Operations as a

Competitive Weapon

Year Expected Cash

Demand Flow

0 80,000 ($150,000)

1 90,000 $90,000

2 100,000 $150,000

3 110,000 $210,000

4 120,000 $270,000

5 130,000 $300,000

IEM, CSU
 How Operations As a Competitive Weapon
fits the Operations Management
Philosophy

Operations As a Competitive
Weapon
Operations Strategy
Project Management Process Strategy
Process Analysis
Process Performance and Quality
Constraint Management
Process Layout Supply Chain Strategy
Lean Systems Location
Inventory Management
Forecasting
Sales and Operations Planning
Resource Planning
Scheduling

IEM, CSU
 FedEx

Why are they successful?

Fast
On-time deliveries
Relatively low cost
Technology in shipment tracking

IEM, CSU
 Operations Management is …

“The systematic design, direction and control

of processes that transform inputs into
services and products for internal, as well as
external, customers.”

Transformation Processes
Inputs Outputs
(Adding value)

IEM, CSU
 Operations Management
as a Function

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 Processes

 Processes should add value.

 Processes can be broken down into
sub-processes, which in turn can be broken
down further.
 Any process that is part of a larger process is
considered a “nested process.”
 Each process and each nested process has
inputs and outputs.
IEM, CSU
 Nested Processes

Advertisement Design and Planning Process

Creative design process Media planning process

• Receive work request • Receive work request
• Assemble team • Prepare several media
• Prepare several designs plans
• Receive inputs from • Receive inputs from
Account Executive Account Executive
• Prepare final concept • Prepare final plan
• Revise concept per • Revise plan per client’s
client’s inputs inputs

IEM, CSU
 Process View
of an Ad Agency

Accounting process

Advertisement Output interface

Inputs

Outputs
design and process
planning process • Communicate with
• Create the ad to the client, get needs, and
needs of the client coordinate progress
and prepare a plan
for media exposure

Production process
• Prepare ad for publication
and deliver to media
outlets

IEM, CSU
 External vs. Internal
Customers

 External Customers are those who purchase

the goods and services.
 Internal Customers are those who receive
the output of others within the firm. They are
part of the transformation process.
Outputs to
Inputs from
other
Transformation Processes Internal or
(Adding value) to External
processes
customers

IEM, CSU
 Service Processes and
Manufacturing Processes

Manufacturing processes change materials

in one or more of the following dimensions:
 Physical properties
 Shape
 Fixed dimensions
 Surface finish
 Joining parts and materials
If a process isn’t doing at least one of these, then it is
a service (non-manufacturing) process .

IEM, CSU
 Manufacturing
and Service

Goods Production Service Production

 Tangible  Intangible
 Can be inventoried  Can’t be inventoried
 Low customer contact  High customer contact
 Capital Intensive
 Labor Intensive
 Quality easily
measured  Quality hard to measure

Most firms provide both goods and services.

IEM, CSU
 Value Chains

 Value chains are an interrelated series of

processes that produce a service or product
to the satisfaction of customers.
 Value chains may have core processes or support
processes.
 Core processes deliver value to external
customers.
 Support processes provide vital inputs for
the core processes.

IEM, CSU
 Core Processes

1. Customer relationship processes

 Identify, attract, and build relationships with external
customers and facilitate the placement of orders.
2. New service/product development processes
 Design and develop new services or products from
inputs received from external customer specifications.
3. Order fulfillment processes
 The activities required to produce and deliver the service
or product to the external customers.
4. Supplier relationship processes
 Select suppliers of services, materials and information
and facilitate the timely and efficient flow of these items
into the firm.
IEM, CSU
 Support Processes
Internal Value-Chain Linkages
 Firms have many processes that support the core processes.

Support processes

External customers
External suppliers

New service/
product Customer
development relationship
process process

Supplier Order
relationship fulfillment
process process

IEM, CSU
 Progressive Insurance

 Grew from $1.3 billion to $11 in 13 years.

 How did they do it?
 Operational Innovation (Designing new processes)
 Immediate Response Claims Handling (24 hours a day).
 Streamlined claims processing, from 7 -10 days to 9 hours.
 Web site for agents only.
 Web site for customer information, inquiries and routine
processing.
 Agents quickly go to scene of accident.

IEM, CSU
 Operations as a Set of
Decisions

Basic Decision-making Steps

(1) Recognize and clearly define the problem.

(2) Collect the information needed to analyze
possible alternatives.
(3) Choose the most attractive alternative.
(4) Implement the chosen alternative.

IEM, CSU
 Operations as a Set of
Decisions

Strategic Decisions Tactical Decisions

 Development of new  Process improvement

capabilities and performance
 Maintenance of existing measures
capabilities  Management and
 Design of new planning of projects
processes  Generation of production
 Development and and staffing plans
organization of value  Inventory management
chains  Resource scheduling
 Key performance
measures
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 Productivity

 Productivity is the value of outputs (services

and products) produced, divided by the value
of input resources(wages, costs of equipment,
etc.)

Output
Productivity =
Input

IEM, CSU
 Productivity Calculation
Example 1.1

1. Single factor
Three employees process 600 insurance
policies in a week. They work 8 hours per day,
5 days per week. Calculate the productivity in
policies per hour.

Policies Processed
Labor productivity =
Employee Hours

600 Policies
= (3 Employees) (40 hours/employee) = 5 policies/hr

IEM, CSU
 Productivity Calculation
Example 1.1 continued

2. Multifactor
A team of workers makes 400 units of a product,
valued by its standard cost of $10 each (before
markups for other expenses and profit). The
accounting department reports that the actual costs
are $400 for labor, $1,000 for materials, and $300 for
overhead. Calculate the productivity.
Quality at standard cost
Multifactor productivity = Labor cost + Materials Cost + Overhead cost

(400 units) ($10/unit) $4,000

= = = 2.35
$400 + $1000 + $300 1,700
 These figures must be compared with performance levels in prior
periods and with future goals.
IEM, CSU
 Application

Calculate the year-to-date labor productivity:

Calculate the multifactor productivity:

IEM, CSU
 Global Competition

 Businesses accept the fact that, to prosper, they

must view customers, suppliers, facility locations, and
competitors in global terms.
 Most products today are composites of materials and
services from all over the world.
Forces that created increased global competition:
 Improved Transportation and Information Technologies
 Loosened regulations on Financial Institutions
 Increased Demand for Imported Services and Goods
 Reduced Import Quotas and other Trade Barriers
 Comparative Cost Advantages
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 Global Competition
Disadvantages

 May have to relinquish proprietary

technology.
 Political risks.
 Alienate U.S. customers by sending jobs
overseas.
 Lower skill levels in some areas.
 Difficulty with cross-functional coordination.
 Harder to produce products and services that
can compete.
IEM, CSU
 Other Challenges in
Operations Management

Rapid technological change

Ethical issues across cultures

Increasing diversity of the workforce

Environmental impact issues

IEM, CSU
 Addressing the Challenges
in Operations Management
Managing Value Chains

Managing Processes
Using Operations Supply Chain Strategy
to Compete

Process Strategy Location

Operations As a
Competitive Weapon Inventory Management
Process Analysis

Operations Strategy Process Performance Forecasting

& Quality

Constraint Management Sales & Operations

Project Management Planning

Process Layout
Resource Planning

Lean Systems Scheduling

IEM, CSU
 Solved Problem 1
a. Multifactor productivity is the ratio of the value of
output to the value of input resources

IEM, CSU
 Solved Problem 1
b. Labor productivity is the ratio of the value of
output to labor hours:

IEM, CSU
 Solved Problem 2

IEM, CSU