1 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted

1

OM2, Ch. 1 Goods, Services, and Operations Management

©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

GOODS, SERVICES, AND OPERATIONS MANAGEMENT

CHAPTER 1

DAVID A. COLLIERAND

JAMES R. EVANS

OM2

2OM2, Ch. 1 Goods, Services, and Operations Management

©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole of in part.

LO1 Explain the concept of operations management.

LO2 Describe what operations managers do.

LO3 Explain the differences between goods and services.

LO4 Describe a customer benefit package.

LO5 Explain three general types of processes.

LO6 Summarize the historical development of OM.

LO7 Describe current challenges facing OM.

Chapter 1 Learning Outcomes

l e a r n i n g o u t c o m e s



Walt Disney clearly put us on the path toward

things like quality, great guest service, creativity and innovation,” said Mr. Bruce Jones, programming director for the Disney Institute. Disney theme parks and resorts are designed to “create happiness by providing the finest in entertainment for people of all ages, everywhere.” How do they accomplish this? By meticulous attention to the management of operations!

Chapter 1 Goods, Services, and Operations Management




Disney theme parks and resorts, for example, focus on training employees (“cast members”) to provide exceptional guest service; on the use of technology both for entertainment and operational efficiency; on the physical setting (i.e., facility layout, lighting, signage, music, appealing to all five senses), separating “onstage” public areas from “backstage” work operations that include a complex underground system to move materials and people around the properties; on process design issues like efficient waiting lines--and on continuous improvement of everything they do.1



Describe one experience you had at a theme park that illustrates either good or bad customer service or operational design. What can we learn from your experience regarding how a theme park can create a positive customer experience or improve on a bad one through its design and operations?

What do you think?




• Operations management (OM) is the science and art of ensuring that goods and services are created and delivered successfully to customers.

• The principles of OM help one to view a business enterprise as a total system, in which all activities are coordinated, not only vertically throughout the organization, butalso horizontally across multiple functions.




United Performance Metals• United Performance Metals (UPM), located in

Hamilton, Ohio, is a supplier of stainless steel and high temperature alloys for the specialty metal market.

• UPM’s primary production operations include slitting coil stock and cutting sheet steel to customer specifications with rapid turnaround times from order to delivery.

• Bob Vogel is the Vice President of Operations at UPM. He is involved in a variety of daily activities that draw upon knowledge of not only OM and engineering, but also finance, accounting, organizational behavior, and other subjects.





United Performance Metals



United Performance Metals

While understanding specialty metals is certainly a vital part of Mr. Vogel’s job, the ability to understand customer needs, apply approaches to continuous improvement, understand and motivate people, work cross-functionally across the business, and integrate processes and technology within the value chain define Scott’s job as an operations manager.




OM in the Workplace

Brooke Wilson is a Process Manager for J.P. Morgan Chase in the Credit Card Division. Among his OM-related activities are:

• Planning and budgeting: Representing the plastic card production area in all meetings, developing annual budgets and staffing plans, and watching technology that might affect the production of plastic credit cards.




OM in the Workplace

• Inventory management: Overseeing the management of inventory for items such as plastic blank cards, inserts such as advertisements, envelopes, postage, and credit card rules and disclosure inserts.

• Scheduling and capacity: Daily to annual scheduling of all resources (equipment, people, inventory) necessary to issue new credit cards and reissue cards that are up for renewal, replace old or damaged cards, and ones that are stolen.




OM in the Workplace

Brooke Wilson is a Process Manager for J.P. Morgan Chase in the Credit Card Division. Among his OM-related activities are:

• Quality: Embossing the card with accurate customer information and quickly getting the card in the hands of the customer.

Brooke was an accounting major in college.




Understanding Goods and Services

• A good is a physical product that you can see, touch, or possibly consume. Examples of goods include: oranges, flowers, televisions, soap, airplanes, fish, furniture, coal, lumber, personal computers, paper, and industrial machines.

• A durable good is a product that typically lasts at least three years. Vehicles, dishwashers, and furniture are some examples of durable goods.





