E1_Operations Management.pdf

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Chapter
6
Operations Management
1
6.1 Overview of operations management
Operations strategy
The total pattern of decisions which shape the long-term capabilities of any type of
operations and their contribution to the overall strategy, through the reconciliation of market
requirements with operations resources.
( Definition: Slack and Lewis)
Organisations make products or deliver services and do rely heavily upon operational
processes to produce effective products and efficiently deliver them on time. Operational
functions or departments have the responsibility for the transformational process of
converting business inputs e.g. staff, materials, machines, money etc, to produce a final
product, in a way that adds value to customers e.g. creates profit margin. These functions can
be critical to gaining competitive advantage for an organisation.
Major operational functions within the organisation
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·
·
·
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Marketing and sales
e.g. identifying needs, wants and values of customers.
Production
e.g. administration of orders, physical manufacture and assembly,
effective delivery etc.
Research and development
e.g. vital innovation for new products or processes.
Customer support
e.g. customer service, after sales service, customer support etc.
Inventory warehousing and logistics
e.g. storage and delivery
Value is the reason why customers choose one rivals product over another, if an organisation
can offer certain unique features from their operational management, a customer could be
willing to pay extra for it and could remain more loyal to the organisation. Aesthetics,
reliability, durability, product functions and features, novelty, designs, colours and even the
courtesy and friendliness of staff involved in the selling and customer support services, can
make a massive difference to customer value. But this relies upon an effective operational
strategy.
Performance dimensions for operational strategy
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Quality
e.g. Marks & Spencer, Thornton s, BMW etc all are synonymous with the
image of high quality. Quality means fitness for the purpose, so this dimension would
include other characteristics such as how the product functions and how robust and
reliable it is.
Speed
e.g. The AA or RAC could offer superior call out response times, Concorde
when it was first launched gave the fastest transatlantic flights, courier companies like
FedEx Express can guarantee overnight global parcel delivery.
Flexibility
e.g. ability to increase or decrease production to meet customer demands,
coffee shops, hair dressers and call centres and how they all respond to peak times is
one such focus of this dimension. Multi-skilled staff can help an organisation achieve
greater flexibility and economies of scope.
Cost
e.g. aiming to offer a product or service at the lowest possible price, a cost
leadership strategy. Cheap and cheerful products like supermarket own economy
brands or basic no frills services like Easy Jet and Ryan Air.
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Porter s value chain analysis
Value chain analysis (VCA) is a position audit tool which examines the current and internal
position of an organisation. It is ideal tool to examine holistically the operational processes
of an organisation. According to professor Michael Porter, an organisation receives inputs or
resources from its environment and converts these to outputs e.g. products or services. In
doing so it achieves added value by this process, creating margin or profit for the
organisation. Value is the reason why customers choose one rivals product over another,
either because the product or service is lower in price or it offers certain features the customer
is willing to pay extra for. Porter grouped the various business processes or activities of an
organisation into what he called the value chain; he divided the organisations activities into
nine types, classified as either
primary or secondary activities.
These activities incur costs,
but in combination with other activities provide customer satisfaction and therefore added
value.
·
Primary activities
are processes or activities directly involved in the provision of the
good or service the organisation makes or provides e.g. inbound logistics, operations,
outbound logistics, marketing/sales and after sales service
Secondary or support activities
support the primary activities by providing
necessary support and resources, but are not directly involved in the provision of the
good or service the organisation makes or provides e.g. infrastructure, human resource
management (HRM), technology and procurement
Activities
are business processes the organisation manages in order to add value e.g.
the product or service is worth more than the cost of the individual parts or resources
used to provide it, this allows a margin to be earned by the organisation
·
·
A value chain is the sequence of business activities by which, in the perspective of the end
user, value is added to the products or services produced by an organisation
(CIMA).
Infrastructure
Margin
Secondary
activities
Technology
HRM
Procurement
After
Marketing Sales
&
Service
Sales
Inbound
Logistics
Operations
Outbound
Logistics
Margin
Primary activities
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Inbound logistics
Business processes which receive, handle and store inputs e.g. warehousing, stock control
and inbound transport.
Operations
Business processes which convert inputs to output e.g. staff, materials, and machines used
to assemble the final product, or provide a service.
Outbound logistics
Business processes which deliver the actual product (output), when it leaves the
organisation e.g. outbound storage and transport of goods to the customer.
Marketing & Sales
Business processes of selling, researching customer needs and development of an effective
marketing mix e.g. product features, price, promotion and place, to satisfy customers.
After sales service
Business processes that deal with returns, complaints and customer support after the
product or service (output) has left the organisation e.g. customer service and support
teams, repair and warranty departments to supply parts or consumables, and after sales
servicing.
Procurement
Business processes to manage and negotiate the acquisition of resources (inputs) for the
primary activities e.g. components, raw materials and equipment. Ensures resources that
are required are in the right place at the right time and right cost e.g. purchasing
departments.
Technology development
Business processes required for innovation, product design and testing, or the invention of
new processes e.g. research and development (R&D) departments.
Human resource management (HRM)
Business processes to procure and look after the organisations most valued asset its staff
e.g. staff recruitment, selection, training, development, retention, induction, reward
systems, appraisals and the maintenance of staff records.
Infrastructure
Business processes to support of the whole of the value chain and not belonging to any of
the other eight categorisations of processes above e.g. head office, legal, finance, IT,
buildings maintenance, quality control, staff canteen etc.
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Business process re-engineering (BPR)
BPR
The fundamental redesign of existing business processes to achieve improvements in critical
areas such as cost, speed, quality or service.
BPR identifies and analyses existing processes to innovate, in order to rationalise or add
value, it aims to redesign and reassemble existing processes to operate as efficiently and
effectively as possible. Re-engineering business processes can often help an organisation
shorten lead-times, improve customer service or add more value to the product or service
being sold.
Example
Ford in the 1980s employed a large number of staff for the purpose of matching goods
received notes to orders and then to invoices. The Pareto condition e.g. 80% time wasted
reconciling 20% of the orders and invoices applied here. Through the use of BPR techniques,
Ford introduced a computerised system where orders were entered, any goods received that
did not match to orders input, were automatically rejected at the door and payment refused.
This simple yet effective re-design saved thousands of pounds through reduction in
headcount.
Hammer & Champy (1993) defined the process of reengineering as "the fundamental
rethinking and radical redesign of business processes to achieve dramatic improvements in
critical, contemporary measures of performance, such as cost, quality, service and speed."
1. Fundamental rethinking to innovate and redesign business processes
2. IT primarily the enabling factor for dramatic improvement
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