OM2_Chapter_01 FINAL

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OM2
CHAPTER 1
GOODS, SERVICES, AND
OPERATIONS MANAGEMENT
DAVID A. COLLIER
AND
JAMES R. EVANS
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
1
Chapter 1 Learning Outcomes
learning outcomes
LO1 Explain the concept of operations management.
LO2 Describe what operations managers do.
LO3 Explain the differences between goods and
services.
LO4 Describe a customer benefit package.
LO5 Explain three general types of processes.
LO6 Summarize the historical development of OM.
LO7 Describe current challenges facing OM.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
W
alt Disney clearly put us on the path toward things like
quality, great guest service, creativity and innovation,” said
Mr. Bruce Jones, programming director for the Disney
Institute. Disney theme parks and resorts are designed to
“create happiness by providing the finest in entertainment for
people of all ages, everywhere.” How do they accomplish
this? By meticulous attention to the management of
operations!
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Disney theme parks and resorts, for example, focus on
training employees (“cast members”) to provide
exceptional guest service; on the use of technology both
for entertainment and operational efficiency; on the
physical setting (i.e., facility layout, lighting, signage,
music, appealing to all five senses), separating “onstage”
public areas from “backstage” work operations that
include a complex underground system to move
materials and people around the properties; on process
design issues like efficient waiting lines--and on
continuous improvement of everything they do.1
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
What do you think?
Describe one experience you had at a theme
park that illustrates either good or bad customer
service or operational design. What can we
learn from your experience regarding how a
theme park can create a positive customer
experience or improve on a bad one through its
design and operations?
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
• Operations management (OM) is the
science and art of ensuring that goods and
services are created and delivered
successfully to customers.
• The principles of OM help one to view a
business enterprise as a total system, in
which all activities are coordinated, not only
vertically throughout the organization, but
also horizontally across multiple functions.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
United Performance Metals
•
•
•
United Performance Metals (UPM), located in Hamilton,
Ohio, is a supplier of stainless steel and high
temperature alloys for the specialty metal market.
UPM’s primary production operations include slitting coil
stock and cutting sheet steel to customer specifications
with rapid turnaround times from order to delivery.
Bob Vogel is the Vice President of Operations at UPM. He
is involved in a variety of daily activities that draw upon
knowledge of not only OM and engineering, but also
finance, accounting, organizational behavior, and other
subjects.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
United Performance Metals
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
United Performance Metals
While understanding specialty metals is certainly a vital
part of Mr. Vogel’s job, the ability to understand customer
needs, apply approaches to continuous improvement,
understand and motivate people, work cross-functionally
across the business, and integrate processes and
technology within the value chain define Scott’s job as an
operations manager.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
OM in the Workplace
Brooke Wilson is a Process Manager for J.P.
Morgan Chase in the Credit Card Division. Among
his OM-related activities are:
• Planning and budgeting: Representing the
plastic card production area in all meetings,
developing annual budgets and staffing plans,
and watching technology that might affect the
production of plastic credit cards.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
OM in the Workplace
• Inventory management: Overseeing the
management of inventory for items such as plastic
blank cards, inserts such as advertisements,
envelopes, postage, and credit card rules and
disclosure inserts.
• Scheduling and capacity: Daily to annual
scheduling of all resources (equipment, people,
inventory) necessary to issue new credit cards and
reissue cards that are up for renewal, replace old
or damaged cards, and ones that are stolen.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
OM in the Workplace
Brooke Wilson is a Process Manager for J.P.
Morgan Chase in the Credit Card Division. Among
his OM-related activities are:
• Quality: Embossing the card with accurate
customer information and quickly getting the
card in the hands of the customer.
Brooke was an accounting major in college.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Understanding Goods and Services
• A good is a physical product that you can see,
touch, or possibly consume. Examples of goods
include: oranges, flowers, televisions, soap,
airplanes, fish, furniture, coal, lumber, personal
computers, paper, and industrial machines.
• A durable good is a product that typically lasts
at least three years. Vehicles, dishwashers, and
furniture are some examples of durable goods.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Understanding Goods and Services
• A non-durable good is perishable and
generally lasts for less than three years.
Examples are toothpaste, software, shoes, and
fruit.
