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Chapter 1

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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  1. Chapter 1 • The Nature of Operations Chapter 1: The Nature of Operations

  2. Introduction Chapter 1: The Nature of Operations

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. Operations • Heart of every organization • Operations are the tasks that create value Chapter 1: The Nature of Operations

  11. The Production System Chapter 1: The Nature of Operations

  12. Systems Perspective • Inputs • Transformation System • Alter • Transport • Store • Inspect • Outputs • Environment Chapter 1: The Nature of Operations

  13. 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

  14. 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

  15. Outputs • Two types of outputs commonly result from a production system • Services (physical goods) • Products (abstract or nonphysical) Chapter 1: The Nature of Operations

  16. Chapter 1: The Nature of Operations

  17. 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

  18. The Range From Services to Products Chapter 1: The Nature of Operations

  19. Classification and Evolution of Economic Offerings Chapter 1: The Nature of Operations

  20. Comparison of Alternative Economic Offerings Chapter 1: The Nature of Operations

  21. Chapter 1: The Nature of Operations

  22. 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

  23. 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

  24. 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

  25. Process View of Organizations An Evolution Chapter 1: The Nature of Operations

  26. Traditional Functional Organization Chapter 1: The Nature of Operations

  27. Value Chain Approach Chapter 1: The Nature of Operations

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