What is operations management?

Operations management defined

Operations management is the activity

of managing the resources which are
devoted to the production and delivery of
products and services.

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The consultancy services market – % of world
revenues of 40 largest consultancy firms

Financial Marketing / sales

6 2
Organizational
design
Operations and process
11
management
31
Benefits / actuarial
16

IT strategy Corporate strategy

17 17

The operations function is fashionable!

Back office operation Kitchen unit

in a bank manufacturing
operation

They are
all
Retail operation
operations
Take-out / restaurant
operation

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 The best way to start understanding the nature of
‘operations’ is to look around you

Everything you can see around you (except the flesh and
blood) has been processed by an operation

Every service you consumed today (radio station, bus

service, lecture, etc.) has also been produced by an
operation

Operations Managers create everything you buy, sit on,

wear, eat, throw at people, and throw away

A general model of
The operation’s
operations strategic
management objectives

Transformed Operations Operations The operation’s

resources … strategy strategy competitive role
and position
¾Materials
¾Information
¾Customers
Design Improvement
Operations Output
Input management products Customers
resources and
services
Transforming Planning
resources … and
control
¾Facilities
¾Staff

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 Operations management at IKEA
Design a store layout
which gives smooth Ensure that the jobs of
Design elegant
and effective flow all staff encourage
products which can be
flat-packed efficiently their contribution to
business success

Site stores of an Continually examine

appropriate size in and improve
the most effective operations practice
locations

Maintain cleanliness Monitor and enhance

and safety of storage quality of service to
area customers
Arrange for fast
replenishment of
products

Prêt a Manger

‘High-end’ sandwich and snack retailer

Uses only ‘wholesome’ ingredients
All shops have own kitchens, which make fresh
sandwiches every day
Fresh ingredients delivered early every morning

The same staff who serve you at lunch made the

sandwiches that morning
“We don’t work nights, we wear jeans, we party …”

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The three basic functions at Prêt a Manger
Nutritional ‘mechanical’ and
aesthetic design of the
sandwiches and snacks
Product /
Service
Development
Design, location
and management of
stores and in-store
Marketing Operations processes and the
Promotional network that supplies
activities, them
market
research, etc.

All operations are transformation processes …

Inputs Transformation process Outputs

that transform inputs …

into outputs

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 Some inputs are transformed resources
Some inputs are transforming resources
Transformed
resources …

¾Materials
¾Information
¾Customers
Output
Input Transformation process products
resources Customers
and
services

Transforming
resources …

¾Facilities
¾Staff Outputs are products and services that add
value for customers

At Prêt a Manger
Transformed
resources …

¾Ingredients
¾Packaging
¾Customers

Input Served and

resources satisfied
customers

Transforming
resources …

¾Equipment
¾Fittings
¾Staff

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 The output from most operations is a mixture of
products and services
Pure products – Outputs
that are exclusively
Crude oil production
Acme Whistles tangible

Aluminium smelting

Specialist machine tool

production Prêt a Manger Mixture of products
and services – Outputs
that are a mixture of
Restaurant
the tangible and the
intangible
IKEA
Information systems provider

Management consultancy
Mwagusi Safari Lodge
Pure services – Outputs
Psychotherapy clinic that are exclusively
intangible

Operations can be analyzed at three levels

Flow between operations

The level of the supply network

Flow between processes

The level of the operation

The level of the process

Flow between resources

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Flow between operations
Operations management is
concerned with the flow of
transformed resources between
operations, processes and
transforming resources, where …

Flow between processes

External operations interact

with internal processes to form
the external supply network

Processes form an internal

‘supply network’ and become
each other’s customers and
Flow between resources suppliers

Three levels of operations management analysis: the supply

network, the operation, and the process

The supply network – Flow between operations

Studios Promotion
agency The programme and
Broadcasting
Casting video supply network
company
agency
Programme /
video maker
Creative
agency

The operation – Flow between processes

The programme and
video operation

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 Three levels of operations management analysis: the supply
network, the operation, and the process

The programme and

Programme / video supply network
video maker

The operation – Flow between processes

Engineering The programme and
video operation
Marketing Finance and Production Post
and sales accounting unit production
Set and props
manufacture

The ‘Set and props

manufacturing’
process

Processes – Flow between resources (people and facilities)

Three levels of operations management analysis: the supply

network, the operation, and the process

The programme and

Programme / video supply network
video maker

The programme and

video operation

Set and props

manufacture

Set
construction
Set
Set
The ‘Set and props design
finishing
manufacturing’ Props
process acquisition

Processes – Flow between resources (people and facilities)

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 Three levels of operations management analysis: the supply
network, the operation, and the process
The supply network – Flow between operations
Studios Promotion
agency Broadcasting The programme and
Casting
agency company video supply network
Programme /
Creative video maker
agency

The operation – Flow between processes

Engineering The programme and
video operation
Marketing Finance and Production Post
and sales accounting unit production
Set and props
manufacture

Set
construction
The ‘Set and props
Set
manufacturing’ Set
design
process finishing
Props
acquisition

Processes – Flow between resources (people and facilities)

Differences within sectors are often greater than the

differences between sectors
Financial services
An account Financial analyst
management centre at advising a client at an
a large retail bank investment bank

Furniture manufacturing

Mass production of Craft production of

kitchen units reproduction
‘antique’ furniture

Hotels

Value-for-money Lobby of an
hotel international
luxury hotel

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 A Typology of Operations

Low Volume High

High

High Variety Low

Variation in
High Low
demand

High Visibility Low

A Typology of Operations

Implications Implications

Low repetition High repeatability

Each staff member Specialization
performs more of job Low Volume High
High Capital intensive
Less systemization
Low unit costs
High unit costs

