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Introduction to Operations Management (Key points (The four main themes…
Introduction to Operations Management
Key points
The four main themes
The management of resources
Chiefly about managing the resources in an organisation in such a way that allows the organisation to meet its customers’ needs efficiently
Resources are involved in transformation processes that convert resources into useful outputs
The nature of the operations management role
OMs are mostly involved in the design, planning and control and improvement of the processes they manage.
They make key decisions that can affect the long-term success as well as dealing with many short-term problems
The importance of operations
Operations practices and decision-making influence costs, revenues and cash flow
Can be used to allow for competitive advantage
The best operations can fundamentally change how a market is served through innovative practices.
The relevance of operations management
Far more people practice operations management than might be first thought
Anyone in an organisation who provides an output or manages resources can be considered to be an OM
The discipline is hugely important for both the short- and long-term success of any organisation
More people who occupy managerial positions are actually operations managers than might first be realised
The operations management function needs to be fully integrated into the organisation and involved in any new developments or organisational changes
Operations managers often are the
implementers of the organisation’s strategies
What is operations management
Def - The function is responsible for the efficient delivery of goods and services to customers through effective management of the organisation’s resources to meet their customers’ needs
The responsibility of resources include
Fixed assets -
manufacturing plants and equipment
Variable assets
- raw materials, work in progress and unsold finished goods
Tie up as capital invested and can cost the business in interest payments
Organisations can face difficulties in cash flow problems from factors such as overstocking
An effective operations manager will manage a process ensuring these types of assets are not kept unnecessarily or wasted.
Efficiency achieved through
Good process design
Effective planning and control systems
A workforce that is involved in continuously improving processes and systems
Input-process-output model
Model
Input
- Management input resources
Facilities
Equipment
Staff
Customers
Suppliers
Transport
Materials
Energy
Innformation
Process
- Managing processes
Process flow
Work in progress
Process design
Planning and scheduling
Progressing and control
System improvement
Output
- Managing outputs
Products and services
Customer satisfaction
Unit costs (profitability)
Environmental impact
The model is just a framework that explains and characterises operations management in all economic sectors
It can be different in manufacturing and services as well as in public and private markets
The diagram shows the types of resources that operations managers have to collect and use efficiently and effectively
In many services, the management of the customer during the process is a key task
The output performance leads directly to levels of customer satisfaction or dissatisfaction
Must be achieved without overspending or excessive resource consumption, otherwise the unit costs will be too high and budgets or profitability will be constrained
Operations managers should also consider other impacts, such as that to the environment
Transformation process
Much of the effort of an operations manager goes into the management of the transformation processes that form all operations
The nature of the process depends partly on the type of resource being transformed and that of the transformation taking place
3 main types of transformation processes
Material processing
Transforming materials
Examples
Logistics operations
Mining operations
Manufacturing operations
Retail operations
Information processing
Organisations that process information as a core part of their business
Examples
Banking
Accounting
Telecommunications
The information is not always as visible as that of material processing
Considerable challenges associated with the accuracy of these
processes - a bank cannot afford to have errors in money transfer processes or account management
Customer processing
Customers do not like the fact that they could be processed when they visit somewhere (eg hotel)
Within a process, there can
be transformational change
Physical transformation
Preparation of food in a kitchen
Machining of metal in an workshop
Mixing of chemicals in a laboratory
Informational transformation
Transforming data in company report
Simpler data processing
Research projects
Possession transformation
Conveyancing and buying property
Retail - buying and selling of goods
Data sharing
Location transformation
The logistics process of getting material to suppliers or any customer transport service
Storage transformation
Inventory in warehouses
People in waiting rooms
Data in servers
Create availability of resource or to maintain utilisation of systems
There are costs of storage, and many operations
experts see unnecessary storage as waste
Physiological/psychological transformation
Medical treatments (surgery, counselling)
Customers at a hairdressers
What do operations managers do?
