CIPS L5M9 Operations Management LO1

Production of Goods versus Delivery of Services 1

"Goods" 1. Production of goods results in a tangible output such as an automobile eyeglasses a golf ball a refrigerator—anything that we can see or touch

Production of Goods versus Delivery of Services 2

"Services" 1. intangible output Manufacturing vs. Service 1. Degree of customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5.Measurement of productivity 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design Degree of customer contact Many services involve a high degree of customer contact although services such as Internet providers utilities and mail service do not. When there is a high degree of contact the interaction between server and customer becomes a "moment of truth" that will be judged by the customer every time the service occurs. Uniformity of input Service operations are often subject to a higher degree of variability of inputs. Each client patient customer repair job ,and so on presents a somewhat unique situation that requires assessment and flexibility. Conversely manufacturing operations often have a greater ability to control the variability of inputs which leads to more-uniform job requirements. Labor content of jobs Services often have a higher degree of labor content than manufacturing jobs do, although automated services are an exception. Uniformity of output Service are often subject to a higher degree of variability of output. Manufacturing operation have a greater ability to control the variability of output. Measurement of productivity Measurement of productivity can be more difficult for service jobs due largely to the high variations of inputs. Thus one doctor might have a higher level of routine cases to deal with while another might have more difficult cases. Unless a careful analysis is conducted it may appear that the doctor with the difficult cases has a much lower productivity than the one with the routine cases. Production and delivery Services deliver and consume at the same time.

Qualifiers

(These are the 'givens' of doing business): These are those aspects of competitiveness where the operation's performance has to be above a particular level just to be considered by the customer. But, any further improvement above the qualifying level is unlikely to gain the company much competitive benefit.

Order-winners

(These gain more business the better you are): Those things that directly and significantly contribute to winning business. They are regarded by customers as key reasons for purchasing the product or service. Raising performance in an order-winner will either result in more business or improve the chances of gaining more business. Order-winners show a steady and significant increase in their contribution to competitiveness as the operation gets better at providing them.

Activities of Operations Processes

* Directing - providing direction for the overall strategy of the operations management function. * Designing - determining the physical form, shape and composition of the operations and processes. * Delivery - ensures products and services are delivered to the final customers. * Developing - making improvements to operations processes.

Transformation

* Facilities * Staff * Infrastructure e.g. road, rail, air * IT * Marketing

Functional Areas in an Organisation (All functional areas within an organisation have dealings with operations management)

* HR * Finance * Procurement * IT * Production * Marketing / Sales

Input

* Materials * Information * Customers

Hills Steps for Developing an Operations Strategy

1. Define corporate objectives 2. Define operations objectives required to meet corporate objectives 3. Identify strategies that can be implemented to ensure achievement of the operations objectives 4. Evaluate strategy options to select the most appropriate strategy 5. Implement, evaluate and improve strategy

Key Application of Operations Management in the Retail Sector

1. Facility Management 2. Inventory Management 3. Management of Receipts 4. Customer Service 5. Managing Events and Relationships

Hayes & Wheelwrights 4 Stages of Operations Readiness

1. Internal Neutrality 2. External Neutrality 3. Internally Supportive 4. Externally Supportive

Product Service Lifecycle

1. Introduction Stage 2. Growth Stage 3. Maturity Stage 4. Decline Stage

Production Methods

1. Make to Order - craft production. Does not commence until an order has been received. 2. Mass Production - make to stock - low variety / high volume 3. Mass Customisation / Late Customisation - mix between made to order and mass production. Products standardised to a certain point e.g. Dell

Key Application of Operations Management in the Services Sector

1. Operations Planning 2. Operations Processes 3. Facilities Decisions 4. Scheduling. 5. Inventory Control

10 Key Operations Aspects that Operations Managers Make Decisions on

1. Product or service selection and design 2. Process selection and planning 3. Facility location 4. Plant layout 5. Production planning and control 6. Quality control 7. Materials management 8. Capacity management 9. Inventory management 10. Maintenance and replacement

Five Key Performance Dimensions / Performance Objectives - Slack and Brandon-Jones

1. Quality 2. Speed 3. Dependability 4. Flexibility 5. Cost

Performance objectives

1. Quality: Doing things right (providing error-free goods and services) 2. Speed: Doing this fast (minimising the time between a customer asking for goods and services and the customer receiving them in full) 3. Dependability: Doing things on time (keeping delivery promises that have been made to customers) 4. Flexibility: Changing what you do or how you do it (the ability to vary or adapt the operation's activities to cope with unexpected circumstances or to give customers individual treatment, or to introduce new products or services) 5. Cost: Doing things cheaply (producing goods and services at a low cost that enables them to be priced appropriately for the market while still allowing a return to the organisation. The relative importance of the five performance objectives depends on how the business competes in the market.

