Operations management

• What is operations management ?

  Management of processes that produce goods or provide services
• Transformed resources

  Materials

  E.g. meat, rusk, water, casings, spices transformed to sausages

  Customers

  May be moved, served, stored (hotel),transformed physically (hairdresser),entertained (cinema)

  Information

  E.g. transfer of money

  Operation may transform all three
• Transforming resources

  Facilities

  Buildings, machinery and equipment

  Often high fixed capital cost

  Staff

  People working in the operation

  Usually low fixed cost
• Transformation process

  Materials

  Transformed physically

  E.g. raw materials to finished product

  Moved

  Stored

  Customers

  Transformed physically

  E.g. hairdresser

  Transformed psychologically

  E.g. theme park Changed ownership

  E.g. shop

  Information

  Processed, moved, stored
• Functional view

  Organization viewed as collection of functions

  Operations, marketing, finance, hr, sales, r&d, ict
• Process view

  Emphasises sets of processes organised to meet customer needs

  Set of process called value chain

  How much value added by each process?
• Tangibility: can you touch it?

  Goods (or products)

  Tangible and produced|

  Services

  Intangible and provided
• Perishability: how long does it last?

  Services instantly perishable

  Can you get on a plane after takeoff?
• Few pure goods or services

  E.g. mobile ’phone'

  Product useless without a service provider

  Service useless without a tangible way to use i
• Simultaneity

  Goods are usually consumed after they are produced

  Services must be provided and consumed simultaneously

  Leads to customer contact

  Front and back office processes

  • Front office: high customer contact
  • Back office: low customer contact

  Balance differs between operations
• 4 Vs: dimensions of operations

  Variety

  How many different processes?

  • Higher variety requires
  • Greater flexibility
  • Higher capital cost

  Process and product variety

  • Contrast supermarket and convenience store
  • Similar process variety
  • Supermarket has higher product variety
  • But it is process variety that matters
• 4 Vs: dimensions of operations

  Variation

  How operation changes over time

  • Usually variation in demand
  • Seasonal variation
  • Unpredictable variation

  High variation increases cost

  Needs one of:

  • Inventory
  • Change in capacity
  • Flexibility
• 4 Vs: dimensions of operations

  Visibility

  How much operation is exposed to customers

  • Customisability describes it better
  • How much can customers influence process?
  • Usually higher for services

  High visibility

  • Requires increased flexibility
  • Increases cost
  • Increases heterogeneity
  • interaction between customer, operation and environment
• Transformation process

  • Transformed resources

  Material, customers, information

  • Transforming resources

  Facilities, staff

  • Nature of transformation
  • Output: goods and services

  Tangibility

  Simultaneity
• 4 vs

  Volume

  • How many products/services

  Variety

  • How varied are processes

  Variation

  • How operation changes over time

  Visibility

  • How much customers influence processes
• Operation Manager’s Objectives

  Satisfy the requirements of all legitimate stakeholder groups

  • Efficient use of available resources
  • Effective use of available resources
  • Develop strategies
  • Design products/services, processes and networks
  • Plan and control
  • Measure performance and improve
  • Review and adjust
• Five operations performance objectives

  Quality

  • Doing things right

  Speed

  • Doing things fast

  Dependability

  • Doing things on time

  Flexibility

  • Being able to change what you do

  Cost

  • Doing things cheaply
• Apply to all operations

  All operations seek some level of quality,speed, dependability, flexibility and cost

  Individual operations may also have additional objectives
• Tradeoffs

  There are tradeoffs among these objectives

  Doing things right (quality) may mean not doing them fast (speed)

  Doing things cheaply (cost) may mean not being able to change what you do (flexibility)
• Quality—doing things right

  Related to design of product or service

  • and design of process

  Customer view of quality

  • Reliability
  • Performance
  • Aesthetics

  Operations view of quality

  • Conformance to specification

  Quality improves competitiveness

  • May increase dependability
  • Fewer problems: more reliable delivery
  • Impacts cost
  • Better quality may cost more, but . . .
  • Right first time reduces rework/waste

  Improves customer satisfaction
• Speed—doing things fast

  • Elapsed time between . . .
  • Customer requesting, and . . .
  • Customer receiving product or service

  Speed in different operations

  • Hospital
  • Fast time between diagnosis and treatment
  • Car manufacturer
  • Short time between request and manufacture
  • Supermarket checkout
  • Fast processing of customers

  Why speed?

