Operations Management
Course Assessment OM/Jan10/1
Name: Zamir Rashid
Student Number: 7483490
Date:
Table of Contents
Table of Contents 1
List of Figures 1
List of Tables 2
1. Introduction 3
1.1. Operations Management 3
1.1.1. Strategic Importance 3
1.2. General Oil and Gas EPC Contract 4
1.3. Front End Engineering Design (FEED) 5
2. Integrated Process Engineering (IPS) 5
2.1. IPS Capabilities 6
2.2. IPS Operating Market 6
2.3. Organisational Structure 6
2.4. IPS Operational Process 7
2.5. Planning and Control 8
2.6. Improvement 8
3. Evaluation 9
3.1. Factors affecting IPS process design 9
3.1.1. Operational Strategy 9
3.1.2. The economics of operational management 9
3.1.3. Marketing-Operation Interface 9
4. Recommendations 9
5. Conclusion 9
6. References 9
Operations Management Course Assessment 1 OM/Jan10/1
List of Figures
Figure 1: The Transformation Process 3
Figure 2: General Model of Operations Management and Operations Strategy 4
Figure 3: Major EPC Contract 4
Figure 4: Typical Subcontracting Process 5
Figure 5: IPS Capabilities 6
Figure 6: IPS Organisational Structure 7
Figure 7: Operation Activities 7
List of Tables
Table 1: Service Process Structure 9
Table 2: Service Package Structure 9
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1. Introduction
The field of operations management has evolved from the various operational techniques outlined
in the early 1900's [ CITATION Kar07 \l 1033 ], and numerous frameworks that are applicable to both
the service and production industries, have been developed accordingly. This document outlines a
qualitative assessment of the operations management of a small specialised engineering design
company operating as a design consultant in the oil and gas industry in Malaysia.
1.1. Operations Management
Operations Management encompasses all the activities involved in managing the resources devoted
to the production and delivery of any particular product or service [ CITATION Sla07 \l 1033 ]. The
production and delivery of a product or service covers the transformation of inputs to become
outputs; this transformation process model can be seen in Figure 1. The objectives of operations
management is thus to ensure the transformation process is done in the best way possible.
Figure 1: The Transformation Process
1.1.1. Strategic Importance
In defining the best way for companies to operate, all operations have to be streamlined with the
company strategy. The company's objectives, vision and mission, its competitive position and its
operational strategy will have an impact on how the company operates. These factors will give
operation managers the inputs required in designing the operations process, in improving this
process and to also plan and control its implementation. Overall, the success and failure of the
company will be highly dependent on the operation management.
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Figure 2: General Model of Operations Management and Operations Strategy
1.2. General Oil and Gas EPC Contract
It is common practice in the oil and gas industry for oil field owners to procure a major construction
project via a fixed price, lump sum turnkey route. This route, or the Engineering, Procurement and
Construction (EPC) route sees that all aspects of the construction, from engineering design to
procurement and construction, be managed by a single main contractor[ CITATION Loo07 \l 1033 ].
The main contractor has the responsibility for the entire product until a defined delivery date, and is
responsible for managing all subcontractors and vendors involved in the construction of the project.
Figure 3: Major EPC Contract
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Viewing this in terms of the operation transformation process introduced in section 1.1 for the main
contractor, the inputs for the project includes the project drivers, such as the field owner's company
strategy, market forces and any other requirements. A set of project specifications will be prepared,
and these will be furnished to the main contractor as the basis of the construction project. The
transformation process involves engineering design, procurement of materials and the physical
construction activities. The output from this process is the major construction, for example a process
plant or an offshore platform.
1.3. Front End Engineering Design (FEED)
Part of the engineering design activity is the front end engineering design stage (FEED), generates
what is known as the basic engineering requirements for the various areas of the major
construction. The requirements may include the basic engineering design, the project schedule, and
cost estimates for each section of the construction. The FEED for every section of the construction
are usually subcontracted to specialised engineering design companies.
Each subcontracted project will be awarded to subcontractors through a tendering process, where
companies are invited to submit a bid for that particular project. Based upon criterion agreed upon
by the owner and main contractor, the subcontractor will be chosen and they will then be required
to complete the design within the agreed time frame and cost, and to a pre-specified agreed quality
measure. Joint reviews between owner, main contractor and subcontractor may be done during
execution to monitor project progress. A final review will be conducted upon delivery of the project
prior to acceptance.
Figure 4: Typical Subcontracting Process
2. Integrated Process Engineering (IPS)
Integrated Process Engineering (IPS) is small specialised engineering design company operating as a
design consultant in the oil and gas industry in Malaysia. Backed by technical managers and
personnel with years of experience and technical knowhow, the company is involved in providing
specialised engineering services to the oil and gas industry. Its vision is to be the leading provider of
engineering services, utilizing innovative technologies for the Oil and Gas and Petrochemical
Industries[ CITATION Int08 \l 1033 ].
