Operations and Supply Management (OSM): the Design, Operation, and Improvement of the Systems

Operations and supply management (OSM): The design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. Functional field of business. Clear line management responsibilities. Concerned with the management of the entire system that produces a good or delivers a service. The three major functions of an organization must work together for the organization to function successfully. 1.Operations. 2.Marketing. 3.Finance. Must understand their role and the roles of the other functions. Significant interface between the functions. Exchange of information. Cooperative decision-making. Impact of decisions of one function on others. Four Basic Operations Management Functions. Planning: Provides the basis for future activities by developing strategies, goals and objectives and establishing guidelines, actions and schedules to meet them. Organizing: The process of bringing together the resources (people, material, equipment, technology, information and capital) necessary to perform planned activities. Directing: The process of turning plans into realities by assigning specific tasks and responsibilities to employees, motivating them and coordinating their efforts. Controlling: Evaluating performance and applying corrective measures to ensure that plans are achieved. Success in today’s global markets requires a business strategy that matches the preferences of customers with the realities of supply networks. A sustainable strategy is critical 1.Meets the needs of shareholders and employees. 2.Preserves the environment. Supply refers to processes that move information and material to and from the manufacturing and service processes of the firm. Work Involved in Each Type of Process Planning: the processes needed to operate an existing supply chain strategically. Sourcing: the selection of suppliers that will deliver the goods and services needed to create the firm’s product. Making: Where the major product is produced or the service provided. Delivering: carriers are picked to move products to warehouses and customers. Returning: the processes for receiving worn-out, defective, and excess products back from customers. Good: a physical product that you can see, touch, or possibly consume. Durable good: a product that typically lasts at least three years. Non-durable good: perishable and generally lasts for less than three years. Service: any primary or complementary activity that does not directly produce a physical product. Service encounter: an interaction between the customer and the service provider. Service encounters consist of one or more “moments of truth” in which a customer comes into contact with any aspect of the delivery system, and thereby has an opportunity to form an impression. Goods and services provide value and satisfaction to customers who purchase and use them. They both can be standardized or customized to individual wants and needs. Operations and supply management creates and delivers good or service. 1.Goods are tangible while services are intangible. 2.Customers participate in many service processes, activities, and transactions. 3.The demand for services is more difficult to predict than the demand for goods. 4.Services are perishable, time dependent and cannot be stored as physical inventory. 5.Service management skills are paramount to a successful service encounter. 6.Service facilities typically need to be in close proximity to the customer. 7.Patents protect goods, they do not protect services. Quality: the degree to which the output of a process meets customer requirements. Goods quality: the physical performance and characteristics of a good. Performance: a good’s primary operating characteristics. Features: the “bells and whistles” of a good. Reliability: the probability of a good’s surviving over a specified period of time under stated conditions of its use. Conformance: the degree to which physical and performance characteristics of a good match preestablished standards. Durability: the amount of use one gets from a good before it physically deteriorates or until replacement is preferred. Serviceability: the speed, courtesy and competence of repair work. Aesthetics: how a good looks, feels, sounds, tastes or smells. Service quality: consistently meeting or exceeding customer expectations (external focus) and service delivery system performance (internal focus) for all service encounters. Tangibles: physical facilities, uniforms, equipment, vehicles, and appearance of employees. Reliability: ability to perform the promised service dependably and accurately. Responsiveness: willingness to help customers and provide prompt recovery to service upsets. Assurance: knowledge and courtesy of the service-providers, and their ability to inspire trust and confidence in customers. Empathy: caring attitude and individualized attention provided to its customers. Quality of Goods and Services: Three types of attributes to evaluate the quality of goods and services. 1.Search attributes: are those attributes that a customer can determine prior to purchasing the goods and/or services. 