Operations management refers to the management of processes that transform inputs into finished goods or services. It seeks to increase quality, efficiency, and responsiveness through techniques like total quality management, just-in-time inventory, flexible manufacturing, and process reengineering. The goal is to provide higher value to customers at a lower cost through continuous improvement of production systems.

1. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Operations ManagementOperations Management
Systematic direction, control, and evaluation of
the entire range of processes that transform
inputs into finished goods or services.
Environmental factors-culture, political, and
market influences
Inputs-HR, capital, materials, land, energy,
information, customer
Transformations-convert inputs into outputs

2. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
O.M. (cont)O.M. (cont)
Outputs-goods or services, and waste
Customer Contact-customers actively
participate in transformation processes, self-
service
Performance Feedback-repair records,
customer comments

3. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Operations ManagementOperations Management
Refers to the management of the production system
that transforms inputs into finished goods and services.
Production system: the way a firm acquires inputs then
converts and disposes outputs.
Operations managers: responsible for the transformation
process from inputs to outputs.
Operations management seeks to increase the quality,
efficiency, and responsiveness of the firm.
Seeks to provide a competitive advantage.

4. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Operations Management ConceptsOperations Management Concepts
Quality: goods and services that are reliable and
perform correctly.
Quality allows customers to receive the performance that they
expect.
Efficiency: the amount of input to produce a given
output.
Less input required lowers cost and waste.
Responsiveness to customers: actions taken to
respond to customer needs.
Firm can react quickly and correctly to customer needs as they
arise.

5. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Differences Between Services andDifferences Between Services and
GoodsGoods
Information Asymmetry
Intangible
Inventory
Customer Contact
Response Time
Labor Intensity

6. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Typical Characteristics of Services and Goods ProducersTypical Characteristics of Services and Goods Producers
Adapted from Table 21.1
Primarily ServicePrimarily Service
ProducersProducers
Primarily GoodsPrimarily Goods
ProducersProducersContinuum ofContinuum of
CharacteristicsCharacteristics
Intangible, nondurable
Output can’t be
inventoried
High customer contact
Short response time
Labor intensive
Tangible, durable
Output can be
inventoried
Low customer contact
Long response time
Capital intensive
MixedMixed
21.3

7. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Positioning Strategies-approachPositioning Strategies-approach
selected for transformationalselected for transformational
processesprocesses
Process Focus-layout of
plant and equipment
around each production
unit
custom made
Low Volume
Norwegian Ship Building
Product Focus-arranging
plant and equipment
around one or a few
output types
many of one product
high-volume, highly
automated
low flexibility
Factory Lines
Intermediate Strategy-
plant and equipment
layout reflects some of
both strategies
batches of products
Kinkos, Ball Homes
Agile Strategy-mass
customization

8. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
FlexibilityFlexibility
Product Flexibility-speed with which products
are created, ability to customize, ability to
modify products for special needs
Volume Flexibility-ability to respond to sudden
changes in demand, change from small to full
scale
Process Flexibility-ability to manufacture a
variety of goods in a short time, adjust to
product mix over time, ability to accommodate
changes in raw materials

9. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Core Positioning StrategiesCore Positioning Strategies
Adapted from Figure 21.2
Sources: Adapted from Brown, H.K., Clark, K.B., Holloway, C.A.,
and Wheelwright, S.C. The Perpetual Enterprise Machine: Seven
Keys to Corporate Renewal Through Successful Product and
Process Development. New York: Oxford University Press, 1994;
Upton, D.M. “The management of manufacturing flexibility.”
California Management Review, Winter 1994, 72–89.
Process focus
Space shuttle
Legal practice
Product focus
Auto assembly
plant
Mail processing
Intermediate
Garment
industry
Branch banks
Product volumeProduct volume
Custom products,
low volume
Standard products,
high volume
Mixture of custom and standard
products, moderate volume
Continuous
process
(stable)
ResourceflowsResourceflows
Mass
production
Large
batch
Sporadic
(unstable)
21.5

10. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Improving Responsiveness to CustomersImproving Responsiveness to Customers
Without customers, organizations cease to exist.
Non-profit and for-profit firms all have customers.
Managers need to identify who the customer is and their
needs.
What do customers want? Usually customers prefer:
A lower price to a higher price.
High quality over low quality.
Fast service over slow service.
Also good after sale support.
Many features over few features.
Products tailored to their specific needs.

11. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Quality-how well a product doesQuality-how well a product does
what the customer expectswhat the customer expects
Internal View-within the organization
External View-value customers expect
Value-the relationship between quality and price

12. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Competitiveness Value MapCompetitiveness Value Map
Relative QualityRelative Quality
SuperiorInferior
Higher
Lower
Poor
value
Adapted from Figure 21.3
RelativePriceRelativePrice
Economy
value Outstanding
value
Premium
value
Average
value
Source: Adapted from Gale,
B.T., and Buzzell, R.D. “Market
perceived quality: Key strategic
concept.” Planning
Review, March-April, 1989, 10.
21.7

13. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
PricePrice v.v. AttributesAttributes
Firms offering high quality, fast service and other
customer desires, often must raise price.
Customers must tradeoff price for attributes.
Operations management tries to push the
price/attribute curve to the right with better production.
Provides more attributes at the same cost.
By enhancing the price/attribute relationship, the firm can
increase its competitive position.

14. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Customer Responsive Production SystemsCustomer Responsive Production Systems
An output’s attributes is determined by the
production system.
Firms must strike a balance between cost and attributes
Improving Quality: can apply to firms producing
goods and services.
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.
Lowers waste levels and operating costs.

15. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Total Quality ManagementTotal Quality Management
The continuous process of ensuring every
aspect of production builds in product quality
Traditional Quality-product inspection during or
at the end of the transformation process

16. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Total Versus Traditional QualityTotal Versus Traditional Quality
Adapted from Table 21.3
Quality is a strategic issue
Plan for quality
Quality is everybody’s responsibility
Strive for zero defects
Quality means conformance to
requirements that meet or exceed
customers’ expectations
Scrap and reworking are only a small
part of the costs of nonconformance
Traditional Quality ControlTraditional Quality ControlTotal Quality ManagementTotal Quality Management
Quality is a tactical issue
Screen for quality
Quality is the responsibility of the
quality control department
Some mistakes are inevitable
Quality means inspection
Scrap and reworking are the major
costs of poor quality
21.11

17. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Improving EfficiencyImproving Efficiency
Labor productivity allows labor comparisons between
organizations.
Improved efficiency leads to lower costs and better
performance.
TQM and Efficiency: TQM can lead to much higher
labor productivity.
When quality rises, less time is wasted on scrap.
Flexible manufacturing and efficiency: reduces the
set-up costs for production systems.
Facilities layout: seeks to design the machine-worker interface
to increase production efficiency.

18. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Efficient ManufacturingEfficient Manufacturing
Most firms face major expense when setting up to
produce a product.
These costs must be paid before production begins.
The more often products to be built change, the higher setup
costs become.
Flexible Manufacturing reduces setup costs.
Just-in-Time (JIT) inventory, while developed for
TQM, also adds to efficient production.
Many costs are reduced including warehousing, holding costs
and inventory tracking.
Firm does not have a supply of parts, but can be vulnerable to
strikes or supply problems.

19. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Efficient ManufacturingEfficient Manufacturing
Self-managed teams boost efficiency by allowing for a
flatter organization structure.
The team takes the role of the supervisor.
Teams working together often become very skilled at enhancing
productivity.
Kaizen: Japanese term for a management philosophy
the stresses the need for continuous improvement.
Better operations can come from many, small, continuous
improvements.
Focus on what adds value to the product and try to eliminate
steps that do not add value (such as inspection for defects).

20. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
ReengineeringReengineering
Process Reengineering: the fundamental rethinking
and radical redesign of the business process.
Can boost efficiency by directing efforts to activities that add
value to the good or service produced.
While Kaizen focuses on continuous enhancements, process
reengineering considers wholesale change.
Top managers must support operations enhancement
tools for them to be accepted by workers.
Usually, a successful operations change means a complete
change in the organizational culture.
Without a supporting culture, change will not succeed.

21. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Nine Categories of Operations Management DecisionsNine Categories of Operations Management Decisions
Product plans
Competitive Priorities
Positioning Strategies
Location
Technological Choices
Quality management and control
Inventory management and control
Materials Management
Master production scheduling
21.4

22. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Inventory CostsInventory Costs
What contributes to inventory costs?
TOTAL COST = ORDERING + CARRYING
Carrying Costs
Warehouse
Insurance
Obsolescence
taxes
breakage
Ordering Costs
Placing the order
Transportation
Shortage

23. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Inventory TermsInventory Terms
Lead Time
Elapsed time between placing and receiving an order
EOQ-economic order cost
optimum order quantity yielding the lowest total
inventory cost
Just-in-time
finished goods to sell
sub assemblies to be assembled
purchases of raw materials to be transformed

24. Hellriegel, Jackson, and Slocum
MANAGEMENT, 8E
South-Western College Publishing
Copyright © 1999
PPT
Quantity (Q)Quantity (Q)
HighHigh
LowLow
Averageannualcost($)Averageannualcost($) Total cost
Carrying cost
Order cost
SmallSmall LargeLargeQ1
Adapted from Figure 21.5
Cost Trade-Offs in Determining Inventory LevelsCost Trade-Offs in Determining Inventory Levels
21.13