The Production System Frontier

Abstract

This technical note covers the concept of the production system frontier. This includes understanding how best practices influence the production system frontier, and providing some examples of how you can manage the production system frontier in any setting.

Excerpt

UVA-OM-1588

Dec. 7, 2017

The Production System Frontier

In this note, we will discuss the concept of the production system frontier. This includes understanding how best practices influence the production system frontier, and providing some examples of how you can manage the production system frontier in any setting. We know that efficiency, productivity, and effectiveness are critical elements for operations management. Let's dive a little bit deeper into effectiveness, because this is element that is directly related to customer value.

The Frontier: Quality for a Given Price

As a reminder, effectiveness is about designing processes that create value for customers. And effectiveness is often depicted as a frontier. We see in Figure 1 that on one axis would be anything that the customer considers to be quality. For example, product quality, service quality, speed, timeliness, flexibility—all of these factors are depicted on one axis as a general “quality” attribute. On the other axis is the price associated with delivering that quality to customers (or the cost that the firm bears to deliver the quality). In this context, we assume that price and cost are closely related. If the firm has a high cost, then it's going to have to transfer some of that cost onto the customers in terms of price. If it has low cost, it can offer a lower price to customers.

. . .

Keywords: operations best practices, transformations, customer value, quality versus cost, video