Operation Management and Business Value Chain

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1. Operations and Technology
Management (EBMY231001)
•Nur AINIMasruroh
•Industrial Engineering, Universitas Gadjah Mada
•S1 –Universitas Gadjah Mada, S2 –University of Manchester, S3 –National University of
Singapore

2. Class code: ph6672u

3. Learning objectives
Students are expected to be able to discuss and demonstrate critical and system
thinking on:
1.Basic concepts of operations management as an integral part of business value
chain.
2.The application of ten decisions of operations management.
3.Fundamentals of technology management.
4.The application of technologies as enablers to achieve effectiveness and efficiency in
business operations.
5.the relevance of operations and technology management within contemporary
environments.

4. Materials
•Operations management and business
value chain
•Product and process design
•People in operations
•Operations planning and control
•Inventory management
•Improvement, lean, and agile operations
management
•Quality management
•Operations reliability and resilience
•Fundamentals of technology
management

5. Assessment method
1. In-class participation: 10%
2. Individual mid-term exam: 25%
3. Individual project report: 25%
4. Team project presentation: 20%
5. Team final project report: 20%

6. Main References
•Slack, N., Brandon-Jones, A. and Burgess,
N. (2022), Operations Management (10th
Ed), Harlow: Pearson Education Limited.
(SBB)
•Heizer, J. B. Render, and C. Munson. (2017).
Operations Management. 12
th
Edition. Upper
Saddle River, NJ: Pearson Education, Inc.
(HRM)

7. Operations
management
Adopted from SBB and HRM

8. Success
Story
➢First opened in 1971 in London
➢Today, Hard Rock International is one of the most globally recognized companies in the
world and has venues in over 74 countries; Cafes, Casinos and Hotels
➢Known for its collectible fashion and music-related merchandise, memorable dining
experiences, Hard Rock Live performance venues and more Creates value in the form of
good food and entertainment
➢3,500
+
custom meals per day in Orlando
➢How does an item get on the menu?
➢The meals are designed, tested, and then analyzed for cost of ingredients, labor
requirements, and customer satisfaction.
➢On approval, menu items are put into production—and then only if the ingredients
are available from qualified suppliers.
➢The production process, from receiving, to cold storage, to grilling or baking or frying,
and a dozen other steps, is designed and maintained to yield a quality meal.
➢Operations managers, using the best people they can recruit and train, also prepare
effective employee schedules and design efficient layouts.
→Role of the Operations Manager
https://www.youtube.com/watch?v=je39-uhPWCU
© 2011 Pearson Education, Inc.
publishing as Prentice Hall

9. What is operations management?
Operations management is
•the activity of managing the resources that create and deliver services and
products (Slack, Brandon-Jones, and Burgess, 2022)
•the set of activities that create value in the form of goods and services by
transforming inputs into outputs (Heizer, Render, and Munson , 2020)
Operations managers are the people who have particular responsibility for
managing some, or all, of the resources that comprise the operations function.

10. Why Study OM?
•OM is one of the major functions of any organization, we want to study how
people organize themselves for productive enterprise
•We want (and need) to know how goods and services are produced
•We want to understand what operations managers do
•OM is such a costly part of an organization

13. The relationship between the operations function and
other core and support functions of the organisation

14. The new
operations
agenda

15. Input–transformation–output Process
All operations create and deliver services and products by changing inputs into outputs
using an ‘input–transformation–output’ process

17. Products vs services

18. Products vs
services

19. Operations management is relevant to all parts of
the business
•All functions of the organisation have processes that need managing
•All managers should have something to learn from the principles, concepts, approaches and techniques of operations
management
•It also means that we must distinguish between two meanings of ‘operations’:
•‘Operations’ as a function, meaning the part of the organisation that creates and delivers services and products for the
organisation’s external customers
•‘Operations’ as an activity, meaning the management of the processes within any of the organisation’s functions
•Although all operations processes are similar in that they all transform inputs, they do differ in a number of ways, four of
which, known as the four Vs, are particularly important:
•The volume of their output.
•The variety of their output.
•The variation in the demand for their output.
•The degree of visibility that the creation of their output has for customers

20. A typology of
operations
and
processes

22. What do operations managers do?
✓Directing the overall strategy of the operation. A general understanding of operations and
processes and their strategic purpose and performance, together with an appreciation of how
strategic purpose is translated into reality, is a prerequisite to the detailed design of operations
and process.
✓Designing the operation’s services, products and processes. Design is the activity of determining
the physical form, shape and composition of operations and processes together with the services
and products that they create.
✓Planning and control process delivery. After being designed, the delivery of services and products
from suppliers and through the total operation to customers must be planned and controlled
✓Developing process performance. Increasingly it is recognised that in operations, or any process,
managers cannot simply deliver services and products routinely in the same way that they always
have done. They have a responsibility to develop the capabilities of their processes to improve
process performance

23. The Critical
Decisions
1.Design of goods and services
a.What good or service should we offer?
b.How should we design these products and services?
2.Managing quality
a.How do we define quality?
b.Who is responsible for quality?
3.Process and capacity design
a.What process and what capacity will these products require?
b.What equipment and technology is necessary for these
processes?
4.Location strategy
a.Where should we put the facility?
b.On what criteria should we base the location decision?
5.Layout strategy
a.How should we arrange the facility?
b.How large must the facility be to meet our plan?

