om chapter 1

• Operations Management (OM)


  The science and art of ensuring that goods and services are created and delivered successfully to customers
• Operations Management


  • Includes the design of goods, services, and the processes that create them
  • Includes the day-to-day management of those processes
  • Includes the continual improvement of these goods, services, and processes
• The way in which goods and services, and the processes that create and support them, are designed and managed can make the difference between a delightful or an unhappy customer experience
• Operations Managers


  The only function by which managers can directly affect the value provided to all stakeholders - customers, employees, investors, and society
• What Operations Managers Do

  • Forecasting
  • Supply chain management
  • Facility layout and design
  • Technology selection
  • Quality management
  • Purchasing
  • Resource and capacity management
  • Process design
  • Job design
  • Service encounter design
  • Scheduling
  • Sustainability
• Operations management principles are used in accounting, human resources management, legal work, financial activities, marketing, environmental management, and every type of service activity
• How former students use OM skills

  • Shelly Decker - Process design, Inventory management, Scheduling, Quality management
  • Tom James - Quality and customer service, Project management, Continuous improvement
• United Performance Metals Director of Operations and Quality

  • Involved in a variety of daily activities that draw upon knowledge of OM, engineering, finance, accounting, organizational behavior, and other subjects
  • Spends about 50% of time working with foremen, supervisors, salespeople, and other staff
  • Spends remainder of time investigating technical feasibility and cost implications of new capital equipment or changes to existing processes, trying to reduce costs, seeking and facilitating design improvements, and motivating the workforce
• Goods


  Physical products that you can see, touch, or possibly consume
• Examples of Goods


  • Cell phones
  • Appliances
  • Food
  • Flowers
  • Soap
  • Airplanes
  • Furniture
  • Coal
  • Lumber
  • Personal computers
  • Paper
  • Industrial machines
• Durable Goods


  Goods that do not quickly wear out and typically last at least three years
• Nondurable Goods


  Goods that are no longer useful once used, or last for less than three years
• Services


  Any primary or complementary activity that does not directly produce a physical product
• Examples of Service-Providing Industries

  • Banking
  • Lodging
  • Education
  • Health care
  • Government
• Differences between Goods and Services

  • Goods are tangible, services are intangible
  • Customers participate in many service processes, activities, and transactions
  • Services require strong behavioral skills and are often difficult to describe and demonstrate
  • Services make more use of information systems and "soft technology"
• Service Encounter


  An interaction between the customer and the service provider where the customer judges the value of the service and forms perceptions
• Moment of Truth


  Any episode, transaction, or experience in which a customer comes into contact with any aspect of the service delivery system and thereby has an opportunity to form an impression
• Service encounter


  An interaction between the customer and the service provider
• Service encounters


  • Making a hotel reservation
  • Asking a grocery store employee where to find the pickles
  • Making a purchase on a website
• Moment of truth


  Any episodes, transactions, or experiences in which a customer comes into contact with any aspect of the delivery system, however remote, and thereby has an opportunity to form an impression
• Moments of truth


  • A gracious welcome by an employee at the hotel check-in counter
  • A grocery store employee who seems too impatient to help
  • Trying to navigate a confusing website
• Customers judge the value of a service and form perceptions through service encounters
• Employees who interact directly with customers or design service processes need to understand the importance of service encounters
• Demand for services


  More difficult to predict than the demand for goods
• Customer arrival rates and demand patterns for service delivery systems are very difficult to forecast
• The demand for services is time-dependent, especially over the short term (by hour or day)
• Service firms do not have physical inventory to absorb fluctuations in demand
• For service delivery systems, availability depends on the system's capacity
• Once an airline seat, a hotel room, or an hour of a lawyer's day are gone, there is no way to recapture the lost revenue
• Service management skills


  Knowledge and technical expertise (operations), cross-selling other products and services (marketing), and good human interaction skills (human resources)
• Service management integrates marketing, human resources, and operations functions to plan, create, and deliver goods and services, and their associated service encounters
• OM principles are useful in designing service encounters and supporting marketing objectives
• Service facilities typically need to be in close proximity to the customer
• Patents do not protect services
• The intangible nature of a service makes it more difficult to keep a competitor from copying a business concept, facility layout, or service encounter design
• Value


  The perception of the benefits associated with a good, service, or bundle of goods and services in relation to what buyers are willing to pay for them
• If the value ratio is high, the good or service is perceived favorably by customers, and the organization providing it is more likely to be successful
• Customer benefit package (CBP)


  A clearly defined set of tangible (goods-content) and intangible (service-content) features that the customer recognizes, pays for, uses, or experiences
• Primary good or service

  The "core" offering that attracts customers and responds to their basic needs
• Peripheral goods or services


  Those that are not essential to the primary good or service, but enhance it