Part One Introduction Chapter 1 Operations Management What is operations management? Slack et al.’s model of operations management What is operations management? Operations performance Topic covered in this chapter Operations strategy Direct Design Operations management Develop Deliver Figure 1.1 This chapter examines operations management. Key questions What is operations management? Why is operations management important in all types of organisations? What is the input-transformation-output process? What is the process hierarchy? How do operations processes have different characteristics? What do operations managers do? Operations management in practice: Woolworths driven by customers shopping experience Uniquely differentiated products to satisfy customer varying needs Site stores of an appropriate size in the most effective locations Maintain cleanliness and safety of bakery and storage area. Design a store layout which gives smooth and effective flow. Woolworths Arrange for fast replenishment of products. Ensure that the jobs of all staff encourage their contribution to business success. Continually examine and improve operations practice. Monitor and enhance quality of service to customers. Operations management in practice: Woolworths driven by customers shopping experience Product availability: This is achieved through efficient distribution systems and effective supply chain management that aim to ensure that customers always find the right product, at the right price, where and when they need it. Process design: The focus here is on arranging store layouts to provide a smooth, effective flow of customers while maximising their shopping experience, as well as what they purchase and how much they purchase. In-store experience: Because customers are the lifeblood of Woolworths’ success, the stores constantly strive to enhance customers’ in-store experience. Selling formats: Woolworths has developed uniquely differentiated selling formats to satisfy customers’ varying needs. These formats include: ● full-line stores that stock the complete Woolworths range (food, clothes, homeware, etc.) ● those with only clothing and home products and ● Woolworths Food stores that sell only Woolworths food. ● These formats are complemented by the Engen Food stops. They are open 24/7 and offer customers the convenience of quick-shop shopping for a limited Woolworths food range. ● An additional selling format is the Woolworths online channel that offers customers the convenience of online shopping backed by home deliveries. Financial services: In order to tie customers into the Woolworths’ brand, Woolworths has two financial cards that offer a variety of benefits. These are the Woolworths card (allows customers to buy on their Woolworths’ account) and the Woolworths Visa card, which functions as a conventional credit card, but provides customers with rewards when used in Woolworths stores. What is operations management? Operations management is the activity of managing the resources which are devoted to the production and delivery of products and services. It is: the transformation of input resources in terms of achievable outputs. Analysed: at three levels; the level of the supply network; the level of the operation itself (sometimes called the level of the organisation); and the level of individual processes. Differ in terms of: their volume, variety, variation and visibility (the four Vs). Engage: in a set of activities, devising operations strategy, designing operations, planning and controlling operations and improving operations. What is operations management? Summary Effective operation’s management means optimisation of resources keeping costs down, enhancing the potential to improve revenue, promote an appropriate allocation of capital resources. Most important, it is developing business capabilities in obtaining excellence, and performance whilst meeting future challenges to gain competitive advantage. Operations are everywhere 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 produced by an operation. Every service you consumed today (Gautrain, manufacturing, service, food, 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. The activities of core functions in some organisations Core functional activities • Operations • • Marketing and sales • • Product/service development Internet service provider (ISP) Fast food chain Maintain • hardware, software and • content Implement new • links and services Make burgers, etc. Serve customers Maintain equipment • Advertise on TV Devise promotional materials • Promote services to users and get registrations Sell advertising space • Devise new services and commission new information content • • • Furniture manufacturer International aid charity • Design • hamburgers, pizzas, etc. Design decor • for restaurants Give service to the beneficiaries of the charity • Develop funding contracts Mail out appeals for donations • Develop new appeals campaigns Design new assistance programmes • Table 1.1 The activities of core functions in some organisations • • • • Make components Assemble furniture Advertise in magazines Determine pricing policy Sell to stores Design new furniture Coordinate with fashionable colours Interfunctional relationships Technical function Process technology options Accounting and finance function Provision of relevant data Financial analysis for performance and decisions Communicating the capabilities and constraints of the operations process Process technology needs New product and service ideas Communicating the capabilities and constraints of the Operations operations process function Communicating human resource needs Core functions Human resources function Product/service development function Market requirements Communicating Systems for design, information planning and control Recruitment system needs and improvement development and training Information technology (IS) function Marketing function Support functions Figure 1.2 The relationship between the operations function and other core and support functions of the organisation Operations management is important in all types of organisations Hospitals Restaurants Public