Operations Management a

a

ue

LEARNING

OBJECTIVES

After studying this

chapter,

you

sh

ould

be

ab

le to:

• Explain

the

concept

and

importance

of

operations

management

.

• Describe

what

operations

managers

do.

• Explain

the

differences

between

goods

and

services.

• Define

the

concept

of

value

and

explain

how

the

value

of

goods

and

services

can

be

enhanced.

After

you

finish

this chapter go

to

PAGE

26

for

STUDY

TOOLS

.

• Describe a

customer

benefit

package.

• Explain

the

difference

between

value

chains

and

supply

chains,

and

identify

three

general

types

of

processes

in

a

business

.

•

Contrast

the

three

different frameworks for

descnbing

value

chains.

e

Summarize

the

historical

development

of

OM.

Describe

key

challenges

facing

OM.

Apple h

as

mastered

the

art

of

blending physical

goods with services to

create

val

ue

for its

customers. Think iPod + iTunes, iPhone/iP

ad

+

apps, A

pp

le

st

ores + Genius Bar; well, you get

the

picture. M

anag

ing all

operat

ions

involved-f

rom

t

he

creation

of

goods a

nd

services

through

their

delivery to

the

customer

and

postsale

serv

ices–is

one

of

Ap

ple’s core competencies.

“Operations

expert

ise is

as

big

an

asset

for

Apple

as

product innovation

or

marketing,” says

Mike Fawkes,

the

former supply

chain

chief

at

Hewlett-Packard. “They’ve taken operational

excellence to a level never seen before

.”

Managers

and

engineers

often

work

at

global

supplier

and

manufacturer

sites to refine

their

operations,

and

designers work

with

suppliers

to

WHAT

DO

YOU

THINK?

create

new

tooling eq

uip

men

t.

When

the

iPad 2

debuted, Apple employees monitored every

handoff

point-supp

li

er

s, production, loading doc

k,

airport,

truck

depot,

and

distribution

cen

t

er-to

make

su

re

each

unit

was

accounted for

and

of

the

highest quali

ty

.

Apple’s retail stores give it a final operational

advantage. The company

can

track

d

emand

by

the

store a

nd

by

the

hour,

and

adj

ust

production

forecasts daily. lf it becomes

clear

that

a given

part

will

run

out,

teams

are

deployed

and

given

approval to spend millions

of

dollars

on

extra

equipment

Lo

undo

the

bottleneck. Apple’s

significant profit

margins

are

in

large

part

due

to

this

focus on its global supply

chain

and

operational excellence.1

Cite

some

other

examples

in

which

digital

content

has

been

combined

with a

physical

good

.

How

does

this

change

the

way

companies

must

manage

their

operations?

2

PA

RT

ON

E:

Basi

c

Co

ncepts of

OM

and Value

Cha

ins

OPERATIONS

MANAGEMENT

Cre

at

ing

anu

de

li

vering g

omls

and

servi

ces

to

cu

s

tom

ers

depe

nd

s 011 an cf

fc<.:t

ive

sy

st

em

of

linked t:tciliti

cs

and

pro

ces

s

es,

a

nd

lhc <thility

to

ma

na

ge

them

ef

fe

di

vely

aro

u

nd

the

wo

rld. Appl

e,

for exa

mpl

e,

mana

ges

a lar

ge,

gl

oba

ln

ctwo

rk

of

su

ppliers in

co

untJi

es

such

as Malaysia

a

nu

I

ndo

n

esia,

and factories in the U nit

cd

States,

Ch

ina,

am

l

other

co

u

ntries

to

pro

du

ce

its physical

goods,

wh

ich

must

be

coord

i

nated

with

the

de,·elopme

nt

and

produc-

tion

of

software

and

other

digital

content.

r

etail

sales,

and

service

and

suppo

r

t.

As

the

open

i

ng

anecdote

sug

–

gests,

coord

i

nating

these

goods-produc

i

ng

and

scn·

i

cc-

p

roviding

procc•sscs

can

he

challengi

ng. Operations

management

(OM)

is

the science

and

art

of

ensu

ri

ng

that

goods and

se

rv

ices

are created

and

delivered successfully to

customer

s.

OM i

ncludes

t

he

des

ign

of

go

od

s,

services

, and

the

pr

oc(‘SSCs th

at

crea

te

them; the day-

to-d

oty

11

u

11

w

ge-

lll

~ml

of those

pr

ocesses;

and

the

co

ntinua

l

imp

rove

men t

o

-f

th

ese

goo

d

s,

se

rvi

ces,

a

nd

pro

cesse

s.

