Exam prep
Table of Contents
Chapter 1 Operations Management .................................................................................. 1
1.1 What is operations management ........................................................................................ 1
Operations in the organisation ...................................................................................................................... 3
1.2 Why is operations management important in all types of organisations? ............................. 4
Operations management in the smaller organisation ................................................................................... 5
Operations management in not-for-profit organisations .............................................................................. 5
1.3 What is the input–transformation–output process?............................................................. 6
1.4 What is the process hierarchy?............................................................................................ 9
1.5 How do operations (and processes) differ? ........................................................................ 10
1.6 What do operations managers do?.................................................................................... 12
Chapter 2 Operations Performance ................................................................................. 14
2.1 Why is operations performance vital in any organisation? ................................................. 14
2.2 How is operations performance judged at a societal level? ................................................ 16
2.3 How is operations performance judged at a strategic level? ............................................... 17
2.4 How is operations performance judged at an operational level? ........................................ 18
Why is speed important? ............................................................................................................................ 20
Why is dependability important? ................................................................................................................ 22
Why is flexibility important? ....................................................................................................................... 23
Why is cost important? ............................................................................................................................... 25
The polar representation of performance objectives ................................................................................. 26
2.5 How can operations performance be measured? ............................................................... 27
2.6 How do operations performance objectives trade off against each other? .......................... 28
Chapter 3 Operations Strategy ........................................................................................ 29
3.1 What is strategy and what is operations strategy? ............................................................. 29
Mid-term class 1-6 chapter 1-11
 Part 1  5 points (duration 10 min)
 Part 2  15 points (duration 80 min)
Chapter 1 Operations Management
1.1 What is operations management
Definition of Operations Management:
 Operations management involves managing resources to create and deliver services
and products.
Operations Function:

The operations function is the part of an organization responsible for creating and
delivering services and products.
 Every organization has an operations function as they all create some form of service
and/or product.
Naming Variations:
 Not all organizations use the term "operations function"; some may use "operation"
or "operations" interchangeably.
 Operations managers are responsible for this function.
Role of Operations Managers:
 Operations managers have a specific responsibility for managing resources within the
operations function.
 Titles may vary; for instance, a distribution company might have a "fleet manager," a
hospital an "administrative manager," or a supermarket a "store manager."
Importance of Operations Function:
 Critical for any organization relying on creating high-quality, sustainable, and
profitable products and services.
 Illustrated by the example of LEGOLAND® and LEGO®, emphasizing innovation,
customer satisfaction, staff development, and fulfilling social and environmental
responsibilities.
Key Focus Areas for Operations Managers:
 Innovation in operations and offerings.
 Prioritizing customer satisfaction.
 Investment in staff development.
 Positive contribution to social and environmental responsibilities.
Table 1.1 - Activities of Operations Function:

Provides a snapshot of the diverse tasks operations managers handle in different
types of organizations.
 Highlights the breadth of responsibilities, ranging from hardware maintenance to
emergency response.
Overall Insight:
 Operations management is a crucial function that spans across industries, involving
resource management, innovation, and a focus on quality, sustainability, and
profitability.
 Operations managers play a pivotal role in addressing diverse challenges and
contributing positively to organizational success.
Operations in the organisation
Central Role of Operations Function:
 The operations function is central to an organization as it creates and delivers
services and products, serving as the organization's reason for existence.
Core Functions of an Organization:
1. Marketing Function:
 Responsible for positioning and communicating services and products to
generate customer demand.
2. Product/Service Development Function:
 Responsible for developing new and modified services and products to
generate future customer demand.
3. Operations Function:
 Responsible for the creation and delivery of services and products based on
customer demand.
Support Functions:
 Enable core functions to operate effectively.
 Examples include the accounting and finance function, technical function, human
resources function, and information systems function.
No Clear Division Between Functions:
 Boundaries between functions are not always clear, leading to confusion.
 A broad definition of operations is used, encompassing product/service
development, technical and information systems activities, as well as aspects of
human resources, marketing, and accounting and finance.
Comprehensive View of Operations Function:
 Operations function comprises all activities necessary for day-to-day fulfillment of
customer requests within social and environmental sustainability constraints.
 Involves sourcing services and products from suppliers and delivering them to
customers.
Relationships Between Functions:
 Figure 1.2 illustrates relationships between operations and other functions in terms
of information flow.
 Support functions have a different relationship with operations compared to core
functions.
 Operations management's responsibility to support functions is to ensure
understanding of operations' needs and help in satisfying these needs.
 Relationship with other core functions involves a more equal partnership, focusing
on what can be done currently and reconciling it with broader business needs.
1.2 Why is operations management important in all types of organisations?
Universal Significance:
 Operations management is crucial in all types of organizations, regardless of their
size, sector (service or manufacturing), and profit or not-for-profit status.
Creation and Delivery of Value:
 Operations management involves creating and delivering services or products,
forming the core of an organization's purpose and existence.
Visualizing Operations Function:
 While it's easy to visualize the operations function in some organizations, like a
vehicle assembly line, it may be less apparent in others, such as an advertising
agency.
 The commonality lies in the concept of creation; any business that creates something
requires operations activity.
Objective: Profit vs. Service to Society:
 Both for-profit and not-for-profit organizations utilize resources for creating and
delivering services or products.
 The ultimate objective may differ; for-profit organizations aim to make a profit, while
not-for-profits aim to serve society.
Examples Across Organizations:
 Examining operations management in different organizations reveals common
themes.