• A service is any primary or complementary
activity that does not directly produce a physical
product.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Similarities Between Goods and Services
1. Goods and services provide value and
satisfaction to customers who purchase and use
them.
2. They both can be standardized or customized to
individual wants and needs.
3. A process creates and delivers each good or
service, and therefore, OM is a critical skill.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Differences Between Goods and Services
1. Goods are tangible while services are intangible.
2. Customers participate in many service processes,
activities, and transactions.
3. The demand for services is more difficult to predict
than the demand for goods.
4. Services cannot be stored as physical inventory.
5. Service management skills are paramount to a
successful service encounter.
6. Service facilities typically need to be in close
proximity to the customer.
7. Patents do not protect services.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Understanding Goods and Services
• Service management integrates marketing,
human resources, and operations functions to
plan, create, and deliver goods and services,
and their associated service encounters.
• A service encounter is an interaction between
the customer and the service provider.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Understanding Goods and Services
A broader definition is:
• Service encounters consist of one or more
moments of truth – any episodes, transactions, or
experiences in which a customer comes into contact
with any aspect of the delivery system, however
remote, and thereby has an opportunity to form an
impression.
• Here, a service encounter includes the impression an
empty parking lot has on whether the customer goes
into a facility or the interaction with other customers
such as while waiting in line.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit 1.1
How Goods and Services Affect Operations Management Activities
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Customer Benefit Packages
• A customer benefit package (CBP) is a
clearly defined set of tangible (goods-content)
and intangible (service-content) features that
the customer recognizes, pays for, uses, or
experiences.
• In simple terms, a CBP is some combination of
goods and services configured in a certain way
to provide value to customers.
• A CBP consists of a primary good or service,
coupled with peripheral goods and/or services.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit 1.2
A CBP Example for Purchasing a Vehicle
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Customer Benefit Packages
• A primary good or service is the “core”
offering that attracts customers and responds to
their basic needs. For example, the primary
service of a personal checking account is the
capability to do convenient financial transactions.
• Examples of a primary good or service: an
airline flight, a personal digital assistance (PDA)
device, a checking account, a brief case, a
football game, tax preparation advice, and so on.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Customer Benefit Packages
• Peripheral goods or services are those that are
not essential to the primary good or service, but
enhance it.
• Examples of peripheral goods or services for
a personal checking account: on-line access
and bill payment, debit card, designer checks,
paper or electronic account statement, etc.
• Remember each primary or peripheral good or
service requires a process to create and deliver it
to customers.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Customer Benefit Packages
• A variant is a CBP attribute that departs from
the standard CBP and is normally location- or
firm-specific.
• A variant allows for adding unique goods or
services such as a fishing pond or pool at an
automobile dealership where kids can fish while
the parents shop for vehicles.
• Once a variant is incorporated and standardized
into all CBP delivery sites on a continuous basis, it
becomes a permanent peripheral good or service.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit 1.2
A CBP Example for Purchasing a Vehicle
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit 1.3
Examples of Goods and Service Content
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Customer Benefit Packages
• It is very important that you understand the
difference between customer wants and
needs versus the CBP features selected by
management to fulfill those needs.
• Processes create CBP features such as the (a)
physical vehicle itself or (b) a leasing package
that fits what the customer can afford. These
CBP features fulfill certain customer’s wants and
needs such as (a) physical transportation from
point A to B, or (b) how can I pay for the vehicle?
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit Extra
Another Example of Consumer Benefit Package
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Biztainment – (Huh?)
Why would someone pay, for example, to crush
grapes with their feet? Might it be that the process
of doing this is as valuable to the customer as the
outcome itself? Entertainment is the act of providing
hospitality, escapism, fun, excitement, and/or
relaxation to people as they go about their daily work
and personal activities. The addition of
entertainment to an organization’s customer benefit
package provides unique opportunities for companies
to increase customer satisfaction and grow revenue.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Biztainment – (Huh?)
Biztainment is the practice of adding entertainment content to a
bundle of goods and services in order to gain competitive
advantage. The old business model of just selling and servicing a
physical vehicle is gone. For example, a BMW automobile
dealership in Fort Myers, Florida, recently opened a new 52,000square-foot facility that offers a putting green, private work areas,
a movie theater, wireless Internet access, massage chairs, a golf
simulator, and a cafe´, so that customers have multiple
entertainment options during their visits.
