INTRODUCTION TO OPERATIONS MANAGEMENT
Objectives:
By the end of the chapter the student should be able to:
(i) Define the term operations management
(ii) Distinguish between manufacturing and service operations
(iii) Outline the organization of operations management
(iv) Explain the objectives of operations management
Introduction
Operations Management is the activity of managing the resources of an organisation which produce and deliver goods and services. Operations can be seen as one of many functions (e.g. marketing, finance, personnel) within the organisation. T h e operations function can be described as that part of the organisation devoted to the production or delivery of goods and services. T his means all organisations undertake operations activities because every organisation produces goods and/orservices.
Alternatively Operations management can also be defined as the design, improvement, and the management of the transformation processes that create value by converting inputs, such as raw materials, labor, and/or customer into outputs, such as goods or services
Manufacturing and Service Operations
Organisations can be classified in two broad categories as either manufacturing or service. Manufacturing organisations produce physical, tangible items which can be stored as inventory before delivery to the customer. Service organisations produce intangible items that cannot be produced ahead of time. One of the key developments in operations is the increasing importance ofservice operations asservice industry accounts for an increasing proportion of the output of industrialised economies. Service operations management is the term that is used to cover the activities, decisions and responsibilities of operations managers in service organizations.
Differences between manufacturing and service organisation
(i) Because a service cannot be stored its production and consumption will occur at the same time that implies that the producer of the service will come into contact with the customer. However for a manufacturing concern production can be stored and personal contact between supplier and the customer is not necessary
(ii) Because services are intangible then it follows that they cannot have a store for finished goods. Manufacturing operations will often compensate for fluctuations in demand by fulfilling demand from finished goods inventory produced during a slack period. This option is not open to service operations and they must focus on trying to alter the demand pattern to meet capacity by such strategies as discounting the price of the service during periods of low demand. Because the output of a service is intangible it is more difficult to assess performance by such measures as productivity or output. For example a manufacturer can simply count the volume of output of its product range, but an administration service for example will have more difficulty in measuring the productivity of their employees.
(iii)The quality of a service will be judged by the process of delivering that service as well as the quality of any tangible goods that are involved. This leads to the problem that it is more difficult to measure the quality of service delivery than the quality of manufactured goods. In reality most operations systems produce a mixture of goods and services.
(iv) Most goods have some supporting service element (e.g. a maintenance facility), called a facilitating service, while many services will have supporting goods(e.g. a management consultancy report), termed a facilitating good.
(v) For the manufacturing sector product definition is consistent while in the service the product definition is inconsistent
The Organisation Of Operations Management
The organization of operations management can be categorized into three specific levels:
(i). strategic/top level/longterm management
(ii). Tactical/functional/medium term/middle level management
(iii). Operational/shortterm management
The responsibilities of these levels of the management are:
Strategic management
This is the highest level of operations management. Generally they make decisions which have long term consequences (more than three years) and which affect the organization as a whole. Their specific functions include Decisions about:
(i) Products to make (product development)
(ii) Make or buy decisions
(iii) How to make products (process and layout decisions)
(iv) How much to procure
(v) Production site location
(vi) How much capacity is needed. (high level capacity decisions)
Tactical management
This is the second level of management in operations. They make decisions related to specific functions or departments within the organization with medium term consequence (i.e. less than three years but more than one year). Their specific functions include:
(i). Addressing the material and labor resources within the Constraints.
(ii). Labour planning: how many workers are needed.
(iii). inventory and replenishment planning: level of stock required and when should it be delivered.
(iv). Determining shifts needed for work: Whether overtime or subcontractors are required
(v). detailed capacity planning
Operational management
These are the low level managers in operations. They make decisions related to the day to day functions of the organizations and whose consequence is short term(less than one year). Their specific functions include:
(i). Planning, execution and control decisions.
(ii). Scheduling: What to process and when
(iii). Sequencing: What is the order to process requirements
(iv). Loading: How does the work utilize the resources
(v). Assignments: Who does the work
Objectives Of Operations Management
Operations objectives are very broad. Operations management has an impact on the five broad categories of stakeholders in any organisation. Stakeholders is a broad term but is generally used to mean anybody who could have an interest in, or is affected by, the operation. The five groups are:
Customers – the buyers of an organization‟s outputs. These are the most obvious people who will be affected by any business.
Suppliers – the providers of an organization‟s inputs. Operations can have a major impact on
suppliers, both on how they prosper themselves, and on how effective they are at supplying the operation.
Shareholders – the owners of the organization. Clearly, the better an operation is at producing goods and services, the more likely the whole business is to prosper and shareholders will be one of the major beneficiaries of this.
