• Addis Ababa University

• College of Business and Economics

• Department of Management
Course Title: Operations Management Course Code:
Credit hours: 3 Pre-requisite: Operations Research
Status of the course: Core
2. Course Description

Operations Management involves those aspects of the firm that provide the goods or services
in its value proposition to the targeted market. As such, operations will be decisive in
determining the long-term viability of the firm’s business model. This fact has become even
clearer in recent years as competition has increased with more globalization and improved
information technology
3. Course Objective

Operations are becoming increasingly competitive on a global basis. Therefore, students of

management have an urgent need to understand operations, an essential function in every
business. The purpose of this course is to provide students of management with a sound
understanding of the concepts, techniques, and applications of production and operations
management.

18-Oct-24 OM@AAU 1
• 4. COURSE OUTLINE
•
• CHAPTER I: OPERATIONS FUNCTION
• 1.1. Introduction
• 1.2. Definition of Production
• 1.3. Definition of Production and Operations Management
• 1.4. Objectives of Operations Management
• 1.5. Scope of Production and Operations Management
• 1.6. Operations Management as a study decision making
• 1.7. Operations as a function
• 1.8. Operations as a production system
• 1.9. Reasons for the study of Operations Management
• 1.10. New Operations Themes
• 1.11. Efficiency and Effectiveness
• CHAPTER II: OPERATIONS STRATEGY FOR COMPETETIVE ADVANTAGE
• 2.1 Identifying Missions and Strategies
• 2.2 Strategy Formulation
• 2.3 Achieving Competitive Advantage through Operations
• 2.4 Focused Operations

18-Oct-24 OM@AAU 2
• CHAPTER III: PRODUCT AND SERVICE DESIGN
• 3.1. Reasons for Product or Service Development
• 3.2. Strategies for New Product Introduction
• 3.3. The Designing Process
• 3.4. New Product Development Process
• 3.5. Value Analysis
• 3.6. Product Design
• 3.7. Service Operations Design
• CHAPTER IV: PROCESS SELECTION AND CAPCITY PLANNING
• 4.1. Process Selection
• 4.2. Capacity Planning
• 4.3. Developing Capacity Alternatives
• CHAPTER V: FACILITY LOCATION
• 5.1. The Need for Location Decisions
• 5.2. The Nature of Location Decisions
• 5.3. Factors That Affect Location Decisions

18-Oct-24 OM@AAU 3
• CHAPTER VI: FACILITY LAYOUT
• 6.1. Layout Types
• 6.2. Service Layouts
• 6.3. Line Balancing
• CHAPTER VII: QUALITY MANAGEMENT AND CONTROL
• 7.1. Meaning of Quality
• 7.2. Determinants of Quality
• 7.3. The Costs of Quality
• 7.4. Quality Circles and Quality Improvement Teams
• 7.5. International Quality Documentation Standards
• 7.6. Total Quality Management
• 7.7. Quality Control and Improvement

18-Oct-24 OM@AAU 4
• CHAPTER VIII: AGGREGATE PLANNING
• 8.1. Decision Options
• 8.2. Basic Strategies
• 8.3. Aggregate Planning Costs
• CHAPTER IX SCHEDULING OPERATIONS
• 9.1. Introduction
• 9.2. Scheduling
• 9.3. Loading
• 9.4. Job Sequencing
• 9.5. Priority Rules and Techniques
• 9.6. Personnel Scheduling in Service

18-Oct-24 OM@AAU 5
• REFERENCES:
• 1. S.N. chary, Theory and problems in Production and Operations
Management, Tata McGraw Hill Publishing co. Ltd, New Delhi, 1995
• 2. Richard B. Chase, Nicholas J. Aquilano, and F.Robert Jacobs, Production and
Operations Management, Irwin McGraw-Hill 8th ed., 1998
• 3. William J.Sterenson, Production/Operations Management, Irwin McGraw-
Hill, 6th ed., 1999
• 4. Jay Hezer and Barry Render, Principles of Operations Management, Prentice-
Hall Inc., 3rd ed., 1999
• 5. Monks, Joseph G. Operations Management: Theory and Problem, 3rd edn. ,
McGraw-Hill, 1987

18-Oct-24 OM@AAU 6
The following figure shows general supply chain concept material flows:
 Introduction
 What is Operations Management?

