Introduction

Operations management is important. It is concerned with creating the services and

products upon which we all depend. And all organizations produce some mixture of

services and products, whether that organization is large or small, manufacturing or

service, for profit or not for profit, public or private. Thankfully, most companies have

now come to understand the importance of operations. This is because they have realized

that effective operations management gives the potential to improve both efficiency and

customer service simultaneously. But more than this, operations management is

everywhere, it is not confined to the operations function.

All managers, whether they are called Operations or Marketing or Human Resources or

Finance, or whatever, manage processes and serve customers (internal or external). This

makes, at least part of their activities ‘operations’.

Operations management is also exciting. It is at the centre of so many of the changes

affecting the business world – changes in customer preference, changes in supply

networks brought about by internet-based technologies, changes in what we want to do at

work, how we want to work, where we want to work, and so on. There has rarely been a

time when operations management was more topical or more at the heart of business and

cultural shifts.

Operations management is also challenging. Promoting the creativity which will allow

organizations to respond to so many changes is becoming the prime task of operations

managers. It is they who must find the solutions to technological and environmental

challenges, the pressures to be socially responsible, the increasing globalization of

markets and the difficult-todefine areas of knowledge management.

Developing a definition of operations management

We offer the following as the basic definition of operations management:

Operations management is concerned with those activities that enable an organization

(and not just one part of it) to transform a range of basic inputs (materials, energy,

customers’ requirements, information, skills, finance, etc.) into outputs for the end

customer.

This is important because we must always bear in mind that operations do not take place

in one confined area of the organization. Rather, vari- ous forms of operations will take

place simultaneously across the organization. For example, in a manufacturing plant we

might assume that operations take place merely at the point of production, but this limits

what is actually taking place. In reality, a range of operations will be undertaken in

addition to the manufacture of the product, such as inventory handling, logistics,

information processing and office admin- istration. Similarly, in services, the obvious

point where we may think operations takes place is in the direct contact between the

service provider and the recipient of the service. This contact is sometimes called the

‘moment of truth’. However, behind the scenes (in services, this is often called ‘back-

office’ operations) there will be a number of operations that would have needed to be in

place. In services, the dif- ference between the point of contact and all of the support

activities has been likened to an ‘iceberg’ (Normann, 2000), as shown in Figure 1.1.

The organization uses different kind of inputs (the transformational inputs, such as plant,

buildings, machinery and equipment) as well as less tangible but important inputs (such

as learning, tacit knowledge and experience) and transforms these into outputs. A basic,

organiza- tion-specific model of operations is shown in Figure 1.2.

This basic model, which appears in many management texts, can be expanded to identify

main activities within operations, as shown in Figure 1.3.

Although models like these are often used, we argue that operations management in the

modern era is more complex than this.

Figure 1.1:

Iceberg

principle in

service

operation

Figure

1.2: The

basic

operations

system

Figure 1.3:

Factors

within

input/output

model

operations

The major issue is that operations management is not only an organizational-wide issue,

but also includes activities across organizations. Obviously, an important part of the

transformation process will include purchasing goods and services from other

organizations. In the modern era of oper- ations management, organizations no longer see

themselves as a stand- alone element in the above diagrams – the ‘processes’ – but will

instead see themselves as part of a wider, extended enterprise, as shown in Figure 1.4.

Here, there is a network of collaborative partners, all of whom link together to form an

extended enterprise within an industry. So the operations management model for current

and future operations is no longer limited to an organization-specific arena. This means

that the organisation has to be willing to look outside of itself and to form strategic

relationships with what were formerly viewed as competitive organizations.

Figure 1.4:

The

operations

infrastructure

from basic

input to end

customer

Responsibilities of operations managers

At the strategic level (long term), operations managers are responsible for or associated

with making decisions about product development (what shall we make?), process and

layout decisions (how shall we make it?), site location (where will we make it?), and

capacity (how much do we need?).

At the tactical level (intermediate term), operations management addresses the issues

relevant to efficiently scheduling material and labor within the constraints of the firm's

strategy and making aggregate planning decisions. Operations managers have a hand in

deciding employee levels (how many workers do we need and when do we need them?),

inventory levels (when should we have materials delivered and should we use a chase

strategy or a level strategy?), and capacity (how many shifts do we need? Do we need to

work overtime or subcontract some work?).

At the operational level, operations management is concerned with lower-level

(daily/weekly/monthly) planning and control. Operations managers and their

subordinates must make decisions regarding scheduling (what should we process and

when should we process it?), sequencing (in what order should we process the orders?),

loading (what order to we put on what machine?), and work assignments (to whom do we

assign individual machines or processes?).

