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Chapter 1: Operations management

Study guide

This is the first chapter of the book, and its intention is fairly obvious. Namely to
introduce some of the basic ideas in operations management and provide some
examples to illustrate them. It introduces the general model of operations management
which is used to link together the different topics in operations management and the
different parts of the book. There is nothing sacrosanct about this model, other books
will use slightly different models. What is important is that you realise that it combines
two distinct ideas. The first idea is that all types of business, organisation or enterprise,
large or small, profit making or not-for-profit, .... are processes. This is illustrated by the
‘input resources’ and ‘output products and services’ arrows. The second idea is that, to
make these process work, operations managers do things such as devising strategy,
designing processes, planning and controlling processes, and improving them. So,
operations managers in all types of operation .... have a common set of activities.
This idea is illustrated in the model by the activities in the ovals.

Your learning objectives

This is what you should be able to do after reading Chapter 1, and working through this
study guide.

• Identify the operations function in any kind of organisation.


• Describe any operation in terms of its transforming resources, transformed
resources, operations processes and products and services.
• Describe the micro-operations within in an operation as input transformation -
output processes.
• Define different operations in terms of their position on the ‘four Vs’ of operations
management, volume, variety, variation, visibility.
• Understand the responsibilities of operations managers.

What is operations management?

Operations
management
is the term
used for the
activities
which
produce and
deliver
products and
services.

The important things to remember about operations management are,


• All types of organisation must ‘do’ operations management because all
organisations produce some mixture of products and services. Remember
though that in many organisations the term ‘operations management’ will not be
used. In many smaller organisations operations management may be done by
people who perform many other types of task such as marketing and accounting.
• Operations management is important. The decisions it makes have a major
impact on both the cost of producing products or services and how well the
products and services are produced and delivered which has a major impact on
the revenue coming into the organisation. So, operations management has an
important impact on both revenue and cost and therefore profits. This also
applies to not-for-profit organisations. In a local government service, for example,
good operations management can produce services which satisfy the community
and are produced efficiently. So the community are getting value for money from
their local services.
• Operations management has strategic importance. The box on IKEA in the text
illustrates a company which has been strategically successful because of the
way it manages its operations.

Click here for further details on the IKEA example.

What are the similarities between all operations?

This part of Chapter 1 is mainly devoted to categorising the types of resources and
processes which are found in operations. The intention is to demonstrate these
standard categorisations of resources and processes are to be found in any sort of
organisation. So for example, the table below shows what would constitute the two
types of transforming resources (facilities and staff) in three very different types of
operation.

The facilities and staff transforming resources of three operations

Ferry company Paper manufacturer Radio station

Types of facilities Ships on-board Pulp-making vats Broadcasting


navigation equipment
Paper-making
Reeling equipment machines Studios and studio
equipment
Dry docks Slitting equipment
Transmitters
Materials-handling Packing machinery
equipment Outside broadcast
Warehouses vehicles
Steam-generating
boilers
On-shore buildings

Computerized
reservation systems
Warehouses

Types of staff Sailors Operators Disc jockeys

Engineers Chemists and Announcers


chemical engineers
Catering staff Technicians
Process plant
On-board shop engineers
assistants

Cleaners

Maintenance staff

Ticketing staff

Transformed resources in operations are some mixture of materials, information and


customers. The important issue here is that, although most types of operation process
all three types of transformed resource, one is usually the most important. So, for
example, a hospital will process information in the form of patients’ medical records. It
will also devote some of its resources to processing materials, for example in the way it
produces meals for patients. The main operations task of a hospital, however, is to
process customers in a way which satisfies its patients, maximises their health care and
minimises its costs. It is predominantly a customer processing operation.

Similarly, most operations produce some mixture of products and services. This
emphasises one of the core philosophies of this text book…..

The distinction between manufacturing and service is becoming increasingly irrelevant.


Even government statistics cannot cope with the distinction any longer. For example, if
you buy software on a disc it is classed as a product, but if you download it over the
internet (legally of course) it is classed as a service.

