ES2B2.01
ES2B2.01 | Operations Management
Introduction
Operations management: the activity of managing the resources that create and deliver
services and products.
Every organisation has an operations function, because every organisation creates some
type of services and/or products. This operations function is one of the three core functions
of any organisation; these are:
• Marketing (including Sales) function – responsible for communicating the
organisations services and products to its markets in order to generate customer
requests.
• Product/Service Development function – responsible for coming up with new and
modified services and products in order to generate future customer requests.
• Operations function – responsible for the creation and delivery of services and
products based on customer requests.
In addition, there are the support functions which enable the core functions to operate
effectively. These include, for example, the accounting and finance, technical, H.R. and I.T.
In practice, there is not always a clear division between the three core functions or between
core and support functions. Therefore, it can be unclear of the boundaries of operations
management; often the support functions can be included in this category. A simple
definition of the operations functions comprising all the activities necessary for the day-today fulfilment of customer requests. This includes sourcing services and products from
suppliers and delivering services and products to customers.
Operations managers need to co-operate with other functions to ensure effective
organisational performance.
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The economic sector of an operation is less important in determining how it should be
managed than its intrinsic characteristics.
Operations management uses resources to appropriately create outputs that fulfil defined
market requirements.
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The new operations agenda
The business environment has a significant on what is expected from operations
management, with new pressures for which the operations function has needed to develop
responses.
The input-transformation-output process
All operations create and deliver services and products by changing inputs into outputs
using an ‘input-transformation-output’ process.
All processes have inputs of transforming and transformed resources that they use to create
products and services.
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Inputs to the Process
One set of inputs to any operation’s processes are transformed resources. These are the
resources that are treated, transformed or converted in the process. They are usually a
mixture of the following:
• Materials – operations which process material could do so to transform their
physical properties. Most manufacturing operations are like this.
o Other operations process materials to change their location (deliveries or
distribution).
o Some, like retail operations, do so to change the possession of the materials.
o Finally some operations store materials, such as warehouses.
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Information – operations which process information could do so to transform their
informational properties (that is the purpose or form of the information);
accountants do this.
o Some change the possession of the information, for example market research
companies sell information.
o Some store the information, for example archives and libraries.
o Finally, some operations, such as telecommunication companies, change the
location of the information.
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Customers – operations which process customers might change their physical
properties in a similar way to materials processors: for example, hairdressers or
cosmetic surgeons.
o Some store (or more politely accommodate) customers: hotels, for example.
o Airlines, mass rapid transport systems and bus companies transform the
location of their customers, while hospitals transform their physiological
state.
o Some are concerned with transforming their psychological state, for
example, most entertainment services such as music, theatre, television,
radio and theme parks.
o The customers can often be defined as being B2C, B2B or Internal (within an
organisation).
Some operations have inputs of materials, information and customers, but usually one of
these is dominant.
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The other set of inputs to any operations process are transforming resources. These are the
resources which act upon the transformed resources. There are two types which form the
‘building blocks’ of all operations:
• Facilities – the buildings, equipment, plant and process technology of the operation;
• Staff – the people who operate, maintain, plan and manage the operation/
Outputs from the process
Some operations create and deliver just services and others just products, but most
operations combine both elements. This can be described as a spectrum from ‘pure
products’ to ‘pure services’.
Increasing the distinction between services and products is difficult to define and not
particularly useful. It can be argued that all operations are service providers which may
create and deliver products as part of the offering to their customers.
The process hierarchy
Inside any operation there is a collection of processes interconnecting with each other to
form a network. Each process acts as a smaller version of the whole operation of which they
form a part, and transformed resources flow in between them. In fact within any operation,
the mechanism that actually transform inputs into outputs are these processes.
A process is an arrangement of resources that create some mixture of services and
products. They are the ‘building blocks; of all operations, and they form an ‘internal
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network’ within an operation. Each process is, at the same time, an internal customer and
internal supplier for other processes.
Within each of these processes is another network of individual units of resource such as
individual people and individual items of process technology (machines, computers, storage
facilities, etc.). When the overall system is analysed, it becomes clear that there is an
interdependce between these operations, this network is called the supply network.
A process perspective can be used at three levels: the level of operation itself, the level of
the supply network and the level of individual processes. This idea is called the hierarchy of
operations, and is illustrated for a business that makes television programmes and videos.
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Operations Characteristics (The Four V’s)
Although all operations processes are similar in that they all transform inputs, they do differ
in a number of ways, four of which, known as the four Vs, are particularly important:
• The volume of their output;
• The variety of their output;
• The variation in the demand for their output;
• The degree of visibility which customers have of the creation of their output.
All four dimensions have implications for the cost of creating and delivering services and
products. Put simply, high volume, low variety, low variation and low customer contact all
help to keep processing costs down. Conversely, low volume, high variety, high variation
and high customer contact generally carry some kind of cost penalty for the operation. To
some extent, the position of an operation in the four dimensions is determined by the
demand of the market it is serving. However, most operations have some discretion in
moving themselves on the dimensions.
Operations and processes can (other things being equal) reduce their costs by increasing
volume, reducing variety, reducing variation, and reducing visibility.
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Role of Operations Managers
The exact details of what operations managers do will, to some extent, depend on the way
an organization defines the boundaries of the function. Yet there are some general classes
of activities that apply to all types of operation irrespective of whether they are service,
manufacturing, private or public sector, and no matter how the operations function is
defined. The classification of operations management activities can be defined under four
headings; direct, design, deliver and develop.
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Directing the overall nature and strategy of the operation. A general understanding
of operations and processes and their strategic purpose and performance, together
with an appreciation of how strategic purpose is translated into reality, is a
prerequisite to the detailed design of operations and process.
Designing the operations services, products and processes. Design is the activity of
determining the physical form, shape and composition of operations and processes
together with the service and products that they create.
Planning and control process delivery. After being designed, the delivery of services
and products from suppliers and through the total operation to customers must be
planned and controlled.
Developing process performance. Increasingly it is recognised that operations
managers, or indeed any process managers cannot simply routinely deliver services
and products in the same way that they always have done. They have a responsibility
to develop the capabilities of their processes to improve process performance.
Operations Strategy
No organisation can plan in detail every aspect of its current or future actions, but all
organisations need some strategic direction and so can benefit from some idea of where
they are heading and how they could get there. This is the operations strategy of the
company. This can be described through the following ideas;
• Setting broad objectives that direct an enterprise towards its overall goal.
• Planning the path that will achieve these goals.
• Stressing long-term rather than short-term objectives.
• Dealing with the total picture rather than stressing individual activities.
• Being detached from, and above, the confusion and distractions of day-to-day
activities.
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Hierarchy of Business Activities
Every industry has variations in this process; in
particular with timescales, for example, long
term planning duration;
• Mobile apps is ~1 year
• Automotive is ~3-5 years
• Civil engineering projects are ~10 years
Sequence
Strategic Planning
External
Strategic
This is often split into two main categories of
focus; strategic and tactical, these relate to an
external and internal focus respectively.
Focus
(Developing corporate,
marketing & operations
strategies)
Marketing
Selling
Internal
Tactical
There is often a hierarchy of Business Activities,
Feedback
Operations
Financial Control
Operations & Supply Management: The design, operation, and improvement of the
systems that create and deliver the firm’s primary products and services.
Operations Management: Operations management uses resources to appropriately
create outputs that fulfil defined market requirements.
Very few industries are monopolies, therefore, there is often considerable power of
consumers to define product requirements.
Case Study: Operations Management @ IKEA
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Design a store layout which gives smooth and effective flow
Ensure that the jobs of all staff encourage their contribution to business success
(job enrichment)
Continually examine and improve operations practice
Monitor and enhance quality of service to customers
Arrange for fast replenishment of products
Maintain cleanliness and safety of storage area
Size stores of an appropriate size in the most effective locations
Design elegant products which can be flat-packed efficiently
This process is a constant process that is dynamic and evolving. The original strategy is
very innovative – taking advantage of a unique competitive advantage and efficient
operations (cheap food, childcare, giving longer to shop).
There are a number of issues, for example, too many customers making stores too busy,
city centre stores lacking capacity, large time-consuming stores…
To solve these issues, there are a range of potential improvements, these include;
• Expansion of stores, but with fast track routes to improve flow.
• Less queueing – more staff, express checkouts for fewer items.
• Redesign car parks for capacity and for loading areas.
• Centralised warehouse for popular items (improve distribution).
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Comparing Manufacturing and Construction
Manufacturing
• Setting up a new factory only occurs rarely.
• Transforming resources are already in place.
• Only need to focus on flow of materials and people to deliver products & services.
• Far less waste to dispose of.
• Larger body of research and best practice.
Construction
• Every job involves setting up a new ‘site’ (or factory).
• No transforming resources in place.
• Equal focus on flow of transforming and transformed inputs.
• Far more waste to manage.
• Much smaller body of research and best practice
Processes: An arrangement of resources that produces some mixture of goods and services.
Internal supplier: Processes or individuals within an operation that supply products or
services to other processes or individuals within the operation.
Internal customer: Processes or individuals within an operation that are the customers for
other internal processes or individuals’ outputs.
Supply network: The network of supplier and customer operations that have relationships
with an operation.
‘End-to-end’ business processes: Processes that totally fulfil a defined external customer
need.
Variety: The range of different products and services produced by a process, a key
characteristic that determines process behaviour.
Standardization: The degree to which processes, products or services are prevented from
varying over time.
Customer contact skills: The skills and knowledge that operations staff need to meet
customer expectations.
Designing Operations
Organising follows from strategy;
Strategy dictates what you do
Organisation dictates how you do it
Organising is the deployment of organisational resources to achieve strategic goals.
Organising the Vertical Structure
1. The set of formal tasks assigned to individuals and departments.
2. Formal reporting relationships, including lines of authority, decision responsibility,
number of levels and span of control.
3. The design of systems to ensure effective coordination of employees across
departments.
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Work Specialisation: The division tasks into individual jobs called division of labour
Chain of Command: A line of authority that links individuals and direct reports.
Authority, Responsibility & Delegation
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The chain of command illustrates authority
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Authority is the formal and legitimate right to make decisions and issue orders.
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o Authority is vested in organisational positions, not people.
o Authority is accepted by subordinates
o Authority flows down the vertical hierarchy
Responsibility is the duty to perform the task or activity assigned
Delegation is the process managers use to transfer authority and responsibility to
others.
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