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Chapter 11 Summary – Operations Management
The operations function of the business is aimed at executing the transformation process.
The Importance of Operations Management
Operations management can:
• Reduce costs of making products or offering services
• Increase revenue the business receives for offering its products and services to its customers/clients
• Reduce amount of investment (capital) needed to manufacture the type and quantity of products
or to offer the service required
• Provide the drive for new innovation by using its solid base of operational skills and knowledge to
develop new products and services
Other Reasons/Major Contributions:
• Improve productivity
o If a business produces more error-free outputs with less wastage of material inputs, or puts its
manufacturing staff to better use.
o When fewer inputs are used to produce the same outputs, or more outputs are produced
with the same inputs.
o The more efficient the transformation or conversion process is, the higher productivity will be.
• Help a business to satisfy needs of its customers/clients more effectively
• Product / service quality - decisive for reputation of the business
Defining terms used in operations management:
• The operations function is that function in the business primarily aimed at the utilisation of resources to
manufacture products or render services.
• Operations management involves operations managers’ activities, decisions and responsibilities that
tie in with the execution of the operations function.
The operations-management process includes operations planning, operations organising, operations scheduling as
well as operations control.
An operations-management model
Made up of a basic input-transformation-output model driven by the operations management strategies and
objectives which must satisfy customer/ client needs and requirements through the means acquired by the
operations activities of design, planning and control, and improvement.
, Page |2
Operations-management strategies and performance objectives
All businesses formulate business objectives, and if a business intends surviving in the long term, consumers
who are satisfied with the business’s products or services should be a top-priority objective.
6 main elements of customer needs:
1. Higher quality
2. Lower costs
3. Shorter lead time (quicker manufacturing or provision of services)
4. Greater adaptability (flexibility)
5. Lower variability with regard to specifications (reliability)
6. High level of service (better overall service).
With these 6 customer/client requirements as a basis, operations management performance objectives can be
formulated to give the business an “operations-cased advantage” over other businesses.
Operations management performance objectives must indicate the specific areas with the domain of the
operations function that will be emphasised when products and/or services are produced or provided.
The operations-management performance objectives are formulated in such a way that they are applicable to
both manufacturers and service providers.
To acquire operations based advantages, the following 6 general operations-management performance
objectives can be followed:
1. Do things right the first time
Error-free products → quality advantage →lower costs → improve competitive position → higher prices → greater
market share
2. Do things cost effectively
3. Do things quickly
4. Make changes quickly
5. Do things right every time
6. Do things better
Operations Management Guideline Positive Result
Do things right the first time Higher quality
Do things cost effectively Lower cost
Do things fast Shorter lead time
Changing things quickly Greater Adaptability
Do things right every time Lower variability
Do things better Better service
, Page |3
The Transformation Model (input-transformation-output model)
The operations function is primarily concerned with using resources (inputs) to provide outputs by means of a
transformation process.
Therefore the transformation model comprises 3 main components: Inputs, the transformation process itself and
outputs.
Inputs:
Inputs used in the transformation process comprise both the resources that are to be transformed (processed,
changed or converted) and the resources required to make the transformation possible. The resources to be
transformed / "Input Transformed Resources":
• Material
• Customers/clients
• Information
The resources required to make transformation possible / "Input Transforming Resources":
• Human Resources / Labour
• Equipment and facilities
• Technology - enables transformation process to function more efficiently
The Transformation Process:
• The transformation process converts inputs to outputs.
• The nature of the process is determined by what input is predominantly being processed
Outputs:
The ultimate goal of any transformation process is to transform inputs into outputs. Outputs assume the form of
products or services.
, Page |4
Characteristics of products and services:
Products produced by manufacturer Services produced by service provider
o Physically tangible and durable o Intangible and perishable
o Output kept in stock o Output not kept in stock
o Little customer contact o Plenty of client contact
o Manufactured before use o Provision and consumption simultaneous
o Long response time o Short response time
o Local & International markets o Mainly local markets
o Large production Facilities o Small service-provision facility
o Capital-intensive production o Labour intensive
o Quality easily measurable o Quality difficult to measure
Different operations have different characteristics
While the basic purpose of all operations is similar in that they transform inputs into outputs, the processes may differ
fundamentally in 4 ways:
• The volume of output may differ (amount)
• The variety of the output may differ (range)
• The variation of output may differ (demand pattern)
• The visibility of output may differ (refers to how much of the operations activities the customers experience
themselves or are exposed to)
The implications of these four Vs of operations can be quite significant in terms of the cost of
creating the products and services.
o High-volume, low-variety, low-variation and low visibility operational processes keep processing costs down.
o Low-volume, high-variety, high variation and high-visibility operational processes generally have a ‘cost
penalty’ .
