MODULE 1 – INTRODUCTION TO OPERATIONS MANAGEMENT 1

MODULE 1: INTRODUCTION TO OPERATIONS MANAGEMENT

INTRODUCTION

Operations management refers to the systematic design, direction, and control of

processes that transform inputs into services and products for internal, as well as external
customers. For organizational purposes, processes tend to be clustered together into
operations. An operation is a group of resources performing all or part of one or more
processes. Processes can be linked together to form a supply chain, which is the interrelated
series of processes within a firm and across different firms that produce a service or product to
the satisfaction of customers.

In this module, we will discuss the concepts on corporate and operations strategies used
by the different organizations.

LEARNING OUTCOMES:

After reading this module, the learner should be able to:

1. Describe operations and supply chains in terms of inputs, processes, outputs,
information flows, suppliers, and customers.
2. Define an operations strategy and its linkage to corporate strategy, as well as the role it
plays as a source of competitive advantage in a global marketplace.
3. Identify nine competitive priorities used in operations strategy, and their linkage to
marketing strategy.
4. Explain how operations can be used as a competitive weapon.
5. Identify the global trends and challenges facing operations management.

TIME:

The time allotted for this module is three hours.

LEARNER DESCRIPTION

The participants in this module are 3rd Year BSA and BSBA students.

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MODULE CONTENTS:

The figure below shows operations as one of the key functions within an organization.
The circular relationships in the same figure highlight the importance of the coordination among
the three mainline functions of any business, namely, (1) operations, (2) marketing, and (3)
finance. Each function is unique and has its own knowledge and skill areas, primary
responsibilities, processes, and decision domains. It is important to understand the entire circle,
and not just the individual functional areas. How well these functions work together determines
the effectiveness of the organization. Functions should be integrated and should pursue a
common strategy. Success depends on how well they are able to do so.

Figure 1. Integration between Different Functional Areas of a Business (Krajewski, Ritzman, and Malhotra 2016)

LESSON 1.1: Process View

How Processes Work

Any process has inputs and outputs. Inputs can include a combination of human
resources (workers and managers), capital (equipment and facilities), purchased materials and
services, land, and energy. Processes provide outputs to customers. These outputs may often

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be services (that can take the form of information) or tangible products. Every process and
every person in an organization has customers.

Figure 2. Processes and Operations (Krajewski, Ritzman, and Malhotra 2016)

Some are external customers, who may be end users or intermediaries (e.g.,
manufacturers, financial institutions, or retailers) buying the firm’s finished services or products.
Others are internal customers, who may be employees in the firm whose process inputs are
actually the outputs of earlier processes managed within the firm. Either way, processes must
be managed with the customer in mind. In a similar fashion, every process and every person in
an organization relies on suppliers. External suppliers may be other businesses or individuals
who provide the resources, services, products, and materials for the firm’s short-term and long-
term needs. Processes also have internal suppliers, who may be employees or processes that
supply important information or materials.

Service and Manufacturing Processes

Manufacturing processes convert materials into goods that have a physical form we call
products. The transformation processes change the materials on one or more of the following
dimensions: physical properties, shape, size, surface finish and joining parts. The outputs from
manufacturing processes can be produced, stored, and transported in anticipation of future
demand.

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Service processes tend to produce intangible, perishable outputs. The outputs of

service processes typically cannot be held in a finished goods inventory to insulate the process
from erratic customer demands.
A second key difference between service processes and manufacturing processes is
degree of customer contact. Service processes tend to have a higher degree of customer
contact. Customers may take an active role in the process itself, as in the case of shopping in a
supermarket, or they may be in close contact with the service provider to communicate specific
needs, as in the case of a medical clinic. Manufacturing processes tend to have less customer
contact. Even though the distinction between service and manufacturing processes on the
basis of customer contact is not perfect, the important point is that managers must recognize
the degree of customer contact required when designing processes.

Figure 3. Continuum Characteristics of Manufacturing and Service Processes (Krajewski, Ritzman, and Malhotra
2016)

LESSON 1.2: Supply Chain View

Most services or products are produced through a series of interrelated business

activities. Each activity in a process should add value to the preceding activities; waste and
unnecessary cost should be eliminated.

Figure 4. Supply Chain Linkages (Krajewski, Ritzman, and Malhotra 2016)

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Core Processes
A core process is a set of activities that delivers value to external customers. Managers
of these processes and their employees interact with external customers and build relationships
with them, develop new services and products, interact with external suppliers, and produce the
service or product for the external customer. In this text we focus on four core processes:
1. Employees in the supplier relationship process select the suppliers of services,
materials, and information and facilitate the timely and efficient flow of these items into
the firm
2. Employees in the new service/product development process design and develop new
services or products.
3. The order fulfillment process includes the activities required to produce and deliver the
service or product to the external customer
4. Employees involved in the customer relationship process identify, attract, and build
relationships with external customers, and facilitate the placement of orders by
customers.