Organising the input resources
They decide what resources, such as people, facilities and
equipment, to obtain to serve their market requirements
They are subject to restraints such as financial restrictions, lack of availability of skills set
Decisions have to be repeatedly taken as markets and strategies change
Managing the outputs
Responsible for providing the products and services the customer needs, on time, to a high standard
Short term
Operations managers must meet the delivery promises made by the organisation
Long term
Managers must be completely aware of what the market requirements are and work towards developing capabilities so their processes can meet these market requirements in the long term
Managing processes
The biggest focus in operations management is on the transformation processes themselves
Slack et al. (2011) divide the process management tasks into three separate areas
The design process
Work with other functions to design and develop processes that meet customer needs efficiently and effectively
The performance is largely dictated by the design of the system
A badly designed process will produce poor outputs irrespective of how hard operations managers try to ‘performance manage’ the people within the system or work around its faults.
Examples - Product/service design, layout and flow
Planning and control
Once a system is in place, plans need to be made to timetable or schedule activities (eg shift patterns)
Planning activities like quality assurance
Control activities are also needed to check that plans have been conformed
OMs must have systems that highlight issues such as missing items of stock, poor-quality output or late deliveries to the customer
Examples - Workforce planning, shift patterns, work allocation, scheduling of orders, capacity plans, stock control, quality planning and control, error correction
Improvement
New in recent years is increasing emphasis on continuous process improvement
OMs are expected to lead process improvement activities so that performance improves over time
OMs can be overseeing thousands of improvement activities each year
Examples - New product introduction, continuous improvement, ‘Lean thinking’, team-based quality improvement
Short-term versus long-term perspectives of operations management
On a daily basis long-term developmental activities are sometimes pushed back
Managers may be involved in short term crises
Failure of a supplier to deliver some urgently needed materials
A machine breakdown
A problem that has resulted in late delivery or poor-quality service to a customer
Many of the short-term problems can be reduced or even prevented by good long-term decision-making
There is a constant tension between dealing with short-term
issues and longer-term, even strategic, development work.
Simplicity versus complexity
The best operations processes are usually simple to understand
OMs prefer simplicity to complexity when managing their processes
External market environments often threaten to disrupt stability
The importance of operations management
Operations managers can make a positive impact on an organisation by
Reducing costs through efficient operations
Enhancing revenues by providing more marketable goods and services through quality, service and innovation
Minimising the capital needed to establish a viable operation
Developing capabilities and competences that allow markets to be served more effectively or new markets entered.
The Hayes and Wheelwright four-stage model
Helps to understand the role of operations in a competitive
market
Stage 1: internally neutral
Objective is to minimise the negative impact of ‘operations’
Here the operation is holding the organisation back
Here the operation regularly underperforms relative to its market requirements and/or regularly makes mistakes
Cost - loss of reputation and require rework
New ideas have to be made, rather than using existing ones - short term problems have to be solved
Stage 2: Externally neutral
Objective is for ‘operations’ to help the business maintain parity with its competitors
Organisations are typically as good as their competitors at
serving their markets, but they don’t have any specific source of operations advantage
They want to adopt the best practises here
Operations are good enough to help implement the organisation’s strategy, but currently big development opportunities are created outside of core operations
The operation therefore has no directly positive impact on
competitiveness and is not seen as a source of new ideas.
Most operations are at this point
Stage 3: internally supportive
Operation offers the best capabilities in the sector and so
the competitive strategy can be linked to operations.
Objective is for ‘operations’ to provide credible support for the business strategy
The organisation can exploit the operations’ capabilities to offer better prices, differentiated products, faster deliveries or greater flexibility
Companies that gain a reputation for being able to deliver good quality often achieve additional market advantage
Stage 4: externally supportive
Very few organisations ever operate at Stage 4
Operations convey such a competitive advantage through their performance and capability that the entire organisation strategy can be built around the operation
Objective is for ‘operations’ to provide a source of competitive advantage
Operations as a source of risk
When operations go wrong, this can impact badly on an organisation’s revenues, competitiveness or reputation.
Some are clear catastrophic failures that have led to significant harm to the public, the environment and to the organisations concerned
Companies are at more risk of being exposed if their claims of good business practices are not matched by good operations practices (eg bad working practises)