intro to om part 1 - honor &...

INTRO TO OMPART 1

AMAT 167

OM

• Three core functions of an organization:– product/service development

– operations

– marketing

• Suppport functions of an org:– accounting and finance

– human resources

– technical and information systems

OM

• Operations: production and delivery of products and/or services.

– includes sourcing products and services from suppliers and transporting products and services to customers

• Operations management: managing the processes and the resources which produce and deliver products and services.

Operations management in the smaller organization

Operations management is just as important in small organizations as it is in large ones.Irrespective of their size, all companies need to produce and deliver their products and services efficiently and effectively. However, in practice, managing operations in a small ormedium-size organization has its own set of problems. Large companies may have the resourcesto dedicate individuals to specialized tasks but smaller companies often cannot, so peoplemay have to do different jobs as the need arises. Such an informal structure can allow thecompany to respond quickly as opportunities or problems present themselves. But decisionmaking can also become confused as individuals’ roles overlap. Small companies may haveexactly the same operations management issues as large ones but they can be more difficultto separate from the mass of other issues in the organization. However, small operations canalso have significant advantages; the short case on Acme Whistles illustrates this.

Part One Introduction8

Figure 1.2 Operations management uses resources to appropriately create outputs that fulfil defined marketrequirements

Acme Whistles can trace its history back to 1870 whenJoseph Hudson decided he had the answer to theLondon Metropolitan Police’s request for something toreplace the wooden rattles that were used to sound the alarm. So the world’s first police whistle was born.Soon Acme grew to be the premier supplier of whistlesfor police forces around the world. ‘In many ways’, saysSimon Topman, owner and Managing Director of thecompany, ‘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, butmany of our products are similar to their predecessors.For example, football referees seem to prefer thetraditional snail-shaped whistle. So, although we havedramatically improved the performance of the product,our customers want it to look the same. We have also

Short caseAcme Whistles2

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The role of operationsmanagement in smallerorganizations oftenoverlaps significantlywith other functions

M01_SLAC0460_06_SE_C01.QXD 10/20/09 9:07 Page 8

Figure 1.1 The relationship between the operations function and other core and support functions of theorganization


Operations management is important in all types of organization

In some types of organization it is relatively easy to visualize the operations function andwhat it does, even if we have never seen it. For example, most people have seen images ofautomobile assembly. But what about an advertising agency? We know vaguely what they do – they produce the advertisements that we see in magazines and on television – but whatis their operations function? The clue lies in the word ‘produce’. Any business that pro-duces something, whether tangible or not, must use resources to do so, and so must have an operations activity. Also the automobile plant and the advertising agency do have oneimportant element in common: both have a higher objective – to make a profit from pro-ducing their products or services. Yet not-for-profit organizations also use their resources toproduce services, not to make a profit, but to serve society in some way. Look at the follow-ing examples of what operations management does in five very different organizations andsome common themes emerge.


INPUT–TRANSFORMATION–OUTPUT (I-T-O) PROCESS

Chapter 1 Operations management 11

Table 1.2 Changes in the business environment are shaping a new operations agenda

Prompting operations responses . . .

For example,

• Globalization of operations networking

• Information-based technologies

• Internet-based integration of operationsactivities

• Supply chain management

• Customer relationship management

• Flexible working patterns

• Mass customization

• Fast time-to-market methods

• Lean process design

• Environmentally sensitive design

• Supplier ‘partnership’ and development

• Failure analysis

• Business recovery planning

The business environment is changing . . .

For example,

• Increased cost-based competition

• Higher quality expectations

• Demands for better service

• More choice and variety

• Rapidly developing technologies

• Frequent new product/serviceintroduction

• Increased ethical sensitivity

• Environmental impacts are moretransparent

• More legal regulation

• Greater security awareness

➡

Figure 1.3 All operations are input–transformation–output processes

The input–transformation–output process

All operations produce products and services by changing inputs into outputs using an‘input-transformation-output’ process. Figure 1.3 shows this general transformation processmodel. Put simply, operations are processes that take in a set of input resources which areused to transform something, or are transformed themselves, into outputs of products andservices. And although all operations conform to this general input–transformation–outputmodel, they differ in the nature of their specific inputs and outputs. For example, if you stand far enough away from a hospital or a car plant, they might look very similar, but movecloser and clear differences do start to emerge. One is a manufacturing operation producing‘products’, and the other is a service operation producing ‘services’ that change the physio-logical or psychological condition of patients. What is inside each operation will also be

Transformation processmodelInput resourcesOutputs of goods andservices


TYPOLOGY

on one (physical) site, whereas the ‘bricks and mortar’ shop needs many shops close to centres of demand. Therefore, the low-visibility web-based operation will have lower coststhan the shop.

