Part one : Directing the operation
Chapter 1 – Operations Management
What is operations management?
- Operations management is the activity of managing the recourses that are devoted to the
creation and delivery of service and products.
- Operations management is concerned with managing processes. And all processes have
internal customers and suppliers. But all management functions also have processes.
Therefore, operations management has relevance for all managers.
Why is operations management important in all types of organisations?
- Operations management uses the organisation’s resources to create outputs that fulfil
defined market requirements. This is the fundamental activity of any type of enterprise.
- Operations management is increasingly important because today’s changing business
environment requires new thinking from operations managers, especially in the areas of new
technology, supply networks and environmental sustainability.
What is the input-transformation-output process?
- All operations can be modelled as input-transformation-output processes. They all have
inputs of transforming recourses, which are usually divided into ‘facilities’ and ‘staff’, and
transformed resources, which are some mixture of materials, information and customers.
- Most operations create and deliver a combination of services and products, rather than
being a ‘pure’ service or product operation.
- All operations can be positioned by their intangibility, heterogeneity, inseparability and
perishability characteristics.
What is the process hierarchy?
- All operations are part of a larger supply network which, through the individual contributions
of each operation, satisfies end-customer requirements.
- All operations are made up of processes that form a network of internal customer-supplier
relationships within the operation.
How do operations (and processes) differ?
- Operations and processes differ in terms of the volume of their outputs, the variety of
outputs, the variation in demand for their outputs and the degree of ‘visibility’ they have.
- High volume, low variety, low variation and low customer ‘visibility’ are usually associated
with low costs.
What do operations managers do?
- Responsibilities can be classed in four categories – direct, design, deliver and develop.
- Increasingly, operations managers have responsibility for an operation’s environmental
performance.
,Chapter 2 – Operations Performance
Why is operations performance vital in any organization?
- Operations management can either ‘make or break’ any business. In most businesses, it
represents the bulk of its assets.
- The positive effects of a well-run operation include a focus on improvement, the building of
‘difficult to imitate’ capabilities and an understanding of the processes that are the building
blocks of all operations
- The negative effects of a poorly run operation include failures that are obvious to customers
(and expensive for the organization), a complacency that leads to the failure to exploit
opportunities for the improvement.
How is operations performance judged at a social level?
- Operations decisions affect a varierty of ‘stakeholders’. Stakeholders are the people and
groups who have a legitimate interest in the operation’s activities.
- This idea that operations should take into account the impact on a broad mix of stakeholders
is termed ‘corporate social responsibility’ (CSR).
- Performance at the social level often uses the idea of the triple bottom line (TBL or 3BL, also
known as ‘people, planet and profit’). It includes the social bottom line, the environmental
bottom line and the economic bottom line.
- The social bottom line incorporates the idea that businesses should accept that they bear
some responsibility for the impact they have on society an balance the external ‘societal’
consequences of their actions with the more direct internal consequences, such as profit.
- The environmental bottom line incorporates the idea that operations should accept that they
bear some responsibility for the impact they have on the natural environment.
- The economic bottom line incorporates the conventional financial measures of performance
derived from using the operation’s resources effectively.
How is operations performance judged at a strategic level?
- The types of decisions and activities the operation managers carry out can have a significant
strategic impact.
- In particular, operations can affect economic performance in five ways:
It can reduce costs
It can achieve customer satisfaction through service
it can reduce the risk of operational failure
it can reduce the amount of investment that is necessary
it can provide the basis for future innovation
How is operations performance judged at an operational level?
- The five ‘performance objectives’ that are used to assess the performance of the operations
at an operational level are; quality, speed, dependability, flexibility and costs.
- Quality is important because: by ‘doing things right’, operations seek to influence the quality
of the company’s goods and services. Externally, quality is an important aspect of customer
satisfaction or dissatisfaction. Internally, quality operations both reduce costs and increase
dependability.
- Speed is important because: by ‘doing things fast’ operations seek to influence the speed
with which goods and services are delivered. Externally, speed is an important aspect of
, customers service. Internally, speed both reduces inventories by decreasing internal
throughput time and reduces risks by delaying the commitment of resources.
