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THE VALUE-DRIVEN APPROACH TO OPERATIONS MANAGEMENT
Module Objectives • Understand what the operations management system is and the role it plays in the modern firm • Recognize how the operations management system and its capabilities are shaped by certain decisions taken by management • Identify the major partners that influence the activities of the operations management system • Explain the notion of value and the relationship between value and the effective and efficient operations management system • Understand fundamental changes in the operations management system and in concepts of value over years
Critical Questions in OM What? What resources? How? How much? When? Where and who? For whom? What measures?
Critical OM Decisions Type of Decision OM Decision Issues Structural Capacity Amount, timing of changes, types Facilities Size, location, specialization Technology Hardware, Info Systems, Process knowledge Value Definition Focus of activities Supply Chain Direction, extent, responsibilities, types
Critical OM Decisions Type of Decision OM Decision Issues Tactical Workforce Skill level, wage, employee security Production Planning Sourcing, span, materials control centralization Performance/ Defect/problem Measurement detection, monitoring Organization Authority, control, reward, hierarchy, Renewal/ When to revisit or Improvement change actions
Three Basic OM Subprocesses Product/Process Design Planning/ Performance Scheduling/ Measurement Execution
Process and its Major Components Knowledge Information Goods Services Outputs Activities Inputs
Physical Goods Tangible Can be inventoried Little customer contact Long lead times Capital intensive Quality easily assessed Material is transformed Services Intangible Cannot be inventoried Extensive customer contact Short lead times Labor intensive Quality very difficult to assess. Customer is transformed. Characteristics of Goods & Services
Who are OM’s Partners? Customers Stakeholders Suppliers The firm
Value Value is defined as: the customer’s subjective evaluation, adjusted for cost, of how well a product meets or exceeds his or her expectations.
Value has Driven the Evolution of OM • 1800 – 1850: Age of technical capitalists • 1850 – 1890: Introduction of mass production • 1890 – 1920: Scientific operations management • 1920 – 1960 Golden age of American mfg • 1960 – 1980: Decline of American industry • 1980 – 1995: World-class operations • 1995 – present: E-Business — OM meets the Internet
Early Late Decline Maturity Maturity The Product Life Cycle $ Growth Intro- duction Sales Cash Flow Profit Time
The Value Cycle Value Design Value Value Execution The Value Cycle Identification Value Renewal