OPERATIONS MANAGEMENT – CHAPTER 1
Learning Outcome – Assessment Criterion –
The learner will The learner can
1 Understand the nature 1.1 Explain why operations
and importance of management is important for
operations organisations.
management. 1.2 Analyse the operations functions
of a selected organisation.
1.3 Evaluate the operations
management process of a selected
organisation using relevant models.
1. Understand the nature and importance of
operations management.
1.0. Icebreaker exercises
1) In teams, discuss the reasons for studying operations
management from the perspective of employability.
Present your understanding and any concerns to the rest
of the class (10 mins)
2) FURNWARE’S PRODUCTIVITY RISES TO MEET
IMPORT CHALLENGE (45 mins)
Furnware, a New Zealand (NZ) company, is a world leader
in the design and manufacture of school furniture. When
the NZ government adopted the policy that all schools
could choose to purchase their own desks, chairs and
other furniture, Furnware had to compete and innovate
to become schools’ first choice for high-quality and
affordable products. Cheap imports threatened to flood
the market and destroy the company, but the managing
director, Hamish Whyte, had other plans. His strategy
included:
■ researching the market – information gathered
suggested 96% of students had furniture that was
unsuitable for their size and weight: 19,000 students were
measured to assess the right sizes of chairs to make
■ using research results to design a unique range of
school chairs and desks to suit students of different
ages – these are scientifically designed for comfort
■ increasing workforce productivity – the units of
furniture produced per worker – to keep unit costs as low
as possible. This was achieved with the latest production
machinery, staff training and organising work better.
The strategy has proved to be very successful. ‘Schools
cannot get enough of our furniture,’ says Hamish. Even
though it is more expensive than cheaper imports,
schools get exactly the size and style of furniture they
demand. ‘And productivity in the factory has risen 100%,’
concluded Hamish.
Points to think about:
■ Do you think it is important to link the design and
manufacture of products with market research results?
Explain your answer.
■ Why is it important for this business to increase
productivity – the number of units made per worker?
■ Explain how this business achieved such a substantial
increase in productivity.
1.0.a Introduction
In a constantly changing business environment,
Operations Management, one of the three core functions
(with marketing and Finance) of any organisation, is
becoming more and more important and requires our
attention for a better understanding of its role to achieve
business goals and success.
1.0.b Definition
People may not have noticed it but Operations
management is everywhere. In our attempt to define it,
let us point out its key features:
- Area of management
- One of the three core functions of any organization
- Responsible for managing resources efficiently in
producing goods and services
- All activities involved in transforming a product idea
into a finished good/product
- Process that transforms inputs into outputs
- Involved in planning, organizing, monitoring and
controlling the systems that produce goods and
services
- Set of resources and processes to create and deliver
products to fulfil customers’ requirements
So what is ‘Operations Management’? There are many
definitions on the subject. But let us have a look on a few
definitions from scholars and practitioners:
Slack, Chambers and Johnston (2010) described
Operations management as ‘a function made up of
processes aiming for efficient and effective use of
resources to create output in the form of tangible
goods and/or intangible services that can fulfil
specific customer requirements.’
Lowson (2002) defined it as ‘the design, operation and
improvement of the internal and external systems,
resources and technologies that create and deliver the
organisation’s primary goods and service
combinations.’
In the words of Heizer and Render, it is ‘the set of
activities that creates value in the form of goods and
services by transforming inputs into outputs.’
Operations management, one of the major function in
an organization
Operations Management seen as a Transformation
Process
Figure 1
Operations Management key elements of input-
transformation-output-system
Transformed Transforming
resources Transformation Output
resources
(input) (process) (products*)
(input)
Operations
Operations Operations Operations
planning and
design strategy improvement
control
Activity N°2
Choose a given company and describe their
transformation process
1.1 Explain why operations management is important
for organisations.
The reasons why Operations management is important
for organisations can be listed as below:
- One of the three major functions of any organisations
- The process producing goods and services and adding
value to them
- It’s a costly part of an organisation
- The process adding value to products and services
Adapted from Heizer and Render
NB:
1) Added value: the difference between the cost of
purchasing bought-in materials and the price the
finished goods are sold for.
2) Every organisation has operations (including
business, public sector and non-for-profit
organisations, so things will depend on the use of
transformed and transforming resources and the
volume and value of the outputs.
