OPERATIONS MANAGEMENT

LESSON 1

Outcomes of Lesson 1
Chapter 1
After studying this chapter, you should be able to: Define operations management in an organisation of your choice Define the similarities between all operations Discuss how operations are different from each other Discuss what operations managers do and why is it so important

Chapter 2
Discuss the role to be played by the operations function in achieving strategic success Discuss the performance objectives of operations and their internal and external benefits which are derived from excelling in each of them.

Chapter 3
Discuss what a strategy is Discuss the difference between a top down and bottom up view of operations strategy. Discuss the difference between a market requirements and an operations resource view of operations strategy Discuss how an operation strategy can be put together

The consultancy services market % of world revenues of 40 largest consultancy firms

Financial 6 Organizational design 11

Marketing / sales 2

Operations and process management 31

Benefits / actuarial 16 Corporate strategy 17

IT strategy 17

The operations function is fashionable!

Back office operation in a bank

Kitchen unit manufacturing operation

Retail operation

They are all operations

Take-out / restaurant operation

What Is Operations Management?

Production is the creation of goods and services
Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs

2011 Pearson Education, Inc. publishing as Prentice Hall

Operations management defined

Operations management is the activity of managing the resources which are devoted to the production and delivery of products and services.

quote
Offer product of good value at low cost that is convenient for the customer to buy and at the same time keeping a regular contact with the customer and noting their needs, it is likely that both customer and organisation will be satisfied.

OPERATIONS MANAGEMENT
Definition
Doing things that your customers want, at an acceptable cost to the organisation

Operations mix
Product Cost Convenience of purchase Customer service

The best way to start understanding the nature of operations is to look around you Everything you can see around you (except the flesh and blood) has been processed by an operation

Every service you consumed today (radio station, bus service, lecture, etc.) has also been produced by an operation
Operations Managers create everything you buy, sit on, wear, eat, throw at people, and throw away

A general model of operations management

Transformed resources Operations strategy

The operations strategic objectives Operations strategy The operations competitive role and position

Materials Information Customers

Design Input resources Transforming resources Facilities Staff Operations management Planning and control Improvement

Output products and services

Customers

All operations are transformation processes

Some inputs are transformed resources
Transformed resources Materials Information Customers

Some inputs are transforming resources

Input resources
Transforming resources Facilities Staff

Transformation process

Output products and services

Customers

Outputs are products and services that add value for customers

Operations can be analyzed at three levels

Flow between operations

The level of the supply network

Flow between processes

The level of the operation

The level of the process

Flow between resources

Flow between operations

Operations management is concerned with the flow of transformed resources between operations, processes and transforming resources, where

Flow between processes

External operations interact with internal processes to form the external supply network Processes form an internal supply network and become each others customers and suppliers

Flow between resources

Operations system
System entity composed of interdependent parts which contribute to the characteristics of the whole Operations function consists of those activities that produce the goods and services Operating system composed of three subsystems:
Conversion or transformation subsystem Support subsystem Planning and control subsystem
Ozias Ncube

Operating system
External environment information
Demand of output Cost of inputs Technological trends Govt regulations

internal environment information

Planning, control subsystem

System status information

Objectives
Strategies Policies

Plans, decisions, corrective actions

inputs
Human effort Materials Capital Information energy

Conversion or
Transformation

outputs
Products, services
Tangibility Storability

subsystem

Support subsystem

Transportability Simultaneity Customer contact quality

Ozias Ncube

operating structures
Environment (domain)
Time, Quality, Quantity

Control
Raw materials

Operating structure
Project Batch continuous

Services Products Sales distribution

Policies Rules Plans targets

Labour Information money

Customer care

management

inputs

outputs

market

transformation Equipment, facilities, capital

support

Differences within sectors are often greater than the differences between sectors
Financial services
An account management centre at a large retail bank Financial analyst advising a client at an investment bank

Furniture manufacturing
Mass production of kitchen units Craft production of reproduction antique furniture

Hotels
Value-for-money hotel Lobby of an international luxury hotel

A Typology of Operations
Low

Volume

High High

High

Variety

Low

High

Variation in demand

Low

High

Visibility

Low

Implications
Low repetition Each staff member performs more of job Less systemization High unit costs Flexible Complex Match customer needs High unit costs Changing capacity Anticipation Flexibility In touch with demand High unit costs Short waiting tolerance Satisfaction governed by customer perception Customer contact skills needed Received variety is high High unit costs

