Page 18 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 1: Operations Management Basics

Notes
Figure 1.3: The Value Seesaw

The ‘value’ concept is represented by the value seesaw, shown in Figure 1.3.

The right-hand box represents the product-life cost associated with acquiring, operating, and
disposing of the product. For a simple product, such as a bar of Cadbury’s chocolate, there is the
price of the chocolate and perhaps some tooth decay, too. Note that the customer – perhaps your
mother – worries about tooth decay, but you as a consumer are less concerned with this long-
term consequence. For other products, such as a nuclear power plant, calculating the lifecycle
costs of the product is more difficult since its economic life and end-of-life disposal costs are
hard to estimate.
The left-hand box represents the sum of the benefits that will occur if the product is purchased
and consumed. No matter how cheap a chocolate is, consumers won’t want it if it doesn’t satisfy
a need. What we need is some means to measure these benefits.
The value of a product is the ratio of performance divided by cost as is shown in the equation
below:
Value = Performance / Cost
Where:
Performance = f (functionality, quality, speed, timeliness, flexibility).

If a company’s product is compared with that of a competitor’s product, the product with the
highest ratio will be the most valued by the customer. This is the value equation.
Performance is defined by the cumulative benefits that will result if the product is purchased
and used as intended.
When a product or service is purchased; the buyer has an intended use for it. Functionality is a
measure of the extent the product, when properly used, is able to accomplish the intended feat.
Quality is broadly defined as the extent to which a product or service is delivered in consistence
with what the customer has been led to expect.

An organization’s speed is often measured in two dimensions:
 How long a customer must wait for the product once it is requested, and
 How long it takes to design, develop, and introduce new products.

Did u know? What is Timeliness?
Timeliness is the ability of a firm to get the right product to targeted customers at the most
desirable time.

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