operational management-chap01

Chapter 1

What is operations management?

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What is operations management?

Operations management is the activity

Operations management defined


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

three core functions of any organization

● the marketing (including sales) function – which is responsible for communicating the organization’s products and services to its markets in order to generate customer requests for service;

● the product/service development function – which is responsible for creating new and modified products and


responsible for creating new and modified products and services in order to generate future customer requests for service;

● the operations function – which is responsible for fulfilling customer requests for service through the production and delivery of products and services.

Example for three core functions of any organization

●


Some interfunctional relationships between the operations function and other core and support functions

Engineering/ technical function

Accounting and finance

function

Understanding of the capabilities and

constraints of the operations process

New product and service ideas

Understanding of the capabilities and

constraints of the Financial analysis

Provision of relevant

data

Analysis of new technology options Understanding of

process technology needs

Product/service development

function

Operations


Human resources function

Information technology (IT) function

operations processMarket

requirements

Financial analysis for performance and decisions

Recruitment development and training

Understanding of human resource needs

Provision of systems for design, planning and

control, and improvementUnderstanding

of infrastructural and system

needs

Marketing function

pfunction

They are all

operations

Back office operation in a bank

Kitchen unit manufacturing

operation

Retail operation


Take-out / restaurant operation

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


y y y (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


Operations management uses resources to appropriately create outputs that fulfil defined market requirements


The new operations agenda


Design a store layout which gives smooth and effective flowDesign elegant

products which can be flat-packed efficiently

Site stores of an appropriate size in the most effective

Continually examine and improve operations practice

Ensure that the jobs of all staff encourage their contribution to business success

Operations management at IKEA


the most effective locations

Maintain cleanliness and safety of storage area

Arrange for fast replenishment of products

Monitor and enhance quality of service to customers

operations practice

Prêt a Manger

‘High-end’ sandwich and snack retailer

Uses only ‘wholesome’ ingredients

All shops have own kitchens, which make fresh sandwiches every day


y y

Fresh ingredients delivered early every morning

The same staff who serve you at lunch made the sandwiches that morning

“We don’t work nights, we wear jeans, we party …”

The three basic functions at Prêt a Manger

Product /Service

Development

Nutritional ‘mechanical’ and aesthetic design of the

sandwiches and snacks

Design, locationd t f


Marketing OperationsPromotional

activities, market

research, etc.

and management of stores and in-store processes and the

network that supplies them

All operations are transformation processes …

Transformation processInputs Outputs


that transform inputs …

into outputs

Transformed resources …

�Materials �Information �Customers

CustomersOutput

products Input resources

Some inputs are transformed resourcesSome inputs are transforming resources

Transformation process


Transforming resources …

�Facilities �Staff

Customersand services

resources

Outputs are products and services that add value for customers

Transformation process


�Ingredients �Packaging �Customers

Served and satisfied

t

Input resources

At Prêt a Manger


customers


�Equipment �Fittings �Staff

Transformed and transforming resources


Transformed resourcesOne set of inputs to any operation’s processes are transformed resources. These are the resources that are treated, transformed or converted in the process


Transforming resources

The other set of inputs to any operations process are transforming resources.

These are the resources which act upon the transformed resources. There are

two types which form the ‘building blocks’ of all operations:

● facilities – the buildings, equipment, plant and process technology of the

operation;


p

● staff – the people who operate, maintain, plan and manage the operation.

(Note that we use the term ‘staff ’ to describe all the people in the operation, at

any level.)

Outputs from the process

�Although products and services are different, the distinction can be subtle.

�The most obvious difference is in their respective tangibility. Products are

usually tangible. Services are usually intangible.

� Also, services may have a shorter stored life.