The vehicle plant efficiently assembles products, while other organizations use
various resources, including knowledge and people, to assemble products, provide
services, or generate ideas that meet customer demands.
Common Theme and Purpose:
 Regardless of terminology, the common theme is the use of resources to create
outputs meeting defined market requirements.
 Applicable to organizations of all sizes, sectors, and profit orientations.
Special Considerations:
 Operations management is universally essential, but there are special considerations
in smaller organizations and those prioritizing objectives other than profit.
Operations management in the smaller organisation
Equal Importance Across Sizes:
 Operations management is equally vital in small organizations as in large ones.
 Regardless of size, all companies must efficiently and effectively create and deliver
their services and products.
Challenges in Small and Medium-Sized Organizations:
 Small and medium-sized organizations face unique challenges in managing
operations.
 Limited resources may hinder the ability to dedicate individuals to specialized tasks.
Flexibility in Small Organizations:
 Smaller companies often adopt an informal structure, allowing for quick responses to
opportunities or challenges.
 Employees may take on different roles as needed, showcasing flexibility.
Potential Confusion in Decision-Making:
 The informality in smaller organizations may lead to confusion in decision-making.
 Overlapping roles can create challenges in clarifying responsibilities and decision
authority.
Similar Issues with Large Organizations:
 Small companies may share similar operations management issues with larger ones.
 These issues can be more challenging to isolate and address in smaller organizations
due to the multitude of other concerns.
Distinct Characteristics of Small Organization Operations:
 Understanding the distinctive characteristics of operations in small organizations is
essential for effective management.
 Examining how resource limitations impact operations can provide insights into
potential solutions and improvements.
Operations management in not-for-profit organisations
Relevance Beyond Profit Sector:
 Terms like 'competitive advantage,' 'markets,' and 'business' are typically associated
with the for-profit sector.
 However, operations management is equally relevant to non-profit organizations
with different objectives.
Common Decision-Making in Operations:
 Operations management in non-profits involves similar decisions as in commercial
organizations.

Decisions include creating and delivering services, investing in technology,
outsourcing activities, implementing performance measures, and enhancing
operations performance.
Similarity in Operations Challenges:
 Operations in non-profits face challenges akin to those in commercial organizations.
 These challenges encompass resource allocation, technology adoption, outsourcing
strategies, and performance improvement initiatives.
Complex Strategic Objectives in Non-Profits:
 Non-profits may have more complex strategic objectives with emphasis on political,
economic, social, or environmental goals.
 This complexity introduces a greater likelihood of conflicting objectives in operations
decision-making.
Example of Conflicting Objectives:
 Operations staff in a children's welfare department may face a conflict between the
cost of providing extra social workers and the risk of a child not receiving adequate
protection.
Relevance of Topics to Non-Profits:
 Despite contextual differences, the majority of topics covered in operations
management are relevant to non-profit organizations.
 Terms may need adaptation, and the context may differ, but principles such as
resource management, efficiency, and performance improvement apply universally.
1.3 What is the input–transformation–output process?
General Transformation Process:
 All operations involve a fundamental 'input–transformation–output' process.
 Operations take in inputs, transform them, or are transformed themselves, and
produce outputs in the form of services and products.
Diversity in Operations:
 Despite a common model, operations differ in the nature of their specific inputs and
outputs.
 Examples include hospitals transforming patients, and vehicle plants transforming
materials into vehicles.
Transformed Resources:
 One set of inputs is transformed resources, which can be materials, information, or
customers.
 Materials can undergo physical changes, information can change in purpose or form,
and customers can experience physical or psychological transformations.
Operations Principle:
 Transformed resource inputs to a process are materials, information, or customers.
Dominant Transformed Resources:
 Some operations may have inputs of materials, information, and customers, but
usually, one of these is dominant.
 Examples include a bank primarily processing information about customers' financial
affairs.
Transforming Resources:
 The other set of inputs is transforming resources, which includes facilities (buildings,
equipment) and staff (people).

Facilities and staff form the building blocks of all operations.
Variability in Facilities and Staff:
 The nature of facilities and staff varies between operations, depending on their
specific requirements.
 Facilities may range from low-tech buildings to high-tech nuclear generators, and
staff skills may vary accordingly.
Balancing Facilities and Staff:
 The balance between facilities and staff varies between industries.
 Some industries heavily invest in physical facilities (e.g., chip manufacturing), while
others rely more on skilled staff (e.g., management consultancy).
Front- and Back-Office Transformation:
 Operations can be categorized into 'front-office' (customer-interacting) and 'backoffice' (supporting) processes.
 The distinction is not absolute, and processes may have different degrees of
exposure to customers.
Spectrum of IHIP Characteristics:
 Operations produce outputs on a spectrum between tangible products and
intangible services.
 Examples include mineral extraction operations (purely products) and psychotherapy
clinics (purely services).
Importance of IHIP Characteristics:
 Understanding Intangibility, Heterogeneity, Inseparability, and Perishability (IHIP)
characteristics has operational consequences.
 Challenges include managing customer expectations, handling diverse service
requests, and matching capacity with demand.
Blurring Lines between Services and Products:
 The distinction between services and products is becoming less relevant.
 "Service-dominant logic" suggests that all operations are essentially service
providers, with physical goods as distribution mechanisms.
 The focus is on offering value propositions through service.
Co-Creation and Co-Production:
 Customers play an active role in the production or creation of value.
 Co-creation involves customer involvement in design, while co-production involves
the production of a pre-designed offering.
 The interaction between operations and customers is crucial for value creation.
Servitisation:
 Operations are moving towards providing services along with traditional product
offerings (servitisation).
 Rolls-Royce's "power-by-the-hour" model is an example of servitisation.
 Companies shift from being product manufacturers to service providers, aligning
better with customer needs and creating new revenue streams.
Customer Considerations:
 Understanding customers is essential, as they are both inputs and the reason for an
operation's existence.
 Market segmentation helps in understanding diverse customer needs.
B2B and B2C Distinction:

Business-to-business (B2B) and business-to-consumer (B2C) operations serve
different types of customers.
 Operations serving these two types may have different concerns and organizational
structures.
SIPOC Analysis:
 SIPOC analysis (Suppliers, Inputs, Process, Outputs, Customers) is a method for
formalizing processes at a general level.
 Helps stakeholders understand and agree on process components and prompts
important questions for process improvement.
1.4 What is the process hierarchy?
Processes in Operations:
 Operations consist of processes that transform inputs into outputs satisfying internal
or external customer needs.
 Processes are the building blocks of operations and form an internal network.
 Each process is an internal supplier and customer for other processes, emphasizing
internal customer care.
Internal Networks and Resources:
 Within each process, there is a network of individual units of resources, such as
people and process technology.
 Transformed resources flow between units of transforming resources within
processes.
Supply Network:
 Any business is part of a greater network of businesses or operations, known as the
supply network.
 Businesses have suppliers and customers, and they may compete with other
operations creating similar services or products.
 The input–transformation–output model can be applied at different levels of
analysis: process, operation, and supply network.
Hierarchy of Operations (Process Hierarchy):
 The 'hierarchy of operations' or 'process hierarchy' illustrates the levels of analysis
from small processes to the entire supply network.
 It helps understand how businesses are interconnected and operate at different
scales.
Business Example - Television Programme Production:

The example in Figure 1.10 demonstrates the hierarchy of operations for a business
producing television programs and videos.
 Macro-level: The business is part of a supply network, acquiring services and serving
broadcasting company customers.
 Micro-level: Individual processes include set manufacturing, marketing, technical
equipment maintenance, etc.
Relevance to All Functions:
 Operations management is not limited to the operations function; all functions have
processes.
 All functions, including marketing and finance, have a process management role in
producing their services.
 All managers, regardless of function, should understand and apply operations
management principles.
Two Meanings of 'Operations':
 'Operations' as a function: The part of the organization creating and delivering
services and products for external customers.
 'Operations' as an activity: The management of processes within any of the
organization's functions.
1.5 How do operations (and processes) differ?
Introduction: Operations and Processes Differ
 All operations processes share the commonality of transforming inputs but differ
across four critical dimensions, known as the Four Vs.
The Four Vs:
Volume Dimension:
 Definition: Refers to the quantity or scale of output.
 Example: McDonald's high-volume hamburger production.
 Implications:
 High volume allows for repeatability and systemization.
 Systematized tasks and repetition lead to low unit costs.
 Example: McDonald's specialized fryers and ovens.
Variety Dimension:
 Definition: Relates to the range or diversity of output.
 Example: Taxi service (high variety) vs. bus service (low variety).
 Implications:
 High variety demands flexibility and increased costs.
 Low variety allows for standardization, resulting in lower costs.
 Example: Taxi's flexible routes vs. bus's fixed routes.
Variation Dimension:
 Definition: Reflects fluctuations in demand.
 Example: Seasonal demand in a summer resort hotel.
 Implications:
 High variation may lead to recruitment and overtime costs.
 Low variation allows for efficient planning and resource utilization.
Visibility Dimension:
 Definition: How much of the operation's activities customers experience.
 Example: High-visibility bricks-and-mortar shop vs. low-visibility web-based retailer.
 Implications:
 High-visibility operations may struggle to keep costs down.
 Low-visibility operations can be more "factory-like" and cost-efficient.
 Example: Customer-processing operations' exposure.
Overall Implications:
 High volume, low variety, low variation, and low customer contact contribute to
lower processing costs.
 Low volume, high variety, high variation, and high customer contact generally result
in cost penalties.
Positioning on the Four Dimensions:
 Operations position themselves based on market demands.
 Some discretion exists for operations to move on these dimensions.
 Figure 1.11 summarizes the implications of positioning.
These dimensions provide a framework for operations managers to make strategic decisions,
emphasizing trade-offs between efficiency, flexibility, standardization, customization, and the
impact of demand fluctuations on costs.
1.6 What do operations managers do?
Operations managers play a pivotal role in organizations, engaging in various activities that
contribute to the effective functioning of operations. The key activities fall under four main
headings: Direct, Design, Deliver, and Develop.
1. Directing the Overall Strategy of the Operation:
 Definition: Operations managers contribute to shaping the overarching strategy of
the operation.
 Key Elements:
 Understanding operations and processes.
 Awareness of strategic purpose and performance.
 Translating strategic purpose into practical reality.
 Relevance: Essential for detailed operational design (Chapters 1 to 5).
2. Designing the Operation’s Services, Products, and Processes:
 Definition: The activity of determining the physical attributes and composition of
operations, processes, and the resulting services and products.
 Key Elements:
 Defining the form, shape, and composition of operations.
 Crafting services and products.
 Relevance: Explored in-depth in Chapters 6 to 9.
3. Planning and Controlling Process Delivery:
 Definition: After design, the systematic planning and control of service and product
delivery from suppliers, through the entire operation, to customers.
 Key Elements:
 Structuring efficient delivery systems.

Implementing controls to ensure quality and timeliness.
 Relevance: Detailed examination in Chapters 10 to 14.
4. Developing Process Performance:
 Definition: Recognizing the evolving nature of operations, managers are responsible
for enhancing the capabilities of processes to improve overall performance.
 Key Elements:
 Proactive measures to enhance efficiency and effectiveness.
 Continuous improvement strategies.
 Relevance: In-depth exploration in Chapters 15 to 19.
Operations Management's Impact on Social-Environmental Sustainability:
 Operations management has a substantial impact on social-environmental
sustainability.
 Activities of operations managers affect:
 Natural environment.
 Society at large.
 Specific stakeholder groups (staff, suppliers, investors, regulators).
 Social responsibility is crucial due to the profound influence operations practices
have on the environment and society, and vice versa.
Environmental Sustainability:
 Involves meeting present needs without compromising the ability of future
generations to meet their own.
 Concerns include:
 Obvious impacts like hazardous waste, air, and noise pollution.
 Less obvious but critical issues related to global warming.
Responsible Operations in Each Chapter:
 Under "Responsible operations," chapters address social, ethical, and environmental
issues.
Two-way Relationship with Corporate Social Responsibility (CSR):
 Operations management and CSR are interconnected.
 Operations influence CSR issues; sensitivity to these issues shapes good operations
practices.
Causes of Pollution and Disasters:
 Pollution-causing disasters often result from operational failures.
 Environmental impact includes non-recyclable products and energy-consuming
processes.
Motivations for CSR Activities:
1. Altruistic Focus:
 Philanthropic activities not explicitly for profit.
 Examples: Donations, community support, employee volunteering.
2. Operations Management Alignment:
 Activities providing CSR benefits while supporting operations objectives (cost
savings, revenue enhancement).
 Examples: Waste reduction, emissions control, and resource efficiency.
3. Addressing Social or Environmental Challenges:
 Exploring new business forms to tackle challenges while providing business
benefits.
 Example: Unilever's support for women store-owners in the Philippines.
Model of Operations and Process Management:
 Operations and processes are transformation systems managing inputs to produce
outputs.
 Resources need management in terms of direction, design, delivery planning and
control, and development.
 Figure 1.13: The model illustrates how operations transform inputs into outputs and
how resources are managed.
Chapter 2 Operations Performance
2.1 Why is operations performance vital in any organisation?
Importance of Operations Performance:
1. Significance of Operations Management:
 Operations management is pivotal for the success of any business.
 Operations function represents a substantial portion of assets and human
resources in most organizations.
2. Operations as a Driver of Improvement:


Operations management aims at continuous improvement.
Enhancing operations can catalyze overall organizational improvement.
3. Capabilities Building:
 Operations management constructs capabilities that are challenging for
competitors to imitate.
 These capabilities contribute significantly to the organization's strategic
impact.
4. Focus on 'Process':
 Operations management emphasizes how tasks are executed, i.e., the
process.
 The relationship between process efficiency and outcomes is crucial.
5. Reputational Consequences:
 Operations failures can lead to lasting reputational damage.
 From late parcel deliveries to critical incidents like air crashes, poor
operations management is often a root cause.
Performance at Three Levels:


Multifaceted Nature:
 Performance is complex and multifaceted, not easily summarized by a single
measure.
Levels of Assessment:
 Societal Level (Triple Bottom Line):
 Evaluates the broader impact on society, including social,
environmental, and economic factors.
 Considers the organization's responsibility beyond immediate
operations.
 Strategic Level:
 Examines how operations contribute to the overall organizational
strategy.

Aligning operations with strategic goals for competitiveness.
 Operational Level (Performance Objectives):
 Focuses on day-to-day efficiency and customer service.
 Utilizes the five operations performance objectives.
Operations Principle:
 Good operations performance is foundational for the sustainable success of any
organization.
2.2 How is operations performance judged at a societal level?
Stakeholders:
 Definition: Stakeholders are individuals and groups with a legitimate interest in an
operation's activities.
 Types of Stakeholders:
 Internal Stakeholders: Operation's employees.
 External Stakeholders: Customers, society/community groups, shareholders,
suppliers, and industry regulators.
 Overlapping Roles: Some stakeholders may belong to multiple groups
simultaneously (e.g., voluntary workers in a charity
Operations Principle:
 Operations decisions should consider the interests of various stakeholder groups.
Corporate Social Responsibility (CSR):
 Definition: CSR involves understanding, addressing, and responding to the needs of
all stakeholders.
 Focus Areas: Economic, ethical, social, and environmental impacts.

Responsibility: Operations managers are responsible for integrating CSR objectives
into their activities.
 Ethical and Commercial Significance: Increasingly important for ethical and
commercial reasons.
 Triple Bottom Line (TBL):
 Concept: Evaluating organizational performance not just based on economic
profit but also on social and environmental impacts.
 People, Planet, and Profit: Represents societal, ecological, and economic
interests.
 Sustainability: Balancing economic, environmental, and societal interests for
long-term success.
Environmental, Social, and Governance (ESG):
 Acronym: ESG stands for Environmental, Social, and Governance.
 Investor's Perspective: Focuses on ethical, social, and environmental factors as
critical considerations for potential investors.
 Broader View: Goes beyond just financial returns.
Triple Bottom Line Performance:
1. Social Bottom Line (People):
 Focus: Impact on the quality of people's lives.
 Examples:
 Ensuring customer safety.
 Addressing employment impacts.
 Creating non-exploitative relationships with suppliers.
2. Environmental Bottom Line (Planet):
 Focus: Environmental impact of operations.
 Examples:
 Recyclability of materials.
 Reduction of transport-related energy.
 Management of noise and emission pollution.
3. Economic Bottom Line (Profit):
 Focus: Economic performance measured by profitability, return on assets, etc.
 Examples:
 Cost-effectiveness in producing goods/services.
 Revenue generated through quality, speed, dependability, and
flexibility.
 Effective investment in operational resources.
Strategic-Level Assessment:
 Importance: Operations performance is vital for overall business success.
 Risk of Operations Failures: Poor operations management can lead to lasting
reputational damage.
 Economic Bottom Line in Strategy: Top management is the custodian of economic
performance, focusing on effective resource utilization, profitability, and building
capabilities for the future.
2.3 How is operations performance judged at a strategic level?
Introduction:
 Operations management involves both operational and strategic decisions.

Operational activities have immediate, detailed, and local impacts, but they can also
contribute significantly to strategic outcomes.
 Assessing operations performance at a strategic level is crucial for understanding its
impact on the organization's overall economic position.
Five Aspects of Operations Performance at a Strategic Level:
1. Operations Management Affects Costs:
 Significance: Almost all operations activities impact the cost of producing
products and services.
 Efficiency: Efficient resource procurement and conversion determine overall
costs.
 Judgment Criteria: Organizational profitability is a key measure.
2. Operations Management Affects Revenue:
 Influence: Quality, speed, dependability, and flexibility directly impact
product/service revenue.
 Strategic Significance: High-quality products/services can command higher
prices and sell more.
 Net Promoter Score (NPS):
o Definition: A metric measuring customer satisfaction and likelihood to
recommend a company or product.
o Calculation: NPS = (Promoters - Detractors).
o Strategic Value: Provides insights into customer satisfaction and
loyalty over time.
3. Operations Management Affects the Required Level of Investment:
 Efficiency Impact: Increased efficiency reduces the need for additional
investment.
 Strategic Importance: Higher efficiency allows for more output without
proportionate increases in investment.
4. Operations Management Affects the Risk of Operational Failure:
 Well-Designed Operations: Less likely to fail, operate predictably, and avoid
social or environmental damage.
 Resilience: Well-run operations recover faster and with less disruption in case
of failure.
5. Operations Management Affects the Ability to Build Future Capabilities:
 Learning from Experience: Operations managers accumulate process
knowledge from experience.
 Building Capabilities: This knowledge transforms into skills, knowledge, and
experience, forming capabilities for future innovation.
2.4 How is operations performance judged at an operational level?
Five Performance Objectives:
Why is quality important?
1. Consistent Conformance to Customer Expectations:
 Quality is synonymous with consistent conformance to customers' expectations.
 In simple terms, it means "doing things right."
 The definition of what is considered 'right' varies across different types of operations.
2. Visibility and Customer Judgment:
 Quality is one of the most visible aspects of an operation.
 Customers can easily judge whether a product or service meets their expectations or
not.
 It directly influences customer satisfaction or dissatisfaction.
3. Influence on Customer Satisfaction:
 High-quality products and services contribute to customer satisfaction.
 Satisfied customers are more likely to return for repeat business.
Quality Assessment in Different Operations:
 Manufacturing Operation (Vehicle Factory):
 Judgment based on defect-free vehicle production.
 Examples: Quality of assembled parts, absence of manufacturing defects.
 Service Operation (Hospital):
 Judgment based on error-free medical services.
 Examples: Accuracy of diagnoses, precision in medical procedures.
 Transport Operation (City Bus Company):
 Judgment based on reliable and safe transportation services.
 Examples: Punctuality of bus schedules, safety measures.
 Retail Operation (Supermarket Chain):