So, understanding this function becomes vital for any
manager for the creation of ‘quality’ goods and/or
services with appropriate resources and for the
satisfaction of customers’ expectations by incurring
minimum costs.
To reach this goal, what do operations managers do
then?
Since Operations Management is an area of
Management, the basic functions of managers are the
following:
Planning (Determine What needs to happen now, in
the future and generate the plan for action by Devising
and Designing the process: goal setting (mission, vision,
values), plans, actions and strategies taking into
account external & internal factors
Organizing (establish the relationship between
workers, allocating and arranging resources to
implement plans successfully).
Staffing (analyzing jobs, recruiting/hiring people
with the necessary skills, training)
Leading or directing (communicating, sharing the
vision, giving direction and motivating others)
Controlling (monitoring activity to be sure that
actual performance corresponds to expected standards
and goals and making adjustment when and where
necessary.
And this way make important decisions on What, When,
Where, How and Who.
1.2 Analyse the operations function of a selected
organisation.
N.B: Operations management is a process as stated in the
transformation process but also a function.
The operations function
According to Slack, Chamber and Johnston (2010), the
operations function is a collection of processes spread
across various departments within the organisation.
What are processes then?
Processes
They stated that processes are “Arrangements of
resources that produce some mixture of goods and
services.”
As a function, the Operations Management should have
a strategy that is “the total pattern of decisions which
shape the long-term capabilities of an operation and
their contribution to overall strategy. It is the strategic
reconciliation of market requirements with
operation’s resources.” Source: Slack and Lewis (2011)
Two main processes will help managers to achieve their
goals:
1) Product and Service Design is the process of
creating new products/services to be sold by a
business to its customers. It consists in
conceptualizing and evaluating ideas that will be
changed later on in tangible inventions and products.
As this level, managers will ask themselves the following
questions:
- What are the requirements of our customers (feedback
and requirements from the markets - needs and wants)
- What good or service should we offer?
- How should we design these products and services?
- Raw materials to be used
- Plant, machinery and equipment
- Quality management
- How do we define quality?
- Effects on existing products
- Who is responsible for quality?, etc.,
These questions will help them deal with the following:
- Assess the problem
- Research
- Ideas
- Prototypes
- Final design
- Testing
- Giving authorization for manufacturing
2) Process Design is the act of transforming an
organization’s vision, goals, and available resources
into a discernible, measureable means of achieving
the organization’s vision.
Here, managers will take into account:
- Goals and objectives
- Customers’ requirements
- What process and what capacity will these products
require?
- What equipment and technology is necessary for these
processes?
- Location
- Where should we put the facility?
- On what criteria should we base the location decision?
Layout design
- How should we arrange the facility and material flow?
- How large must the facility be to meet our plan?
- Human resources and job design
- How do we provide a reasonable work environment?
- How much can we expect our employees to produce?
Supply-chain management:
- Should we make or buy this component?
- Who are our suppliers and who can integrate into our
e-commerce program?
- Inventory, material requirements planning, and JIT
- How much inventory of each item should we have?
- When do we re-order?
These questions will help managers take the following
critical decisions:
- Workflow (succession or series of distinctive tasks from
the beginning to the end of the process)
- Planning of platforms and technologies (machines /
layout / environment / labourforce/ materials/
equipments and other parameters
- Execution and control
- Total Quality Management models
Adapted from Source
CBOK Guide
Slack, Chambers and Johnston (2010) state that the
design of the product or service and the design of the
process must be in tandem as below:
1.2.1 Activities of core functional areas and their
interrelationships
As seen above, we have pointed out that Operations
Management was one of the core functions of a business
and its relationship with the two other core functions
(Marketing and Finance). For a firm to operate efficiently,
Operations Management must also work closely with the
other functional areas of an organisation.
What is a functional area?
A functional area is made up of a group of individuals or
a team operating in its area of expertise. In other words,
it is a team of persons or employees having the same
skills and expertise with specific tasks to complete. This
is very common in organisations to separate their staff in
functional areas in order to reach high levels of efficiency.
As a common practice in organisations, let us underline
that these functional areas may differ from one
organisation to another one with their own procedures,
policies, and sub-activities, etc…
In addition to the management functions (Planning,
Organizing, Staffing, Leading and Controlling), the
functional areas can be listed as follows:
1) Operations/Productions Management:
- Research and Development (modifying existing
products or developing new ones; improving the
operations processes; providing expert advice in order
to help the business remain successful)
- Purchasing of raw materials
- Manufacturing and processing activities
- Resources management (Human, materials and
equipment)
- Process control, etc.,
2) Marketing:
- Identifying, anticipating the needs and wants of
customers and defining the sort of products or service
desired by customers
- Generate demands
- Product
- Pricing
- Place (Distribution channels – moving goods and
services to a place to be available for customers;
storage of products/ warehousing)
- Customer relationship management (CRM) (Customer
Service: keep all customers satisfied; developing bonds
– long term relationship; ensure staff knows their
products and can talk about them; understand the
wants of customers; help and support customer to
make buying decisions)
- Interactive marketing, etc.,
3) Finance:
- Keeping daily records of money coming in and out
from the business (Cash management)
- Making records available to other departments when
necessary
- Credit management
- Investment management
- Capital budgeting
- Financial forecasting
- General ledger
- Inventory control
- Order processing, etc.,
- Payroll
- Financial reports
4) Human resources:
- Policy making
- Personnel requirements (job analysis, employee skills
inventory, workforce planning, compensation analysis,
welfare, Training, Education and development)
- Administration and motivation
5) Sales
- Identifying the needs and wants of customers and
providing the required goods and services offered by
the company
- Generating income
6) Administration:
- Enquiries
- Communication
- Producing documents / Paperwork
- Maintain files
1.2.1 Impact of changes on Operations management
in the business environment
The business environment: it is made up of two key
elements: the internal environment and external
environment. A change occurring may affect favourably
and unfavourably the Operations Management function
and in achieving strategic objectives. See below the
business environment components:
Figure 1.3 The business environment
1.2.1.a Internal Environment
Definition: The internal environment is composed of all
factors happening within an organization. These essential
factors are or should be within the control of the
company or organization.
However, it is necessary for you as managers, to analyze
this environment.
What are the components of this internal environment?
- organisational culture,
- owners and shareholders,
- board of directors, CEO,
- Resources: human resources, physical resources,
financial resources, material resources
1.2.1.b External environment
The composition of the external environment of an
enterprise comprises all outside factors and can be
divided into two as follows:
- the micro environment and
- the macro environment.
Micro
Macro
There is a diversity of changes that can occur at these
different levels as stated above in the business that can
impact Operations Management:
NB: some tools or frameworks can be used to scan our
business environment and determine the changes
impacting the organization (SWOT, 5 Ms, 4Ps, 7Ps,
PESTLE, 5 FORCES OF PORTER, etc,)
1.2.1.b Factors affecting Possible changes that the
business environment can involve in Operations
management
- Changes in Demand side
- Global Competition
- Environmental issues (e.g Covid-19 disease and its
implications)
- Material and Capital Security
- Quality, Customer Care, and Expenditure Challenge
- Business Ethics (moral principles applied to business)
- and Social Responsibilities (personal sustainable effort
made by companies on their impacts on People,
Planet, Profits ) - Developing safe quality products
- Maintaining a clean environment
- Providing a safe workplace
- Honoring community commitments
- Expansion of Technology Advancement (IT, etc)
- Legal Considerations
- Political decisions
- Social events
- And so on,
1.2.3 Differences and similarities between products
and services
The output: pure goods, pure services or a mix
Similarities:
Goods and services have something in familiar in the
sense that they are both market offerings.
NB: There are companies that offer only goods or only
services and some offering a combination of both.
Lowson requires that we should make a difference
between goods and services. So what could be the
differences between them.
