Chapter 1
1. Operations Management: The management of processes that convert inputs into goods and
services for customers.
Example: A manufacturing company overseeing the production line of smartphones, ensuring
efficient processes from raw materials to the finished product.
2. Process: A series of activities that transform inputs into outputs for customers.
Example: The process of assembling a car, where parts like the engine, wheels, and chassis are
combined to create the final vehicle.
3. Operation: A group of resources performing tasks within a process.
Example: A packaging team working in a warehouse to pack finished goods into boxes before
shipment.
4. Supply Chain: A network of interconnected processes that deliver products or services to
customers.
Example: A food supply chain, where farmers grow crops, transport them to processing factories,
and then distribute packaged food to supermarkets for consumer purchase.
5. Supply Chain Management: Coordinating a company’s processes with suppliers and customers
to align material, service, and information flows with customer demand.
Example: A clothing brand coordinating with fabric suppliers, manufacturers, and distribution
centers to ensure that garments are produced and delivered on time to retail stores.
integration between different functional areas of a business. It shows how various functions work
together in a circular flow to achieve business objectives:
1. Finance acquires the necessary financial resources and capital for inputs.
2. Operations translates materials and services into outputs (products and services).
3. Marketing generates sales of those outputs, bringing revenue.
4. Sales Revenue is then used to acquire additional resources (materials, services) to continue the
cycle.
5. Support Functions (such as accounting, human resources, and engineering) support these
processes, ensuring smooth operation and alignment across the business.
This integrated system ensures efficient workflow and interdependencies within a business to produce
desired outputs.
Examples of Manufacturing Processes (Goods):
1. Car Manufacturing: The production of vehicles like cars involves physical, durable outputs
(cars) that can be inventoried, have long response times, and are capital intensive.
2. Electronics Assembly: The creation of smartphones or computers, where physical products are
produced, stored, and their quality is easily measured through testing.
Examples of Service Processes:
1. Healthcare Services: The treatment provided by hospitals and doctors involves intangible and
perishable output, with high customer contact and labor intensity. The quality is subjective and
varies with each patient.
2. Education: The service provided by teachers and educational institutions, where outputs cannot
be inventoried, customer contact is high, and response time is generally short.
Order Winners:
Order winners are characteristics or features that directly influence a customer's decision to choose one
product or service over another. They are the key differentiators in a competitive market.
Examples of Order Winners:
1. Apple iPhone: The cutting-edge technology, premium design, and brand reputation of the iPhone
make it an order winner in the smartphone market.
2. Tesla: Tesla’s advanced electric technology, autopilot features, and long battery life set it apart
from competitors in the electric vehicle market.
3. Amazon: Fast delivery times and a vast range of products make Amazon an order winner in
online retail.
Order Qualifiers:
Order qualifiers are the basic attributes or minimum standards that a product or service must meet for a
company to even be considered by customers. These are the factors that make a product or service eligible
for the market, but they don't necessarily give the firm a competitive edge.
Examples of Order Qualifiers:
1. Automobiles: Basic safety features like airbags, anti-lock brakes, and crash-test ratings are order
qualifiers for any vehicle in the automotive market. Without them, a vehicle would not be able to
compete in the market.
2. Restaurants: Cleanliness, hygiene standards, and basic customer service are order qualifiers for a
restaurant. A restaurant must meet these minimum standards to operate, even if they do not
guarantee a competitive advantage.
3. Smartphones: Basic functionality such as calling, messaging, and the ability to run essential apps
are order qualifiers for any smartphone. Without these features, the phone would not be viable in
the market.
Global Competition:
Firms expand their market presence by setting up production facilities in foreign countries, reducing
customer reluctance to buy imports. Globalization also helps firms balance cash flows across regions.
However, countries maintain sovereignty and can nationalize firms, taking assets without compensation in
certain cases.
Examples:
1. Apple: Produces in China to reduce costs and appeal to local customers.
2. Oil Companies: Risk nationalization, as seen in Venezuela, where governments may seize assets
without compensation.
Ethical, Workforce Diversity, and Environmental Issues:
As companies expand globally, ethical dilemmas arise due to differing rules and norms in various
countries. Issues like bribery, discrimination, conflicts of interest, and unsafe workplaces can be more
prominent in some regions.
Additionally, environmental concerns, once seen as distant problems, are now recognized as critical
survival issues. Toxic waste, polluted water, and poor air quality are increasingly viewed as challenges
that businesses must address.
Examples:
1. Bribery: Companies may face ethical dilemmas when operating in countries where bribery is a
common practice.
2. Environmental: Firms must address pollution and resource depletion to ensure sustainable
operations.
Designing and Operating Processes and Supply Chain:
Effective management of processes and supply chains involves more than just designing them—it
requires ensuring they meet their goals and function efficiently. Companies must manage their processes
and supply chains to enhance competitiveness, optimize performance, and meet the demands of the
markets they serve.