App

l

e’s

si

gnificant

profit

margins

are

in

large

part

due

to

a

focus

on

its

global

supply

chain

and

operational

excellence

Th

o

wa

y in which g

ood

s and

se

rvices, and the

pro

–

cesses

that

cr

ea

te a

nd

support

th

e

m,

ar

e de

si

gned .

and

mana

ge

d can

rn

ake the

diff

ere

nc

e

betw

ee

n a deliglltful

or an ttnhappy c usto

me

r experie

nc

e. T

hat

is w

hat

OM

is all a

bou

t!

Op

e

rat

i

ons

111ana

gc

me

nt

i~

the

on

ly Func–

ti

on

by

which

nu

m

age

rs

ca

n dir

ect

ly

af

f

ect

the v

al11

e

pr

ovided

to a

ll

st

ake

hol

de

rs– cu

stome

rs,

emp

l

oyees,

in–

vesto

rs, and

society

(

Sec

th

e box,

”W

hat

D o O

pera

ti

ons

M

anagcrs

Do?”).

\Vhy

is

O M

impo

r

tant?

To

answe

r this,

we

miuht

fi

r

st

(:>

ask the question: \ Vhat

makes

a

company

successful? In

1887, \

ViJ

liam

Cooper

Procter

,

grandson

of

the

founder

of

Procter

&

Gamble

, told

hjs

employees,

“T

he

first

job

we

have is

to

turn

out

cpu1lity

me

r

chandise

th

at

consume

rs ·

wi

ll

buy

and

keep

on buying.

l f

we

pr

od

u

ce

il

efficiently

and

eco

nom

ically,

we

will

earn

a pro

fl

t, in

whk

h

you

wi

ll share.”

Pr

oc

ter‘s

slat

emc

nl

– which is still

•

is

the science and art of

ensuring that goods and services

are created and delivered

successfully

to customers.

CHAPTER

1:

Operations Management and

Value

Cha

i

ns

3

Some

key activities

that

operation

s

manager

s

perform

include

the

following:

o Forecasting: Predict

the

future

demand

for raw

mate

rial

s,

finished

goods,

and

services.

o Supply chain

management:

manag

e

the

flow

of

materia

ls

, information,

people,

and

money

from

suppliers

to

customers.

o Facility layout

and

de

sign:

determine

the

best

configuration

of

machine

s,

storage, offices,

and

de

partm

ents

to

provide

the

highest levels

of

efficiency

and

customer satisfaction.

o Technol

ogy

selection: use

techno

l

ogy

to

improve

produ

ctivity

and

respond fa

ster

to

cust

omers

.

o Quality

management:

ensure

that

goods,

services,

and

processes will

meet

custom

er e

xpectations

and

requirements.

o Purchasing:

coordinate

the

acquisi

tion

of

materials, supplies,

and

services.

o Resource

and

capacity

managem

ent:

ensure

that

the

right

amount

of

resources

(l

abo

r,

equipm

e

nt

, materials,

and

information)

is

available

when

ne

e

ded.

o Process

design

:

select

t

he

right

equ

i

pment,

information,

and

work me

thod

s

to

produ

ce

high-qua

li

ty

good

s

and

services efficientl

y.

o

Job

design

:

decide

the

best

way

to

assign

peop

le

to

work tasks

and

job

responsibilities.

•

Service

encounter

de

sign: determine the

be

st types

of

interactions betwe

en

ser

v

ice

providers a

nd

customers,

an

d

how

to

re

cov

er from service

ups

ets.

o Scheduling:

determine

when

resources

such

as

employees

and

equipment

shou

ld

be

assigned

to

work.

o Sustainability:

decide

the

best

way

to

manage

the

risks associated with

produc

ts

and

operations

to

preserve

resources for future generations.

as releva

nt

today

as

it was over

10

0 years

ago-add

resses

thr

ee

issues

that

arc at the

co

re of

op e

rat

i

o

n

~

manage-

men

t:

e

ffici

ency, cost, and qua

l-

ity. EHlciency (a

mea

–

s

ur

e

of

h

ow

wel

l resources are u

sed

in

crea

ting out

pu

ts),

the cost

of

ope

rations,

and

the quality

of

the

goods

and

services

that

cre

at

e customer sa

ti

sfaction a

ll

con

tr

ibute

to profitabi

li

ty and ultimately the long-run success

of

a

company. A company cannot be success

ful

without

peo

–

ple w

ho

understand

ho

w t

hese

co

ncepts relate

to

each

other, which is the essence

of

OM

,

and

who can apply

OM principles e

ff

ectively in ma

ki

ng

decisions.

