OPERATION MANAGEMENT & TQM

1st Semester / Prelims/ BS Accountancy / AS - 2

- Patents do not protect services.

TOPIC OVERVIEW I.III THE CONCEPT OF VALUE
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1. I. OPERATIONS MANAGEMENT AND Value – perceived benefits; the perception of the
VALUE CHAINS benefits associated with a good, service, or bundle of
2. II. OPERATIONS STRATEGY goods and services in relation to what buyers are willing
to pay for them.
I. OPERATIONAL MANAGEMENT AND VALUE perceived benefits
𝑉𝑎𝑙𝑢𝑒 =
Price
Operations Management – science and art ensuring
that goods and services are created and delivered How to increase Value?
successfully to customers. To increase value, an organization must:
OM includes: (a) Increase perceived benefits while holding price
 design of goods, services, and the processes that or cost constant;
create them (b) Increase perceived benefits while reducing price
 day-to-day management of processes or cost; or
 continual improvement of goods, services, and (c) Decrease price or cost while holding perceived
process benefits constant.
Depends on: Customer Benefit Package (CBP)
 Efficiency - A set of tangible and intangible features that
 Cost of operations customers recognize, pay, for, use or
 Quality of goods experience.
(Core of operations management) A. Primary – “core offering” that attracts
I.I. ROLE OF OPERATIONS MANAGER customers
- collaboration to various department B. Peripheral – not essential, but enhance primary
I.II. UNDERSTANDING GOODS AND SERVICES C. Variant – CBP feature that departs from the
GOODS standard CBP
- Physical product, tangible
A. Durable – goods that can last at least 3 years,
does not quickly wear out.
B. Non – Durable – can be consumed in less than
a year, perishes less than three years.
SERVICES
- Intangible
- Primary or complementary activity
- Driven by customers and provide value and
satisfaction to customers who purchased and
use them
- Standardized or customized to individual wants
and needs
I.IV. VALUE CHAINS
- Cannot be stored as physical inventory
Value Chain – networks of facilities and processes that
- Management skills are paramount to a
describes the flow of material, finished goods, services
successful service encounter
information, and financial transactions from suppliers,
- Service facilities typically need to be in close
through the facilities and processes that create goods
proximity to the customer
OPERATION MANAGEMENT & TQM
1st Semester / Prelims/ BS Accountancy / AS - 2

and services, and those that deliver them to the

customer.
Supply chain – portion of a value chain (narrower in
scope.)

Process – sequence of activities that is intended to

create a certain result, such as physical good, a service
or information.

Key processes in business:

C. Hierarchical Supply Chain Framework
1. Value Creation (core) – focus on producing and
delivering goods and services.
2. Support – purchasing material and supplies
3. General Management – including accounting
and information systems, human resource
management, and marketing.

I.V. VALUE CHAIN FRAMEWORKS

A. Input – Output Framework

Distribution centers – warehouses that act as

Suppliers – retail stores, distributors intermediaries between factories and customers
Inputs – transformed into value-added goods and Inventory – refers to raw materials, work-in-process, or
services finished goods that are maintained to support
Value-creation processes – directly create and deliver production or satisfy customer demand.
goods and services
Support processes – “behind the scenes”, which support I.VI. OM: A HISTORY OF CHANGE AND CHALLENGE
core process Seven Major Eras of Operations Management
General management process – needed for efficient and 1. Cost and Efficiency – led to development of
effective business performance modern factories
Outputs – goods and services are delivered to 2. Quality revolution – fewer defects and reliable
customers 3. Customization and Design – innovative designs,
flexible mass-production
B. Preproduction and Postproduction Services 4. Time-based – developing quality products faster
Framework than competitors
5. Service revolution – service-providing processes
Preproduction – focused on gaining customer 6. Sustainability – organization’s ability to address
Postproduction – focused on keeping the customer current business needs and successfully develop a long-
term strategy to preserve resources for future
generations
OPERATION MANAGEMENT & TQM
1st Semester / Prelims/ BS Accountancy / AS - 2

a. Environmental – long-term quality of

environment II. OPERATIONS STRATEGY
b. Social – maintain healthy communities and
society that improves quality of life “Changing a corporate strategy has many implications
c. Economic – commitment to address current for operations and the entire value chain”
business needs and economic vitality Digitalization = new strategies, new facilities, new job
design, etc.

