Operations Management, Operations Performance and Strategy, Structure and Scope of Operations: S1,S2,S3
Definition of Operations Management
"Operations management is the activity of managing the resources that create and deliver services and products. The operations function is the part of the organization that is responsible for this activity."
The process
A series of actions or steps taken to achieve an end, part of the opertation
What is the process hierarchy?
All operations are part of a larger supply network which, through the individual contributions of each operation, satisfies end customer requirements. ▶ All operations are made up of processes that form a network of internal customer-supplier relationships within the operation. ▶ End-to-endbusinessprocessesthatsatisfycustomerneedsoftencutacrossfunctionallybasedprocesses.
Design Step
Design Processes, product, services
Operations management transformation involves this cycle
Design, Deliver, Develop, Direct
Inside-Out Perspective
Develop resources and processes so that their capabilities can be exploited in their chosen markets
Outsourcing
Domestic supplier delivers products/services
Direct Step
Guide operation and processes
Develop Step
Improve operations competencies
Bottom-up perspective
Learn from day to day activities so as to cumulatively build strategic capability. What day to day experience suggests operations should do
What is operations management?
Operations management is the activity of managing the resources that are devoted to the creation and delivery of service and products. It is one of the core functions of any business, although it may not be called 'operations management' in some industries. ▶ Operations management is concerned with managing processes. And all processes have internal customers and suppliers. But all management functions also have processes. Therefore, operations management has relevance for all managers.
Operational Level
Operations performance objectives: Quality, Speed, Dependability, Flexibility, Cost
Strategic Level
Operations strategic impact: Risk, capital, Learning, Cost, Revenue
The stages of the process of operations strategy
Operations strategy formulation -> Operations strategy implementation -> Operations strategy monitoring -> Operations Strategy Control ->
Societal Level
Operations sustainability: Environmental, Economic, Social (people, planet, profit)
offshore outsourcing
Overseas supplier delivers products and/or services
Deliver Step
Plan and. control operations
Order-winning, qualifying and less important competitive factors
Quality Speed Dependability Flexibility Cost
top-down perspective
Reflect what the whole group or business wants to do Start at the top. Clarify the organization's mission, vision, and values. Clearly specify the tasks, roles, and rewards for employees. Delegate responsibility. Hold people accountable for results.
Operations management uses
Resources to Appropriately Create Outputs that Fulfill Defined Market Requirements
Supply networks involve
Second tier suppliers, first tier supplies, organization, first tier customer, second tier customer
The business model
Sets the overall purpose and objectives for the operating model Revolves around the business strategy
What are the three levels of operations performance
Societal level Strategic Level Operational Level
Operations and process management requires analysis at three levels
Supply network Operation Process
The supply network
Supply network flow between operations
outside-in perspective
Translate intended market position so as to provide the required objectives for operations decisions. is a corporate strategy process that relies on the customer value creation, customer orientation and customer experiences as external strengths and capabilities
What are the 4 V's?
Volume Variety Variation in demand Visibility
The operation
a group of resources performing all or part of one or more processes
Structure and Scope
are strongly related, impact strategic decisions
The operating model
determines how the business model will be achieved revolves around the functional strategy
Domestic operations
focal operation performs activities themselves
Offshore operations
focal operation's overseas operation delivers products and/or services
All operations are
input-transformation-output processes
Operations can contribute to financial success through
low costs, increasing revenue, lowering risk, making efficient use of capital and building the capabilities for future innovation
Correspondence and coherence are the two requirements of the
top-down perspective of operations strategy
How does operations strategy align with market requirements (outside-in)?
▶ A 'market requirements' (outside-in) perspective of operations strategy sees the main role of operations as satisfying markets. From this perspective, operations performance objectives and operations decisions should be primarily influenced by a combination of customers' needs and competitors' actions. ▶ Market requirements are influenced by product/service differentiation and the stage that a product or service is within its lifecycle.
What is the structure and scope of operations?
