Join Eddie Davila for an in-depth discussion in this video The importance of providing value, part of Operations Management Foundations.
- Companies are constantly juggling to make all sorts of people happy, investors, employees, managers, and of course, customers. For now let's just consider the customer. If the customer isn't happy, they aren't buying what we have. So how do we make customers happy? What do customers want? Great products and services? Is that all they want? Not really. Suppose I had the world's greatest cellphone. Suppose each unit of that cellphone costs the customer $100,000.
Come on, it's the world's greatest cellphone. Would customers buy it? Probably not. Why? Because customers could probably get the second best cellphone for a lot less. So what do customers really want? They want great products and services at a great price. In operations this is what we call value. What's value? To keep things simple, value is a ratio of what do I get divided by how much did it cost me.
Believe it or not as a consumer you probably do a rough calculation of value every time you buy something. Suppose you go to the grocery store. You see two cans of corn on the shelf. Both cans, the same size, 12 ounces. One is the brand name corn for $1.50. One is the generic brand for $1.00. When you calculate value, what do I get? 12 ounces divided by what did it cost me, $1.00 or $1.50.
It would seem the better value is the generic can of corn, but it's not that simple. What do I get can mean so many things. The taste of the corn, what the corn looks like when you open the can, the goodwill you have toward the company that makes the corn. Perhaps you just liked the label better, it's prettier. Or maybe you want access to the recipes on the label. Even what did it cost me can have an expanded definition, especially in the world of restaurants and retail.
What did it cost you to go to Walmart? The cost of the items at Walmart were lower, but you had to drive a long way to get to the Walmart. Their parking lot was very full and you had to walk a long way to get to the store. Also once you were done shopping, the line was long and slow. So we can see that sometimes consumers pay with money and time. In operations part of your job is to create value for the customer. Value equals what do I get divided by what did it cost me.
How can we do that? One way is to improve what do I get. Give the customers more, more product, better products. Make them feel comfortable about their purchase. Offer them a warranty. Provide them excellent customer service. By increasing the numerator in the value equation, I've increased value. Of course, I could also increase value by reducing the what did it cost me part of the formula. How do you do that? Cut the price of the product or service, provide free delivery, or perhaps provide other free services.
Maybe you should consider having lots of registers open at all times to reduce the size of waiting lines. So as you can see an operations manager has quite a few options for improving the value they give to their customers. So I want you to think about your favorite company. What are they doing to improve the value they provide you? Think about the products and services they sell you today. Then think about how they've changed, what they sell you, how you buy it, what you pay.
Odds are that the reason they're your favorite company is that they are constantly trying to find new ways to give you more value.
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- Understanding operations management
- Making key inventory decisions
- Balancing holding costs and ordering costs
- Choosing a production strategy and facility layout
- Managing waiting-line systems
- Defining quality and improving quality
- Managing business processes