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Introduction

Operations Management (OM) is the process in which resources/inputs are


converted into more useful products. Operations Management is about how
organizations produce goods and services.
It introduces the general model of operations management which is used to link
together the different topics in operations management and the different parts of
the module.
What is important is that you realise that it combines two distinct ideas.
The first idea is that all types of business, organisation or enterprise, large or
small, profit making or not-for-profit, are processes.
The second idea is that, to make these process work, operations managers do
things such as devising strategy, designing processes, planning and controlling
processes, and improving them. So, Operations Managers in all types of
operation have a common set of activities.
Your objectives
In this chapter you will learn about the following:

Understand what Operations Management is.


Describe the similarities between all operations.
Understand the difference between different operations.
List the major tasks Operations Managers do.

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1 Effective Operations Management


To study Operations Management, we can start by studying two real life
organizations.
It is important for organisations to understand the market and keep customer
needs in focus to provide goods and services to customers.
The managers are concerned with managing the processes which transform a set
of inputs into outputs .

ACTIVITY 1
(10 MINS)
Considering Ikea and McDonald fast food, what do you think are the important
differences between the two companys operations?

2 Operations Management is about processes


All operations produce goods and services by managing processes to change the
state and condition of something to produce outputs.
The transformation process model is used to describe the nature of operations.
Operations processes take in a set of input resources which are then used to
transform something or are transformed into outputs of goods and services.
These outputs satisfy customer needs.

ACTIVITY 2
(10 MINS)
What are the inputs, processes, and outputs of the following?
(i)

Airline

(ii) Department store


(iii) Police
(iv) Frozen food manufacturer

DEFINITIONS
a.Operations Function : It is the arrangement of resources which are
used in the production and delivery of products and services.

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b.Operations managers : They are staff who are responsible for


managing

some

resources.

In

hospital

he

may

be

called

an

administrative manager, and in a supermarket a store manager.


c.Operations management is the term that is used for the activities,
decisions and responsibilities of operations managers.

3 Importance of Operations Management


An effective operation can give four types of advantages to the business.

It can reduce the costs of producing products and services by


being efficient.

It can increase revenue by increasing customer satisfaction


through good quality and service.

It can reduce the amount of investment (sometimes called


capital employed that is necessary to produce the required type
and quantity of products and services by increasing the effective
capacity of the operation and by being innovative in how it uses
its physical resources.

It can provide the basis for future innovation by building a solid


base of operations skills and knowledge within the business.

ACTIVITY 3
(30 MINS)
Your task is to study the case below and answer this question:- Why is there the
overlap between operations, marketing and product/service development at
Acme Whistles?

CASE STUDY - Acme Whistles


Acme Whistles can trace its history back to 1870 when Joseph Hudson, decided
he had the answer to the London Metropolitan Police's request for something to
replace the wooden rattles that they used to attract attention and sound the
alarm.

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So the world's first police whistle was born. Being the height of the British Empire
many other police forces adopted the same police whistle as the London Police,
so Acme Whistles grew to be the premier supplier of high class whistles for police
forces around the world. Within a year Hudson had moved from having no
employees to having fifty.
The success of his company has continued from that point. 'In many ways', says
Simon Topman, owner and Managing Director of the company, 'the company is
very much the same as it was in Joseph's day. The machinery is more modern, of
course, and we have a wider variety of products, but many of our products are
very similar in design to their predecessors. For example, football referees seem
to prefer the traditional snail-shaped whistle.
So, although we have dramatically improved the performance of the product, our
customers want it to look the same. Most importantly, we have also maintained
the same manufacturing tradition from those early days. For example, the
original owner insisted on personally blowing every single whistle before it left
the factory. We still do the same, not by personally blowing them, but by
plugging each whistle into an airline and subjecting it to the equivalent of normal
lung pressure. This means that the same tradition of quality has endured.
The company's range of whistles has expanded to include sports whistles (they
provide the whistles for the soccer world cup), distress whistles, (silent) dog
whistles, novelty whistles, instrumental whistles (used by all of the world's top
orchestras), and many more types.
Although the whistle may seem a somewhat old fashioned object, both it and the
technology behind it, are undergoing a resurgence. For example, although police
use mobile radios predominantly, these can be lost, damaged or stolen. A
whistle, on the other hand, is simple and robust as well as compact and therefore
provides a useful back-up. Less expected perhaps is the use of whistle
technology in such high-tech applications as monitoring the air flow into
protective fire resistant suits. Any variation in air flow makes a whistle embedded
in the air pipe sound and provides an audible warning.
'We are always trying to improve our products', says Simon, 'it's a business of
constant innovation. Sometimes I think that after 130 years there is surely
nothing more to do, but we always find some new feature to incorporate. You