 Historical Development of OM

18-Oct-24 OM@AAU 8
 What is Production/Operations
Management?
• Production is the creation of goods and
services
Operations is the set of activities that
creates value in the form of goods and
services by transforming inputs into
outputs

18-Oct-24 OM@AAU 9
Operations management is defined as the design,
operation (implementations), and improvement of the
production system that creates the firm’s primary
products (goods and/or services).
What is a transformation process?
•A series of activities along a value chain extending
from supplier to customer
•Activities that do not add value are unnecessary and
should be eliminated

18-Oct-24 OM@AAU 10
 Organizing to Produce Goods and
Services
 Essential functions:
 Marketing – generates demand
 Production/operations – creates the product
 Finance/accounting – tracks how well the organization
is doing, pays bills, collects the money

18-Oct-24 OM@AAU 11
Operations as technical core: In relation with
other primary functions and suppliers
• Operations
• Marketing
• Finance and accounting
• Human resources
• Outside suppliers

1-12
 Operations
• Heart of every organization
• Operations are the tasks that create value

18-Oct-24 OM@AAU 13
 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.
 Improvement in productivity has benefits to all
stackholders

18-Oct-24 OM@AAU 14
The Production System/ systems view
of operations

18-Oct-24 OM@AAU 15
 OM Involves Managing
Transformations
Transformation
Input Process Output
(Value Adding)

Transformation is  People
enabled by The 5 Ps of OM:  Plants
 Parts
 Processes
 Planning and Control
18-Oct-24 OM@AAU 16
 Transformations
The part of the system that adds value to the
inputs.
Major ways of Transformation
 Physical  Manufacturing
 Locational  Transportation
 Exchange  Retailing
 Storage  Warehousing
 Physiological  Health care
 Informational  Telecommunications

18-Oct-24 OM@AAU 17
18-Oct-24 OM@AAU 18
Dominant transformed resource inputs of
various operations

18-Oct-24 OM@AAU 19
Set of input that act up on
transformed input

18-Oct-24 OM@AAU 20
 Operations performance
The triple bottom line:
• organization’s performance: the ‘triple bottom
line’ 2 (TBL, or 3BL), also known as ‘people, planet
and profit’.

18-Oct-24 OM@AAU 21
The five operations performance objectives
and their internal and external effects

18-Oct-24 OM@AAU 22
 Service or Good?
 “If you drop it on your foot, it won’t hurt you.”
(Good or service?)

 “Services never include goods and goods

never include services.” (True or false?)

18-Oct-24 OM@AAU 23
Characteristics of Goods and Services
¨ Tangible product
¨ Consistent product
definition
¨ Production usually
separate from
consumption
¨ Can be inventoried
¨ Low customer
interaction

18-Oct-24 OM@AAU 24
18-Oct-24 OM@AAU 25
 Within OM function: Critical Decisions
1. Managing quality
2. Design of goods and services
3. Process strategies
4. Location strategies
5. Layout strategies
6. Human resources
7. Supply-chain management
8. Inventory management
9. Scheduling
10. Maintenance
18-Oct-24 OM@AAU 26
 The Critical Decisions
 Quality Management
 Who is responsiblefor quality?
 How do we define quality?

 Goods and Services Design

 What product or service shouldwe offer?
 How should we design these products and
services?

18-Oct-24 OM@AAU 27
 The Critical Decisions - continued
 Process and Capacity Design
 What processes will these products require and in
what order?
 What equipment and technology is necessary for
these processes?
 Location
 Where should we put the facility
 On what criteria should we base this location
decision?
18-Oct-24 OM@AAU 28
 The Critical Decisions - continued
 Layout Design
 How should we arrange the facility?
 How large a facility is required?

 Human Resources and Job Design

 How do we provide a reasonable work
environment?
 How much can we expect our employees to
produce?

