The Role of Operations transformation process

Management should increase the value of

the inputs, leading to a
1. Inputs: These are the
higher output value.
resources a business uses
Service vs.
to create its products or
Manufacturing
services. Examples include:
The image differentiates
o Human Resources:
between service and
The workforce manufacturing operations.
(employees, While both involve
managers) transformation processes,
o Facilities &
they have key differences:
Processes: The  Services:
buildings, o Intangible product
equipment, and (cannot be touched
systems used in or seen)
production o No inventories
o Technologies:
(services are
Computers, software, typically consumed
and other tools immediately)
o Materials: Raw
o High customer
materials, contact
components, and o Short response time
supplies
o Labor-intensive
2. Transformation Process:
(relies heavily on
This is where the magic
human resources)
happens! It's the
Examples:
conversion of inputs into
 Manufacturing: A car
outputs. This could involve
manufacturer takes raw
manufacturing, assembly,
materials like steel, plastic,
service delivery, or any
and rubber and transforms
other value-adding activity.
them into a finished car.
3. Outputs: These are the
 Service: A restaurant takes
final products or services
raw ingredients, cooks
that a business offers to its
them, and provides a dining
customers.
experience to its
4. Customer Feedback &
customers.
Performance
In essence, Operations
Information: This loop
Management is about
ensures that the business is
making the best use of
meeting customer needs
resources to create high-
and continuously improving
quality products and
its processes.
services that satisfy
Value Added by Process
customer needs. It's a
The image also highlights
crucial function for any
the concept of "Value
business, whether it's a
Added by Process." This
small startup or a large
means that the
multinational corporation.
 Key techniques of to determine the production
Management Science levels of each product that
1. Inventory Modeling maximize profit while
 Goal: To determine the staying within the resource
optimal order quantity of constraints.
inventory to minimize the 3. Project Management
total cost associated with  Goal: To plan, schedule,
holding and ordering stock. and control projects
 Key Concept: Balancing effectively and efficiently.
the cost of holding  Key Technique: Critical
inventory (storage, Path Method (CPM) -
spoilage, etc.) with the cost Identifies the sequence of
of ordering inventory (order activities that must be
processing, transportation). completed on time to
 Example: A retailer needs ensure the project is
to decide how many units finished on schedule.
of a particular product to  Example: Building a house,
order from a supplier. launching a new product, or
Ordering in large quantities implementing a new
reduces the number of software system. CPM helps
orders placed but increases identify critical activities
holding costs. Ordering in that require close
small quantities reduces monitoring to avoid project
holding costs but increases delays.
ordering costs. The 4. Forecasting
Economic Order Quantity  Goal: To predict future
(EOQ) model helps demand for products or
determine the order services.
quantity that minimizes the  Techniques:
total cost. o Time Series
2. Linear Programming Analysis: Uses
 Goal: To find the best historical data to
solution (e.g., maximizing identify patterns and
profit, minimizing cost) trends (e.g., moving
when dealing with a set of averages,
constraints. exponential
 Key Concept: Formulating smoothing).
a problem as a set of linear o Causal
equations and inequalities, Forecasting:
then using mathematical Considers factors
algorithms to find the that influence
optimal solution. demand (e.g.,
 Example: A manufacturer economic conditions,
has limited resources competitor actions).
(labor, materials) and wants o Qualitative
to produce two different Forecasting: Relies
products. Linear on expert opinions
programming can be used
 and judgments (e.g., Inventory Management:
Delphi method).
 Focus: The overall process
 Example: A retail store
of controlling and
uses sales data from
overseeing inventory levels
previous years to forecast
throughout the supply
demand for holiday
chain.
merchandise. This
information helps them  Scope: Includes all
determine appropriate activities related to
inventory levels and inventory, from forecasting
staffing. demand and placing orders
5. Statistical Sampling & to receiving, storing, and
Quality Control tracking stock.
 Goal: To ensure that
products meet quality  Involves: Implementing
standards. strategies, policies, and
 Statistical Sampling: procedures to ensure the
Instead of inspecting every right amount of inventory is
item, a sample of items is available at the right time
inspected to draw to meet customer demand
conclusions about the while minimizing costs.
entire population. Think of it this way:
 Quality Control Charts:
Visual tools that track key  Inventory Modeling is like
quality characteristics over the blueprint or the
time. They help identify mathematical formula used
trends, detect anomalies, to design an efficient
and signal when a process inventory system.
is out of control.
 Inventory Management
 Example: A manufacturer
is the actual construction
of electronic components
and operation of the
randomly selects a sample
system based on the
of components from each
blueprint.
production batch to test for
defects. If the number of In summary: Inventory modeling
defects exceeds a certain provides the tools and techniques
threshold, the production for making decisions within the
process is investigated and broader context of inventory
corrected. management.
These techniques are
valuable tools for
businesses to make
informed decisions,
improve efficiency, and
gain a competitive
advantage.
 Investment in tools and
technology: Modern
equipment, machinery, and
technology can significantly
increase output per worker.
Cost of Capital: Inflation and
taxes can increase the cost of
capital, making it more
expensive for businesses to
invest in new equipment and
technology.
3. Management (52%):
Effective leadership: Good
management is crucial for
ensuring that labor and capital
are used efficiently. This
includes setting clear goals,
Productivity Variables motivating employees, and
making sound decisions.
Productivity is a measure of how
efficiently resources are used to Operational efficiency:
produce output. The factors Streamlining processes,
contributing to productivity minimizing waste, and improving
growth include: coordination can significantly
boost productivity.
1. Labor (10%):
Challenges for Improved
Education: A well-educated
Productivity
workforce is more productive.
Basic education provides 1. Maintaining and
foundational skills, while Enhancing Labor Skills:
specialized training enhances Rapid technological
skills relevant to specific jobs. advancements require
continuous learning and
Diet and Nutrition: A healthy
adaptation. Workers need
and well-nourished workforce has
to acquire new skills and
more energy and is less prone to
knowledge to remain
illness, leading to higher
competitive in the job
productivity.
market.
Social Overhead: This refers to
2. Capital Costs: Rising costs
the infrastructure that supports a
of capital due to inflation
productive workforce, such as
and taxes can hinder
healthcare, transportation, and
investment in new
affordable housing.
equipment and technology,
2. Capital (38%): which is essential for
productivity growth.
Service Productivity waste, and adopting eco-friendly
manufacturing processes.
 Labor-intensive: Services
often rely heavily on human Example: Ensuring product
labor, making it challenging safety and quality through
to increase productivity rigorous testing and quality
through automation. control measures.
 Focus on Individual Training, Retaining, and
Needs: Services are often Motivating Employees in a
tailored to individual Safe Workplace:
customer needs and
Example: Providing safe working
preferences, making it
conditions, fair wages and
difficult to standardize
benefits, and opportunities for
processes for efficiency
professional development.
gains.
Example: Creating a positive and
 Intellectual Tasks: Many
inclusive work environment that
services involve intellectual
fosters employee engagement
tasks performed by
and motivation.
professionals, making it
difficult to measure and  Honoring Stakeholder
improve productivity in the Commitments:
same way as
manufacturing. o Example: Meeting
the needs and
 Difficult to Mechanize: expectations of
Many service activities are customers, suppliers,
inherently human-based and other
and cannot be easily stakeholders.Exampl
automated. e: Being socially
 Quality Evaluation: responsible by
Assessing the quality of supporting local
services can be subjective communities and
and challenging, making it minimizing the
difficult to identify areas for environmental
improvement. impact of operations.

