operations management_lesson 1 2011

8/3/2019 Operations Management_lesson 1 2011

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OPERATIONS MANAGEMENT

LESSON 1


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Outcomes of Lesson 1

Chapter 1

After studying this chapter, you should be able to: Define operations management in an organisation of your choice

Define the similarities between all operations

Discuss how operations are different from each other

Discuss what operations managers do and why is it so important

Chapter 2 Discuss the role to be played by the operations function in achieving strategic

success

Discuss the performance objectives of operations and their internal and externalbenefits which are derived from excelling in each of them.

Chapter 3

Discuss what a strategy is

Discuss the difference between a top down and bottom up view of operationsstrategy.

Discuss the difference between a market requirements and an operationsresource view of operations strategy

Discuss how an operation strategy can be put together


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The operations function is fashionable!

The consultancy services market % of worldrevenues of 40 largest consultancy firms

Marketing / sales2

Operations and process

management31

Corporate strategy17

IT strategy17

Benefits / actuarial16

Organizationaldesign

11

Financial6


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They areall

operations

Back office operationin a bank

Kitchen unitmanufacturing

operation

Retail operation

Take-out / restaurantoperation


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2011 Pearson Education, Inc. publishing as Prentice Hall

What Is Operations Management?

Production is the creation of goods andservices

Operations management (OM) is the set ofactivities that create value in the form of goodsand services by transforming inputs into

outputs


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Operations management is the activity of

managing the resources which are devoted

to the production and delivery of products

and services.

Operations management defined


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quote

Offer productof good value at low costthat is convenient for the customer to buyand at the same time keeping a regular

contact with the customer and noting theirneeds, it is likely that both customer andorganisation will be satisfied.


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OPERATIONS MANAGEMENT

Definition Doing things that your customers want, at

an acceptable cost to the organisation

Operations mix Product Cost

Convenience of purchase

Customer service


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The best way to start understanding the nature ofoperations is to look around you

Everything you can see around you (except the flesh andblood) has been processedby an operation

Every service you consumed today (radio station, busservice, lecture, etc.) has also been producedby anoperation

Operations Managers createeverything you buy, sit on,wear, eat, throw at people, and throw away


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A general model ofoperationsmanagement

Transformedresources

MaterialsInformationCustomers

Transforming

resources

FacilitiesStaff

Customers

Outputproducts

andservices

Inputresources

Planningand

control

ImprovementDesign

Operationsstrategy

The operationsstrategic

objectives

The operationscompetitive role

and position

Operationsmanagement

Operationsstrategy


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Transformedresources

MaterialsInformationCustomers

Transformingresources

FacilitiesStaff

Customers

Outputproducts

andservices

Inputresources

Some inputs are transformed resources

Some inputs are transforming resources

Outputs are products and services that addvalue for customers

Transformation process

All operations are transformation processes


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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 process

Flow between resources


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Operations management isconcerned with the flow oftransformed resources between

operations, processes andtransforming resources, where

Flow between operations

Flow between processes

Flow between resources

Processes form an internalsupply network and becomeeach others customers andsuppliers

External operations interactwith internal processes to formthe external supply network


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Operations system

System entity composed of interdependentparts which contribute to the characteristics ofthe whole

Operations function consists of thoseactivities that produce the goods and services

Operating system composed of threesubsystems:

Conversion or transformation subsystem Support subsystem

Planning and control subsystem

Ozias Ncube


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Operating system

Planning, control

subsystem

Conversion or

Transformation

subsystem

Support

subsystem

External environment

information

inputs

Human effort

Materials

Capital

Information

energy

System status

information Plans, decisions, corrective actions

outputs

Products, services

internal environment

information

Demand of

output

Cost of inputs

Technological

trends

Govt regulations

Objectives

Strategies

Policies

Tangibility

Storability

Transportability

Simultaneity

Customer contact

quality

Ozias Ncube


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operating structures

Environment

(domain)

Time, Quality, Quantity

Raw materials

Labour

Information

money

Services

Products

Sales

distribution

Customer

care

Policies

Rules

Plans

targets

Operating structure

Project

Batch

continuous

Equipment, facilities, capital

Control

management inputs

transformation

outputs market

support


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Differences within sectors are often greater than thedifferences between sectors

Financial services

An accountmanagement centre ata large retail bank

Financial analystadvising a client at an

investment bank

Furniture manufacturing

Mass production ofkitchen units

Craft production ofreproduction

antique furniture

Hotels

Value-for-moneyhotel

Lobby of aninternationalluxury hotel


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A Typology of Operations

Variation indemand

High Low

VisibilityHigh Low

VarietyHigh Low

HighVolumeLow High


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A Typology of OperationsImplications Implications

Changing capacityAnticipationFlexibilityIn touch with demandHigh unit costs

StableRoutinePredictableHigh utilizationLow unit costs

Variation indemand

High Low

VisibilityHigh Low

Short waiting tolerance

Satisfaction governed bycustomer perceptionCustomer contact skillsneededReceived variety is highHigh unit costs

Time lag betweenproduction and

consumptionStandardizationLow contact skillsHigh staff utilizationCentralizationLow unit costs