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 A Typology of Operations

Implications Implications

Well defined
Flexible
Routine
Complex
High Variety Low Standardized
Match customer needs
Regular
High unit costs
Low unit costs

A Typology of Operations

Implications Implications

Changing capacity Stable

Anticipation Routine
Variation in
Flexibility High Low Predictable
In touch with demand demand High utilization
High unit costs Low unit costs

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 A Typology of Operations

Implications Implications

Short waiting tolerance Time lag between

production and
Satisfaction governed by consumption
customer perception Standardization
Customer contact skills High Visibility Low Low contact skills
needed
Received variety is high High staff utilization
High unit costs Centralization
Low unit costs

Implications
A Typology of Operations Implications
Low repetition High repeatability
Each staff member Specialization
performs more of job Low Volume High
High
Capital intensive
Less systemization
Low unit costs
High unit costs

Well defined
Flexible
Routine
Complex
High Variety Low Standardized
Match customer needs
Regular
High unit costs
Low unit costs

Changing capacity Stable

Anticipation Routine
Variation in
Flexibility High Low Predictable
In touch with demand demand High utilization
High unit costs Low unit costs

Short waiting tolerance Time lag between

production and
Satisfaction governed by consumption
customer perception Standardization
Customer contact skills High Visibility Low Low contact skills
needed
Received variety is high High staff utilization
High unit costs Centralization
Low unit costs

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 4 V’s profile of two operations
Low Volume High

High Variety Low

High Variation Low

High Visibility Low

Mwagusi Formule 1
Safari Lodge Hotel

Important to understand how different operations are positioned

on the 4 V’s.
Is their position where they want to be?
Do they understand the strategic implications?

Some interfunctional relationships between the operations

function and other core and support functions
Engineering/ Product/service
Understanding of the
technical capabilities and development
function constraints of the function
operations process
Analysis of new
technology options Understanding of
process technology
Accounting needs New product and
Provision service ideas
and finance of relevant Understanding of the
function data capabilities and
Operations constraints of the
Financial analysis function operations process
for performance
and decisions Market
requirements
Marketing
Understanding of human function
resource needs Understanding Provision of systems for
of design, planning and
Recruitment infrastructural control, and improvement
development and system
and training needs
Human Information
resources technology
function (IT) function

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 Separate operations processes
Function 1 Function 2 Function 3 Function 4

Customer needs fulfilled

Business processes
Customer needs

Conventionally, organizational boundaries are drawn around functional processes

Separate operations processes

Function 1 Function 2 Function 3 Function 4
Customer needs fulfilled
Business processes
Customer needs

BPR advocates reorganizing (reengineering) micro operations to reflect the natural

customer-focused business processes

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 Marketing Set and Finance
props Production
Engineering units and
and Sales manufacture costing

Preparing quotations

Customer needs fulfilled

Programme production

Business processes
Customer needs

Promotional and advertising contracts

Technical support contracts

Music videos

Example of how each micro operation contributes Size of each micro operation’s
to the business processes which fulfil external needs continuation to each process

Key Terms Test

Operations management
The activities, decisions and responsibilities of managing
the production and delivery of products and services.

Operations function
The arrangement of resources that are devoted to the
production and delivery of products and services.

Operations managers
The staff of the organization who have particular
responsibility for managing some or all of the resources
which comprise the operation’s function.

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 Key Terms Test
Support functions
The functions that facilitate the working of the core
functions, for example, accounting and finance, human
resources, etc.

Broad definition of operations

All the activities necessary for the fulfilment of customer
requests.

Transformation process model

Model that describes operations in terms of their input
resources, transforming processes and outputs of goods
and services.

Key Terms Test

Transformed resources
The resources that are treated, transformed or converted in a
process, usually a mixture of materials, information and
customers.

Input resources
The transforming and transformed resources that form the input
to operations.

Transforming resources
The resources that act upon the transformed resources, usually
classified as facilities (the buildings, equipment and plant of
an operation) and staff (the people who operate, maintain and
manage the operation).

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 Key Terms Test
Tangibility
The main characteristic that distinguishes products (usually
tangible) from services (usually intangible).

Facilitating services
Services that are produced by an operation to support its
products.

Facilitating products
Products that are produced by an operation to support its
services.

Key Terms Test

Processes
An arrangement of resources that produces some mixture
of goods and services.

Supply network
The network of supplier and customer operations that have
relationships with an operation.

Internal supplier
Processes or individuals within an operation that supply
products or services to other processes or individuals
within the operation.

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 Key Terms Test
Internal customer
Processes or individuals within an operation that are the
customers for other internal processes or individuals’
outputs.

Hierarchy of operations
The idea that all operations processes are made up of
smaller operations processes.

‘End-to-end’ business processes

Processes that totally fulfil a defined external customer
need.

Key Terms Test

Business process reengineering
The philosophy that recommends the redesign of
processes to fulfil defined external customer needs.

Volume
The level or rate of output from a process, a key
characteristic that determines process behaviour.

Variety
The range of different products and services produced by a
process, a key characteristic that determines process
behaviour.

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 Key Terms Test
Systemization
The extent to which standard procedures are made explicit.

Standardization
The degree to which processes, products or services are
prevented from varying over time.

Customer contact skills

The skills and knowledge that operations staff need to meet
customer expectations.

Key Terms Test

Front-office
The high-visibility part of an operation.

Back-office
The low-visibility part of an operation.

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