Ethics and Social

Responsibility
Operations managers face several
ethical and social challenges:
Developing and Producing
Safe, High-Quality, and Green
Products:
Example: Minimizing
environmental impact by using
sustainable materials, reducing
Chapter 2

Product Design and Development,

using
 and exclusive designs (e.g., Rolex
watches, Louis Vuitton bags).
Technology Companies:
Develop innovative features and
cutting-edge technology (e.g.,
Apple's iPhone, Tesla's self-driving
cars).
Product Design Low Cost: Aiming to produce and
Core Product vs. Augmented deliver products at the lowest
Product: possible cost.

Core Product: The fundamental Example:

need or benefit the customer Fast-Fashion Retailers: Utilize
seeks. efficient supply chains, mass
Example: A customer buying a car production, and low-cost materials
primarily seeks transportation. (e.g., Zara, H&M).

Augmented Product:The Discount Retailers: Offer basic

additional features, benefits, or products with limited features at
services that differentiate the competitive prices (e.g., Walmart,
product and add value. Aldi).

Example: A car manufacturer Rapid Response: Adapting

might offer features like a sunroof, quickly to changing market
premium sound system, or a demands and customer
warranty as part of the preferences.
augmented product to make their Example:
car stand out from competitors.
Technology Companies:
Customer-Centric Design: Regularly releasing software
Focusing on understanding updates and new product versions
customer needs and preferences to address customer needs and
throughout the design process. stay ahead of competitors (e.g.,
Google, Microsoft).
Example: Conducting market
research, gathering customer Retailers: Quickly adjusting
feedback, and using customer inventory levels based on real-
data to inform design decisions. time sales data and customer
demand.
Product Strategy
Product Life Cycle
Differentiation: Creating a
unique and distinct product Introduction Stage:
offering. Example: A new smartphone
Example: model is launched. Initial sales are
low as the market is still learning
Luxury Brands: Focus on high- about the product. Marketing
quality materials, craftsmanship, efforts focus on creating
awareness and generating initial Sustainability: Designing
demand. products with minimal
environmental impact, using
Growth Stage:
recycled materials, and reducing
Example: The smartphone waste.
becomes popular and sales
Ethics: Ensuring fair labor
increase rapidly. Competitors may
practices, ethical sourcing of
enter the market. The company
materials, and responsible
focuses on expanding production
product disposal.
capacity and improving
distribution channels. Innovation: Continuously
developing new and improved
Maturity Stage:
products to stay ahead of the
Example: Sales growth slows competition.
down as the market becomes
saturated. Competition intensifies,
and prices may start to decline.
The company focuses on cost
reduction, product improvements,
and maintaining market share.
Decline Stage:
Example: Sales decline
significantly as the product
becomes obsolete or is replaced
by newer technologies. The
company may decide to
discontinue the product or
reposition it for a niche market.
Product by Value Analysis
Example: A company analyzes its
product line and finds that Product
A generates the highest revenue
and profit margin. This analysis
helps the company prioritize
resources and focus on improving
Product A while potentially
phasing out less profitable
products.
Key Considerations in Product
Design and Development:
 Example: In the past, a car