18-Oct-24 OM@AAU 29
 The Critical Decisions - continued
 Supply Chain Management and JIT “Just-in-
time” Inventory, Material Requirements
Planning
 Should we make or buy this item?
 Who are our good suppliers and how many should
we have?
 How much inventory of each item should we
have?
 When do we re-order?
18-Oct-24 OM@AAU 30
 The Critical Decisions - continued
 Immediate, Short Term, and Project
Scheduling
 Is subcontracting production a good idea?
 Are we better off keeping people on the payroll
during slowdowns?
 Maintenance
 Who is responsible for maintenance?

18-Oct-24 OM@AAU 31
 Evolution of Operations and Supply
Chain Management
• Craft production
– process of handcrafting products or services for
individual customers
• Division of labor
– dividing a job into a series of small tasks each
performed by a different worker
• Interchangeable parts
– standardization of parts initially as replacement
parts; enabled mass production
18-Oct-24
1-32 OM@AAU
 Evolution of Operations and Supply
Chain Management
• Scientific management
– systematic analysis of work methods
• Mass production
– high-volume production of a standardized product
for a mass market
• Lean production
– adaptation of mass production that prizes quality
and flexibility

18-Oct-24
1-33 OM@AAU
 Historical Events in Operations
Management
Era Events/Concepts Dates Originator
Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific
1911 Frederick W. Taylor
management
Frank and Lillian
Scientific Time and motion studies 1911 Gilbreth
Management Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford

Taylor:
 Matching employees to right job, Providing the proper training, Providing
proper work methods & tools, and Establishing legitimate incentives for work to
be accomplished
18-Oct-24 OM@AAU
1-34
 Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
Hawthorne studies 1930 Elton Mayo
Human 1940s Abraham Maslow
Relations Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
Operations Operations research
line theory, decision 1950s
Research groups
theory, PERT/CPM
1960s, Joseph Orlicky, IBM
MRP, EDI, EFT, CIM
1970s and others

18-Oct-24
1-35 OM@AAU
 Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
management) Joseph Juran
Quality Strategy and Wickham Skinner,
1980s
Revolution operations Robert Hayes
Business process Michael Hammer,
1990s
reengineering James Champy
Six Sigma 1990s GE, Motorola

18-Oct-24
1-36 OM@AAU
 Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain management Berners-Lee SAP,
i2 Technologies,
ORACLE
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union, 1990s Numerous countries
and other trade 2000s and companies
agreements, global supply
chains, outsourcing, BPO,
Services Science

18-Oct-24
1-37 OM@AAU
 Productivity
Productivity:
Measure of process improvement
Represents output relative to input
Measures of Productivity

18-Oct-24
1-38 OM@AAU
 Example
Sofia, the Production Manager at Afar Mills, can
currently expect his operation to produce 1000 square
yards of fabric for each ton of raw cotton. Each ton of
raw cotton requires 5 labor hours to process. He
believes that he can buy a better quality raw cotton,
which will enable him to produce 1200 square yards per
ton of raw cotton with the same labor hours.
Required: What will be the impact on productivity
(measured in square yards per labor-hour) if he
purchases the higher quality raw cotton?

18-Oct-24 OM@AAU 39
 Answer
1000 sq yds
Current labor productivity =  200 sq yds per hour
1 ton*5 hours

1200 sq yds
Newlaborproductivity =  240 sq yds per hour
1 ton*5 hours

Productivity improves 20% = ( 240 - 200 ) / 200 = .2

18-Oct-24 OM@AAU 40
 Exercise two
Ms. Triad is currently working a total of 12 hours per
day to produce 240 toys. She thinks that by changing
the paint used for the facial features and fingernails that
she can increase her rate to 360 toys per day. Total
material cost for each toy is approximately $3.50; she
has to invest $20 in the necessary supplies
(expendables) per day; energy costs are assumed to be
only $4.00 per day; and she thinks she should be
making $10 per hour for her time. Viewing this from a
total (multifactor) productivity perspective, what is her
productivity at present and with the new paint?