Supply and Demand

1. The ideal situation for a business organization is to achieve a match of supply and demand. 2. Supply > Demand is wasteful and means lost opportunity. 3. Supply < Demand is costly and possible customer dissatisfaction

Supply chain sequences

1. The sequence begins with basic suppliers of raw materials and extends all the way to the final customer 2. Facilities might include warehouses- factories- processing centres- offices ,distribution centres- and retail outlets. 3. Functions and activities include forecasting-purchasing- inventory management-information management quality assurance scheduling production distribution delivery and customer service. -Notice that the value of the product increases as it moves through the supply chain.

Three categories of business processes

1. Upper-management processes. These govern the operation of the entire organization. Examples include organizational governance and organizational strategy. 2. Operational processes. These are the core processes that make up the value stream. Examples include purchasing production and/or service marketing and sales. 3. Supporting processes. These support the core processes. Examples include accounting human resources and IT (information technology).

Four V's

1. Volume - quantity of products / services produced 2. Variety - of products / services produced 3. Visibility - of the process to customers 4. Variation - changes in demand for products / services

Supply Chain

A sequence of activities and organizations involved in producing and delivering a good or service

What an operations strategy should do

A). Articulate a vision of how the business operations and processes can contribute to the overall strategy B). Translate market requirements into a message that will have some meaning within its operations. (This means describing what customer wants in terms of a clear and prioritized set of operations' performance objectives) C). Identify the broad decisions that will shape the operation's capabilities, and allow their long-term development so that they will provide the basis for the business's sustainable advantage. D). Explain how its intended market requirements and its strategic operations decisions are to be reconciled (fogas samman).

Services

Activities that provide some combination of time- location-from-and psychological value Example Every book you read, every video you watch, every e-mail you send every telephone conversation you have and every medical treatment you receive 1. Air travel 2. Education 3. Haircut 4. Legal counsel

Flexibility

Adapting to changes in demand or marketplace changes.

Trade-offs and the efficient frontier

Any operations strategy must make clear the extent to which it is expecting the operation to reposition itself in terms of its performance objectives and the extent to which it is expecting the operation to improve its effectiveness. A permanent expansion of the efficient frontier is best achieved by overcoming trade-offs through improvements in operations practice.

Input such as

Capital, labour, and information are used to create goods or services

The market perspective on operations strategy

Companies compete in different ways

Order Qualification

Competitive standards that make an organisations products viewed as fit for purpose by customers

Transformation processes

Converting inputs into outputs. it could be storing transporting repairing

Operations Strategies

Corporate Level - for the entire organisation, providing the 'big picture' of how the company will achieve its aims. Business Level - focus on the direction a business unit will take to achieve it's goals and objectives. The business level strategy defines how best the capabilities of a business unit can be exploited to position it competitively within the market. Functional Level - focus on managing the organisations functional areas including operations, marketing, finance, HR, R&D

Operations Manager

Directly responsible for strategic, operating and control decisions. Indirectly responsible for decisions from other functional areas such as IT, Marketing etc.

Speed

Ensuring a short lapse of time between when orders are made and fulfilled.

Business organizations have three basic functional areas

Finance, Marketing, and Operations. It doesn't matter whether the business is a retail store a hospitala manufacturing firma car wash or some other type of business-all business organizations have these three basic functions

It is important to note that goods and services often occur jointly

For example, having the oil changed in your car is a service, but the oil that is delivered is a good. Similarly, house painting is a service, but the paint is a good

Output

Goods or Services

Managing a Process to Meet Demand

Ideally the capacity of a process will be such that its output just matches demand. Excess capacity is wasteful and costly too little capacity means dissatisfied customers and lost revenue. Having the right capacity requires having accurate forecasts of demand, the ability to translate forecasts into capacity requirements and a process in place capable of meeting expected demand

SERVQUAL Model (Parasuraman)

Identifies five gaps that service providers need to identify, measure and manage in order to minimise their occurance: 1. Knowledge Gap - mismatch between knowledge of customer expectations and what the customer expects. 2. Standards Gap - mismatch between quality standards of the provider and that of the customer. 3. Delivery Gap - mismatch between the service delivered and the service expected. 4. Communications Gap - mismatch between service expectations created in adverts and the actual service delivered. 5. Satisfaction Gap - mismatch between the service expectations and the actual service delivered.

