Operations Management

Roger Bradburn

Learning Objectives
By the end of this session students should be able to: Understand the meaning of operations management in the context of business strategy. Appreciate how the external environment impacts on operations management. Review the similarities and differences between different types of operations. Critically review the place of operations management in the creation of competitive advantage. Trace the development of operations management since its inception.

Required Reading
Slack et al (2007) Operations Management, Fifth edition Pearson Prentice Hall. Chapters One to Three.

Operations Management Week One

An Introduction to Operations Management

Operations Management
What is Operations Management? Operations management is concerned with creating, operating and controlling a transformational system that takes inputs of a variety of resources and produces outputs of goods and services need by Customers (J Naylor 2002)

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Some key points! Operations are about transformational systems something that changes one thing into another. Turning food into a meal, turning steel into a car. These are all examples of transformational systems.

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Some key points! Operations have a range of outputs. Outputs can be tangible products such as a computer or intangible such as an insurance policy.

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Operations are important because you can have the best marketing, the best human resources/people and the best financial management in the world but if your operations do not work well you will not succeed.

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Some examples! Low cost airlines like Easy jet and Ryanair depend on operations for success. Operations management ensures that their costs remain low and this provides strategic advantage.

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Some examples! High street chain Zara uses a just in time manufacturing system to ensure that the clothes in their store are up to date and that their stocks are not too high. This gives great customer flexibility.

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Some examples! Car manufacturers such as Toyota and VW have developed impressive quality systems that ensure their products sell well and often for premium prices.

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The Evolution of Operations Management. You will have studied in other classes how business developed over the last 150 years. One key point to note is that these developments happened because of changes in the external environment.

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We could start with the Production Era: Emphasised high volume and low cost. Used Scientific Management techniques with task specialisation as developed by F. W Taylor, Henry Ford and others. Existed at a time when demand exceeded supply.

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The Sales Era As supply increased, the emphasis was on selling more and getting rid of the product. The emphasis in organisations changed to the Human Relations School. Mathematical modelling and related techniques began to become popular.

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The Marketing Era. The emphasis changed progressively to the customer as supply continued to grow. The systems view we will talk about later became popular.

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What is the role of the Operations Manager? Ensure that products/services are delivered efficiently and effectively to the customer. Planning resources. Working with other functions:

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Operations Managers must work with: The Product/service design function. If we get the design of the new product right then it will be easier to make/deliver etc.

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Operations Managers must work with: The Marketing Function ensuring that the goods or services are available to be sold. What happens if we run out? Human Resources operations need people. Operations Managers need to forecast the demand for people so they can be hired, particularly in difficult labour markets.

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The Finance/Accounting Function most things to do with operations cost money! Raw materials, wages, capital equipment etc. will all be needed and very often the purchase will need to be planned to ensure good cash flow and capital utilisation.

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Social Responsibility not a function as such but a key stakeholder. Operations Managers concern themselves with such issues as pollution, global warming, the safety of their staff and customers etc.

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Not all operations are the same! As noted by Slack (2007) in the text book Operations tend to vary in four ways: The volume of their output. The variety of their output. The variation of their output. The visibility of that customers have of their output.

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Some examples! Volume McDonalds sells to around 2 million people each day in the UK alone! Volume usually suggests task specialisation and cost reduction through economies of scale.

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Some examples! Variety customers of Rolls Royce can have almost any colour they like if they are prepared to pay for it! Variety suggests greater flexibility but also lower volumes.

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Some examples! Variation in the UK sales of soft drink and Ice cream rocket when the temperature goes over 20 deg c. This means that Ice Cream and Soft Drink manufacturers see a wide change of demand over the year.

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Some examples! Visibility some operations are invisible in that you never see them. Others, often in services, are very visible. Visible services are a challenge because the customer is very aware of the time it takes and how it is done.

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Environmental Issues. We said earlier that environmental issues are critical in operations. Operations tend to create waste and environmental problems

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Operations Management as part of a System.

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A quick reminder! Early writers such as Taylor and Fayol worked on the scientific engineering the best methods They worked on a set of rules that would provide good results if followed. The emphasis was on workers almost as machines and technical issues.

Operations Management
A quick reminder! The Human Relations School (Elton Mayo and others) put more emphasis on people and the human aspects of work through the famous Hawthorne Experiments.

Operations Management
Human Relations School
Dates back to 1927 and a major study of work practices at the Western Electric Companys plant in Hawthorne was undertaken by Harvard University. A twelve year study of 21,000 employees in a bank wiring room. The basis of the experiment was to explain the relationship between light levels in the plant and worker productivity.

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Human Relations School
The basis of the finds was that irrespective of the light level changes, performance improved. This also applied to other changes in the environment.

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Became known as the Hawthorne Effect.
The fact that they were being experimented on changed behaviour. The friendly supervision of the observer helped new social groups to develop and gave workers lives a new meaning.

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After the Second World War the emphasis moved to forecasting and the development of Management Science Research moved on to focus on the behavioural aspects of operations.

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The basic problem with these views is that they all focus on one part of the story. The systems school of thinking aims to relate the whole system together.

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For example! A decision to sell more may have an impact on quality, human resources, space, finance, purchasing and overall business strategy.

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As Slack (2007) points out in the text book, there are three types of operations: Materials transformation. Information processing. Customer processing.

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Materials Transformation: Factories take raw materials and turn them into finished goods, say. Moving goods from one place to another logistics is another example.

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Information Processing Information can be transferred, stored or actually made into a product, such as a computer game. The use of Data Mining has Web Based Marketing has revolutionised business in recent times.

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The sub systems of an organisation might include: Goals and values sub system. Technical sub-systems. Psychological sub systems. Structural sub-systems. Management sub-systems.

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The systems approach recognises that each of these subsystems works together and is constantly changing according to the external (PEST) environment.

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Thing that might impact us might be: The Business Cycle. The Industrial Life Cycle Exogenous Shocks Changes in culture such as the interest in green issues.

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Performance Objectives A key question in operations management is, what do we want?

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Slack et al (2007) suggest that objectives can be put into five categories: Cost Speed Quality Dependability and Flexibility.

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In the early years of the 20th Century quality was not so critical. There were no product liability laws, no consumer legislation. Demand exceeded supply so price was critical. This is still the case in some developing countries and certain markets today.

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Some costs are more flexible than others: Staff costs can be adjusted but legislation may control this. A mass redundancy may save costs in the short run but cause a publicity disaster. Material costs may be influenced by market variations.

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Speed is increasingly important: New products have to be released more quickly to meet market demands. Product life cycles are getting shorter. High stock turnover reduces costs. Services have to deliver immediately to cope with consumer demand.

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Quality As discussed is increasingly about conformance to requirements and effectiveness. The definition of quality is changing over time.

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Dependability Being able to deliver every time is taken for granted by customer these days.

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Flexibility:
This can include more flexible organisational structures but also working conditions. Workers have to be more flexible these days and Unions, employment legislation and demarcation are important considerations.

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Conclusions!
This week, we have reviewed the concept of operations management. We have noted: That operations management has a major impact on the organisation. That operations management is highly influenced by the external environment. That it has developed considerably over the past 100 years and will continue doing so.