Chapter 11 Summary – Operations Management
The operations function of the business is aimed at executing the transformation process.
The Importance of Operations Management
Operations management can:
• Reduce costs of making products or offering services
• Increase revenue the business receives for offering its products and services to its customers/clients
• Reduce amount of investment (capital) needed to manufacture the type and quantity of products
or to offer the service required
• Provide the drive for new innovation by using its solid base of operational skills and knowledge to
develop new products and services
Other Reasons/Major Contributions:
• Improve productivity
o If a business produces more error-free outputs with less wastage of material inputs, or puts its
manufacturing staff to better use.
o When fewer inputs are used to produce the same outputs, or more outputs are produced
with the same inputs.
o The more efficient the transformation or conversion process is, the higher productivity will be.
• Help a business to satisfy needs of its customers/clients more effectively
• Product / service quality - decisive for reputation of the business
Defining terms used in operations management:
• The operations function is that function in the business primarily aimed at the utilisation of resources to
manufacture products or render services.
• Operations management involves operations managers’ activities, decisions and responsibilities that
tie in with the execution of the operations function.
The operations-management process includes operations planning, operations organising, operations scheduling as
well as operations control.
An operations-management model
Made up of a basic input-transformation-output model driven by the operations management strategies and
objectives which must satisfy customer/ client needs and requirements through the means acquired by the
operations activities of design, planning and control, and improvement.
, Page |2
Operations-management strategies and performance objectives
All businesses formulate business objectives, and if a business intends surviving in the long term, consumers
who are satisfied with the business’s products or services should be a top-priority objective.
6 main elements of customer needs:
1. Higher quality
2. Lower costs
3. Shorter lead time (quicker manufacturing or provision of services)
4. Greater adaptability (flexibility)
5. Lower variability with regard to specifications (reliability)
6. High level of service (better overall service).
With these 6 customer/client requirements as a basis, operations management performance objectives can be
formulated to give the business an “operations-cased advantage” over other businesses.
Operations management performance objectives must indicate the specific areas with the domain of the
operations function that will be emphasised when products and/or services are produced or provided.
The operations-management performance objectives are formulated in such a way that they are applicable to
both manufacturers and service providers.
To acquire operations based advantages, the following 6 general operations-management performance
objectives can be followed:
1. Do things right the first time
Error-free products → quality advantage →lower costs → improve competitive position → higher prices → greater
market share
2. Do things cost effectively
3. Do things quickly
4. Make changes quickly
5. Do things right every time
6. Do things better
Operations Management Guideline Positive Result
Do things right the first time Higher quality
Do things cost effectively Lower cost
Do things fast Shorter lead time
Changing things quickly Greater Adaptability
Do things right every time Lower variability
Do things better Better service
, Page |3
The Transformation Model (input-transformation-output model)
The operations function is primarily concerned with using resources (inputs) to provide outputs by means of a
transformation process.
Therefore the transformation model comprises 3 main components: Inputs, the transformation process itself and
outputs.
Inputs:
Inputs used in the transformation process comprise both the resources that are to be transformed (processed,
changed or converted) and the resources required to make the transformation possible. The resources to be
transformed / "Input Transformed Resources":
• Material
• Customers/clients
• Information
The resources required to make transformation possible / "Input Transforming Resources":
• Human Resources / Labour
• Equipment and facilities
• Technology - enables transformation process to function more efficiently
The Transformation Process:
• The transformation process converts inputs to outputs.
• The nature of the process is determined by what input is predominantly being processed
Outputs:
The ultimate goal of any transformation process is to transform inputs into outputs. Outputs assume the form of
products or services.
, Page |4
Characteristics of products and services:
Products produced by manufacturer Services produced by service provider
o Physically tangible and durable o Intangible and perishable
o Output kept in stock o Output not kept in stock
o Little customer contact o Plenty of client contact
o Manufactured before use o Provision and consumption simultaneous
o Long response time o Short response time
o Local & International markets o Mainly local markets
o Large production Facilities o Small service-provision facility
o Capital-intensive production o Labour intensive
o Quality easily measurable o Quality difficult to measure
Different operations have different characteristics
While the basic purpose of all operations is similar in that they transform inputs into outputs, the processes may differ
fundamentally in 4 ways:
• The volume of output may differ (amount)
• The variety of the output may differ (range)
• The variation of output may differ (demand pattern)
• The visibility of output may differ (refers to how much of the operations activities the customers experience
themselves or are exposed to)
The implications of these four Vs of operations can be quite significant in terms of the cost of
creating the products and services.
o High-volume, low-variety, low-variation and low visibility operational processes keep processing costs down.
o Low-volume, high-variety, high variation and high-visibility operational processes generally have a ‘cost
penalty’ .