manufacturer might have had

separate teams for design,
Organizing for Product
engineering, and manufacturing.
Development
The design team would create the
Historical Approach (Distinct car's aesthetics, the engineering
Departments): team would focus on technical
specifications, and the
Structure: Traditionally, product manufacturing team would handle
development involved separate production. This could lead to
departments (e.g., engineering, situations where design features
marketing, manufacturing) were not feasible to manufacture
working in isolation. or engineering specifications were
Challenges: This siloed approach not aligned with customer
often led to communication preferences.
breakdowns, delays, and a lack of Team Approach (Cross-
integration. It hindered forward- functional Teams):
thinking and innovation as
departments focused on their own Structure: Today, many
objectives. organizations utilize cross-
functional teams with
representatives from various
departments (engineering,
marketing, manufacturing, etc.).
Concurrent Engineering: This Concept: Breaking down a
approach emphasizes product into smaller,
simultaneous activities, allowing interchangeable modules.
for faster development cycles and
Benefits: Improves flexibility in
improved communication.
production and marketing, allows
Example: In the modern car for easier customization, and
manufacturing process, a cross- simplifies repairs and
functional team might include maintenance.
designers, engineers,
Example: A modular smartphone
manufacturing specialists, and
allows users to easily upgrade
marketing representatives. This
components like the battery,
team would work together
camera, or memory. This modular
throughout the entire
design provides flexibility for
development process, ensuring
users and simplifies repairs for
that design, engineering, and
manufacturers.
manufacturing considerations are
integrated from the outset. This Computer-Aided Design (CAD):
collaborative approach can lead to
faster development times, Benefits: Shortens development
reduced costs, and products that cycles, improves accuracy,
better meet customer needs. reduces costs, and enables global
collaboration.
Issues for Product
Development Example: Using CAD software,
engineers can create detailed 3D
Robust Design: models of a product, simulate its
performance, and identify
Goal: Designing products that can
potential design flaws before
withstand variations in
physical prototypes are built. This
manufacturing, assembly, and
can significantly reduce the time
operating conditions.
and cost of the development
Benefits: Reduces production process.
costs, improves product quality,
Computer-Aided
and increases customer
Manufacturing (CAM):
satisfaction.
Benefits: Automates
Example: A manufacturer of
manufacturing processes,
consumer electronics might
improves efficiency, and enhances
design a product to withstand
precision.
drops, temperature fluctuations,
and other environmental stresses. Example: CAM systems can
This ensures that the product control machine tools, such as
functions reliably in real-world CNC machines, to automatically
conditions, reducing the number produce parts based on CAD
of returns and warranty claims. designs. This eliminates the need
for manual intervention, reducing
Modular Design:
errors and improving productivity.
Virtual Reality Technology:
Benefits: Allows for visualization Competitive Advantage:
and testing of product designs Companies that can develop and
before physical prototypes are introduce new products faster
created, leading to better design gain a significant competitive
decisions and reduced advantage. * Example: In the
development time. smartphone industry, companies
like Apple and Samsung
Example: Using VR technology,
constantly introduce new models
engineers can create virtual
with improved features and
prototypes of complex products
capabilities. The ability to quickly
like airplanes or buildings. They
develop and launch new products
can then "walk through" the
is crucial for maintaining market
virtual models to identify potential
leadership.
problems and make design
adjustments before any physical Acquiring Technology
construction begins.
Purchasing a Firm: Acquiring
Value Analysis: another company can provide
access to new technologies and
Focus: Identifying areas for
expertise.
improvement in product design to
reduce costs or enhance Example: A company that wants
functionality. to develop a new line of electric
vehicles might acquire a battery
Example: A team might analyze
technology company to gain
the materials used in a product to
access to their expertise and
identify less expensive
intellectual property.
alternatives that maintain
performance. They might also Joint Ventures: Collaborative
look for ways to simplify the efforts between two or more
manufacturing process to reduce organizations can facilitate
labor costs. knowledge sharing and risk
mitigation.
Environmentally Friendly
Design: Example: Two pharmaceutical
companies might form a joint
Goals: Minimize environmental
venture to develop a new drug,
impact, conserve resources, and
pooling their resources and
comply with environmental
expertise to accelerate the
