Chapter 1 - Operations management
1.1 : What is operations management?
= the activity of managing the resources that create and deliver services and products
Operations function = the part of the organisation that is responsible for the activity of creating
products and delivering services
-> every organisation has this function but some companies call it by a different name
Operations managers = the people who have particular responsibility for managing some, or all, of
the resources that comprise the operations function
-> some companies call it by a different name
Three core functions of an organisation:
1. Operations function
2. Marketing (+sales) function = positioning and communicating the organisation’s services and
products to its markets in order to generate customer demand
3. Product/service development function = developing new and modified services and products in
order to generate future customer demand
Support functions which help the core functions operate:
1. Accounting and finance function
2. Technical function
3. Human resources function
4. Information systems function
1.2 : Why is operations management important in all types of organisations?
Operations management uses resources to appropriately create outputs that fulfil defined market
requirements
-> in smaller companies, people usually have to do different jobs as the need arises. This informal
structure makes the company very flexible but decision making can become confusing as individuals’
roles overlap
-> in not-for-profit organisations, basically the same as regular companies but the objective is
oftentimes more complex because it is not focussed on profit
Changes in the business + legal environment have forced operations managers to adjust their
activities, especially in the following areas:
1. New technologies; they are changing so fast that it’s hard to predict what effect it is going to have
on operating practices
2. Different supply arrangements; some markets are becoming more global whilst others are
becoming constrained by politics
3. Increased emphasis on social and environmental issues
1.3: What is the input-transformation-output process?
The transformation process model is the basis for all operations:
Operations take a set of input resources -> these resources are used to transform something or they
,are transformed themselves -> outputs of services and products
Inputs:
1. Transformed resources = treated, transformed or converted in the process
- Materials
- Information
- Customers
2. Transforming resources = act upon the transformed resources
- Facilities
- Staff
Transformations:
1. Front-office = interact with customers
2. Back-office = little or no contact with customers
Outputs:
1. Products = physical and tangible things
2. Services = intangible, heterogenetic, inseparable and perishable (IHIP)
-> Besides pure products and pure services, most outputs lie somewhere in between
Co-creation/Co-production = the idea that all operations can be seen as producing services, which act
upon customers or their surrogates
Servitization = a term to indicate how operations are becoming more service conscious
One important distinction between different types of customers:
- B2B (business to business)
- B2C (business to customer)
SIPOC analysis (Suppliers, inputs, process, outputs and customers)
-> a method of formalising a process at a relatively general rather than a detailed level
1.4 What is the process hierarchy?
All operations consist of a collection of processes, each process is at the same time, an internal
supplier and an internal customer for other processes. Each process consists of individual units, these
can be employees or material. All operations are interlinked with each other in the supply network.
-> hierarchy of operations
,Chapter 2 – Operations performance
2.1 : Why is operations performance vital in any organisation?
Different levels at which you can measure performance:
1. Broad, societal level (triple bottom line)
-> different stakeholders have different interests, sometimes conflicting
2. Strategic level (how can an operation contribute to the organisation’s overall strategy)
-> the types of decisions and activities that operations managers carry out can also have a significant
strategic impact
3. Operational level (using the 5 ‘performance objectives’)
-> QSDFC model
2.2 : How is operations performance judged at a societal level?
Corporate social responsibility = the idea that operations should take into account their impact on a
broad mix of stakeholders
Triple bottom line = people, planet and profit
-> companies should measure themselves on the profit they generate, the impact their operations
have on society and the ecological impact on the environment
Environmental, social and governance (ESG) = investors’ perspective on the idea that a firm should
focus on social and environmental factors instead of only on profits
Social bottom line = the idea that businesses bear some responsibility for the impact they have on
society and balance the external societal consequences
Environmental bottom line = the extent to which business activity negatively impacts the natural
environment
Economic bottom line = the extent to which managers use the operation’s resources effectively
2.3 : How is operations performance judged at a strategic level?
