Lecture 2 (1) (1)

Copyright © 2014 - Fadi Kotob

SESSION 2


Chapter 1 !

Goods, Services and Operations Management


Learning Objectives

Adapted - Boyer & Verma (2010). Operations and Supply Chain Management for the 21st Century, South-Western, Cengage Learning. ISBN-13: 978-0-618-74933-1

-Explain the concept and importance of operations management. -Describe what operations managers do. -Explain the differences between goods and services. -Describe a customer benefit package. -Explain the role of processes in OM and identify three general types of processes. -Summarise the historical development of OM. -Describe current challenges facing OM.


World Class Operations Management

Adapted - Fawcett, Ellram (2007). Supply Chain Management: From Vision to Implementation, Pearson Prentice Hall, ISBN-0-13-101504-4


Adapted - Collier & Evans (2013). OM4, South-Western, Cengage Learning. ISBN-13: 978-1-133-37242-4

Operations management (OM) is the science and art of ensuring that goods and services are created and delivered successfully to customers. It includes:

− The design of goods, services, and the processes that

create them.

− The day-to-day management of those processes.

− The continual improvement of these goods, services, and

processes.


More On Defining Operations Management



Three Issues at the Core of Operations Management:

• Efficiency

• Cost

• Quality


Operations Management Core Issues



!• Forecasting • Supply chain management • Facility layout and design • Technology selection • Quality management • Purchasing • Resource and capacity management • Process design • Job design • Service encounter design • Scheduling • Sustainability


What Do Operations Managers Do?

Recall Operations Management Process ViewThe process that effectively produce, transform, and deliver a product or

service

!!!!!!!!!!!!What is a process?

Any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers.

Adapted - Krajewski, Malhotra & Ritzman (2013). Operations Management Processes And Supply Chains, Pearson Education Limited, ISBN: 9780273766834




What is a good?

• A good is a physical product that you can see, touch, or possibly consume. It is divided into two categories: !

- A durable good is a product that typically lasts at least three years.

• Examples: Vehicles, dishwashers, and furniture.

!- A non-durable good is perishable and generally

lasts for less than three years. • Examples are toothpaste, software, shoes,

and fruit.

OM & Delivering Goods & Services



What is a service?

• A service is any primary or complementary activity that does not directly produce a physical product.

OM & Delivering Goods & Services



There are many similarities between good and services which are: !1. Goods and services provide value and satisfaction to

customers who purchase and use them.

2. They both can be standardised or customised to individual wants and needs.

3. A process creates and delivers each good or service, and therefore, OM is a critical skill.

Similarities Between Goods & Services



There are also many differences which are: !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 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 do not protect services.

Differences Between Goods & Services



!When delivering goods and services, organisations should think about the service encounter.

!• As part of the service delivery part of the transaction, there is an

important service encounter where there is an interaction between the customer and the service provider. !

• These encounters consist of one or more moments of truth—any episodes, transactions, or experiences in which a customer comes into contact with any aspect of the delivery system, however remote, and thereby has an opportunity to form an impression.

!• Examples: − A gracious welcome by an employee at a hotel check-in counter − A grocery store employee who seems too impatient to help − Trying to navigate a confusing Web site

Delivering The Service Encounter



!When delivering goods and services, organisations should build a suitable customer benefit package. !• A customer benefit package (CBP) is a clearly defined set of

tangible (goods-content) and intangible (service-content) features

that the customer recognises, pays for, uses, or experiences.

!• In simple terms, a CBP is some combination of goods and services

configured in a certain way to provide value to customers.

!• A CBP consists of a primary good or service, coupled with

peripheral goods and/or services.

Delivering The Customer Benefit Package



!

• A primary good or service is the “core” offering that attracts customers and responds to their basic needs. For example, the primary service of a personal checking account is the capability to do convenient financial transactions.

• Examples: − an airline flight − a checking account − a brief case − a football game − tax preparation advice


Delivering The Customer Benefit Package Continued



!

• Peripheral goods or services are those that are not essential to the primary good or service, but enhance it.

• Examples for a personal checking account: − online access and bill payment − debit card − designer checks − paper or electronic account statement




!

• A variant is a CBP attribute that departs from the standard CBP and is normally location- or firm-specific.

• Example: − a fishing pond or pool at an automobile dealership

where kids can fish while the parents shop for vehicles




Exhibit 1.2 A CBP Example for Purchasing a Vehicle


The Customer Benefit Package Example



!

• Nowadays, many “goods” and “services” have a mixture of both goods and service content.

Exhibit 1.3 Examples of Goods and Service Content


The Mixed Customer Benefit Package



!Furthermore, many organisations are increasing focusing o the practice of Biztainment which involves adding entertainment content to a bundle of goods and services in order to gain a competitive advantage.