II.I GAINING COMPETITIVE ADVANTAGE

Competitive Advantage – a firm’s ability to achieve
market and financial superiority over its competitors.
Creating a competitive advantage requires
management to:
1. Understand customer needs and expectation
7. Analytics and Big Data and how value chain will meet it through design
Business analytics – process of transforming data into and delivery of attractive CBP.
actions through analysis and insights 2. Build and leverage operational capabilities to
Descriptive – past and current support desired competitive priorities.
Predictive – patterns and relationships
Prescriptive – identify best decision II.II UNDERSTANDING CUSTOMER WANTS AND NEEDS
Customers must be segmented into several natural
groups because of different preferences. These are
based on:
 Buying behavior
 Geography
 Demographics
 Sales Volume
 Profitability
 Expected levels of service

Order Qualifiers – basic customer expectations are

considered the minimum performance level required to
stay in business.
I.VII. CURRENT AND FUTURE CHALLENGES Order Winners – goods and services features and
performance characteristics that differentiate one
customer benefit package from another. (Unexpected
features)

NOTE: Order winners can eventually become order

qualifiers as customers begin to expect them.

II.III EVALUATING GOODS AND SERVICES

Attributes in Evaluating the quality of goods and
services:
1. Search – can determine before purchasing
2. Experience – can determine after or during
OPERATION MANAGEMENT & TQM
1st Semester / Prelims/ BS Accountancy / AS - 2

consumption or use 4. Flexibility

3. Credence – cannot personally evaluate even Mass Customization – ability to make whatever
after purchase and consumption. product the customer wants, at any volume,
time, and place.
5. Innovation
- The discovery and practical application or
commercialization of a device, method, or idea
that differs from existing norms.

II.V. OM AND STRATEGIC PLANNING

Strategy – pattern or plan that integrates an
organization’s major goals, policies, and action
NOTE:
sequences into a cohesive whole.
Goods – easier to evaluate, high in search attributes
Strategic Planning – process of determining long-term
Services – difficult to evaluate, high in experience and
goals, policies, and plans for an organization
credence attributes

Three (3) levels of Strategy:

II.IV COMPETITIVE PRIORITIES
Competitive priorities – represent the strategic
1. Corporate – corporation will participate and
emphasis that a firm places on certain performance
develop plans for acquisition and allocation of
measures and operational capabilities within a value
resources
chain.
2. Business – which competitive priorities the firm
should pursue
Five (5) Key Competitive Priorities
3. Functional – set of decisions that each
functional area develops to supports its
1. Cost
business strategy
- Low cost = high productivity and high-capacity
utilization
II.VI. OPERATIONS STRATEGY
- It focuses on cost and design and management
Operations strategy – set of decisions across the value
of operations.
chain that supports the implementation of higher-level
2. Quality
business strategies.
- High-quality = higher return of investment and
1. Well-balanced supply chain
increase market share
2. High quality and flexibility

A. Sustainability and Operations Strategy

“Sustainability is an organizational strategy – it is
broader than a competitive priority”
Consumers would pay more for brand that contribute to
a better environment

B. Global Supply Chains and Operations Strategy

Multinational enterprise – an organization that sources,
3. Time markets, and produces products in several countries to
- Quick response and delivery = improves quality, minimize costs, and to maximize profit, customer
cost, and productivity satisfaction, and social welfare.
OPERATION MANAGEMENT & TQM
1st Semester / Prelims/ BS Accountancy / AS - 2

II. VII. FRAMEWORK FOR OPERATIONS STRATEGY

Hill’s Strategy Development Framework

Operations design choices – management decisions as

to what type of process structure produce products.
Infrastructure – non process features and capabilities of
the organization.