Build-A-Bear Workshop boasts an average of $600 per square
foot in annual revenue, double the U.S. mall average, and Holiday
Inns found that hotels with holidomes have a 20% higher
occupancy rate and room rates are on average $28 higher.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit 1.4 How Primary, Support, Supplier, and Management Processes Are Related
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit Extra
Organization by Function versus Process
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Pal’s Sudden Service
• Pal’s Sudden Service is a small chain of mostly
drive-through quick service restaurants located
in Northeast Tennessee and Southwest Virginia.
• Pal’s competes against major national chains
and outperforms all of them by focusing on
important customer requirements such as
speed, accuracy, friendly service, correct
ingredients and amounts, proper food
temperature, and safety.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Pal’s Sudden Service
• Pal’s uses extensive market research to fully
understand customer requirements:
convenience; ease of driving in and out; easyto-read menu; simple, accurate order-system;
fast service; wholesome food; and reasonable
price.
• Every process is flowcharted and analyzed for
opportunities for error, and then mistakeproofed if at all possible.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit Extra
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
Pal’s Sudden Service Value Chain
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Chapter 1 Goods, Services, and Operations Management
Pal’s Sudden Service
• Entry-level employees – mostly high school
students in their first job – receive 120 hours of
training on precise work procedures and process
standards in unique self-teaching, classroom, and
on-the-job settings, reinforced by a “Caught
Doing Good” program that provides recognition
for meeting quality standards and high
performance expectations.
• Pal’s collect performance measures such as
complaints, profitability, employee turnover,
safety, and productivity.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit 1.5
Five Eras of Operations Management
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit 1.6 U.S. Employment by Major Industry (slide 1)
* Durable goods are items such as instruments, vehicles, aircraft, computer and office equipment, machinery, furniture, glass, metals, and appliances.
** Nondurable goods are items such as textiles, apparel, paper, food, coal, oil, leather, plastics, chemicals, and books.
Source: United States Bureau of Labor Statistics
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Exhibit 1.6 U.S. 2001 Employment and Projected Change by Major Industry (slide 2)
Source: United States Bureau of Labor Statistics
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Today’s Service Economy
Goods-producing industries (manufacturing, construction,
fishing, forestry, mining, and agriculture) account for about
20 percent of the jobs in the U.S. economy.
Service-providing industries account for about 80
percent of the jobs in the U.S. economy.
One-half of those jobs in goods-producing industries
involve service processes such as human resource
management, accounting, and financial.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Therefore, more than 90 percent of the jobs
in the U.S. economy involve designing and
managing service-, information- or entertainmentintensive processes.
Most people in the United States are working in
the service sector or service processes or in
service-related aspects of manufacturing firms.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Current Challenges in OM
• Technology
• Globalization
• Changing cunsumer expectations
• A changing workforce
• Global manufacturing
• Sustainability
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Sustainability
Sustainability refers to an
organization’s ability to strategically
address current business needs and
successfully develop a long-term strategy
that embraces opportunities and
manages risk for all products, systems,
supply chains, and processes to preserve
resources for future generations.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Sustainability – Three Dimensions
•
Environmental sustainability focuses on OM
activities such as remanufacturing, waste management,
green supply chains, and energy conservation.
•
Social sustainability requires organizations to
continually evaluate the impacts of their products and
operations on society as a part of the organization’s
overall corporate responsibilities, such as creating a zero
carbon footprint product or supply chain.
•
Economic sustainability revolves around making
sound financial and operational decisions about
workforce capability and capacity, resource acquisitions,
technology, knowledge, core competencies, work
systems, facilities, and equipment, as well as preparation
for real-time or short-term emergencies.
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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Chapter 1 Goods, Services, and Operations Management
Zappos Case Study
1. Draw and describe the customer benefit package that Zappos
provides. Identify and describe one primary value creation, one
support, and one general management process you might
encounter at Zappos (see Exhibit 1.4).
2.Explain the role of service encounters and service
management skills at Zappos. How does Zappos create superior
customer experiences?
3.Describe how each OM activity in Exhibit 1.1 impacts the
management of both the goods that Zappos sells and the
services that it provides. (You might want to build a table like
Exhibit 1.1 to organize your answers.)
OM2, Ch. 1 Goods, Services, and Operations Management
©2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole of in part.
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