FlexibleComplexMatch customer needsHigh unit costs

Well definedRoutineStandardizedRegularLow unit costs

VarietyHigh Low

High

Low repetitionEach staff memberperforms more of jobLess systemization

High unit costs

High repeatabilitySpecializationCapital intensiveLow unit costs

VolumeLow High


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Some interfunctional relationships between the operationsfunction and other core and support functions

Engineering/technicalfunction

Accountingand finance

function

Humanresourcesfunction

Informationtechnology(IT) function

Understanding of the

capabilities andconstraints of theoperations process

New product andservice ideas

Understanding of the

capabilities andconstraints of theoperations process

Marketrequirements

Financial analysisfor performanceand decisions

Provisionof relevant

data

Recruitmentdevelopmentand training

Understanding of humanresource needs

Analysis of newtechnology options Understanding of

process technologyneeds

Provision of systems fordesign, planning and

control, and improvement

Understandingof

infrastructuraland systemneeds

Marketingfunction

Product/service

developmentfunction

Operationsfunction


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Example of how each micro operation contributes

to the business processes which fulfil external needsSize of each micro operations

continuation to each process

Marketingand Sales

Set andprops

manufactureEngineering

Productionunits

Financeand

costing

Preparing quotations

Programme production

Technical support contracts

Music videos

Promotional and advertising contracts

Custom

erneeds

Customern

eedsfulfilled

Business

processes


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What is the role of the Operations function?Operations asimplementer

Operationsimplements strategy

Strategy

Operations

Operationsdrives strategy

Operationsas driver

Strategy

Operations

Operations supportsstrategy

Operationsassupporter

Strategy

Operations


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The 3 key attributes

of Operations

Operations contribution

Implementing Be dependableOperationalize strategy

Explain practicalities

Supporting Be appropriateUnderstand strategy

Contribute to decisions

Driving Be innovativeProvide foundation of strategy

Develop long-term capabilities

The strategic role of the Operations function


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Internallyneutral

STAGE 1Correct the

worstproblems

Holding theorganization back

The four-stage model of Operations contribution

Externallyneutral

As good as thecompetitors

STAGE 2

Adopt bestpractice

Internallysupportive

Clearly the best inthe industry

STAGE 3Link strategywith operations

Externallysupportive

Redefining industry

expectations

STAGE 4

Give anoperationsadvantage

Increasingstrategicimpact

Increasing operations capabilities


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Broad strategic objectives for an operationapplied to stakeholder groups

SocietyIncrease employment

Enhance community well-beingProduce sustainable productsEnsure clean environment

CustomersAppropriate product or

service specificationConsistent quality

Fast deliveryDependable deliveryAcceptable price

SuppliersContinue businessDevelop supplier

capability

Provide transparentinformation

ShareholdersEconomic value from

investmentEthical value frominvestment

EmployeesContinuous employmentFair payGood working conditionsPersonal development


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The Operations function can provide a competitive advantagethrough its performance at the five competitive objectives

Quality Being RIGHT

Speed Being FAST

Dependability Being ON TIME

Cost Being PRODUCTIVE

Being ABLE TO CHANGEFlexibility


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What do the terms quality, speed, dependability, flexibilityand cost mean in the context of operations?

Which enables you to do things cheaply (cost advantage)?

Which enables you to change what you do (flexibility advantage)?

Which enables you to do things quickly (speed advantage)?

Which enables you to do things on time (dependability advantage)?

Which enables you to do things right (quality advantage)?


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Minimum cost,maximum value

Minimum price, highest value

Fastthroughput

Quickdelivery

Reliableoperation

Dependabledelivery

Error-freeprocesses

Error-free

products andservices

Ability tochange

Frequent new

products, maximumchoice

The benefits of excelling

Dependability

Cost

Speed

Quality Flexibility


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Quality

Quality has several meanings. The two most common are

Quality as the specificationofa product or service

e.g. Lower Hurst Farmproduces organic meat raisedexclusively on its own farm

Quality as the conformancewith which the product orservice is produced

e.g. Quick-service restaurantslike McDonalds may buy less

expensive meat, but itsconformance must be high


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Quality

Irrespective of a product or services specification quality, producing it so it

conforms to its specification consistently brings benefits to any operation

Externally it enhances the product or service in the market, or at leastavoids customer complaints

Internally it brings other benefits to the operation:

It prevents errors slowing down throughput speed

It prevents errors causing internal unreliability and lowdependability

It prevents errors causing wasted time and effort, therefore savingcost


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Speed again has different interpretations, externally and internally

Externally it means the elapsed time between a customer asking for aproduct or service and getting it (in a satisfactory condition)

It often enhances the value of the product or service to customers


It helps to overcome internal problems by maintaining dependability

It reduces the need to manage transformed resources as they passthrough the operation, therefore saving cost

Speed


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Externally it enhances the product or service in the market, or at leastavoids customer complaints


It prevents late delivery slowing down throughput speed

It prevents lateness causing disruption and wasted time and effort,therefore saving cost

Dependability


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Flexibility has several distinct meanings but is always associated with an

operations ability to change

Change what ?

