary Operations Management Issues Technology  How an organization will transform its inputs into outputs. Just-in-time (JIT) inventory systems  How to develop systems in which inventory items arrive when needed in the production process instead of being stored in stock.

Quality and Operations Management Quality control  Monitoring quality—weight, strength, consistency, color, taste, reliability, finish, or any one of myriad characteristics—to ensure that it meets some preestablished standard. Continuous improvement  A comprehensive, customer-focused program to continuously improve the quality of the organization’s processes, products and services.

Managing Projects Project  One-time-only set of activities with a definite beginning and ending point in time Project management  Task of getting the activities done on time, within budget, and according to specifications

Popular Scheduling Tools Gantt chart  A planning tool that shows in bar graph form when tasks are supposed to be done and compares that with the actual progress on each task. Load chart  As modified version of a Gantt Chart, the load chart lists either whole departments or specific resources.  This information allows managers to plan and control for capacity utilization in the scheduling of individual work stations.

A Sample Gantt Chart Exhibit 14.5

A Sample Load Chart Exhibit 14.6

PERT Program evaluation and review technique (PERT) network analysis  A flowchart-like diagram that depicts the sequence of activities needed to complete a project and the time or costs associated with each activity

PERT Components Events  End points that represent the completion of major activities Activities  Actions that take place Slack time  The time difference between the critical path and all other paths Critical path  The longest or most time-consuming sequence of events and activities required to complete a project in the shortest amount of time

Developing PERT Charts Identify every significant activity that must be achieved for a project to be completed. Ascertain the precedence order in which these events must be completed and create a diagram reflecting the ordering of activities. Compute a weighted average time estimate (expected time) for completing each activity. Insert start and finish times into the diagram and inspect to determine the critical path. Exhibit 14.7

TIMEPRECEDING EVENTDESCRPTION(WEEKS)ACTIVITY AApprove design and get permits3None BPerform excavation/lot clearing1A CPour footers1B DErect foundation walls2C EFrame house4D FInstall windows0.5E GShingle roof0.5E HInstall brick front and siding4F,G IInstall electrical, plumbing, and heating and A/C rough-ins6E JInstall insulation0.25I KInstall sheetrock2J LFinish and sand sheetrock7K MInstall interior trim2L NPaint house (interior and exterior)2H, M OInstall all cabinets0.5N PInstall flooring1N QFinal touch-up and turn over house to homeowner1O, P Major Activities in Building a Custom Home Exhibit 14.8

A PERT Network for Building a Custom Home Critical Path Exhibit 14.9