Differences:
Let us see how goods differ from services through their
characteristics
Characteristics of goods:
- Produced in manufactures, etc.,
- Tangible product
- Need distribution logistics
- Production usually separated from consumption (they
don’t take place at the same time and same place –
goods are consumed over time or gradually)
- Consistent product definition (made in the same way
over time, unchanging in nature, standard or effect over
time; not self-contradictory)
- Can be inventoried (storage, need of warehousing and
strategy)
- Require large facilities
- Capital-intensive (investment of large sums of money in
capital goods i.e materials, equipment, plants – less
workers in comparison with Labour-intensive)
- Low/little customer interaction or indirect contact
between customers and company (low customer
involvement)
- Can own the goods after purchasing them
- Can be standardized or have the same standards
- Quality and sophisticated methods for measuring
activities
- Quality can be easily measured
- Long feedback time
- Transferrable ownership (can be resold)
- Demand variable on weekly, monthly, seasonally basis
- Marketing-mix (4Ps), etc,…
Characteristics of services
- Intangible product
- Produced and consumed at same time
- Cannot be felt but can be experienced
- Can be tailor-made or customized (made, adapted, or
suited for a particular purpose or person)
- Often unique
- High customer interaction (direct contact between the
company and customers, with customers participating
in the service and affecting it- high involvement of
customers)
- Cannot be counted (no inventory, no storage, no
warehouses needed)
- Require small facilities
- Short feedback time
- Cannot be owned and brought back
- Inconsistent product definition
- Often knowledge-based
- Nontransferable ownership
- Quality not easily measured
- Demand is variable on an hourly, daily, weekly basis
-
- Labour intensive (involves a lot of workers – wages,
salaries, etc) )
- Frequently dispersed
- Marketing-mix (7Ps), etc,…
To sum up Goods versus services: some key
differences
• Tangibility: goods can be touched physically. Services
can only be felt and experienced.
• Inseparability: production and consumption of
services happens at the same time, unlike goods
• Physical distribution: goods require transportation,
unlike services
• Measurement of quality: this is easier for goods than
for services
Some examples of services:
Let us present it on a continuum:
Exercise:
Safari tour operations: part one
Fatim and Nida plan to set up a safari tour operator
business.
Help them identify the inputs, process and outputs in
their business and present your findings to the
classroom.
Safari tour operations: part two
Now help Fatim and Nida identify differences that exist
between goods and services.
1. Does the safari tour operations produce 100% pure
services or 100% pure goods or a mix of both? Justify
your answer
2. Explain the differences between goods and services in
the context of the safari tour operations.
Homework: For our next session
PRESENTATION
Conduct a research on the history of Production and
Operations management
1.2.4 Characteristics of operations processes
We have seen above that Operations Management is a
function and a transformation process that is itself a
combination of many processes. These processes have in
common inputs (transforming and transformed
resources) and outputs (goods, services, information) but
they do things in different ways and according to
Johnston et al., (2014), it is important to understand the
various complexities involved in the Operations
Management process and this leads us to:
A) The concept of the Four Vs of Operations
Strategy in terms of Process Design:
- Volume: In this dimension, an accent is put on
repeatability or routine of tasks carried by employees,
uniformity, standardisation of processes and
procedures, automation will help to attain high
volumes in terms of mass production and therefore
lead to lower costs (for companies like Mc Donalds this
element is of high importance)
- Variety: Here the common example taken to explain
this dimension is a bus and a taxi. Both can offer
transportation services but it is sure that a taxi service
can propose a higher variety and therefore take
customers everywhere and at anytime while a bus
offers only a few schedules and routes or destinations.
It requires a high degree of functional flexibility and
multi-skillfulness of the staff.
- Variation (in demand): this refers to the degree of
customisation to products and services of an
organisation in contrast with the business model and
the impacts on costs and volume (a prefabricated
homes company can offer catalogues while a
customised homes company proposes already built
houses).
- Visibility: ‘customer’s ability to see and experience’
operations as a process. Here the physical evidence,
people, processes are witnessed and experienced by
customers and they are affected by them. Here courier
companies like DHL, UPS or companies like ORANGE,
MTN, CANAL + require high visibility because it
impacts positively the image of those companies. But
Web-design companies can have a lower visibility.
B) Performance dimensions for Product or Service
Design
Quality: high standards or levels of quality
Speed: Fast response time in delivery of orders (lead-
time between the order of the customer and the
fulfilment of the order
Flexibility: ability to adapt quickly to reply to customers
needs (increase or decrease production to meet
customers requirements or offer variety and variation in
products and services, etc.,).
Cost: To be able to produce products at minimum cost
in order to set a winning price.
Dependability: ability to keep the commitment made
to the customer
For sure, Operations performance objectives impact the
operations design and let us underline that with the right
shaping of the Design process managers will certainly
obtain the best results.
NB: We will come back on the five performance
objectives in details in chapters 2, 3 and 4.
1.3 Evaluate the operations management process of
a selected organisation using relevant models
There are different models of operations management
among which we can list the Scientific management, the
Ford System, etc,…
But we will focus in our lesson on two models:
- Toyota Production System
- Lean Management
But before let us try to understand what is a model:
Simply put, a model is a conceptual or visual
representation of something.