▶ A supply network includes the chains of suppliers providing inputs to the operation and the chains of customers who receive outputs from the operation ▶ Understanding the nature of the supply network and the operations role within it is critical in understanding competiveness, identifying significant links in the network, and shifting towards a longer-term perspective. ▶ The 'structure' of an operation's supply network relates to the shape and form of the network. It involves decisions around network configuration, capacity levels for each part of the network, and the location of each part of the network. ▶ The 'scope' of an operation's supply network relates to the extent that an operation decides to do the activities performed by the network itself, as opposed to requesting a supplier to do them. This involves deciding the extent of vertical integration and the degree of outsourcing.
What is the input-transformation-output process?
▶ All operations can be modelled as input-transformation-output processes. They all have inputs of transforming resources, which are usually divided into 'facilities' and 'staff', and transformed resources, which are some mixture of materials, information and customers. ▶ Most operations create and deliver a combination of services and products, rather than being a 'pure' service or product operation.
How are the four perspectives of operations strategy reconciled?
▶ Combined, the four perspectives give a good idea of how the content of operations strategy is developed and how operations excellence can act as a key source of competitive advantage. Among the models to support this activity are the operations strategy matrix, the 'line of fit' and the importance-performance matrix.
How should the network be configured?
▶ Configuring a supply network means determining its overall pattern, shape or arrangement of the various operations that make up the supply network. ▶ Changing the shape of the supply network may involves reducing the number of suppliers to the operation so as to develop closer relationships, and bypassing or disintermediation of operations within the network. ▶ All the players in the network, whether they are customers, suppliers, competitors or complementors, can be both friends and enemies at different times. The term used to capture this idea is 'co-opetition'. ▶ An idea that is closely related to that of co-opetition is that of the 'business ecosystem'. Like supply networks, business ecosystems include suppliers and customers, but they also include stakeholders that have little direct relationship with the main network, yet interact by complementing or contributing significant components of value for end customers. ▶ Operations are increasingly outsourcing the delivery of some aspects of their service to specialist providers, which deal directly with customers on behalf of the focal firm. This marks a shift from a 'dyadic' perspective to a 'triadic' perspective.
How can the process of operations strategy be organized?
▶ Formulating operations strategy is often called 'the process' of operations strategy and is made up of four stages - formulation, implementation, monitoring and control. ▶ Formulation is the process of clarifying the various objectives and decisions that make up the strategy, and the links between them. Implementation is the way that strategy is operationalized. Monitoring involves tracking on-going performance and diagnosing data to make sure that the changes are proceeding as planned and providing early indications of any deviation from plan. Control involves the evaluation of the results from monitoring so that activities, plans and performance can be assessed with the intention of correcting future action if required.
How can operations performance be measured?
▶ It is unlikely that for any operation a single measure of performance will adequately reflect the whole of a performance objective. Usually operations have to collect a whole bundle of partial measures of performance. ▶ The balanced scorecard (BSC) is a commonly used approach to performance measurement and incorporates measures related to: How do we look to our shareholders (financial perspective)? What must we excel at (internal process perspective)? How do our customers see us (the customer perspective)? How can we continue to improve and build capabilities (the learning and growth perspective)?
How do operations and processes differ?
▶ Operations and processes differ in terms of the volume of their outputs, the variety of outputs, the variation in demand for their outputs, and the degree of 'visibility' they have. ▶ Highvolume,lowvariety,lowvariationandlowcustomer'visibility'areusuallyassociatedwithlowcost.
How is operations performance judged at a societal level?
▶ Operations decisions affect a variety of 'stakeholders'. Stakeholders are the people and groups who have a legitimate interest in the operation's activities. ▶ This idea that operations should take into account the impact on a broad mix of stakeholders is termed 'corporate social responsibility' (CSR). ▶ Performance at the societal level often uses the idea of the triple bottom line (TBL, or 3BL, also known as 'people, planet and profit'). It includes the social bottom line, the environmental bottom line and the economic bottom line. ▶ The social bottom line incorporates the idea that businesses should accept that they bear some responsibility for the impact they have on society and balance the external 'societal' consequences of their actions with the more direct internal consequences, such as profit. ▶ The environmental bottom line incorporates the idea that operations should accept that they bear some responsibility for the impact they have on the natural environment. ▶ The economic bottom line incorporates the conventional financial measures of performance derived from using the operation's resources effectively.
Why is operations performance vital in any organization?