18-Oct-24 OM@AAU 41
 Answer for exercise tow
Currently Using the new paint

Labor 12 hrs * $10 = $120 12 hrs * $10 = $ 120

Material 240 * $3.50 = $840 360 * $3.50 = $1260

Supplies = $ 20 = $ 20

Energy =$ 4 =$ 4

Total Inputs = $984 = $1404

Productivity 240/984 = 0.24 360/1404 = .26

18-Oct-24 OM@AAU 42
oProductivity is a relative measure.
oTypically measure percent changes in
productivity from month to month,
quarter to quarter, year to year, or
over a number of years.

18-Oct-24 OM@AAU 43
 Productivity Measurement
Problems
 Quality may change while the quantity
of inputs and outputs remains
constant.
 External elements may cause an
increase or decrease in productivity.
 Precise units of measure may be
lacking

18-Oct-24 OM@AAU 44
 Productivity Variables

 Labor - contributes about 1/6 of the

annual increase
 Capital - contributes about 1/6 of the
annual increase
 Management - contributes about 2/3
of the annual increase

18-Oct-24 OM@AAU 45
 Key Variables for Improved
Labor Productivity

 Basic education appropriate for the

labor force
 Diet of the labor force
 Social overhead that makes labor
available
 Maintaining and enhancing skills in the
midst of rapidly changing technology
and knowledge
18-Oct-24 OM@AAU 46
 Service Productivity
Improving service productivity is more difficult than goods.
Because:
 Typically labor intensive
 Frequently individually processed
 Often an intellectual task performed by professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality

18-Oct-24 OM@AAU 47
 New Challenges in OM
From To
 Local or national focus ¨ Global focus
 Batch shipments
 Low bid purchasing ¨ Just-in-time
 Lengthy product ¨ Supply chain partnering
development ¨ Rapid product
development
 Standard products
¨ Mass customization
 Job specialization
¨ Empowered employees

18-Oct-24 OM@AAU 48
 Efficiency and effectiveness
Efficiency :- Doing things at lowest possible cost.
It is producing goods and services with lowest
possible resources
Effectiveness: Doing the right to create the most
value to the company.
Note: Maximizing efficiency and effectiveness at
the same time create conflict between the two
objectives.
Value: the ratio of Quality and price.
18-Oct-24 OM@AAU 49
 Ethics and Social Responsibility

Challenges facing
operations managers:

 Developing safe quality products

 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments
 Chapter 3 PRODUCT AND SERVICE DESIGN
• Product Designing is the process of deciding on the
unique characteristics and features of the company’s
product.

OM@ AAU 1
Product Designing
Effective design can provide a competitive advantage

• Matches product or service characteristics with customer

requirements
• Ensures that customer requirements are met in the simplest and
least costly manner
• Efficient and affordable production
• Reduces time required to design a new product or service
• Minimizes revisions necessary to make a design workable

Product design brings together marketing analysts, art directors, sales

forecasters, engineers, finance experts, and other members of a company to
think and plan strategically.

4-2 OM@ AAU

 • Defines appearance of
product
• Sets standards for
Product performance
design: • Specifies which materials are
to be used
• Determines dimensions and
tolerances

4-3 OM@ AAU

The main forces that initiate design or redesign are market
opportunities and threats. Changes result in opportunities and
threats.
The change in any of the following factors:

Economic (E.g., low demand, excessive warranty claims, the need to reduce costs).

Social and demographic (e.g., Aging baby boomers, population shifts).

Political, Liability, or Legal( E.g., Government changes, safety issues, new

regulations)
Competitive (e.g., new or changed products or services, new advertising
/promotions).

Cost or availability(E.g., of raw materials, components, labor)

Technological (E.g., in product components, processes).

OM@ AAU 4
 What does product and service design do?
(functional interactions are shown in parentheses)
• Translate customer wants and needs into product and
service requirements( marketing, operations)
• Refine existing products and services(marketing)
• Develop new products and /or services(marketing,
operations)
• Formulate quality goals( Marketing, operations)
• Formulate cost targets(accounting, finance and
operations)
• Construct and test prototypes ( operations, marketing and
engineering)
• Document specifications

OM@ AAU 5
Objectives of product design

• Customers satisfaction
• Economical product design (profitability)
• Speedy product design
• Quality appearance
• Design that fit with operational capabilities or
design for operation: ease of production,
assembly and maintenance
• Meeting work and environmental safety
regulations
• Design to global competitiveness

OM@ AAU 6
Product Design process (Cont.)