I T O

Input - Transformation - Output The market is the point in which an output transforms into an input

The goods-service combination is a continuum

It can range from primarily goods with little service to primarily service with few goods. companies usually sell product packages which are a combination of goods and services which makes operations more interesting and also more challenging. Value Added, The difference between the cost of inputs and the value or price of outputs. the greater the value-added the greater the effectiveness of these operations. The greater the degree of customer involvement the more challenging it can be to design and manage the operation. Technology choices can have a major impact on productivity costs flexibility and quality and customer satisfaction

Managing Services is Challenging

Jobs in services are often less structured than in manufacturing. Customer contact is generally much higher in services compared to manufacturing. In many services, worker skill levels are low compared to those of manufacturing employees. Services are adding many new workers in low-skill, entry-level positions. Employee turnover is high in services, especially in low-skill jobs. Input variability tends to be higher in many service environments than in manufacturing. Service performance can be adversely affected by many factors outside of the manager's control (e.g., employee and customer attitudes)

Process

One or more actions that transform inputs into outputs.

External Neutrality

Operations function compares itself with similar businesses or organisations. Actively keeping pace with comparable companies in the same industry. Stage 2 - adopt best practice

Internal Neutrality

Operations function makes a minimal contribution to the overall corporate strategy. Stage 1 - correct the worst problem

Bottom Up Perspective

Operations led - strategy development begins at a functional level not the corporate level. Usually seen in lean production.

Externally Supportive

Operations management function delivers competitive advantage through its capabilities and performance. Stage 4 - give an operations advantage

Internally Supportive

Operations management function delivers the best capabilities to the organisation, contributing to the organisations overall competitive strategy. Stage 3 - link strategy with operations

Scope of Operations Management

Operations management people are involved in product and service design process selection selection and management of technology design of work systems location planning facilities planning, and quality improvement of the organization's products or services. The operations function includes many interrelated activities such as forecasting capacity planning scheduling managing inventories assuring quality motivating employees deciding where to locate facilities mand more. example: airline

'Emergent' or 'Bottom-up' perspective on operations strategy

Operations strategies emerge over time from the operational level, as the business learns from the day-to-day experience of running processes (both operations and other processes).

'Top-down' perspective on operations strategy

Operations strategy is one of several functional strategies that are governed by decisions taken at the top of the organisational tree. In this view, operations strategy, together with marketing, HR and other functional strategies, take their lead exclusively from the needs of the business as a whole.

Strategy Evaluation

Phase in which strategies are reviewed, performance toward objectives is measured, corrective action is taken. If strategies are not well evaluated at the functional level, achieving the corporate strategy may be delayed or hindered.

The resource perspective on operations strategy

Processes and resources within operations need to be developed in the long term to provide the business with a set of competencies/capabilities (this the 'know-how' that is embedded within the business's resources and processes). If these are refined and integrated they can form the basis of the business's ability to offer unique and 'difficult to imitate' products and services to its customers.

Continuous Operations

Processes used by an organisation to produce one or a few standardised products in high volumes.

Intermittent Processes

Processes used by an organisation when different products require different production arrangements.

Cost

Producing products and services at minimum cost.

Quality

Producing products and services that satisfy customer needs.

Dependability

Producing products that are reliable and consistent.

RATER model

Reliability - ability of the organisation to deliver the service accurately. Assurance - feeling that employees are giving helpful advice and providing information that can be trusted. Tangibles - focuses on the physical aspects of the service Empathy - ability to understand customers and give them the required individual attention. Responsiveness - ability to offer a quick service and provide the required help.

Operation

Smallest divisible piece of work or activity within an organisation. CREATING FLOW

Hayes and Wheelwright Four-Stage Model.