Mixed high- and low-visibility processes

Some operations have both high- and low-visibility processes within the same operation. In an airport, for example: some activities are totally ‘visible’ to its customers such as information desks answering people’s queries. These staff operate in what is termed a front-office environment. Other parts of the airport have little, if any, customer ‘visibility’,such as the baggage handlers. These rarely-seen staff perform the vital but low-contact tasks,in the back-office part of the operation.

The implications of the four Vs of operations processes

All four dimensions have implications for the cost of creating the products or services. Put simply, high volume, low variety, low variation and low customer contact all help to keep processing costs down. Conversely, low volume, high variety, high variation and highcustomer contact generally carry some kind of cost penalty for the operation. This is why the volume dimension is drawn with its ‘low’ end at the left, unlike the other dimensions, tokeep all the ‘low cost’ implications on the right. To some extent the position of an operationin the four dimensions is determined by the demand of the market it is serving. However,most operations have some discretion in moving themselves on the dimensions. Figure 1.7summarizes the implications of such positioning.


Figure 1.7 A typology of operations

Front office

Back office

‘Four Vs’ analysis ofprocesses


HIERARCHY OF OPERATIONS

STAKEHOLDERS

expect of the operations function. Finally, we look at a common set of more detailed operationsperformance objectives.

The ‘stakeholder’ perspective on operations performance

All operations have a stakeholders. Stakeholders are the people and groups that have a legitimate interest in the operation’s activities. Some stakeholders are internal, for examplethe operation’s employees; others are external, for example customers, society or communitygroups, and a company’s shareholders. Some external stakeholders have a direct commer-cial relationship with the organization, for example suppliers and customers; others do not, for example, industry regulators. In not-for-profit operations, these stakeholder groups canoverlap. So, voluntary workers in a charity may be employees, shareholders and customersall at once. However, in any kind of organization, it is a responsibility of the operations function to understand the (sometimes conflicting) objectives of its stakeholders and set itsobjectives accordingly.

Figure 2.3 illustrates just some of the stakeholder groups that would have an interest in how an organization’s operations function performs. But although each of these groups, to different extents, will be interested in operations performance, they are likely to have verydifferent views of which aspect of performance is important. Table 2.3 identifies typicalstakeholder requirements. But stakeholder relationships are not just one-way. It is also use-ful to consider what an individual organization or business wants of the stakeholder groupsthemselves. Some of these requirements are also illustrated in Table 2.3.

Corporate social responsibility (CSR)

Strongly related to the stakeholder perspective of operations performance is that of corporatesocial responsibility (generally known as CSR). According to the UK government’s definition,‘CSR is essentially about how business takes account of its economic, social and environmentalimpacts in the way it operates – maximizing the benefits and minimizing the downsides. . . .Specifically, we see CSR as the voluntary actions that business can take, over and above compliancewith minimum legal requirements, to address both its own competitive interests and the interestsof wider society.’ A more direct link with the stakeholder concept is to be found in the defini-tion used by Marks and Spencer, the UK-based retailer. ‘Corporate Social Responsibility . . . islistening and responding to the needs of a company’s stakeholders. This includes the require-ments of sustainable development. We believe that building good relationships with employees,suppliers and wider society is the best guarantee of long-term success. This is the backbone of ourapproach to CSR.’

The issue of how broader social performance objectives can be included in operationsmanagement’s activities is of increasing importance, from both an ethical and a commercialpoint of view. It is treated again at various points throughout this book, and the final chap-ter (Chapter 21) is devoted entirely to the topic.

Operations may attemptto satisfy a wide range of stakeholders

Chapter 2 Operations performance 37

Figure 2.3 Stakeholder groups with a ‘legitimate interest in the operation’s activities’


CHALLENGE

organizations require INNOVATION

from operations managers

INTRO TO OMPART 2

AMAT 167

http://www.grossmont.edu/college-info/planning/images/PIE%20graphic.jpg

THE PIE OF MANAGEMENT

http://www.cognology.com.au/wp-content/uploads/2014/09/SmartGoals.jpg

Goals dictate theKey Performance Indicators(KPIs)

STRATEGOS

Chapter 3 Operations strategy 65

Figure 3.3 The four perspectives on operations strategy

Perspectives on operations strategy

Different authors have slightly different views and definitions of operations strategy. Betweenthem, four ‘perspectives’ emerge:3

● Operation strategy is a top-down reflection of what the whole group or business wants to do.● Operations strategy is a bottom-up activity where operations improvements cumulatively

build strategy.● Operations strategy involves translating market requirements into operations decisions.● Operations strategy involves exploiting the capabilities of operations resources in chosen

markets.