Support Processes
A support process provides vital resources and inputs to the core processes and is
essential to the management of the business. Firms have many support processes.
1. The Human Resources function in an organization provides many support processes
such as recruiting and hiring workers who are needed at different levels of the
organization, training the workers for skills and knowledge needed to properly execute
their assigned responsibilities, and establishing incentive and compensation plans that
reward employees for their performance.
2. The legal department puts in place support processes that ensure that the firm is in
compliance with the rules and regulations under which the business operates
3. The Accounting function supports processes that track how the firm’s financial
resources are being created and allocated over time
4. The Information Systems function is responsible for the movement and processing of
data and information needed to make business decisions

Operations Strategy
Operations strategy specifies the means by which operations implements corporate
strategy and helps to build a customer-driven firm. It links long-term and short-term operations
decisions to corporate strategy and develops the capabilities the firm needs to be competitive. It
is at the heart of managing processes and supply chains. A firm’s internal processes are only
building blocks.
Developing a customer-driven operations strategy begins with corporate strategy, which,
as shown in the Figure below, coordinates the firm’s overall goals with its core processes. It
determines the markets the firm will serve and the responses the firm will make to changes in
the environment. It provides the resources to develop the firm’s core competencies and core
processes, and it identifies the strategy the firm will employ in international markets. Based on
corporate strategy, a market analysis categorizes the firm’s customers, identifies their needs,
and assesses competitors’ strengths. This information is used to develop competitive priorities.

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Figure 5. Connection between Corporate Strategy and Key Operations Management (Krajewski, Ritzman, and
Malhotra 2016)

Corporate Strategy
Corporate strategy provides an overall direction that serves as the framework for
carrying out all the organization’s functions. It specifies the business or businesses the company
will pursue, isolates new opportunities and threats in the environment, and identifies growth
objectives. Developing a corporate strategy involves four considerations:
1. Environmental Scanning - the process by which managers monitor trends in the
environment (e.g., the industry, the marketplace, and society) for potential opportunities
or threats)
2. Developing Core Competencies – These are the unique resources and strengths that
an organization’s management considers when formulating strategy. They reflect the
collective learning of the organization, especially in how to coordinate processes and
integrate technologies. These competencies include the following:
a. Workforce
b. Facilities
c. Market and Financial Know-How.
d. Systems and Technology
3. Developing Core Processes - Many companies have all four processes, while others
focus on a subset of them to better match their core competencies, since they find it
difficult to be good at all four processes and still be competitive.

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4. Global Strategies - A global strategy may include buying foreign services or parts,
combating threats from foreign competitors, or planning ways to enter markets beyond
traditional national boundaries. Although warding off threats from global competitors is
necessary, firms should also actively seek to penetrate foreign markets. Two effective
global strategies are
a. Strategic alliances
b. Locating abroad.

Market Analysis
A market analysis first divides the firm’s customers into market segments and then
identifies the needs of each segment.
1. Market segmentation is the process of identifying groups of customers with enough in
common to warrant the design and provision of services or products that the group
wants and needs. To identify market segments, the analyst must determine the
characteristics that clearly differentiate each segment.
2. The second step in market analysis is to make a needs assessment, which identifies
the needs of each segment and assesses how well competitors are addressing those
needs. Market needs may be grouped as follows:
a. Service or Product Needs - Attributes of the service or product, such as price,
quality, and degree of customization
b. Delivery System Needs - Attributes of the processes and the supporting
systems, and resources needed to deliver the service or product, such as
availability, convenience, courtesy, safety, accuracy, reliability, delivery speed,
and delivery dependability.
c. Volume Needs - Attributes of the demand for the service or product, such as
high or low volume, degree of variability in volume, and degree of predictability in
volume.
d. Other Needs - Other attributes, such as reputation and number of years in
business, after-sale technical support, ability to invest in international financial
markets, and competent legal services.

LESSON 1.3: Competitive Priorities and Capabilities

A customer-driven operations strategy requires a cross-functional effort by all areas of

the firm to understand the needs of the firm’s external customers and to specify the operating
capabilities the firm requires to outperform its competitors.
1. Competitive priorities are the critical operational dimensions a process or supply chain
must possess to satisfy internal or external customers, both now and in the future.
Competitive priorities are planned for processes and the supply chain created from
them.
2. Competitive capabilities are the cost, quality, time, and flexibility dimensions that a
process or supply chain actually possesses and is able to deliver. When the capability

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falls short of the priority attached to it, management must find ways to close the gap or
else revise the priority.