- Dependability is important because: by ‘doing this on time’ operations seek to influence the
dependability of the delivery of goods and services. Externally, dependability is an important
aspect of customers service. Internally, dependability within operations increases
operational reliability, thus saving time and money that would otherwise be taken up in
solving reliability problems and also giving stability to the operation.
- Flexibility is important because: by ‘changing what they do’, operations seek to influence the
flexibility with which the company produces goods and services. Externally, flexibility cabn
produce new products and services (product/service flexibility), produce a wide range or mix
of products and services (mix flexibility), produce different quantities or volumes of products
and services (volume flexibility) or produce products and services at different times (delivery
flexibility). Internally, flexibility can help speed up response times, save time wasted in
changeovers and maintain dependability.
- Cost is important because: by ‘doing things cheaply’, operations seek to influence the cost of
the company’s goods and services. Externally, low costs allow organisations to reduce their
price in order to gain higher volumes or, alternatively, increase their profitability on existing
volume levels. Internally, cost performance is helped by good performance in the other
performance objectives.
How can operations performance be measured?
- It is unlikely that for any operation a single measure of performance will adequately reflect
the whole of a performance objective. Usually, operations have to collect a whole bundle of
partial measures of performance.
- The balanced scorecard (BSC) is a commonly used approach to performance measurement
and incorporates measures related to:
How do we look to our shareholders (financial perspective)?
What must we excel at (internal process perspective)?
How do our customers see us (the customers perspective)?
How can we continue to improve and build capabilities (the learning and growth
perspective)?
How do operations performance objectives trade off against each other?
- Trade-offs are the extent to which improvements in one performance objective can be
achieved by sacrificing performance in others. The ‘efficient frontier’ concept is a useful
approach to articulating trade-offs and distinguishes between repositioning performance on
the efficient frontier and improving performance by overcoming trade-offs.
Chapter 3 – Operations Strategy
What is strategy and what is operations strategy?
- Strategy is the total pattern of decisions and actions that position the organization in its
environment and that are intended to achieve its long-term goals.
- Operations strategy concerns the pattern of the strategic decisions and actions that set the
role, objectives and activities of the operation. It can be used to articulate a vision for the
Chapter 1 – Operations Management
What is operations management?
- Operations management is the activity of managing the recourses that are devoted to the
creation and delivery of service and products.
- Operations management is concerned with managing processes. And all processes have
internal customers and suppliers. But all management functions also have processes.
Therefore, operations management has relevance for all managers.
Why is operations management important in all types of organisations?
- Operations management uses the organisation’s resources to create outputs that fulfil
defined market requirements. This is the fundamental activity of any type of enterprise.
- Operations management is increasingly important because today’s changing business
environment requires new thinking from operations managers, especially in the areas of new
technology, supply networks and environmental sustainability.
What is the input-transformation-output process?
- All operations can be modelled as input-transformation-output processes. They all have
inputs of transforming recourses, which are usually divided into ‘facilities’ and ‘staff’, and
transformed resources, which are some mixture of materials, information and customers.
- Most operations create and deliver a combination of services and products, rather than
being a ‘pure’ service or product operation.
- All operations can be positioned by their intangibility, heterogeneity, inseparability and
perishability characteristics.
What is the process hierarchy?
- All operations are part of a larger supply network which, through the individual contributions
of each operation, satisfies end-customer requirements.
- All operations are made up of processes that form a network of internal customer-supplier
relationships within the operation.
How do operations (and processes) differ?
- Operations and processes differ in terms of the volume of their outputs, the variety of
outputs, the variation in demand for their outputs and the degree of ‘visibility’ they have.
- High volume, low variety, low variation and low customer ‘visibility’ are usually associated
with low costs.
What do operations managers do?
- Responsibilities can be classed in four categories – direct, design, deliver and develop.
- Increasingly, operations managers have responsibility for an operation’s environmental
performance.
,Chapter 2 – Operations Performance
Why is operations performance vital in any organization?
- Operations management can either ‘make or break’ any business. In most businesses, it
represents the bulk of its assets.
- The positive effects of a well-run operation include a focus on improvement, the building of
‘difficult to imitate’ capabilities and an understanding of the processes that are the building
blocks of all operations
- The negative effects of a poorly run operation include failures that are obvious to customers
(and expensive for the organization), a complacency that leads to the failure to exploit
opportunities for the improvement.