OM

IN

THE

WORKPLACE

Many pe

ople

who

ar

e considered “

ope

rations man ag-

ers” have titles such as

ch

ief

op

erating officer,

hot

el or

restaurant

manager

, vice

pr

esid

en

t

of

manufacturing,

4

PA

RT

ON

E:

Basic

C

on

cepts

of

OM

and Value

Cha

in

s

custome r service

manag

er,

plant

manag

er, fi

eld

servi

ce

mana

ger, or supply chain

manag

e

r.

Th

e

conc

epts

and

me

thod

s

of

OM can

be

used

in any

job

,

regard

le

ss

of

t

he

func

ti

onal ar

ea

of

bus

iness or i

ndust

r

y,

to

be

tter

‘

creat

e value for

int

ernal customers (within the organ

i-

za

ti

on)

and

f

or

external

cu

sto

rn

ers (

ou

tside the organi–

zation). OM prineiples

ar

e used in accounting,

huma

n

re

sou

rces manageme

nt

, legal work, financi

al

act

i

vit

ies,

marke

ti

ng, envir

onmen

tal

managemen

t, and every

type

of

servi

ce

ac

ti

vity. T

hu

s, every

on

e sh

ou

ld

und

e

r-

s

tand

OM

and be

able

to

ap

ply its tools a

nd

con

cepts

.

Fo

ll

ow

i

ng

are some examples

of

hovv

th<

~

authors

‘ f

or

–

mer

students

(who were

not

OM

ma

j

or

s!)

are

using

OM in

their

jobs.

After gr

adua

ting from co

ll

ege,

Shelly Decker

and

her sister e

mba

rked on an e

nt

repre neurial ven–

tur

e to

manufactur

e

and

se

ll

n

at

ural soaps

and

body

products

. Shelly was

an

accounting

and

information

syst

ems

major

in

college,

but

she

was

using

OM

skills

eve

ry

day

:

..,..

Process d

es

i

gn

: vV

hen

a n

ew

product

was

to

be

introduc

ed, the b

es

t

way

to pr

oduc

e it h

ad

to be

determined.

This

involved

chart

i

ng

the

d

eta

iled

steps

needed

to

make

the

product.

I

nven

tory management:

Inv

en

tor

y was ti

ghtly

cont

ro

ll

ed

to

keep c

ost

down

and

to avoid

production

that

wasn’t

n

eede

d.

Inv

ento

ry was

tak

en

eve

ry

four

w

eeks

a

nd

ad

jus

ted

in

t

he

inv

ent01y

managemen

t

system

according

l

y.

Scheduling:

Producti

on sche

dules

were

creat

ed

to e

nsure

that

e

nough

product

was available

for

both

retail

and

wholesal

e cu

stomer

s, taking

into

ac

count

such

facto

rs

as

current

invent01y

and

soap

produc

tio

n

capacity

.

Qual

it

y management:

Each

p

rodu

ct

was

inspected

a

nd

had

to

conform

to

th

e

high

e

st

quality

standards.

If

a

produ

ct

did

not

conform

to

standards

(e

.g.,

wrong

color,

improp

er

packaging

,

improp

er labelin

g,

impro

p

er

weigh

t,

si

ze

,

or

sh

ape

), it was removed from

in

ven

tor

y to

de

termine

where

the

proc

ess

brok

e

down

an

d to

initiate

correc

ti

ve

action .

Withou

t

an

und

erst

an

din

g

of

OM

, the

compan

y

would

ne

ve

r

ha

ve

go

tt

en

off

th

e gr

ound!

