OM Chap01

Chapter 1
What is operations management?
Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations management defined

Operations management is the activity
of managing the resources which are
devoted to the production and delivery of
products and services.
three core functions of any organization

' the marketing (including sales) function which is
responsible for communicating the organizations products
and services to its markets in order to generate customer
requests for service;
' the product/service development function which is
responsible for creating new and modified products and
services in order to generate future customer requests for
service;
' the operations function which is responsible for fulfilling
customer requests for service through the production and
delivery of products and services.
Example for three core functions of any

organization
'
Some interfunctional relationships between the operations

function and other core and support functions
Engineering/
technical
function
Understanding of the
capabilities and
constraints of the
operations process
Product/service
development
function
Analysis of new
technology options Understanding of
process technology
needs
New product and
Accounting
service ideas
Provision
and finance
Understanding of the
of relevant
function
capabilities and
data
Operations
p
constraints of the
Financial analysis
operations process
function
for performance
Market
and decisions
requirements
Understanding of human
resource needs
Human
resources
function
Recruitment
development
and training
Understanding Provision of systems for

design, planning and
of
infrastructural control, and improvement
and system
needs
Marketing
function
Information
technology
(IT) function
Back office operation

in a bank
Kitchen unit
manufacturing
operation
They are
all
Retail operation
operations
Take-out / restaurant
operation
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
y service yyou consumed todayy ((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
Operations management uses resources to appropriately create

outputs that fulfil defined market requirements
The new operations agenda
Operations management at IKEA

Design elegant
products which can be
flat-packed efficiently
Design a store layout

which gives smooth
and effective flow
Ensure that the jobs of

all staff encourage
their contribution to
business success
Site stores of an
appropriate size in
the most effective
locations
Maintain cleanliness
and safety of storage
area
Continually examine
and improve
operations practice
Arrange for fast

replenishment of
products
Monitor and enhance

quality of service to
customers
Prt a Manger
High-end sandwich and snack retailer
Uses only wholesome ingredients
All shops have own kitchens, which make fresh
sandwiches every
y dayy
Fresh ingredients delivered early every morning
The same staff who serve you at lunch made the
sandwiches that morning
We dont work nights, we wear jeans, we party
The three basic functions at Prt a Manger
Product /
Service
Development
Promotional
activities,
market
research, etc.
Marketing
Nutritional mechanical and

aesthetic design of the
sandwiches and snacks
Operations
Design, location
and
d managementt off
stores and in-store
processes and the
network that supplies
them
All operations are transformation processes
Inputs
Transformation process
Outputs
that transform inputs

into outputs
Some inputs are transformed resources

Some inputs are transforming resources
Transformed
resources
Materials
Information
Customers
Input
resources
Transformation process
Output
products
and
services
Customers
Transforming
resources
Facilities
Staff
Outputs are products and services that add

value for customers
At Prt a Manger
Transformed
resources
Ingredients
Packaging
Customers
Input
resources
Served and
satisfied
customers
t
Transforming
resources
Equipment
Fittings
Staff
Transformed and
transforming resources
Transformed resources
One set of inputs to any operations processes are transformed resources.
These are the resources that are treated, transformed or converted in the
process
Transforming resources
The other set of inputs to any operations process are transforming resources.
These are the resources which act upon the transformed resources. There are
two types which form the building blocks of all operations:
' facilities the buildings, equipment, plant and process technology of the
operation;
p
' staff the people who operate, maintain, plan and manage the operation.
(Note that we use the term staff to describe all the people in the operation, at
any level.)
Outputs from the process

Although products and services are different, the distinction can be subtle.
The most obvious difference is in their respective tangibility. Products are
usually tangible. Services are usually intangible.
Also, services may have a shorter stored life.
Products can usually be stored, at least for a time. The life of a service is often
much shorter. For example, the service of accommodation in a hotel room for
tonight will perish if it is not sold before tonight accommodation in the same
room tomorrow is a different service
The output from most operations is a mixture of

products and services
Crude oil production
Acme Whistles
Pure products Outputs

that are exclusively
tangible
Aluminium smelting
Specialist machine tool
production
Prt a Manger
Restaurant
Information systems provider
IKEA
Mixture of products
and services Outputs
that are a mixture of
the tangible and the
intangible
Management consultancy
Mwagusi Safari Lodge
Psychotherapy clinic
Pure services Outputs

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
Operations can be analyzed at three levels
Some operations described in terms of their

processes
Operations management is relevant to all parts of the business
All managers should have something to learn from the

principles, concepts, approaches and techniques of
operations management.
we must distinguish
operations:
between
two
meanings
of
' Operations as a function, meaning the part of the

organization which produces the products and services for
the organizations external customers;
' Operations as an activity, meaning the management of
the processes within any of the organizations functions.
Operations management is relevant to all parts of the business