Employees – workers of the organization. Similarly, employees will be generally better off ifmthe company is prosperous; if only because they are more likely to be employed in the future. However operations responsibilities to employees go far beyond this. It includes the general working conditions which are determined by the way the operation has been designed.
Society – Although often having no direct economic connection with the company, individuals and groups in society at large can be impacted by the way its operations managers behave. The most obvious example is in the environmental responsibility exhibited by operations managers. the general objectives of operations management are: quality, speed, dependability, flexibility, and cost.
Quality
Quality is believed to be the most important of all the objectives. quality is discussed largely in terms of it meaning „conformance‟. That is, the most basic definition of quality is that a product or service is as it is supposed to be. In other words, it conforms to its specifications.
There are two important points to remember when reading the section on quality as a performance objective.
The external affect of good quality within in operations is that the customers who „consume‟ the operations products and services will have less (or nothing) to complain about. And if they have nothing to complain about they will (presumably) be happy with their products and services and are more likely to consume them again. This brings in more revenue for the company (or clients satisfaction in a not-for-profit organisation).
Inside the operation quality has a different affect. If conformance quality is high in all the operations processes and activities very few mistakes will be being made. This generally means that cost is saved, dependability increases and (although it is not mentioned explicitly in the chapter) speed of response increases. This is because, if an operation is continually correcting mistakes, it finds it difficult to respond quickly to customers requests. See the figure below.
Speed
Speed is a shorthand way of saying „Speed of response‟. It means the time between an external or internal customer requesting a product or service, and them getting it. Again, there are internal and external affects.
Externally speed is important because it helps to respond quickly to customers. Again, this is usually viewed positively by customers who will be more likely to return with more business. Sometimes also it is possible to charge higher prices when service is fast. The postal service in most countries and most transportation and delivery services charge more for faster delivery, for example.
The internal affects of speed have much to do with cost reduction. Usually, faster throughput of information (or customers) will mean reduced costs. So, for example, processing passengers quickly through the terminal gate at an airport can reduce the turn round time of the aircraft, thereby increasing its utilisation.
Dependability
Dependability means „being on time‟. In other words, customers receive their products or services on time. In practice, although this definition sounds simple, it can be difficult to measure. What exactly is on time? Is it when the customer needed delivery of the product or service? Is it when they expected delivery? Is it when they were promised delivery? Is it when they were promised delivery the second time after it failed to be delivered the first time? Again, it has external and internal affects.
Externally (no matter how it is defined) dependability is generally regarded by customers as a good thing. Certainly being late with delivery of goods and services can be a considerable irritation to customers. Especially with business customers, dependability is a particularly important criterion used to determine whether suppliers have their contracts renewed. So, again, the external affects of this performance objective are to increase the chances of customers returning with more business.
Internally dependability has an affect on cost. There are three ways in which costs are affected – by saving time (and therefore money), by saving money directly, and by giving an organisation the stability which allows it to improve its efficiencies.
Flexibility
flexibility always means „being able to change the operation in some way‟. There are different forms of flexibility (product/service flexibility, mix flexibility, volume flexibility, and delivery flexibility). It is important to understand the difference between these different types of flexibility, but it is more important to understand the affect flexibility can have on the operation. There are external and internal
affects of flexibility.
Externally the different types of flexibility allow an operation to fit its products and services to its customers in some way. Mix flexibility allows an operation to produce a wide variety of products and services for its customers to choose from. Product/service flexibility allows it develop new products and services incorporating new ideas which customers may find attractive. Volume and delivery flexibility allow the operation to adjust its output levels and its delivery procedures in order to cope with unexpected changes in how many products and services customers want, or when they want them, or where they want them.
Once again, there are several internal effects associated with this performance objective. namely flexibility speeds up response, flexibility saves time (and therefore money), and flexibility helps maintain dependability.
Cost
The cost structure of different organisations can vary greatly. All the other four performance objectives contribute, internally, to reducing cost. This has been one of the major revelations within operations management over the last twenty years.If managed properly, high quality, high speed, high dependability and high flexibility can not only bring their own external rewards, they can also save the
operation cost.
Review questions
1. Define the term operations management
2. Outline the main objectives of operations management
3. Explain the function of each of the three levels of management
4. Distinguish between service and manufacturing operations
5. Outline five stakeholders of an organization
References
Slack, N. and Lewis, M. (2011) Operations Strategy, 3rd edn, Pearson Education Limited, Harlow.
Suri, R. (2010) It‟s About Time: The Competitive Advantage of Quick Response Manufacturing, Productivity Press, NewYork.
Vonderembse, M.A. and White, G.P. (2004) Core Concepts of Operations Management,John Wiley and Sons Ltd.,Chichester.