• A non-durable good is perishable and generally lasts for less than three years. Examples are toothpaste, software, shoes, and fruit.

• A service is any primary or complementary activity that does not directly produce a physical product.




Similarities Between Goods and Services

1. Goods and services provide value and satisfaction to customers who purchase and use them.

2. They both can be standardized or customized to individual wants and needs.

3. A process creates and delivers each good or service, and therefore, OM is a critical skill.




Differences Between Goods and Services1. Goods are tangible while services are

intangible. 2. Customers participate in many service

processes, activities, and transactions. 3. The demand for services is more difficult to

predict than the demand for goods.4. Services cannot be stored as physical

inventory.5. Service management skills are paramount to

a successful service encounter.6. Service facilities typically need to be in close

proximity to the customer.7. Patents do not protect services.





• Service management integrates marketing, human resources, and operations functions toplan, create, and deliver goods and services, and their associated service encounters.

• A service encounter is an interaction between the customer and the service provider.




Understanding Goods and ServicesA broader definition is:• Service encounters consist of one or more

moments 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.

• Here, a service encounter includes the impression an empty parking lot has on whether the customer goesinto a facility or the interaction with other customers such as while waiting in line.




Exhibit 1.1 How Goods and Services Affect Operations Management Activities



Customer Benefit Packages• A customer benefit package (CBP) is a

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

• In simple terms, a CBP is some combination of goods and services configured in a certain way to provide value to customers.

• A CBP consists of a primary good or service, coupled with peripheral goods and/or services.




Exhibit 1.2 A CBP Example for Purchasing a Vehicle



Customer Benefit Packages• A primary good or service is the “core”

offering that attracts customers and responds to their basic needs. For example, the primary service of a personal checking account is the capability to do convenient financial transactions.

• Examples of a primary good or service: an airline flight, a personal digital assistance (PDA) device, a checking account, a brief case, a football game, tax preparation advice, and so on.




Customer Benefit Packages• Peripheral goods or services are those

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

• Examples of peripheral goods or services for a personal checking account: on-line access and bill payment, debit card, designer checks, paper or electronic account statement, etc.

• Remember each primary or peripheral good or service requires a process to create and deliver it to customers.




Customer Benefit Packages• A variant is a CBP attribute that departs

from the standard CBP and is normally location- or firm-specific.

• A variant allows for adding unique goods or services such as a fishing pond or pool at an automobile dealership where kids can fish while the parents shop for vehicles.

• Once a variant is incorporated and standardized into all CBP delivery sites on a continuous basis, it becomes a permanent peripheral good or service.




Exhibit 1.2 A CBP Example for Purchasing a Vehicle



Exhibit 1.3 Examples of Goods and Service Content



Customer Benefit Packages• It is very important that you understand

the difference between customer wants and needs versus the CBP features selected by management to fulfill those needs.

• Processes create CBP features such as the (a) physical vehicle itself or (b) a leasing package that fits what the customer can afford. These CBP features fulfill certain customer’s wants and needs such as (a) physical transportation from point A to B, or (b) how can I pay for the vehicle?




Exhibit Extra Another Example of Consumer Benefit Package



Biztainment – (Huh?)Why would someone pay, for example, to crush grapes with their feet? Might it be that the process of doing this is as valuable to the customer as the outcome itself? Entertainment is the act of providing hospitality, escapism, fun, excitement, and/or relaxation to people as they go about their daily work and personal activities. The addition of entertainment to an organization’s customer benefit package provides unique opportunities for companies to increase customer satisfaction and grow revenue.




Biztainment – (Huh?) Biztainment is the practice of adding entertainment

content to a bundle of goods and services in order to gain competitive advantage. The old business model of just selling and servicing a physical vehicle is gone. For example, a BMW automobile dealership in Fort Myers, Florida, recently opened a new 52,000- square-foot facility that offers a putting green, private work areas, a movie theater, wireless Internet access, massage chairs, a golf simulator, and a cafe´, so that customers have multiple entertainment options during their visits.

