Lecture slides

Operations Management in
Learning Objectives
To understand and define operations
To introduce operation management
concepts and theories
• ‘operations management is the day-to-day
management of the site. It is about marshalling the
attraction’s resources, notably the staff and physical
equipment such as machinery, to provide a
satisfactory service for the customer and an
acceptable rate of return on the use of these
resources. The goal of operations management at
attractions is the smooth and efficient operation of
the site. … In a sense it could be said that everyone
on site is involved in operations management as, in
a service activity, everyone is part of the operation.
Furthermore, the activities of financial, human
resources and marketing managers also have an
effect on how the site operates.’
(Swarbrooke, 2002)
Management Activities
Product development
Design of the venue and services
Management of customers
Organization and training of staff
Management of buildings and equipment
Management and monitoring of quality issues
Matching of supply and demand
Measuring customers’ satisfaction levels
Crisis management
Revenue and pricing management
Risk management
Management of operating systems, e.g. stock control and ordering
Forecasting and planning
(Adapted from McMahon-Beattie and Sharples, 2004, p. 29)
• Choose a business of your choice in
the hospitality or tourism sector
• You have 20 minutes in which to
research a range of information that
considers legislative, economic and
technological considerations
Using SWOT effectively
Using SWOT within the framework below allows the integration of PEST
factors for a better depth of analysis
Table 4.5 Components of SWOT analysis (Tribe, 1997)
Internal (resource) analysis
Resource audit
Performance monitoring
Evaluation of products
External (environmental) analysis
Competitive environment
Political environment
Economic environment
Socio-cultural environment
Technological environment
Strengths & Weaknesses
Opportunities & Threats
External Analysis
• These are the steps involved in
carrying out an external analysis
Assess the nature of the environment
Audit environmental influences
Identify key competitive forces
Identify competitive position
Identify key opportunities and threats
(Johnson and Scholes, 1999)
Benefits of Macroenvironmental analysis
• Increased managerial awareness of environmental
• Increased understanding of the context in which
industries and markets function
• Increased understanding of multinational settings
• Improves resource allocation
• Focuses attention on the primary influences on
strategic change
• Provides time to anticipate opportunities and
threats and devise appropriate responses
(Ginter and Duncan, 1990 cited from Evans, 2003)
Carrying out a PESTLE
• Appraise the impact of different factors
– don’t just list them!
• PEST factors change over time
– keep analysis of the past distinct from present
– and future
– demonstrate impact of key developments
• Don’t get fixated by PEST categories
– the important thing is to find the key factors
– the labels do not matter at all!
(Habererg and Rieple, 2000)
Product Service Design
• The service design process
– ‘services that are allowed to “just happen” rarely
meet customer needs’
(Russell and Taylor, 2008, p. 187)
• Think of successful global companies
– McDonald’s, Disneyworld – they are all a product of
impeccable design:
• e.g. McDonald’s employees 49 steps to perfect fries
• (Job Design later)
Product Service Design
• Service concept
– Identifies the target market and their expectations
– Identifies how it differentiates from others
– How it will compete in the marketplace
• Services are ‘successful’ if they fill a niche or
differ in their operation, e.g.
– Amazon online services
– eBay global auctions
Service Package
• A well designed service could provide the
company with a competitive advantage
• As the objective of any service is to satisfy
customer needs, then the design of a service
should be based around the customer
• The mixture of physical items, sensual and
psychological benefits
Service Package
• The service package consists of
– Core service
– Supporting goods and services
– Facilitating goods and services
• The value concept and relationship marketing
(European Journal of Marketing, 1998)
Capacity Management
• Definitions
• ‘The objective of capacity management is to
match the level of operations with the level of
demand so as to find the best balance
between costs and service levels’
(Armistead et al., 1987)
Capacity Management
• ‘Capacity management is an essential
responsibility of the operations function. The
objective is to match the level of capacity to
the level of demand both in terms of quantity
(how much) and capability (the skill mix to
meet the product/service specification)’
(Hill, 2000, p. 184)
Capacity Management
• Capacity aligned to concept of DEMAND
– It is not easy to understand the concept of demand
in the service industries or how
predictable/unpredictable it is
– Organizations try to make demand as ‘predictable’
as possible – this is known as dependent demand
Capacity Management
• Three strategies (quantitative and qualitative)
to reconcile capacity and demand:
1. Level capacity
2. Chase demand
3. Demand management
(Greasley, 2005)
Capacity Management
• Level capacity
– Sets processing capacity at a uniform level
throughout the planning period regardless of
fluctuations (usually to meet ‘average’ demand)
– Inventory used to absorb variations
Chase Demand Plan
• Matches output to demand levels over time.
• Capacity is adjusted by manpower planning
policies such as changing the number of staff,
more part time, seasonal staff, overtime
working, subcontracting etc.
e.g. fast food outlets
Chase Demand Strategies
• Staggered work shift schedules
– Construct work shifts to match demand peaks
• Part time staff
– Trade off through additional employment costs
• Subcontractors
– Outside sources agencies – disadvantages?
Multi-skilled floating staff
– Movable capacity – additional training costs
• Customer self service
– Service capacity arrives when demand does
Demand Management
• This approach attempts to change demand to
fit capacity
– e.g. transfer customer demand from peak to quiet
– Achieved through: altering the marketing mix
Demand Management
• Varying the price
– Discounts at low demand times
• Advertising
– Used to increase sales
• Alternative products during low demand
– Tourist venues firework displays/carol services
• Appointment system
– Used to smooth demand
What is Revenue
• ‘Revenue management (RM) or yield
management marries the issues of supply
demand and price when the organization is
constrained by capacity’
• ‘...finding the optimum price for the leisure
experience at a specific time period is a
challenge for the leisure manager’
(McMahon-Beattie, 2004, pp. 154–155)
Revenue Management
• This pays particular attention to income
generation for the organization and should be
based around
Time of use
Length of use
Category of user
Availability of spare capacity
Impact on resources
Scope to develop additional income streams
Scope to increase secondary spend
(Adapted from Robinson, 2009, p. 88)
Yield Management
• Yield Management is ‘a revenue maximization
technique which aims to increase net yield through
the predicted allocation of available … capacity to
predetermined market segments at optimal price’
(Donaghy et al., 1997)
• The ideal environment for the successful application
of yield management techniques is one in which
– capacity is relatively fixed but demand is variable
– the market can be readily segmented
– the product is perishable and can be sold in advance of
– the marginal cost of making the sale is low
(Kimes, 2000)
• A business’s productivity can be measured
and used to determine ‘organizational wellbeing’
• Productivity provides ‘a better reflection of the
robustness and quality of the underlying
policies and management practices’
• Productivity measures can be used as an
alternative to measures of profitability in
gauging the health of a business
(Leask and Yeoman (eds.), 1999)
The Measurement of
Productivity: Key Principles
• ‘Productivity is low to begin with, because work has
to be done in setting up the process … or because
of inadequate resources. Marginal productivity rises,
but eventually falls as people become tired or as
machines require maintenance or because there is
insufficient equipment available.’
(Cullen, 1997)
• ‘productivity is not an absolute. Productivity is only
“good” or “high” when compared to competitors or
when compared to the productivity of the
organization in a preceding period.’
(Leask and Yeoman, 1999)
• Definitions
• ‘accurate forecasts are an important factor in
enabling organisations to deliver goods and
services to the customer when required and
thus achieve a quality service’
(Greasley, 2008, p. 256)
Task – 10 minutes
• What information is needed to produce
‘accurate’ forecasts?
Forecasting (Capacity Link )
• ‘Forecasting is an essential responsibility of
the operations function. The objective is to
match the level of capacity to the level of
demand both in terms of quantity (how much)
and capability (the skill mix to meet the
product/service specification)’
(Hill, 2000, p.184)
Cullen, P. (1997) Economics for Hospitality Management. International Thomson Business Press, London.
Donaghy, K., McMahon-Beattie, U. and McDowell, D. (1997) Yield management practices. In: Yeoman, I. and Ingold, A. (eds)
Yield Management: Strategies for Service Industries. Cassell, London.
Kimes, S. (2000) A Strategic Approach to Yield Management. In: Ingold, A., McMahon-Beattie, U. and Yeoman, I. (eds) Yield
Management, 2nd edn. Continuum, London.
Robinson, P. (2009) Operations Management in the Tourism Industry. CAB International, Wallingford, UK.
Swarbrooke, J. (2002) The Development and Management of Visitor Attractions, 2nd edn. Butterworth-Heinemann, Oxford,