� Products can usually be stored, at least for a time. The life of a service is often

much shorter. For example, the service of ‘accommodation in a hotel room for

tonight’ will perish if it is not sold before tonight – accommodation in the same

room tomorrow is a different service

The output from most operations is a mixture of products and services

Mixture of products and services – Outputs

that are a mixture of

Prêt a Manger

Acme WhistlesCrude oil production

Aluminium smelting

Specialist machine tool production

Restaurant

Pure products – Outputs that are exclusively

tangible


the tangible and the intangible

Mwagusi Safari Lodge

Restaurant

Information systems provider

Management consultancy

Psychotherapy clinicPure services – Outputs

that are exclusively intangible

IKEA

Operations can be analyzed at three levels

Flow between operations

The level of the supply network

The level of the operation

Flow between processes


The level of the operation

The level of the processFlow between resources

Operations can be analyzed at three levels


Some operations described in terms of their processes


Operations management is relevant to all parts of the business

All managers should have something to learn from theprinciples, concepts, approaches and techniques ofoperations management.

we must distinguish between two meanings of‘operations’:

● ‘Operations’ as a function, meaning the part of the


organization which produces the products and services forthe organization’s external customers;

● ‘Operations’ as an activity, meaning the management ofthe processes within any of the organization’s functions.

Operations management is relevant to all parts of the business

Some examples of processes in non-operations functions


Business processes�Satisfying customers’ needs is accomplished throughusing many processes, in both operations and otherfunctions.

�Each of the processes contributes some part to fulfillingcustomer needs.

�A i its tions that h


�A company may re-organize its operations so that eachproduct is produced from start to finish by a dedicatedprocess that contains all the elements necessary for itsproduction.

�Customer needs for each product are entirely fulfilledfrom within what is called an ‘end-to-end’ businessprocess.

Business process Reengineering�end-to-end BP often cut across conventionalorganizational boundaries.

�Reorganizing (or ‘re-engineering’) process boundariesand organizational responsibilities around these businessprocesses is the philosophy behind business process re-engineering (BPR).


engineering (BPR).

A Typology of Operations

Variety of outputHigh Low

HighVolume of output

Low High


Variation in demand

High Low

Visibility for customers

High Low


Implications Implications

High

Low repetitionEach staff member performs more of jobLess systemizationHigh unit costs

High repeatabilitySpecializationCapital intensiveLow unit costs

VolumeLow High


a local cafeteria vs. McDonald



FlexibleComplexMatch customer needsHigh unit costs

Well definedRoutineStandardizedRegularLow unit costs

VarietyHigh Low


Taxi agency vs. bus services



Changing capacityAnticipationFlexibilityIn touch with demandHigh unit costs

StableRoutinePredictableHigh utilizationLow unit costs

Variation in demand High Low


Summer resort hotel vs. a hotel in business center

A Typology of OperationsImplications Implications

VisibilityHigh Low

Short waiting toleranceSatisfaction governed by customer perceptionCustomer contact skills neededReceived variety is highHigh unit costs

Time lag between production and consumptionStandardizationLow contact skillsHigh staff utilizationCentralizationLow unit costs

R t iler vs. e biz


Retailer vs. e-biz

�How much of the operation’s activities its customers experience, orhow much the operation is exposed to its customers

� customer-processing operations are more exposed to theircustomers than material- or information-processing operations

implications of the four Vs�All four dimensions have implications for the cost ofcreating the products or services.

�high volume, low variety, low variation and low customercontact all help to keep processing costs down.

�low volume, high variety, high variation and hight t t lly kind f t lty


customer contact generally carry some kind of cost penaltyfor the operation.

�The position of an operation in the four dimensions isdetermined by the demand of the market it is serving.

�Most operations have some discretion in movingthemselves on the dimensions.

Volume

Variety

Variation

Visibility

Low

High

High

High

High

Low

Low

Low

4 V’s profile of two operations


Important to understand how different operations are positioned on the 4 V’s.

Is their position where they want to be?

Do they understand the strategic implications?

VisibilityHigh LowMwagusi

Safari LodgeFormule 1

Hotel

The activities of operations management

● Understanding the operation’s strategic performance objectives: to understand what it

is trying to achieve. This means understanding how to judge the performance of the operation

at different levels, from broad and strategic to more operational performance objectives.

