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Operations Management Operations Management

Topic 1: Introduction to Operations


Management

Topic Preview

This topic provides an overview of operations and operations


management. It provides:

• An introduction to the concept of operations management

• A discussion of the relationships between inputs, the


transformation processes, and outputs

• An evaluation of the differences between manufactured goods


and service provision

• A typological framework for distinguishing operations

• An understanding of some of the key roles and responsibilities of


the operations manager.

Topic Content

Defining Operations Management

Operations management is concerned with the activities, decisions and


responsibilities of managers who produce goods and/or deliver
services.

If you think about this simple definition, and if we accept that the
reason any organisation exists is to produce goods and/or deliver
services, it becomes clear that every organisation needs to understand
operations management and the role of the operations manager.

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Operations Management Operations Management

Every organisation has an operations manager – although the job title


may be something different. For example, in a hospital the
‘Administrative Manager’ may have responsibility for operations, while
in a hotel it may be the ‘General Manager’. In a manufacturing
organisation, it may be the ‘Production’ or ‘Plant Manager’. In a small
organisation, the responsibility for operations management may be
undertaken by someone who performs another role, or it is perhaps
carried out directly by the owner.

Operations management is at the core of all organisations, but it is not


the whole organisation. Two other central functions exist in many
organisations:

1. The marketing (and sales) function: This provides two-way


communication with the market. First, telling customers about
the organisation’s products and services, generating interest and
creating orders. Second, finding out what customers think about
the offerings and gaining greater understanding of what they
require.

2. The product/service development function: This uses the


information collected from the marketplace and, through the
process of developing existing/creating new products and
services, meets customers’ requirements.

Together with operations, these three core functions have, of course, a


degree of overlap – in the best performing organisations, the overlap
will be significant and success will be dependent on maintaining
excellent relationships.

To support these three core functions, a range of support functions


exist – finance, purchasing, accounting, human resource management,
maintenance engineering, etc.

The boundaries between all of these functions are not clearly defined.
Because of the need for operations to have close relations with all core
and support functions, the operations manager needs a well-developed
understanding of relationship management, underpinning all other
technical aspects of the role.

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The nature of the operation and the role of the operations manager
will vary from organisation to organisation. The manager needs to
decide how the operation should be managed, and to that end there
must be a systematic process of analysis of, for example, customers
and markets, products and services, the organisational systems and
processes, available resources, and so on. By establishing a clear
picture through this analysis, the manager is in a strong position to
build the most appropriate operational organisation.

The remainder of this topic will begin to analyse the organisation to


identify how some operations share similarities and how others
demonstrate distinct differences. Understanding the nature of this
distinction is the key to establishing the best way to manage the
operation.

Managing Processes

In order to meet customers’ needs, operations management focuses


on the design, planning, control and improvement of those processes
that produce goods or deliver services. At the same time, as with any
other functional manager’s responsibilities, efficient use must be made
of organisational resources.

Operations take a set of resources, transform those resources through


a range of processes and produce a number of outputs. This concept is
the foundation for beginning to understand the nature of the
operation.

Note that it is possible to create a simple overview of an organisation


with one comprehensive model. However, to perform a deeper
analysis, it is usual to identify the key transformation processes and
then construct an individual model for each.

Operational Inputs

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Operations Management Operations Management

The basic inputs of the Transformation Model are usually defined as


the ‘factors of production’. For example, people, materials, machines
and information.

It is useful to differentiate between transformed resources – resources


that are in some way changed during processing – and transforming
resources – resources that are necessary to effect those changes to
the transformed resources.

Transformation Processes

With a manufacturing operation, it is quite straightforward to


understand the nature of the transformation processes – we can all
visualise a range of activities that might take place on a production
floor, such as machining, baking, coating, assembling and packing.
With other operations, visualisation may not be so simple.

As a generalisation, we can say that transformation processes fall into


three generic groups:

• Materials processing

• Information processing

• Customer processing.

Operational Outputs: Products, Services – or Both?

Operations produce goods, and/or provide services. Increasingly, both


are required as outputs by customers. Products are relatively easy to
understand: generally they are tangible and have measurable
attributes such as size, weight and functional specification. In this
respect, the performance of the operation might be measured by
examining the performance of the physical outputs – does the product
meet the customer’s specified requirements?

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Operations Management Operations Management

With the provision of a service, however, many of the characteristics


that define a product are missing. It is usually intangible, and
measurement of customer satisfaction may be, therefore, largely
subjective. Think of a group of people having a set meal in a
restaurant – there may be as many different opinions as there are
diners!

