Operations Management

The topic of this last chapter, Operations Management, focuses on managing the “transformation” process that exists in any organization (profit or non-profit, private or public). All organizations transform resources (e.g., people, money, raw materials) into goods and/or services. Think about how Boeing Corporation transforms raw material into airplanes; think about how a timber company transforms land, trees, equipment, other materials, and people into lumber;  think about how the Postal Service transforms people, trucks, airplanes and other resources into a mail delivery service; think about how your favorite pizza store transform cheese, flour, people, ovens, delivery cars, and other supplies into a semi-hot pizza delivered to your door; think about how a hospital transforms equipment, talented medical professionals, medications, and other supplies into quality health care. In each of these situations it is useful to think about an organization as a set of processes that transforms inputs into outputs. See Exhibit 14-1 in your textbook.

 Visualize the set of transformation processes as a chain of events that add value to the inputs. In the spirit of this metaphor, the authors of your textbook refer to each organization as a Value Chain.

 Imagine that I purchased the following materials at a cost of $20.00:

·         1 cup of butter

·         1 teaspoon of vanilla

·         I cup of brown sugar

·         1 cup of white sugar

·         2 eggs

·         1 cup of peanut butter

·         3 cups of flour

·         2 teaspoons of baking powder

Would you buy these supplies from me at a price of $40.00, so that I could make a $20.00 profit? The answer is probably “no” – why would you buy these supplies from me? What value have I added? You could probably buy them yourself at a cost similar to the cost I paid.

 However, assume that I hired my daughter (at a cost of $10) to mix these ingredients, form 30 balls of dough, place the balls on a cookie sheet, flatten them with a fork, bake them at 350 degrees for 10 minutes, and then wrap each peanut butter cookie (also called Arkansas Travelers) in a piece of plastic wrap (at a cost of $0.05/cookie or $1.50 total). Would you and others be willing to buy these cookies at a price of $2.00/cookie? If so, I could earn a profit of $29.50 ($60.00 of revenue less $31.50 in costs). My imaginary cookie company only exists in the long run if it can “add value” to the resources I possess or purchase.  As you read about the Value Chain think about the need to add value and how the processes we use in organizations to transform the resources into goods and services must add value.

Today as you finish this last chapter revisit page 249 to see how organizations use teams to search for ways to improve processes; revisit page 89 to see how companies use benchmarking as a way to identify practices that add value; and revisit pages 64 and 65 to see how continuous improvement and work process engineering are activities that focus on improving the transformation process.