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2.1. IPS Capabilities
Figure 5: IPS Capabilities
IPS identifies a number of specialty engineering capabilities, which include providing Value
Engineering, Operating Manuals, Process Design, Safety Studies and Corrosion Studies. In order to
provide these capabilities, IPS uses a number of simulation tools. These tools provide the basis of the
engineering studies, and helps to increase output efficiency, reducing required man-hours and
increasing service quality. These capabilities are applicable in a number of areas, from facility,
equipment and process design, to multidiscipline engineering and feasibility and conceptual designs.
2.2. IPS Business Strategy
IPS realises that the value of projects being subcontracted out by main contractors in Malaysia for
the FEED stage is good enough for the company. Typical values of projects are significant enough for
IPS to maintain its operations and be profitable, while the risks involved are also low. Competing for
sub-contracting FEED studies is thus the preferred market where IPS operates in. However, the
number of companies operating in this niche area is high. With a small and dedicated team, IPS
operates with relatively low overhead costs, while maintains high quality technical services and high
added value for their customers.
2.3. Organisational Structure
Figure 6: IPS Organisational Structure
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IPS is managed by a managing director, and supported by a project manager, a simulations manager,
a business development manager, and an administrator. The technical and engineering staff reports
directly to the managing director. This flattish structure is preferred in order to encourage
communication between all levels of the company, and ensures a good relationship between all
staff.
2.4. IPS Operational Process
A number of key activities have been identified as part of the company's operating process. These
are mapped against the typical subcontracting process identified in Figure 4, and shown in the figure
below.
Figure 7: Operation Activities
Upon receiving Invitation to Bid (ITB), and the ITB documents, preparation gets underway to prepare
the tender and bid proposal. The project manager, business development manager and managing
director will, based upon the inputs provided from the ITB documents, prepare the proposal, which
includes the proposed schedule, pricing and quality control measures. The compiled proposal, which
is the output from this operation activity, will be submitted to the main contractor for consideration
and evaluation.
Should IPS be chosen as the subcontractor, and the project will be awarded to IPS, the managing
director and project manager will join the owner and main contractor for the Kick-Off meeting. This
is where all the details of the project, in terms of the schedule, pricing and quality control measures,
be agreed upon. Any other requirements may also be identified to be included during the
transformation process.
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The actual engineering design will be conducted at the project execution stage. During this process,
the project manager will be in charge of managing and monitoring the projects, and the projects will
be executed by the pool of engineering staff. A total of eight engineers are available, from varying
backgrounds, which include mechanical engineering (2), chemical and process engineering (4), as
well as instrumentation engineering (2). Each are well experienced working in the industry and
contribute towards the knowledge base that provides the capabilities as per described in section 2.1.
Based upon the agreed schedule, cost, and quality measure, the engineering design services will be
executed.
Once the project has been completed, the project manager and the managing director will again join
the owner and main contractor for the delivery and acceptance meeting, where the deliverables will
be reviewed and assessed accordingly.
2.5. Planning and Control
Planning and control is concerned about how the specific outcomes as specified in the project inputs
are achieved[ CITATION Taa09 \l 1033 ]. Two critical areas where planning and control is important is
during the tender / bidding and the project execution stages.
For the tender / bidding stage, a number of planning and control steps are taken by the managing
director and project manager. Upon receipt of the ITB documents, the management will review all
requirements and assess whether IPS possess the technical knowledge and expertise to successfully
complete the project. Should IPS agree to bid for the project, the management employs a bidding
strategy that ensures a highly competitive bid be submitted in terms of pricing, project timing, and
proposing the most optimised solution for the project. IPS leverages on its sound simulation
capabilities to help provide inputs in order to achieve the most optimised solution. With simulation,
the turnaround time will also be reduced. Both these factors will ensure the bidding strategy be
fulfilled.
With the control measures utilised during the bidding stage, planning and control during the
execution stage becomes easier. Proper project scheduling being employed, highly competent staff,
and sound simulation capabilities increases the chances of all specific outcomes and requirements
be fulfilled.
2.6. Improvement
Operation improvement is measured by improving the productivity. This can be done by saving time
or cost of the operation, or increase in value or quality of the service [ CITATION Taa09 \l 1033 ]. At
the moment, IPS improvement of productivity is only in terms of increasing simulation tools usage
for increasing competitive advantage and product quality, and reducing costs.
3. Evaluation
Wheelwright [ CITATION Whe84 \n \t \l 1033 ] argues that an effective operation is not necessarily
one that promises the maximum efficiency, or engineering perfection, but rather one that fits the
needs of the business, one that strives for consistency between its capabilities and policies and the
company's competitive advantage. In effect, proper identification of the company's business strategy
and competitive position, and its products and competencies, is key in designing an operating
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Operations Management Course Assessment 1 OM/Jan10/1
strategy that fits. An operating strategy that fits will then lead to better company performance
[ CITATION Smi99 \l 1033 ].
Section 2 above describes the business strategy and operations process of Integrated Process
Solutions (IPS). An evaluation of whether its operations strategy fits IPS business needs are discussed
below.