▶ Operations management can either 'make or break' any business. In most businesses, it represents the bulk of its assets. ▶ The positive effects of a well-run operation include a focus on improvement, the building of 'difficult to imitate' capabilities, and an understanding of the processes that are the building blocks of all operations. ▶ The negative effects of a poorly run operation include failures that are obvious to customers (and expensive for the organization), a complacency that leads to the failure to exploit opportunities for improvement.
Why is operations management important in all types of organization?
▶ Operations management uses the organization's resources to create outputs that fulfil defined market requirements. This is the fundamental activity of any type of enterprise. ▶ Operations management is increasingly important because today's changing business environment requires new thinking from operations managers, especially in the areas of new technology, supply networks and environmental sustainability.
What activities should be in-house and what should be outsourced?
▶ Outsourcing is the activity of taking activities that could be or have been carried out in-house and moving them to outsourced suppliers. It is also known as the 'do-or-buy' or 'make-or-buy' decision. ▶ Making the outsourcing decision involves comparing the relative impact on key performance objectives of doing an activity in-house versus using an outsourced supplier. It also requires incorporation of other strategic factors, such as long-term competitive advantage and risk. ▶ There is a key difference between outsourcing and off shoring. Outsourcing means deciding to buy in products or services rather than perform the activities in-house. Off-shoring means obtaining products and services from operations that are based outside one's own country. ▶ While globalization is a key trend that has led to geographically dispersed networks of operations, the last decade has seen some reversing of this trend, often referred to as re-shoring.
What do operations managers do?
▶ Responsibilities can be classed in four categories - direct, design, deliver and develop.— Direct includes understanding relevant performance objectives and setting an operations strategy. — Design includes the design of the operation and its processes and the design of its services and products. — Delivery includes the planning and controlling of the activities of the operation.— Develop includes the improvement of the operation over time. ▶ Increasingly operations managers have a responsibility for an operations environmental performance.
What is strategy and operations strategy?
▶ Strategy is the total pattern of decisions and actions that position the organization in its environment and that are intended to achieve its long-term goals. ▶ Operations strategy concerns the pattern of strategic decisions and actions that set the role, objectives and activities of the operation. It can be used to articulate a vision for the (potential) contribution of operations to organizational success (i.e. moving from stage 1 to stage 4 of the Hayes and Wheelwright model of operations contribution). ▶ Operations strategy has content and process. The content concerns the specific decisions that are taken to achieve specific objectives. The process is the procedure that is used within a business to formulate its strategy. ▶ There are four key perspectives on operations strategy - the 'top-down', market requirement ('outside-in'), 'bottom-up' and operations resources ('inside-out'). ▶ It is important to engage with a wide range of stakeholders, within and outside of the organization, when developing operations strategy.
How does operations strategy align with operations resources (inside-out)?
▶ The 'operations resource' perspective (inside-out) of operations strategy is based on the resource-based view (RBV) of the firm and sees the operation's core competences (or capabilities) as being the main influence on operations strategy. ▶ An operations resource perspective should start by understanding existing capabilities and constraints within the operation. ▶ Identifying strategic decision areas can help support capability building for operations and their extended supply networks. ▶ Strategic resources (also called capabilities or competences) are critical in generating sustainable competitive advantage. These resources are valuable, rare, costly to imitate and organized in a way to allow the organization to capture their value.
How does operations strategy align with business strategy (top-down)?
▶ The 'top-down' perspective views strategic decisions at a number of levels. Corporate strategy sets the objectives for the different businesses that make up a group of businesses. Business strategy sets the objectives for each individual business and how it positions itself in its marketplace. Functional strategies set the objectives for each function's contribution to its business strategy. ▶ It is important to consider correspondence between these different levels of strategy and coherence both with other functional strategies and within itself. ▶ The concepts of the 'business model' and 'operating model' are useful in understanding the top-down perspective on operations strategy.
How much capacity should operations have?
▶ The amount of capacity an organization will have depends on its view of current and future demand. Key long-term capacity decisions include choosing the optimum capacity for each site and timing the changes in the capacity increase (or decrease) of each part of the network. ▶ When deciding the optimum capacity level, the concepts of economy and diseconomy of scale are critical. ▶ When deciding the timing of capacity change, organizations can consider a mix of three strategies - capacity introduced to lead demand, capacity introduced to lag demand and capacity smoothing, where inventory is used in lead periods to meet demand in lag periods.