Judgment based on fresh and error-free products.
Examples: Quality of perishable goods, accuracy of pricing.
Quality Inside the Operation:
 Consistent quality production internally makes life easier within the operation.
 Reduces the need for correcting mistakes, saving time and resources.
Quality Reduces Costs:
 Fewer mistakes result in less time and resources needed for correction.
 Examples: Correcting errors in goods sent to a supermarket, reducing staff time and
costs.
Quality Increases Dependability:
 Poor quality can lead to product shortages and revenue loss.
 Examples: Goods running out on supermarket shelves due to quality issues can
impact revenue and distract management.
Overall Impact of Quality:
 External Impact: Influences customer satisfaction and likelihood of customer return.
 Internal Impact: Leads to stable and efficient processes within the operation.
Why is speed important?
Definition of Speed:
 Speed in operations refers to the elapsed time between customers requesting
products or services and their actual receipt.
Benefits of Speed for External Customers:
 Faster delivery increases the likelihood of customer purchase.
 Customers may be willing to pay more for quicker service.
 Greater benefits are derived from timely product or service delivery.
Internal Benefits of Speed:
 Fast response to external customers is aided by speedy decision-making and
material/information movement inside the operation.
 Speed has positive impacts inside the operation as well.
Reduction of Inventories:
 Example: Vehicle Plant Operation
 Material flow is not always smooth in multi-stage processes.
 Steel for vehicle door panels, delivered in large batches, may spend significant
time waiting at different stages.
 Longer process times result in higher inventories of parts and products.
 This concept is further explored in lean operations in Chapter 16.
Reduction of Risks:
 Example: Vehicle Plant Operation
 Faster throughput time allows for later forecasting.
 With a six-week throughput time, forecasting must be done well in advance.
 If throughput time is reduced to one week, forecasts can be closer to actual
demand.
 Reducing the time products spend in the process lowers the risk associated
with long-term forecasting.
Key Operations Principle:
 Speed Potential:
 Speed in operations has the potential to facilitate faster delivery of services
and products.
 It also contributes to cost savings within the operation.
Why is dependability important?
Definition of Dependability:
 Dependability in operations means delivering products or services in time for
customers to receive them exactly when needed, or as promised.
Customer Perspective on Dependability:
 Customers may assess dependability after receiving the product or service.
 Over time, dependability becomes a critical factor that can outweigh other criteria in
customer satisfaction.
 Regardless of cost or speed advantages, consistently late or unpredictable services
may drive customers away.
Internal Perspective on Dependability:
 Inside the operation, internal customers evaluate each other based on how reliably
material or information is delivered on time.
Benefits of Dependability Inside the Operation:
 Time Savings:
 Example: Maintenance and Repair Center for a City Bus Company.
 Lack of dependability in parts supply requires time-consuming arrangements
for special deliveries.
 Resources allocated to service buses are not used productively during
disruptions.
 Cost Savings:
 Ineffective use of time results in extra costs for rushed deliveries and staff
payments.
 Fixed costs like heating and rent remain unchanged even when buses are not
being serviced.

Stability:
 Dependability contributes to stability by building trust between different
parts of the operation.
 Predictability and trust enable each part of the operation to focus on
improvement without continuous disruptions.
Key Operations Principle:
 Dependability Impact:
 Dependability has a significant impact on time, cost, and stability within an
operation.
 It influences the overall effectiveness and efficiency of an operation.
Why is flexibility important?
Definition of Flexibility:
 Flexibility in operations refers to the ability to change the operation in terms of what
it does, how it does it, or when it does it.
 Four types of flexibility are essential for meeting customer requirements:
product/service flexibility, mix flexibility, volume flexibility, and delivery flexibility.
External Impact of Flexibility:
 Mass Customization:
 High flexibility enables operations to produce a wide variety of customized
products or services.
 Mass customization allows high-volume production of customized products,
maintaining cost-effectiveness.

Examples include Dell's customization of personal computers and Paris Miki's
eyewear customization.
Internal Impact of Flexibility:
 Speeding Up Response:
 Flexibility contributes to fast service by enabling quick responses to
unexpected events.
 Example: A hospital dealing with a sudden influx of patients from a road
accident.
 Saving Time:
 Internal flexibility saves time by allowing rapid adaptation to treat a variety of
medical complaints.
 It prevents time wastage during task transitions.
 Maintaining Dependability:
 Internal flexibility helps operations stay on schedule during unexpected
events.
 Example: A flexible hospital minimizes disruption during emergency surgical
procedures.
Agility in Operations:
 Definition of Agility:
 Agility is the ability to sense changes in the environment and respond
effectively, efficiently, and in a timely manner.
 It implies the capability to learn from responses and thrive in a competitive
and dynamic environment of continuous change.
 Attributes of Agility:
 Combines all five performance objectives, with a focus on cost, flexibility, and
speed.
 Involves small, inventive, multidisciplinary teams capable of responding to
change.
 Requires a change in organizational culture, leadership, structures, budgets,
and staff incentives.
 Application in Software Development:
 In software development, agility is crucial for producing working-quality
software in short, fast increments.
 Development teams must accept and implement fast-changing requirements.
 General Application:
 In a broader context, agility means responding to market requirements by
producing both new and existing products and services rapidly and flexibly.
Key Operations Principle:
 Flexibility and Agility:
 Flexibility and agility are vital for operations to meet diverse customer needs,
respond to unexpected events, and thrive in dynamic environments.
 They contribute to efficiency, speed, and the ability to adapt to change,
fostering innovation and competitiveness.
Why is cost important?
1. Competitive Edge:
 For companies competing directly on price, cost is a crucial factor. Lower production
costs allow for competitive pricing, attracting cost-conscious customers.
 Even for companies not competing on price, cost reduction contributes directly to
higher profits.
2. Profit Maximization:
 Every reduction in the cost base adds directly to profits. Managing costs efficiently is
a fundamental aspect of financial success for any organization.
3. Universally Attractive Objective:
 Low cost is universally attractive across industries. The example of Aldi in the
'Everyday low prices at Aldi' illustrates a retailer's commitment to keeping costs
down.
Cost Influence in Operations:
 Cost Breakdown:
 Operations incur costs in staff, facilities, technology, equipment, and
materials. The specific breakdown varies across industries, as shown for a
hospital, car plant, supermarket, and bus company.
 Productivity as a Measure:
 Productivity is a key measure, representing the ratio of output to input.
 Single-factor Productivity: Number of cars produced per year per employee.
 Total Factor Productivity: Includes all input factors.
 Improving Productivity:
 Reducing input costs, such as relocating facilities or changing product designs,
is a way to improve productivity.

Making better use of inputs by minimizing waste is another strategy adopted
by operations.
Cost Reduction through Internal Effectiveness:
 Quality Impact:
 High-quality operations reduce the need for redoing tasks and eliminate the
inconvenience caused by flawed service.
 Speed Impact:
 Fast operations reduce in-process inventory and administrative overheads.
 Dependability Impact:
 Dependable operations avoid unwelcome surprises, ensuring reliability in
deliveries and eliminating disruptions.
 Flexibility Impact:
 Flexible operations adapt to changes quickly, minimizing disruptions and
allowing efficient changeovers between tasks.
Operations Principle:
 Internal Effectiveness and Cost:
 Improving other performance objectives internally, such as quality, speed,
dependability, and flexibility, directly impacts cost reduction.
 Each performance objective has internal effects that contribute to overall cost
efficiency.
The polar representation of performance objectives
1. Definition:
 The polar representation is a graphical method for illustrating the relative importance
of different performance objectives for a product or service.
2. Components:
 Scale Origin: All scales representing the importance of various performance
objectives share a common origin.
 Line: Each line in the diagram represents the relative importance of a specific
performance objective.
3. Interpretation:
 Proximity to Origin: The closer the line is to the common origin, the less important
that performance objective is considered for the operation.
4. Example: Taxi vs. Bus Service:
 The diagram illustrates the differences in performance objectives between a taxi and
a bus service.
 Each service essentially provides the same basic service but with different objectives.
 The polar representation helps visually highlight the varying priorities.
5. Adaptability:
 The polar diagram can be adapted to accommodate any number of performance
objectives, providing a comprehensive view of an operation's priorities.
6. Example: Charity Promoting Organically Produced Food:
 Figure 2.11(b) shows how a polar diagram is used in a charity promoting the growing
and consumption of organically produced food.
 The diagram allows the charity to communicate and prioritize its performance
objectives.
2.5 How can operations performance be measured?
Performance Measurement: Performance measurement is the process of quantifying
actions and outcomes to assess how well an operation is performing. It is crucial for ongoing
control, improvement, and decision-making within an operation.
Three Generic Issues in Performance Measurement:
1. What factors should be included as performance measures?
2. Which are the most important performance measures?
3. What detailed measures should be used?
Factors Included as Performance Measures:
 Performance can be described and measured at three levels: strategic, tactical, and
operational.

Sometimes, measures are aggregated into "composite" measures like customer
satisfaction, overall service level, or operations agility.
 Detailed measures break down factors into more specific indicators.
Most Important Performance Measures:
 Balancing between a few key measures (simple but may not cover all objectives) and
many detailed measures (complex but conveys nuances) is crucial.
 Key Performance Indicators (KPIs) reflect strategic objectives, and detailed measures
complement them.
Detailed Measures:
 The five performance objectives (quality, speed, dependability, flexibility, and cost)
comprise many smaller measures.
 Disaggregating performance objectives into factors like purchasing efficiency,
operations efficiency, staff productivity, etc., can help identify areas for improvement.
The Balanced Scorecard Approach:

Developed by Kaplan and Norton, the balanced scorecard includes financial and
operational measures.
 Covers financial perspective, internal process perspective, customer perspective, and
learning and growth perspective.
 Addresses questions related to shareholders, internal processes, customer
perception, and continuous improvement.
 Provides a broader indication of overall performance and encourages decisions for
the organization's holistic benefit.
Advantages of the Balanced Scorecard:
 Presents an overall picture of organizational performance in a single report.
 Encourages decisions that benefit the entire organization rather than optimizing
around narrow measures.
2.6 How do operations performance objectives trade off against each other?
Trade-offs and the Efficient Frontier:
In operations management, trade-offs refer to the compromises or sacrifices made in
improving one performance objective at the expense of another. While improving one
aspect of performance may enhance efficiency, it might lead to a reduction in another
performance dimension. This concept is often summarized by the phrase "There is no such
thing as a free lunch."
Professor Wickham Skinner highlighted the idea of trade-offs in designing operations,
likening it to the trade-offs made in designing airplanes or trucks. For instance, in designing
an airplane, trade-offs involve factors like cruising speed, take-off and landing distances,
initial cost, maintenance, fuel consumption, passenger comfort, and cargo/passenger
capacity.
There are two views on trade-offs:
1. Repositioning: Emphasizes trading off improvements in some objectives for a
reduction in performance in others.
2. Increasing Effectiveness: Emphasizes overcoming trade-offs to achieve
improvements in one or more aspects of performance without reducing others.
Efficient Frontier:
 The concept of the "efficient frontier" illustrates the relative performance of
companies in an industry based on cost efficiency and variety of products or services
offered.
 Operations strive to offer high variety while maintaining high cost efficiency, but
increased complexity may impact efficiency.
 The efficient frontier is a convex line representing operations that achieve an
effective balance between variety and cost efficiency.
Effective Positioning and Improving Effectiveness:
 Operations positioned on the efficient frontier are considered effective, but they
might still seek improvements.
 Operations can improve effectiveness by extending the efficient frontier, aiming for
simultaneous enhancements in multiple performance dimensions.
Example: Supermarket Checkout Staff:
 In a supermarket, the trade-off between staff utilization (cost) and customer waiting
time (speed of service) is apparent.
 An operation may allocate core staff to checkouts but also have other staff on call to
address sudden increases in demand, improving customer service without
compromising staff utilization.
Chapter 3 Operations Strategy
3.1 What is strategy and what is operations strategy?
Definition of Strategy:
 "Strategy" is challenging to define precisely.
 Linguistically derived from the Greek word 'strategos,' meaning 'leading an army.'
 Both military and business strategy involve:
 Setting broad objectives for overall goals.
 Planning a path towards these goals.



