Operations

Management

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 Introduction
• Introduction: operations management – a
critical responsibility of every manager
• What is operations management
• Operations systems – transformation processes
• Operations as service
• Operations strategy and competitiveness

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 Operations management: a critical
responsibility of every manager
• Getting the day-to-day work done quickly,
efficiently, without errors, and at low cost
• Helping companies create dramatic
improvements in customer service and
reductions in cost
what concepts and tools one needs to craft innovative ways
to deliver a firm’s goods and services?
What ways do managers stimulate growth:
– technology investments, acquisitions, and major market
campaigns, innovations in operations?
– Innovation in operations is relatively reliable and low cost.
– List innovative operations-related ideas! 3
 Operations management: a critical
responsibility of every manager
OM helps one to

• Learn the concepts and tools being employed by

companies around the world as they craft efficient and
effective operations:
– Efficiency means doing something at the lowest possible cost
[the goal of an efficient process is to produce a good or provide
a service by using the smallest input or resources}
– Effectiveness means doing the right things to create the most
value for the company.
– Value defined as quality divided by price

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 Operations management: a critical
responsibility of every manager
OM helps one to
• Learn about issues in the field. What issues do managers in
general and operations managers in particular are facing in
their effort to help their companies deliver a firm’s goods
and services?
what are the things that managers/operations managers are interested in ?
What perspectives, concepts, and tools do they need to deal with these
issues?
For example, issues led companies to take such initiatives as BPR,
continuous improvement programs,
• Learn to use analytical thinking to deal with real-world
problems,

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 What is operations management?
OM is defined as
“the design, operation, and improvement of the
systems that create and deliver the firm’s primary
products and services”
Note on these concepts:
1. Design
2. Operation
3. improvement

OM is a functional field of business, is a field of

management
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 What is operations management?
 OM is concerned with the management of the
entire system that produces a good or delivers a
product.
 Producing a product or providing a service
involves a complex services of transformation
processes (looking into a supply chain for any
given product, one can identify many such
transformation processes through the value-chain).
 OM is concerned with managing all of these
individual processes as effectively as possible
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 What is operations management?
Within the operations function, management
decisions can be divided into three broad
areas:
1. strategic (long-term) decisions,
2. tactical (intermediate-term) decisions, and
3. operational planning and control (short-term)
decisions.

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 What is operations management?
• Strategic issues are usually broad, addressing
such questions as these:
– How will we make the product?
– Where do we locate the facility or faculties?
– How much capacity do we need?
– When should we add more capacity?

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 What is operations management?
Operations management decisions at the strategic
level affect the company’s long-range
effectiveness in terms of how it can address its
customers’ needs.
Thus, for the firm to succeed, these decisions
must be in alignment with the corporate
strategy. Decisions made at the strategic level
become the fixed conditions or operating
constrains under which the firm must operate in
both the intermediate and short term
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 What is operations management?
• At tactical level, operations management primarily
addresses how to efficiently schedule material and labor
within the constraints of previously made strategic
decisions. Issues on which OM concentrates on this level
include:
– How many workers do we need?
– When do we need them?
– Should we work overtime or put on second shift?
– When should we have material delivered?
– Should we have a finished goods inventory?
• These tactical decisions, in turn, become the operating
constraints under which operation planning and control
decisions are made 11
 What is operations management?
• Management decisions with respect to operational
planning and control are narrow and short term by
comparison. Issues at this level include these:
– What jobs do we work on today or this week?
– Whom do we assign to what tasks?
– What jobs have priority?
• OM, as a field of study, is the study of the design
and management of operating systems organized
and integrated for global competitive advantage

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Knowledge map of perspectives on operations management ( Miller,
J. G. What is operations management? A perspective from the past a
projection for the future !

Production
process design

Managing
Production Optimal change in
systems resource production
theory allocation systems

Factory planning &

control

OM, 1966, is the study of the optimal design, control, and change in production
systems. 13
Knowledge map of perspectives on operations management ( Miller,
J. G. What is operations management? A perspective from the past a
projection for the future !

Operating
systems design

Value chain Winning in Organizational

systems global process
theory competition integration

Operating systems
planning & control

OM, since 1991, is the study of the deign of operating systems organized and
integrated for global competitive advantage 14
Knowledge map of perspectives on operations management ( Miller,
J. G. What is operations management? A perspective from the past a
projection for the future !

