Operations Management

Roger Bradburn
Learning Objectives
By the end of this session students should be able to:

Understand the meaning of operations management in
the context of business strategy.

Appreciate how the external environment impacts on
operations management.

Review the similarities and differences between
different types of operations.

Critically review the place of operations management
in the creation of competitive advantage.

Trace the development of operations management
since its inception.
Required Reading

Slack et al (2007) Operations

Management, Fifth edition Pearson
Prentice Hall. Chapters One to Three.
Operations Management – Week
One
An Introduction to Operations Management
Operations Management
What is Operations Management?
“Operations management is concerned
with creating, operating and controlling a
transformational system that takes inputs
of a variety of resources and produces
outputs of goods and services need by
Customers” (J Naylor 2002)
Operations Management
Some key points!

Operations are about transformational
systems – something that changes one
thing into another. Turning food into a
meal, turning steel into a car. These are all
examples of transformational systems.
Operations Management
Some key points!

Operations have a range of outputs.
Outputs can be tangible products such as
a computer or intangible such as an
insurance policy.
Operations Management
Operations are important because you can
have the best marketing, the best human
resources/people and the best financial
management in the world but if your
operations do not work well you will not
succeed.
Operations Management
Some examples!

Low cost airlines like Easy jet and Ryanair
depend on operations for success.
Operations management ensures that
their costs remain low and this provides
strategic advantage.
Operations Management
Some examples!

High street chain Zara uses a “just in time”
manufacturing system to ensure that the
clothes in their store are up to date and
that their stocks are not too high. This
gives great customer flexibility.
Operations Management
Some examples!

Car manufacturers such as Toyota and
VW have developed impressive quality
systems that ensure their products sell
well and often for premium prices.
Operations Management
The Evolution of Operations
Management.

You will have studied in other classes how
business developed over the last 150 years.

One key point to note is that these
developments happened because of changes in
the external environment.
Operations Management
We could start with the Production Era:

Emphasised high volume and low cost.

Used “Scientific Management” techniques
with task specialisation as developed by F.
W Taylor, Henry Ford and others.

Existed at a time when demand exceeded
supply.
Operations Management
The Sales Era

As supply increased, the emphasis was on
selling more and “getting rid of the
product”.

The emphasis in organisations changed to
the Human Relations School.

Mathematical modelling and related
techniques began to become popular.
Operations Management
The Marketing Era.

The emphasis changed progressively to
the customer as supply continued to grow.

The systems view – we will talk about later
– became popular.
Operations Management
What is the role of the Operations
Manager?

Ensure that products/services are
delivered efficiently and effectively to the
customer.

Planning resources.

Working with other functions:
Operations Management
Operations Managers must work with:

The Product/service design function. If we
get the design of the new product right
then it will be easier to make/deliver etc.
Operations Management
Operations Managers must work with:

The Marketing Function – ensuring that the
goods or services are available to be sold. What
happens if we “run out”?

Human Resources – operations need people.
Operations Managers need to forecast the
demand for people so they can be hired,
particularly in difficult labour markets.
Operations Management

The Finance/Accounting Function – most
things to do with operations cost money!
Raw materials, wages, capital equipment
etc. will all be needed and very often the
purchase will need to be planned to
ensure good cash flow and capital
utilisation.
Operations Management

Social Responsibility – not a function as
such but a key stakeholder. Operations
Managers concern themselves with such
issues as pollution, global warming, the
safety of their staff and customers etc.
Operations Management
Not all operations are the same!
As noted by Slack (2007) in the text book
Operations tend to vary in four ways:

The volume of their output.

The variety of their output.

The variation of their output.

The visibility of that customers have of their
output.
Operations Management
Some examples!
Volume – McDonalds sells to around 2
million people each day in the UK alone!

Volume usually suggests task

specialisation and cost reduction through
economies of scale.
Operations Management
Some examples!
Variety – customers of Rolls Royce can
have almost any colour they like if they are
prepared to pay for it!

Variety suggests greater flexibility but also

lower volumes.
Operations Management
Some examples!
Variation – in the UK sales of soft drink
and Ice cream rocket when the
temperature goes over 20 deg c. This
means that Ice Cream and Soft Drink
manufacturers see a wide change of
demand over the year.
Operations Management
Some examples!
Visibility – some operations are invisible in
that you never see them. Others, often in
services, are very visible. Visible services
are a challenge because the customer is
very aware of the time it takes and how it
is done.
Operations Management
Environmental Issues.

