Page 29 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes factors that will have an affect on the future well being of the organization. Strategic analysis
enables us to identify and understand the potential opportunities and constraints that exist for
our organization. It will enable us to make informed strategic choices about the future of our
organization. What opportunities are offered to it and does it have the capability to take up the
opportunity.

2.1 Relationship between the Different Value Elements

Unless the firm’s performance metric system is able to measure customer satisfaction, it risks
being penny wise and pound foolish when it comes to measuring customer service costs.
Marketing uses a concept called the ‘Lifetime Value of a Customer’ in which it estimates the
stream of income a firm can expect to receive from a satisfied good customer.

Timeliness in the value model varies because it is both individual specific and situation specific.
Its measure is delivery reliability. When customers are told a product will be delivered on a
specific date, they value the product higher when that promise is kept. Anything less diminishes
the value of the firm’s product. Delivery reliability also enables the supply chain to operate
effectively with lower levels of inventory.
Lastly, improving flexibility can affect the other elements of value. Flexibility affects lead-time
and quality through the synergistic relationships among the three elements of the numerator of
the value equation. Reductions in lead times affect flexibility; improvements in flexibility benefit
quality; improvements in quality reduce lead times and enhance flexibility.

Did u know? What is Flexibility?

Flexibility is the input to the value equation relating to the ability of the OM system to
give the customer the product desired.
All these factors together with productivity and cost, improve the company’s ability to improve
on its competitiveness and profitability. This allows the organization to do many things, such
as:

1. Expand its operations, and thus create employment and opportunities for employees to
advance;
2. Invest in advanced technology and systems that will further enhance its productivity;

3. Pay employees better wages and provide them a better working environment, thus raising
their work morale and standard of living; and
4. Contribute more to the society by paying a higher quantum of corporate tax, and supporting
more social causes.

Self Assessment

Fill in the blanks:
1. Flexibility affects lead-time and quality through the synergistic relationships among the
three elements of the numerator of the ……………… .
2. Delivery reliability enables the supply chain to operate effectively with ………………
levels of inventory.

3. Marketing uses a concept called the ‘Lifetime Value of a Customer’ in which it estimates
the ……………… a firm can expect to receive from a satisfied good customer.

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