Order Winners and Qualifiers

Competitive priorities focus on what operations can do to help a firm be more
competitive, and are in response to what the market wants. Another useful way to examine a
firm’s ability to be successful in the marketplace is to identify the order winners and order
qualifiers.
1. An order winner is a criterion that customers use to differentiate the services or
products of one firm from those of another. Order winners can include price (which is
supported by low-cost operations) and other dimensions of quality, time, and flexibility
2. Minimal level required from a set of criteria for a firm to do business in a particular
market segment is called an order qualifier. Fulfilling the order qualifier will not ensure
competitive success; it will only position the firm to compete in the market.

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LESSON 1.4: Trends in Operations Management

Several trends are currently having a great impact on operations management:

productivity improvement; global competition; and ethical, workforce diversity, and
environmental issues. Accelerating change in the form of information technology, e-commerce,
robotics, and the Internet is dramatically affecting the design of new services and products as
well as a firm’s sales, order fulfillment, and purchasing processes

Productivity Improvement
Productivity is a basic measure of performance for economies, industries, firms, and
processes. Improving productivity is a major trend in operations management because all firms
face pressures to improve their processes and supply chains so as to compete with their
domestic and foreign competitors. Productivity is the value of outputs (services and products)
produced divided by the values of input resources (wages, cost of equipment, and so on) used:
Productivity = Output / Input

Global Competition
Most businesses realize that, to prosper, they must view customers, suppliers, facility
locations, and competitors in global terms. Firms have found that they can increase their market
penetration by locating their production facilities in foreign countries because it gives them a
local presence that reduces customer aversion to buying imports. Five developments spurred
the need for sound global strategies:
1. Improved transportation and communications technologies,
2. Loosened regulations on financial institutions,
3. Increased demand for imported services and goods,

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4. Reduced import quotas and other international trade barriers due to the formation of
regional trading blocks, such as the European Union (EU) and the North American Free
Trade Agreement (NAFTA), and
5. Comparative cost advantages.

Of course, operations in other countries can have disadvantages. A firm may have to
relinquish proprietary technology if it turns over some of its component manufacturing to
offshore suppliers or if suppliers need the its sovereignty over the people and property within its
borders. The extreme case is firm’s technology to achieve desired quality and cost goals.
Political risks may also be involved. Each nation can exercise nationalization, in which a
government may take over a firm’s assets without paying compensation. Employee skills may
be lower in foreign countries, requiring additional training time.

Ethical, Workforce Diversity, and Environmental Issues

Businesses face more ethical quandaries than ever before, intensified by an increasing
global presence and rapid technological change. As companies locate new operations and
acquire more suppliers and customers in other countries, potential ethical dilemmas arise when
business is conducted by different rules. Some countries are more sensitive than others about
conflicts of interest, bribery, discrimination against minorities and women, minimum-wage levels,
and unsafe workplaces.
In the past, many people viewed environmental problems, such as toxic waste,
poisoned drinking water, poor air quality, and climate change as quality of-life issues; now,
many people and businesses see them as survival issues. Apart from government initiatives,
large multinational companies have a responsibility as well for creating environmentally
conscious practices, and can do so profitably.

ONLINE READING MATERIALS:

 Read the article by MindTools about the Selected Strategy Tools at

o https://www.mindtools.com/pages/article/newTMC_05.htm
o https://www.mindtools.com/pages/article/newLDR_80.htm
o https://www.mindtools.com/pages/article/newSTR_84.htm
o https://www.mindtools.com/pages/article/business-ethnography.htm
 Read the article by Annmarie Hanlon about “Diffusion of Innovation Model” at
https://www.smartinsights.com/marketing-planning/marketing-models/diffusion-
innovation-model/

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ONLINE VIDEO LINKS AND MATERIALS:

 Watch the online video lecture of the course instructor uploaded at NEO LMS and to the
class shared Google drive (if applicable).
 Watch a Youtube Video by BCG about the “Corporate Strategy” at
https://www.youtube.com/watch?v=SKxpUkPD_7o
 Watch a Youtube Video by SBI TV about the “The Great Debate on Corporate Strategy”
at https://www.youtube.com/watch?v=FPJpUE407-w

MODULE REFERENCES:

Stevenson, William (2018), Project Management; the managerial process 7th ed.
Stevenson, William (2018), Operations Management 13th Edition
Zani, Rosliza (2018), Operation management
Krajewski, Lee J. (2016) Operation management: sustainability and supply chain management
12th ed.
Verma, A.P. (2016). Industrial Engineering and Management

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