Today's operations manager must have knowledge of advanced operations technology

and technical knowledge relevant to his/her industry, as well as interpersonal skills and

knowledge of other functional areas within the firm. Operations managers must also have

the ability to communicate effectively, to motivate other people, manage projects, and

work on multidisciplinary teams. Sunil Chopra, William Lovejoy, and Candace Yano

describe the scope of operations management as encompassing these multi-disciplinary

areas:

Supply Chains—management of all aspects of providing goods to a consumer

from extraction of raw materials to end-of-life disposal.

Operations Management/Marketing Interface—determining what customers'

value prior to product development.

Operations Management/Finance Interface—Capital equipment and inventories

comprise a sizable portion of many firms' assets.

Service Operations—Coping with inherent service characteristics such as

simultaneous delivery/consumption, performance measurements, etc.

Operations Strategy—Consistent and aligned with firm's other functional

strategies.

Process Design and Improvements—Managing the innovation process.

Mark Davis, Nicolas Aquilano and Richard Chase (1999) have suggested that the major

issues for operations management today are:

reducing the development and manufacturing time for new goods and services

achieving and sustaining high quality while controlling cost

integrating new technologies and control systems into existing processes

obtaining, training, and keeping qualified workers and managers

working effectively with other functions of the business to accomplish the goals

of the firm

integrating production and service activities at multiple sites in decentralized

organizations

working effectively with suppliers at being user-friendly for customers

working effectively with new partners formed by strategic alliances

As one can see, all these are critical issues to any firm. No longer is operations

management considered subservient to marketing and finance; rather, it is a legitimate

functional area within most organizations. Also, operations management can no longer

focus on isolated tasks and processes but must be one of the architects of the firm's

overall business model.

Supply Chain Operations Management

The supply chain operations reference (SCOR) model is a process reference model,

developed in 1996 by the Supply-Chain Council, as a cross-industry diagnostic,

benchmarking, and process improvement tool for supply chain management. SCOR

provides a complete set of supply chain performance metrics, industry best practices, and

enabling systems' functionality that allows firms to thorough analyze all aspects of their

current supply chain. A number of notable firms, such as IBM, Intel, 3M, and Siemens

have used the model successfully.

The model separates supply chain operations into five distinct processes: plan, source,

make, deliver, and return. Within these are three levels of process detail. Level I deals

with process types, Level II is the configuration level and deals with process categories,

and Level III is the process element level. The SCOR model endorses twelve

performance metrics. The Levels II and III metrics are keys to the Level I metrics that fall

within the five process categories. Empirical research by Archie Lockamy III and Kevin

McCormack found while some of the practices found in the model did not have expected

degree of impact, many of the practices did result in significant supply chain performance

improvements.

Operations Management Links with Supply chain Management:

With supply chain management, information, systems, processes, efforts, and ideas are

integrated across all functions of the entire supply chain. Supply chains become more

complex as goods flow from more than one supplier to more than one manufacturing and

distribution site. The possibility of outside sources for functions like assembly and

packaging are also options in the chain.

The basic tasks of a company do not change, regardless of whether or not it practices

supply chain management. Suppliers are still required to supply material, manufacturing

still manufactures, distribution still distributes, and customers still purchase. All of the

traditional functions of a company still take place. The ultimate difference in a company

that manages its supply chain is their focus shifts from what goes on inside each of the

links, to include the connections between the links.

A company practicing effective supply chain management also recognizes that the chain

has connections that extend beyond the traditional boundaries of the organization.

Managing the connections is where the integration of the supply chain begins. Any

improvement in or disruption to the supply chain linkages affects the entire chain. The

cumulative supply chain effect of uncertainty can be seen in this example. Suppose a

manufacturer of integrated circuit boards receives a shipment of poor quality silicon.

Because the manufacturer is dependent on its supplier for timely shipments, the poor

quality lot results in a shipment delay to one of its customers. The computer manufacturer

is forced to shut down its line because component circuit boards are not available. As a

result, computer shipments to retailers are late. Finally, the customer goes to the retailer

to purchase a new computer but is unable to find the desired brand. Frustrated, the

customer decides to buy the product of a competitor. Consider too, the timing involved in

this process. Because of production and transportation lead times, the actual receipt of the

poor quality silicon probably occurred several months before the customer made a

computer purchase.

A wide variety of events occurs in the supply chain that is largely unpredictable.

Suppliers can make early or late deliveries. Customers can increase, decrease, or even

cancel orders. New customers can place large orders. Machines or trucks can break down.

Employees can get sick, go on strike, and quit. Supplier shipments or manufactured

products can have quality problems. In the past, companies prepared for uncertainty and

improved their levels of customer satisfaction by allowing inventory levels to rise. This is

no longer an acceptable solution. High inventories translate to increased carrying costs

and risks of obsolescence that can limit a company's flexibility.