1.3.1 Toyota Production System or Lean
Manufacturing System or Just-In-Time
This management system can be found in the Japanese
company of Toyota. Its origins can be dated to the
beginning of the twentieth century especially in the
1930s.
The pioneers of this system are Sakichi Toyoda (1867–
1930), his sons Kiichiro Toyoda (1894-1952) and Eiji
Toyoda (1913-2013) and Taiichi Ohno (1912-1990), a
manufacturing engineer.
Inspired or resulting from observations on previous
Operations management models (Fordism, Ishikawa,
Edward Deming, Gantt, etc…,) in a post Second World
War Era, the Toyota Production System also referred to
sometimes as Lean Manufacturing or Just-In-Time is a
Japanese management system which based its
philosophy on “the complete elimination of all waste
(“Muda”, “Muri” & “Mura”) within the manufacturing
system to reach high levels of efficiency. The two key
pillars of this philosophy are as follows:
“Jidoka”: autonomation (automation with a human
touch) or auto-activation is the principle of building
quality in the processes and system. It consists in
equipping machines of safe-stop / automatic-stop
systems or of diverse prevention systems (“poka-
yoke”) to detect and signal anomalies or abnormalities
avoiding this way faulty or defective products. Here
the implementation of standards and Kaizen method
(continuous improvement) are key.
Taiichi Ohno used to say that people should “get the
factory to work for the business the same way the
human body works for a person”.
“Just-In-Time” : Opposed to the Just-In-Case (an
inventory strategy where companies keep large
inventories on hand to meet unexpected spikes of
demand), the Just-In-Time is the fact of providing the
customer with just “what is needed, when it is
needed, and in the amount needed” with the
minimum materials, equipment, labour and space in a
continuous flow and this way facilitate the reduction
of overproduction.
The TPS is described as a house as below:
Figure: Liker’s representation of TPS house (2003)
What is the meaning of Lean Manufacturing then?
First coined in 1988 by John Krafcik (former CEO of
Waymo and Google), and later popularized in 1996 by
James Womack and Daniel Jones in their book The
Machine That Changed the World in which they compared
Japanese and American companies. The results of the
comparison was that Japanese companies were most
efficient with the TPS that they considered being in
adequation with the guidelines of Lean.
NB: As said above, Toyota revisited the works of various
former management systems namely the Fordism that
was first to introduce the Lean concept in manufacturing
system called Mass-production by Henry Ford who was
himself influenced by Venitian Arsenals (1450s).
Nowadays, TPS, Lean Manufacturing and Just-In-Time are
considered the same and replaced by the TOYOTA
PRODUCTION SYSTEM.
1.3.2 Lean Management
Considered in Western Countries as the successor of
Toyota Production system or Lean Manufacturing and as
one of the most popular management system in the
world, Lean Management puts an accent on Human
resources management in the contrary of Lean
Manufacturing essentially addressing production
processes.
This management system assumes that adaptation to the
actual market conditions via organizational and
functional alternations is key. In “polishing up” the
company thanks to changes in its policy, particularly in
the company’s assets and its management styles.
Additionally Lean Management concentrates on
professional training and shaping the staff ’s attitudes as
well as maintaining positive public relation (Lichtarski J.,
1997) as per key principles below:
- Good atmosphere in the workplace
- Setting the objectives
- Communication
- Proper motivation
- Avoid wasting of human potential
- Development of employees
- Leadership
Constantly striving for excellence, we have seen this
system evolving in Lean Six Sigma (that is the
combination of Lean Management and Six Sigma the
Motorolla Management system that strives for near
perfection) (see Eckes G., 2010).
NB: Initially elaborated for industrial mass-production,
Six Sigma can be applied to any kind of organization.
It is a system for process improvement consisting in
gathering and leveraging data to eliminate defects and
waste in manufacturing.
After studying those management practices, let us
underline that many enterprises being western or eastern
implement at least one of these management systems
whether TPS (in global or part of it namely JUST-IN-TIME
or LEAN MANUFACTURING) or LEAN MANAGEMENT or
LEAN SIX SIGMA.
Exercise:
We just present consicely the different management
systems. For further information, conduct research online
on the management systems above but also on the
Theory of Constraints and Total Quality Management and
analyse their contribution to management practices.
Conclusion:
Chapter 1 has introduced us to Operations Management,
its importance in an organization and interrelationship
with the other functions of a business, its characteristics
in terms of processes and the possible management
practices that could be used in Operations Management.