Costs -> efficient performance can lower the costs
Revenue -> efficient performance can increase value of products, thereby increasing revenue
Investment -> efficient performance can increase amount of output with the same input, thereby
reducing needed investments
Operational failure -> well-designed and run operations will result in less negative impact on profits
and environment
Basis for innovation -> well-run operations can build knowledge that can be used in future
innovations
Net promoter score (NPS): measuring customer satisfaction by asking them how likely they are to
recommend it to someone
Detractors: people with a score of 1-6
Passives: people with a score of 7-8
Promoters: people with a score of 9-10
-> NPS = promoters - detractors
, 2.4 : How is operations performance judged at an operational level?
QSDFC-model:
Quality: providing customers with error-free goods and services that are fit for their purpose
-> increase in quality will increase dependability and decrease costs
Speed: increasing the availability of your goods and services and reducing waiting times
-> increase in speed will decrease inventory and reduce risks
Dependability: doing things on time
-> increase in dependability will save time and money and increase stability
Flexibility: being able to vary or adapt the operation’s activities to cope with unexpected
circumstances or to give customers individual treatment
-> four different requirements:
- product/service flexibility = ability to introduce new/modified products or services
- mix flexibility = ability to produce a wide range of products or services
- volume flexibility = ability to change the level of output
- delivery flexibility = ability to change the timing of the delivery of its services or products
-> increase in flexibility will speed up response, save time and maintain dependability
Costs: producing goods and services at a cost that enables them to be priced appropriately
-> just an overall good goal, practically all companies pursue some sort of goal for their costs
Agility: combination of all objectives. Being able to sense changes in the environment of an operation
and respond effectively, efficiently and in a timely manner
The QSDFC-model is often visualised with a polar diagram, to show the relative importance of each
aspect for individual firms
2.5 : How can operations performance be measured?
Best-known performance measurement approach -> Balanced scorecard (BSC) by Kaplan and Norton
1.1 : What is operations management?
= the activity of managing the resources that create and deliver services and products
Operations function = the part of the organisation that is responsible for the activity of creating
products and delivering services
-> every organisation has this function but some companies call it by a different name
Operations managers = the people who have particular responsibility for managing some, or all, of
the resources that comprise the operations function
-> some companies call it by a different name
Three core functions of an organisation:
1. Operations function
2. Marketing (+sales) function = positioning and communicating the organisation’s services and
products to its markets in order to generate customer demand
3. Product/service development function = developing new and modified services and products in
order to generate future customer demand
Support functions which help the core functions operate:
1. Accounting and finance function
2. Technical function
3. Human resources function
4. Information systems function
1.2 : Why is operations management important in all types of organisations?
Operations management uses resources to appropriately create outputs that fulfil defined market
requirements
-> in smaller companies, people usually have to do different jobs as the need arises. This informal
structure makes the company very flexible but decision making can become confusing as individuals’
roles overlap
-> in not-for-profit organisations, basically the same as regular companies but the objective is
oftentimes more complex because it is not focussed on profit
Changes in the business + legal environment have forced operations managers to adjust their
activities, especially in the following areas:
1. New technologies; they are changing so fast that it’s hard to predict what effect it is going to have
on operating practices
2. Different supply arrangements; some markets are becoming more global whilst others are
becoming constrained by politics
3. Increased emphasis on social and environmental issues
1.3: What is the input-transformation-output process?
