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Chapter
Operations
Management
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Learning Outcomes
Define operations management and explain its role
Define the nature and purpose of value chain management
Describe how value chain management is done
Discuss contemporary issues in value chain management
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3. What is Operations Management?
the study and application of the transformation process
Transformation Process
The process that converts resources into finished goods and services
The term operations management refers to the design, operation, and control of the transformation process that converts such resources as labor and raw materials into goods and services that are sold to customers
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Exhibit 14-1 portrays a simplified overview of the transformation process of creating value by converting inputs into outputs
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5. How do Service and Manufacturing Firms Differ?
Manufacturing Organizations
Organizations that produce physical goods
Service Organizations
Organizations that produce nonphysical products in the form of services
Simply stated, every organization has an operations system that creates value by transforming inputs into finished goods and services outputs. For manufacturers, the products are obvious: cars, cell phones, or food products. After all, manufacturing organizations produce physical goods.
But that transformation process isn’t as readily evident in service organizations because they produce nonphysical outputs in the form of services
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What is Value?
Value
The performance characteristics, features, attributes, and other aspects of goods and services, for which customers are willing to give up resources
Value is defined as the performance characteristics, features and attributes, and any other aspects of goods and services for which customers are willing to give up resources (usually money).
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7. What is Value Chain Management?
The entire series of work activities that add value at each step from raw materials to finished product
Value Chain Management
The process of managing the sequence of activities and information along the entire value chain
The value chain is the entire series of organizational work activities that add value at each step from raw materials to finished
product. In its entirety, the value chain can encompass the supplier’s suppliers to the customer’s customer.
Value chain management is the process of managing the sequence of activities and information along the entire value chain. In contrast to supply chain management, which is internally oriented and focuses on efficient flow of incoming materials (resources) to the organization, value chain management is externally oriented and focuses on both incoming materials and outgoing products and services
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8. How Is Value Chain Management Done?
Business Model
A strategic design for how a company intends to profit from its broad array of strategies, processes, and activities
Understanding how and why value is determined by the marketplace has led some organizations to experiment with a new business model—
that is, a strategic design for how a company intends to profit from its broad array of strategies, processes, and activities.
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9. Requirements for Successful Value Chain Management
Coordination and Collaboration
All partners in the chain identify things customers value and integrate their efforts comprehensively and seamlessly
Technology Investment
key tools include a supporting enterprise resource planning (ERP) software system that links all of an organization’s activities with trading network partners
So what does successful value chain management require? Exhibit 14-2 summarizes the six main requirements: coordination and collaboration, technology investment, organizational processes, leadership, employees/human resources, and organizational culture and attitudes
For the value chain to achieve its goal of meeting and exceeding customers’ needs and desires, comprehensive and seamless integration
among all members of the chain is absolutely necessary.
Successful value chain management isn’t possible without a significant investment in information technology. The payoff from this investment is that information technology can be used to restructure the value chain to better serve end users
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10. Requirements for Successful Value Chain Management (cont.)
Organizational Processes
Improving forecasting, collaborating with partners, and evaluating performance of activities in the chain
Leadership
successful value chain management isn’t possible without strong and committed leadership
Value chain management radically changes organizational processes—that is, the way organizational work is done.32 Managers must critically evaluate all organizational processes from beginning to end by looking at core competencies—the organization’s unique skills, capabilities, and resources—to determine where value is being added.
From top organizational levels to lower levels, managers must support, facilitate, and promote the implementation and ongoing practice of value chain management
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11. Requirements for Successful Value Chain Management (cont.)
Employees and Human Resources
flexible approaches to job design, an effective hiring process, and ongoing training
Organizational Culture and Attitudes
attitudes include sharing, collaborating, openness, flexibility, mutual respect, and trust
Employees play an important part in value chain management. Three main human resources requirements for value chain management are
flexible approaches to job design, an effective hiring process, and ongoing training.
The last requirement for value chain management is having a supportive organizational culture and attitudes. Those cultural
attitudes include sharing, collaborating, openness, flexibility, mutual respect, and trust. And these attitudes encompass not only the internal partners in the value chain but external partners as well.
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12. What Are Organizational Processes?
The way organizational work is done
Managers must critically evaluate all organizational processes from beginning to end by looking at core competencies—the organization’s unique skills, capabilities, and resources—to determine where value is being added
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As desirable as value chain management may be, managers must tackle several obstacles in managing the value chain including organizational barriers, cultural attitudes, required capabilities, and people (see Exhibit 14-3).
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15. How Do Managers Control Quality?
ISO 9000
A series of international quality standards that set uniform guidelines for processes to ensure that products conform to customer requirements
Six Sigma
A quality standard that establishes a goal of no more than 3.4 defects per million units or procedures
Many experts believe that organizations unable to produce high-quality products won’t be able to compete successfully in the global marketplace.
ISO 9000 is a series of international quality management standards established by the International Organization for Standardization ( which sets uniform guidelines for processes to ensure that products conform to customer requirements.
Very simply, Six Sigma is a quality standard that establishes a goal of no more than 3.4 defects per million units or procedures. What does the name mean? Sigma is the Greek letter that statisticians use to define a standard deviation from a bell curve
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17. How Are Projects Measured?
A one-time-only set of activities with a definite beginning and ending point
Project Management
The task of getting project activities done on time, within budget, and according to specifications
Project management is the task of getting the activities done on time, within budget, and according to specifications
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18. What Are Some Popular Project 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
Load Chart
A modified version of a Gantt chart that lists either whole departments or specific resources
The Gantt chart is a planning tool developed around the turn of the century by Henry Gantt. The idea behind the Gantt chart is relatively simple. It’s essentially a bar graph, with time on the horizontal axis and the activities to be scheduled on the vertical axis.
A modified version of the Gantt chart is a load chart. Instead of listing activities on the vertical axis, load charts list either whole departments or specific resources. This information allows managers to plan and control for capacity utilization.
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21. What is a 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
The program evaluation and review technique—usually just called PERT, or the PERT network analysis—was originally developed in the late 1950s for coordinating the more than 3,000 contractors and agencies working on the Polaris submarine weapon system.
A PERT network is a flowchart-like diagram that depicts the sequence of activities needed to complete a project and the time or costs associated with each activity.
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22. Elements of PERT Analysis
Events
End points that represent the completion of major activities
Activities
Actions that take place
Critical Path
The longest or most time-consuming sequence of events and activities required to complete a project in the shortest amount of time
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