2.Experience attributes: are those attributes that can be discerned only after purchase or during consumption or use. 3.Credence attributes: are any aspects of a good or service that the customer must believe in, but cannot personally evaluate even after purchase and consumption. Goods are easier to evaluate than services. Efficiency: Doing something at the lowest possible cost. Effectiveness: Doing the right things to create the most value for the company. Value = Perceived benefits / Price (cost) to the customer. If the value ratio is high, the good or service is perceived favorably by customers, and the organization providing it is more likely to be successful. To increase value, an organization must either: 1. Increase perceived benefits while holding price or cost constant. 2.Decrease price or cost while holding perceived benefits constant. 3.Increase perceived benefits while reducing price or cost. Value chain: a network of facilities and processes that describes the flow of goods, services, information, and financial transactions from suppliers through the facilities and processes that create goods and services and deliver them to customers. A value chain is a “cradle-to-grave” model of the operations function. The value chain begins with suppliers that provide inputs. Inputs are transformed (value is added) into outputs. Value is added through processes or networks of work activities. The value chain outputs are goods and services. Goods and services are delivered to customers and targeted market segments. Current Issues in Operations and Supply Management 1.Coordinating the relationship between mutually supportive but separate organizations. 2.Optimizing global suppliers, production, and distribution networks. 3.Managing customer touch points. 4.Raising senior management awareness of operations as a significant competitive weapon. 5.Sustainability: the ability to maintain balance in a system. Triple bottom line: relates to the economic, employee and environmental viability of the firm. Strategy: a plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. Core competencies: the strengths unique to that organization. Strategic planning: the process of determining long-term 3-5 yr. goals, policies, and plans for an organization as a result of hierarchical decisions about goals, directions, and resources. Vision: where the organization is headed and what it intends to be. Mission: the reason for existence for an organization. Mission Statement: the purpose of an organization. Goals: provide detail and scope of mission. Strategies: plans for achieving organizational goals. Tactics: methods and actions taken to accomplish strategies. Most large corporations have three levels of strategy: 1.Corporate Strategy: defines the businesses in which the corporation will participate and develops plans for the acquisition and allocation of resources among those businesses. Businesses are often called Strategic Business Units (SBUs). 2.Business Strategy: defines the focus for the SBU and involves which markets to pursue and how best to compete in those markets. 3.Functional Strategy: the set of decisions that each functional area develops to support its particular business strategy. 4.Operations strategy: how an organization’s processes are designed and organized to produce the type of goods and services to support the business strategies. The value chain can be leveraged to provide a distinct competitive advantage, and that operations is a core competency for the organization. Whoever has superior operational capability over the long term is the odds-on-favorite to win the industry shakeout. A Sustainable Strategy: The strategy should describe how a firm intends to create and sustain value for its current shareholders. Shareholders: individuals or companies that legally own one or more shares of stock in the company. Sustainability: being able to meet current needs without compromising the ability of future generations to meet their own needs. Stakeholders: individuals or organizations who are influenced, either directly or indirectly, by the actions of the firm. An expanded view of business is that a firm must not only focus on the economic viability of its shareholders, but also consider the environmental and social impact on key stakeholders. Triple Bottom Line: 1.Social Responsibility: pertains to fair and beneficial business practices toward labor, the community, and the region in which a firm conducts its business. 2.Economic Prosperity: the firm’s obligation to compensate shareholders who provide capital via competitive returns on investment. 3.Environmental Stewardship: the firm’s impact on the environment. Operations Management Decisions. Strategic decisions are long-term decisions and concern the determination of broad policies and plans for using the resources of a company to best support its long-term competitive strategy. Tactical decisions primarily address how to efficiently manage capacity, inventory and schedules within the constraints of previously made strategic decisions. Operations decisions are narrow and short-term by comparison and act under the operation constraints set out by the strategic and tactical management decisions. Three classes of customer requirements: 1.Dissatisfiers: requirements that are expected in a good or service. If these features are not present, the customer is dissatisfied, sometimes very dissatisfied. 