Some examples of processes in non-operations functions
Business processes
Satisfying customers needs is accomplished through
using many processes, in both operations and other
functions.
Each of the processes contributes some part to fulfilling
customer needs.
A company may re-organize
i its operations
tions so that each
h
product is produced from start to finish by a dedicated
process that contains all the elements necessary for its
production.
Customer needs for each product are entirely fulfilled
from within what is called an end-to-end business
process.
Business process Reengineering

end-to-end BP often
organizational boundaries.
cut
across
conventional
Reorganizing (or re-engineering) process boundaries

and organizational responsibilities around these business
processes is the philosophy behind business process reengineering (BPR).
A Typology of Operations
Low
Volume of
output
High
High
High Variety of output Low
High
Variation in
demand
Low
High
Visibility for
customers
Low
Implications
Low repetition
Each staff member
performs more of job
Less systemization
High unit costs
Implications
Low
Volume
High
High
High repeatability
Specialization
Capital intensive
Low unit costs
a local cafeteria vs. McDonald
Implications
Flexible
Complex
Match customer needs
High unit costs
Implications
High
Variety
Low
Well defined
Routine
Standardized
Regular
Low unit costs
Taxi agency vs. bus services
Implications
Changing capacity
Anticipation
Flexibility
In touch with demand
High unit costs
Implications
High
Variation in
demand
Low
Stable
Routine
Predictable
High utilization
Low unit costs
Summer resort hotel vs. a hotel in business center
Implications
Short waiting tolerance
Satisfaction governed by
customer perception
Customer contact skills
needed
Received variety is high
High unit costs
Implications
High
Visibility
Low
Time lag between

production and
consumption
Standardization
Low contact skills
High staff utilization
Centralization
Low unit costs
R t iler vs. e
Retailer
e-biz
biz
How much of the operations activities its customers experience, or

how much the operation is exposed to its customers
customer-processing operations are more exposed to their
customers than material- or information-processing operations
implications of the four Vs

All four dimensions have implications for the cost of
creating the products or services.
high volume, low variety, low variation and low customer
contact all help to keep processing costs down.
low volume, high variety, high variation and high
customer
t
contact
t t generally
lly carry some kind off costt penalty
lty
for the operation.
The position of an operation in the four dimensions is
determined by the demand of the market it is serving.
Most operations have some discretion in moving
themselves on the dimensions.
4 Vs profile of two operations

Low
Volume
High
High
Variety
Low
High
Variation
Low
High
Visibility
Low
Mwagusi
Safari Lodge
Formule 1
Hotel
Important to understand how different operations are positioned

on the 4 Vs.
Is their position where they want to be?
Do they understand the strategic implications?
The activities of operations management

' Understanding the operations strategic performance objectives: to understand what it
is trying to achieve. This means understanding how to judge the performance of the operation
at different levels, from broad and strategic to more operational performance objectives.
(Chapter 2)
' Developing an operations strategy for the organization: operations management
involves hundreds of minute-by-minute decisions, so it is vital that there is a set of general
principles which can guide decision-making towards the organizations longer-term goals.
This is an operations strategy (Chapter 3)
' Designing the operations products, services and processes: Design is the activity of
determining the physical form, shape and composition of products, services and processes. It
is a crucial part of operations managers activities (Chapters 4 to 9).
The activities of operations management

' Planning and controlling the operation: the activity of deciding what the
operations resources should be doing, then making sure that they really are doing
it. (Chapters 10 to 17)
' Improving the performance of the operation: to improve the performance of
their operation. (Chapters 18 to 20)
' The social responsibilities of operations management: It is increasingly
recognized by many businesses that operations managers have a set of broad
societal responsibilities and concerns beyond their direct activities. The general
term for these aspects of business responsibility is corporate social responsibility
or CSR. It should be of particular interest to operations managers, because their
activities can have a direct and significant effect on society. (Chapter 21).
A general model of
operations
management
Transformed
resources
The operations
strategic
objectives
Operations
strategy
Operations
strategy
Materials
Information
Customers
Improvement
Design
Input
resources
Transforming
resources
The operations
competitive role
and position
Operations
management
Planning
and
control
Output
products
and
services
Customers
Facilities
Staff
Key Terms Test

Operations management
The activities, decisions and responsibilities of managing
the production and delivery of products and services.
Operations function
The arrangementt off resources that are devoted
d
t d to
t 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 operations function.
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).
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.
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.
Key Terms Test

Systemization
The extent to which standard procedures are made explicit.
Standardization
The degree to which processes, products or services are
prevented
t d ffrom varying
i 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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Chapter 1

What is operations management?

Operations management defined

three core functions of any organization

Example for three core functions of any

Some interfunctional relationships between the operations

Understanding Provision of systems for

Back office operation

The best way to start understanding the nature of

Operations management uses resources to appropriately create

The new operations agenda

Operations management at IKEA

Design a store layout

Ensure that the jobs of

Arrange for fast

Monitor and enhance

We dont work nights, we wear jeans, we party

The three basic functions at Prt a Manger

Nutritional mechanical and

All operations are transformation processes

that transform inputs

Some inputs are transformed resources

Outputs are products and services that add

Outputs from the process

The output from most operations is a mixture of

Pure products Outputs

Pure services Outputs

Operations can be analyzed at three levels

The level of the supply network

Flow between processes

The level of the operation

The level of the process

Operations can be analyzed at three levels

Some operations described in terms of their

Operations management is relevant to all parts of the business

All managers should have something to learn from the

' Operations as a function, meaning the part of the

Operations management is relevant to all parts of the business

Business process Reengineering

Reorganizing (or re-engineering) process boundaries

High Variety of output Low

a local cafeteria vs. McDonald

Taxi agency vs. bus services

Summer resort hotel vs. a hotel in business center

Time lag between

How much of the operations activities its customers experience, or

implications of the four Vs

4 Vs profile of two operations

Important to understand how different operations are positioned

The activities of operations management

The activities of operations management

Key Terms Test

Key Terms Test

Key Terms Test

Key Terms Test

Key Terms Test

Key Terms Test

Key Terms Test

Key Terms Test

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