Business
systems design

Business
systems Benefit to Social process
theory society integration

Business systems
planning & control

OM, for 2020’s, is the study of the design and management of business systems
organized and integrated for the benefit of society. 15
 Transformation processes
system Primary inputs resources Primary Typical desired output
transformation
function(s)
hospital patients MDs, nurses, medial (physiological) Healthy individual
supplies, equipment
restaurant Hungry customers Food, chef, wait staff, Physical and exchange Satisfied customers
environment
Automobile factory Sheet steel, engine Tools, equipment, (physical) cars
parts workers
College or university High school graduates Teachers, books, informational Educated individuals
classrooms
Department store shoppers Displays, stocks of exchange Sales to satisfied
goods, sales clerks customers
Distribution center Stock keeping units Storage bins, stock Storage and Fast delivery,
(SKUs) pickers redistribution availability of SKUs
airline travelers Airplanes. Crews. Move to destination On – time, safe delivery
Scheduling/ticketing to dstination
systems

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 Transformation processes
• Transformation processes are key elements of an operations
system
• Transformation processes are used in all types of businesses
• Categories of transformation processes:
– Physical (as in manufacturing)
– Location (as in transformation)
– Exchange (as in retailing)
– Storage (as in warehousing)
– Physiological (as in health care)
– Informational (as in telecommunications)
• These transformations are not mutually exclusive.
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Difference Between Services & Goods
• A service is an intangible process, [it is
performance by service provider! It is experience
from customers’ point of view]
• A good is the physical output of a process
• The term product may be used to refer to the
output of a transformation process, i.e., service or
goods.
• A firm’s product may contain: core element and
augmenting element.
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 Operations as service
• The emerging model in industry:
• Every organization is in the service business
• The services can be divided into core and value-added services:
– Core services: customers want are products that are made correctly,
customized to their needs, delivered on time, and priced
competitively. These are commonly summarized as the classic
performance objectives of the operations function:
• Quality (products made correctly)
• Flexibility (customized to the customers’ needs)
• Speed (delivered on time)
• Price or cost of production (priced competitively)
• Value-added services that element which makes external
customer’s life easier, or (internal customers) help them to
better carry out their particular
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 Operations as service
– Value-added factory services can be classified into
four broad categories:
• Information: the ability to furnish critical data on product
performance, process parameters, and cost to internal
groups and to external customers, who then use the data to
improve their own operations or products
• Problem solving: the ability to help internal and external
groups solve problems, especially in quality
• Sales support: the ability to enhance sales and marketing
efforts by demonstrating the technology, equipment, or
production systems the company is trying to sell
• Field support: the ability to replace defective parts quickly
or replenish stocks quickly to avoid downtime or stock
outs 20
 Operations as service
– Value –added service provided to
external customers yield two benefits:
• They differentiate the organization from
the competition
• These services build relationships that
bind customers to the organization in a
positive way

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Operations strategy and competitiveness

• What is operations strategy?

• operations competitive dimensions
• The corporate strategy design process
• Strategic fit: fitting operational activities to
strategy
• Attacking through operations
• Productivity measurement
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 Operations strategy and competitiveness
What is operations strategy?

The word strategy, as it relates to business, refers to

– The establishment of objectives/goals (vision, mission,
value, goals, objectives) like survival goal, growth
goal, profit goal, …
– The setting of directions , i.e. competitive strategy
(how to compete at business level or in what business
to be at corporate level)
– The development and implementation of plans, with
the goal of achieving ascendancy over one’s
adversaries (at least over nature)

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 Operations strategy and
competitiveness
Operations management is not always
operations,

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 Operations strategy and competitiveness
What is operations strategy?
context in which the term (strategy) is used:
• Corporate strategy encompasses decisions
– regarding the industries and markets in which the
company participates
– How it structures itself in order to attack those
markets
– How it acquires and allocates key corporate
resources to various activities and groups

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Business Strategy, which specifies
– The scope of that business and its relationship to the
corporation as a whole
– How it is to compete
A business is successful when it achieves and
maintains a competitive advantage in various ways,
including such generic ones as

• Low cost/high volume (cost leadership)

• Product innovation and unique features
(differentiation) , or
• Customized service in selected niche (focus strategy)
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 Operations strategy and competitiveness
What is operations strategy?