transport Other examples? The three basic functions of enterprises Product/service development Marketing Operations The three basic functions at Thandifrika Jewels Mechanical and aesthetic design of products and services Product/ Service Development Marketing Promotional activities, market research, etc. Operations Collection of processes interconnecting with each other to form a network. Arranging and optimising resources Design, location and management processes and the network that supplies them Operations in the organisation Operations is one of the three core functions of any organisation. These are: The operations function is central to the organisation because it creates and delivers services and products. • Marketing (includes sales of products and services) – keep the market informed of the organisations products and services ensuring customer interest • Service or product development – generates new and/or adapted services and products for the purpose of ensuring customer interest in the future • Operations – produces and delivers services and products based on customer interest Other core functions Finance Technical Human resources Information systems Operations Management uses resources to appropriately create outputs that fulfil defined market requirements Resources to appropriately create outputs that fulfil defined market requirements Experience people Effectively Produce Change Sell Ideas Match Potential perceived Citizens clients Dreams expectation Machines Efficiently Assemble Products Satisfy Current Customer Demands Knowledge Partners, etc. Creatively, etc. Move, cure, shape, etc. Services, etc. Exceed, delight, etc. Emerging real, etc. Society’s, etc. Needs Concerns, etc. Figure 1.3 Operations management uses resources to create outputs that fulfil defined market requirements. Changes in the business environment are shaping a new operations agenda The business environment is changing For example: Prompting operations responses For example: Increased cost-based competition Higher quality expectations Demand for better services Make choice and variety Globalisation of operations networking Information- based technologies Co-creation of service Internet-based integration of operations activities Rapidly changing technology Frequent new product / services introduction Environmental impacts are more transparent More legal regulation Greater security awareness Supply chain management Customer relationship management Flexible working patterns Mass customisation Fast time to market methods Lean process design Environmentally sensitive design Supplier partnership and development Failure analysis Business recover planning Table 1.2 Changes in the business environment are shaping a new operations agenda Operations input resources and outputs Transformed resources • Materials • Information • Customers Input resources Transformation process Output products and services Customers Transforming resources • Facilities • Staff Outputs are products and services that add value for customers. Figure 1.4 All operations are input–transformation–output processes. Predominantly processing inputs of materials Predominantly processing inputs of information Predominantly processing inputs of customers All manufacturing operations Accountants Hairdressers Mining companies Bank headquarters Hotels Retail operations Market research company Hospitals Warehouses Financial analysts Mass rapid transports Postal services News service Theatres Container shipping line University research unit Theme parks Trucking companies Telecoms company Dentists Table 1.3 Dominant transformed resource inputs of various operations Example – Spur Steak House Taste of life Calibre of employees Improved food quality Kids play centres Employee engagement Customer service Best quality ingredients The three basic functions at Spur Steak Ranches Nutritional and aesthetic design of food as per menu Product/ Service Development Marketing Promotional activities, market research, etc. Operations Design, location and management of stores and in-store processes and the network that supplies them Operations described in terms of their processes Operation Some of the operation’s inputs Some of the operation’s processes Some of the operation’s outputs Airline Aircraft Pilots and air crew Ground crew Passengers and freight Check passengers in Board passengers Fly passengers and freight around the world Care for passengers Transported passengers and freight Department store Products for sale Sales staff Information systems Customers Source and store products Display products Give sales advice Sell products Customers and products ‘assembled’ together. Police Police officers Computer systems Information systems Public (law-abiding and criminals) Crime prevention Crime detection Information gathering Detaining suspects Lawful society, public with a feeling of security Frozen food manufacturer Fresh food Operators Processing technology Cold storage facilities Source raw materials Prepare food Freeze food Pack and freeze food Frozen food Table 1.4 Some operations described in terms of their processes Operations management in all types of organisation Robot automation assembly factory – operations management uses machines to efficiently assemble products that satisfy current customer demands. Physician (General practitioner) – operations management uses knowledge to effectively diagnose conditions in order to treat real and perceived patient concerns. Management consultant – operations management uses people to effectively create the services that will address current and potential client needs. Disaster relief – operations management uses ours and our partners’ resources to speedily provide the supplies and services that relieve community suffering. Advertising agency – operations management uses our staff’s knowledge and experience to creatively present ideas that delight clients and address their real needs. Operations is changing – future The business environment is changing For example: Increased cost-based competition Prompting operations responses For example: Globalisation of operations networking Higher quality expectations Information-based