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The Nature of Operations

The chapter discusses operations at several companies. McDonald's switched to a new bun that doesn't require toasting, saving time and money. The Olympic torch relay involves 10,000 runners traveling 15,000 miles over 84 days at a cost of $20 million. In the 1980s and 90s, Kmart had more stores than Walmart but invested less in operations, and Walmart surpassed Kmart in sales as its distribution and inventory systems became more sophisticated. The chapter also defines operations, inputs, transformation processes, and outputs in production systems. It discusses classifying economic offerings along a spectrum from services to products to experiences.

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2K views27 pages

The Nature of Operations

The chapter discusses operations at several companies. McDonald's switched to a new bun that doesn't require toasting, saving time and money. The Olympic torch relay involves 10,000 runners traveling 15,000 miles over 84 days at a cost of $20 million. In the 1980s and 90s, Kmart had more stores than Walmart but invested less in operations, and Walmart surpassed Kmart in sales as its distribution and inventory systems became more sophisticated. The chapter also defines operations, inputs, transformation processes, and outputs in production systems. It discusses classifying economic offerings along a spectrum from services to products to experiences.

Uploaded by

pratik0001
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 27

Chapter 1

 The Nature of Operations

Chapter 1: The Nature of Operations 1


Introduction

Chapter 1: The Nature of Operations 2


McDonald’s Corp

 Facing increased competition


 Smarter and more demanding customers
 Less brand loyal
 Switched to hamburger bun that does not
require toasting.
 Customers prefer taste of new bun
 Saves time and money

Chapter 1: The Nature of Operations 3


Olympic Flame
 10,000 runners
 15,000 miles through 42 states in 84 days
 Two years of planning
 Must plan for no-show runners and rush
hour traffic
 Cost of this operation in the neighborhood
of $20 million

Chapter 1: The Nature of Operations 4


Kmart Versus Wal-Mart

 Both chains started in 1962


 In 1987, Kmart had 2,223 stores to Wal-
Mart’s 1,198.
 Kmart’s sales were $25.63 billion to Wal-
Mart’s $15.96 billion
 By 1991, Wal-Mart’s sales exceeded
Kmarts
 Kmart still had more stores

Chapter 1: The Nature of Operations 5


Kmart Versus Wal-Mart continued

 In year ending January 1996, Wal-


Mart’s sales were $93.6 billion to
Kmart’s $34.6 billion.
 During this time Kmart emphasized
marketing and merchandising (such as
national TV ad campaigns).
 Wal-Mart was investing millions in its
operations to lower cost.
Chapter 1: The Nature of Operations 6
Kmart Versus Wal-Mart
continued
 Wal-Mart developed sophisticated
distribution system that integrated its
computer system with its distribution
system.
 Kmart’s employees lacked skills needed to
plan and control inventory.
 Period from 1987 to 1995 Kmart's market
share declined from 34.5 percent to 22.7
percent.
 Wal-Mart's increased from 20.1 percent to
41.6 percent
Chapter 1: The Nature of Operations 7
Kmart Versus Wal-Mart continued
 Fast forward to 2004
 Kmart appears to have adopted a new
strategy
 Merge with Sears, Roebuck & Co.
 Potential synergies between Kmart’s
convenient locations and Sears’ strong
brands

Chapter 1: The Nature of Operations 8


Diversity and 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.
 Diversity of operations

Chapter 1: The Nature of Operations 9


Operations

 Heart of every organization


 Operations are the tasks that create
value

Chapter 1: The Nature of Operations 10


The Production System

Chapter 1: The Nature of Operations 11


Systems Perspective

 Inputs
 Transformation System
 Alter
 Transport
 Store
 Inspect
 Outputs
 Environment

Chapter 1: The Nature of Operations 12


Inputs
 Inputs include facilities, labor, capital,
equipment, raw materials, and
supplies.
 A less obvious input is knowledge of
how to transform the inputs into
outputs.

Chapter 1: The Nature of Operations 13


Transformation System
 The part of the system that adds value
to the inputs.
 Four major ways
 Alter – physical change
 Transport - relocate
 Store - protect
 Inspect – better understanding

Chapter 1: The Nature of Operations 14


Outputs
 Two types of outputs commonly result
from a production system
 Services (abstract or nonphysical)
 Products (physical goods)

Chapter 1: The Nature of Operations 15


Chapter 1: The Nature of 16
Operations
Facilitating Good Concept
 Often confusion in trying to classify
organization as manufacturer or service
 Facilitating good concept avoids this ambiguity
 All organizations defined as service
 The tangible part of the service is defined as
facilitating good
 Pure services

Chapter 1: The Nature of Operations 17


The Range From Services to Products

Chapter 1: The Nature of Operations 18


Classification and Evolution of Economic
Offerings

Chapter 1: The Nature of Operations 19


Comparison of Alternative
Economic Offerings
Economic Commodities Goods Services Experiences
Offering

Value added by Extracting Producing Delivering Staging

Form of output Fungible Tangible Intangible Memorable

Key Natural Standardized Customized Personalized


characteristics

Buyer Market User Client Guest

Chapter 1: The Nature of Operations 20


Chapter 1: The Nature of 21
Operations
Operations Activities

 Strategy  Inventory
 Output Planning Management
 Capacity Planning  Materials
Requirements
 Facility Location
Planning
 Facility Layout
 Scheduling
 Aggregate Planning
 Quality Control

Chapter 1: The Nature of Operations 22


Functional View of Organizations
 Three Core Functions
 Operations
 Marketing
 Finance/Accounting
 Other Important Functional Activities
 Human Resource Management
 Information Systems
 Engineering

Chapter 1: The Nature of Operations 23


Chapter in Perspective
 Two alternative ways for organizing
work activities
 Functional approach, companies
organize activities on the basis of the
type of work performed
 Organizing activities on the basis of
specific value-creating processes.

Chapter 1: The Nature of Operations 24


Process View of Organizations

An Evolution

Chapter 1: The Nature of Operations 25


Traditional Functional Organization

Chapter 1: The Nature of Operations 26


Value Chain Approach

Chapter 1: The Nature of Operations 27

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