Module 1: INTRODUCTION TO OPERATIONS MANAGEMENT IN TOURISM INDUSTRY

Topic Learning Outcomes:

1. To explain the relevance of operations management concepts and their implications to

the tourism industry
2. To evaluate the service operations of a tourism business

I. Introduction of Key Concepts

Operations is the engine that creates profit for the enterprise and underpins the global
economy. Operation Managers have important positions in every company. For example, Plant
managers who are in charge of the factory, function as inventory control managers, quality
managers and line managers. The operations function has the responsibility for providing the
supply of services and goods in service industries and manufacturing companies. The function
of operations manager is also evident on service firms or organizations both in the private sector
such as leadership roles in hotels, restaurants, airlines, banks and retail stores, and in the public
sector such as leadership role in post office and police department.

All organizations (business and non-profit) must produce value for a customer. Value is
something customers will buy at a price they are willing to pay; however, it is always defined at
the eyes of the customers. Generally speaking, it is the relationship between the benefits of the
product or service relative to the price.

Value = Benefits / Price

The main objective of operations is to produce values for the customer at the lowest
possible cost to maximize profit. Profit is the difference between what the customer is willing to
pay and the production cost.

II. Service and Manufacturing Operations

The unifying feature of both these organizations is that they can be viewed as
transformation processes. In the manufacturing sector, inputs of materials, energy, labor and
capital requirement are transformed into finished goods. In service sector, same inputs are
transformed into service output. Managing the transformation process in an efficient and
effective manner is the task of the operations manager.

Services are indeed intangible and cannot be easily quantified or defined, but this
definition is incomplete. A better definition is that services are produced and consumed
simultaneously. Simultaneous production and consumption is a critical characteristic of services
because it implies that the customer may be in the production system while production takes
place. The customer can introduce uncertainty into the process by placing demand on the
service provider at the time of production. Also the simultaneity of production and consumption
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means that most services cannot be stored or transported; they must be produced at the point
of consumption.

Many services can be defined as interactions that are social in nature. The interaction
between the service provider and customer at the time of production is a critical attribute of
service. Production as a social interaction with the customer is quite foreign to manufacturing
and its related processes. In service organizations, this interaction is critical not only to the
service itself, but also to service process design considerations. Characteristics of services vary
widely and extent of interaction between the provider and customer can also vary greatly, it is
difficult to generalize about services. However, they are clearly different to generalize from
manufacturing.

Manufacturing Service
The product is tangible The service is
intangible
Ownership is Ownership is generally
transferred at the time not transferred
of purchase
The product can be No resale is possible
resold
The product can be The service does not
demonstrated before exist before purchase
purchase
The product can be The service cannot be
stored in inventory stored
Production preceded Production and
consumption consumption are
simultaneous
The product can be The service cannot be
transported transported though
producer can be
The seller produces The buyer can perform
part of the production

III. Operations Management

The essence of operations is that it is responsible for supplying the product / services of
the organization. Operations management provides value to the customer at the lowest
possible cost by making decisions for the operation function and by managing the
transformation process.

Points in Defining Operations Management

1. Decisions – since all managers make decisions, it is natural to focus on decisions

making as a central theme in operations. This decision focus provides a basis for
dividing operations function into parts according to major decision types: process,
quality, capacity and inventory.
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 2. Functions – operations is major function in an organization along with marketing and
finance. The operations function is responsible for supplying the product or services for
the business. Without a supply of products or services, a business cannot exist. In
general, the generic term operations refers to the function that provides goods or
services. There is a variation in naming the operations function. Under the
manufacturing firms, this function is typically called manufacturing or production
department while for the service firms, operations might be termed as operations
department or a name peculiar to their industry.
3. Process – Operations management plans and controls the transformation process and
its interfaces. The process view not only provides a common ground for defining service
and manufacturing operations as transformation process but it is also a powerful basis
for design and analysis of operations. We consider operations managers as managers of
the conversion process in the firm. The process view provides important insights for the
management of productive processes in functional areas outside the operations function.
Operations management concepts have applicability beyond the functional area of
operations.