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cannot find a single decade since the company was founded where we have not
produced a novel and patentable innovation.
'Managing the operations in a small company is, of course, very different to
working in a large one. Everyone has much broader jobs; we cannot afford the
overheads of having specialist people in specialized roles. But this relative
informality has a lot of advantages. It means that we can maintain our
philosophy of quality amongst everybody in the company; and it means that we
can react very quickly)' when the market demands it. ' Nor is the company's
relatively small size any barrier to its ability to innovate.
'On the contrary', says Simon, 'there is something about the culture of the
company that is extremely important in fostering innovation. Because we are
small we all know each other and we all want to contribute something to the
company. It is not uncommon for employees to figure out new ideas for different
types of whistle. If an idea looks promising, we will put a small and informal team
together to look at it further: It is not unusual for people who have been with us
only a few months to start wanting to make innovations. It's as though
something happens to them when they walk through the door of the factory that
encourages their natural inventiveness.

4 Operations management is concerned with managing


processes
All operations conform to this general input-transformation-output model.
For a start, one is a manufacturing operation producing largely physical goods,
and the other is a service operation which produces changes in the physiological
condition, feelings and behaviour of patients.
The nature of the processes which each building contains will also be different.
The motor vehicle plant contains

metal cutting and forming machinery

assembly processes,

Whereas the hospital contains

diagnostic,

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care

therapeutic processes.

Perhaps the most important difference between the two operations, however, is
the nature of their inputs. Both have 'staff' and 'facilities' as inputs to the
operation but they act upon very different things.
The motor vehicle plant uses its staff and facilities to transform raw materials to
finished motor vehicles, whereas the hospital transform the patients.

5 Inputs to a process

materials

information

customers

The Process
Here, materials could be processed, however information and customers can be
processed as well.

Outputs from the process


Outputs could be either pure goods or services or a combination of both.

Operations Management system model


Operations Management is the management of processes or systems that create
goods
and/or provide services. The operations function involves the conversion of
inputs into outputs

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RELATIONSHIP

BETWEEN

OM

AND

OTHER

FUNCTIONS
There are three primary functions, which exist in most of the organizations and
they are Operations, Marketing and Finance. These three cannot be mutually
exclusive and the functional overlap is unavoidable. The level of overlapping
varies from one organisation to another.

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4
3

Accounting
Personnel
In addition to these three major functions of Research
business organizations, the
Engineering
operation management function has to interact with
many supporting functions.
Purchase
distribution
The supporting functions are research
and development,
product design,
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industrial engineering, maintenance, personnel, accounting, costing, materials,


SYSTEMS VIEW OF A BUSINESS

etc. The level of interaction and presence of some departments may be


exchange of information on current and future decided based on the size of the
organization, product line and type of management.

ce

Fin
an

Ma
r
ke
tin

Pr
od
uc

tio
n

/O

pe
ra
tio
ns

Differences between goods and services:

Services are usually intangible (for example, your purchase of a tide in an empty
airline Seat between two cities) as opposed to a tangible good.
Services are often produced and consumed simultaneously; there is no stored
inventory. For instance, the beauty salon produces a haircut that is "consumed"
simultaneously, or the doctor produces an operation that is "consumed" as it is
produced. We have not yet figured out how to inventory haircuts or
appendectomies.

