OPMAN CHAPTER 01 (ALL)

• Operations management


  The management of the processes that transform inputs into the goods and services that add value for the customer
• Transformation process


  • Any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides outputs for customers or clients
• Types of transformation processes

  • Manufacture (the physical creation of products)
  • Service (the treatment of customers or storage of products)
  • Supply (a change in ownership of goods)
  • Transport (the movement of materials or customers)
• Macro operation


  The overall transformation
• Micro operations


  The more detailed transformations within the macro operation
• Every organization has an operations function, whether or not it is called 'operations'
• Goal/purpose of most organizations

  The production of goods and/or services
• Basic functional areas of a typical organization

  • Operations
  • Marketing and sales
  • Finance
  • Human resources
• Operations


  The area that is responsible for directly creating the product or service for which the customer will pay
• Marketing


  Ensures that operations is producing the right product or service in a way that provides customers with all the features or characteristics that they value
• Finance


  Ensures that the funds for materials, supplies, payroll and equipment are available when needed
• Human Resources


  Ensures that the correct employees, with the adequate skills and experience are recruited, hired and trained. They are responsible for compensation, collection of income taxes, administration of benefits, succession planning and more
• Operations tends to be the largest department in terms of the number of employees in most organizations
• For a new graduate, you may be smart to look for a position within the operations of a business
• Operations is where the largest share of the firm's dollars are spent and is a huge focus of top management
• Effectiveness


  Making the right actions and plans in order to improve the business and add value for the customer
• Efficiency


  Doing things well at the lowest cost possible
• Decisions often involve a trade-off between effectiveness and efficiency
• Value


  The relationship between quality and price
• Major phases of operations in manufacturing

  • Craft manufacturing
  • Mass production
  • The modern period
• Craft manufacturing


  • Skilled craftspeople produce goods in low volume, with a high degree of variety, to meet the requirements of their individual customers
• Mass production


  • Producing goods in high volume with low variety - the opposite of craft manufacturing
• The modern period


  • Markets became highly fragmented, product life cycles reduced dramatically, and consumers had far greater choice than ever before
• Approaches for managing operations in the modern period

  • Flexible specialization
  • Lean production
  • Mass customisation
  • Agile manufacturing
• Flexible specialization


  Firms (especially small firms) focus on separate parts of the value-adding process and collaborate within networks to produce whole products
• Lean production


  Focuses on the elimination of all forms of waste from a production system
• Mass customisation


  Seeks to combine high volume, as in mass production, with adapting products to meet the requirements of individual customers
• Agile manufacturing


  Emphasizes the need for an organization to be able to switch frequently from one market-driven objective to another
• Key differences between production of goods and performance of services