The products and services it brings to the marketProduct/service

flexibility

The mix of products and services it produces at any one timeMixflexibility

The volume of products and services it produces Volume flexibility

The delivery time of its products and services Delivery flexibility

Flexibility


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E t l d i t l b fit


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External and internal benefits

Depend-ability

FlexibilityQuality

Speed

Cost

Depend-ability

FlexibilityQuality

Cost

On-specificationproducts andservices

Short deliverylead-time

ReliabledeliverySpeed

Frequent new

products/servicesWide range

Volume and deliverychanges

Low price, highmargin, or both


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Polar diagrams

Polar diagrams are used to indicate the relativeimportance of each performance objective to anoperation or process

They can also be used to indicate the differencebetween different products and services produced by anoperation or process

E l


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Reassurance

Crime reduction

Crime detectionWorking withcriminal justiceagencies

Efficiency

Actualperformance

Required performance

Example: Polar diagrams for a proposed police performance method


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What is strategy?

Strategic decisionsmeans those decisions which

Are widespread in their effect on the organization towhich the strategy refers

Define the position of the organization relative to itsenvironment

Move the organization closer to its long-term goals.


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Operationsis not the same as operational

Operations are the resources that create products andservices

Operational is the opposite of strategic, meaning day-to-day and detailed

So, one can examine both the operational andthe

strategic aspects of operations


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Operations strategy is different from operations management

Example: capacity decisions

Time scaleShort-term

capacity decisions

112 months

Demand

Long-term

capacity decisions

1-10 years

Demand

Operations management Operations strategy

The four perspectives on operations strategy


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Top-downperspective

What the businesswants operationsto do

Operationsresources

perspective

What operationsresources can do

What day-to-dayexperience suggestsoperations should do

Bottom-upperspective

Marketrequirementperspective

What the marketposition requiresoperations to do

Operations

strategy

The four perspectives on operations strategy

Top down and bottom up perspectives of strategy


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Corporate strategy

Business strategy

Emergent sense of what thestrategy should be

Operational experience

Top-down and bottom-up perspectives of strategy

Operations strategy


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The strategy hierarchy

Key strategicdecisions

Influences ondecision making

Businessstrategy

What is the mission?

What are the strategicobjectives of the firm?

How to compete?

Customer/market dynamics

Competitor activityCore technology dynamicsFinancial constraints

Corporatestrategy

What business to be in?What to acquire?What to divest?How to allocate cash?

Economic environmentSocial environmentPolitical environmentCompany values and ethics

Functionalstrategy

How to contribute to thestrategic objectives?

How to manage thefunctions resources?

Skills of functions staffCurrent technologyRecent performance of the

function

The effects of the product/service life cycle on the


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The effects of the product/service life cycle on theorganization

Sa

les

volume

Introduction Growth Maturity Decline

Volume Slow growth in

sales

Rapid growth in

sales volume

Sales slow down

and level off

Market needs

largely met

Customers Innovators Early adopters Bulk of market Laggards

Competitors Few or none Increasingnumbers

Stable number Decliningnumbers

Variety ofproduct /

servicedesign

Possible highcustomization orfrequent designchanges

Increasinglystandardized Emergingdominant types Possible move tocommoditystandardization

Different competitive factors imply different performance


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Different competitive factors imply different performanceobjectives

Competitive factorsIf the customers value these ...

Performance objectivesThen, the operations will need to

excel at these ...Low price Cost

High quality Quality

Fast delivery Speed

Reliable delivery Dependability

Innovative products and services Flexibility (products and services)

Wide range of products and services Flexibility (mix)

Ability to change the timing or quantityof products and services Flexibility (volume and/or delivery)


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Intendedstrategy

Realizedstrategy

Deliberativestrategy

Mintzbergs concept of emergent strategy

Unrealizedstrategy

Emergentstrategy


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What youHAVE

in terms ofoperationscapabilities

What youNEED

to compete inthe market

Operationsresources

Marketrequirements

What youWANT

from youroperations to

help youcompete

What youDO

to maintainyour

capabilitiesand satisfy

markets

Strategicreconciliation


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the decisions which shape the long-

term capabilities ofthe companys

operations and their contribution to overall

strategy through the on-going

reconciliation of market requirements and

operations resources

Operations strategy is


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The challenge of operations strategy formulation

An operations strategy should be:

Appropriate ...

Comprehensive ...

Coherent ...

Consistent over time ...


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An implementation agenda is needed

When to start?

Where to start?

How fast to proceed?

How to coordinate the implementationprogramme?


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The five Ps of operations strategy implementation

Purpose a shared understanding of the motivation,

boundaries and context for developing the operationsstrategy

Point of entry the point in the organization where theprocess of implementation starts

Process how the operations strategy formulation processis made explicit

Project management the management of the

implementation

Participation who is involved in the implementation


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X

Cost efficiency

Variety

A

C

D

B

The efficient

frontier A

X C

D

Cost efficiency

Variety

B

The new efficient

frontier

B1

TRADE OFFS: The efficient frontier view

operations management_lesson 1 2011

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