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Chapter 1. The Nature of Operations. Introduction. McDonald’s Corp. Facing increased competition Smarter and more demanding customers Less brand loyal Switched to hamburger bun that does not require toasting. Customers prefer taste of new bun Saves time and money. Olympic Flame.

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Chapter 1

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Chapter 1

Chapter 1

  • The Nature of Operations

Chapter 1: The Nature of Operations


Introduction

Introduction

Chapter 1: The Nature of Operations


Mcdonald s corp

McDonald’s Corp

  • Facing increased competition

  • Smarter and more demanding customers

  • Less brand loyal

  • Switched to hamburger bun that does not require toasting.

  • Customers prefer taste of new bun

  • Saves time and money

Chapter 1: The Nature of Operations


Olympic flame

Olympic Flame

  • 10,000 runners

  • 15,000 miles through 42 states in 84 days

  • Two years of planning

  • Must plan for no-show runners and rush hour traffic

  • Cost of this operation in the neighborhood of $20 million

Chapter 1: The Nature of Operations


Kmart versus wal mart

Kmart Versus Wal-Mart

  • Both chains started in 1962

  • In 1987, Kmart had 2,223 stores to Wal-Mart’s 1,198.

  • Kmart’s sales were $25.63 billion to Wal-Mart’s $15.96 billion

  • By 1991, Wal-Mart’s sales exceeded Kmarts

  • Kmart still had more stores

Chapter 1: The Nature of Operations


Kmart versus wal mart continued

Kmart Versus Wal-Mart continued

  • In year ending January 1996, Wal-Mart’s sales were $93.6 billion to Kmart’s $34.6 billion.

  • During this time Kmart emphasized marketing and merchandising (such as national TV ad campaigns).

  • Wal-Mart was investing millions in its operations to lower cost.

Chapter 1: The Nature of Operations


Kmart versus wal mart continued1

Kmart Versus Wal-Mart continued

  • Wal-Mart developed sophisticated distribution system that integrated its computer system with its distribution system.

  • Kmart’s employees lacked skills needed to plan and control inventory.

  • Period from 1987 to 1995 Kmart's market share declined from 34.5 percent to 22.7 percent.

  • Wal-Mart's increased from 20.1 percent to 41.6 percent

Chapter 1: The Nature of Operations


Kmart versus wal mart continued2

Kmart Versus Wal-Mart continued

  • Fast forward to 2004

    • Kmart appears to have adopted a new strategy

      • Merge with Sears, Roebuck & Co.

    • Potential synergies between Kmart’s convenient locations and Sears’ strong brands

Chapter 1: The Nature of Operations


Diversity and importance of operations

Diversity and Importance of Operations

  • Improvements in operations can simultaneously lower costs and improve customer satisfaction.

  • Improving operations often dependent on advances in technology.

  • Can obtain competitive advantage by improving operations.

  • Diversity of operations

Chapter 1: The Nature of Operations


Operations

Operations

  • Heart of every organization

  • Operations are the tasks that create value

Chapter 1: The Nature of Operations


The production system

The Production System

Chapter 1: The Nature of Operations


Systems perspective

Systems Perspective

  • Inputs

  • Transformation System

    • Alter

    • Transport

    • Store

    • Inspect

  • Outputs

  • Environment

Chapter 1: The Nature of Operations


Inputs

Inputs

  • Inputs include facilities, labor, capital, equipment, raw materials, and supplies.

  • A less obvious input is knowledge of how to transform the inputs into outputs.

Chapter 1: The Nature of Operations


Transformation system

Transformation System

  • The part of the system that adds value to the inputs.

  • Four major ways

    • Alter – physical change

    • Transport - relocate

    • Store - protect

    • Inspect – better understanding

Chapter 1: The Nature of Operations


Outputs

Outputs

  • Two types of outputs commonly result from a production system

    • Services (physical goods)

    • Products (abstract or nonphysical)

Chapter 1: The Nature of Operations


Chapter 1 nature of operations

Chapter 1: The Nature of Operations


Facilitating good concept

Facilitating Good Concept

  • Often confusion in trying to classify organization as manufacturer or service

  • Facilitating good concept avoids this ambiguity

  • All organizations defined as service

  • The tangible part of the service is defined as facilitating good

  • Pure services

Chapter 1: The Nature of Operations


The range from services to products

The Range From Services to Products

Chapter 1: The Nature of Operations


Classification and evolution of economic offerings

Classification and Evolution of Economic Offerings

Chapter 1: The Nature of Operations


Comparison of alternative economic offerings

Comparison of Alternative Economic Offerings

Chapter 1: The Nature of Operations


Chapter 1 nature of operations

Chapter 1: The Nature of Operations


Operations activities

Strategy

Output Planning

Capacity Planning

Facility Location

Facility Layout

Aggregate Planning

Inventory Management

Materials Requirements Planning

Scheduling

Quality Control

Operations Activities

Chapter 1: The Nature of Operations


Functional view of organizations

Functional View of Organizations

  • Three Core Functions

    • Operations

    • Marketing

    • Finance/Accounting

  • Other Important Functional Activities

    • Human Resource Management

    • Information Systems

    • Engineering

Chapter 1: The Nature of Operations


Chapter in perspective

Chapter in Perspective

  • Two alternative ways for organizing work activities

    • Functional approach, companies organize activities on the basis of the type of work performed

    • Organizing activities on the basis of specific value-creating processes.

Chapter 1: The Nature of Operations


Process view of organizations

Process View of Organizations

An Evolution

Chapter 1: The Nature of Operations


Traditional functional organization

Traditional Functional Organization

Chapter 1: The Nature of Operations


Value chain approach

Value Chain Approach

Chapter 1: The Nature of Operations


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