Micro-operations and the internal customer concept


The idea of a hierarchy of operations processes within an organisation is introduced in
the text and has had a significant effect on management thinking over the last few
years. It has highlighted the issue of how different processes or micro-operations relate
to each other within an organisation. This is sometimes called the internal customer
concept. It has also helped to underpin the idea of ‘business process reengineering’
which became fashionable in many businesses during the 1990s. One can consider the
internal customer concept and business process reengineering as being alternative
approaches to solving the same problem. This problem is that within any organisation
different sections or departments find it difficult to interface with each other. This may be
because they are too busy with their own tasks to worry about other parts of the
organisation, or it may be that they have (or regard themselves as having) different
interests and objectives.

The internal customer concept advocates that each micro-operation should identify its
internal customers and internal suppliers and formally talk to them about what they need
and what they can offer. In other words, to treat internal suppliers and customers as if
they were independent external organisations.

Business process reengineering is more radical and advocates that all the resources
and activities necessary to do everything required for an ‘end-to-end business process’
should be put within the same unit or department. In other words, the organisation
should be reconfigured around these key processes.

Buffering the operation

The turbulent environment in which most organizations do business means that the
operations function is having to adjust continually to changing circumstances. For
example, a food-processing operation might not be able to predict exactly when some
foods will be harvested (bad weather might totally disrupt the supply to a factory for
weeks). Demand could also be prone to disruption. Unpredictable changes in the
weather, a ‘health scare’ story in the press, and so on, can all introduce turbulence. One
way in which operations managers try to minimize ‘environmental’ disruption is by
buffering or insulating the operations function from the external environment. It can be
done in two ways:

• physical buffering – designing an inventory or stock of resources either at the


input side of the transformation process or at the output side;
• organizational buffering – allocating the responsibilities of the various functions in
the organization so that the operations function is protected from the external
environment by other functions.

Physical buffering

Physical buffering involves building up a store of the resources so that any supply
disruptions will (initially at least) be absorbed by the store. The operation is storing its
input transformed resources before it ‘transforms’ them. The store of input resources
are being used as ‘buffer stocks’ to protect the operation. Similarly, buffering can be
applied at the output end of the transformation process. A manufacturer could make its
products and put them into a finished goods inventory (output stocks are not usually
relevant to people-processing operations). Often operations do not need to have output
stocks; they could react to each customer’s request as it was made. Yet by stocking
their output, the operation is given much more stability when demand is uncertain.

Organizational buffering

In many organizations the responsibility for acquiring the inputs to the operation and
distributing its outputs to customers is not given to the operations function. For example,
the people who staff the operation are recruited and trained by the personnel function;
the process technology for the operation is probably selected and commissioned by a
technical function; the materials, parts, services and other bought-in resources are
acquired through a purchasing function; and the orders from customers which trigger
the operation into activity will come through the marketing function. The other functions
of the organization are, in effect, forming a barrier or buffer between the uncertainties of
the environment and the operations function. These relationships have developed partly
for stability which allows the operation to organize itself for maximum efficiency.
CRITICAL COMMENTARY

The whole concept of buffering the operations function is not without its critics. Buffering may
promote stability but, partly due to the influence of Japanese operations practice, we can now see
several problems with over-protecting operations from their environment:

• The time lag of communicating between the insulating function and the operations
function slows down decision-making. By the time the insulating function has responded,
operations has ‘moved on to the next problem’.
• Operations which never interact with the environment never develop an understanding of
the environment (e.g. labour or technological markets) which would help them exploit new
developments.
• Operations managers are not required to take responsibility for their actions. There is
always another function to blame.
• Physical buffering often involves tolerating large stocks of input or output resources.
These are both expensive (see Chapter 12, Inventory planning and control) and prevent the
operation improving (see Chapter 15, Just-in-time planning and control).
• Physical buffering in customer-processing operations means making the customer wait for
service, which in turn could lead to customer dissatisfaction.

For all of these reasons, it is better gradually to expose the operations function to its environment.
Only then will it learn to develop the necessary flexibility to respond to and understand what is
really happening with its customers and suppliers.

