Managing Operations

Every organization “produces” something,

whether it’s a good or a service. This chapter
focuses on how organizations do that through
a process called operations management. We
also look at the important role that managers
play in managing those operations. Focus on
the following learning outcomes as you read
and study this chapter.

Learning Outcomes
18.1 Explain the role of operations
management.
18.2 Define the nature and purpose of value
chain management. As your students have learned throughout this
18.3 Describe how value chain management course, organizational success in today’s highly
is done. competitive marketplace is based on effective and
18.4 Discuss contemporary issues in efficient management of all available resources. In
managing operations. their study of Chapter 18, students will have an
opportunity to gain a fundamental understanding
of important principles of operations management,
which encompasses both manufacturing and
services.

“A Manager’s Dilemma” describes the challenges

faced by Selexyz, a bookstore chain in the
Netherlands. Having had success with
implementing RFID technology in their Almere
bookstore, Selexyz has plans to implement the
system in the remaining 42 outlets. This new
technology is a huge advance over the old system
where employees would have to take inventory by
hand. Now, the exact location of every book in the
store can be determined in seconds.

Students are asked to picture themselves as the

manager in charge of implementing this plan.
How do they think it will be received by
employees? What would they do to ensure the
success of this plan? Ask students to think about
possible pitfalls of implementing the new
technology.

This Chapter examines topics of operations

management including productivity, value chain
management, e-manufacturing, and quality.
Following their study of this final chapter, be sure
to ask your students to give their insights and
suggestions concerning Selexyz’s dilemma.
ANNOTATED OUTLINE

INTRODUCTION
Studying the operating system of an organization is essential to an understanding of how a
company’s efficiency, productivity, value chain management, e-manufacturing, and controls
contribute to its success in producing goods and delivering services.

1. THE ROLE OF OPERATIONS MANAGEMENT

Operations management is the design, operation, and control of the transformation process that
converts resources into finished goods or services. Exhibit 18-1 illustrates a simplified operations
system. Operations management is important for three
key reasons:
A. Services and Manufacturing. Operations management encompasses both manufacturing
and services.
a. Manufacturing organizations are organizations that produce physical
goods.
b. Service organizations are organizations that produce nonphysical
outputs in the form of services.
B. Managing Productivity.
a. Productivity is the overall output of goods or services produced divided
by the inputs needed to generate that output.
b. W. Edwards Deming believed that managers, rather than workers, were
the primary source of increased productivity. Deming presented 14
points for improving management’s productivity. (See Exhibit 18-2)
C. Strategic Role of Operations Management. Through mistakes learned in the 1970’s when
the U.S. lost their position as the dominant force in manufacturing, organizations today
realize the importance of operations management to the overall strategy of the
organization.

2. WHAT IS VALUE CHAIN MANAGEMENT, AND WHY IS IT IMPORTANT?

This section of Chapter Nineteen examines several aspects of value chain management, including
its definition, goals, benefits, and potential obstacles to successful implementation.
A. What is value chain management?
In order to understand the term value chain management, students must first grasp the
meaning of several individual terms.
1. Value is the performance characteristics, features and attributes, and other
aspects of goods and services for which customers are willing to give up
resources.
2. The value chain is the entire series of organizational work activities that adds
value at each step from raw materials to finished product.
3. Value chain management, then, is the process of managing the sequence of
activities and information along the entire product chain.
B. Goal of Value Chain Management
Ultimately, customers possess the power in the value chain. The goal of value chain
management, therefore, is to create a value chain strategy that meets and exceeds
customers’ needs and desires, allowing full and seamless integration among all members
of the chain.
C. Benefits of Value Chain Management. Value chain management offers several
benefits, including:
 1. Improved procurement
2. Improved logistics
3. Improved product development
4. Enhanced customer order management
D. Requirements for Value Chain Management
See Exhibit 19-3 and PowerPoint slide 19-12 for a summary of six main requirements
for effective value chain management.
1. Coordination and collaboration among all members of the value chain
2. Investment in information technology
3. Organizational processes, which are the ways that organizational work is done.
Changes must be made, as illustrated below:
a. Improved demand forecasting is necessary and is enabled through closer
ties between customers and suppliers.
b. Selected functions may need to be accomplished collaboratively with
other partners in the value chain.
c. New measures are needed for evaluating performance of various
activities along the value chain.
4. Strong leadership is essential for successful value chain management.
5. An organization’s employees play an important role as well.
a. Traditional, functional job roles are inadequate in a value chain
environment.
b. Flexibility is the key to job design in a value chain management
organization, and the hiring of employees who have the ability to learn
and adapt to changing situations is a prerequisite for successful value
chain management in an organization.
6. Supportive organizational culture and attitudes are important as well.