OM@ AAU 7
Step 1: Idea Generation
• Company’s own R&D • Salespersons in the
department field
• Customer complaints • Factory workers
or suggestions • New technological
• Marketing research developments
• Suppliers • Competitors

4-8 OM@ AAU

 Idea Generation (cont.)
 Perceptual maps (Customers)
 Visual comparison of customer perceptions
Competitors as sources of idea
 Benchmarking
 Comparing product/process against best-in-class
 Reverse engineering
 Dismantling competitor’s product to improve your
own product
 Buy a competitor’s new product and study its design
features.

4-9 OM@ AAU

Step 2: Product Screening /Feasibility Study

It evaluate a product idea to determine its likelihood of

success. Evaluation criteria may include:
– Market analysis
– Economic analysis
– Technical/production analysis
– strategic analyses
– Performance specifications

4-10 OM@ AAU

Break-Even Analysis: A Tool for Product Screening

Fixedcost
BEQ= sellingprice/ unit variablecost / unit

OM@ AAU 11
Step 3: Preliminary Design and Testing
(Rapid Prototyping)
Building, testing ,revising and refining a preliminary
product Design model.

A. Build a B. Test C. Revise

prototype D. Retest
prototype design

Form Functional Production

Design design design

Changes are made based on test results, and the process of

revising, rebuilding a prototype, and testing is continuous until
all the “bugs” have been worked out.
4-12 OM@ AAU
 Form and Functional Design
• Form design
– how product will look?
• Functional design
– how product will
perform?
• reliability
• maintainability
• usability

4-13 OM@ AAU

 Usability
• Ease of use of a product or service
– ease of learning
– ease of use
– ease of remembering how to use
– frequency and severity of errors
– user satisfaction with experience

4-14 OM@ AAU

 Design Simplification
(a) Original design (b) Revised design (c) Final design

Assembly using One-piece base & Design for

common fasteners elimination of push-and-snap
fasteners assembly

4-15 OM@ AAU

 Step 4: Final Design
(Final Design and Process Plans)
• Final design: detailed drawings and specifications for
new product or service.

• Process plans
– workable instructions
• necessary equipment and tooling
• component sourcing recommendations
• job descriptions and procedures
• computer programs for automated machines

4-16 OM@ AAU

 Outputs of final product design:
1. Product documents: 2.Production documents:
A) Engineering drawing a) Assembly chart
b) Assembly Drawing
– Shows dimensions,
c) Route sheet
tolerances, & materials
B) Bill of Material
– Lists components,
quantities & where used
– Shows product structure

OM@ AAU 17
Engineering Drawing Example

2-1/2
13/16
1
diameter

13/32
1/4 R
diameter
2-1/4

45° 13/16

3/8 13/16 5/16

1-5/8

Scale: FULL
Bracket Drawn: J. Thomas A- 435-038

OM@ AAU 18
 Bill of Material Example

Bill of Material
P/N: 1000 Name: Bicycle
P/N Desc Qty Units Level
1001 Handle Bars 1 Each 1
1002 Frame Assy 1 Each 1
1003 Wheels 2 Each 2
1004 Frame 1 Each 2

OM@ AAU 19
 Assembly Drawing

• Shows exploded view of product

Head Neck

End
Cap
Handle

OM@ AAU 20
 Assembly Chart
Tuna Fish
1
Tuna
SA1 A1
Assy
2 Sandwich
Mayonaise
FG

Bread
3 A2

OM@ AAU 21
 Route Sheet

• Lists all operations

R o u te S h e e t fo r B r a c k e t
Sequence M a c h in e O p e r a tio n S e tu p O p e r a tio n
T im e T im e /U n it
1 Shear # 3 S h e a r to 5 .0 3 0
le n g th
2 Shear # 3 Shear 45° 8 .0 5 0
c o rn e rs
3 D r ill D r ill b o th 15 3 .0 0 0
p re s s h o le s
4 B ra k e Bend 90° 10 .0 2 5
p re s s