None of these four perspectives alone gives the full picture of what operations strategy is. Buttogether they provide some idea of the pressures which go to form the content of operationsstrategy. We will treat each in turn (see Figure 3.3).

The ‘top-down’ and ‘bottom-up’ perspectives

Top-down strategies

A large corporation will need a strategy to position itself in its global, economic, political and social environment. This will consist of decisions about what types of business the groupwants to be in, what parts of the world it wants to operate in, how to allocate its cash betweenits various businesses, and so on. Decisions such as these form the corporate strategy of thecorporation. Each business unit within the corporate group will also need to put together its own business strategy which sets out its individual mission and objectives. This businessstrategy guides the business in relation to its customers, markets and competitors, and also the

Top-downBottom-up

Market requirementsOperations resourcecapabilities

Corporate strategy

Business strategy


BASIC PERFORMANCE OBJECTIVES FOR OPERATIONS

•Quality Advantage•Speed Advantage•Dependability Advantage•Flexibility Advantage•Cost Advantage

These objectives affects cost and profit

EXAMPLE

The polar representation of performance objectives

A useful way of representing the relative importance of performance objectives for a productor service is shown in Figure 2.11(a). This is called the polar representation because the scales which represent the importance of each performance objective have the same origin.A line describes the relative importance of each performance objective. The closer the line isto the common origin, the less important is the performance objective to the operation. Two


Because demand varies through the year, sometimes staff have to work overtime.Currently the overtime wage bill for the year is a150,000. The company’s employees have indicated that they would be willing to adopt a flexible working scheme where extra hours could be worked when necessary in exchange for having the hours off at aless busy time and receiving some kind of extra payment. This extra payment is likely to total a50,000 per year.

If the company dispatches 5 million items every year and if the cost of holding inventory is 10 per cent of its value, how much cost will each of these suggestions savethe company?

Analysis

Eliminating mis-packing would result in an improvement in quality. 0.25 per cent of 5 million items are mis-packed currently. This amounts to 12,500 items per year. At a2 repacking charge per item, this is a cost of a25,000 that would be saved.

Getting faster delivery from suppliers helps reduce the amount of inventory in stockby a1,000,000. If the company is paying 10 per cent of the value of stock for keeping itin storage the saving will be a1,000,000 × 0.1 = a100,000.

Ensuring that all orders are dispatched by the end of the day increases the depend-ability of the company’s operations. Currently, 1 per cent are late, in other words, 50,000items per year. This is costing a2 × 50,000 = a100,000 per year which would be saved byincreasing dependability.

Changing to a flexible working hours system increases the flexibility of the operationand would cost a50,000 per year, but it saves a150,000 per year. Therefore, increasingflexibility could save a100,000 per year.

So, in total, by improving the operation’s quality, speed, dependability and flexibility,a total of a325,000 can be saved.

Figure 2.11 Polar representations of (a) the relative importance of performance objectives fora taxi service and a bus service, and (b) a police force targets and performance

Polar representation


MEASURES

MEASURESA health-check clinic has five employees and services 200 patients per week. Each employee works 35 hours per week. The clinic’s total wage bill is PhP 234,000 and its total overhead expenses are PhP 120,000 per week.

𝐿𝑎𝑏𝑜𝑟𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦

=2005

= 40 Patients/Employee/Week


𝐿𝑎𝑏𝑜𝑟𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦

=2005(35)

≈ 1.14 Patients/Labor hour


𝑀𝑢𝑙𝑡𝑖 − 𝑓𝑎𝑐𝑡𝑜𝑟𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦

=200

234 + 120≈ 0.56 Patients/Thousand pesosapprox one patient per 2k pesos

MEASURES

How to improve productivity?

