Chapter 1 What Is Operations Management

Chapter 1 What is operations management?
Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations management defined

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

Design elegant products which can be flat-packed efficiently Design a store layout which gives smooth and effective flow Ensure that the jobs of all staff encourage their contribution to business success
Site stores of an appropriate size in the most effective locations
Continually examine and improve operations practice
Maintain cleanliness and safety of storage area
Monitor and enhance quality of service to customers Arrange for fast replenishment of products
Prt a Manger
High-end sandwich and snack retailer Uses only wholesome ingredients All shops have own kitchens, which make fresh sandwiches every day Fresh ingredients delivered early every morning
The same staff who serve you at lunch made the sandwiches that morning We dont work nights, we wear jeans, we party
The three basic functions at Prt a Manger

Nutritional mechanical and aesthetic design of the sandwiches and snacks Product / Service Development
Marketing
Operations
Promotional activities, market research, etc.
Design, location and management of stores and in-store processes and the network that supplies them
All operations are transformation processes
Inputs
Transformation process
Outputs
that transform inputs
into outputs
Some inputs are transformed resources Some inputs are transforming resources
Transformed resources Materials Information Customers
Input resources
Transforming resources Facilities Staff
Transformation process
Output products and services
Customers
Outputs are products and services that add value for customers
At Prt a Manger
Transformed resources Ingredients Packaging Customers Input resources Transforming resources Equipment Fittings Staff Served and satisfied customers
The output from most operations is a mixture of products and services

Crude oil production
Acme Whistles Aluminium smelting
Pure products Outputs that are exclusively tangible
Specialist machine tool production Restaurant Information systems provider
Prt a Manger
IKEA
Mixture of products and services Outputs that are a mixture of the tangible and the intangible
Management consultancy Mwagusi Safari Lodge Psychotherapy clinic Pure services Outputs that are exclusively intangible
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
Three levels of operations management analysis: the supply network, the operation, and the process
The supply network Flow between operations
Studios
Casting agency Creative agency
Promotion agency Programme / video maker
Broadcasting company
The programme and video supply network
The operation Flow between processes The programme and video operation
Programme / video maker
The operation Flow between processes Engineering Marketing and sales Finance and accounting Set and props manufacture Production unit Post production The programme and video operation
The Set and props manufacturing process Processes Flow between resources (people and facilities)
Programme / video maker
The programme and video operation Set and props manufacture Set construction The Set and props manufacturing process Set design Props acquisition Processes Flow between resources (people and facilities) Set finishing
The supply network Flow between operations Studios Promotion agency Broadcasting Casting company agency Programme / Creative agency video maker The operation Flow between processes Engineering Marketing and sales Finance and accounting Set and props manufacture Production unit Post production The programme and video operation The programme and video supply network
The Set and props manufacturing process
Set construction Set design Set finishing
Props acquisition
Processes Flow between resources (people and facilities)
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
Implications
High repeatability Specialization Capital intensive Low unit costs
Low
Volume
High High
Implications
Implications
Well defined Routine Standardized Regular Low unit costs
Flexible Complex Match customer needs High unit costs
High
Variety
Low
Implications
Implications
Changing capacity Anticipation Flexibility In touch with demand High unit costs
High
Variation in demand
Low
Stable Routine Predictable High utilization Low unit costs
Implications
Implications
Short waiting tolerance Satisfaction governed by customer perception Customer contact skills needed Received variety is high High unit costs
High
Visibility
Low
Time lag between production and consumption Standardization Low contact skills High staff utilization Centralization Low unit costs
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
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
4 Vs profile of two operations

Low High High High
Mwagusi Safari Lodge
Volume Variety Variation Visibility
High Low Low Low

Formule 1 Hotel
Important to understand how different operations are positioned on the 4 Vs. Is their position where they want to be? Do they understand the strategic implications?
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
Separate operations processes

Function 1 Function 2 Function 3 Function 4
Conventionally, organizational boundaries are drawn around functional processes
Customer needs fulfilled
Business processes
Customer needs
Separate operations processes