Stage 1, Internal neutrality: This is the very poorest level of contribution by the operations function. The other functions regard it as holding them back from competing effectively. Its vision is to be 'internally neutral', a position it attempts to achieve not by anything positive but by avoiding the bigger mistakes. Stage 2, External neutrality: The first step of breaking out of stage 1 is for the operations function to begin comparing itself with similar companies in the outside market. It is measuring itself against competitors performance and trying to be 'appropriate', by adopting 'best practice' from them. Its vision is to become 'up to speed' or 'externally neutral' with similar business. Stage 3, Internally supportive: Stage 3 operations have probably reached the 'first division' in their market. They may not be better than their competitors on every aspect of operations performance but they are broadly up with the best. Yet, the vision of stage 3 operations is to be clearly and unambiguously the very best in the market. The operation is trying to be 'internally supportive' by providing a credible operations strategy. Stage 4, Externally supportive: The difference between stages 3 and 4 are subtle, but important. A stage 4 company is one where the vision for the operations function is to provide the foundation for competitive success. Operations look to the long term. Essentially they are trying to be 'one step ahead' of competitors in the way that they create products and services and organise their operations - what the model terms being 'externally supportive'.

Order Winning

Standards that separate the products from on organisation to another

Top Down Perspective

Strategy led - the Operations function will design its strategy to support the business strategy. Internal forces driven. Usually seen in mass production.

Supply chains are both external and internal to the organization

The external parts of a supply chain provide raw materials- parts, equipment- supplies-and/or other inputs to the organization- and they deliver outputs that are goods to the organization's customers. The internal parts of a supply chain are part of the operations function itself- supplying operations with parts and materials- performing work on products and/or services- and passing the work on to the next step in the process

Reconciling market requirements and operations resource capabilities

The market requirements and the operations resource perspectives on operations strategy represent two sides of a strategic equation that all operations managers have to reconcile. On one hand, the operation must be able to meet the requirements of the market. On the other hand, it also needs to develop operations capabilities that make it able to do the things that customers find valuable but competitors find difficult to imitate (effectiveness vs. efficiency). And ideally, there should be a reasonable degree of alignment, or 'fit' between the requirements of the market and the capabilities of operations resources.

Conversion system

The operations function involves the conversion of inputs into outputs

What is operations?

The part of a business organization that is responsible for producing goods or services.

Operations strategy

The pattern of decisions and actions that shapes the long-term vision, objectives and capabilities of the operation and its contribution to the overall strategy of the business.

Operations Management

The processes of managing the resources and processes involved in the acquisition and transformation of inputs and the distribution of outputs.

Feedback

To ensure that the desired outputs are obtained an organization takes measurements at various points in the transformation process.

Challenges of Global Sourcing

Vulnerability to exchange rate fluctuations Partner selection, qualification, and monitoring costs Increased complexity of managing a worldwide network of production locations and partners Complexity of managing global supply chain Limited influence over the manufacturing processes of the supplier Potential vulnerability to opportunistic behavior or actions in bad faith by suppliers Constrained ability to safeguard intellectual assets

Similarities between managing the production of products and managing services

a. Forecasting and capacity planning to match supply and demand. b. Process management. c. Managing variations. d. Monitoring and controlling costs and productivity. e. Supply chain management. f. Location planning, inventory management, quality control, and scheduling

Goods

are physical items that include raw materials-parts-subassemblies-and final products Example 1. Automobile 2. Computer 3. Oven 4. Shampoo

Marketing and Operations

are the primary, or "line," functions

Control

compares them with previously established standards to determine whether corrective action is needed

cost

excellence of products or services, others on high levels of customer service, and so on. The operations function must provide the ability to perform in a manner that is appropriate for the intended market position.

Marketing is responsible

for assessing consumer wants and needs, and selling and promoting the organization's goods or services.

Operations is responsible

for producing the goods or providing the services offered by the organization. Operations management is responsible for managing that core.

Finance is responsible

for securing financial resources at favorable prices and allocating those resources throughout the organization, as well as budgeting, analyzing investment proposals, and providing funds for operations

In non-profit organizations the value of outputs is measured by

is their value to society

In profit organizations the value of outputs is measured by

the prices that customers are willing to pay for those goods or services