1 Introduction Notes

1.
Introduction
OPERATIONS MANAGEMENT
© Nigel Slack, Stuart Chambers & Robert Johnston, 2004 Operations Management, 4E: Chapter 1
1.2
Chapter Coverage
• Operations management in important
• Operations management is about process
management
• Operations processes have different
characteristics
1.3
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
1.4
Operations Management – Basic Principles
Materials Operations
management is
Information concerned with Products and
producing and services
Customers delivering products
and services
All types of enterprise have an operations function, even if

it isn’t called ‘operations.
1.5 Back office Kitchen unit
operation in manufacturing
a bank operation
They are all

operations
Take-out /
Retail restaurant
operation operation
1.6
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.
1.7
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.
1.8
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.
1.9 Table 1.1The activities of core functions in some organization
Core functional Internet service Fastfood chain Furniture
activities provider manufacturer
Marketing and - Promotes service to - Advertise on TV - Advertise in
sales users and get - Device promotional magazines
registration materials - Determine pricing
- Sell advertising policy
space -Sell to stores
Product/service - Device new - Design hamburgers, - Design new

development services and pizzas, etc. furniture
commission new - Design décor for - Coordinate with
information content restaurants fashionable colours
Operations - Maintain hardware, - Make burgers, - Make components

software and content pizzas, etc. - Assemble furniture
- Serve customers - Deliver furniture
- Maintain
equipments
1.10
Operations Management is About Managing
Processes - transformation processes
TRANSFORMED ENVIRONMENT
RESOURCES
MATERIALS
INFORMATION
CUSTOMERS
TRANSFORMATION GOODS
INPUT OUTPUT AND
PROCESS
SERVICES
FACILITIES
STAFF
TRANSFORMING
RESOURCES
ENVIRONMENT
1.11
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
1.12
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.
1.13
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.
1.14 The output from most types of operation is a
mixture of goods and services
Pure goods
Crude oil production
Tangible
Can be stored
Aluminium smelting
Specialist machine tool Production precedes

consumption
Low customer
manufacturer
contact
Can be transported
Quality is evident
Restaurant
Computer systems
services
Intangible
Management
Psychotherapy clinic
consultancy
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to
judge
Pure services
1.15
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.
1.16
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.
1.17
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
1.18
• 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
1.19
• 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
1.20 A Typology of
IMPLICATIONS Operations IMPLICATIONS
Low repetition High repeatability
Each staff member Low Volume High Specialization
performs more of job Systemization
Less systemization Capital intensive
High unit costs Low unit cost
Well defined
Flexible Routine
Complex High Variety Low Standardized
Match customer needs
Regular
High unit cost Low unit costs
Changing capacity Stable

Anticipation Routine
Flexibility High Variation in demand Low Predictable
In touch with demand High utilization
High unit cost Low unit costs
Time lag between

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

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1.

Operations Management – Basic Principles

All types of enterprise have an operations function, even if

They are all

Operations Management is Important

Operations in the Organization

The support functions of any organization are:

In practice, functional names, boundaries and responsibilities do

Product/service - Device new - Design hamburgers, - Design new

Operations - Maintain hardware, - Make burgers, - Make components

Inputs to the Process

Within the Process

• Information processing– transforms information properties,

• Customer processing – transforms customer’s physical

Outputs from the Process

• Most operations produce both products and services – (slide

• Services and products are merging – all operations are service

Specialist machine tool Production precedes

Internal customers and internal suppliers

All parts of the organization are operations

Operations Processes Have Different Characteristics

• The volume dimension

• The variety dimension

• The variation dimension

• The visibility dimension

Changing capacity Stable

Time lag between

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