Example:
A manufacturing firm designs a supply chain that minimizes lead time, reduces costs, and ensures
timely delivery, enabling it to maintain a competitive edge in the market.
Adding Value with Process Innovation:
Process innovation can significantly impact industries, even those with low growth. By focusing on how
processes add value, managers can improve efficiency and align operations with competitive priorities,
market demands, and the firm’s overall strategy. Understanding the relationship between core processes
and supply chains is crucial for achieving business success.
Example:
A retail company implements process innovations in inventory management, reducing stockouts and
improving customer satisfaction, which directly supports its competitive strategy.
Chapter 2
Process Strategy and Process Analysis:
Process Strategy involves decisions made to align processes with a company's competitive priorities,
ensuring they effectively support business goals.
Process Analysis focuses on documenting and thoroughly understanding how work is performed,
identifying areas for improvement, and optimizing processes for efficiency.
Example:
● Process Strategy: A car manufacturer adopts a strategy of automation to reduce production costs
and improve speed, aligning with its goal of cost leadership.
● Process Analysis: A hospital analyzes patient intake processes to identify bottlenecks, aiming to
improve patient flow and reduce wait times.
1. Process Structure:
○ Definition: Defines how processes are designed based on the resources required, how
resources are allocated, and their essential characteristics.
○ Example: A fast-food restaurant might design its process structure around quick service,
with resources like cooking stations and order counters set up to optimize speed and
customer turnover.
2. Customer Involvement:
○ Definition: Refers to how customers are integrated into the process and the degree of
their participation.
○ Example: In a tailoring service, customers provide measurements and choose fabrics,
making them active participants in the process.
3. Vertical Integration:
○ Definition: Describes how much of the value chain is controlled by the firm's own
production or service facilities.
○ Example: Tesla uses vertical integration by producing most of its car parts and batteries
in-house, reducing reliance on suppliers.
4. Resource Flexibility:
○ Definition: The ability of employees and equipment to handle various products, duties,
and functions with ease.
○ Example: A logistics company may use flexible delivery trucks that can carry different
types of goods and adapt to changing delivery routes.
5. Capital Intensity:
○ Definition: The balance between equipment costs and labor costs in a process; higher
equipment costs relative to labor costs result in higher capital intensity.
○ Example: An automobile assembly line has high capital intensity due to the significant
investment in robotic machinery and automation compared to labor costs.
The Customer-Contact Matrix is a framework that helps classify services based on customer involvement,
customization, and the process characteristics. It considers the extent to which customers are present
during the service and how much attention they receive.
Key Elements:
1. Degree of Customer Contact: This refers to how much interaction the customer has with the
service provider during the process.
2. Customization: The level of personalization provided to the customer based on their individual
needs or preferences.
3. Process Characteristics:
○ Process Divergence: The extent to which processes are customized, offering flexibility in
how tasks are performed.
○ Flexible Flow: The ability of the service process to allow customers, materials, or
information to move in diverse ways, with flexible paths.
Matrix Structure:
Service Process Structuring:
Managers can choose from three types of service process structures, each representing a different level of
customer contact and customization. These structures form a continuum based on customer involvement
and process flexibility.
1. Front Office:
○ Example: A luxury hotel where staff interact directly with guests to meet their specific
needs, offering personalized services.
2. Hybrid Office:
○ Example: A bank where customers interact with tellers but can also choose from various
services (e.g., account types, loan options).
3. Back Office:
○ Example: A call center handling customer queries where the service is standardized, and
customer interaction is minimal, focusing mainly on resolving issues efficiently.
Process Structure in Manufacturing:
Manufacturing processes are often linked with services, and understanding them requires a process view
that distinguishes between manufacturing and service processes. The key elements include:
1. Product-Process Matrix: A tool that links product type (customized vs. standardized) with the
appropriate manufacturing process (e.g., mass production vs. job shop).
○ Example: Mass production of smartphones vs. custom-made furniture.
2. Manufacturing Process Structuring: Organizing manufacturing operations based on product
volume and complexity, such as assembly lines for high-volume production or project processes
for low-volume, customized products.
○ Example: Car manufacturing vs. aerospace manufacturing.
Project Process:
● Highly customized with large scope for each product, requiring significant resources upon
completion.
● Example: Construction of a skyscraper, where each project is unique and requires considerable
resources.
Job Process:
● Flexible for producing a wide variety of products with low volume. Customization is high, and
each product involves complex, divergent steps.
● Example: Custom furniture making, where different designs are created based on customer
specifications.
Batch Process:
● Involves moderate volumes with variations in product types. Products are produced in batches,
with moderate divergence in steps.
● Example: Bakery production, where bread is made in batches, but the type of bread can vary.
Line Process:
● High volume, standardized production where resources are organized around particular products.
Divergence is minimal, and there’s little inventory between steps.
