Introduction Operations management is important.

It is concerned with creating the services and products upon which we all depend. And all organizations produce some mixture of services and products, whether that organization is large or small, manufacturing or service, for profit or not for profit, public or private. Thankfully, most companies have now come to understand the importance of operations. This is because they have realized that effective operations management gives the potential to improve both efficiency and customer service simultaneously. But more than this, operations management is everywhere, it is not confined to the operations function. All managers, whether they are called Operations or Marketing or Human Resources or Finance, or whatever, manage processes and serve customers (internal or external). This makes, at least part of their activities ‘operations’. Operations management is also exciting. It is at the centre of so many of the changes affecting the business world – changes in customer preference, changes in supply networks brought about by internet-based technologies, changes in what we want to do at work, how we want to work, where we want to work, and so on. There has rarely been a time when operations management was more topical or more at the heart of business and cultural shifts. Operations management is also challenging. Promoting the creativity which will allow organizations to respond to so many changes is becoming the prime task of operations managers. It is they who must find the solutions to technological and environmental challenges, the pressures to be socially responsible, the increasing globalization of markets and the difficult-todefine areas of knowledge management.

energy. In reality. this is often called ‘backoffice’ operations) there will be a number of operations that would have needed to be in place. behind the scenes (in services. such as inventory handling. can be expanded to identify main activities within operations.tion-specific model of operations is shown in Figure 1. the obvious point where we may think operations takes place is in the direct contact between the service provider and the recipient of the service. customers’ requirements. However.Developing a definition of operations management We offer the following as the basic definition of operations management: Operations management is concerned with those activities that enable an organization (and not just one part of it) to transform a range of basic inputs (materials. vari. we argue that operations management in the modern era is more complex than this. In services. Rather. This is important because we must always bear in mind that operations do not take place in one confined area of the organization. logistics.1. 2000). skills.) into outputs for the end customer. machinery and equipment) as well as less tangible but important inputs (such as learning. organiza. Similarly. a range of operations will be undertaken in addition to the manufacture of the product. tacit knowledge and experience) and transforms these into outputs. Although models like these are often used. finance. which appears in many management texts.2. as shown in Figure 1.ous forms of operations will take place simultaneously across the organization.3.istration. in a manufacturing plant we might assume that operations take place merely at the point of production. This contact is sometimes called the ‘moment of truth’. buildings. For example. This basic model. but this limits what is actually taking place. . information.ference between the point of contact and all of the support activities has been likened to an ‘iceberg’ (Normann. such as plant. A basic. as shown in Figure 1. in services. The organization uses different kind of inputs (the transformational inputs. information processing and office admin. the dif. etc.

2: The basic operations system .Figure 1.1: Iceberg principle in service operation Figure 1.

4. as shown in Figure 1.ations management. an important part of the transformation process will include purchasing goods and services from other organizations. This means that the organisation has to be willing to look outside of itself and to form strategic relationships with what were formerly viewed as competitive organizations. but also includes activities across organizations. So the operations management model for current and future operations is no longer limited to an organization-specific arena. extended enterprise. Obviously. all of whom link together to form an extended enterprise within an industry. In the modern era of oper. Here. organizations no longer see themselves as a stand.alone element in the above diagrams – the ‘processes’ – but will instead see themselves as part of a wider.3: Factors within input/output model operations The major issue is that operations management is not only an organizational-wide issue. . there is a network of collaborative partners.Figure 1.

and capacity (how much do we need?). Operations managers have a hand in deciding employee levels (how many workers do we need and when do we need them?).4: The operations infrastructure from basic input to end customer Responsibilities of operations managers At the strategic level (long term). operations management addresses the issues relevant to efficiently scheduling material and labor within the constraints of the firm's strategy and making aggregate planning decisions. operations managers are responsible for or associated with making decisions about product development (what shall we make?). and capacity (how many shifts do we need? Do we need to work overtime or subcontract some work?). Operations managers and their subordinates must make decisions regarding scheduling (what should we process and . process and layout decisions (how shall we make it?). inventory levels (when should we have materials delivered and should we use a chase strategy or a level strategy?). At the operational level. operations management is concerned with lower-level (daily/weekly/monthly) planning and control.Figure 1. At the tactical level (intermediate term). site location (where will we make it?).