Functional strategies as

– A marketing strategy
– Operations strategy
– Financial/control strategy
– Research/development strategy
Each such strategy must support the type of
competitive advantage being pursued by the
business.
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 Operations competitive strategy

Operations strategy is concerned with setting broad policies and plans for
using the resources of a firm to best support its long-term competitive
strategy
It involves decisions that relate to the design of a process and the
infrastructure needed to support the process
Process design includes
• the selection of appropriate technology,
• sizing the process over time,
• the role of inventory in the process, and
• locating the process
The infrastructure decisions involve
• The logic associated with the planning and control systems,
• Quality assurance and control approaches
• Work payment structures
• Organization of the operations function 28
The purpose of an operations strategy
is to guide an operations organization
in Assembling and aligning the
resources that will enable it to
implement its company’s competitive
strategy effectively

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 Operations competitive dimensions- dimensions with
which the firm may excel in the market

Major competitive dimensions:

– Cost or price: make the product or deliver the service cheap

– Quality: make a great product or deliver a great service
– Delivery speed: make the product or deliver the service quickly
– Delivery reliability: deliver it when promised
– Coping with changes in demand: change its volume
– Flexibility and new-product introduction speed: change it
– Other product-specific criteria: support it
1. Technical liaison and support
2. Meeting a launch date
3. Supplier after – sales support
4. Other dimensions (like availability of choices for color, size, weight, location of the
fabrication site, customization, and product mix)
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 Operations competitive strategy

An operation cannot excel simultaneously on all competitive dimensions

Management needs to decide which parameters of performance are critical to the
firm’s success and needs to concentrate the resources of the firm on these particular
characteristics
Examples of dimensions which need trade-offs
– Speed of delivery and flexibility dimensions
– Low – cost strategy and speed of delivery or flexibility
– High- quality and low cost

Read: Ch.2, text book, Chase, Jacobs and Aquilano, 1973, Operations
Management for competitiveness, 11th edition, Boston: McGraw-Hill Irwin

What do the concepts of ‘plant-within-plant’ and ‘straddling’ mean?

What are ‘order winning” and “order qualifier criteria” and how do they relate
with operations competitive dimensions?
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 Operations competitive strategy

Identifying and describing functional

perspectives from firm competitive
strategy using Kaplan and Norton’s
template

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 Operations competitive strategy

Firm’s strategy integrates functional and

organizational perspectives
– Financial perspective
– Customer perspectives
– Internal perspectives
– Learning and growth perspectives

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 Operations competitive strategy
Financial perspective
Taking ‘improve shareholder value as its objective’, which
may be measured using “Return on Investment”, “return on
capital employed”, “economic value added”, .. Use two basic
strategies for driving financial performance:
Growth strategy
Build the franchise - developing new sources of revenue
from new markets, new products, or new customers
Increase customer value – work with existing
customers to expand their relationship with the company
Productivity strategy
Improve cost structured
Improve asset utilization
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 Operations competitive strategy

The customer perspective (defines how growth

will be achieved)
Customer Value proposition (specific strategy to
compete for new customers or an increased share of
existing customer businesses) use the following three
different ways to differentiate:
1. Product leadership
2. Customer intimacy (building bonds with
customers)
3. Operational excellence
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 Operations competitive strategy

Internal perspective (business processes and the specific activities

the organization must master to support the customer value
proposition)

Four sets of processes:

1. Innovation processes – build the franchise

2. Customer management processes – increase customer value
3. Operational processes – achieve operational excellence
4. Regulatory and environmental processes – be a good
corporate citizen
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 Operations competitive strategy

The learning and growth perspective (intangible assets

needed to enable activities and customer relationships to
be conducted at high levels of performance). Include:
1. Strategic competencies - skills and knowledge
required by the workforce to support the strategy
2. Strategic technologies – materials and process
technologies, information systems, databases, tools,
and network required to support the strategy
3. Climate for action provides the cultural shifts needed
to motivate, empower, and align the workforce
behind the strategy
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 Operations competitive strategy

Key performance indicators

Productivity is a common measure of how
well a country, industry, or business unit is
using its resources (or factors of production).

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…. end

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