● Example: Car manufacturing assembly line, where cars are produced in large quantities with
standardized components.
Continuous Flow:
● The highest volume and standardization, with rigid flows and no stops during production.
● Example: Oil refining, where the process runs continuously, and production doesn’t halt for long
periods.
Production and Inventory Strategies:
1. Design-to-Order Strategy:
○ Definition: Firms design and produce products that do not currently exist based on
unique customer specifications.
○ Example: Custom-made shoes, where the design and production are tailored to the
individual customer’s needs.
2. Make-to-Order Strategy:
○ Definition: Manufacturers produce products based on specific customer orders in low
volumes, offering high customization.
○ Example: Custom furniture, where each piece is made according to customer
specifications.
3. Assemble-to-Order Strategy:
○ Definition: Firms assemble products from pre-made components once a customer order
is received, allowing for variety and quick delivery.
○ Example: Personalized computers, where components like memory, processors, and
storage are assembled based on customer choices.
4. Make-to-Stock Strategy:
○ Definition: Companies produce products in advance and keep them in stock for
immediate delivery, reducing customer wait times.
○ Example: Soft drinks, where products are mass-produced and stored for quick
distribution.
5. Mass Production:
○ Definition: A line process using the make-to-stock strategy to produce large quantities of
standardized products.
○ Example: Automobile assembly lines, where cars are produced in high volumes using
standardized parts and processes.
Customer involvement refers to the extent of customer participation in a process, offering several
advantages and disadvantages.
Advantages:
● Better Quality: Increased customer input can lead to improved product quality.
● Faster Delivery: More customer involvement can speed up service or production.
● Greater Flexibility: Customization based on customer needs.
● Lower Costs: Some manufacturers let customers assemble products, reducing production costs.
● Supply Chain Coordination: Customer involvement can help align different parts of the supply
chain effectively.
Emerging technologies enable companies to engage in real-time communication with customers, making
them active partners in creating value and forecasting demand.
Disadvantages:
● Process Disruption: Increased customer involvement can disrupt the process, reducing
efficiency.
● Demand Management Challenges: Managing the timing and volume of customer demand
becomes harder when customers are physically present and expect quick delivery.
Resource Flexibility:
Managers must consider process divergence and flexible process flows when deciding on resource
flexibility. High task divergence and flexible processes require adaptable resources, such as employees,
facilities, and equipment. These resources should be versatile to ensure efficient and economical
operations.
Workforce Flexibility:
● Definition: A flexible workforce consists of employees capable of performing multiple tasks at
different workstations, depending on volume flexibility.
● Example: Workers in a manufacturing plant who can move between assembly lines to adjust to
varying production demands.
Equipment Flexibility:
● Low Volume: Requires flexible, general-purpose equipment to keep investments low and reduce
fixed costs, though variable costs are higher.
● High Volume: Involves specialized equipment designed for narrow product ranges, leading to
higher fixed costs but lower variable costs.
● Example: A custom furniture maker uses flexible equipment for low volume, while a car
manufacturer uses specialized machines for high-volume production.
Capital Intensity:
Capital intensity refers to the balance between equipment and labor costs in a process. Higher equipment
costs relative to labor indicate greater capital intensity. Automation reduces both equipment and labor
costs, improving efficiency.
Automation:
Automation is a self-regulating system that operates without human intervention, often providing a
competitive edge.
Advantages:
● Increases efficiency and reduces labor costs.
● Ensures consistent quality.
Disadvantages:
● High initial investment.
● Reduced flexibility and potential job displacement.
. Automating Manufacturing Processes:
● Fixed Automation: Produces a single product in a fixed sequence of operations.
○ Example: Car assembly line where the same model is produced continuously.
● Flexible Automation: Can be easily adjusted to handle different products.
○ Example: CNC machines that can be reprogrammed to produce various parts.
2. Automating Service Processes:
● Capital Inputs in Services: Using automation in service processes to replace manual labor.
○ Example: Online education platforms replacing traditional classroom learning with
automated lectures and assessments.
Types of Vertical Integration:
1. Forward Integration:
○ A company merges with or acquires a distribution channel, moving closer to the end
customer.
○ Example: A car manufacturer opening its own retail outlets to sell directly to
consumers.
2. Backward Integration:
○ A company expands upstream by acquiring control over earlier stages of the supply
chain, such as raw materials.
○ Example: A clothing brand purchasing fabric mills to control the production of its
own materials.
Strategies for Change:
1. Process Reengineering: Involves radical redesign of processes to drastically improve cost,
quality, and speed.
○ Example: Completely overhauling a manufacturing process to reduce waste and
increase efficiency.
2. Process Improvement: Focuses on systematically analyzing and improving existing
processes by understanding details and continuously reviewing operations.
○ Example: Regularly analyzing production workflows to identify small
improvements in efficiency and quality.