Operations as a Function

The function perspective represents the entities or departments of the company that has
a corresponding purpose. Operations play three important roles in the company. It can serve as
a leader when it drives the strategy, as an effector when it implements the strategy or as a
follower when it appropriates complies to the necessary tasks and activities that comes with the
implementation of the strategy. For example, when the operations department found out that
what provides value to the customers is low cost and it recommended this to the top
management for a strategy, it serves as a driver or leader. When the low cost strategy was
passed on functional level and the operations function thinks of ways on how to operate
efficiently to reduce cost, it becomes and implementer of the strategy. When certain standards
and policies were set and these were aligned with the mechanisms of other functions,
operations compliance can be described as taking the follower role of operations.

Operations as a Decision

It is a conceptual scheme for grouping decisions according to decision responsibilities.

1. Process- decisions to determine the physical process of facility used to produce the
equipment and technology, process flows, lay-out of the facility, job design and
workforce policies. Many of these decisions are long range in nature and cannot be
easily reversed particularly when heavy capital is needed. It is therefore important that
the physical process be designed in relationship to the long term strategic posture of the
business and the capabilities of the workforce. Processes must also be improved
continually once they are designed through the cooperation of the workforce and ideals
of all employees. Since they require large capital investment, finance managers are
concerned with the investment required by operations process. Human Resource

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 Managers are concerned with the people employed in operations. Operations typically
manage more employees and physical assets than any other function in the firm.
2. Quality – operations function is responsible for the quality of goods and services
produced. It is an important operations responsibility and requires total organizational
support. Quality decisions must ensure that quality is designed and built into all stages of
operations : standards must be set, people are trained, product / service inspected
preferably by those who produced it. Operations have a responsibility in producing
products that meet the defined specifications and standards. It must also participate with
other functions in setting the specifications for all new products and in defining the levels
of customer service required. Continuous quality improvement is now a key
responsibility of all managers.
3. Capacity decisions aimed at providing the right amount of capacity at the right place and
at the right time. Long range capacity is determined by the size of the physical facilities
built by the firm and it suppliers or by outsourcing the product to a reliable supplier. In
the short run, capacity can be augmented by subcontracting, extra shifts, and rental of
space. Capacity planning however determines not only the size of the facilities but also
the proper number of people in operations. Staffing levels are set to meet the needs of
the market demand and desire to maintain a stable workforce. In the short run, available
capacity must be allocated to specific tasks and jobs in operations by scheduling people,
equipment and facilities.
4. Inventory – inventory management decisions in operations determine what to order, how
much to order and when to order. Inventory control systems are used to manage
materials form purchasing through raw materials, work-in process and finished goods
inventories. Inventory managers decide how much inventory is needed, where to locate
the inventory and a host of related decisions. They manage the flow of materials within
the firm and within the supply chain.

Cross-Functional Decision Making

This serves as the collaboration of operations and other functions with the resulting interface
with decisions under operations function.

Example:

Key Decision Area Interface with Operations Decisions

I. Marketing
1. Who are the customers and what do customers Quality design and management
need?
2. Market size or volume Type of process and capacity
3. Distribution channel How much inventory and where to stock
it?
4. Pricing Quality, capacity and inventory
5. New product introduction Cross-functional teams
II. Finance and Accounting
1. Availability of Capital Inventory level, type of process,
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 capacity, and levels of automation
2. Efficiency of conversion process Process type, process flow and value
added determination
3. Net Present Value and Cash Flow Amount for levels of automation,
inventory and capacity
4. Measurement of Operations Costing systems used
5. Process or job costing Type of process selected
III. Human Resources
1. Skill level of employees Process type and automation
2. Number of employees and form of employment Capacity and scheduling
(part time or full time)
3. Training of employees Quality improvement for skills
4. Job Design Process and technology choice
5. Teamwork All decisions in operations
IV. Information System
1. Determination of user needs Process type selected and automation
2. Design of information systems System should help streamline
operations and support all decisions in
operations
3. Software development Software is needed for capacity, quality,
inventory and scheduling decisions
4. Hardware acquisition Hardware is needed to support
automation decision in operations and
to run software.