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Services are often unique. Your mix of financial coverage, such as investments
and insurance policies, may not be the same as anyone else's, just as the
medical procedure or a haircut produced for you is not exactly like anyone else's.
Services have high customer interaction. Services are often difficult to
standardize, automate, and make as efficient as we would like because customer
interaction demands uniqueness. In fact, in many cases this uniqueness is what
the customer is paying for; therefore, the operations manager must ensure that
the product is designed (i.e., customized) so that it can be delivered in the
required unique manner.
Services have inconsistent product definition. Product definition may be rigorous,
as in the case of an auto insurance policy, but inconsistent because policyholders
change cars and mature. Services are often knowledge based, as in the case of
educational, medical, and legal services, and therefore hard to automate.
Services are frequently dispersed. Dispersion occurs because services are
frequently brought Into the client/customer via a local office, a retail outlet, or
even a house call.

7 Operations processes have different characteristics


These include the following:
a.

The volume of the output;

b.

The variety of the output;

c.

The variation in the demand of the output;

d.

The degree of visibility which customers have of the production of the

product or service.
Volume It is important here to distinguish between the actual volume (in this
case the number of customers served) that the restaurant has to cope with, and
the maximum it could cope with. This latter is called the capacity of the
operation.
Capacity is easier to measure because it can be calculated by multiplying the
number of seats in the restaurant by the average number of customers per hour
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(calculated by timing the customers) and by the number of hours the restaurant
is open.
In other words, imagine there is a queue of people outside the restaurants, what
is the maximum number of customers that the restaurant could serve? Contrast
this capacity figure with the actual number of customers in a day that the
restaurant serves. You could ask the restaurant manager for this information or
make an approximation from your own observations at different times of day.
Variety There are two important aspects to measuring variety for restaurants.
The first is the range of different foods that the restaurant serves. Just count the
number of different items on the menu to get an indication of this. The other
factor to take into account is whether the restaurant will customize food to your
own preference. For example, does it serve steak well-done, medium and rare?
Does it allow you to choose the fillings for your sandwiches? etc.
Variation Possibly the easiest way to measure variation is the ratio of peak
demand in a day or a week, to the lowest demand during that day or week.
Again, you could try asking the restaurant manager for this information or (if you
have time) make observations throughout the day or even the week. So, for
example, if the restaurant was busy up to its full capacity for part of the day but,
at its lowest, was only ten per cent full, then the peak to trough ratio is 10:1.
Visibility This is a relatively simple issue. Simply ask, How much of the
preparation of the food do you witness? It is unusual to see every aspect of food
preparation, for example, preparing the vegetables, slicing the bread, etc. But,
you may see food being cooked and assembled in some burger restaurants. The
other way of looking at this issue is to ask yourself whether the preparation of
the food is being deliberately put centre stage in the restaurant. Some
restaurants deliberately do this so as to entertain customers while they are
waiting for their food.

ACTIVITY 4
(30 MINS)
Your task is to study the case below and answer this question: What is the role of
technology in allowing Formule 1 to keep its costs low?

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CASE STUDY - Formule 1


Hotels, by the nature of their services, are high-contact operations. They are staff
intensive and have to cope with a range of customers, each with a variety of
needs and expectations. So, how can a highly successful chain of affordable
hotels avoid the crippling costs of high customer contact?
Formule 1, a subsidiary of the French Accor group, manage to offer outstanding
value by adopting two principles not always associated with hotel operations standardization and an innovative use of technology.
Formule 1 hotels are usually located close to the roads, junctions and cities which
makes them visible and accessible to prospective customers. The hotels
themselves are made from state-of-the-art volumetric prefabrications. The
prefabricated

units

are

arranged

in

various

configurations

to

suit

the

characteristics of each individual site. All rooms are nine square metres in area,
and are designed to be attractive, functional, comfortable and soundproof. Most
important, they are designed to be easy to clean and maintain.
All have the same fittings, including a double bed, an additional bunk- type bed,
a wash basin, a storage area, a working table with seat, a wardrobe and a
television set.
The reception of a Formule 1 hotel is staffed only from 6.30 am to 10.00 am and
from 5.00 pm to 10.00 pm.