Build-A-Bear Workshop boasts an average of $600 per square foot in annual revenue, double the U.S. mall average, and Holiday Inns found that hotels with holidomes have a 20% higher occupancy rate and room rates are on average $28 higher.




Exhibit 1.4 How Primary, Support, Supplier, and Management Processes Are Related



Exhibit Extra Organization by Function versus Process



Pal’s Sudden Service• Pal’s Sudden Service is a small chain of

mostly drive-through quick service restaurants located in Northeast Tennessee and Southwest Virginia.

• Pal’s competes against major national chains and outperforms all of them by focusing on important customer requirements such as speed, accuracy, friendly service, correct ingredients and amounts, proper food temperature, and safety.




Pal’s Sudden Service• Pal’s uses extensive market research to

fully understand customer requirements: convenience; ease of driving in and out; easy-to-read menu; simple, accurate order-system; fast service; wholesome food; and reasonable price.

• Every process is flowcharted and analyzed for opportunities for error, and then mistake-proofed if at all possible.




Exhibit Extra Pal’s Sudden Service Value Chain



Pal’s Sudden Service• Entry-level employees – mostly high

school students in their first job – receive 120 hours of training on precise work procedures and process standards in unique self-teaching, classroom, and on-the-job settings, reinforced by a “Caught Doing Good” program that provides recognition for meeting quality standards and high performance expectations.

• Pal’s collect performance measures such as complaints, profitability, employee turnover, safety, and productivity.




Exhibit 1.5 Five Eras of Operations Management



* Durable goods are items such as instruments, vehicles, aircraft, computer and office equipment, machinery, furniture, glass, metals, and appliances. ** Nondurable goods are items such as textiles, apparel, paper, food, coal, oil, leather, plastics, chemicals, and books.

Source: United States Bureau of Labor Statistics

Exhibit 1.6 U.S. Employment by Major Industry (slide 1)



Exhibit 1.6 U.S. 2001 Employment and Projected Change by Major Industry (slide 2)

Source: United States Bureau of Labor Statistics



Today’s Service Economy

Goods-producing industries (manufacturing, construction, fishing, forestry, mining, and agriculture) account for about 20 percent of the jobs in the U.S. economy.

Service-providing industries account for about 80 percent of the jobs in the U.S. economy.

One-half of those jobs in goods-producing industries involve service processes such as human resource management, accounting, and financial.




Therefore, more than 90 percent of the jobs in the U.S. economy involve designing and managing service-, information- or entertainment-intensive processes.

Most people in the United States are working in the service sector or service processes or in service-related aspects of manufacturing firms.




Current Challenges in OM

• Technology

• Globalization

• Changing cunsumer expectations • A changing workforce

• Global manufacturing

• Sustainability




Sustainability

Sustainability refers to an organization’s ability to strategically address current business needs and successfully develop a long-term strategy that embraces opportunities and manages risk for all products, systems, supply chains, and processes to preserve resources for future generations.




Sustainability – Three Dimensions• Environmental sustainability focuses on OM

activities such as remanufacturing, waste management, green supply chains, and energy conservation.

• Social sustainability requires organizations to continually evaluate the impacts of their products and operations on society as a part of the organization’s overall corporate responsibilities, such as creating a zero carbon footprint product or supply chain.

• Economic sustainability revolves around making sound financial and operational decisions about workforce capability and capacity, resource acquisitions, technology, knowledge, core competencies, work systems, facilities, and equipment, as well as preparation for real-time or short-term emergencies.




Zappos Case Study

1. Draw and describe the customer benefit package that Zappos provides. Identify and describe one primary value creation, one support, and one general management process you might encounter at Zappos (see Exhibit 1.4).

2.Explain the role of service encounters and service management skills at Zappos. How does Zappos create superior customer experiences?

3.Describe how each OM activity in Exhibit 1.1 impacts the management of both the goods that Zappos sells and the services that it provides. (You might want to build a table like Exhibit 1.1 to organize your answers.)


Documents

1 OM2, Ch. 1 Goods, Services, and Operations Management ©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted