Business Services – Operations Management
Session 1 – Introduction & Overview
Business Services –
Operations Management
Session 1 – Introduction &
Overview
Facilitator:
Dr. Jonathan Farrell
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This Evening’s Program
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Introductions
Unit outline
Lecture - Introduction to Operations Management
Case Studies – Concept Design Services, Central Evaluation Unit class discussion
• Little’
Little’s Law
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Business Services – Operations Management
Session 1 – Introduction & Overview
Plagiarism
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Plagiarism: “using the work of another person and presenting it as your
own”
If you use any source material from another source (e.g. text graphics,
charts, diagrams, etc.) you must acknowledge that source
Contrary to popular belief, Plagiarism is easy to detect
Your assignments will be checked for plagiarism, both manually and
electronically
For more information, go to www.student.mq.edu.au/plagiarism
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Introductions
(1 minute maximum)
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Name
Organisation
Position
Type of operation
Why are you here?
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Business Services – Operations Management
Session 1 – Introduction & Overview
Course Objectives
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Gain an appreciation of technologies available, and how they
are applied to operations.
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Develop an ability to integrate these technologies with
corporate and operations strategies.
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Recognis
Recognise how successful operations
operations management can lead to
sustainable competitive advantage.
dvantage.
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Understand the dynamics of change management and the
effects of changes on organisation culture.
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The operations function is fashionable!
The consultancy services market
% of world revenues of 40 largest firms
Financial
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Marketing/sales
2
Organizational design
11
Operations and process
management
31
Benefits/Actuarial
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IT strategy
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Corporate strategy
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Business Services – Operations Management
Session 1 – Introduction & Overview
Kitchen unit
manufacturing
operation
Back office
operation in a
bank
They are all
operations
Retail
operation
Take-out /
restaurant
operation
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A general model of operations management
ENVIRONMENT
Operation’s
strategic objectives
Operations
strategy
The operation’s
competitive role
and position
Input
transformed
resources
Materials
Information
Customers
Facilities
Staff
Input
transforming
resources
Design
Improvement
Output products
and services
Input resources
Customers
Planning and
control
ENVIRONMENT
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Business Services – Operations Management
Session 1 – Introduction & Overview
Where does the business get
its competitive advantage?
The “technological”
technological”
specification of its
product/service?
Product/
Service
Technology
The way it
produces its
goods and
Operations services?
Marketing
The way it
positions itself
in its market?
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The three functions working together ....
eg. Swatch
Further
innovations
Innovative
plastic design
with few parts
which
gives
allows
Mass fashion
orientation
Extended
range
which funds
Product/
service
design
Marketing
Operations
but
also
which
funds etc.
Standardise,
easy to make
product at high
volume so low
cost
Increased variety
does not increase
costs
but because volume
is high
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Business Services – Operations Management
Session 1 – Introduction & Overview
Core and support functions
Core functions
Engineering/
technical
function
Accounting
and finance
function
Support functions
Product/services
development function
Others
Operations
function
Human
resources
function
Marketing
function
Information/
technical (IT)
function
A broad definition of
operations
management
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The position of the operations function
Marketing
Accounting
and finance
Product
development
Operations
Church
Call on
newcomers
Manage
appeals
Retranslate
scriptures
Conduct
weddings
Fast food
chain
Advertise on
television
Pay
suppliers
Design
hamburgers
Make
hamburgers
Furniture
manufacturer
Sell to
stores
Pay staff
D esign new
furniture
Assemble
furniture
Process
perspective
Identify
needs
Raise
capital
D evelop
product
Make and
distribute
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Business Services – Operations Management
Session 1 – Introduction & Overview
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 processed by an operation
Every service you consumed today (radio station, bus
service, 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
We will start by examining a “high street” operation
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Some operations management activities
at IKEA
Design elegant products
which can be flat-packed
efficiently
Site stores of an
appropriate size in
the most effective
locations
Design a store layout
which gives smooth and
effective flow
IKEA STORE
Maintain cleanliness
and safety of storage
area
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
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Business Services – Operations Management
Session 1 – Introduction & Overview
Pret a Manger
“High-end” sandwich and
snack retailer
Use only “wholesome” ingredients
All shops have own kitchens which make fresh
sandwiches every day
Fresh ingredients delivered early every morning
Same staff who serve you at lunch made the sandwiches
that morning
“We don’t work nights, we wear jeans, we party…”
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The three basic functions at
Pret a Manger
Nutritional “mechanical” and aesthetic
design of the sandwiches and snacks
Product/
Service Technology
Marketing
Promotional activities,
market research, etc.
Operations
Design, location and
management of stores and
in-store processes and the
network that supplies them
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Business Services – Operations Management
Session 1 – Introduction & Overview
All operations are transformation
processes
TRANSFORMED
RESOURCES
ENVIRONMENT
MATERIALS
INFORMATION
CUSTOMERS
INPUT
TRANSFORMATION
PROCESS
OUTPUT
GOODS
AND
SERVICES
FACILITIES STAFF
TRANSFORMING
RESOURCES
ENVIRONMENT
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At Pret a Manger
TRANSFORMED
RESOURCES
ENVIRONMENT
Food ingredients
Packaging
Customers
INPUT
TRANSFORMATION
PROCESS
OUTPUT
CUSTOMERS
“ASSEMBLED”
TO SNACKS
Kitchen equipment
Shop fittings, Staff
TRANSFORMING
RESOURCES
ENVIRONMENT
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Business Services – Operations Management
Session 1 – Introduction & Overview
Operations Management – Basic
Principles
Operations
management is
concerned with
producing and
delivering products
and services
Materials
Information
Customers
Products and
services
All types of enterprise have an operations function, even if it
isn’t called ‘operations.
Most operations produce both products and services.
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Television programme and video
production company
Wood, steel
plastic etc.
Carpenters
Machines
Set and props
manufacture
Scenery
and props
Information
from customers
Marketing and
sales
Computer
systems
Surveys and
analysis staff
Broadcasting and
programme making
equipment
Test and repair
equipment
Engineering
Market
forecasts,
sales
proposals
and plans
Adapted,
maintained
and repaired
equipment
Staff
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Business Services – Operations Management
Session 1 – Introduction & Overview
The two main processes at a
Pret a Manger store
INPUT
Bread, mayo,
fillings, packing,
etc.
Sandwich
production
TRANSFORMATION
PROCESS
OUTPUT
Packed, fresh
sandwiches
Staff
Packed, fresh
sandwiches
Staff
Sandwich
production
Satisfied
customers
“assembled” to
sandwiches
Customers
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The three core functions as transformation
process ‘operations’
operations’
Designers
Design
software
Producing
effective new
products and
services
Appropriate
designs as
promised and
to budget
Product/
services
development
function
Operations
function
Transformed/
transforming
resources
Producing
service value for
customers
Marketing
function
Products
and services
Sales people
Marketeers
Market
information
Producing
sales and
market plans
Orders
Marketing plans
as promised
and to budget
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Business Services – Operations Management
Session 1 – Introduction & Overview
Intangible
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to judge
Psychotherapy clinic
Computer systems
services
Management
consultancy
Tangible
Can be stored
Production precedes
consumption
Low customer contact
Can be transported
Quality is evident
Restaurant
Specialist machine tool
manufacturer
Pure goods
Aluminium smelting
Crude oil production
The output from most types of operation is a
mixture of goods and services
Pure services
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The output from most operations is a
mixture of goods and services
Tangible
Production precedes
consumption
Low customer contact
Can be transported
PSYCHOTHERAPY CLINIC
Quality is evident
MANAGEMENT
CONSULTANCY
COMPUTER SYSTEMS
SERVICES
RESTAURANT
Pret a Manger
SPECIALIST MACHINE TOOL
MANUFACTURER
Can be stored
ALUMINIUM SMELTING
CRUDE OIL PRODUCTION
PURE GOODS
Intangible
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to judge
PURE SERVICES
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Business Services – Operations Management
Session 1 – Introduction & Overview
A Typology of Operations
IMPLICATIONS
IMPLICATIONS
Low repetition
Each staff member performs
more of job
Less systemisation
High unit costs
Flexible
Complex
Match customer needs
High unit cost
Changing capacity
Anticipation
Flexibility
In touch with demand
High unit cost
Short waiting tolerance
Satisfaction governed by
customer perception
Customer contact skills
needed
Received variety is high
High unit cost
High repeatability
Specialisation
Systemisation
Capital intensive
Low unit cost
Low
Volume
High
High
Variety
Low
Well defined
Routine
Standardised
Regular
Low unit costs
Low
Stable
Routine
Predictable
High utilisation
Low unit costs
High
High
Variation in demand
Visibility
Low
Time lag between production
and consumption
Standardised
Low contact skills
High staff utilisation
Centralization
Low unit costs
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Some configurations of Formule 1
prepre-manufactured room units
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Business Services – Operations Management
Session 1 – Introduction & Overview
Profile of two operations
Low
Volume
High
High
Variety
Low
High
Variation
Low
High
Visibility
Low
Island Resort
Formule 1
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Low
Volume
High
High
Variety
Low
High
Variation
Low
High
Low
Visibility
Island
Resort
Hotel
Formule
1 type
Hotel
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?
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Business Services – Operations Management
Session 1 – Introduction & Overview
Pret a Manger and IKEA
4 V’s analysis
Low
Volume
High
High
Variety
Low
High
Variation
Low
High
Visibility
Low
Pret a
Manger
IKEA
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The activities of operations management
OPERATIONS
STRATEGIC
OBJECTIVES
ENVIRONMENT
INPUT
TRANSFORMED
RESOURCES
MATERIALS
INFORMATION
CUSTOMERS
INPUT
FACILITIES STAFF
INPUT
TRANSFORMING
RESOURCES
Operations
strategy
OPERATIONS
STRATEGY
Operations
management
THE
OPERATIONS
COMPETITIVE
ROLE AND
POSITION
IMPROVEMENT
DESIGN
OUTPUT
PLANNING AND
CONTROL
GOODS
AND
SERVICES
ENVIRONMENT
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Business Services – Operations Management
Session 1 – Introduction & Overview
Operations Activities as Feedback Loops
Design activities set the basic configuration
Planning & control activities guide short/medium term changes
Improvement activities guide longer term changes
Design
Planning & Control
Improvement
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Case Study – Central Design Services
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What are the inputs, transformation processes and
outputs?
Why is operations management important to CDS?
Draw the four Vs for CDS’
CDS’s products & services.
What would you recommend to CDS if you were asked
to advise on improving its operations?
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Business Services – Operations Management
Session 1 – Introduction & Overview
Process Design
Processes that Design
Products
and Services
Processes that
Produce Products
and Services
Supply Network Design
Concept Generation
Screening
Layout
and Flow
Preliminary Design
Evaluation and
Improvement
Process
Technology
Job
Design
Prototyping and final design
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Nature and purpose of the design activity
Products, services and the processes which
produce them all have to be designed
Decisions taken during the design of a product or
service will have an impact on the decisions taken
during the design of the process which produces
those products or services and vice versa.
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Business Services – Operations Management
Session 1 – Introduction & Overview
The purpose of design is to satisfy
customers
Product designers will seek to create things that:
- are aesthetically pleasing;
- satisfy needs;
- meet expectations;
- perform well;
- are reliable;
- are easy to manufacture and deliver.
Operations managers tend to focus on the design of the
transformation process
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Design of the
Product
Design of the
Process
In manufacturing operations
overlapping the activities of
product and process design is
beneficial
Design of the
Service
Design of the
Process
In most service operations the
overlap between service and
process design is implicit in the
nature of service
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Business Services – Operations Management
Session 1 – Introduction & Overview
Designing the
Product or Service
Products and services
should be designed in
such a way that they can
be created effectively
Designing the
Processes that
Produce the Product or
Service
Processes should be
designed so they can
create all products and
services which the
operation is likely to
introduce
Decisions taken during the design of the product or service will have an
impact on the process that produces them and vice versa
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TRANSFORMED
RESOURCES
Technical information
Market information
Time information
INPUTS
THE DESIGN
ACTIVITY
Test and design
equipment
Design and technical
staff
Finished designs which are:
High quality
Speedily produced
OUTPUT
Dependably delivered
Produced flexibly
Low cost
TRANSFORMING
RESOURCES
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Business Services – Operations Management
Session 1 – Introduction & Overview
Relatively early in the design activity the
decisions taken will commit the operation
to costs which will be incurred later
100%
Percentage of final
product cost
committed by the
design
Percentage of
design costs
incurred
0%
Finish of the
design activity
Start of the
design activity
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Broad categories of evaluation criteria for assessing
design options
THE CRITERIA FOR ASSESSING
PROPOSED DESIGN OPTIONS
FEASIBILITY
ACCEPTABILITY
VULNERABILITY
How difficult is
it?
How worthwhile is
it?
What could go
wrong?
What RETURN
in terms of financial and
performance improvement
will it give?
What RISKS
do we run if things
go wrong?
What INVESTMENT both
managerial and financial
will be needed?
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Business Services – Operations Management
Session 1 – Introduction & Overview
Process Mapping Symbols
Operation (an activity that
directly adds value)
Beginning or end of process
Inspection (a check of
some sort)
Activity
Transport (a movement of
some thing)
Input or Output from the process
Delay (a wait, e.g. for materials)
Direction of flow
Storage (deliberate storage, as
opposed to a delay)
Decision (exercising discretion)
Process mapping symbols derived from
Systems Analysis
Process mapping symbols derived
from “Scientific Management”
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Process Mapping – An Example
Raw
Materials
Assembly
Stored
Sandwiches
Move to
Outlets
Stored
Sandwiches
Sell
Take Payment
Standard sandwich process
Customer Request
Raw
Materials
Assembly
Take Payment
Customer Request
Customised sandwich - old process
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Business Services – Operations Management
Session 1 – Introduction & Overview
The operation of making and
selling customised sandwiches
Prepare
Sandwich materials
and customers
Assemble as
required
Bread and
Base filling
Take
payment
Customers
“assembled” to
sandwiches
The outline process of making and
selling customised sandwiches
Assemble whole
sandwich
Use standard
“base”?
No
Yes
Fillings
The detailed process of
assembling customised
sandwiches
Customer Request
Assemble from
standard “base”
Stored
“Bases”
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Customised sandwich new
process
Assemble whole
sandwich
Assembly of
“sandwich
bases”
Use standard
“base”?
Take
Payment
No
Fillings
Yes
Bread and Base
filling
Customer Request
Stored “Bases”
Assemble from
standard “base”
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Business Services – Operations Management
Session 1 – Introduction & Overview
‘Two handed’ process chart
Right hand
Left hand
Wait
Pick up base plate
Insert into fixture
Hold base plate
Pick up two supports
Locate back plate
Pick up screws
Locate screws
Pick up air driver
Fasten screws
Wait
Replace air driver
Pick up centre assembly
Inspect centre assembly
Hold centre assembly
Locate and fix
Switch on timer
Wait to end test
Inspect
Inspect
Transfer grasp
Transfer grasp
Wait
Put aside
45
Service process
types
High
High
Manufacturing
process types
Project
Professional
service
Service shop
Variety
Variety
Jobbing
Batch
Mass
Low
Volume
High
Mass service
Low
Low
Contin-uous
Low
Volume
High
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Business Services – Operations Management
Session 1 – Introduction & Overview
Project Processes
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OneOne-off, complex,
omplex, large scale, high work content “products”
products”
Specially made, every one customis
customised
Defined start and finish: time,
ime, quality and cost objectives
Many different skills have to be coordinated
Fixed position layout, resources brought to product
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Jobbing Processes
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Very small quantities: “one-offs”, or only a few required
•
Specially made. High variety, low repetition. “Strangers”
•
Skill requirements are usually very broad
•
Skilled jobber, or team of jobbers complete whole product
•
Fixed position or process layout (routing decided by jobbers)
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Business Services – Operations Management
Session 1 – Introduction & Overview
Batch Processes
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•
•
Higher volumes and lower variety than for jobbing
Standard products, repeating demand. But can make specials
Specialized, narrower skills
Set-ups (changeovers) at each stage of production
Process or cellular layout, predetermined planned routing
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Mass (Line) Processes
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•
•
•
•
Higher volumes than Batch
Standard, repeat products (“runners”)
Low and/or narrow skills
No set-ups, or almost instantaneous ones
Cell or product layout: a fixed sequence of operations
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Business Services – Operations Management
Session 1 – Introduction & Overview
Continuous Process
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•
•
•
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Extremely high volumes and low variety: often single product
Standard, repeat products (“runners”)
Highly captial-intensive and automated
Few changeovers required
Difficult and expensive to start and stop the process
Product layout: usually flow along conveyors or pipes
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The Product/Process Matrix
INCREASING VARIETY
INCREASING VOLUME
PRODUCT CHARACTERISTICS
PROCESS CHARACTERISTICS
Low volume
Low
standardisation
Low volume
Multiple products
Higher volume
Few major
products
High volume
High
standardisation
Random
flow
(project)
Jumbled
flow
(jobbing)
Disconnected
line flow
(batch)
Connected
line flow
(mass)
Smooth flow
(Continuous)
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Business Services – Operations Management
Session 1 – Introduction & Overview
The Product/Process Matrix
INCREASING VARIETY
INCREASING VOLUME
PRODUCT CHARACTERISTICS
PROCESS CHARACTERISTICS
Low volume
Low
standardisation
Low volume
Multiple products
Random
flow
(project)
Higher volume
Few major
products
High volume
High
standardisation
Too much
flexibility so high
costs
Jumbled
flow
(jobbing)
Disconnected
line flow
(batch)
Connected
line flow
(mass)
Smooth flow
(Continuous)
Too little
flexibility so high
costs
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The Product/Process Matrix
INCREASING VARIETY
INCREASING VOLUME
PRODUCT CHARACTERISTICS
PROCESS CHARACTERISTICS
Low volume
Low
standardisation
Random
flow
(project)
Jumbled
flow
(jobbing)
Disconnected
line flow
(batch)
Connected
line flow
(mass)
Smooth flow
(Continuous)
Custom
furniture
maker
Low volume
Multiple products
Higher volume
Few major
products
High volume
High
standardisation
Machine
tool maker
Automobile
factory
Petrochemical
refinery
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Business Services – Operations Management
Session 1 – Introduction & Overview
The Product/Process Matrix
INCREASING VARIETY
INCREASING VOLUME
PRODUCT CHARACTERISTICS
PROCESS CHARACTERISTICS
Low volume
Low
standardization
Random
flow
(project)
Jumbled
flow
(jobbing)
Low volume
Multiple products
Higher volume
Few major
products
High volume
High
standardization
Investment
banking
Customer
service
branch
Disconnected
line flow
(batch)
Bank call
centre
Connected
line flow
(mass)
Credit card
processing
Smooth flow
(Continuous)
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Deviating from the ‘natural’
natural’ diagonal on the
productproduct-process matrix has consequences for
cost and flexibility
Manufacturing
operations process
types
Service operations
process types
Volume
Variety
Project
None
Jobbing
More process
flexibility
than is
needed so
high cost
Batch
Mass
Continuous
Less process
flexibility
than is
needed so
high cost
None
Professional
service
Service
Shop
Mass
service
The ‘natural’ line of fit of process
to volume/variety characteristics
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Business Services – Operations Management
Session 1 – Introduction & Overview
Case Study – Central Evaluation Centre
Processing Unit
•
•
•
•
•
•
Construct a Process Map for the new applications
Calculate the cycle time for the process
Calculate the number of people involved in the
processing of an application
Why is it difficult to locate an individual file?
What are the problems?
What suggestions would you make to Veronique to
improve her process?
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CECPU Process Map
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Business Services – Operations Management
Session 1 – Introduction & Overview
Process Cycle Time
The total work in progress (applications in the in-trays) = 600 + (4 × 130) + 220
= 1340 applications
Average throughput time = 36 working days
Therefore, from Little’s Law: Throughput time = cycle time × work in progress (and working in
hours)
36 × 7 = cycle time × 1340
Therefore, cycle time = (36 × 7)/1340 = 0.188 hours
In other words, a fully processed application form is emerging from the process every 0.188
hours.
That is, in a 35 hour week, the Centre will process 35/0.188 = 186.17 applications per week
This is an important finding because 200 applications per week are entering the process, but
only 186.17 applications per week are emerging from the process. In other words, inventory
must be building up within the process.
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Little’s Law
Throughput (TH) = Work in process (WIP) × Cycle time (CT)
Cycle time =
2 minutes
WIP = 10
Throughput time = ?
Throughput time = 10 × 2 minutes
= 20 minutes
Also stated as:
“The average number of customers in a stable
system (over some time interval) is equal to their average
arrival rate, multiplied by their average time in the system. “
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Business Services – Operations Management
Session 1 – Introduction & Overview
Little’s Law
Throughput (TH) = Work in process (WIP) × Cycle time (CT)
500 exam scripts need to be marked in 5 days (working 7 hours a day).
It takes 1 hour to mark a script. How many markers are needed?
Throughput time = 5 days × 7 hours = 35 hours
35 hours = 500 scripts × Cycle time
Cycle time =
35 hours
500 scripts
= 0.07 hours
Number of markers = Work content = 1 hour = 14.29
Cycle time
0.07
61
Little’s Law – An Example
Think of a tank of water with a constant inflow and a constant,
identical outflow.
In this analogy, the input tap represents orders coming to the
factory. The outlet tap represents finished product. Water in the
tank represents WIP inventory. Average throughput or dwell time
in the tank is 100 minutes.
(If we set the level to 100 gallons and maintain the same flow,
throughput time is only 10 minutes).
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Business Services – Operations Management
Session 1 – Introduction & Overview
Throughput efficiency
Throughput efficiency is the work content of whatever is being
processed as a percentage of its throughput time
Throughput efficiency =
Work content
Throughput time
× 100
63
Little’s Law – More Examples
• At the supermarket a checkout operator has on average 4
customers and customers arrive every 2 minutes. Therefore
customers on average will be in line for 8 minutes.
• A restaurant holds about 60 people, and the average person
will be in there about 2 hours, so they're entering at the rate of
about 30 people an hour. The queue for the restaurant has 30
people in it, so that means I'll wait about an hour for a table.
• A financial services organisation receives on average 160
enquiries per day about its products and services. If it takes
around 30 minutes to process each enquiry and management
want to ensure each enquiry is responded to on the same day
its received, how many people are needed to process the
enquiries?
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