?
Managing IT IT’s Role in Managing the
Value Chain
In today’s dynamic business world, rapid change has become a part of daily life. In order
to survive and to thrive in this volatile environment, companies must not only accept, but
also embrace change in realizing their organization’s vision for the future. As a basis for
class discussion of the role of IT in managing the value chain, ask your students who are
familiar with the term early adopter to share their understanding of the term with their
classmates. In being among the first to embrace and implement new technologies, early
adopters in IT serve as leaders for companies that follow their example.

After students have read about radio frequency identification (RFID) in their textbook,
divide the class into groups of four or five students and ask each group to do research
outside of class on one of the early adopters of this cutting-edge technology. Have each
group report their findings about the early adopter they chose in a group presentation to
the class. Each presentation should address topics such as the organization’s reasons for
becoming an early adopter, strategy employed in implementing RFID, obstacles incurred,
benefits and costs realized thus far, and strategic plans for the continued use of RFID by
the organization.

E. Obstacles to Value Chain Management (See Exhibit 18-4)

In successfully implementing value chain management, organizations face several
potential obstacles.
 1. Organizational barriers. These barriers are among the most difficult to handle.
They include refusal or reluctance to share information, reluctance to shake up
the status quo, and security issues.
2. Cultural attitudes. Unsupportive cultural attitudes—especially trust and
control—are also obstacles. In addition, organizations are vulnerable to theft of
intellectual property—proprietary information that is critical to an
organization’s efficient and effective functioning and competitiveness.
3. Required capabilities. A number of capabilities are required, including: extreme
coordination and collaboration, the ability to configure products to satisfy
customers and suppliers, and the ability to educate internal and external partners.
4. An organization’s people must be committed and willing to do whatever is
required to implement value chain management; in addition, employees must be
motivated to expend high levels of effort.
4. CURRENT ISSUES IN OPERATIONS MANAGEMENT
Three issues currently top managers’ lists for improving operations management: capitalizing on
e-manufacturing technology, and successfully implementing quality initiatives.
A. Technology’s Role in Manufacturing
Savvy companies are exploring ways to harness technology to improve operations
management.
B. Quality Initiatives
According to many experts, organizations that do not produce high-quality products will
be unable to compete successfully in the global marketplace.
1. Quality is the ability of a product or service to reliably do what it’s supposed to
do and to satisfy customer expectations.
2. Exhibit 18-5 provide a description of several quality dimensions.
3. How is quality achieved? A good way to address this question is in terms of the
four management functions: planning, organizing, leading, and controlling.
C. Quality Goals
Numerous organizations worldwide have pursued challenging quality goals. Two of the
most widely recognized quality goals are ISO 9000 and Six Sigma.
1. ISO 9000 is a series of international quality management standards that set
uniform guidelines for processes to ensure that products conform to customer
requirements.
2. Six Sigma is a quality standard that establishes a goal of no more than 3.4 defects
per million parts or procedures.
3. In summary, the key benefit of implementing value chain management comes
from the quality improvement journey itself, rather than the achievement of a
particular quality certification.
D. Mass Customization
Mass customization provides consumers with a product when, where, and how they want
it. Mass customization requires flexible manufacturing techniques and continual
dialogue with customers. Technology plays an important role in both of these efforts.