PART ONE – Introduction Introduces the idea of the operations function in different types of organization. Identifies the common set of objectives to which operations managers aspire in order to serve their customers. Explains how operations can have an important strategic role. Chapter 1 Operations Management Chapter 2 Operations Performance Chapter 3 Operations Strategy CHAPTER 1 Operations Management What is Operations Management? Why is operations management important in all types of organization? What is the input–transformation–output process? What is the process hierarchy? How do operations processes have different characteristics? What do operations managers do? 1–1 What is Operations Management? “Operations management” (OM) - about how organizations produce products (goods & services) – everything you wear, eat, sit on, use or read – all have been produced. The people who supervised their production may not always be called operations managers. “Operations management” - the activity of managing the resources which are devoted to the production and delivery of goods & services. It is one of the core functions of any business. Every organization has an operations function because every organization produces some type of goods and/or services. “Operations managers” – the people who responsible for managing some, or all, of the sources which compose the operations function. In some organizations, the operations manager could be called by some other names; e.g. ‘fleet manager’ in a distribution company, ‘administrative manager’ in a hospital, or ‘store manager’ in a supermarket, etc. 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 The operations function is fashionable! Benefits / actuarial 16 IT strategy 17 Corporate strategy 17 1–2 What is Operations Management? 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 Continually examine and improve operations practice Site stores of an appropriate size in the most effective locations Monitor and enhance quality of service to customers Maintain cleanliness and safety of storage area Arrange for fast replenishment of products Operations function is central to the organization because it produces goods and/or services with reasons for existing. Three core functions of any organization: 1. marketing (including sales) function – responsible for communicating the organization’s products to its markets to generate customer requests; 2. product development function – responsible for coming up with new and modified products in order to generate future customer requests; 3. operations function – responsible for the creation and delivery of products based on customer requests. All organizations have a fundamental need to sell their products, meet customer requests for products, and come up with new products to satisfy customers in the future. In practice, there is not always a clear division between the three core functions – leads to some confusion where the boundaries of the operations function should be drawn. Operations function comprises all activities necessary for the day-to-day fulfilment of customer requests. This includes sourcing goods/ services from suppliers & transporting goods/services to customers. Working effectively with the other parts of the organization is one of the most important responsibilities of Operations Managers. 1–3 The Importance of Operations Management In some types of organization, it is relatively easy to visualize the operations function and what it does; e.g., automobile assembly. Any business that produces something, tangible or not, must use resources to do so, and must have an operations activity. Not-for-profit organizations also use their resources to produce services, not to make a profit, but to serve society in some way. Examples of what OM does in five very different organizations: Automobile assembly factory – OM uses machines to efficiently assemble products that satisfy current customer demands. Physician (general practitioner) – OM uses knowledge to effectively diagnose conditions in order to treat real and perceived patient concerns. Management consultant – OM uses people to effectively create the services that will address current and potential client needs. Disaster relief charity – OM uses our and our partners’ resources to speedily provide the supplies and services that relieve community suffering. Advertising agency – OM uses our staff’s knowledge and experience to creatively present ideas that delight clients and address their real needs. Whatever terminology is used, there is a common theme and purpose to how we can visualize the operations activity in any organization. Although the essential nature and purpose of OM is the same in every organization, there are some special issues to consider, particularly in smaller organizations. OM in the Smaller Organizations OM is just as important in small organizations as it is in large ones. In practice, managing operations in a small or medium-size organization has its own set of problems. An informal structure can allow the company to respond quickly as opportunities or problems present themselves. Small companies may have exactly the same OM issues as large ones but they can be more difficult to separate from the mass of other issues in the organization. However, small operations can also have significant advantages; they can maintain their philosophy of quality amongst everybody in the company - can react very quickly when the market demands it; because they are small, they all know each other and they all want to contribute something to the company. 1–4 The Importance of Operations Management OM in Not-For-Profit Organizations Terms such as competitive advantage, markets and business are usually associated with companies in the for-profit sector. OM is also relevant to organizations whose purpose is not primarily to earn profits. Operations have to take the same decisions. The strategic objectives of not-for-profit organizations may be more complex and involve a mixture of political, economic, social and environmental objectives. The New Operations Agenda The business environment has a significant impact on what is expected from OM. In recent years there have been new pressures for which the operations function has needed to develop responses. Table below lists some of these business pressures and the operations responses to them. These operations responses form a major part of a new agenda for operations. Parts of this agenda are trends which have always existed but have accelerated such as globalization and increased cost pressures. Part of the agenda seeking ways to exploit new technologies, most notably the Internet. The list in the table is not comprehensive, but very few businesses will be unaffected by at least some of these concerns. When businesses have to cope with a more challenging environment, they look to their operations function to help them respond. 