A Typology of Operations
Low Volume High High

Implications
High repeatability Specialization Capital intensive Low unit costs Well defined Routine Standardized Regular Low unit costs Stable Routine Predictable High utilization Low unit costs Time lag between production and consumption Standardization Low contact skills High staff utilization Centralization Low unit costs

High

Variety

Low

High

Variation in demand

Low

High

Visibility

Low

Some interfunctional relationships between the operations function and other core and support functions
Engineering/ technical function
Understanding of the capabilities and constraints of the operations process

Product/service development function

Analysis of new technology options Understanding of process technology needs New product and Accounting service ideas Provision and finance Understanding of the of relevant function capabilities and data Operations constraints of the Financial analysis operations process function for performance Market and decisions requirements Understanding of human resource needs Recruitment development and training Understanding Provision of systems for design, planning and of control, and improvement infrastructural and system needs

Marketing function

Human resources function

Information technology (IT) function

Marketing and Sales

Set and props manufacture

Engineering

Production units

Finance and costing

Preparing quotations

Promotional and advertising contracts

Technical support contracts

Music videos

Example of how each micro operation contributes to the business processes which fulfil external needs

Size of each micro operations continuation to each process

Business processes

Programme production

Customer needs fulfilled

Customer needs

What is the role of the Operations function?

Operations as implementer Operations as supporter Operations as driver

Operations

Strategy

Strategy

Operations

Operations

Strategy

Operations implements strategy

Operations supports strategy

Operations drives strategy

The strategic role of the Operations function

The 3 key attributes of Operations

Operations contribution
Be dependable Operationalize strategy Explain practicalities
Be appropriate Understand strategy Contribute to decisions Be innovative Provide foundation of strategy Develop long-term capabilities

Implementing

Supporting

Driving

The four-stage model of Operations contribution

Redefining industry expectations
STAGE 3 Link strategy with operations STAGE 2 Adopt best practice STAGE 1 problems Internally neutral Externally neutral Internally supportive Externally supportive STAGE 4 Give an operations advantage

Increasing strategic impact

Clearly the best in the industry As good as the competitors Holding the Correct the organization back worst

Increasing operations capabilities

Broad strategic objectives for an operation applied to stakeholder groups

Society
Increase employment Enhance community well-being Produce sustainable products Ensure clean environment

Suppliers
Continue business Develop supplier capability Provide transparent information

Customers
Appropriate product or service specification Consistent quality Fast delivery Dependable delivery Acceptable price

Shareholders
Economic value from investment Ethical value from investment

Employees
Continuous employment Fair pay Good working conditions Personal development

The Operations function can provide a competitive advantage through its performance at the five competitive objectives
Quality

Being RIGHT

Speed

Being FAST

Dependability

Being ON TIME

Flexibility

Being ABLE TO CHANGE

Cost

Being PRODUCTIVE

What do the terms quality, speed, dependability, flexibility and cost mean in the context of operations?
Which enables you to do things cheaply (cost advantage)? Which enables you to change what you do (flexibility advantage)?

Which enables you to do things quickly (speed advantage)?

Which enables you to do things on time (dependability advantage)?

Which enables you to do things right (quality advantage)?

The benefits of excelling

Minimum price, highest value Cost Quick delivery Speed Fast throughput Error-free processes Minimum cost, maximum value Reliable operation Ability to change

Dependable delivery
Dependability

Quality
Error-free products and services

Flexibility Frequent new products, maximum choice

Quality
Quality has several meanings. The two most common are Quality as the specification of a product or service
e.g. Lower Hurst Farm produces organic meat raised exclusively on its own farm

Quality as the conformance with which the product or service is produced

e.g. Quick-service restaurants like McDonalds may buy less expensive meat, but its conformance must be high

Quality
Irrespective of a product or services specification quality, producing it so it conforms to its specification consistently brings benefits to any operation Externally it enhances the product or service in the market, or at least avoids customer complaints Internally it brings other benefits to the operation: It prevents errors slowing down throughput speed It prevents errors causing internal unreliability and low dependability It prevents errors causing wasted time and effort, therefore saving cost

Speed
Speed again has different interpretations, externally and internally Externally it means the elapsed time between a customer asking for a product or service and getting it (in a satisfactory condition)

It often enhances the value of the product or service to customers

Internally it brings other benefits to the operation: It helps to overcome internal problems by maintaining dependability It reduces the need to manage transformed resources as they pass through the operation, therefore saving cost

Dependability
Externally it enhances the product or service in the market, or at least avoids customer complaints

Internally it brings other benefits to the operation:

It prevents late delivery slowing down throughput speed It prevents lateness causing disruption and wasted time and effort, therefore saving cost