Throughout the supply chain, inventory is traditionally created and held at many

locations. Any time a portion of that inventory can be reduced or eliminated, the

company decreases costs and increases profitability. Shortening the length of time it takes

to move a product from one link of the chain to the next also shortens the cycle time of

the entire chain and thereby increases competitiveness and customer satisfaction.

Process Management

Managing processes that result in products or services is a major con- cern of operations

managers. The operations manager has to under- stand the nature, specification and

assembly/delivery of the product or service. Over-design can cause major problems of

organizations intending to innovate new products and services, and will take up

unnecessary time and capacity. As we shall see in Chapter 4, there has been an increased

awareness of organizations to include operations managers in the early stages of new

product development in both manu- facturing and service sectors. For the operations

manager, the range of products or services on offer has to be managed in order to satisfy

the mix of volume and variety for customers. This is achieved by having appropriate

process technology in place, which can deal with customer requirements of volume and

variety.

Managing technology

Included in the task facing the Sunnyside Up team was searching for and purchasing

appropriate equipment. Investing in the appropriate equipment or technology,

maintaining it and reinvesting are crucial decisions for operations managers. The

temptation for some managers isnot to invest, believing that such a risk is not necessary

since the cur- rent machinery ‘can cope’ and ‘has done well for us in the past’. In fact,

this may be the correct decision if the useful life of the technology is shorter than the

period over which the organization would need to recoup the investment – a situation that

would hardly have seemed likely a decade ago. With product lives shortening in many

product markets, the period between purchasing equipment and that equip- ment being

made obsolete by newer technology is never certain. However, the approach of not

investing could hardly be called strategic and may actually be shortsighted – often

quickly depriving the organ- ization of being able to compete in the long term against

other organ- izations that have made more appropriate decisions. It is a question of

maintaining secure access to the necessary technology. Being left with out-of-date

technology, which has yet to be paid for, however, is a major liability for an organization

and may even cause insolvency.

Human resources management

The management of human resources was a relatively small factor in our case study, but

is often a major concern for operations managers. As the need for adherence to narrowly

defined functional arrange- ments declines, managing human resources is no longer the

preroga- tive of one department (personnel, human resources, management development

and so on) but is, rather, an integral feature of any would-be world-class operations

company.

Developing human resources is clearly evident in the following (Business Week, 5 May

2003):

" Survival isn’t just a matter of smart machines.Workers have to get

smarter as well,and show a willingness to learn new technologies,says

John A.McFarland,CEO of Baldor Electric Co.,the largest maker of

industrial electric motors in the US. A versatile corps of workers has

helped Baldor ride out the manufacturing recession without a layoff."

It is important to note how Baldor’s approach to managing human resources has had

strategic benefits, allowing them to compete suc- cessfully in spite of the recession in

which the industry found itself. Human resources impact a number of areas of interest to

the operations manager, including ideas for innovation (Chapter 4), quality improve-

ments (Chapter 8) and process developments (Chapter 3) – all of which are dependent

upon human resource know-how and inventive- ness. Indeed, management of the supply

chain (Chapter 6) is also very dependent upon the ability to form strategic partnerships

throughout the supply chain, and this comes from human resource capability and not

from technology or equipment.

Conclusion

The future role of operations managers will take on far greater respon- sibility than

before. The Economist(20 June 1998) summarized the position very well when referring

to manufacturing operations, but much of this is true within service settings as well

"Manufacturing used to be pretty simple.The factory manager or the production director

rarely had to think about suppliers or customers. All he did was to make sure that his

machinery was producing widgets at the maximum hourly rate.Once he had worked out

how to stick to that ‘standard rate’ of production,he could sit back and relax.Customer

needs? Delivery times? Efficient purchasing? That was what the purchasing department

and the sales department were there for.Piles of inventory lying around,both raw

materials and finished goods? Not his problem. Now it is. The 1980s were the decade of

lean production and right-first-time quality management.In the 1990s the game has grown

even tougher. Customers are more and more demanding. They increasingly want the

basic product to be enhanced by some individual variation,or some special

service.Companies sweat to keep up with their demands,in terms both of the actual

products and of the way they are delivered."

But the point to bear in mind here is this: not only do operations managers have to take

on board these additional, major competitive requirements, there are also other vitally

important social/ environmental pressures that need to be managed, as we have outlined

in this chapter. In the future, the pressure put on production/opera- tions managers will be

greater than ever. A key issue for operations managers in trying to manage the future is

that operations strategy must be in place to enable the firm to deal with such changes.

Undoubtedly, having strategic operations in place will decide the fate of firms in both

manufacturing and services settings, and combina- tions of both.

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