Emphasizing long-term objectives.
Considering the total picture over individual activities.
Maintaining a detached view from day-to-day activities.
Strategic Decisions:
 Strategic decisions have widespread effects, define the organization's position, and
move it closer to long-term goals.
 Strategy is the total pattern of decisions and actions influencing long-term business
direction.
Operations Strategy:
 Defined as the "pattern of decisions and actions that shape the long-term vision,
objectives, and capabilities of the operation and its contribution to the overall
strategy of the business."
 While "operations" generally refers to day-to-day activities, "operations strategy"
encompasses decisions that have a real strategic impact.
Content and Process of Operations Strategy:
 Distinction between the "content" and "process" of operations strategy.
 Content: Specific decisions and actions setting operational roles, objectives,
and activities.
 Process: The method used to make specific decisions.
Articulating a Vision for Operations:
 Operations strategy aims to progress from contributing little to directly influencing
competitive success.
 The vision of an operation is a clear statement of how it intends to contribute value
to the business.
 A common approach to summarizing operations' contribution is the Hayes and
Wheelwright four-stage model.
Four Stages of Operations Contribution:
1. Internal Neutrality (Stage 1):
 Harmful contribution; internally focused and reactive.
 Vision: Internally neutral by avoiding mistakes.
2. External Neutrality (Stage 2):
 Begins comparing itself with similar companies.
 Vision: Externally neutral with operations in the industry.
3. Internally Supportive (Stage 3):
 Reaches the "first division" in markets.
 Vision: Internally supportive by providing a credible operations strategy.
4. Externally Supportive (Stage 4):
 Provides the foundation for organizational competitive success.
 Vision: Externally supportive, being innovative, creative, and proactive.
Four Perspectives on Operations Strategy:
 Different authors present four perspectives:
1. Top-Down Perspective:
 Aligns with the entire business's objectives.
2. Outside-In Perspective:
 Translates the enterprise's intended market position to provide
objectives for operations decisions.
3. Bottom-Up Perspective:

Learns from day-to-day activities to cumulatively build strategic
capabilities.
4. Inside-Out Perspective:
 Develops business resources and processes to exploit capabilities in
chosen markets.
3.2 How does operations strategy align with business strategy (top-down)?
Hierarchy of Strategies:
 A top-down perspective identifies three related levels of strategy: corporate,
business, and functional.
 Corporate Strategy:
 Positions the corporation in the global, economic, political, and social
environment.
 Decisions about business types, global operations, cash allocation, etc.
 Business Unit Strategy:
 Each business unit within the corporate group develops its own strategy.
 Guides the business in relation to customers, markets, and competitors.
 Functional Strategies:
 Operations, marketing, product/service development, and other functions
organize to support business objectives.
 Functional strategies consider each function's role in achieving business
strategic objectives.
Implementing Higher-Level Strategy:
 Operations strategy plays a role in implementing or 'operationalizing' higher-level
strategy.
 Example: A printing services group prioritizes market dominance at the corporate
level, and a consumer packaging company focuses on volume growth, leading to
specific operational decisions.
Strategic Hierarchy:


The strategic hierarchy includes corporate, business, and operations strategies.
Different business objectives lead to different operations strategies.
Correspondence and Coherence:
 Correspondence: Clear connection between different levels of strategy.
 Coherence: Decisions within a functional strategy complement and reinforce each
other, ensuring consistency.
Concepts of Business Model and Operating Model:
 Business Model:
 Plan implemented by a company to generate revenue and make a profit.
 Includes organizational functions, target customer segments, distribution
channels, core capabilities, and revenue streams.
 Operating Model:
 High-level design of the organization defining structure and style to meet
business objectives.
 Provides a 'big picture' description of what the organization does and how it
does it.
 Includes key performance indicators (KPIs), responsibilities, organizational
structure, and overlaps with the business model.
Relationship between Business Model and Operating Model:
 The business model focuses on achieving an intended strategy.
 The operating model reflects a high-level design applied across all functions and
domains of the organization.
 Overlaps exist between the business model and the operating model, with the
operating model emphasizing how an overall business strategy is to be achieved.
3.3 How does operations strategy align with market requirements (outside-in)?
Market Perspective on Operations Strategy:
 Operations strategy should reflect the intended market position of the business.
 Survival in the long term requires operations to serve markets adequately.
Influence of Market Requirements on Performance Objectives:
 Operations adds value and contributes to competitiveness by satisfying customer
requirements.
 The priority of operational performance objectives (quality, speed, dependability,
flexibility, cost) should align with what customers consider important.
Competitive Factors Classification:
 Order Winners: Directly and significantly contribute to winning business, key reasons
for customer purchase.
 Order Qualifiers: Necessary performance level for a customer to consider the
organization.
 Less Important Factors: Do not significantly influence customers.
Sequence for Aligning Market Requirements with Operations:
1. Segment the Market: Identify differing requirements of different customer groups.
2. Assess Current Performance: Review performance for each market segment.
3. Decide Which Segments to Serve: Decide on segments worth pursuing.
4. Determine What is Necessary to Compete: Identify requirements for business to
compete in chosen segments.
5. Determine What Operations Has to Do: Define operations strategy based on
business requirements.
Impact of Product/Service Differentiation on Market Requirements:
 Differentiated services for various customer segments require distinct performance
objectives.
Impact of Product/Service Life Cycle on Market Requirements:
 Introduction Stage:
 New products with unique features.
 Flexibility and quality are crucial.
 Growth Stage:
 Competitors enter the market.
 Operations focus on rapid response, dependability, and maintaining quality.
 Maturity Stage:
 Demand levels off, competition increases.
 Operations emphasis on cost reduction, productivity, and dependable supply.
 Decline Stage:
 Sales decline, price competition dominates.
 Cost remains a primary operations objective.
3.4 How does operations strategy align with operational experience (bottom-up)?
Contrast with Top-Down Perspective:
 While the top-down perspective is convenient, it doesn't represent how strategies
are often formulated.
 Strategies are influenced by the circumstances, experiences, and capabilities of
individual businesses or functions.
Bottom-Up Perspective:
 Involves consulting individual functions about capabilities, constraints, and ideas
from day-to-day experiences.
 Acknowledges that organizations often move strategically based on ongoing
operational experiences.
 Embraces the concept of "emergent strategies," considering strategy-making as a
partly unstructured and fragmented process.
Example Illustration:
 A printing services company expands, discovering surplus capacity and a distributed
network of factories enables exceptionally fast service.
 The experience leads to the creation of a new division focused on high-margin, fast
printing services, not high-volume growth.
Reinforcing Effect of Top-Down and Bottom-Up Perspectives:
 Top-down perspective sets overall direction and objectives for operations.
 Day-to-day activities must align with the top-down strategy for effective
implementation.
 Experience gained from day-to-day activities accumulates, building capabilities that
can be strategically exploited.
 The two perspectives can be mutually reinforcing, with day-to-day activities
informing and shaping the overall strategy.
3.5 How does operations strategy align with operations resources (inside-out)?
Fundamental Idea:
 Long-term competitive advantage arises from the capabilities of an operation's
resources and processes.

Operations resources, developed over time, contribute to unique and difficult-toimitate competences.
 Understanding and developing these capabilities is a crucial but often neglected
perspective on operations strategy.
Resource-Based View (RBV) and Sustainable Competitive Advantage:
 RBV posits that sustainable competitive advantage is gained through core
competences or capabilities.
 Organizations with above-average strategic performance likely possess unique and
difficult-to-imitate resources.
 Contrast with traditional views of strategy that focus on market control; RBV
emphasizes barriers to imitation.
Properties of Influential Resources:
1. Scarcity: Unequal access to resources strengthens competitive advantage.
2. Immobility: Some resources are challenging to move out of a firm, retaining
advantages over time.
3. Difficulty of Imitation or Substitution: Resources that are difficult to understand and
copy enhance sustainability.
Structural and Infrastructural Decisions:
 Distinction between decisions influencing the operation's structure (primarily design
activities) and those affecting infrastructure (workforce organization, planning,
control, and improvement activities).
 Similar to the "hardware" and "software" analogy in computer systems.
 The potential of advanced technology and facilities (hardware) is maximized by an
appropriate infrastructure (software) governing day-to-day operations.
Long-Term Objective of Operations Strategy:
 To build operations-based capabilities that contribute to sustainable competitive
advantage.
3.6 How are the four perspectives of operations strategy
reconciled?


Crucial Notion:
 None of the four perspectives (top-down, bottom-up, outside-in, inside-out)
alone provides a comprehensive understanding of an organization's
operations strategy.
 A successful operations strategy requires reconciliation among these
perspectives.
Models for Reconciliation:
 Line of Fit Model:
 Concept:
 Emphasizes the alignment or 'fit' between market
requirements and operations capabilities.
 Representation:
 Vertical dimension: Reflects the nature of market requirements
(outside-in).
 Horizontal scale: Represents the level of the organization's
operations capabilities.


Improvement Path:
 Achieving alignment.
 Achieving sustainable alignment.
 Improving overall performance.
Importance–Performance Matrix:
 Focus:
 Compares market requirements and operations capabilities at
a more focused and disaggregated level.
 Determinants:
 Importance to customers.
 Performance against competitors.
 Matrix Zones:
 Appropriate zone: Competitive factors deemed satisfactory.
 Improve zone: Factors requiring improvement.
 Urgent-action zone: Important factors with performance below
competitors, requiring immediate improvement.
 Excess? zone: Factors with high performance but low
importance, prompting consideration of resource allocation.
3.7 How can the process of operations strategy be organised?
1. Formulation:
 Occasional Activity:
 Formulating an operations strategy is not a daily task; it is typically part of a
regular planning cycle, often annual.
 Objectives:
 Clarify various objectives and decisions.
 Establish links between these decisions.
 Attributes to Assess:
 Comprehensive:
 Inclusion of all important issues.
 Coherent:
 Choices in each decision area direct the operation in the same
strategic direction.
 Correspondence:
 Strategies correspond to the true priority of each performance
objective.
 Critical Issues:
 Identification of critical decisions.
2. Implementation:
 Key Issues:
 Clarity of Strategic Decisions:
 Ambiguous strategies make it challenging to translate intent into
specific actions.
 Motivational Leadership:
 Leadership that motivates, encourages, and provides support.
 Project Management:


Breaking down the complex plan into distinct activities.
Relationship with Formulation:
 Strong connection; clarity in formulation aids in effective
implementation.
3. Monitoring:
 Purpose:
 Track ongoing performance during strategic change.
 Provide early indications through data diagnosis.
 Trigger appropriate changes in implementation.
 Intervention:
 Deviations from planned activities are identified for intervention.
 Ensures that the planned implementation aligns with the actual execution.
4. Control:
 Evaluation:
 Evaluate results from monitoring the implementation.
 Assess activities, plans, and performance.
 Correction:
 Correct future action if required.
 Adapt to changing circumstances rather than adhering strictly to a
predetermined plan.
 Strategic Flexibility:
 In uncertain environments, strategic flexibility is crucial.
 Emphasize adaptability and the ability to learn from events.