Introduction to Operations Management

Chapter 01
Learning Outcomes

At the end of this topic, the participants will be able to

answer following questions;

• What is operations management?

• What is the input-transformation-output process?
• What do operations managers do?
• How to measure operations performance?
• Formulating operations strategy
• Order winners vs. order qualifiers
 Operations management is
the activity of managing the
resources that create and
What is deliver services and products.
Operations
Management ?
Operations in the organization

Organization

Product/
Marketing/ Service Operations
Sales Function Development Function
Function
 • Marketing / Sales function – responsible
for communicating the organization’s
products and services to its market in
order to generate customer requests
Core • Product/ service development function
– responsible for coming up with new
Functions and modified products and services in
order to generate future customer
requests
• Operations function – responsible for
the creation and delivery of services and
products based on customer requests
 • Enables the core functions to operate
effectively
• Accounting & Finance, Technical, Human
resources, Information systems function
Support • Different organizations will have various
support functions and will call by different
Functions names
• No clear division between the three core
function or between core and support
functions
• Difficult to define boundaries of the
operations function
Input - Transformation - Output Process

Transformed
resources

THE
Input Resources TRANSFORMATION Output
PROCESS
Transforming
resources
Characteristics of operations processes
Volume – number of units to be produced.
• Higher volumes encourage systemization of work and standard
procedures leading to low unit cost
e.g. McDonalds Burger production
• Lower volume may lead to high cost per unit due to not having
standard procedures. However, repetition of work is low.
e.g. Small local cafeteria
Characteristics of operations processes (Cont.)

Variety – ability to change the final product/ service as per the

customer requirements, flexibility.

e.g. Transportation service – Cab service vs. Public transportation

• Low flexibility allows standardization and low cost

Characteristics of operations processes (Cont.)

Variation – change in the demand for the final product/ service.

• It requires the operations capacity to be changed according to the
demand.

• Operations can be managed by planning activities in advance

e.g. : Demand for hotel accommodation

Characteristics of operations processes (Cont.)

Visibility – how much of the operation’s activities its customer

experience, or how much the operation is exposed to its customers
• Customer processing operations are more visible than material/
information processing operations
• Brick & Motor vs. Web Based
• Mixing high/ low visibility processes
 • Directing the overall nature and strategy
of the operation
What do • Designing the operation’s service,
operations products and processes
managers do? • Planning and controlling process delivery
• Developing process performance
Why is operations performance vital in any
organizations?
 1. – doing things right i.e. satisfying
customers by providing error free goods and
services which are ‘fit for their purpose’.
2. – doing things fast i.e. minimize the
time lag between order placing and receiving
Operations the good, thus increase the availability.
performance 3. – doing things on time i.e.
keeping the delivery promises
objectives 4. – ability to change what you do i.e.
being able to adopt the operations activities
to give customized offerings
5. – doing things cheap i.e. produce at
a cost which enables them to obtain a return
Cost
• Single-factor productivity – a partial measure of input or
output
e.g. number of cars produced per year per employee
• It facilitates comparison between productivity of different
inputs and excludes the effect of cost

• Multi/Total-factor productivity – measure that includes all

input factors
Example

• A health-check clinic has five employees and ‘processes’ 200

patients per week. Each employee work 35 hours a week. The
clinic’s total wage bill is £ 3,900 and its total overhead expenses
are £ 2,000 per week. What is clinic’s single factor labour
productivity and it’s multi-factor productivity?
Cost reduction through internal effectiveness
Triple bottom line
• Organizations should measure themselves not just on the traditional
economic profit generated for their owners, but also on the impact
their operations have on society and the environment.
• Sustainable business is one that creates an acceptable profit for its
owners, but minimize the damage to the environment and enhance
the existence of the people with whom it has contact.
• Will be accounting for the ‘Total Cost” of running the operations
• SOCIAL BOTTOM LINE

• ENVIRONMENTAL BOTTOM
LINE

• ECONOMIC BOTTOM LINE

 What is operations strategy?
• Operations Strategy is ‘the total pattern of
decisions which shape the long-term
capabilities of any type of operations and
their contribution to the overall strategy’.
- Slack & Lewis,
2011

• Operations strategy concerns the pattern of

strategic directions and actions which set the
role, objectives and activities of the
operation.
 •TOP-DOWN AND BOTTOM-UP
PERSPECTIVE

Perspectives • Operations strategy is a top-down

on operations reflection of what the whole group or
business wants to do.
strategy
• Operations strategy is a bottom-up
activity where operations
improvements cumulatively build
strategy
 •MARKET REQUIREMENT AND OPERATIONS
RESOURCES PERSPECTIVES

• Operations strategy involves translating

Perspectives market requirements into operations
on operations decisions
strategy • Operations strategy involves exploiting
the capabilities of operations resources
in choses markets
 Top-down perspective
• Operations strategy would follow the corporate and the relevant
business strategy of the organization
Corporate To become a major player in the market – Max.
Strategy Market share

Business Emphasis on economies of scale

Strategy
Fast service
Rapid volume growth
Operations Capacity expansion
Strategy
Tolerate some overcapacity in the short term
New locations/ facilities
Bottom-up perspective
• Take into account the circumstances, experiences, capabilities and
constraints of the operations function, and come up with the
operations strategy

• There may be no high-level decisions examining alternative

strategic options and choosing the one which provides the best
way forward. Instead, a general consensus emerges from the
operational level of the organization
Bottom-up
perspective
Market requirements perspective
Order winning factors

- Things which directly and significantly contribute to winning

business.

- Regarded as key reasons for purchasing the product/ service.

- Raising the performance in an order-winning factor will either

result in more business or improve the chances of gaining more
business.
Market requirements perspective
Qualifying factors
- Factors which has to be above a particular level just to be
considered by the customer.
- Performance below this ‘qualifying’ level of performance will
possibly disqualify the company from being considered by many
customers.
- May not be the major competitive determinants of success, but
important in another way.
- Improvements in Qualifying factor would not gain a competitive
advantage to the company.
Examples
Qualifying factors Order winning factors

Car

Supermarket
• Order-winning and order-qualifying criteria may
change over time.
• Ex. Order
Japanese companies entered the world automobile
market in 1970s, they changed the way in which these
winning
products won orders, from predominantly price to
product quality and reliability.
factors vs.
American automobile producers were losing orders Qualifying
through quality to the Japanese companies.
By late 1980s, product quality was raised by Ford and factors
General Motors so that they are now ‘ qualified’ to be
in the market.
Operations resources perspective

• An operations resource perspective must start with an understanding

of the resources capabilities and constraints within the operation.
Thank you