Torn James s

tart

ed

as

a senior so

ftv;

r

ar

e developer for

a small sofru,

arc

develop

rn

e

nt

company

that

creates sales

pr

oposa

l automation software. Ton1 uses

OM

skills in deal–

ing

with

quality

and

c

ustom

er service is

su

es

relat

ed to

the

soft\

x.ra

re

produ

cts,

and

he is also extensi

ve

ly involved in

project mana

gemen

t

ac

tivities related

to

the devel

opmen

t

proc

ess, including ide

nt

ifying

t<Lsks

, assigning

dev

el

op

ers

to

ta

s

ks

, estimating the time

and

cost to

comp

l

ete

pro

jects,

and

studying

th

e variance b

etween

the

estimate

d and

actua

l

time

it

took

to

comp

lete

the

project. H e is also in-

vo

lved in continuous irnprove

rn

e

nt

proj

e,.:

cts;

for

exampl

e,

he s

ee

ks

to re

duc

e dev

el

opm

e

nt

time

and

in

cr

ea

se

th

e ef–

ficie

ncy

of

the devel

opm

e

nt

t

eam

.

Tom

was

an

information

techno

logy

and

mana

gem

ent

major

in

college.

Brooke

vVils

on

b

egan

as a

process

manager

for

JPM

organ

Chas

e in the

credit

card

division. After several

United

Performance

Metals:

The

Life

of

an

Operations

Manager

Un

i

ted

Performance

Metals, formerly

known

as Ferguson Metal

s,

located in Hamil

ton

, Ohio,

is

a

suppl

i

er

of

stainless

stee

l

and

hi

gh-temperature

alloys for the

specia

l

ty

metal

market

.

Fe

r

guson’s

primary

pr

oduct

i

on

operat

i

ons

include

slitting coil

stock

and

cutting

sh

eet

stee

l

to

customer

specifications with rapid

turnar

o

und

times

from

order

to

delivery.

With

on

ly

78

emp

loy

ees,

about

ha

lf

of

whom

are

in

operations,

the

director

of

operations

and

q

ua

lity

is

involved in a

variety

of

daily

ac

t

iv

ities t

hat

draw

upon

knowle

dg

e

of

not

on

ly

OM

and

engineering,

but

also finance, acc

oun

ting,

organizational behavior,

and

other

subjects.

He

typically

spends

about

50

percent

of

his ti

me

working with foremen,

supervisors,

salespeople,

and

other

staff discussing

such

issues as

whether

or

not

the

company

has

the

capabi

li

ty

to

accomp

li

sh

a

spe

cific

customer

request,

as

well as ro

ut

i

ne

production,

qual

ity,

and

shipping

issues.

Th

e remai

nder

of

hi

s

time

is

spe

nt

inve

stigat

ing

such

issues as

the

tec

hn

ical feasibility

and

cost

i

mp

lications

of

new

capital

equipment

or

changes

to

exist

ing

pr

ocess

es, trying

to

reduc

e costs,

seeking

and

facilitating

design

imp

r

ov

eme

nts

on

the

shop

floor,

and

motivating

the

workforce. T

he

ability

to

understand

customer

needs,

motivate

employees,

work with

other

departments,

and

i

ntegrate

processes

and

technology

are

ski

lls

that

all

operations

managers

need.

C

oiled

st

ee

l

await

i

ng

.

pr

ocess

1ng

.

Sl

itti

ng

co

il

s in

to

fini

shed

stri

ps.

Some

of F

erg

uson’

s

fin

i

shed

pr

oducts

.

CHAPT

ER

1: Operations Managemem and

Value

Cha

ins 5

years

of

working

as

an operations anal

ys

t, he was

promoted

to a production supervisor position overs

ee

in

g “plastic card

production.” Among his

OM

–related activities

are

:

Planning

and

budg

eting: He

pr

ese

nting

the plastic

card

produclion

area

in

all meetings, developing

annua

l

budg

ets

and

staffing plans,

and

watching

t

ec

hnology

that

mi

ght

affect the

produdion

of

plastic

cr

e

dit

cards.

Inventory manageme

nt

:

Ov

e

rs

eeing

th

e management

of

inventory for it

ems

such

as

plastic blank

ca

rds;

inserts such as advertisements; envelopes, postage,

and

credit

card

r

ul

es

and

disclosure

i

nst

~

rts.

Scheduling

and

capacit:y:

Dail

y to annual

scheduling

of

all resources

(equipmen

t,

people

,

in

ventor

y)

necessary

to

issue new credit

cards

and

reissue

ca

rds

th

at

arc

up

for ren

ewa

l, replace old or

damag

ed

ca

rds,

as

well as

cards

that

are stolen.

Quality: Embossing the

card

with accurate

customer information

and

quickly

gett

ing t

he

card

in

the

hands

of

the

customer

.

Brooke was

an

accounli.ng

major

in college.