technologies Demand for better services Co-creation of service Make choice and variety Internet-based integration of operations activities Rapidly changing technology Supply chain management Frequent new product / services introduction Customer relationship management Environmental impacts are more transparent Flexible working patterns More legal regulation Mass customisation Greater security awareness Fast time to market methods Lean process design Environmentally-sensitive design Supplier partnership and development Failure analysis Business recover planning Operations can be analysed 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 Figure 1.5 Operations and process management requires analysis at three levels: the supply network, the operation and the process. Example of analysis at three levels The supply network – flow between operations Promotion agency Studios Broadcasting company Casting agency Creative agency A programme and video supply network Programme/ video maker The operation – flow between processes The programme and video operation Figure 1.5 Operations and process management requires analysis at three levels: the supply network, the operation and the process (continued). Example of analysis at three levels (continued) The supply network – flow between operations Programme and video operation 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 Figure 1.5 Operations and process management requires analysis at three levels: the supply network, the operation and the process (continued). Example of analysis at three levels (continued) The supply network – flow between operations Programme and video maker The operation – flow between processes Set and props manufacture The ‘Set and props manufacturing’ process Set design Set construction Props acquisition Set finishing Figure 1.5 Operations and process management requires analysis at three levels: the supply network, the operation and the process (continued). Organisational function Some of its processes Outputs from its process Marketing and sales Planning process Forecasting process Order taking process Marketing plans Sales forecasts Confirmed orders Finance and accounting Budgeting process Capital approval processes Invoicing processes Payroll processes Recruitment processes Training processes Budgets Capital request evaluations Invoices Salary statements New hires Trained employees Systems review process Help desk process System implementation project processes System evaluation Advice Implemented working systems and aftercare Human resources management Information technology Table 1.5 Some examples of processes in non-operations functions Customer(s) for its output Senior management Sales staff, planners, operations Operations, finance Everyone Senior management, requesters External customers Employees All other processes All other processes All other processes All other processes All other processes Two ‘end-to-end’ business processes End-to-end process for programme production Engineering Programme marketing and sales Programme finance and accounting Programme production unit Programme and video maker Programme post production Programme set and props manufacture End-to-end process for music video production Music video marketing and sales Music video finance and accounting Music video set and props manufacture Music video production unit Music video post production Figure 1.6 The television and video company divided into two ‘end-to-end’ business processes, one dedicated to creating programmes and the other dedicated to creating music videos. The four Vs ... Implications • Low repetition • Each staff member performs more of each task • Less systemisation • 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 High High High Volume Variety Variation in demand Visibility Figure 1.7 A typology of operations Implications High High • • • • High repeatability Specialisation Capital intensive Low unit costs Low • • • • • Well defined Routine Standardised Regular Low unit costs Low • • • • • Stable Routine Predictable High utilisation Low unit costs Low • Time lag between production and consumption • Standardisation • Low contact skills • High staff utilisation • Centralisation • Low unit costs A four Vs analysis of two hotel operations Low Volume High High Variety Low High Variation Low High Visibility Low Luxury lodges Budget hotels It is important to understand how different operations are positioned on the 4 V’s. Is their position where they want to be? Do they understand the strategic implications of their position? Figure 1.9 The four Vs profiles of two very different hotel operations What do operations managers do? ● Direct the overall nature and strategy of the operation – need a general understanding of operations and processes, as well as their strategic purpose and performance. ● Design the operation’s services, products and processes – design is the activity of determining the physical form, shape and composition of operations and processes. ● Plan and control process delivery – delivery of services and products from suppliers after design through to customer delivery. ● Developing process performance – the responsibility to develop the capabilities of their processes to improve process performance. (See Chapters 18 to 21.) Slack et al’.s general model of operations management Transformed resources • Materials • Information • Customers Input resources Transforming resources • Facilities • Staff Direct Steering operations and processes Design Shaping processes, products and services Operations management Deliver Planning and controlling ongoing operations Figure 1.9 A general model of operations management Develop Improving the operation’s capabilities Output products and services Value added for customers Digicape – synergy rules in ICT delivery Chapter 1 ‘end-of-chapter’ case Questions 1. Identify the operations management challenges Project 3 and Digicape experienced when they decided to merge in 2010. 2. Draw a four Vs profile for Digicape’s products and services. 3. In which areas of operations do you think Digicape could improve? Provide reasons and briefly describe the recommendations you would make.?