Business Process Orientation

An important change that has influenced operations management


involves the increasing focus on business processes within the
organisation. Traditionally, organisations have been built and
subsequently developed around a functionally structural model. In
such a company, clear lines of demarcation exist between, for
example, engineering and manufacturing, or manufacturing and
distribution, or purchasing and inventory control. By breaking down
functional division, and the barriers often associated with it, and
focusing purely on the movement of goods and/or the flow of
information through an organisation, a different approach is taken. The
rise in popularity of Business Process Re-engineering (BPR) (Hammer,
1993) as a management technique reflects an acceptance of the logic
of looking at operations in this new way.

Operational Typology

Operations do share certain similarities, but in the process of analysis


we need also to understand how they differ from one another. By
examining some important operational criteria, we can begin to
identify these differences and perhaps understand the implications in
terms of, for example, operational design (equipment, layout, process
type) , planning (resources, systems, personnel) and control
(information systems, management structure, staff training).

Four criteria might be:

• The volume of output – what are the daily/annual production


targets?

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A high-demand product with a competitive selling price (small profit


margin) needs to be produced at the lowest possible cost to the
manufacturing organisation. This, in turn, requires the selection of
certain types of high volume machinery, careful factory layout,
specifically trained staff, etc.

• The variety of output – what is the extent of the product


range.

Designing and managing an operation with a single product will be


very much simpler than designing and managing an operation with
a wide range of products.

• The variation in demand of output – is there a steady or


fluctuating demand for the product?

Consider how a manager runs a hotel, with pronounced peaks and


troughs in demand from season to season, and perhaps also from
weekday to weekend.

• The visibility or degree of customer contact – is there


much direct contact between those responsible for
manufacturing and the end users?
In a retail environment, the layout of the product will reflect the
style of the organisation. The way that staff interacts with
customers, face to face, is an integral part of the overall
‘product’. The selection and training of staff may be of prime
importance.

By examining each of these four key criteria, and by rating each from
High to Low, a profile can be constructed that is specific to that
organisation.

The Operations Manager

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Operations Management Operations Management

So far, we have looked at the nature of operations management. It is


important also to understand some of the roles and responsibilities of
the operations manager. Operations managers have a broad range of
direct and indirect responsibilities. Because the operations manager
needs to interact with practically every other part of the business,
there is a very real requirement for him to have a deep understanding
of the whole organisation – perhaps more so than most other
functional managers.

The key responsibilities might be categorised as follows:

1. At a high level, the operations manager should be


centrally involved in the formulation of corporate strategies that
are designed to drive the business forward – the top-level, long-
range plans based on, for example, market analysis, long-range
forecasts, macro-environmental analysis, financial modelling,
industry competition analysis, and so on. Today’s operations
manager must be aware of the bigger picture – the effects of
globalisation, for example, environmental issues, changing
social trends, understanding the potential impact of new
technology.

2. It is, then, a clear primary role for the operations


manager to ensure that there is very close alignment of
operations with the strategic plans for the organisation.
Primarily, this involves a responsibility for the design of the
operation – that is, the products, services, processes and
systems essential for satisfying customers and end users. At this
level, the operations manager will consider medium-range
planning, taking consideration of existing resources and those
additional resources that may be needed in the future to meet
the requirements of the corporate strategy.

3. Once strategies have been established and the


operation designed to enable those strategic goals to be
achieved, the operations manager then has the responsibility to
plan and control activities. The operations manager is
responsible for developing and maintaining the procedures which
will ensure that inputs, transformation processes and outputs
comply. Working within a short to medium-term timeframe, the

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operations manager will focus on the twin aims of meeting the


direct requirements of the market and making the best use of
organisational resources.

4. Operations exist in a dynamic environment. Strategies


must be continuously reviewed and, if necessary to protect the
business, revised. Nothing stands still. Without losing sight of
the corporate objectives, the operations manager must
continually seek ways and means of improving operational
performance.

Topic Activities

Activities for this topic can be found in a separate ‘Activity Workbook’


file under ‘content’ for this topic. Select the appropriate Activity
Workbook, use it to work on the Activities and save the file on your
own computer.

Further Reading

Further Reading and other online resources to support this topic can
be found in a separate ‘Further Reading’ file under ‘Content’ for this
topic. Other resources may be available in the ‘Reading Room’ and
‘Documents’ in your Community Group on the Virtual Campus.

References

Hammer, M. 1993. ‘Re-engineering work: Don’t automate, obliterate’.


Harvard Business Review, Vol. 68, No. 4.

Topic Review

This topic has introduced and defined operations management. It


has highlighted:

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Operations Management Operations Management

• How all organisations share some operational similarities but


may also exhibit significant differences due to the nature of the
product/service and the market

• The need to analyse organisations and differentiate


operations through the use of models and frameworks

• Some of the key roles and responsibilities of the operations


manager at different levels within the organisation.