1–5 Transformation Process All operations produce goods and/or services by changing inputs into outputs using an input-transformation-output process. Operations are processes that take in a set of input resources which are used to transform something, or are transformed themselves, into outputs (goods/services). Although all operations conform to this general input–transformation–output model, they differ in the nature of their specific inputs and outputs. What is inside each operation will also be different. Inputs to the Process Inputs are transformed resources (treated, transformed or converted). They are usually a mixture of materials, information, and customers. The other inputs are transforming resources. There are two types (the ‘building blocks’ of all operations); facilities & staff. The exact nature of both facilities & staff will differ between operations. The balance between facilities & staff also varies. Outputs from the Process Although goods and services are different, the distinction can be subtle; the most obvious difference is in their respective tangibility. Goods are usually tangible; services are usually intangible. Goods can usually be stored. The life of a service is much shorter. Most operations produce both goods and services. Some operations produce just goods and others just services. Pure services produce no goods. Services and goods are merging. The distinction between services and goods is difficult to define and not particularly useful. ICTs are overcoming some of the consequences of the intangibility of services. 1–6 The Processes Hierarchy We have discussed Operations Management, and the input–transformation–output model, at the level of ‘the operation’. All operations consist of a collection of processes interconnecting with each other to form a network. Each process acts as a smaller version of the whole operation, and transformed resources flow between them. A process is ‘an arrangement of resources that produce some mixture of goods and services’. Each process is an internal supplier & an internal customer for other processes. By treating internal customers with the same degree of care as external customers, the effectiveness of the whole operation can be improved. Within each of these processes is another network of individual units of resource such as people and items of process technology. Transformed resources flow between each unit of transforming resource. Any operation can itself be viewed as part of a greater network of operations. Any operation could have several suppliers & customers and may be in competition with other operations producing similar products. We have used the idea to analyse businesses at three levels; process, operation and supply network. This is called the hierarchy of operations. At a more macro level, the business itself is part of a whole supply network. At a more micro level within this overall operation there are many individual processes. 1–7 Characteristics of Operations Process All operations processes are similar (all transform inputs); however, they differ in a number of ways, four of which, known as the 4 Vs, are important: The VOLUME of their output. McDonald’s serves millions of burgers around the world every day. Volume has important implications for the way McDonald’s operations are organized. The VARIETY of their output. A taxi company offers a high-variety service (pick you up from and drop you off almost anywhere) – relatively flexible. The VARIATION in the demand for their output. The demand pattern for a successful summer holiday resort hotel. The hotel must try to predict the likely level of demand. A hotel with relatively level demand can plan its activities in advance. The degree of VISIBILITY which customers have of the production of their output. Visibility refers to how much of the operation’s activities its customers experience, or how much the operation is exposed to its customers. All 4Vs have implications for the cost of creating the goods or services. High volume, low variety, low variation and low customer contact all help to keep processing costs down. 1–8 Characteristics of Operations Process The different positions on the dimensions of the Formule 1 hotel chain and the Anantara Bangkok Riverside Resort & Spa. Both provide the same basic service as any other hotel. However, one is a luxurious and intimate hotel whose customers tend to stay for relatively long periods. Its variety of services is almost infinite in the sense that customers can make individual requests in terms of food and entertainment. Variation is high with many customers avoiding the rainy season. Customer contact, and therefore visibility, is also very high (in order to ascertain customers’ requirements and provide for them). All of which is very different from the Formule 1 branded hotels, whose customers usually stay one night, where the variety of services is strictly limited, and business and holiday customers use the hotel at different times, which limits variation. Most notably, though, customer contact is kept to a minimum. The Anantara resort hotel has very high levels of service but provides them at a high cost (and therefore a high price). Conversely, Formule 1 has arranged its operation in such a way as to provide a highly standardized service at minimal cost. What Do Operations Managers Do? Directing the overall nature and strategy of the operation. A general understanding of operations and processes and their strategic purpose and performance, together with an appreciation of how strategic purpose is translated into reality, is a prerequisite to the detailed design of operations and process. This is treated in Chapters 1 to 3. Designing the operation’s products and processes. Design is the activity of determining the physical form, shape and composition of operations and processes together with the products that they create. This is treated in Chapters 4 to 9. Planning and control process delivery. After being designed, the delivery of products from suppliers and through the total operation to customers must be planned and controlled. This is treated in Chapters 10 to 17. Developing process performance. Increasingly it is recognized that operations managers, or indeed any process managers, cannot simply routinely deliver products in the same way that they always have done. They have a responsibility to develop the capabilities of their processes to improve process performance. This is treated in Chapters 18 to 21. 1–9 What Do Operations Managers Do? A general model of operations management 1 – 10