The transformation process model is the basis for all operations:
Operations take a set of input resources -> these resources are used to transform something or they
,are transformed themselves -> outputs of services and products
Inputs:
1. Transformed resources = treated, transformed or converted in the process
- Materials
- Information
- Customers
2. Transforming resources = act upon the transformed resources
- Facilities
- Staff
Transformations:
1. Front-office = interact with customers
2. Back-office = little or no contact with customers
Outputs:
1. Products = physical and tangible things
2. Services = intangible, heterogenetic, inseparable and perishable (IHIP)
-> Besides pure products and pure services, most outputs lie somewhere in between
Co-creation/Co-production = the idea that all operations can be seen as producing services, which act
upon customers or their surrogates
Servitization = a term to indicate how operations are becoming more service conscious
One important distinction between different types of customers:
- B2B (business to business)
- B2C (business to customer)
SIPOC analysis (Suppliers, inputs, process, outputs and customers)
-> a method of formalising a process at a relatively general rather than a detailed level
1.4 What is the process hierarchy?
All operations consist of a collection of processes, each process is at the same time, an internal
supplier and an internal customer for other processes. Each process consists of individual units, these
can be employees or material. All operations are interlinked with each other in the supply network.
-> hierarchy of operations
,Chapter 2 – Operations performance
2.1 : Why is operations performance vital in any organisation?
Different levels at which you can measure performance:
1. Broad, societal level (triple bottom line)
-> different stakeholders have different interests, sometimes conflicting
2. Strategic level (how can an operation contribute to the organisation’s overall strategy)
-> the types of decisions and activities that operations managers carry out can also have a significant
strategic impact
3. Operational level (using the 5 ‘performance objectives’)
-> QSDFC model
2.2 : How is operations performance judged at a societal level?
Corporate social responsibility = the idea that operations should take into account their impact on a
broad mix of stakeholders
Triple bottom line = people, planet and profit
-> companies should measure themselves on the profit they generate, the impact their operations
have on society and the ecological impact on the environment
Environmental, social and governance (ESG) = investors’ perspective on the idea that a firm should
focus on social and environmental factors instead of only on profits
Social bottom line = the idea that businesses bear some responsibility for the impact they have on
society and balance the external societal consequences
Environmental bottom line = the extent to which business activity negatively impacts the natural
environment
Economic bottom line = the extent to which managers use the operation’s resources effectively
2.3 : How is operations performance judged at a strategic level?
Costs -> efficient performance can lower the costs
Revenue -> efficient performance can increase value of products, thereby increasing revenue
Investment -> efficient performance can increase amount of output with the same input, thereby
reducing needed investments
Operational failure -> well-designed and run operations will result in less negative impact on profits
and environment
Basis for innovation -> well-run operations can build knowledge that can be used in future
innovations
Net promoter score (NPS): measuring customer satisfaction by asking them how likely they are to
recommend it to someone
Detractors: people with a score of 1-6
Passives: people with a score of 7-8
Promoters: people with a score of 9-10
-> NPS = promoters - detractors
, 2.4 : How is operations performance judged at an operational level?
QSDFC-model:
Quality: providing customers with error-free goods and services that are fit for their purpose
-> increase in quality will increase dependability and decrease costs
Speed: increasing the availability of your goods and services and reducing waiting times
-> increase in speed will decrease inventory and reduce risks
Dependability: doing things on time
-> increase in dependability will save time and money and increase stability
Flexibility: being able to vary or adapt the operation’s activities to cope with unexpected
circumstances or to give customers individual treatment
-> four different requirements:
- product/service flexibility = ability to introduce new/modified products or services
- mix flexibility = ability to produce a wide range of products or services
- volume flexibility = ability to change the level of output
- delivery flexibility = ability to change the timing of the delivery of its services or products
-> increase in flexibility will speed up response, save time and maintain dependability
Costs: producing goods and services at a cost that enables them to be priced appropriately
-> just an overall good goal, practically all companies pursue some sort of goal for their costs
Agility: combination of all objectives. Being able to sense changes in the environment of an operation
and respond effectively, efficiently and in a timely manner
The QSDFC-model is often visualised with a polar diagram, to show the relative importance of each
aspect for individual firms
2.5 : How can operations performance be measured?
Best-known performance measurement approach -> Balanced scorecard (BSC) by Kaplan and Norton