  • Services have a much higher amount of customer contact
  • Services have a higher amount of labour content than manufacturing organizations
  • Services have a much higher degree of input variability than do manufacturing companies
  • Measurement of quality is much more straight-forward in a manufacturing setting
  • Measurement of productivity is very straight-forward in a manufacturing operation due to high degree of standardization in the inputs and outputs used
  • Inventory can be stored in the case of a manufacturing organization, but not in services
• Operations management is the management of the processes that transform inputs into the goods and services that add value for the customer. The study of operations deals with how the goods and services that you buy and consume every day are produced. A transformation process is any activity or group of activities that takes one or more inputs transforms and adds value to them and provides outputs for customers or clients. Where the inputs are raw materials it is relatively easy to identify the transformation involved. Three types of input – materials information and customers – must be transformed by a single organisation. transformation processes can be categorized into four groups: manufacture (the physical creation of products e.g. automobiles) service (the treatment of customers or storage of products e.g. hospitals or warehouses) supply (a change in ownership of goods e.g. retail) and transport (the movement of materials or customers e.g. taxi service). The overall transformation can be described as the macro operation and the more detailed transformations within this macro operation as micro operations.
• For example the macro operation in a brewery is making beer. The micro operations include:
• • milling the malted barley into grist
• • mixing the grist with hot water to form wort
• • cooling the wort and transferring it to the fermentation vessel
• • adding yeast to the wort and fermenting the liquid into beer
• • filtering the beer to remove the spent yeast
• • decanting the beer into casks or bottles.
• Every organization has an operations function whether or not it is called ‘operations’. The goal or purpose of most organizations involves the production of goods and/or services. To do this they have to procure resources convert them into outputs and distribute them to their intended users. The term operations embraces all the activities required to create and deliver an organization’s goods or services to its customers or clients. Within large and complex organizations operations is usually a major functional area with people specifically designated to take responsibility for managing all or part of the organization’s operations processes. It is an important functional area because it plays a crucial role in determining how well an organization satisfies its customers. In the case of private-sector companies the mission of the operations function is usually expressed in terms of profits growth and competitiveness; in public and voluntary organizations it is often expressed in terms of providing value for money. Operations management is concerned with the design management and improvement of the systems that create the organization’s goods or services. The majority of most organizations’ financial and human resources are invested in the activities involved in making products or delivering services. Operations management is therefore critical to organizational success. Other functions of the Business : A typical organization has four distinct basic functional areas; operations marketing and sales finance and human resources. Operations is the area that is responsible for directly creating the product or service for which the customer will pay. The other three departments ensure that the operations of the business has everything needed in order to do the work. Marketing – ensures that operations is producing the right product or service in a way that provides customers with all the features or characteristics that they value. Finance – ensures that the funds for materials supplies payroll and equipment are available when needed. Human Resources – ensures that the correct employees with the adequate skills and experience are recruited hired and trained. They are responsible for compensation collection of income taxes administration of benefits succession planning and more. Without HR there would be no employees in the operations department.
• In most organizations operations tends to be the largest department in terms of the number of employees. For a new graduate you may be smart to look for a position within the operations of a business. In a larger company these jobs are far more plentiful than those in smaller departments. If you have a passion for working for a large organization you might want to focus more on which organization you go to work for and less focus on the actual job title. Soon enough if you’re punctual energetic and proactive you will likely apply or get promoted into the job you desire. Operations is where the largest share of the firm’s dollars are spent. It is a huge focus of top management. All other departments in the organization are interrelated with operations. In finance marketing and human resources you will be interacting with operations on a regular basis. You should understand the businesses’ core transformation process regardless of the department in which you work. Major innovations are made through operations. If you look at successful companies such as Toyota Amazon or Dell you will find that the keys to their success came from innovations to the operations processes of their businesses. 8 | Introduction to Operations Management Operational innovation means coming up with entirely new ways of filling orders developing products providing customer service or doing any other activity that an enterprise performs. As a new grad in an organization you will find that every business is looking for new ideas tools and improvement suggestions in order to improve on the effectiveness and the efficiency of the business. • Effectiveness refers to making the right actions and plans in order to improve the business and add value for the customer. It is helping to get the business doing the right things for the customer. • Efficiency is different. To be efficient means doing things well at the lowest cost possible. To be efficient we look for ways to reduce unnecessary or redundant activities that add unnecessary cost and could be avoided. Often decisions that must be made will involve a trade-off between effectiveness and efficiency. Consider the decision to hire an extra full time server in a restaurant. The service may be faster and customers will feel as though their server was more attentive to their table. However this comes at a higher cost which is a reduction in efficiency. We think of value as the relationship between quality and price. If we can provide the customer with a better quality product at the same price point then that is adding value. If we are able to provide the same product but at a lower price then the customer wins again.
• Operations in some form have been around as long as human endeavor itself but in manufacturing at least it has changed dramatically over time and there are three major phases – craft manufacturing mass production and the modern period. Let’s look at each of these briefly in turn. Craft manufacturing Craft manufacturing describes the process by which skilled craftspeople produce goods in low volume with a high degree of variety to meet the requirements of their individual customers. Over the centuries skills have been transmitted from masters to apprentices and journeymen and controlled by guilds. Craftspeople usually worked at home or in small workshops. Such a system worked well for small-scale local production with low levels of competition. Some industries such as furniture manufacture and clock-making still include a significant proportion of craft working. Mass production In many industries craft manufacturing began to be replaced by mass production in the 19th century. Mass production involves producing goods in high volume with low variety – the opposite of craft manufacturing. Customers are expected to buy what is supplied rather than goods made to their own specifications. Producers concentrated on keeping costs and hence prices down by minimizing the variety of both components and products and setting up large production runs. They developed aggressive advertising and employed sales forces to market their products. An important innovation in operations that made mass production possible was the system of standardized and interchangeable parts known as the “American system of manufacture” (Hounshell 1984) which developed in the United States and spread to the United Kingdom and other countries. Instead of being produced for a specific machine or piece of equipment parts were made to a standard design that could be used in different models. This greatly reduced the amount of work required in cutting filing and fitting individual parts and meant that people or companies could specialize in particular parts of the production process. A second innovation was the development by Frederick Taylor (1911) of the system of ‘scientific management’ which sought to redesign jobs using similar principles to those used in designing machines. Taylor argued that the role of management was to analyze jobs in order to find the ‘one best way’ of performing any task or sequence of tasks rather than allowing workers to determine how to perform their jobs. By breaking down activities into tasks that were sequential logical and easy to understand each worker would have narrowly defined and repetitious tasks to perform at high speed and therefore with low costs (Kanigel 1999). A third innovation was the development of the moving assembly line by Henry Ford. Instead of workers bringing all the parts and tools to a fixed location where one car was put together at a time the assembly line brought the cars to the workers. Ford thus extended the ideas of scientific management with the assembly line controlling the pace of production. This completed the development of a system through which large volumes of standardized products could be assembled by unskilled workers at constantly decreasing costs – the apogee of mass production.