Which action is an important part of operations management quizlet?

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is the sequence of organizations—their facilities, functions, and activities—that are involved in producing and delivering a product or service. The sequence begins with basic suppliers of raw materials and extends all the way to the final customer. See Figure 1.2. Facilities might include warehouses, factories, processing centers, offices, distribution centers, and retail outlets. Functions and activities include forecasting, purchasing, inventory management, information management, quality assurance, scheduling, production, distribution, delivery, and customer service.

supplers' supplier, direct supplier, producers, distributer, and final customer

The essence of the operations function is to add value during the transformation process: Value-added is the term used to describe the difference between the cost of inputs and the value or price of outputs. In nonprofit organizations, the value of outputs (e.g., highway construction, police and fire protection) is their value to society; the greater the value-added, the greater the effectiveness of these operations. In for-profit organizations, the value of outputs is measured by the prices that customers are willing to pay for those goods or services. Firms use the money generated by value-added for research and development, investment in new facilities and equipment, worker salaries, and profits. Consequently, the greater the value-added, the greater the amount of funds available for these purposes. Value can also be psychological, as in branding.

Production of goods results in a tangible output, such as an automobile, eyeglasses, a golf ball, a refrigerator—anything that we can see or touch. It may take place in a factory, but it can occur elsewhere. For example, farming and restaurants produce nonmanufactured goods. Delivery of service, on the other hand, generally implies an act. A physician's examination, TV and auto repair, lawn care, and the projection of a film in a theater are examples of services. The majority of service jobs fall into these categories:

Operations and sales are the two line functions in a business organization. All other functions—accounting, finance, marketing, IT, and so on—support the two line functions.

Among the service jobs that are closely related to operations are financial services (e.g., stock market analyst, broker, investment banker, and loan officer), marketing services (e.g., market analyst, marketing researcher, advertising manager, and product manager), accounting services (e.g., corporate accountant, public accountant, and budget analyst), and information services (e.g., corporate intelligence, library services, management information systems design services).

Operations also interacts with other functional areas of the organization, including legal, management information systems (MIS), accounting, personnel/human resources, and public relations,

The legal department must be consulted on contracts with employees, customers, suppliers, and transporters, as well as on liability and environmental issues.

Accounting supplies information to management on costs of labor, materials, and overhead, and may provide reports on items such as scrap, downtime, and inventories.

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Management information systems (MIS) is concerned with providing management with the information it needs to effectively manage. This occurs mainly through designing systems to capture relevant information and designing reports. MIS is also important for managing the control and decision-making tools used in operations management.

The personnel or human resources department is concerned with recruitment and training of personnel, labor relations, contract negotiations, wage and salary administration, assisting in manpower projections, and ensuring the health and safety of employees.

Public relations is responsible for building and maintaining a positive public image of the organization. Good public relations provides many potential benefits. An obvious one is in the marketplace. Other potential benefits include public awareness of the organization as a good place to work (labor supply), improved chances of approval of zoning change requests, community acceptance of expansion plans, and instilling a positive attitude among employees.

Variation occurs in all business processes. It can be due to variety or variability. For example, random variability is inherent in every process; it is always present. In addition, variation can occur as the result of deliberate management choices to offer customers variety.

There are four basic sources of variation:

The variety of goods or services being offered. The greater the variety of goods and services, the greater the variation in production or service requirements.

Structural variation in demand. These variations, which include trends and seasonal variations, are generally predictable. They are particularly important for capacity planning.

Random variation. This natural variability is present to some extent in all processes, as well as in demand for services and products, and it cannot generally be influenced by managers.

Assignable variation. These variations are caused by defective inputs, incorrect work methods, out-of-adjustment equipment, and so on. This type of variation can be reduced or eliminated by analysis and corrective action.

The scope of operations management ranges across the organization. Operations management people are involved in product and service design, process selection, selection and management of technology, design of work systems, location planning, facilities planning, and quality improvement of the organization's products or services.

The operations function includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more.

A primary function of an operations manager is to guide the system by decision making. Certain decisions affect the design of the system, and others affect the operation of the system.

A number of other areas are part of, or support, the operations function. They include purchasing, industrial engineering, distribution, and maintenance.

Purchasing has responsibility for procurement of materials, supplies, and equipment. Close contact with operations is necessary to ensure correct quantities and timing of purchases. The purchasing department is often called on to evaluate vendors for quality, reliability, service, price, and ability to adjust to changing demand.
Purchasing is also involved in receiving and inspecting the purchased goods.