We said earlier that environmental issues
are critical in operations. Operations tend
to create waste and environmental
problems
Operations Management
Operations Management as part of a
System.
Operations Management
A quick reminder!

Early writers such as Taylor and Fayol
worked on the scientific engineering the
best methods They worked on a “set of
rules” that would provide good results if
followed. The emphasis was on workers
almost as machines and technical issues.
Operations Management
A quick reminder!

The Human Relations School (Elton Mayo
and others) put more emphasis on people
and the human aspects of work through
the famous Hawthorne Experiments.
Operations Management
 Human Relations School
 Dates back to 1927 and a major study of work
practices at the Western Electric Company’s plant in
Hawthorne was undertaken by Harvard University.
 A twelve year study of 21,000 employees in a bank
wiring room.
 The basis of the experiment was to explain the
relationship between light levels in the plant and
worker productivity.
Operations Management
 Human Relations School
 The basis of the finds was that irrespective of
the light level changes, performance
improved.
 This also applied to other changes in the
environment.
Operations Management
 Became known as the Hawthorne Effect.
 The fact that they were being experimented
on changed behaviour.
 The friendly supervision of the observer
helped new social groups to develop and
gave worker’s lives a new meaning.
Operations Management

After the Second World War the emphasis

moved to forecasting and the development
of “Management Science”

Research moved on to focus on the
behavioural aspects of operations.
Operations Management
The basic problem with these “views” is that
they all focus on one part of the story. The
system’s school of thinking aims to relate
the whole system together.
Operations Management
For example!
A decision to sell more may have an impact
on quality, human resources, space,
finance, purchasing and overall business
strategy.
Operations Management
As Slack (2007) points out in the text book,
there are three types of operations:

Materials transformation.

Information processing.

Customer “processing”.
Operations Management
Materials Transformation:

Factories take raw materials and turn them
into finished goods, say. Moving goods
from one place to another – logistics – is
another example.
Operations Management
Information Processing

Information can be transferred, stored or
actually made into a product, such as a
computer game.

The use of Data Mining has Web Based
Marketing has revolutionised business in
recent times.
Operations Management
The sub systems of an organisation might
include:

Goals and values sub system.

Technical sub-systems.

Psychological sub systems.

Structural sub-systems.

Management sub-systems.
Operations Management
The systems approach recognises that
each of these subsystems works together
and is constantly changing according to
the external (PEST) environment.
Operations Management
Thing that might impact us might be:

The Business Cycle.

The Industrial Life Cycle

Exogenous Shocks

Changes in culture such as the interest in
“green issues”.
Operations Management
Performance Objectives

A key question in operations management

is, what do we want?
Operations Management
Slack et al (2007) suggest that objectives
can be put into five categories:

Cost

Speed

Quality

Dependability and

Flexibility.
Operations Management
In the early years of the 20th Century
quality was not so critical. There were no
product liability laws, no consumer
legislation. Demand exceeded supply so
price was critical. This is still the case in
some developing countries and certain
markets today.
Operations Management
Some costs are more flexible than others:

Staff costs can be adjusted but legislation
may control this. A mass redundancy may
save costs in the short run but cause a
publicity disaster.

Material costs may be influenced by
market variations.
Operations Management
Speed is increasingly important:

New products have to be released more
quickly to meet market demands. Product
life cycles are getting shorter.

High stock turnover reduces costs.

Services have to deliver immediately to
cope with consumer demand.
Operations Management
Quality

As discussed is increasingly about

conformance to requirements and
effectiveness.

The definition of quality is changing over
time.
Operations Management
Dependability

Being able to deliver every time is taken

for granted by customer these days.
Operations Management
Flexibility:

This can include more flexible organisational

structures but also working conditions. Workers
have to be more flexible these days and Unions,
employment legislation and “demarcation” are
important considerations.
Operations Management
Conclusions!

This week, we have reviewed the concept of
operations management. We have noted:

That operations management has a major
impact on the organisation.

That operations management is highly
influenced by the external environment.

That it has developed considerably over the past
100 years and will continue doing so.