3.1. IPS Business Strategy and Competitive Position
IPS has identified that going for subcontracting engineering design work is the preferred market to
operate in. This niche market is also highly competitive. By maintaining low overheads, and with the
support from high tech simulation tools, it is evident from the organisational structure and identified
operating processes that the company is well placed to be highly competitive in this market. The
planning and control measures taken by IPS management for the tendering process and during
project execution allows for more efficient man power usage, and also ensures IPS to maintain a high
competition level in the market.
3.2. Service Strategic Requirements
The Service Process / Service Package framework fosters strategic thinking in service orientated
companies [ CITATION Kel95 \l 1033 ] by allowing the company to better understand its product
offering, and the strategies required in order to be successful. Understanding of the service offering
is derived from the framework based on the service process and package of the particular service
company. The service process looks at the degree of customer influence on the service, while the
service package on the other hand looks at the degree of customisation involved in the service.
Degree of Customer
Process Name
Influence
Expert Service High
Service Shop Medium
Service Factory Low
Table 1: Service Process Structure
Package Name Degree of Customisation
Unique Full
Selective Considerable
Restricted Limited
Generic Little or None
Table 2: Service Package Structure
The SP/SP Matrix for service orientated companies can be seen abovebelow. It is evident that IPS as
an engineering design consultant is placed at the top left position of the matrix, with high level of
customer influence (Expert Service) and high level of customisation (Unique). Other examples are of
companies or institutions in the other positions are also shown.
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Service Package
Unique Selective Restricted Generic
Expert
IPS
Service
Service Process
Service
university university
Shop
Service
McDonalds
Factory
Table 3: The SP/SP Matrix, IPS Location and Other Examples
Kellog and Nie further identifies strategic requirements for companies in this position [ CITATION
Kel95 \l 1033 ], and these are listed in the table below.
Strategic Issue Business Need
Organisational Flexibility Must be very flexible
Top Management Skill Requires management skills and technical expertise
Staff Personal Focuses on increasing competencies and interpersonally skills and
Development motivation
Technology Technology imperative to operations
Table 4: IPS Required Strategies
From the strategic requirements identified above, the current IPS operation strategy suggests a
conforming trend. By identifying core competencies and capabilities, IPS is rigidly focusing on
specific areas of expertise. However, the degree of flexibility within these areas is high, backed by
extensive experience from management and technical knowledge of staff. This is further supported
by the various simulation tools available.
The only point lacking is staff training and personal development. IPS is missing a Human Resource
Management function to manage, plan, and execute staff development. This involves increasing
technical competencies, interpersonal skills, and indirectly, personal motivation. Ahmed [ CITATION
Ahm07 \n \t \l 1033 ] argues the importance of training and manpower management, particularly
in the oil sector, where operations improved and productivity increased with increase in manpower
competencies and efficiency. It has also been suggested that due to the high customer involvement
and interaction, particularly in the technical consulting sector, staff motivation had a direct effect on
perceived service quality ([ CITATION Hay01 \l 1033 ].
4. Recommendations
It is highly recommended that the IPS management considers a specific function for human resource
management, in order to manage and oversee staff technical and personal developments, in line
with the company's strategic requirements. Failure to do so will possibly have an adverse effect on
the company's performance, both in the short and long run.
5. Conclusion
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Operations Management Course Assessment 1 OM/Jan10/1
The operations strategy for Integrated Process Solutions (IPS), a small specialised engineering design
company operating as a design consultant in the oil and gas industry in Malaysia, has been
qualitatively assessed. The assessment suggests that the operations strategy for the company is well
designed, and generally fits its business strategy and competitive positioning, as well as the
company's service capabilities and competencies. IPS focuses on a niche market where it can be
successful, andHowever, it has been identified that a human resource management (HRM) function
is unavailable, and hence staff training and personal development are neglected. It is recommended
that the IPS management considers a specific function for human resource management, in order to
manage and oversee staff technical and personal developments, in line with the company's strategic
requirements
6. References
Ahmed, H. (2007). Improved operations through manpower management in the oil sector. Journal of
Petroleum Science and Engineering 55 , 187 - 199.
Integrated Process Solutions. (2008). Vission/Mission. Retrieved January 10, 2010, from Integrated
Process Solutions: [Link]
option=com_content&view=article&id=4&Itemid=2
Karmarkar, U. S., & Apte, U. M. (2007). Operations management in the information economy:
Information products, processes, and chains. Journal of Operations Management , 438–453.
Kellog, D. L., & Nie, W. (1995). A framework for strategic service management. Journal of Operations
Management 13 , 323 - 337.
Loots, P., & Henchie, N. (2007). Worlds Apart: EPC and EPCM Contracts: Risk issues and allocation.
London: Mayer Brown.
Slack, N., Chambers, S., & Johnston, R. (2007). Operations Management, Fifth Edition. Prentice Hall.
Smith, T. M., & Reece, J. S. (1999). The relationship of strategy, fit, productivity, and business
performance in a services setting. Journal of Operations Management , 145 - 161.
Taaffe, P. (2009). Operations Management Study Guide Unit 1: Design in Operations. Manchester
Business School, The University of Manchester.
Wheelwright, S. C. (1984). Manufacturing Strategy: Defining the missing link. Journal of Strategic
Management , 77 - 91.
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