Industrial engineering is often concerned with scheduling, performance standards, work methods, quality control, and material handling.

Distribution involves the shipping of goods to warehouses, retail outlets, or final customers.

Maintenance is responsible for general upkeep and repair of equipment, buildings and grounds, heating and air-conditioning; removing toxic wastes; parking; and perhaps security.

A model is an abstraction of reality, a simplified representation of something. For example, a child's toy car is a model of a real automobile. It has many of the same visual features (shape, relative proportions, wheels) that make it suitable for the child's learning and playing. But the toy does not have a real engine, it cannot transport people, and it does not weigh 2,000 pounds.

Models are sometimes classified as physical, schematic, or mathematical.

Physical models look like their real-life counterparts. Examples include miniature cars, trucks, airplanes, toy animals and trains, and scale-model buildings. The advantage of these models is their visual correspondence with reality.

Schematic models are more abstract than their physical counterparts; that is, they have less resemblance to the physical reality. Examples include graphs and charts, blueprints, pictures, and drawings. The advantage of schematic models is that they are often relatively simple to construct and change. Moreover, they have some degree of visual correspondence.

Mathematical models are the most abstract: They do not look at all like their real-life counterparts. Examples include numbers, formulas, and symbols. These models are usually the easiest to manipulate, and they are important forms of inputs for computers and calculators.

A major influence on the entire organization is the degree of customization of products or services being offered to its customers. Providing highly customized products or services such as home remodeling, plastic surgery, and legal counseling tends to be more labor intensive than providing standardized products such as those you would buy "off the shelf" at a mall store or a supermarket or standardized services such as public utilities and Internet services.

Furthermore, production of customized products or provision of customized services is generally more time consuming, requires more highly skilled people, and involves more flexible equipment than what is needed for standardized products or services. Customized processes tend to have a much lower volume of output than standardized processes, and customized output carries a higher price tag. The degree of customization has important implications for process selection and job requirements. The impact goes beyond operations and supply chains. It affects marketing, sales, accounting, finance, and information systems.

Companies must be competitive to sell their goods and services in the marketplace. Competitiveness is an important factor in determining whether a company prospers, barely gets by, or fails. Business organizations compete through some combination of price, delivery time, and product or service differentiation.

Marketing influences competitiveness in several ways, including identifying consumer wants and needs, pricing, and advertising and promotion.

Identifying consumer wants and/or needs is a basic input in an organization's decision-making process, and central to competitiveness. The ideal is to achieve a perfect match between those wants and needs and the organization's goods and/or services.
Price and quality are key factors in consumer buying decisions. It is important to understand the trade-off decision consumers make between price and quality.
Advertising and promotion are ways organizations can inform potential customers about features of their products or services, and attract buyers.

Operations has a major influence on competitiveness through product and service design, cost, location, quality, response time, flexibility, inventory and supply chain management, and service. Many of these are interrelated.

nother key factor to consider when developing strategies is technological change, which can present real opportunities and threats to an organization. Technological changes occur in products (high-definition TV, improved computer chips, improved cellular telephone systems, and improved designs for earthquake-proof structures); in services (faster order processing, faster delivery); and in processes (robotics, automation, computer-assisted processing, point-of-sale scanners, and flexible manufacturing systems). The obvious benefit is a competitive edge; the risk is that incorrect choices, poor execution, and higher-than-expected operating costs will create competitive disadvantages.

Important factors may be internal or external. The following are key external factors:

Economic conditions. These include the general health and direction of the economy, inflation and deflation, interest rates, tax laws, and tariffs.
Political conditions. These include favorable or unfavorable attitudes toward business, political stability or instability, and wars.
Legal environment. This includes antitrust laws, government regulations, trade restrictions, minimum wage laws, product liability laws and recent court experience, labor laws, and patents.
Technology. This can include the rate at which product innovations are occurring, current and future process technology (equipment, materials handling), and design technology.
Competition. This includes the number and strength of competitors, the basis of competition (price, quality, special features), and the ease of market entry.
Markets. This includes size, location, brand loyalties, ease of entry, potential for growth, long-term stability, and demographics.

The organization also must take into account various internal factors that relate to possible strengths or weaknesses. Among the key internal factors are the following:

Human resources. These include the skills and abilities of managers and workers, special talents (creativity, designing, problem solving), loyalty to the organization, expertise, dedication, and experience. Page 49
Facilities and equipment. Capacities, location, age, and cost to maintain or replace can have a significant impact on operations.
Financial resources. Cash flow, access to additional funding, existing debt burden, and cost of capital are important considerations.
Customers. Loyalty, existing relationships, and understanding of wants and needs are important.
Products and services. These include existing products and services, and the potential for new products and services.
Technology. This includes existing technology, the ability to integrate new technology, and the probable impact of technology on current and future operations.
Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility, and service are typical considerations.
Other. Other factors include patents, labor relations, company or product image, distribution channels, relationships with distributors, maintenance of facilities and equipment, access to resources, and access to markets.