UNDERSTANDING

GOODS

AND

SERVIC

ES

Companies design,

produce

,

and

deliver a \\•

id

e va

ri

ety

of

goods

and

services that con

sum

ers purchase. A good

is

a

phys

ical

product

that

you

can

see

,

touch,

or

possibly

consume.

Examples

of

goods include

ce

ll

phon

es, apphances, food,

flowers, soap, airplanes, furniture, coal, lumber, personal

comput

er

s,

paper

, and industrial machines. A durable

good

is

one

that

does

not

quickly

wear

out

and

typically

lasts

at

lea

st

three

years

. Vehicles, dishwashers,

and

fumit

ur

e

ar

e some

examples. A nondurable good

is

one

that

is

no

longe

r

usefu

l

once

it’s

us

ed,

or

lasts

for

less

than

three

years

. Examples are tooth–

A • • • •

is

a

physical

product that

you

can

see,

touch, or

possib

ly

consume.

A • . • • • • • •

is

one

that

does

not quickly

wear

out

and

typically

lasts

at

least

three

years.

no longer

usefu

I

once

it’s

used,

or

lasts

for

less

than

three

years

.

A · •

is

any

primary or

complementary activity that

does

not

directly produce a

physical

product.

paste, software, cloth-

ing

and

shoe

s,

and

food.

Goods–producing

:6.m1s

are found in industlies

such

as

manufacturing

,

farming, fore

shy

, mining,

con

stmction,

and

fi

shing.

A service

is

any

pri

–

mary

or

complementa

ry

activity

tha

t

does

not

di

–

rect

ly

produce

a

physical

product.

Services

re

pre

–

sent

the

nongoods

part

6

PA

RT

ON

E:

Basic

Con

cepts

of

OM

and

Value

Cha

in

s

of

a transaction

betwe

en a

buyer

(

customer

)

and

seller

(supplier).2 Service-providing firms are found

in

indus-

tri

es

such as banking, lodging, education, health care,

and

gov

ern

ment.

The

services

th

ey

provide might be a

mOlt

–

gage loan, a comfortable

and

safe pl

ace

to sleep, a college

d

eg

r

ee

, a

med

ical procedure,

or

po

li

ce

and

fire protection.

Designi

ng

and

managing

op

er

at

i

ons

in a goods–

producing

f

inn

is

quite

di11’erent fi-om

that

in

a service

organization.

Thus

,

it

is

important

to

unders

t

and

th

e

nature

of

goo

ds

and

services,

and

particularly t

he

differ

–

enc

es

betv

vee

n t

hem

.

Goods

and

services share many sirnihui

ti

e

s.

Th

ey

ar

e

d1iv

en

by

customers

and

provide value

and

satist

~1C

tion

to customers

who

purchase

and

us

e

th

e

m.

Th

ey

can

be

standardized for

the

mass

ma

rket

or

customized to indi-

vidual needs.

They

are created

and

provided to customers

by some type

of

proc

es

s involving people

and

t

ec

hn

ology.

Setvices that do not involve signincan t interacl

io

n with cus–

tomers

(e

.g., credit card processing) can be managed much

the

same

as

goods in a

fact01y,

using

pro

ven principles

of

OM

that have

be

en r

d1ned

over the years. Nevertheless,

sorne vmy significant differences exist betw

ee

n goods

and

se

1vi

.ces that make

the

manag

eme

nt

of

service-providing

organizations differe

nt

from goods–producing organizations

and

cr

ea

te different d

ema

nds

on

the

operations function.3

1.

Goods

are

ta

ngibl

e,

wh

ereas

sen·

i

ces

a

r·

e

i

ntangible.

Goods

ar

e

consum

ed,

bu

t se1vices

are

ex

perienced

. Goods–pr

oducing

industries rely

on machines

and

“

hard

t

echno

l

og

y” to pe1form

work. Goods can be move

d,

:;tm·ed,

and

r

epair

ed,

and

gene

r

a.lly

re

qu

ire physical skj

Ji

s

and

e

xp

e

rti~

e

dUJing

producl

ion.

Custom

ers

can

often

hy

them

before

buying

. Services, on the

othe

r

hand,

make

mor

e use

of

information systems

and

oth

er “

soft

technology,” re<Juire strong behavioral skills,

and

arc

often d

if

ficult to desc

li

be

and

de

monstrat

e. A senior

executive

of

the Hilton Corporation stated, “We

se

ll

time.

