Ch. 1: Introduction
Operations and supply chain management (OSCM) covers designing, running and improving the systems through which a company creates and delivers its main products and services. It is a functional area with clear line responsibility, just as marketing and finance are, but its scope is the entire system that converts inputs into goods and services: product design, purchasing, manufacturing, service operations, logistics and distribution. Southwest Airlines, the opening case, illustrates this: because passengers board fast without assigned seats, turnaround is shorter, the planes are in the air longer and each jet brings in more money.
One or more activities that transform inputs into outputs. Processes are how a firm implements its strategy; analytics support the ongoing decisions needed to run them.
Operations versus supply chain processes
The book gives both terms a specific meaning. Operations are the manufacturing and service processes that transform the firm's resources into products customers want (a car plant, a call center, an emergency room). Supply chain refers to the processes that move information and material to and from those operations: logistics, warehousing and storage, on the input side (supplies to plants) and the output side (products to customers). The jeans example shows how the same product can travel through very different supply chains: an expensive custom pair flown overnight, a standard pair trucked from Mexico in a week, and a low-cost pair shipped by container from Asia in about six weeks.
From the perspective of a producer, supply chain processes can be grouped into five categories:
- Planning: deciding how anticipated demand will be met with available resources and setting metrics to monitor the chain.
- Sourcing: selecting suppliers and running pricing, delivery, receiving and payment processes.
- Making: producing the product or providing the service, including scheduling workers, materials and equipment.
- Delivering (logistics): choosing carriers, running warehouses, handling customer orders and invoicing.
- Returning: taking back worn-out, defective or excess products and providing after-sales support.
Differences between services and goods
| Aspect | Services | Goods |
|---|---|---|
| Tangibility | Intangible process, cannot be patented, customers cannot test before buying | Tangible output with physical dimensions |
| Customer interaction | Some interaction always needed; facility must handle the customer | Made away from the customer on an efficient schedule |
| Variability | Heterogeneous, varies with customer and server | Can meet tight specifications; defects reworked or scrapped |
| Storability | Perishable and time dependent, cannot be stored | Can be stored as inventory |
| Specification | Defined as a package of features | Defined by physical specifications |
The service package consists of the supporting facility, facilitating goods, explicit services and implicit services (atmosphere, waiting time, privacy). Service businesses can be directed at human bodies, physical products, people's minds, or risk and money management.
Almost every offering lies on a goods-services continuum from pure goods, through core goods and core services, to pure services. Pure goods producers often add services to escape low-margin commodity competition. Product-service bundling means building service activities (maintenance, spare parts, training, systems design) into the product offering. It tends to raise revenue, but research cited in the book shows bundled firms often earn lower profit as a percentage of revenue than focused firms because the extra service investment is costly.
Careers in OSCM
OSCM jobs are hands-on and people oriented: plant manager, hospital administrator, supply chain manager, purchasing manager, logistics manager, warehouse manager, process improvement analyst and project manager. At the top, the chief operating officer (COO) works with the CEO on competitive strategy and decides on locations, facilities, vendors and hiring policy.
Major concepts that shaped the field
| Development (period) | Key point |
|---|---|
| Manufacturing strategy (late 1970s, 1980s) | Factory capabilities become a competitive weapon; involves trade-offs among cost, quality and flexibility |
| JIT, TQC and lean manufacturing (1980s) | Producing high volumes with as little inventory as possible, delivered just when it is needed; causes of defects are tackled aggressively |
| Service quality and productivity | McDonald's serves as the benchmark for standardized services at high volume |
| TQM and quality certification | Excelling on every dimension the customer cares about; Baldrige Award (1987), ISO 9000 |
| Business process reengineering (BPR) | Change that is revolutionary instead of evolutionary; steps that add no value are eliminated |
| Six Sigma | At most 3.4 defects per million; a toolkit of diagnostic methods (green belts and black belts) |
| Supply chain management | Managing the flows from raw material suppliers to end customers as one total system; mass customization |
| Electronic commerce | The internet becomes a core part of doing business |
| Sustainability and triple bottom line | Viability in economic, social (employee) and environmental terms |
| Business analytics and Internet of Things | Decisions are supported or automated with current data, forecasting and optimization |
The book stresses that many ideas are rediscoveries: Henry Ford's 1913 Model T line already integrated product, process, materials, logistics and people, and required consistent quality and on-time delivery.
Current issues
Managers face disruptions in global supply chains (as shown by the COVID-19 pandemic), uncertainty in tariffs and regulations, difficulty hiring and keeping employees, and the need to adapt to new business technology and infrastructure.
Efficiency, effectiveness and value
Efficiency: doing something at the lowest possible cost; formally the ratio of actual output to some standard. Effectiveness: doing the things that create the most value for the customer. Value = quality / price, the attractiveness of a product relative to its price.
The two can conflict. At a grocery store, efficiency means using as few cashiers as possible, while effectiveness means keeping enough checkout lines open so customers do not wait. Value rises when a better product is offered at the same price, and rises even more when a better product is offered at a lower price.