What is operation management

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?
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
The people who supervised their production may not always be called operations
“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.
services market
– % of world
revenues of 40
Marketing /
Operations and
process management
function is
Benefits /
IT strategy
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
Working effectively with the other parts of the organization is one of the most important
responsibilities of Operations Managers.
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
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.
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
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
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.
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
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.
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
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.
What Do Operations Managers Do?
A general model of operations management
1 – 10
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