Business organizations must be cognizant of current trends and take them into account in their strategic planning. In this section you will learn about some major trends as well as some other important trends.

Major Trends

Advances in information technology and global competition have influenced the major trends. Although different organizations have different priorities, and hence are differently affected by various trends, a representative list of major trends includes

The Internet, e-commerce, and e-business.

Management of technology.

Globalization.

Management of supply chains.

Outsourcing.

Agility.

Ethical behavior.

The Internet offers great potential for business organizations, but the potential as well as the risks must be clearly understood in order to determine if and how to exploit this potential. In many cases, the Internet has altered the way companies compete in the marketplace.

Electronic business, or e-businessUse of the Internet to transact business., involves the use of the Internet to transact business. E-business is changing the way business organizations interact with their customers and their suppliers. Most familiar to the general public is e-commerceConsumer-to-business transactions., consumer-business transactions such as buying online or requesting information. However, business-to-business transactions such as e-procurement represent an increasing share of e-business. E-business is receiving increased attention from business owners and managers in developing strategies, planning, and decision making. The word technologyThe application of scientific discoveries to the development and improvement of goods and services. has several definitions, depending on the context. Generally, technology refers to the application of scientific discoveries to the development and improvement of goods and services. It can involve knowledge, materials, methods, and equipment. The term high technology refers to the most advanced and developed machines and methods. Operations management is primarily concerned with three kinds of technology: product and service technology, process technology, and information technology (IT). All three can have a major impact on costs, productivity, and competitiveness.

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Product and service technology refers to the discovery and development of new products and services. This is done mainly by researchers and engineers, who use the scientific approach to develop new knowledge and translate that into commercial applications.

Process technology refers to methods, procedures, and equipment used to produce goods and provide services. They include not only processes within an organization but also supply chain processes.

Information technology (IT) refers to the science and use of computers and other electronic equipment to store, process, and send information. Information technology is heavily ingrained in today’s business operations. This includes electronic data processing, the use of bar codes to identify and track goods, obtaining point-of-sale information, data transmission, the Internet, e-commerce, e-mail, and more.

Management of technology is high on the list of major trends, and it promises to be high well into the future. For example, computers have had a tremendous impact on businesses in many ways, including new product and service features, process management, medical diagnosis, production planning and scheduling, data processing, and communication. Advances in materials, methods, and equipment also have had an impact on competition and productivity. Advances in information technology also have had a major impact on businesses. Obviously there have been—and will continue to be—many benefits from technological advances. However, technological advance also places a burden on management. For example, management must keep abreast of changes and quickly assess both their benefits and risks. Predicting advances can be tricky at best, and new technologies often carry a high price tag and usually a high cost to operate or repair. And in the case of computer operating systems, as new systems are introduced, support for older versions is discontinued, making periodic upgrades necessary. Conflicting technologies can exist that make technological choices even more difficult. Technological innovations in both products and processes will continue to change the way businesses operate, and hence require continuing attention.

The North American Free Trade Agreement (NAFTA) opened borders for trade between the United States and Canada and Mexico. The General Agreement on Tariffs and Trade (GATT) of 1994 reduced tariffs and subsidies in many countries, expanding world trade. The resulting global competition and global markets have had an impact on the strategies and operations of businesses large and small around the world. One effect is the importance business organizations are giving to management of their supply chains.

A supply chainA sequence of activities and organizations involved in producing and delivering a good or service. is the sequence of organizations—their facilities, functions, and activities—that are involved in producing and delivering a product or service. The sequence begins with basic suppliers of raw materials and extends all the way to the final customer, as seen in Figure 1.7. Facilities might include warehouses, factories, processing centers, offices, distribution centers, and retail outlets. Functions and activities include forecasting, purchasing, inventory management, information management, quality assurance, scheduling, production, distribution, delivery, and customer service. Figure 1.8 provides another illustration of a supply chain: a chain that begins with wheat growing on a farm and ends with a customer buying a loaf of bread in a supermarket. Notice that the value of the product increases as it moves through the supply chain.

FIGURE 1.7	A simple product supply chain
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FIGURE 1.8	A supply chain for bread
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A growing aspect of supply chain management is outsourcingObtaining a product or service from outside the organization.—that is, buying goods or services rather than producing goods or performing services within the organization. Outsourcing—and the loss of jobs it entails, especially when it involves outsourcing to other countries—has become a challenging issue for politicians, labor organizations, and operations managers as companies increasingly outsource both manufacturing and service jobs.