OM@ AAU 22
 Design Team:
 Traditional Approach : “We design it, you build it” or “Over the wall”
 Concurrent Engineering: “Let’s work together simultaneously”

4-23 OM@ AAU

 Concurrent Design
• A new approach to • Involves suppliers
design that involves • Incorporates production
simultaneous design of process
products and processes • Scheduling and
by design teams management can be
• Improves quality of complex as tasks are
early design decisions done in parallel
• Uses technology to aid
design

4-24 OM@ AAU

 Quality Function Deployment (QFD)
• Translates voice of customer into technical
design requirements
• Displays requirements in matrix diagrams
– first matrix called “house of quality”
– series of connected houses

4-25 OM@ AAU

 House of Quality

Importance
5
Trade-off matrix

3
Design
characteristics

1 4 2

Customer Relationship Competitive

requirements matrix assessment

6 Target values

4-26 OM@ AAU

House of Quality Details

OM@ AAU 27
 Benefits of QFD
• Promotes better understanding of customer
demands
• Promotes better understanding of design
interactions
• Involves manufacturing in design process
• Provides documentation of design process

4-28 OM@ AAU

 Product design and Product Life Cycle,
Sales, Cost, and Profit
Cost of
Development
Sales, Cost & Profit .

& Manufacture Sales Revenue

Net Revenue

Loss
Time
Introduction Growth Maturity Decline

OM@ AAU 29
 Product life cycle and product design
Introduction:
Fine tuning: research, product development, process
modification and enhancement, and supplier development
Growth:
Product design begins to stabilize, Effective forecasting of capacity
becomes necessary and Adding or enhancing capacity may be
necessary
Maturity:
Competitors now established, High volume, innovative production
may be needed and Improved cost control, and reduction in options,
paring down of product line
Decline:
Unless product makes a special contribution, OM must plan to
terminate offering
OM@ AAU 30
Chapter 2 Operations strategy and
competitiveness
Mission/Strategy

Operations Priorities

 Strategy Development
Developing an operations strategy means looking
into new ways to add value for the customers in the
goods and services that the firm produces.
18-Oct-24 OM, @AAU 1
 Mission/Strategy

Mission - where you are going

It describe the purpose or rational for the firm
existence.
Vision Statement: used to express organization’s
values and aspirations.
Strategy - how you are going to get there
It explain the firms action plan to achieve its mission.

18-Oct-24 OM, @AAU 2

 Sample Mission -

Our mission is to provide society with superior

products and services - innovations and solutions
that improve the quality of life and satisfy customer
needs - to provide employees with meaningful work
and advancement opportunities and investors with
a superior rate of return

18-Oct-24 OM, @AAU 3

 Factors Affecting Mission

Philosophy &
Values
Profitability
Environment
& Growth
Mission

Customers Public Image

Benefit to
Society

18-Oct-24 OM, @AAU 4

 Strategy Process

Enviromental Company
Analysis Mission

Corporate SWOT
Strategy Analysis

FunctionalArea
Functional Area
Strategies

Marketing Operations Finance

Strategy Strategy Strategy

18-Oct-24 OM, @AAU 5

 Strategic Planning
Mission
and Vision

Corporate
Strategy

Marketing Operations Financial

Strategy Strategy Strategy
1-6
 Operations Strategy
Strategy Process Example

Customer Needs More Product

Corporate Strategy Increase Org. Size

Operations Strategy Increase Production Capacity

Decisions on Processes
Build New Factory
and Infrastructure
18-Oct-24 OM, @AAU 7
Competitiveness is how effectively an organization
meets the needs and requirements of customers
relative to other competitors. It needs to answer:
1. What do the customers want?
2. How can our business deliver the required value
to the customer?
• The main objective of manufacturing strategy
development are:
i. to translate required competitive dimensions into
specific performance requirements for operation
and
ii. to make sure that operation capabilities are
sufficient to accomplish them.
18-Oct-24 OM, @AAU 8
 Operations Priorities
(Competitive Dimensions)
 Cost
 Make the Product or Deliver the Service Cheap

 Quality
 Make a Great Product or Deliver a Great Service

 Delivery Speed
 Make the Product or Deliver the Service Quickly

 Delivery Reliability
 Deliver It When Promised

 Coping with Changes in Demand

 Change Its Volume

 Flexibility and New Product Introduction Speed

 Change Its

 Other Product-Specific Criteria

 Support It

18-Oct-24 OM, @AAU 9

 Dealing with Trade-offs
For example, if we reduce costs by reducing product quality
inspections, we might reduce product quality.