Outside these times an automatic machine sells

items to credit card users, provides access to the hotel, dispenses a security
code for the room and even prints a receipt.
Technology is also evident in the washrooms. Showers and toilets are
automatically cleaned after each use by using nozzles and heating elements to
spray the room with a disinfectant solution and dry it before it is used again.
To keep things even simpler, Formule 1 hotels do not include a restaurant as they
are usually located near existing restaurants. However, a continental breakfast is
available, usually between 6.30 am and 10.00 am, and of
service basis!

8 Three Levels of Operations Management


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course on a self-

Operation managers are required to make a series of decisions in the production


function.
The decisions made by operation managers about the activities of production
systems tend to fall into three general categories, viz.,
1.

Strategic decisions

2.

Operating decisions

3.

Control decisions

CHAPTER ROUNDUP
1. Production is the creation of goods and services.
2. Operations Management (OM) are activities that relate to the creation of
goods and services through the transformation of inputs to outputs.
3. All organizations perform three functions to create goods and services.
Namely: Marketing, which generates demand, Production/operations,

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which creates the product, Finance/accounting, which tracks how well the
organisation is doing, pays the bills, and collects the money.
4. Operations Management process is the application of planning, organizing
staffing, leading, and controlling to achieve objectives.
5. Ten major OM decisions are required of operations managers:
Design pf goods and services
Managing quality
Process and capacity design
Location strategy
Layout strategy
Human resources, job design, and work measurement
Supply chain management
Inventory, material requirements planning, and JIT (Just-in-time)
Immediate and short-term scheduling
Maintenance
QUICK QUIZ
1. Why should one study operations management?
2. Outputs of operations may be classified as goods, raw materials and
profits. True or False?
3. One reason to study operations management is to learn how people
organize themselves for productive enterprise. True or False?
4. Lori produces "Final Exam Care Packages" for resale by her sorority. She is
currently working a total of 5 hours per day to produce 100 care packages.
What is Lori's productivity?
b) Lori thinks that by redesigning the package, she can increase her total
productivity to 133 care packages per day. What will be her new
productivity?
c) What will be the percentage increase in productivity if Lori makes the
change?
ANSWERS TO QUICK QUIZ
1. We want to understand (1) how people organize themselves for productive
enter-prise, (2) how goods and services are produced, (3) what operations
managers do, and (4) this costly part of our economy and most
enterprises.
2. False, raw materials are inputs.
3. True
4.

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ANSWERS TO ACTIVITIES
1. Ikea : High volume, variety of service and Do it yourself, McDonald :
Clean environment, good service.
2. Airline, Department Store and are nearer to the intangible and Frozen Food
Manufacturer is a tangible product.

3. The simple answer to this question is the reason is size. This becomes especially true when
the boss of the company is also the owner. It is literally his own money that is being spent
when creating any new managerial roles.
4. For Formule 1, technology is harnessed in the manufacture of the self-contained bedroom
units in the factory prior to assembly on the site. Because of the standardization, conventional
factory automation can be used to some extent. More obviously, during the running of normal
operations at the hotel, technology, in the form of the automatic booking in machine at the
door, allows the hotel to remain open even while it is unstaffed for much of the day. This
saves labour. Similarly, labour is saved by the use of automatic cleaning in the washrooms.
his also
ensures that high standards of cleanliness are maintained throughout the day, even when the
hotel is not staffed.

REFERENCES
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Operations Management by Nigel Slack, Publisher, 6 th edition, 2010 , Prentice


Hall

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