The organization strategy provides the overall direction for the organization. It is broad in scope, covering the entire organization. Operations strategy is narrower in scope, dealing primarily with the operations aspect of the organization. Operations strategy relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling. Table 2.3 provides a comparison of an organization's mission, its overall strategy, and its operations strategy, tactics, and operations.

In order for operations strategy to be truly effective, it is important to link it to organization strategy; that is, the two should not be formulated independently. Rather, formulation of organization strategy should take into account the realities of operations' strengths and weaknesses, capitalizing on strengths and dealing with weaknesses. Similarly, operations strategy must be consistent with the overall strategy of the organization, and with the other functional units of the organization. This requires that senior managers work with functional units to formulate strategies that will support, rather than conflict with, each other and the overall strategy of the organization. As obvious as this may seem, it doesn't always happen in practice. Instead, we may find power struggles between various functional units. These struggles are detrimental to the organization because they pit functional units against each other rather than focusing their energy on making the organization more competitive and better able to serve the customer. Some of the latest approaches in organizations, involving teams of managers and workers, may reflect a growing awareness of the synergistic effects of working together rather than competing internally.

Time-based strategies focus on reducing the time required to accomplish various activities (e.g., develop new products or services and market them, respond to a change in customer demand, or deliver a product or perform a service). By doing so, organizations seek to improve service to the customer and to gain a competitive advantage over rivals who take more time to accomplish the same tasks.

Time-based strategies focus on reducing the time needed to conduct the various activities in a process. The rationale is that by reducing time, costs are generally less, productivity is higher, quality tends to be higher, product innovations appear on the market sooner, and customer service is improved.

Organizations have achieved time reduction in some of the following:

Planning time: The time needed to react to a competitive threat, to develop strategies and select tactics, to approve proposed changes to facilities, to adopt new technologies, and so on.
Product/service design time: The time needed to develop and market new or redesigned products or services.
Processing time: The time needed to produce goods or provide services. This can involve scheduling, repairing equipment, methods used, inventories, quality, training, and the like.
Changeover time: The time needed to change from producing one type of product or service to another. This may involve new equipment settings and attachments, different methods, equipment, schedules, or materials.
Delivery time: The time needed to fill orders.
Response time for complaints: These might be customer complaints about quality, timing of deliveries, and incorrect shipments. These might also be complaints from employees about working conditions (e.g., safety, lighting, heat or cold), equipment problems, or quality problems.

To formulate an effective strategy, senior managers must take into account the core competencies of the organizations, and they must scan the environment. They must determine what competitors are doing, or planning to do, and take that into account. They must critically examine other factors that could have either positive or negative effects. This is sometimes referred to as the SWOT approach (strengths, weaknesses, opportunities, and threats). Strengths and weaknesses have an internal focus and are typically evaluated by operations people. Threats and opportunities have an external focus and are typically evaluated by marketing people. SWOT is often regarded as the link between organizational strategy and operations strategy.

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An alternative to SWOT analysis is Michael Porter's five forces model,1 which takes into account the threat of new competition, the threat of substitute products or services, the bargaining power of customers, the bargaining power of suppliers, and the intensity of competition.

In formulating a successful strategy, organizations must take into account both order qualifiers and order winners. Order qualifiers are those characteristics that potential customers perceive as minimum standards of acceptability for a product to be considered for purchase. However, that may not be sufficient to get a potential customer to purchase from the organization. Order winners are those characteristics of an organization's goods or services that cause them to be perceived as better than the competition.

As businesses recognize the strategic importance of effective supply chain management, they are also discovering that global supply chains have additional complexities that were either negligible or nonexistent in domestic operations. These complexities include language and cultural differences, currency fluctuations, armed conflicts, increased transportation costs and lead times, and the increased need for trust and cooperation among supply chain partners. Furthermore, managers must be able to identify and analyze factors that differ from country to country, which can affect the success of the supply chain, including local capabilities; financial, transportation, and communication infrastructures; governmental, environmental, and regulatory issues; and political issues.

Supplier Relationship Management ERP integrates purchasing, receiving, information about vendor ratings and performance, lead times, quality, electronic funds disbursements, simplifying processes, and enabling analysis of those processes.