Operations as a Process

The most commonly used framework for this is the IPO or Input-Process-Output
Framework. The process view of operations is very useful in unifying seemingly different
operations from different industries. Transformation process in manufacturing is one of material
conversion form raw materials into finished products. Labor is required to operate and maintain
the equipment and energy and information are also required to produce the finished automobile.
In service industries, a transformation process is also used to transformed inputs into service
outputs. The only difference is that in service industries, both process and output may come
simultaneously as services are characterized with simultaneous production and consumption.

The process view provides a basis for seeing an entire business as a system for
interconnected processes. This makes it possible to analyze an organization and improve it
form a process view point of view. All work, whether in in finance, marketing, accounting or
other functions is accomplished by a process. Thus, process principles and tools can be applied
by everyone in business. A system is defined as the series of processes which are
interconnected to one another

All systems interact with their internal and external environments. Internal interaction is
evident through cross-functional decision making. Interaction with the external environment
occurs through the economic, physical, social and political environment of operations.
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Operations is surrounded by its environment and constantly interacts with the society,
customers, competitors, suppliers and government.

IV. Operations Management in Tourism and Hospitality Industry

Operations management in the service-oriented industry such as tourism and hospitality is

distinct because of the following features:

1. People Oriented Operations: Tourism and hospitality industry output is reliant on the
people who provides and delivers the service. Thus, the primary and highly valued input
for its operations is attributed to the labor component of the business.
2. Service-Oriented Operations: Operations should be understood for tourism and
hospitality as a simultaneous production and consumption because the delivery of
service and experience represents both the process and the output component of the
company.
3. Dynamic Phenomena: Interaction with the customers plus the other external factors that
may come into play during the delivery of customer experience makes the tourism and
hospitality industry operations a dynamic phenomenon.
4. Value of Impression: The perception of customers of the delivery of the service may form
an organic image which serves as their primary impression on the operations of the
company.

Discussion Question: If you will become an operations manager, which among the three
definition points will you prioritize?

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Topic Highlights:

 Operations is the engine that creates profit for the enterprise and underpins the global
economy. The operations function has the responsibility for providing the supply of
services and goods in service industries and manufacturing companies.
 Value is something customers will buy at a price they are willing to pay. It is the
relationship between the benefits of the product or service relative to the price.
 The unifying feature of service and manufacturing operations is that these organizations
can be viewed as transformation processes. They differ in terms of tangibility, transfer of
ownership, inventory and storage features, possibility for demonstration, simultaneous or
sequential feature of consumption and possibility of customer involvement.
 Operations management provides value to the customer at the lowest possible cost by
making decisions for the operation function and by managing the transformation
process.
 Operations is a function as it can serve as a leader when it drives the strategy, as an
effector when it implements the strategy or as a follower when it appropriates complies
to the necessary tasks and activities that comes with the implementation of the strategy.
 Operations is a decision as it provides a basis for dividing operations function into parts
according to major decision types: process, quality, capacity and inventory.
 Operations is a process as it is composed of series of steps necessary to produce a
good or deliver a service.
 Cross-functional decision-making serves as the collaboration of operations and other
functions with the resulting interface with decisions under operations function.
 Operations management in tourism and hospitality industry can be characterized by its
features as people oriented, service oriented, dynamic phenomena and places high
value to impression.

BAOPENMAX: Operations Management Week No. 2

Property of National University First Term / Academic Year 2020 -2021

BAOPENMAX: Operations Management Week No. 2

Property of National University First Term / Academic Year 2020 -2021