How is operations performance judged at an operational level?
▶ The five 'performance objectives' that are used to assess the performance of operations at an operational level are quality, speed, dependability, flexibility and cost. ▶ Quality is important because: By 'doing things right', operations seek to influence the quality of the company's goods and services. Externally, quality is an important aspect of customer satisfaction or dissatisfaction. Internally, quality operations both reduce costs and increase dependability. ▶ Speed is important because: By 'doing things fast', operations seek to influence the speed with which goods and services are delivered. Externally, speed is an important aspect of customer service. Internally, speed both reduces inventories by decreasing internal throughput time and reduces risks by delaying the commitment of resources. ▶ Dependability is important because: By 'doing things on time', operations seek to influence the dependability of the delivery of goods and services. Externally, dependability is an important aspect of customer service. Internally, dependability within operations increases operational reliability, thus saving the time and money that would otherwise be taken up in solving reliability problems and also giving stability to the operation. ▶ Flexibility is important because: By 'changing what they do', operations seek to influence the flexibility with which the company produces goods and services. Externally, flexibility can produce new products and services (product/service flexibility), produce a wide range or mix of products and services (mix flexibility), produce different quantities or volumes of products and services (volume flexibility), produce products and services at different times (delivery flexibility). Internally, flexibility can help speed up response times, save time wasted in changeovers, and maintain dependability. ▶ Cost is important because: By 'doing things cheaply', operations seek to influence the cost of the company's goods and services. Externally, low costs allow organizations to reduce their price in order to gain higher volumes or, alternatively, increase their profitability on existing volume levels. Internally, cost performance is helped by good performance in the other performance objectives.
Where should operations be located?
▶ The location of each operation in a supply network is both a key element in defining its structure, and also will have an impact on how the network operates in practice. ▶ Key reasons for location decisions include changes in demand and/or changes in supply. ▶ Evaluating potential changes in location involves two key steps: — identifying alternative location options; — setting location evaluation criteria, including capital requirements, market factors, cost factors, future flexibility and risk factors.
How vertically integrated should the network be?
▶ The scope of an operation's control of its supply network is the extent to which it does things itself as opposed to relying on other operations to do things for it. This is often referred to as 'vertical integration' when it is the ownership of whole operations that is being decided, or 'outsourcing' when individual activities are being considered. ▶ An organization's vertical integration strategy can be defined in terms of the direction of integration, the extent of the process span of integration, and the balance among the vertically integrated stages. ▶ Advantages of vertical integration may include securing access to supply or markets; reducing costs; improving product or service quality; and improved understanding of supply network activities. ▶ Disadvantages of vertical integration may include the creation of an internal monopoly; lack of economies of scale; potential loss of flexibility; and isolation from innovation.
How is operations performance judged at a strategic level?
▶ The type of decisions and activities that operations managers carry out can have a significant strategic impact. ▶ In particular, operations can affect economic performance in five ways: — It can reduce the costs.— It can achieve customer satisfaction through service.— It can reduce the risk of operational failure.— It can reduce the amount of investment that is necessary. — It can provide the basis for future innovation.
How does operations strategy align with operational experience (bottom-up)?
▶ The'bottom-up'viewofoperationsstrategyemphasizesthe'emergent'viewofstrategydevelopmentbased on day-to-day operational experience. While the 'top-down' perspective may describe how operations strategy (and other function strategies) should be developed, it often doesn't describe how it is developed. ▶ Top-down and bottom-up perspectives are in fact complementary. In one direction, top-down perspectives can be used to judge the extent to which operational day-to-day activities reflect the higher-level strategies. In the other direction, experience gained from day-to-day activities can be accumulated and built into capabilities that can then be exploited strategically.
How do operations performance objectives trade off against each other?
▶ Trade-offs are the extent to which improvements in one performance objective can be achieved by sacrificing performance in others. The 'efficient frontier' concept is a useful approach to articulating trade-offs and distinguishes between repositioning performance on the efficient frontier and improving performance by overcoming trade-offs.