regulations.
development process.
Example: Designing products
Alliances: Cooperative
with minimal packaging, using
agreements between independent
recycled materials, and reducing
organizations can enable access
energy consumption during
to technology and resources
manufacturing and operation.
without requiring full ownership.
Time-Based Competition
Example: A technology company
Challenge: Rapid technological might form an alliance with a
change and shorter product life university to collaborate on
cycles. research and development,
providing access to cutting-edge
research and talented
researchers.
In Summary
The effective organization of
product development is critical for
success in today's competitive
environment. By embracing cross-
functional teams, utilizing
advanced technologies, and
focusing on sustainability and
time-to-market, organizations can
improve their product
development processes and gain
a competitive edge.
Defining the Product Assembly Chart: Outlines the
production flow, indicating how
First Definition (Functions):
components are assembled into
The initial definition of a product
subassemblies and ultimately into
focuses on its intended functions
the final product.8
or purposes.
Route Sheet: Specifies the
Example: A smartphone's core
sequence of operations and the
function is communication, but it
time required for each operation
also serves as a camera, music
in the manufacturing process.9
player, and internet access
device.1 Work Order: An instruction to
produce a specific quantity of a
Rigorous Specifications: During
particular item, often with a
the design phase, detailed
deadline.10
specifications are developed,
outlining the product's Engineering Change Notice
dimensions, materials, tolerances, (ECN): A formal document that
and performance characteristics.2 records any changes to the
product design or specifications.11
Manufactured Products:
Configuration Management
Engineering Drawing: A
detailed blueprint that provides Importance: Managing ECNs is
precise information about the crucial to ensure that all product
product's dimensions, tolerances, documentation and
and materials.3 manufacturing processes are
updated to reflect any changes.12
Bill of Material (BOM): A list of
all the components required to Key Aspects: Tracking changes,
manufacture a product, including maintaining accurate records, and
their quantities and how they are ensuring that all stakeholders are
assembled.4 informed of any modifications.13
Product Documents Service Design
Engineering Drawing: Provides Customer Interaction: Service
crucial information for delivery often involves direct
manufacturing and assembly.5 interaction with customers,
providing opportunities for
Bill of Material: Essential for
customization but also increasing
ordering components, planning
the complexity of the service
production schedules, and
process.
managing inventory.6
Cost and Quality: Determined
Documents for Production
during the design stage, just as in
Assembly Drawing: Shows the manufacturing.
exploded view of the product,
Strategies for Service Design:
illustrating the assembly
sequence.7 Delay Customization: Allow
customers to customize certain
aspects of the service at a later Assign probabilities and payoffs to
stage. each outcome.
Modularization: Break down the Calculate the expected value of
service into smaller, standardized each alternative.
modules that can be easily
Select the alternative with the
adapted to individual customer
highest expected value.
needs.
Transition to Production
Reduce Customer Interaction:
Automate certain aspects of the Trial Production: A pilot run to
service delivery process to test the production process and
improve efficiency and identify any issues before full-
consistency.14 scale production begins.15
Moments of Truth Responsibility Transition: As
the product moves through its life
Concept by Jan Carlzon: Critical
cycle, responsibility for the
interactions between the
product may shift between
customer and the organization
different departments within the
that significantly impact customer
organization.
satisfaction.
Key Takeaways
Examples: A customer's initial
phone call to a service provider, Defining the product clearly and
the check-in process at a hotel, or accurately is crucial for successful
the interaction with a customer product development and
service representative. manufacturing.
Documents for Services Proper documentation is essential
for maintaining control over the
Job Instructions: Detailed
product and ensuring smooth
instructions for employees on how
production.16
to perform specific tasks during
customer interactions. Service design requires a focus on
customer interaction and the
Scripts and Storyboards: Used
creation of positive customer
to guide employee interactions
experiences.17
with customers, ensuring
consistency and professionalism. Decision-making tools like
decision trees can help evaluate
Application of Decision Trees
design alternatives and make
to Product Design
informed choices.
Useful for: Evaluating design
alternatives with multiple decision
points and potential outcomes.
Process:
Identify all possible alternatives
and their potential outcomes.