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CHAPTER 14
(Week 12)
Operations
Management:
Managing Vital
Operations
and Processes

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 Learning Objectives
14-1. Explain the role of operations management in
achieving superior quality, efficiency, and
responsiveness to customers.
14-2. Describe what customers want, and explain
why it is so important for managers to be
responsive to their needs.
14-3. Explain why achieving superior quality is so
important.
14-4. Explain why achieving superior efficiency is so
important.
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 Operations Management and Competitive
Advantage
Operations Management
The management of any aspect of the
production system that transforms inputs into
finished goods and services
Production System
The system that an organization uses to
acquire inputs, convert inputs into outputs,
and dispose of the outputs

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 Operations Management and Competitive
Advantage

Quality
Goods and services that are reliable, dependable, or
psychologically satisfying
Efficiency
Amount of inputs required to produce a given
output
Responsiveness to Customers
Action taken to meet the demands and needs of
customers
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 The Purpose of Operations Management

Figure 14.1
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 Improving Responsiveness to Customers
Without customers, organizations would cease to
exist.
• Nonprofit and for-profit firms all have customers.
• Managers need to identify who the customers are and
their wants or needs.
Most customers prefer:
• A lower price to a higher price
• High-quality products to low-quality products
• Quick service to slow service
• Many features over few features
• Products that are customized or tailored to their specific
needs
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 Designing Production Systems to Be Responsive to Customers

The attributes of an organization’s outputs—

their quality, cost, and features—are determined
by the organization’s production system.

Since the ability of an organization to satisfy the

demands of its customers derives from its
production system, managers need to devote
considerable attention to constantly improving
production systems.

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 Customer Relationship Management
Customer Relationship Management (CRM)
Technique that uses IT to develop an
ongoing relationship with customers to
maximize the value an organization can
deliver to them over time

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 Improving Quality
A firm that provides higher quality than others
at the same price is more responsive to
customers.

Higher quality can also lead to better efficiency

through lower operating costs.

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 Impact of Increased Quality on Organizational
Performance

Figure 14.2
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 Improving Efficiency

The fewer the inputs required to produce a

given output, the higher the efficiency of a
production system.

Total Factor Productivity

Looks at how well an organization utilizes all of its
resources—such as labor, capital, materials, or
energy—to produce its outputs

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 Facilities Layout, Flexible Manufacturing, and
Efficiency
Facilities Layout
The operations management strategy whose
goal is to design the machine-worker
interface to increase production system
efficiency

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 Three Facilities Layouts

Figure 14.3
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 Facilities Layout
Product Layout
• Machines are organized so that each operation is
performed at work stations arranged in a fixed
sequence.
• Example: Mass production systems are set up
where workers are stationary and a belt moves
work to them.

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 Facilities Layout
Process Layout
• Work stations not organized in a fixed sequence
• Relatively self-contained, a product goes to
whichever workstation is needed to perform the
next operation
• Provides flexibility in making a wide variety of
products tailored to different customer needs
• Reduces efficiency because it is expensive

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 Facilities Layout
Fixed-Position Layout
• The product stays in a fixed spot and components
that are produced at remote stations are brought
to the product for final assembly.
• For products that are complex and difficult to
assemble or so large that moving them from one
workstation to another would be difficult
• The assembly of large jet aircraft uses this type of
layout.

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 Facilities Layout, Flexible Manufacturing, and
Efficiency
Flexible Manufacturing
Operations management technique that
attempts to reduce the setup costs
associated with a production system

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 Flexible Manufacturing
• Flexible manufacturing aims to reduce the time
required to set up production equipment.
• Redesigning the manufacturing process so that
production equipment geared for
manufacturing one product can be quickly
replaced with equipment geared to make
another product can dramatically reduce setup
times and costs.
• Flexible manufacturing increases a company’s
ability to be responsive to its customers.
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 Just-in-Time Inventory and Efficiency
Inventory
The stock of raw materials, inputs, and
component parts that an organization has on
hand at a particular time
Just-in-Time (JIT) Inventory
A system in which parts or supplies arrive at
an organization when they are needed, not
before

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 Just-in-Time Inventory and Efficiency
One drawback of JIT systems is that they leave
an organization without a buffer stock of
inventory.
Although buffer stocks of inventory can be
expensive to store, they can help an
organization when it is affected by shortages of
inputs brought about by a disruption among
suppliers.

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 Self-Managed Work Teams and Efficiency

The use of empowered self-managed

teams can increase productivity and
efficiency.

Cost savings arise from eliminating

supervisors and creating a flatter
organizational hierarchy, which further
increases efficiency.
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 Process Reengineering and Efficiency
Process Reengineering
The fundamental rethinking and radical
redesign of the business process to achieve
dramatic improvements in critical measures
of performance such as cost, quality, service,
and speed

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 Process Reengineering and Efficiency

Process reengineering can boost efficiency

because it eliminates the time devoted to
activities that do not add value.

Top management’s role is to encourage

efficiency improvements by emphasizing
the need for continuous improvement or
reengineering.

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 Operations Management: Some Remaining
Issues
• Achieving superior responsiveness to
customers through quality and efficiency
often requires a profound shift in
management operations and in the culture of
an organization.
• Making JIT work can pose a significant
challenge.
• By using JIT, employees may see the demands
of their job increase or they may see
themselves reengineered out of a job.
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