Although Chapter 11 is devoted to a detailed look at supply chain management, you will find that it is included in discussions throughout the book, due to the importance of the topic.

Globalization and the need for global supply chains have broadened the scope of supply chain management. However, tightened border security in certain instances has slowed some movement of goods and people. Moreover, in some cases, organizations are reassessing their use of offshore outsourcing.

AgilityThe ability of an organization to respond quickly to demands or opportunities. refers to the ability of an organization to respond quickly to demands or opportunities. It is a strategy that involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/service offerings. This is particularly important as organizations scramble to remain competitive and cope with increasingly shorter product life cycles and strive to achieve shorter development times for new or improved products and services.

Ethical behavior is commanding increased attention from management at all levels. Accounting scandals, stock brokers releasing misleading information, product liability claims, and breaches in privacy and security of computer files are just some of the behaviors that have led to public outcries and congressional investigations.

Other Important Trends

While the preceding issues are getting much needed attention, there are also other important issues that must be addressed. These include greater emphasis on

Operations strategy.

Working with fewer resources.

Revenue management.

Process analysis and improvement, and quality improvement.

Increased regulation and product liability issues.

Lean production.

During the 1970s and 1980s, many companies neglected to include operations strategy in their corporate strategy. Some of them paid dearly for that neglect. Now more and more companies are recognizing the importance of operations strategy on the overall success of their business as well as the necessity for relating it to their overall business strategy.

Working with fewer resources due to layoffs, corporate downsizing, and general cost cutting is forcing managers to make trade-off decisions on resource allocation, and to place increased emphasis on cost control and productivity improvement.

Revenue management is a method used by some companies to maximize the revenue they receive from fixed operating capacity by influencing demand through price manipulation. Also known as yield management, it has been successfully used in the travel and tourism industries by airlines, cruise lines, hotels, amusement parks, and rental car companies, and in other industries such as trucking and public utilities.

Process analysis and improvement includes cost and time reduction, productivity improvement, process yield improvement, and quality improvement and increasing customer satisfaction. This is sometimes referred to as a six sigmaA process for reducing costs, improving quality, and increasing customer satisfaction. process.

Given a boost by the “quality revolution” of the 1980s and 1990s, quality is now ingrained in business. Some businesses use the term total quality management (TQM) to describe their quality efforts. A quality focus emphasizes customer satisfaction and often involves teamwork. Process improvement can result in improved quality, cost reduction, and time reduction. Time relates to costs and to competitive advantage, and businesses seek ways to reduce the time to bring new products and services to the marketplace to gain a competitive edge. If two companies can provide the same product at the same price and quality, but one can deliver it four weeks earlier than the other, the quicker company will invariably get the sale. Time reductions are being achieved in many companies now. Kodak was able to cut in half the time needed to bring a new camera to market; Union Carbide was able to cut $400 million of fixed expenses; and Bell Atlantic was able to cut the time needed to hook up long distance carriers from 15 days to less than 1, at a savings of $82 million.

The St. Regis Hotel in Shanghai. St. Regis is a five-star hotel known for its customer service. Its Shanghai location offers a wide range of complimentary services, including pressing of garments upon arrival and fresh fruit and flowers daily. <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0073041912/globeL.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a> www.stregis.com

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Increased regulation and some very costly product liability claims have continued to make these issues important management issues. These issues are discussed in Chapter 4.

Lean production, a new approach to production, emerged in the 1990s. It incorporates a number of the recent trends listed here, with an emphasis on quality, flexibility, time reduction, and teamwork. This has led to a flattening of the organizational structure, with fewer levels of management.

Lean productionSystem that uses minimal amounts of resources to produce a high volume of high-quality goods with some variety. systems are so named because they use much less of certain resources than typical mass production systems use—space, inventory, and workers—to produce a comparable amount of output. Lean systems use a highly skilled workforce and flexible equipment. In effect, they incorporate advantages of both mass production (high volume, low unit cost) and craft production (variety and flexibility). And quality is higher than in mass production.