How is operations performance judged at a social level?
- Operations decisions affect a varierty of ‘stakeholders’. Stakeholders are the people and
groups who have a legitimate interest in the operation’s activities.
- This idea that operations should take into account the impact on a broad mix of stakeholders
is termed ‘corporate social responsibility’ (CSR).
- Performance at the social level often uses the idea of the triple bottom line (TBL or 3BL, also
known as ‘people, planet and profit’). It includes the social bottom line, the environmental
bottom line and the economic bottom line.
- The social bottom line incorporates the idea that businesses should accept that they bear
some responsibility for the impact they have on society an balance the external ‘societal’
consequences of their actions with the more direct internal consequences, such as profit.
- The environmental bottom line incorporates the idea that operations should accept that they
bear some responsibility for the impact they have on the natural environment.
- The economic bottom line incorporates the conventional financial measures of performance
derived from using the operation’s resources effectively.
How is operations performance judged at a strategic level?
- The types of decisions and activities the operation managers carry out can have a significant
strategic impact.
- In particular, operations can affect economic performance in five ways:
It can reduce costs
It can achieve customer satisfaction through service
it can reduce the risk of operational failure
it can reduce the amount of investment that is necessary
it can provide the basis for future innovation
How is operations performance judged at an operational level?
- The five ‘performance objectives’ that are used to assess the performance of the operations
at an operational level are; quality, speed, dependability, flexibility and costs.
- Quality is important because: by ‘doing things right’, operations seek to influence the quality
of the company’s goods and services. Externally, quality is an important aspect of customer
satisfaction or dissatisfaction. Internally, quality operations both reduce costs and increase
dependability.
- Speed is important because: by ‘doing things fast’ operations seek to influence the speed
with which goods and services are delivered. Externally, speed is an important aspect of
, customers service. Internally, speed both reduces inventories by decreasing internal
throughput time and reduces risks by delaying the commitment of resources.
- Dependability is important because: by ‘doing this on time’ operations seek to influence the
dependability of the delivery of goods and services. Externally, dependability is an important
aspect of customers service. Internally, dependability within operations increases
operational reliability, thus saving time and money that would otherwise be taken up in
solving reliability problems and also giving stability to the operation.
- Flexibility is important because: by ‘changing what they do’, operations seek to influence the
flexibility with which the company produces goods and services. Externally, flexibility cabn
produce new products and services (product/service flexibility), produce a wide range or mix
of products and services (mix flexibility), produce different quantities or volumes of products
and services (volume flexibility) or produce products and services at different times (delivery
flexibility). Internally, flexibility can help speed up response times, save time wasted in
changeovers and maintain dependability.
- Cost is important because: by ‘doing things cheaply’, operations seek to influence the cost of
the company’s goods and services. Externally, low costs allow organisations to reduce their
price in order to gain higher volumes or, alternatively, increase their profitability on existing
volume levels. Internally, cost performance is helped by good performance in the other
performance objectives.
How can operations performance be measured?
- It is unlikely that for any operation a single measure of performance will adequately reflect
the whole of a performance objective. Usually, operations have to collect a whole bundle of
partial measures of performance.
- The balanced scorecard (BSC) is a commonly used approach to performance measurement
and incorporates measures related to:
How do we look to our shareholders (financial perspective)?
What must we excel at (internal process perspective)?
How do our customers see us (the customers perspective)?
How can we continue to improve and build capabilities (the learning and growth
perspective)?
How do operations performance objectives trade off against each other?
- Trade-offs are the extent to which improvements in one performance objective can be
achieved by sacrificing performance in others. The ‘efficient frontier’ concept is a useful
approach to articulating trade-offs and distinguishes between repositioning performance on
the efficient frontier and improving performance by overcoming trade-offs.
Chapter 3 – Operations Strategy
What is strategy and what is operations strategy?
- Strategy is the total pattern of decisions and actions that position the organization in its
environment and that are intended to achieve its long-term goals.
- Operations strategy concerns the pattern of the strategic decisions and actions that set the
role, objectives and activities of the operation. It can be used to articulate a vision for the