Performance Management This aspect of ERP pulls together information on costs and profits, productivity, quality performance, and customer satisfaction.

Sales and Order Fulfillment ERP includes the ability to provide inventory and quality management, track returns, and schedule and monitor production, packaging, and distribution. Reports can provide information on order and inventory status, delivery dates, and logistics performance.

Customer Relationship Management An ERP system not only centralizes basic contact information, details on contracts, payment terms, credit history, and shipping preferences, it also provides information on purchasing patterns, service, and returns.

very company should develop an ethical supply chain code to guide behavior. A code should cover behaviors that involve customers, suppliers, suppliers' behaviors, contract negotiation, recruiting, and the environmental issues.

A major risk of unethical behavior is that when such behavior is exposed in the media, consumers tend to blame the major company or brand in the supply chain associated with the ethical infractions that were actually committed by legally independent companies in the supply chain. The problem is particularly difficult to manage when supply chains are global, as they often are in manufacturing operations. Unfortunately, many companies lack the ability to quickly contact most or all of the companies in their supply chain, and communicate with suppliers on critical issues of ethics and compliance. Although monitoring of supply chain activities is essential, it is only one aspect of maintaining an ethical supply chain. With global manufacturing and distribution, supply chain scrutiny should include all supply chain activities from purchasing, manufacturing, assembly, and transportation, to service and repair operations, and eventually to proper disposal of products at the end of their useful life.

Key steps companies can take to reduce the risk of damages due to unethical supplier behavior are to choose those that have a reputation for good ethical behavior; incorporate compliance with labor standards in supplier contracts; develop direct, long-term relationships with ethical suppliers; and address quickly any problems that occur.

Top management has certain strategic responsibilities that have a major impact on the success not only of supply chain management but also of the business itself. These strategies include:

Supply chain strategy alignment: Aligning supply and distribution strategies with organizational strategy and deciding on the degree to which outsourcing will be employed.
Network configuration: Determining the number and location of suppliers, warehouses, production/operations facilities, and distribution centers.
Information technology: Integrating systems and processes throughout the supply chain to share information, including forecasts, inventory status, tracking of shipments, and events.
Products and services: Making decisions on new product and services selection and design.
Capacity planning: Assessing long-term capacity needs, including when and how much will be needed and the degree of flexibility to incorporate.
Strategic partnerships: Partnership choices, level of partnering, and degree of formality.
Distribution strategy: Deciding whether to use centralized or decentralized distribution, and deciding whether to use the organization's own facilities and equipment for distribution or to use third-party logistics providers.
Uncertainty and risk reduction: Identifying potential sources of risk and deciding the amount of risk that is acceptable.

The Purchasing Cycle

The purchasing cycle begins with a request from within the organization to purchase material, equipment, supplies, or other items from outside the organization, and the cycle ends when the purchasing department is notified that a shipment has been received in satisfactory condition. The main steps in the cycle are these:

Purchasing receives the requisition. The requisition includes (a) a description of the item or material desired, (b) the quantity and quality necessary, (c) desired delivery dates, and (d) who is requesting the purchase.
Purchasing selects a supplier. The purchasing department must identify suppliers who have the capability of supplying the desired goods. If no suppliers are currently listed in the files, new ones must be sought. Vendor ratings may be referred to in choosing among vendors, or perhaps rating information can be relayed to the vendor with the thought of upgrading future performance.
Purchasing places the order with a vendor. If the order involves a large expenditure, particularly for a one-time purchase of equipment, for example, vendors will usually be asked to bid on the job, and operating and design personnel may be asked to assist in negotiations with a vendor. Large-volume, continuous-usage items may be covered by blanket purchase orders, which often involve annual negotiation of prices with deliveries subject to request throughout the year. Moderate-volume items may also have blanket purchase orders, or they may be handled on an individual basis. Small purchases may be handled directly between the operating unit requesting a purchased item and the supplier, although some control should be exercised over those purchases so they don't get out of hand.
Monitoring orders. Routine follow-up on orders, especially large orders or those with lengthy lead times, allows the purchasing department to project potential delays and relay that information to the operating units. Conversely, the purchasing department must communicate changes in quantities and delivery needs of the operating units to suppliers to allow them time to change their plans.
Receiving orders. Receiving must check incoming shipments for quality and quantity. It must notify purchasing, accounting, and the operating unit that requested the goods. Page 665If the goods are not satisfactory, they may have to be returned to the supplier or subjected to further inspection.

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