Introduction OPERATIONS MANAGEMENT
Chapter Coverage • Operations management in important • Operations management is about process management • Operations processes have different characteristics
Operations Management • Operations management is about how organizations produce goods and services. • Definitions • The operations function of the organization is the arrangement of the resources which are devoted to the production and delivery of its products and services. • Operations managers are the staff of the organization who have particular responsibility for managing some, or all, of the resources which comprise the operations function. • Operations management is the term used for the activities, decisions and responsibilities of operation managers
Operations Management – Basic Principles Operations management is concerned with producing and delivering products and services Materials Products and services Information Customers All types of enterprise have an operations function, even if it isn’t called ‘operations.
Kitchen unit manufacturing operation Back office operation in a bank They are all operations Take-out / restaurant operation Retail operation
Operations Management is Important • Operations management can • Reduce costs of producing products and service by being efficient. • Increase revenue by increasing customer satisfaction through good quality and service. • Reduce need for investment by increasing the effective capacity of the operation and by being innovative in how it uses its physical resources • Enhance innovation by building a solid base of operations skills and knowledge within the business.
Operations in the Organization • The operations function is key to an organization because it produces the goods and services, but it is neither the only, nor necessarily the most important, function. The three core functions of any organization are: • The marketing function – responsible for communicating the organization’s product and services to its markets in order to generate customer request for goods and services. • The product/service development function – responsible for creating new and modified products and services in order to generate future customers requests. • The operations functions – responsible for fulfilling customer requests for service throughout the production and delivery of goods and services.
The support functions of any organization are: • The accounting and finance function – provides the information to help economic decision making and manages the financial resources of the organization • The human resources function - recruits and develops the organization’s staff as well as looking after their welfare. • In practice, functional names, boundaries and responsibilities do vary significantly between organizations.
TRANSFORMED RESOURCES MATERIALS INFORMATION CUSTOMERS FACILITIES STAFF TRANSFORMING RESOURCES Operations Management is About Managing Processes - transformation processes ENVIRONMENT GOODS AND SERVICES TRANSFORMATION PROCESS INPUT OUTPUT ENVIRONMENT
Inputs to the Process • Transformed resources – resources that are treated, transformed or converted in the process. They are a mixture of • Materials • Information • Customers • Transforming resources – these are the resources which act upon the transformed resources. They are two types: • Facilities • Staff
Within the Process • Materials processing –transforms material’s physical properties, location, possession or materials are stored. • Information processing– transforms information properties, possession, location or information is stored. • Customer processing – transforms customer’s physical properties, location, physiological state, psychological state or store (accommodate) customers.
Outputs from the Process • Outputs from process can be differentiate between products and service based organization – tangibility of products and intangibility of services • Most operations produce both products and services – (slide 1.13) • Services and products are merging – all operations are service providers who may produce products as a means of serving customers.
The output from most types of operation is a mixture of goods and services Pure goods Tangible Can be stored Production precedes consumption Low customer contact Can be transported Quality is evident Crude oil production Aluminium smelting Specialist machine tool manufacturer Restaurant Intangible Cannot be stored Production and consumption are simultaneous High customer contact Cannot be transported Quality difficult to judge Computer systems services Management consultancy Psychotherapy clinic Pure services
Process Hierarchy • All macro operations are made up many micro operations. • Micro operations have inputs. • Each micro operation produces outputs of goods and services for the benefit of customers. • Within each micro operation there might be sections or groups. • Internal customers and internal suppliers • Internal customers take outputs from other micro operations. • Internal suppliers take give inputs to other micro operations. • Each micro operations is an internal customer and internal supplier. • By treating their internal customers with care the effectiveness of the operation is improved.
All parts of the organization are operations • All micro operations are similar to macro operations – they have inputs transformed to outputs. • Each functions have its ‘technical’ knowledge. • Every managers in a micro operations is an operations manager. • The two meanings of operations must be differentiated: • Operations as a function – the part of the organization which produces the products and services for the external customers. • Operations as an activity – any processing of input resources in order to produce products and services for internal or external customers.
Operations Processes Have Different Characteristics • Operations processes differ in four distinctive ways: • The volume of their output • The variety of their output • The variation in the demand for their output • The degree of visibility which customers have of the production of the product or service • The volume dimension • High volume means high repeatability – people can specialize • High volume leads to systemization of work – SOP • High volume gives lower unit costs
The variety dimension • High variety of products and services offered • High variety increases cost of goods and services • High variety operations must be flexible • Standardization minimizes cost • The variation dimension • Demand for goods and services can change depending on the external environment – seasonal factor • Creates change in resources needed • Activities must be planned effectively – forecasting • Variation in demand can increase cost
The visibility dimension • Visibility means process exposure • Customers in a high visibility operation may judge the operation by their perceptions – customer contact skill is important
A Typology of Operations IMPLICATIONS IMPLICATIONS High repeatability Specialization Systemization Capital intensive Low unit cost Low repetition Each staff member performs more of job Less systemization High unit costs Volume High Low Well defined Routine Standardized Regular Low unit costs Flexible Complex Match customer needs High unit cost Variety Low High Stable Routine Predictable High utilization Low unit costs Changing capacity Anticipation Flexibility In touch with demand High unit cost Variation in demand Low High Time lag between production and consumption Standardized Low contact skills High staff utilization Centralization Low unit costs Short waiting tolerance Satisfaction governed by customer perception Customer contact skills needed Received variety is high High unit cost Visibility High Low