when should we process it?). and work assignments (to whom do we assign individual machines or processes?). Service Operations—Coping with inherent service characteristics such as simultaneous delivery/consumption. Operations Strategy—Consistent and aligned with firm's other functional strategies. Sunil Chopra. and keeping qualified workers and managers working effectively with other functions of the business to accomplish the goals of the firm . loading (what order to we put on what machine?). etc. Operations Management/Finance Interface—Capital equipment and inventories comprise a sizable portion of many firms' assets. Today's operations manager must have knowledge of advanced operations technology and technical knowledge relevant to his/her industry. Process Design and Improvements—Managing the innovation process. William Lovejoy. as well as interpersonal skills and knowledge of other functional areas within the firm. performance measurements. manage projects. Operations Management/Marketing Interface—determining what customers' value prior to product development. Operations managers must also have the ability to communicate effectively. training. • • • • • Mark Davis. sequencing (in what order should we process the orders?). and work on multidisciplinary teams. to motivate other people. Nicolas Aquilano and Richard Chase (1999) have suggested that the major issues for operations management today are: • • • • • reducing the development and manufacturing time for new goods and services achieving and sustaining high quality while controlling cost integrating new technologies and control systems into existing processes obtaining. and Candace Yano describe the scope of operations management as encompassing these multi-disciplinary areas: • Supply Chains—management of all aspects of providing goods to a consumer from extraction of raw materials to end-of-life disposal.

Level II is the configuration level and deals with process categories. and Level III is the process element level. The SCOR model endorses twelve performance metrics. Empirical research by Archie Lockamy III and Kevin McCormack found while some of the practices found in the model did not have expected . Supply Chain Operations Management The supply chain operations reference (SCOR) model is a process reference model. benchmarking. and process improvement tool for supply chain management. and enabling systems' functionality that allows firms to thorough analyze all aspects of their current supply chain. deliver. developed in 1996 by the Supply-Chain Council. Within these are three levels of process detail. make. source. Level I deals with process types.• integrating production and service activities at multiple sites in decentralized organizations working effectively with suppliers at being user-friendly for customers working effectively with new partners formed by strategic alliances • • As one can see. as a cross-industry diagnostic. rather. No longer is operations management considered subservient to marketing and finance. such as IBM. The model separates supply chain operations into five distinct processes: plan. industry best practices. SCOR provides a complete set of supply chain performance metrics. operations management can no longer focus on isolated tasks and processes but must be one of the architects of the firm's overall business model. The Levels II and III metrics are keys to the Level I metrics that fall within the five process categories. all these are critical issues to any firm. Intel. Also. A number of notable firms. 3M. it is a legitimate functional area within most organizations. and Siemens have used the model successfully. and return.

Suppose a manufacturer of integrated circuit boards receives a shipment of poor quality silicon. Managing the connections is where the integration of the supply chain begins. and customers still purchase. Operations Management Links with Supply chain Management: With supply chain management. distribution still distributes. The computer manufacturer is forced to shut down its line because component circuit boards are not available. manufacturing still manufactures. processes. the timing involved in this process. A company practicing effective supply chain management also recognizes that the chain has connections that extend beyond the traditional boundaries of the organization. Supply chains become more complex as goods flow from more than one supplier to more than one manufacturing and distribution site. Frustrated. Any improvement in or disruption to the supply chain linkages affects the entire chain. The cumulative supply chain effect of uncertainty can be seen in this example. the poor quality lot results in a shipment delay to one of its customers. the customer goes to the retailer to purchase a new computer but is unable to find the desired brand. Because the manufacturer is dependent on its supplier for timely shipments. As a result. the customer decides to buy the product of a competitor. to include the connections between the links. regardless of whether or not it practices supply chain management. . Because of production and transportation lead times. Consider too. information. many of the practices did result in significant supply chain performance improvements. efforts. The possibility of outside sources for functions like assembly and packaging are also options in the chain. All of the traditional functions of a company still take place. The basic tasks of a company do not of impact. and ideas are integrated across all functions of the entire supply chain. The ultimate difference in a company that manages its supply chain is their focus shifts from what goes on inside each of the links. computer shipments to retailers are late. Suppliers are still required to supply material. the actual receipt of the poor quality silicon probably occurred several months before the customer made a computer purchase. systems. Finally.

This is achieved by having appropriate process technology in place.stand the nature. Customers can increase. Employees can get sick. This is no longer an acceptable solution. In the past. inventory is traditionally created and held at many locations. the company decreases costs and increases of operations managers. the range of products or services on offer has to be managed in order to satisfy the mix of volume and variety for customers. Over-design can cause major problems of organizations intending to innovate new products and services. or even cancel orders. specification and assembly/delivery of the product or service. Any time a portion of that inventory can be reduced or eliminated. Suppliers can make early or late deliveries. which can deal with customer requirements of volume and variety. High inventories translate to increased carrying costs and risks of obsolescence that can limit a company's flexibility. New customers can place large orders.A wide variety of events occurs in the supply chain that is largely unpredictable. Throughout the supply chain. and quit. Machines or trucks can break down. there has been an increased awareness of organizations to include operations managers in the early stages of new product development in both manu. As we shall see in Chapter 4. Process Management Managing processes that result in products or services is a major con. The operations manager has to under. and will take up unnecessary time and capacity. companies prepared for uncertainty and improved their levels of customer satisfaction by allowing inventory levels to rise. Supplier shipments or manufactured products can have quality problems.facturing and service sectors. For the operations manager. decrease. go on strike. . Shortening the length of time it takes to move a product from one link of the chain to the next also shortens the cycle time of the entire chain and thereby increases competitiveness and customer satisfaction.