The approach which many companies have taken to the idea of ‘buffering’ their
operations says a lot about how the role of operations management has changed over
the last few years. Traditionally, operations managers were seen as being unable to
cope with disruption from outside the organisation. Wildly fluctuating demand levels
required physical buffering in the form of finished product inventories so that demand
could be satisfied, even if the operation could not flex its output levels to cope with
changing demand. Nor were operations regarded as being capable of expertise outside
their core area of producing goods and services. So, for example, a personnel
department would deal with the labour market, recruit staff and look after much of their
welfare while they worked in the operation. While operations are still buffered in most
organisations, it happens far less. As the text discusses, this is because over protecting
an operation can deprive it of an opportunity to learn how to cope with changes in the
business environment, or learn the skills necessary to manage its own resources
(people are an important part of any operation, why should not operations managers
take an active part in their welfare rather than personnel managers?). The two figures
below illustrate the idea of physical buffering and organisational buffering.
How are operations different from each other?

The text differentiates between different types of operation by using four dimensions – it
calls these the four Vs of operations. They are,

• Volume – how many products or services are made by the operation?


• Variety – how many different types of products or services are made by the
operation?
• Variation – how much does the level of demand change over time?
• Visibility – how much of the operation’s internal working are ‘exposed’ to its
customers?

The figure below gives some examples of operations at each end of these four
dimensions. In most industries one can find examples at either end of each dimension.
So, for example, in transport, a taxi service is low volume while a bus service or mass
rapid transport is high volume. In accounting firms, corporate tax advice is high variety
because all large corporations have different needs, while financial audits, which have
to be carried out to comply with financial reporting legislation, are relatively
standardised. In food manufacture, the demand for ice-cream varies considerably
depending on the weather, while the demand for bread is far steadier and more
predictable. In the dental care industry, dentists operate high visibility operations (it’s
difficult to work on your teeth if you are not there) but rely on dental technicians in
factory-type laboratories to make false teeth etc.
These dimensions are most useful in predicting how easy it is for an operation to
operate at low cost. Figure 1.10 in the text indicates that operations whose profiles
occupy the right-hand extreme of the dimensions (high volume, low variety, low
variation and low visibility) tend to operate at lower cost than those at the other end of
the dimensions.

When operations processes do differ they do so mainly in terms of their volume, variety,
variation and visibility. But not everyone agrees that these dimensions are sufficient.
Operations processes, they say, differ in far more ways that the four V’s suggest. At the
very least more dimensions are needed, for example the relative complexity which
processes have to cope with, or the degree of discretion or decision making required by
the staff with the process, or the risk of things going wrong in the process, or the value
of each product or service produced, and so on.

What responsibilities do operations managers have?

The text divides the responsibilities of operations managers into,

• Direct responsibilities – the activities which are directly related to producing and
delivering products and services.
• Indirect responsibilities – the activities involved in interfacing with other parts of
the organisation.
• Broad responsibilities – a wider set of tasks that involve scanning the business,
social and political environment in which the organisation exists in order to
understand its context.

Naturally the vast majority of Slack et al is concerned with the direct responsibilities of
operations managers. All other text books in this area take the same approach.
However, both the indirect responsibilities of communicating with other functions and
(especially) the broad responsibilities are becoming increasingly important to operations
managers. This relates back to the idea of buffering. As the traditional barriers between
the operations function and the other functions of the business and the business
environment in general are being lowered, so operations manager must make
decisions in the light of the their internal and external environments.

What operations managers actually do

In all of operations management’s direct and indirect activities there is a need to


communicate both with internal staff and with external customers, suppliers and the
broader community. One survey carried out by Professor Arnoud De Meyer shows how
much of a factory manager’s time is spent on different activities, and how the
importance of each is changing (see the Table).

Consulting and communicating with operations staff clearly takes up a large amount of
these operations managers’ time. But the proportion of their time spent communicating
with people outside the operations function and even outside the organization appears
to be gaining in importance. This means, says Professor De Meyer, that operations
managers are evolving to be more ‘... managers of interfaces, as opposed to a
caretaker of an isolated manufacturing function’.

Activity % of Degree of change


time
(1 = spending less
time,

7 = spending more
time)

Direct supervision and support 22 3.5

Consulting with plant staff 16 3.9

Consulting with upper management 12 4.0

Consulting with sales and marketing 10 4.8

Communicating with customers 7 4.8

Communicating with suppliers 7 4.4

Consulting with Research and 5 4.7


Development

Dealing with the community 5 4.5

Training (as trainer) 4 4.6


Training (as trainee) 4 4.6

Source: De Meyer A. (1993) ‘Creating the Virtual Factor’, EFME Conference, LBS.

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