MEASURES

Relation to efficiency

𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 =𝑢𝑠𝑒𝑓𝑢𝑙𝑜𝑢𝑡𝑝𝑢𝑡𝑡𝑜𝑡𝑎𝑙𝑖𝑛𝑝𝑢𝑡

=𝑡𝑜𝑡𝑎𝑙𝑜𝑢𝑡𝑝𝑢𝑡 − 𝑑𝑒𝑓𝑒𝑐𝑡𝑖𝑣𝑒𝑜𝑢𝑡𝑝𝑢𝑡

𝑡𝑜𝑡𝑎𝑙𝑖𝑛𝑝𝑢𝑡

Measures how much input is conserved in a process

THERE IS NO SUCH THING AS A FREE LUNCH

Bene

fit

Cost efficiency

THERE IS NO SUCH THING AS A FREE LUNCH

Bene

fit

Bene

fitCost efficiency Cost efficiency

OTHER IDEAS FOR INCREASING COMPETITIVENESS

Top management’s performance objectives for operations

Of all stakeholder groups, it is the organization’s top management who can have the mostimmediate impact on its performance. They represent the interests of the owners (or trustees,or electorate, etc.) and therefore are the direct custodians of the organization’s basic purpose.They also have responsibility for translating the broad objectives of the organization into amore tangible form. So what should they expect from their operations function? Broadly theyshould expect all their operations managers to contribute to the success of the organizationby using its resources effectively. To do this it must be creative, innovative and energetic inimproving its processes, products and services. In more detail, effective operations manage-ment can give five types of advantage to the business (see Figure 2.4):

● It can reduce the costs of producing products and services, and being efficient.● It can achieve customer satisfaction through good quality and service.● It can reduce the risk of operational failure, because well designed and well run operations

should be less likely to fail, and if they do they should be able to recover faster and withless disruption (this is called resilience).

● It can reduce the amount of investment (sometimes called capital employed) that is neces-sary 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 physicalresources.

● It can provide the basis for future innovation by learning from its experience of operatingits processes, so building a solid base of operations skills, knowledge and capability withinthe business.

The five operations performance objectives

Broad stakeholder objectives form the backdrop to operations decision-making, and topmanagement’s objectives provide a strategic framework, but running operations at an operational day-to-day level requires a more tightly defined set of objectives. These are thefive basic ‘performance objectives’ and they apply to all types of operation. Imagine that you


Figure 2.4 Operations can contribute to competitiveness through low costs, high levels ofservice (securing revenue), lower operational risk, lower capital requirements, and providingthe capabilities that determine future innovation

Operations can have asignificant impact onstrategic success

Operations managementcan reduce costsOperations managementcan increase revenueOperations managementcan reduce riskOperations managementcan reduce the need forinvestment

Operations managementcan enhance innovation

Five basic ‘performanceobjectives’


P&CIN OM

A M AT 1 6 7

PLANNING AND CONTROL IN OM

provide the systems, procedures and decisions which reconcile supply (what the operation’s resources can deliver) and demand (what market requires).

PLANNING AND CONTROL IN OM

•Planning concerns what should happen in the future•Control copes with changes (intervention)

the hospital might plan to have 100 nurses and 20 doctors but again without deciding on the specific attributes of the staff. Operations managers will be concerned mainly to achievefinancial targets. Budgets will be put in place which identify its costs and revenue targets.

Medium-term planning and control is more detailed. It looks ahead to assess the overalldemand which the operation must meet in a partially disaggregated manner. By this time, for example, the hospital must distinguish between different types of demand. The numberof patients coming as accident and emergency cases will need to be distinguished from thoserequiring routine operations. Similarly, different categories of staff will have been identifiedand broad staffing levels in each category set. Just as important, contingencies will have beenput in place which allow for slight deviations from the plans. These contingencies will act as‘reserve’ resources and make planning and control easier in the short term.

In short-term planning and control, many of the resources will have been set and it willbe difficult to make large changes. However, short-term interventions are possible if thingsare not going to plan. By this time, demand will be assessed on a totally disaggregated basis,with all types of surgical procedures treated as individual activities. More importantly, indi-vidual patients will have been identified by name, and specific time slots booked for theirtreatment. In making short-term interventions and changes to the plan, operations managerswill be attempting to balance the quality, speed, dependability, flexibility and costs of theiroperation on an ad hoc basis. It is unlikely that they will have the time to carry out detailedcalculations of the effects of their short-term planning and control decisions on all theseobjectives, but a general understanding of priorities will form the background to their deci-sion making. Figure 10.2 shows how the control aspects of planning and control increase insignificance closer to the date of the event.

Chapter 10 The nature of planning and control 271

Figure 10.2 The balance between planning and control activities changes in the long,medium and short term


RESPONDING TO DEMAND• D: length of time

customers have to wait between asking for the product or service and receiving it

• P: the total throughput time

Chapter 10 The nature of planning and control 277

Figure 10.4 P and D for the different types of planning and control

eliminated because everything is made to a firm order (although bad forecasting will lead to other problems). Reducing the P:D ratio becomes, in effect, a way of taking some of therisk out of operations planning and control.