Flexibility
Flexibility has several distinct meanings but is always associated with an operations ability to change Change what ? The products and services it brings to the market Product/service flexibility

The mix of products and services it produces at any one time Mix flexibility
The volume of products and services it produces Volume flexibility The delivery time of its products and services Delivery flexibility

Cost
The cost of producing products and services is obviously influenced by many factors such as input costs, but two important sets are The 4 Vs: volume variety variation visibility The internal performance of the operation in terms of quality speed dependability flexibility

External and internal benefits

Low price, high margin, or both

Short delivery lead-time

Cost
Speed Dependability
Reliable delivery

Quality
On-specification products and services

Flexibility

Frequent new products/services Wide range Volume and delivery changes

Polar diagrams

Polar diagrams are used to indicate the relative importance of each performance objective to an operation or process

They can also be used to indicate the difference between different products and services produced by an operation or process

Example: Polar diagrams for a proposed police performance method

Required performance
Reassurance Actual performance

Efficiency

Crime reduction

Working with criminal justice agencies

Crime detection

What is strategy?
Strategic decisions means those decisions which Are widespread in their effect on the organization to which the strategy refers Define the position of the organization relative to its environment Move the organization closer to its long-term goals.

Operations is not the same as operational

Operations are the resources that create products and services
Operational is the opposite of strategic, meaning day-today and detailed So, one can examine both the operational and the strategic aspects of operations

Operations strategy is different from operations management

Example: capacity decisions

Operations management
Short-term capacity decisions

Operations strategy
Long-term capacity decisions

Time scale

Demand

112 months

Demand 1-10 years

The four perspectives on operations strategy

Top-down perspective
What the business wants operations to do

Operations resources perspective

What operations resources can do

Operations strategy

Market requirement perspective

What the market position requires operations to do

What day-to-day experience suggests operations should do

Bottom-up perspective

Top-down and bottom-up perspectives of strategy

Corporate strategy

Business strategy

Operations strategy Emergent sense of what the strategy should be

Operational experience

The strategy hierarchy

Key strategic decisions
Corporate strategy What business to be in? What to acquire? What to divest? How to allocate cash?

Influences on decision making

Economic environment Social environment Political environment Company values and ethics

Business strategy

What is the mission? What are the strategic objectives of the firm? How to compete?

Customer/market dynamics Competitor activity Core technology dynamics Financial constraints

Functional strategy

How to contribute to the strategic objectives? How to manage the functions resources?

Skills of functions staff Current technology Recent performance of the function

The effects of the product/service life cycle on the organization

Sales volume

Introduction
Volume Slow growth in sales
Customers Innovators Competitors Few or none Variety of product / service design Possible high customization or frequent design changes

Growth
Rapid growth in sales volume
Early adopters Increasing numbers Increasingly standardized

Maturity
Sales slow down and level off
Bulk of market Stable number Emerging dominant types

Decline
Market needs largely met Laggards Declining numbers Possible move to commodity standardization

Different competitive factors imply different performance objectives

Competitive factors If the customers value these ...
Low price High quality Fast delivery Reliable delivery Innovative products and services Wide range of products and services Ability to change the timing or quantity of products and services

Performance objectives Then, the operations will need to excel at these ...
Cost Quality

Speed
Dependability Flexibility (products and services) Flexibility (mix) Flexibility (volume and/or delivery)

Mintzbergs concept of emergent strategy

Intended strategy

Deliberative strategy

Realized strategy

Unrealized strategy

Emergent strategy

Operations resources

Market requirements

What you HAVE

in terms of operations capabilities

What you DO
to maintain your capabilities and satisfy markets

What you WANT

from your operations to help you compete

What you NEED

to compete in the market

Strategic reconciliation

Operations strategy is

the decisions which shape the longterm capabilities of the companys

operations and their contribution to overall

strategy through the on-going reconciliation of market requirements and operations resources

The challenge of operations strategy formulation

An operations strategy should be:

Appropriate ... Comprehensive ... Coherent ... Consistent over time ...

An implementation agenda is needed

When to start?
Where to start? How fast to proceed? How to coordinate the implementation programme?

The five Ps of operations strategy implementation

Purpose a shared understanding of the motivation, boundaries and context for developing the operations strategy

Point of entry the point in the organization where the process of implementation starts
Process how the operations strategy formulation process is made explicit

Project management the management of the implementation

Participation who is involved in the implementation

TRADE OFFS: The efficient frontier view

Variety

The efficient frontier

Variety

The new efficient frontier B1 B

C D Cost efficiency

C D Cost efficiency