The skilled workers in lean production systems are more involved in maintaining and improving the system than their mass production counterparts. They are taught to stop production if they discover a defect, and to work with other employees to find and correct the cause of the defect so that it won’t recur. This results in an increasing level of quality over time, and eliminates the need to inspect and rework at the end of the line.

Because lean production systems operate with lower amounts of inventory, additional emphasis is placed on anticipating when problems might occur before they arise, and avoiding those problems through planning. Even so, problems can still occur at times, and quick resolution is important. Workers participate in both the planning and correction stages.

Compared to workers in traditional systems, much more is expected of workers in lean production systems. They must be able to function in teams, playing active roles in operating and improving the system. Individual creativity is much less important than team success. Responsibilities also are much greater, which can lead to pressure and anxiety not present in traditional systems. Moreover, a flatter organizational structure means career paths are not as steep in lean production organizations. Workers tend to become generalists rather than specialists, another contrast to more traditional organizations.

Operations Tours

Throughout the book you will discover operations tours that describe operations in all sorts of companies. The tour you are about to read is Wegmans Food Markets, a major regional supermarket chain and one of the largest privately held companies in the United States. Wegmans has been consistently ranked high on Fortune magazine’s list of the 100 Best Companies to Work For since the inception of the survey a decade ago. In 2005 Wegmans was ranked number one on the list.

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Wegmans Food Markets	OPERATIONS TOUR