2.Satisfiers: requirements that customers say they want. Exciters/delighters: new or innovative good or service features that customers do not expect. Order qualifiers: basic customer expectations (dissatisfiers and satisfiers) are generally considered the minimum performance level required to stay in business. Order winners: goods and service features and performance characteristics that differentiate one firm from another, and win the customer's business. Competitive advantage: a firm’s ability to achieve market and financial superiority over its competitors. Driven by customer needs and aligns the organization's resources with its business opportunities. A strong competitive advantage is difficult to copy often because of a firm’s culture, habits, or sunk costs. Competitive priorities: the strategic emphasis that a firm places on certain performance measures and operational capabilities within a value chain. Price: make the product or deliver the service cheap. Quality: make a great product or deliver a great service. Delivery speed: make the product or deliver the service quickly. Delivery reliability: deliver it when promised. Coping with changes in demand: change its volume. Flexibility and new product introduction speed: change it. Other Product-Specific Criteria: Technical liaison and support, meeting a launch date, supplier after-sale support, environmental impact. Competitive Priorities: 1)Cost Almost every industry has a low price market segment. 2)Quality Researchers have found that: 1.Businesses offering premium quality goods usually have large market shares and were early entrants into their markets. 2.Quality is positively and significantly related to a higher return on investment for almost all kinds of market situations. 3.A strategy of quality improvement usually leads to increased market share, but at a cost in terms of reduced short-run profitability. 4.High goods quality producers can usually charge premium prices. 3)Time Time is perhaps the most important source of competitive advantage. Customers demand quick response, short waiting times, and consistency in performance. Reductions in flow time serve two purposes: 1.Speed up work processes so that customer response is improved. Deliveries can be made faster, and more often on-time 2.Reductions in flow time can be accomplished only by streamlining and simplifying processes and value chains to eliminate non-value-added steps such as rework and waiting time. Flow time reductions often drive simultaneous improvements in quality, cost, and productivity. 4)Flexibility Mass customization: being able to make whatever goods and services the customer wants, at any volume, at any time for anybody, and for a global organization, from any place in the world. High-levels of flexibility might require special strategies such as modular designs, interchangeable components, and postponement strategies. Flexible operations require sharing manufacturing lines and specialized training for employees. Flexible operations may also require attention to outsourcing decisions, agreements with key suppliers, and innovative partnering arrangements, because delayed shipments and a complex supply chain can hinder flexibility. 5)Innovation: the discovery and practical application or commercialization of a device, method, or idea that differs from existing norms. Innovations in all forms encapsulate human knowledge. Innovations take many forms, such as: 1.Physical goods such as telephones, automobiles, refrigerators, computers, optical fiber, satellites, and cell phones. 2.Services such as self-service, all-suite hotels, health maintenance organizations, and Internet banking. 3.Manufacturing such as computer-aided design, robotic automation, and smart tags. 4.Management practices such as customer satisfaction surveys, quantitative decision models, and Six Sigma. Trade-offs occur when activities are incompatible so that more of one thing necessitates less of another. Operations cannot excel simultaneously on all competitive dimensions. Management must decide which parameters of performance are critical to the firm’s success and concentrate on those. Strategic Fit: All the activities that make up a firm’s operation relate to one another. To be efficient, must minimize total cost without compromising on customer needs. Straddling: Firm seeks to match competitors by offering new tech, service, product. While maintaining existing position, It may fail re tradeoffs and probs. Activity-system maps: show how a company’s strategy is delivered through a set of tailored activities. Productivity: A measure of the effective use of resources, expressed as the ratio of output of a process to the input. Productivity is a common measure of how well an organization is using its resources and is fundamental to understanding operations-related performance. Planning workforce requirements, scheduling equipment, financial analysis. Productivity is a relative measure. Can be compared with similar operations within its industry and/or over time. Productivity may be expressed as: 1.Partial measures: output to one input. 2.Multifactor measures: output to a group of inputs. 3.Total measures: output to all inputs. Managers must understand the cause and effect linkages between key measures of performance to explain the impact of operational performance on external results. Interlinking: the quantitative modeling of cause and effect relationships between external and internal performance criteria. Value of a Loyal Customer (VLC): quantifies the total revenue or profit each target market customer generates over some time frame.