The Customer Benefit Package & Biztainment



!

Because the old business model of just selling and servicing a physical vehicle is gone.

- People would not buy it !Because data shows that this approach attracts more customers and are willing to pay higher rates

- This results in higher profits. !!However, delivering all of these products and services requires well designed processes.

Why Biztainment?



What is a process?

• A process is a sequence of activities that is intended to create a certain result. !

• Processes are the means by which goods and services—the components of a CBP—are produced and delivered.

The Role Of Processes To Deliver Goods & Services



These processed are divided into 3 types and often involve networks of processes known as value chains which cross traditional organisational boundaries. These types are: !• Value creation processes, focused on producing or delivering an

organisation’s primary goods or services, such as filling and shipping a customer’s order, assembling a dishwasher, or providing a home mortgage. !

• Support processes, such as purchasing materials and supplies used in manufacturing, managing inventory, installation, health benefits, technology acquisition, day care on-site services, and research and development. !

• General management processes, including accounting and information systems, human resource management, and marketing.

Type Of Processes


Adapted - Collier & Evans (2013). OM4, South-Western, Cengage Learning. ISBN-13: 978-1-133-37242-4Adapted - Collier & Evans (2013). OM4, South-Western, Cengage Learning. ISBN-13: 978-1-133-37242-4

The Seven Eras Of Operations ManagementOn another hand, the focus of operations management has changed with time as can be seen in the image below.



!

Nowadays, the increasing focus on sustainability is becoming concerned with an organisation’s ability to strategically address current business needs and successfully develop a long-term strategy that embraces opportunities and manages risk for all products, systems, supply chains, and processes to preserve resources for future generations.

Operations Management & Sustainability



This sustainability is a challenge where organisations are forced to focus on the different views seen below:

• Environmental sustainability is an organisation’s commitment to the long-term qual i ty of our environment.

• Social sustainability is an organisation’s commitment to maintain healthy communities and a society that improves the quality of life.

• Economic sustainability is an organisation’s commitment to address current business needs and economic vitality, and to have the agility and strategic management to prepare successfully for future business, markets, and operating environments.

Operations Management & Sustainability Continued



!Other challenges include:

• Technology

• Globalisation

• Changing customer expectations

• Changing job designs

• Quality

• Global manufacturing

Current Operations Management Challenges


Thank You For Your Time


Chapter 2 !

Value Chains


Learning Objectives


-Explain the concept of value and how it can be increased. -Describe a value chain and the two major perspectives that characterise it. -Explain outsourcing and vertical integration in value chains. -Explain offshoring and issues that managers must consider in offshoring decisions. -Identify important issues associated with value chains in a global business environment. -Describe how sustainability plays an important role in value chains.



!

• The underlying purpose of every organisation is to provide value to its customer and stakeholders. !

• Value is the perception of the benefits associated with a good, service, or bundle of goods and services (i.e., the customer benefit package) in relation to what buyers are willing to pay for them.

The Concept Of Value

Perceived benefits Value = Price (cost) to the customer



If the value ratio is high, the good or service is perceived favourably by customers, and the organisation providing it is more likely to be successful. !!To increase value, an organisation must: !(a) increase perceived benefits while holding price or cost constant, (b) increase perceived benefits while reducing price or cost, or (c) decrease price or cost while holding perceived benefits constant.

Measuring Value



To deliver value, an organisation needs to organise its value chain by focusing on all pre and postproduction services to create and deliver the entire customer benefit package. !

There are 2 views of the value chain which are highlighted next: !

• The Value Chain Input-Output Model View • The Value Chain Pre And Postproduction Services View

!Both of these views will be covered next.

How To Deliver Value?



!!

• This model explains how value begins with suppliers providing inputs that are transformed into value-added goods and services. !

• This is achieved through processes that are supported by resources such as equipment and facilities, labor, money, and information. !

• These goods and services are delivered or provided to customers and targeted market segments.

!The Value Chain Input-Output Model



Exhibit 2.1 An Input-Output Perspective of a Value Chain

!The Value Chain Input-Output Model Graph



!

• This model explains the pre and postproduction services processes which complete the ownership cycle for the good or service. !

• Pre-production services are focused on “gaining a customer.” !

• Postproduction services focus on “keeping the customer.” !

• This view of the value chain emphasises the notion that service is a critical component of traditional manufacturing processes.

!The Value Chain Pre And Postproduction Services Perspective



Exhibit 2.4 Pre- and Post-Service View of the Value Chain

!The Value Chain Pre And Postproduction Services Perspective Graph



Many organisations use the terms “value chain” and “supply chain” interchangeably; however, the two terms are differentiated in the book. !!So what is different between the two?