Cost

Flexibility Delivery

Quality

18-Oct-24 OM, @AAU 10

 Order Qualifiers and Winners

Order qualifiers are the basic criteria that

permit the firms products to be considered as
candidates for purchase by customers

Order winners are the criteria that

differentiates the products and services of
one firm from another

18-Oct-24 OM, @AAU 11

 Order Qualifiers and Winners - Continued
 A brand name car can be an “order qualifier”
 Repair services can be “order winners” Examples:
Warranty, Roadside Assistance, Leases, etc
Customers’ expectation is increasing with time

18-Oct-24 OM, @AAU 12

 Competitive Advantage Through
operations :
Firms achieve missions in three conceptual ways:
1. Differentiation

2. Low cost

3. Response

18-Oct-24 OM, @AAU 13

 1. Competing on Differentiation
• To distinguish the offerings in any way that
the customers perceived as value adding.
• Uniqueness - can go beyond both the physical
characteristics and service attributes to
encompass everything that impacts
customer’s perception of value.
• Example: superior product features, service
parts & broader product line.

18-Oct-24 OM, @AAU 14

 Differentiation with Quality
• Minimizing defect rates or conforming to design
specifications; please the customer.
• Make it according to customers’ need
• Customers are king and they are always right
• Ritz-Carlton - one customer at a time
– Service system is designed to “move heaven and earth” to
satisfy customer
– Every employee is empowered to satisfy a guest’s wish
– Teams at all levels set objectives and devise quality action
plans
18-Oct-24
1-15 OM, @AAU
2. Cost- Leadership/Competing on Cost
• Make it cheap
• Maximum value as defined by customer
• Customer’s value is the difference b/n the perceived
benefits and costs.
• Does not imply low value or low quality
• It requires the firm to utilize its resource efficiently.
• It is best applied if the customers cannot distinguish
the products of one firm from those of another.

18-Oct-24 OM, @AAU 16

 3. Competing on Response
It includes: Flexible, Quick and Reliable customer service
Flexible- to cope with change in demand
• Ability to adjust to changes in product mix, production volume, or
design
• National Bicycle Industrial Company
– offers 11,231,862 variations
– delivers within two weeks at costs only 10% above standard models
– mass customization: the mass production of customized parts
Quick: deliver more quickly than competitors
• Fast moves, fast adaptations, tight linkages
• Internet - conditioned customers to expect immediate responses
• Service organizations – always competent on speed
(McDonald’s, LensCrafters, and Federal Express)
• Manufacturers - time-based competition: build-to-order
production and efficient supply chains
Reliable- deliver it when promised
18-Oct-24 OM, @AAU 17
 Strategy Deployment
It requires
• Action plan to achieve mission

• Shows how mission will be

achieved

• Shows how Corporate, Business

and Functional strategies are
interrelated.

18-Oct-24 OM, @AAU 18

A Framework for Manufacturing Strategy
Customer Needs

New and Current

Products

Performance Priorities
and Requirements

Quality, Dependability,
Speed, Flexibility, and Price

Enterprise Capabilities
Operations & Supplier Capabilities
Technology Systems People R&D CIM JIT TQM Distribution

Support Platforms
Financial Management Human Resource Management Information Management

18-Oct-24 OM, @AAU 19

 Policy Deployment
• Policy deployment
– translates corporate, Business and Functional
strategies into measurable objectives
– Shows who will be responsible for implementing
action plans generated from the policy
deployment process

18-Oct-24
1-20 OM, @AAU
 Policy Deployment

Derivation of an Action Plan Using Policy Deployment

18-Oct-24
1-21 OM, @AAU