Function 1 Function 2 Function 3 Function 4
BPR advocates reorganizing (reengineering) micro operations to reflect the natural customer-focused business processes
Business processes
Customer needs
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
Key Terms Test

Operations management The activities, decisions and responsibilities of managing the production and delivery of products and services. Operations function The arrangement of resources that are devoted to the production and delivery of products and services. Operations managers The staff of the organization who have particular responsibility for managing some or all of the resources which comprise the operations function.
Key Terms Test

Support functions The functions that facilitate the working of the core functions, for example, accounting and finance, human resources, etc. Broad definition of operations All the activities necessary for the fulfilment of customer requests. Transformation process model Model that describes operations in terms of their input resources, transforming processes and outputs of goods and services.
Key Terms Test

Transformed resources The resources that are treated, transformed or converted in a process, usually a mixture of materials, information and customers. Input resources The transforming and transformed resources that form the input to operations. Transforming resources The resources that act upon the transformed resources, usually classified as facilities (the buildings, equipment and plant of an operation) and staff (the people who operate, maintain and manage the operation).
Key Terms Test

Tangibility The main characteristic that distinguishes products (usually tangible) from services (usually intangible). Facilitating services Services that are produced by an operation to support its products. Facilitating products Products that are produced by an operation to support its services.
Key Terms Test

Processes An arrangement of resources that produces some mixture of goods and services. Supply network The network of supplier and customer operations that have relationships with an operation. Internal supplier Processes or individuals within an operation that supply products or services to other processes or individuals within the operation.
Key Terms Test

Internal customer Processes or individuals within an operation that are the customers for other internal processes or individuals outputs. Hierarchy of operations The idea that all operations processes are made up of smaller operations processes. End-to-end business processes Processes that totally fulfil a defined external customer need.
Key Terms Test

Business process reengineering The philosophy that recommends the redesign of processes to fulfil defined external customer needs. Volume The level or rate of output from a process, a key characteristic that determines process behaviour. Variety The range of different products and services produced by a process, a key characteristic that determines process behaviour.
Key Terms Test

Systemization The extent to which standard procedures are made explicit. Standardization The degree to which processes, products or services are prevented from varying over time. Customer contact skills The skills and knowledge that operations staff need to meet customer expectations.
Key Terms Test

Front-office The high-visibility part of an operation. Back-office The low-visibility part of an operation.

Chapter 1 What Is Operations Management

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Chapter 1 What is operations management?

Operations management defined

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

Operations and process management 31

Benefits / actuarial 16 Corporate strategy 17

The operations function is fashionable!

Back office operation in a bank

Kitchen unit manufacturing operation

They are all operations

A general model of operations management

Materials Information Customers

Output products and services

Operations management at IKEA

Site stores of an appropriate size in the most effective locations

Continually examine and improve operations practice

Maintain cleanliness and safety of storage area

The three basic functions at Prt a Manger

Promotional activities, market research, etc.

All operations are transformation processes

that transform inputs

Output products and services

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

Acme Whistles Aluminium smelting

Pure products Outputs that are exclusively tangible

Specialist machine tool production Restaurant Information systems provider

Operations can be analyzed at three levels

The level of the supply network

Flow between processes

The level of the operation

The level of the process

Flow between operations

Flow between processes

Flow between resources

Promotion agency Programme / video maker

The programme and video supply network

Programme / video maker

The programme and video supply network

Programme / video maker

The programme and video supply network

The Set and props manufacturing process

Set construction Set design Set finishing

Flexible Complex Match customer needs High unit costs

Stable Routine Predictable High utilization Low unit costs

4 Vs profile of two operations

Volume Variety Variation Visibility

High Low Low Low

Product/service development function

Human resources function

Information technology (IT) function

Separate operations processes

Conventionally, organizational boundaries are drawn around functional processes

Customer needs fulfilled

Separate operations processes

Customer needs fulfilled

Marketing and Sales

Set and props manufacture

Finance and costing

Promotional and advertising contracts

Technical support contracts

Size of each micro operations continuation to each process

Customer needs fulfilled

Key Terms Test