So, What Is A Value Chain & How Does It Differ From A Supply Chain?

A value chain is broader in scope than a supply chain, and encompasses all pre- and postproduction services to create and deliver the entire customer benefit package. !

A supply chain is more internally-focused on the creation of physical goods.



!!

• A value chain is 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 supply chain is the portion of the value chain that focuses primarily on the physical movement of goods and materials, and supporting flows of information and financial transactions through the supply, production, and distribution processes.

Defining Both Terms



The Value Chain Integration Decisions

!!A successful value chain should focus on integration. !!What is integration? !The process of managing information, physical goods, and services to ensure their availability at the right place, at the right time, at the right cost, at the right quantity, and with the highest attention to quality.



The Value Chain Integration Decisions Continued

!

• Many organisations choose to invest in vertical integration which refers to the process of acquiring and consolidating elements of a value chain to achieve more control. Integration may include: !

• Backward integration refers to acquiring capabilities toward suppliers !

• Forward integration refers to acquiring capabilities toward distribution or even customers.



!• Other organisations choose to outsource and invest in the

process of having suppliers provide goods and services that were previously provided internally.

The Value Chain Outsourcing Decision

Why outsource?

• Focus on core business strategy

• Reduce control costs while improving functionality

• Improve competitiveness

• Provide better management control

• Improve flexibility

• Free up resources for core functions


Outsourcing Considerations


!Some important considerations when outsourcing? !• Choosing an organisation with a good cultural fit, a commitment

to continuous improvement, a willingness to be flexible, and an intent to develop a long-term relationships and trustworthiness

!• A good contract is essential to outsourcing success because the

contract helps to establish a balance of power between the client and the vendor


Outsourcing Risks Continued


!The risks of outsourcing include? !• Shipping delays

• Unavailability of shipping capacity

• Customs issues while physically transporting goods

• Vendors security practices

• Cultural differences especially in the customer service industry

• Costs of transferring knowledge to vendors


Outsourcing Risks Response


However, organisations will need to be manage the major risk that can arise out of outsourcing. !!These risks include the degradation of critical business attributes such as quality, reliability, integrity, and security. !

- Example: Dell outsourcing



• Other organisations choose to offshore their operations which involves building, acquiring, or moving process capabilities from a domestic location to another country location while maintaining ownership and control. Considerations when offshoring are divided into 2 categories.

The Value Chain Offshoring Decisions

Exhibit 2.7 Things to Consider When Making Offshore Decisions



Regardless of whether an organisation chooses to integrate, outsource or offshore, the global nature of the value chain makes achieving the required objectives challenging. !Some challenging questions include: !1. How to design a value chain to meet the slower growth of

industrialised countries and more rapid growth of emerging economies.

2. Where to locate manufacturing and distribution facilities around the globe to capitalise on value chain efficiencies and improve customer value.

3. What performance metrics to use in making critical value chain decisions.

4. How to decide if partnerships should be developed with competitors to share engineering, manufacturing, or distribution technology and knowledge.

The Global Value Chain Challenges



In addition to the global supply chain challenges, there are specific challenges relating to delivering sustainability in value chains.

!• The terms green operations, green manufacturing, and

green practices are often used to describe sustainability activities that involve operations and the value chain. !

• Sustainability improves the organisation’s perception among consumers, and improves the bottom line through reduced costs. !

• Sustainable practices can lead to increased revenues. For example, organisations that emit greenhouse gases like factories and electrical utilities may one day buy and sell carbon credits in a commodities-type stock market. !

• Many customers favour products and services that are designed and produced in a sustainable way.

The Sustainable Role In Value Chains



To deliver sustainability, there are many practices that can be used. These include:

!• Designing goods and services using recyclable and

environmentally-friendly materials.

• Remanufacturing.

• Designing facilities and using equipment that conserve energy.

• Using electronic media and technology to reduce paper and fuel.

• Using transportation modes that minimise costs and carbon

output.

• Cleaning and reusing water used for manufacturing.

OM Practices Used To Deliver Environmental Sustainability

Final Notes - Your Tasks For This Week

!– Review the lecture slides and the notes you have taken

!– Read chapters 4 and 6

!– Review the “Learning The Basics Of Harvard Referencing” activity and explanation

!– Review the “Conventions Of Harvard Referencing” exercise and reference well in assignments 1 and 2

!– Review “The Research Information Matrix” document

!– Complete assignment 2, part 1

!– Work with your group members on assignment 1

!– Do your pre-readings for the articles which will be used in tutorial 3. These articles are required to do assignment 1.



Thank You For Your Time

Lecture 2 (1) (1)

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