www.wegmans.com    <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0073041912/globeL.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>    <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0073041912/service_icon.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a> Wegmans Food Markets, Inc., is one of the premier grocery chains in the United States. Headquartered in Rochester, New York, Wegmans operates over 70 stores, mainly in Rochester, Buffalo, and Syracuse. There are also a handful of stores elsewhere in New York State and in New Jersey, Pennsylvania, and Virginia. The company employs over 37,000 people, and has annual sales of over $3 billion. Wegmans has a strong reputation for offering its customers high product quality and excellent service. Through a combination of market research, trial and error, and listening to its customers, Wegmans has evolved into a very successful organization. Its sales per square foot are 50 percent higher than the industry average. Superstores Many of the company’s stores are giant 100,000-square-foot superstores, double or triple the size of average supermarkets. You can get an idea about the size of these stores from this: they usually have between 25 and 35 checkout lanes, and during busy periods, all of the checkouts are in operation. A superstore typically employs from 500 to 600 people. Individual stores differ somewhat in terms of actual size and some special features. Aside from the features normally found in supermarkets, they generally have a full-service deli (typically a 40-foot display case), a 500-square-foot fisherman’s wharf that has perhaps 10 different fresh fish offerings most days, a large bakery section (each store bakes its own bread, rolls, cakes, pies, and pastries), and extra-large produce sections. They also offer film processing, a complete pharmacy, a card shop, video rentals, and an Olde World Cheese section. In-store floral shops range in size up to 800 square feet of floor space and offer a wide variety of fresh-cut flowers, flower arrangements, vases, and plants. In-store card shops cover over 1,000 square feet of floor space. The bulk foods department provides customers with the opportunity to select the quantities they desire from a vast array of foodstuffs and some nonfood items such as birdseed and pet food. Each store is a little different. Among the special features in some stores are a dry cleaning department, a wokery, and a salad bar. Some stores feature a Market Café that has different food stations, each devoted to preparing and serving a certain type of food. For example, one station will have pizza and other Italian specialties, and another oriental food, and still another chicken or fish. There also will be a sandwich bar, a salad bar, and a dessert station. Customers often wander among stations as they decide what to order. In some Market Cafés, diners can have wine with their meals and have brunch on Sundays. In several affluent locations, customers can stop in on their way home from work and choose from a selection of freshly prepared dinner entrees such as medallions of beef with herb butter, chicken Marsala, stuffed flank steak with mushrooms, Cajun tuna, crab cakes, and accompaniments such as roasted red potatoes, grilled vegetables, and Caesar salad. Many Wegmans stores offer ready-made sandwiches as well as made-to-order sandwiches. Some stores have a coffee shop section with tables and chairs where shoppers can enjoy regular or specialty coffees and a variety of tempting pastries. Produce Department The company prides itself on fresh produce. Produce is replenished as often as 12 times a day. The larger stores have produce sections that are four to five times the size of a produce section in an average supermarket. Wegmans offers locally grown produce in season. Wegmans uses a “farm to market” system whereby some local growers deliver their produce directly to individual stores, bypassing the main warehouse. That reduces the company’s inventory holding costs and gets the produce into the stores as quickly as possible. Growers may use specially designed containers that go right onto the store floor instead of large bins. This avoids the bruising that often occurs when fruits and vegetables are transferred from bins to display shelves and the need to devote labor to transfer the produce to shelves. Meat Department In addition to large display cases of both fresh and frozen meat products, many stores have a full-service butcher shop that offers a variety of fresh meat products and where butchers are available to provide customized cuts of meat for customers. <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073041912/ste41912_p0105.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a> Courtesy of Wegman’s Food Markets, Inc. <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073041912/ste41912_p0106.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a> Courtesy of Wegman’s Food Markets, Inc. Wegmans’ Pattisserie is an authentic French pastry shop. Meat department employees attend Wegmans’ “Meat University,” where they learn about different cuts of meat and how to best prepare them. They also learn about other items to pair with various meats, and suggest side dishes, breads, and wine. This helps instill a “selling culture” among employees, who often spend 75 percent of their time talking with customers. Wegmans continually analyzes store operations to improve processes. In the meat department, a change from in-store cutting and traditional packaging to using a centralized meat processing facility and vacuum packaging extended the shelf life of meats and reduced staffing requirements in meat departments, reducing costs and providing customers with an improved product. Ordering Each department handles its own ordering. Although sales records are available from records of items scanned at the checkouts, they are not used directly for replenishing stock. Other factors—such as pricing, special promotions, and local circumstances (e.g., festivals, weather conditions)—must all be taken into account. However, for seasonal periods, such as holidays, managers often check scanner records to learn what past demand was during a comparable period. The superstores typically receive one truckload of goods per day from the main warehouse. During peak periods, a store may receive two truckloads from the main warehouse. The short lead time greatly reduces the length of time an item might be out of stock, unless the main warehouse is also out of stock. The company exercises strict control over suppliers, insisting on product quality and on-time deliveries. Inventory Management Wegmans uses a companywide system to keep track of inventory. Departments take a monthly inventory count to verify the amount shown in the companywide system. Departments receive a periodic report indicating how many days of inventory the department has on hand. Having an appropriate amount on hand is important to department managers: If they have too much inventory on hand, that will add to their department’s costs, whereas having too little inventory will result in shortages and thus lost sales and dissatisfied customers. Employees The company recognizes the value of good employees. It typically invests an average of $7,000 to train each new employee. In addition to learning about store operations, new employees learn the importance of good customer service and how to provide it. The employees are helpful, cheerfully answering customer questions or handling complaints. Employees are motivated through a combination of compensation, profit sharing, and benefits. Employee turnover for full-time workers is about 6 percent, compared to the industry average of about 20 percent. Quality Quality and customer satisfaction are utmost in the minds of Wegmans management and its employees. Private-label food items as well as name brands are regularly evaluated in test kitchens, along with potential new products. Managers are responsible for checking and maintaining product and service quality in their departments. Moreover, employees are encouraged to report problems to their managers. <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073041912/ste41912_p0107.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a> Courtesy of Wegman’s Food Markets, Inc. Fresh seafood is delivered daily, often direct from boat to store the same day it was caught. <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073041912/ste41912_p0108.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a> Courtesy of Wegman’s Food Markets, Inc. Wegmans’ chefs fill the Chef’s Case with ready-to-eat and ready-to-heat entrees, side dishes, and salads. If a customer is dissatisfied with an item, and returns it, or even a portion of the item, the customer is offered a choice of a replacement or a refund. If the item is a Wegmans brand food item, it is then sent to the test kitchen to determine the cause of the problem. If the cause can be determined, corrective action is taken. Technology Wegmans continues to adopt new technologies to maintain its competitive edge, including new approaches to tracking inventory and managing its supply chain, and new ways to maintain freshness in the meat and produce departments. Questions How do customers judge the quality of a supermarket? Indicate how and why each of these factors is important to the successful operation of a supermarket: Customer satisfaction. Forecasting. Capacity planning. Location. Inventory management. Layout of the store. Scheduling. What are some of the ways Wegmans uses technology to gain an edge over its competition?

Discussion and Review Questions  10, 11, 12, 13, 16

Taking Stock  3