You

can’t

put

a

hotel

room

on

the

shelf.”4

2. Cus

tom

ers pa

rti

ci

p at e

in

many servi

ce

pr

ocesses

,

ac

ti

vi

ti

es,

a

nd

tr

an

sactio

ns.

Many

services

requir

e

that

the

customer

be

pres

en

t

either

physically,

on

a

telep

h

one

,

or

on

li

ne

for service to

commence

.

In

ad

di

tion,

the

cust

omer

and

service

prov

id

er

of

t

en

cop

ro

du

ce

a

se

rvi

ce

, meaning t

hat

th

ey

wo

rk

tog

ether to cr

eate

and

si

mu

ltaneously

consume

the service,

as

wou

ld be

the

case

betw

ee

n

a

bank

teller

and

a

customer

to

comple

te a financial

transaction.

The

higher

the

cust

ome

r

par

ticipation,

the

mo

re uncertainty t

he

fim1 has with r

espect

to

se

rvice time, ca

pac

it

y,

scheJul

ing, quality

performan

ce

,

and

op

erating cost.

A

service

encounter

is

an

inte

ra

ct

io

n between

t

he

custo

m

er

and

the

serv

ic

e

provider.

Some

examples

of

servi

ce

encoun

te

rs are making a

ho

tel reservation,

asking a groce‘)‘ store employ

ee

where to fi

nd

the

pickles, or making a

pu

rchase

on

a website. Service

e

ncounte

rs consist

of

on

e

or

more

moments

of

truth

-an

y

episodes,

tran

s

actions,

or

ex

pe

ri

en

c

es

in

whi

ch

a

customer

comes

into

contact

with

any

aspe

ct

of

the

del

i

very

system

,

however

remote

, and

thereb

y

has

an

opportunity

to

form

an

impress

i

on.

5 A

moment

of

truth

mi

ght

be a gracious welcome by

an

emp

lo

yee

at

the h

ot

el

ch

e

ck

–in

count

e

r,

a gr

oc

ety

stor

e employ

ee

who s

ee

ms

too i

mpatient

to

help

,

or

hying

to navigate a confus–

ing website.

Cu

s

tom

ers

Customers

j

udge

the

va

l

ue

of

a

serv

i

ce

and

form

perceptions

through

serv

i

ce

ph

ysical inventOJ)’ to absorb

such fluctuations

iJ

1

deman

d.

Fo

r

se

rvice de

li

very sy

st

ems,

availabi

li

ty depends

on

the

system‘s capacity.

For

example, a

hospital must have an ad

equa

te

supply

of

be

ds for t

he

pu

rpose

of

m

ee

ting unanticipated patie

nt

encounters.

judg

e the value

of

a service

and

form perceptions

throu

gh

service e

ncount

ers.

Therefore

, e

mp

loyees

who

int

eract directly with

custom

ers

or

design ser-

vice

proc

esses n

ee

d to understand the importance

of

service e

ncount

ers.

3.

T he d

ema

nd

for

se

r

vic

es

is

mor

e

diffi

c

ult

to

pr

e

dict

than

th

e d ema

nd

for

go

od

s.

Cus

t

ome

r

a

rr

ival r

at

es

and

demand

patte

rns

fo

r su

ch

se

rvice

del

iv

erv svstcms as banks, airlines, suJ>eJ

ma

rkets,

/ /

~

call centers,

and

courts

are

very

dinlcu

lt

to forecast.

Th

e d

emand

for services is ti

me

–

dependen

t,

especia

ll

y over the sho

rt

term (

by

ho

ur or day).

Th

is

places many pressur

es

on serviee

fi

rm managers to

ad

eguately plan staff

in

g levels

and

capaeity.

4.

Se

ni

ces

c

annot

be stored

as

ph

ys

ical

in

ve

nto

ry.

In goods-producing firms, invent01y

can

be used to

d

ec

ouple

customer

demand

from

the

production

proc

ess

or

betw

een

stages

of

the

pr

o

duc

tion

pr

oc

ess

and

e

nsur

e constant ava

iJ.

abilily despite

fluctuations in d

em

and

. Service firms

do

not

have

demand,

and

a float pool

of

nu

rses

wh

en

th

ings

get

ve

l)

‘ bus

y.

Onc

e

an

airline

seat, a

hot

el

room,

or

an

hour

of

a

la

v.

‘Yer

‘s day

are

gone, there is no way to recapture the lost revenue.

5.