  • Speed reduces
  • Inventory levels
  • Hence inventory costs
  • Risks
  • from predicting uncertain demand
• Dependability—doing things on time

  Dependability in different operations

  • Hospital
  • Few cancelled appointments
  • Car manufacturer
  • Delivery to dealer on time
  • Supermarket
  • Predictable opening hours
  • Items consistently in stock

  Why dependability?

  • Saves time and cost
  • Time for redoing work or cost of losing customer
  • Creates stability
• Flexibility—being able to change what you do

  Flexibility could be in

  • Products or services
  • Creating new or modified ones
  • Product/service mix
  • Changing range of products/services
  • Volume
  • Changing output over time
  • Delivery
  • Changing when product is delivered or service provided

  Why flexibility?

  • To respond to changes in demand

  Mass customisation

  • High variety with low cost
  • Create flexibility using a menu of choices
  • E.g. Fast food choices

  Agility

  • The ability to respond quickly and at low costto changes in requirements
• Cost—doing things cheaply

  Cost and price

  • Price: what the customer pays
  • Cost: what the operation pays
  • Reducing cost increases profit
  • Or market share if price also reduced
• Cost—doing things cheaply

  Tradeoffs

  • Reducing cost may reduce quality
  • Reducing cost may reduce speed/dependability
  • But increased speed may reduce costs of inventory
  • And increased dependability may reduce costs of rework
  • Increasing flexibility usually increases cost
• What is strategy?

  Market-driven view

  • Strategy driven by market and environment
  • Rivalry between firms
  • Power of customers
  • Power of suppliers
  • Threat of new entrants
  • Threat of new products/services
• What is strategy?

  Resource-based view

  • Strategy determined within organisation by the resources it controls
• Resource-based view

  • Sustainable competitive advantage through core competences and resources
  • Competitive advantage is achieved by these resources not being imitable or substitutable (therefore difficult to copy)
  • Resources may be tangible or intangible
  • Capabilities and constraints
  • Capability: ability to use resources to achieve some end
  • There are often environmental constraints to what resources can be acquired
• Order-winning

  The key reason the customer chooses you
• Qualifying

  What you must do to be considered
• Order winners and qualifiers

  Operations need to

  • Get basics right
  • Support competitive advantage with order winners
  • Be better than competitors, or
  • Provide a different set of order winners, or
  • A combination of both
• Four or five product process types

  • Project
  • Jobbing process
  • Batch process
  • Mass and continuous process
• Three or four service process types

  • Professional services
  • Service shops
  • Mass services and service factories
• Product process types

  Project

  • Single, highly customised
  • Well-defined start and finish
  • Resources organised separately for each project
  • Complex
  • Long time scale

  Examples

  • Shipbuilding, construction, software design

  Volume-variety

  • Very low volume (one)
  • Very high variety of processes (usually)
• Product process types

  Jobbing process

  • Small production runs
  • often just one item
  • Similar resources for each product
  • Short timescale
  • Less complex

  Examples

  • Plumbing, bespoke tailoring, picture framing

  Volume-variety

  • Low volume (one)
  • High variety of processes
• Product process types

  Batch processes

  • Wide range of production runs
  • Similar resources for each product
  • Small process variation for different products

  Examples

  • Garment manufacture, component assembly, windows for large building, paint manufacture

  Volume-variety

  • Wide range of volumes
  • No extremes
  • Wide variety of processes
• Product process types

  Mass production

  • Don't know production run size in advance
  • Similar resources for each product
  • Very small process variation
  • Different products made without setup and changeover

  Examples

  • Car manufacture, food processing

  Volume-variety

  • High or very high volume
  • Low variety of processes
• Product process types

  Continuous production

  • Production too long to specify
  • Often nonstop production
  • Similar resources for each product

  Examples

  • Paper, glass, production, beer, soft drinks, electricity

  Volume-variety

  • Very high volume
  • Low variety of processes
  • Maybe just one product
• Low volume, high variety

  • Complex tasks
  • Intermittent flow

  High volume, low variety

  • Simple tasks
  • Continuous flow
• High volume, high variety

  • Reducing complexity
  • Reduces capital costs

  Low volume, low variety

  • Increasing volumes gives economies of scale
  • reduces unit cost