24. The Critical
Decisions
6.Human resources and job design
a.How do we provide a reasonable work environment?
b.How much can we expect our employees to produce?
7.Supply-chain management
a.Should we make or buy this component?
b.Who should be our suppliers and how can we integrate them
into our strategy?
8.Inventory, material requirements planning, and JIT
a.How much inventory of each item should we have?
b.When do we re-order?
9.Intermediate and short–term scheduling
a.Are we better off keeping people on the payroll during
slowdowns?
b.Which jobs do we perform next?
10.Maintenance
a.How do we build reliability into our processes?
b.Who is responsible for maintenance?

25. Significant Events in Operations
Management

26. New Challenges in OM
FROM
Local or national focus
Batch shipments
Low bid purchasing
Lengthy product
development
Standard products
Job specialization
TO
Global focus
Just-in-time
Supply-chain partnering
Rapid product
development, alliances
Mass customization
Empowered employees,
teams

27. Operations performance
Adopted from SBB & HRM

28. Three levels
of operations
performance
Operations principle:
Good operations performance is fundamental
to the sustainable success of any organisation

29. Stakeholder groups
with typical operations
objectives
•It is always the responsibility of
operations managers to
understand the (sometimes
conflicting) objectives of its
stakeholders

30. Operations
strategic
contribution
•Operations can contribute to
financial success through low
costs, increasing revenue,
lowering risk, making efficient
use of capital and building the
capabilities for future
innovation

31. Operations performance at an operational
level
•Quality
•Quality reduces cost, increases dependability
•Speed.
•Speed means the elapsed time between customers requesting products or services and their receiving
them
•Speed reduces inventory and risks
•Dependability
•Dependability means doing things in time for customers to receive products or services exactly when
they are needed, or at least when they were promised
•Dependability saves time and money, gives stability
•Flexibility
•Customers will need the operation to change so that it can provide four types of requirements
•Product/service flexibility, mix (product/service) flexibility, volume flexibility, delivery flexibility
•Cost
Performance objectives:

32. Quality
•An operations manager’s objective is to
build a total quality management system
that identifies and satisfies customer needs
•Two ways quality improves profitability:
•Sales gain via improve response, flexible pricing,
improved reputation
•Reduce costs via increased productivity, lower
rework and scrap cost and warranty cost
→ Increased profit

33. Speed
•Fast response to external
customers is greatly helped by
speedy decision-making and
speedy movement of materials
and information inside the
operation

34. Dependability
•Customers might judge the
dependability of an operation
only after the product or service
has been delivered
•Over time, however,
dependability can override all
other criteria.

35. Flexibility
•Flexibility speeds up response
•Flexibility saves time
•Flexibility maintains
dependability

36. Cost
•All operations have an interest
in keeping their costs as low as
is compatible with the levels of
quality, speed, dependability
and flexibility that their
customers require
•The measure that is most
frequently
•used to indicate this is
productivity

37. Productivity
A team of 10 analysts continually look for ways to shave time. Some
improvements:
•Stop requiring signatures on credit card purchases under $25 → Saved
8 seconds per transaction
•Change the size of the ice scoop → Saved 14 seconds per drink
•New espresso machines → Saved 12 seconds per shot
•Results:
•Operations improvements have helped Starbucks increase yearly
revenue per outlet by $200,000 to $940,000 in six years.
•Productivity has improved by 27%, or about 4.5% per year.

38. Productivity Challenge
•The objective is to improve productivity!
•Productivity is the ratio of outputs (goods and services) divided by the
inputs (resources such as labor and capital)
•Productivity = Units produced per Input used
•For example, Labor productivity = Units produced per Labor-hours used
•It is a measure of process improvement
•One resource input  single-factor productivity

39. Multi-Factor
Productivity
•Also known as total factor productivity
•Output and inputs are often expressed in dollars
•Multiple resource inputs  multi-factor productivity
•Productivity =
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40. Example
•Collins Title Insurance Ltd. wants to evaluate its labor and
multifactor productivity with a new computerized title-
search system. The company has a staff of four, each
working 8 hours per day (for a payroll cost of $640/day) and
overhead expenses of $400 per day. Collins processes and
closes on 8 titles each day. The new computerized title-
search system will allow the processing of 14 titles per day.
Although the staff, their work hours, and pay are the same,
the overhead expenses are now $800 per day.