(Chapter 2)

● Developing an operations strategy for the organization: operations management

involves hundreds of minute-by-minute decisions, so it is vital that there is a set of general


principles which can guide decision-making towards the organization’s longer-term goals.

This is an operations strategy (Chapter 3)

● Designing the operation’s products, services and processes: Design is the activity of

determining the physical form, shape and composition of products, services and processes. It

is a crucial part of operations managers’ activities (Chapters 4 to 9).

The activities of operations management

● Planning and controlling the operation: the activity of deciding what the

operations resources should be doing, then making sure that they really are doing

it. (Chapters 10 to 17)

● Improving the performance of the operation: to improve the performance of

their operation. (Chapters 18 to 20)


● The social responsibilities of operations management: It is increasingly

recognized by many businesses that operations managers have a set of broad

societal responsibilities and concerns beyond their direct activities. The general

term for these aspects of business responsibility is ‘corporate social responsibility’

or CSR. It should be of particular interest to operations managers, because their

activities can have a direct and significant effect on society. (Chapter 21).

A general model of operations management


�Materials �Information �Customers

ImprovementDesign

Operations strategy

The operation’s strategic

objectives

The operation’s competitive role

and positionOperations

strategy



�Facilities �Staff

CustomersOutput

products and

services

Input resources

Planning and

control

Operations management

Key Terms Test

Operations managementThe activities, decisions and responsibilities of managing

the production and delivery of products and services.

Operations functionThe t f that d t d t the


The arrangement of resources that are devoted to theproduction and delivery of products and services.

Operations managersThe staff of the organization who have particular

responsibility for managing some or all of the resourceswhich comprise the operation’s function.

Key Terms TestSupport functionsThe functions that facilitate the working of the core

functions, for example, accounting and finance, humanresources, etc.

Broad definition of operations


All the activities necessary for the fulfilment of customerrequests.

Transformation process modelModel that describes operations in terms of their input

resources, transforming processes and outputs of goodsand services.

Key Terms TestTransformed resourcesThe resources that are treated, transformed or converted in a

process, usually a mixture of materials, information andcustomers.

Input resourcesThe transforming and transformed resources that form the input


The transforming and transformed resources that form the inputto operations.

Transforming resourcesThe resources that act upon the transformed resources, usually

classified as facilities (the buildings, equipment and plant ofan operation) and staff (the people who operate, maintain andmanage the operation).

Key Terms Test

TangibilityThe main characteristic that distinguishes products (usually

tangible) from services (usually intangible).

Facilitating services


Facilitating servicesServices that are produced by an operation to support its

products.

Facilitating productsProducts that are produced by an operation to support its

services.

Key Terms TestProcessesAn arrangement of resources that produces some mixture

of goods and services.

Supply networkThe network of supplier and customer operations that have

relationships with an operation.


Hierarchy of operationsThe idea that all operations processes are made up of

smaller operations processes.

‘End-to-end’ business processesProcesses that totally fulfil a defined external customer

need.

Key Terms Test

Business process reengineeringThe philosophy that recommends the redesign of

processes to fulfil defined external customer needs.

VolumeThe level or rate of output from a process, a key


The level or rate of output from a process, a key characteristic that determines process behaviour.

VarietyThe range of different products and services produced by a

process, a key characteristic that determines process behaviour.

Key Terms Test

SystemizationThe extent to which standard procedures are made explicit.

StandardizationThe degree to which processes, products or services are

t d f i time.


prevented from varying over time.

Customer contact skillsThe skills and knowledge that operations staff need to meet

customer expectations.

Key Terms Test

Front-officeThe high-visibility part of an operation.

Back-office


The low-visibility part of an operation.

operational management-chap01

Documents

stuart chambers

robert johnston

operations function

nature of operations

edition nigel slack

operations processnew

bus slack

y y y service