Serv

i

ce

man

age

me

nt

skills are

param

o

unt

to

a s

uc

cess

ful serv

ic

e enc

ount

er.

Emp

loy

ee

s

who

interact with cust

om

–

. .

ers r

equ

1re ser\llce

management ski

ll

s

sucl1 as knowle

dg

e

and

technical ex-

pertise (operations),

cross–se

ll

ing other

products

and

services

(marketing),

and

good

human

interac–

tion skills (

human

resources). Service

management

inte–

gra

tes

marketing

,

human

resour

ces, and

ope

ratio

ns

A · • · is an

interaction between

the

customer

and the service provider.

• • are episodes,

transaction

s,

or experiences in which

a customer comes

in

to contact with

any aspect of the

de

livery system,

however remote, and thereby has an

oppo

rtunity to form an impression.

• • •

integrates marketing, human

resources, and

operat

ions functions

to

plan, create, and deliver goods and

services, and their associated service

encounters.

CHAPT

ER

1: Operations Management and

Value

Cha

ins 7

fu

nct

i

ons

to

p

lan

,

creat

e,

and

deliver

go

od

s and

services

, and

t

hei

r

associate

d

service

encoun

t

ers

. 0 M plinciples are

useful in designing ser

vic

e enco

unt

ers a

nd

su

pport–

ing market

in

g

obj

e c

ti

ve

~.

7.

Pate

nt

s

do

not

protect

se

rv

ice

s. A pate

nt

on

a

phys

i

ca

l

good

or

so

f

twar

e

cod

e

ca

n

provid

e

prot

e

ction

from

comp

etitors. The int

angib

le

natur

e of a service

ma

kes

it

mor

e diffi

cu

lt

to k

ee

p a

comp

etit

or

fr

om

cop

yi

ng

a b us

in

ess

conc

ept, faci

li

ty

la

yout, or service e

ncount

er

des

ign.

Fo

r exarnple, rest

au

rant chains are

quick

to

cop

y n

ew

menu

it

em

s

or

driv

e–

throu

gh co

nc

e

pt

s.

6. Service faciliti

es

ty

picall

y n

ee

d to

be

in

clo

se

p•

·

oximit

y

to

th

e cus

tomer.

Wh

en cust

ome

rs

must ph

ys

i

ca

ll

y i

nt

er

act

with a service facilit

y-fo

r

example,

p

o~t

offices,

ho

teb , and branch banks–

they

must

be

in

a location

conv

enie

nt

to cu

stom

ers.

A

manufact

m

ing

facility,

on

th

e other

han

d,

can

be located

on

th

e

oth

er side

of

th

e globe, as long

as

goods are de

li

vered to

c

ust

om(

~

r

s

in

a ti

rn

ely

fashion. In today’s 1

nt

ernet age,

ma

ny services

ar

e

only a few

mous

e clic

ks

aw

ay

The

se

di

fferences

be

tw

ee

n goods a

nd

services have

i

mportant

implications to all

ar

eas

of

an

org

aniza

tion

,

and

e

sp

ec

ia

lly to

op

erations.

Th

ese

are

sum

ma

ri

ze

d

in

Exhibit 1.1.

Som

e are obv

iou

s, whereas others

ar

e

more

sub

tl

e. By

und

erst

an

di

ng

them

, or

gan

izations

can

Forecasting

Facili

ty

Loc

at

ion

Facili

ty

Layout

an

d Design

Forecasts i

nvo

lve longer-t

erm

ti

me

horizons. Goods–

producing f

ir

ms

can use physi

cal

inv

en

tory

as

a

buffer

to mitigate

fo

recast errors. Forecasts can be aggregated

over larger time frames

(e

.g., months

or

weeks).

Goods–producing f

ac

ilities can be located close to r

aw

ma

te

rials, supplie

rs

, labor, or cust

ome

rs/markets.

Fac

tories

an

d warehouses can be designed

fo

r

efficiency because

few,

if any, customers are present.

F

or

ecast horizons

ge

nerally are shorter, and forecasts

are more vari

ab

le and t

im

e–dependent. Forecasting

must

often be done on a d

ai

ly or hourly basis, or s

om

et

i

mes

even more frequently.

Service facilities

mu

st

be located close to cust

om

ers/

marke

ts

for convenience and s

pee

d

of

service.

The

fa

cili

ty

must be designed for

goo

d customer

interaction

an

d

moveme

nt

th

rough

th

e facili

ty

and

it

s

processes.