Week 5 operations management fassam l

Operations Management
International Business
Liam Fassam

• Within an organisation operations management is the
function which interacts with and delivers products and
services to customers.
• Operations management is not limited to the
manufacture of products. Everyone, no matter what their
role, is an operations manager.
‘Efficient operations management is crucial to the success of
any organisation. The role of an operations manager is to
provide customer service within the framework of the
organisations policy and to use the resources as efficiently
as possible. Simply put: the operations manager makes
things happen’ (Wright and Race, 2004, p. 4).
International Business - 'Operations
management' - Liam Fassam
2

Operations management in the SCM context is where,
factories and facilities, plans are converted into reality
to produce goods and services.
Input resources basically consist of information,
materials and utilities.
They are transformed into desired outputs by the
three converting components of people, process and
technology.
IPO model
Inputs > Processes = Outputs
3

In addition to the conversion of inputs into
outputs operations management is responsible for
the physical flow of the supply chain. This includes
the upstream flow of input resources and the
downstream flow (distribution) of outputs.
IPO model
Inputs > Processes = Outputs
Upstream - Downstream
4

Operations Management - Service
‘A service organization exists to interact with
customers and to satisfy customers’ service
requirements. For any service to be provided, there
has to be a customer. Without a customer, and
interaction between customer and the service
organization, the objective of providing service
cannot exist.’
Wright and Race (2004, p. 4)
5

Operations Management - Manufacturing
In manufacturing operations customer interaction
is not essential (Basu & Wright, 2008). E.g., cars
can be manufactured, food can be harvested and
processed, hamburgers can be made, and houses
can be built, all without customer input.
Although it might be desirable that the customer
has input into the design and the specifications of
the product (be it a car, a hamburger or a house),
customer input is not essential.
6

Operations Management - Manufacturing
This does not mean that the customer is not “crucial”
in the process and should be completely discounted in
the “Value chain”.
For example, a ‘bespoke’ operation has a build to
order (BTO) process dictates that manufacturing will
not begin until an order has been received. However,
in preparedness for peaks in demand such as seasonal
demand fluctuations, decisions can be made to begin
manufacturing ahead of order receipt – therefore the
customer is not crucial
7

Operations Management - Resources
• Materials:
Materials include the goods that are consumed by the system, goods that are
transformed by the system, and finished goods held for sale.
(This is all raw material used to build the product and fuel utilised in
operating equipment)
• Machines/equipment:
These include plant, fittings, tools, vehicles and storage facilities.
• Information systems:
This covers the flow of information within the organization, and externally
from and to suppliers, customers and other stakeholders.
(An information system includes all means of communication, for example
speech, newsletters, manuals, brochures, radio, television, etc.)
8

Operations Management - Resources
• People:
People not only means the number of people employed in the operating
system, but includes knowledge and skill levels of the people. People also
includes the pervading culture of an organization including intangibles of
dependability, attitude and shared values.
• Property:
This includes owned, leased or rented; offices, warehouses, factories,
display areas, yards, parking space and hard standing, etc.
These elements represent either a capital investment or an ongoing expense to
the organisation. Tangible inputs are physical and can be seen and touched, and
the amount or rate of use can be measured in quantifiable terms. Intangible
inputs are difficult to quantify. They cannot be seen or touched and include
knowledge (intellectual capital) culture and values.
9

Operations Management – System structures
In considering system structures, Wild uses the following symbols:
O the transformation process of combining resources
including utilities to add value
V ‘stock’ of input resources and output stocks, or ‘queue’
of customers waiting to enter the system
➜ the flow of resources through the system
C the customer. Note, the customer does not have to be
external to the organization, but may be an internal
customer. The ‘internal customer’ is the next person, or
department, in the process.
10

Examples of customer not waiting
• Call centre waiting for customers.
• Ambulance or fire service.
Examples of a customer queue
• Customers waiting in line (queue) for
service (e.g. supermarket check out).
• Customers make an appointment to see a
specialist for advice (e.g lawyer, doctor, hair
stylist).
11

Operations Management – System structure
12
Example of idle
resource and
queue
Empty containers
in western sea
ports in the USA
waiting for freight,
and at the same
time container
shortages in
eastern sea ports
in Asia.
O
Process transformation
Freight USA loaded to container
and shipped to Asia
V
Output stocks
Empty container
USA
V
Input stock
Empty
containers
O
Freight Asia loaded to
container and shipped to
USA
C
Freight in Asia
awaiting empty
containers