Planning and control activities

Planning and control requires the reconciliation of supply and demand in terms of volumes,timing and quality. In this chapter we will focus on an overview of the activities that plan andcontrol volume and timing (most of this part of the book is concerned with these issues).There are four overlapping activities: loading, sequencing, scheduling, and monitoring andcontrol (see Fig. 10.5). Some caution is needed when using these terms. Different organizationsmay use them in different ways, and even textbooks in the area adopt different definitions. Forexample, some authorities describe what we have called ‘planning and control’ as ‘operationsscheduling’. However, the terminology of planning and control is less important than under-standing the basic ideas described in the remainder of this chapter.

Loading

Loading is the amount of work that is allocated to a work centre. For example, a machine onthe shop floor of a manufacturing business is available, in theory, 168 hours a week. How-ever, this does not necessarily mean that 168 hours of work can be loaded onto that machine.Figure 10.6 shows what erodes this available time. For some periods the machine cannot beworked; for example, it may not be available on statutory holidays and weekends. Therefore,the load put onto the machine must take this into account. Of the time that the machine is

Loading


P & C ACTIVITIES

available for work, other losses further reduce the available time. For example, time may belost while changing over from making one component to another. If the machine breaksdown, it will not be available. If there is machine reliability data available, this must also betaken into account. Sometimes the machine may be waiting for parts to arrive or be ‘idling’for some other reason. Other losses could include an allowance for the machine being runbelow its optimum speed (for example, because it has not been maintained properly) and anallowance for the ‘quality losses’ or defects which the machine may produce. Of course, manyof these losses (shown in Figure 10.6) should be small or non-existent in a well-managedoperation. However, the valuable operating time available for productive working, even inthe best operations, can be significantly below the maximum time available. This idea is takenfurther in Chapter 11 when we discuss the measurement of capacity.

Finite and infinite loading

Finite loading is an approach which only allocates work to a work centre (a person, a machine,or perhaps a group of people or machines) up to a set limit. This limit is the estimate ofcapacity for the work centre (based on the times available for loading). Work over and abovethis capacity is not accepted. Figure 10.7 first shows how the load on the work centres is notallowed to exceed the capacity limit. Finite loading is particularly relevant for operationswhere:

● it is possible to limit the load – for example, it is possible to run an appointment system fora general medical practice or a hairdresser;

Part Three Planning and control278

Figure 10.5 Planning and control activities

Figure 10.6 The reduction in the time available for valuable operating time

Valuable operating time

Finite loading


TO KNOW MORE ABOUT OM, YOU CAN READ

sixth edition

Nigel SlackStuart ChambersRobert Johnston

OPERATIONS MANAGEMENT

Front cover image: © Getty Images

OP

ER

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NS

MA

NA

GE

ME

NT

sixthedition

Slack

Chambers

Johnston

Operations management is important, exciting, challenging … and everywhere you look!

Operations management is critical to the success of all organisations, no matter how large or small. It enables them to provide services and products that we all need; it is central to changes in customer preference, networks of supply and demand, and developments in technology; and its responsibilities are fi nancial and logistical, social and environmental. Whether at work or at home, we all experience and manage processes and operations ...

www.pearson-books.com

So, let the ‘grand master’ authors of Operations Management paint a vivid picture of what you need to know in this digitally-enhanced 6th edition of the market-leading text.

Benefi t from an unmatched clarity on areas such as:

Focus on the sustainable and socially responsible imperatives of operations management

Over 120 cases and illustrations of real-life operations, from fast fashion at Zara and technology subcontracting in China to European agriculture and safari tours in Tanzania

Greater emphasis on ‘process management’, making the discipline directly relevant to all areas of an organisation’s activity

Worked examples to give you confi dence in applying quantitative and qualitative problem-solving techniques

And get exclusive access to online resources in MyOMLab which will enable you to check your understanding, apply knowledge and techniques, and prepare for exams and assessments – all in your own time and at your own pace.

Just visit www.myomlab.com and register using the access code included with this book.

ACCESSCODE INSIDE

unlock valuableonline learning

resources

CVR_SLAC0460_06_SE_CVR.indd 1 20/10/09 09:38:10

Unless otherwise stated, the figures in the slides are from

Slack N., Chambers S. & Johnston R. 2010. Operations Management, 6th ed. Essex: Financial Times Prentice Hall.

intro to om part 1 - honor &...

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