The temptation for some managers isnot to invest.Managing technology Included in the task facing the Sunnyside Up team was searching for and purchasing appropriate equipment. rather. However. As the need for adherence to narrowly defined functional arrange. Human resources management The management of human resources was a relatively small factor in our case study. which has yet to be paid for. an integral feature of any would-be world-class operations machinery ‘can cope’ and ‘has done well for us in the past’. In fact.tive of one department (personnel.ments declines. With product lives shortening in many product markets. managing human resources is no longer the preroga. this may be the correct decision if the useful life of the technology is shorter than the period over which the organization would need to recoup the investment – a situation that would hardly have seemed likely a decade ago. the approach of not investing could hardly be called strategic and may actually be shortsighted – often quickly depriving the organ.ization of being able to compete in the long term against other organ. 5 May 2003): . Investing in the appropriate equipment or technology. but is often a major concern for operations managers. maintaining it and reinvesting are crucial decisions for operations managers. is a major liability for an organization and may even cause insolvency. the period between purchasing equipment and that equip. human resources. Developing human resources is clearly evident in the following (Business Week. It is a question of maintaining secure access to the necessary technology. management development and so on) but is.izations that have made more appropriate decisions. Being left with out-of-date technology. believing that such a risk is not necessary since the cur.ment being made obsolete by newer technology is never certain. however.

The 1980s were the decade of lean production and right-first-time quality management.or some special .both raw materials and finished goods? Not his problem.The factory manager or the production director rarely had to think about suppliers or customers.sibility than before.In the 1990s the game has grown even tougher. Indeed." Survival isn’t just a matter of smart machines.says John A. but much of this is true within service settings as well "Manufacturing used to be pretty simple. and this comes from human resource capability and not from technology or equipment. Now it is.McFarland.Workers have to get smarter as well. All he did was to make sure that his machinery was producing widgets at the maximum hourly rate.the largest maker of industrial electric motors in the US. A versatile corps of workers has helped Baldor ride out the manufacturing recession without a layoff..ness.Customer needs? Delivery times? Efficient purchasing? That was what the purchasing department and the sales department were there for." It is important to note how Baldor’s approach to managing human resources has had strategic benefits. including ideas for innovation (Chapter 4). management of the supply chain (Chapter 6) is also very dependent upon the ability to form strategic partnerships throughout the supply chain. Customers are more and more demanding.CEO of Baldor Electric Co.he could sit back and relax.Once he had worked out how to stick to that ‘standard rate’ of production. Human resources impact a number of areas of interest to the operations manager. The Economist(20 June 1998) summarized the position very well when referring to manufacturing operations.and show a willingness to learn new technologies. Conclusion The future role of operations managers will take on far greater respon. allowing them to compete suc.Piles of inventory lying around.cessfully in spite of the recession in which the industry found itself. They increasingly want the basic product to be enhanced by some individual variation. quality improvements (Chapter 8) and process developments (Chapter 3) – all of which are dependent upon human resource know-how and inventive.

” e-Business@MIT Working Paper Series CeB 101. MIT.ucc. Special "Forces. the pressure put on production/opera. Sloan School of Management. having strategic operations in place will decide the fate of firms in both manufacturing and services settings. W." But the point to bear in mind here is this: not only do operations managers have to take on board these additional.” Collections & Credit E. 2001. ELMAGHRABY. A. Undoubtedly.” Teaching Case. “Technology for Transportation Bidding at Home Depot.pdf http://mitsloan. April.pearsoned. (2001).in terms both of the actual products and of the way they are delivered. “Building Trust On-Line: The Design of Reliable Reputation Reporting Mechanisms for Online Trading Communities. “Fighting Fraud In Cyberspace. GEOFFRION.collectionsworld. MA.Companies sweat to keep up with their demands. and R. “The XML FAQ. DEMBY.psu. GEOFFRION.” June 19. School of Industrial and Systems References: http://www.2102. online at http://www. FLYNN. P.informs.htm. C. as we have outlined in this chapter. A. there are also other vitally important social/ environmental pressures that need to be and (1992).3102.” Interfaces. major competitive requirements. Online athttp://pubsonline. 5 pages. and combina. KESKINOCAK (2000).tions of both. 6-36. 31:2 (March-April).01. Trends and Opportunities in MS/OR. KRISHNAN (2001). In the future. 11 Georgia Institute of Technology. A key issue for operations managers in trying to manage the future is that operations strategy must be in place to enable the firm to deal with such changes. online at 0273731603_FM.smeal. (2000)." Operations .tions managers will be greater than ever. “Prospects for Operations Research in the eBusiness Era. Online at http://www.

Research. 40:3 (May-June). 423-445. http://www.referenceforbusiness.html#ixzz1IjdYlXUA .html#ixzz1IjcUPjEF

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