13
This is the system structure of a manufacture process of from stock to stock. For the
factory manager this structure is easy to manage. It enables batch and/or level
production, and the manufacturing line can be balanced by building to output stock.
The downside is that it is expensive in stock holding costs. In the fashion industry and
other areas where technology changes, or is likely to change (e.g. electronic goods
such as cell phones) there is a danger of the manufacturing organization being
left with goods no longer in fashion or which are obsolete.
Just in time or lean production; this is best explained by
the ‘Toyota 72 Hour Car’ concept. With this model Toyota holds no stocks of
input materials and has no stock of finished cars.

14
V
Input resources
Product
dispatched
V
Output resources
Freight forwarder
consolidates freight
C
Customer in Asia
O
Single shipment
O
Freight forwarder
consolidates freight
Resource queue due to consolidation
to reach full load and awaiting vessel
to return from Asia

Operations Management – Five V’s
Slack et al. (2006) also support the input–process–
output model, but add four V’s of processes to
analyse processes:
• Volume
• Variety
• Variation
• Visibility
• Velocity (Fifth V added bu Basu & Wright, 2008)
15

Operations Management - Volume
Processes with a high regular demand will have a
high degree of repetition. In operations
management this means that tasks are repeated
often and it makes sense to train staff to specialize
in a limited number of tasks.
Therefore economies of scale; low throughput
manufacturing will not benefit from this. Neither
will using containerised freight when considering
small shipping quantities.
16

Operations Management - Variety
The greater the variety the more stock has to be
held and the amount held will multiply with the
number of stocking points within the supply chain.
As Slack et al. say ‘A high level of variety may also
imply a relatively wide range of inputs to the
process and the additional complexity of matching
customer requirements to appropriate products or
services’.
17

Operations Management - Variation
Processes are easier to manage when they are
aligned to predictable and constant demand which
allow resource alignments to meet a level that is
just capable of sufficing demand.
i.e. If you know one staff member can manage a
linear daily demand of 20 customer enquires, it is
easy to match resource with demand. However, if
this demand spikes to 40 in one day, your resource
versus demand is not sufficient.
18

Operations Management - Visibility
Visibility in the supply chain relates to the exposure of the
process.
19
If information is shared both upstream
and downstream in the supply chain the
effects of issues such as bullwhip effect
are minimised and the overall supply
chain operation becomes more efficient
and delivers great supply chain surplus

Operations Management - Velocity
Velocity, or time, is an important aspect of supply
chain management. Measurement of time
performance are:
• Time taken to fulfill orders (lead time)
• Time taken at each stage of the supply chain
• Delivery on time
• Age of stock (used by dates)
• Numbers of days of stock on hand
• Stock turn
20

Operations Management - Infrastructure
What are infrastructure facilities?
• Factories
• Offices
• Equipment
• Hardware,
• Conversion technology
• Third party suppliers/service resources (Outsource)
Infrastructure facilities do not include people,
procedures and systems.
21

Operations Management – Manufacturing sector
According to Hayes and Wheelwright the four stages in the
strategic role of manufacturing are as follows:
• Stage 1: Minimize manufacturing’s negative potential:
‘internally neutral’ manufacturing is kept flexible and reactive.
• Stage 2: Achieve parity with competitors: ‘externally neutral’
capital investment is the primary means for catching up with
competition.
• Stage 3: Provide credible support to the business strategy:
‘internally supportive’ longer-term manufacturing
developments and trends addressed systematically.
• Stage 4: Pursue a manufacturing-based competitive
advantage: ‘externally supportive’ long-range programmers
pursued in order to acquire capabilitiesin advance of needs.
22

Operations Management – Manufacturing sector
In a typical fast-moving consumer goods (FMCG)
manufacturing business:
• 98 per cent of the products sold are either own
manufactured or co-produced.
• 90 per cent of the assets of the company are for
manufacturing.
• 75 per cent of the people work in
manufacturing.
23

Operations Management – Service sector
24
This intimacy of a customer in a service function has led to the perception
that service cannot be stored and has to be produced and consumed simultaneously,
especially so in the “Direct service” markets.
The isolated operations however can be managed using the similar methods as used in
manufacturing operations.

Week 5 operations management fassam l

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