41. Solution
•Labor productivity has increased from .25 to
.4375. The change is (.4375 - .25)/.25 = 0.75, or
a 75% increase in labor productivity.
Multifactor productivity has increased from
.0077 to .0097. This change is (.0097 -
.0077)/.0077 = 0.26, or a 26% increase in
multifactor productivity.
•Both the labor (single-factor) and multifactor
productivity measures show an increase in
productivity. However, the multifactor measure
provides a better picture of the increase
because it includes all the costs connected
with the increase in output

42. Cost reduction
through internal
effectiveness
•Performance objectives have
both external and internal
effects.
•Internally, cost is influenced by
the other performance
objectives

43. Polar diagrams for (a) a taxi
service versus a bus service
and (b) a charity promoting
organically grown food
•A useful way of representing the
relative importance of
performance objectives for a
product or service
•A line describes the relative
importance of each
performance objective.
•The closer the line is to the
common origin, the less
important is the performance
objective to the operation

44. Performance measures
at the three levels
•The measures can be aggregated into
composite measures such as customer
satisfaction, overall service level, or
operations agility → representing overall
performance
•All factors at each level can be broken
down into more detailed measures →
monitored more closely and more often
•In practice, most organizations will choose
to use performance measures from all
three levels

45. Balanced Score Card

46. Trade-offs and the efficient frontier

47. Operations
strategy
Adopted from SBB

48. Definition
•Operations strategy is defined as the ‘pattern of
decisions and actions that shape the long-term
vision, objectives and capabilities of the
operation and its contribution to the overall
strategy of the business’.
•The content of operations strategy is the specific
decisions and actions that set the operations
role, objectives and activities.

49. The four
perspectives on
operations strategy
•None of these four perspectives alone gives a
comprehensive picture, but together they provide some
idea of the pressures that go into forming the content of an
operations strategy.

50. The top-down perspective
of operations strategy
•A top-down perspective often
identifies three related levels of
strategy – corporate, business
and functional
•the ‘top-down’ perspective on
operations strategy is that it
should take its place in this
‘hierarchy of strategies’
The top-down perspective of operations strategy for printing services group

51. Correspondence
and coherence
•There should also be a clear,
explicit and logical connection
between a functional strategy
and the decisions taken within
the function
•All decisions should
complement and reinforce each
other, not pull the operation in
different directions (coherence)

52. The concepts of the
‘business model’ and
the ‘operating model’
•A business model is the plan that is
implemented by a company to
generate revenue and make a profit
(or fulfil its social objectives if a not-
for-profit enterprise).
•It often includes such elements as: the
value proposition of what is offered to
the market, the target customer
segments addressed by the value
proposition, the distribution channels
to reach customers, the core
capabilities needed to make the
business model possible and the
revenue streams generated by the
business model.
•An operating model focuses more on
how an overall business strategy is to
be achieved

53. Market (or outside-
in) perspective on
operations strategy
•Order winners are those things that directly and significantly contribute
to winning business
•Order qualifiers may not be the major competitive determinants of
success, but are important in another way. Performance below this
‘qualifying’ level of performance often disqualifies the organisation
from being considered by many customers
•Less important factors are neither order winning nor qualifying. They do
not influence customers in any significant way.

54. The effects of the
product/service life
cycle on operations
performance
objectives

55. The operational
experience (bottom-up) perspective
•The bottom-up perspective accounts
for the fact that in many cases
organisations move in a particular
strategic direction because their
ongoing experience at an
operational level convinces them
that it is the right thing to do.

56. The reinforcing effect of top-down and
bottom-up perspectives on operations
strategy
The two perspectives can be
mutually reinforcing

57. The operations resources (or
‘inside-out’) perspective
•Its fundamental idea is that long-term competitive
advantage can come from the capabilities of the
operation’s resources and processes, and these
should be developed over the long term to provide
the business with a set of capabilities or
competences

58. Example of Top-down,
outside-in, bottom-up
and inside-out
perspectives reconciled
•Micraytech is a metrology
systems company that develops
integrated measurement
systems for large international
clients in several industries, and
is part of the Micray Group,
which includes several high-tech
companies.

59. Operations strategy matrix:
The ‘line of fit’ between
market requirements and
operations capabilities
•Point A represents alignment at
a low level, while point B
represents alignment at a
higher level.
•The assumption in most firms’
operations strategies is that
point B is a more desirable
position than point A because it
is more likely to represent a
financially successful position.

60. Important –
performance
matrix
•The ‘appropriate’ zone – competitive
factors in this area lie above the lower
bound of acceptability and so should be
considered satisfactory.
• The ‘improve’ zone – lying below the
lower bound of acceptability, any factors
in this zone must be candidates for
improvement.
• The ‘urgent-action’ zone – these factors
are important to customers but
performance is below that of
competitors. They must be considered as
candidates for immediate improvement.
• The ‘excess?’ zone – factors in this area
are ‘high performing’, but not important
to customers. The question must be
asked, therefore, whether the resources
devoted to achieving such performance
could be used better elsewhere

61. Important –
performance matrix :
example
•YIR Laboratories is a subsidiary of an electronics company.
YIR needs to decide which aspect of its performance to
improve first. It has devised a list of the most important
aspects of its service. YIR assigned a score to each of these
factors using the 1–9 scale that we described in the Figure.

62. The stages of the
process of
operations strategy

63. Thank you