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Chapter 1

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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.?