`INTRODUCTION An organizations operations function is concerned with getting things done; producing goods and/or services for customers.

Organizations are social arrangements which pursue collective goals, control their own performances and have a boundary separating them from their environment. An organization consists of several departments. Each department has distinct roles and responsibilities but they all work towards achieving the same goals and objectives. For example, the Human Resource department is responsible for managing the human resources of the organization and the Finance department deals with the financial issues. And one of the most important departments of an organization is the Operations department. Operation department is one which deals with the production of goods or providing the services that consumers buy.

Global view of operations There are many reasons why a domestic business operation will decide to change to some form of international operation.

Reasons to globalize
Tangible Reasons

Reduce costs (labour, taxes, tariffs, etc.) Improve supply chain Provide better goods and services Understand markets Learn to improve operations Attract and retain global talent

Intangible Reasons

Operations management Operation Management refers to all those chain of activities that convert inputs in the form of resources into output that usually take the form of goods and services. It helps to establish the level of quality as a product is manufactured or as a service is provided and it is responsible for the largest part of the companys human and capital assets.

Furthermore, operations management determines to a great extent the ability of a company to have sufficient products available to meet delivery commitments. As a whole, we can say that operations management has as important influence on the cost, quality and availability of the companys goods and services. Thus capabilities of operations must be fully evaluated when performing operational strategies.

OPERATIONS AND STRATEGY Strategy Strategy is an organizations action plan to achieve the mission. Each functional area has a strategy for achieving its mission and for helping the organization reach the overall mission. These strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses. Firms achieve missions in 3 conceptual ways (Michael E.Porter: 2001): (1) Differentiation (2) Cost leadership (3) Response This means operation managers are called on to deliver goods and services that are i. ii. iii. Better, or at least different Cheaper, and More responsive

Operations managers translate these strategic concepts into tangible tasks to be accomplished. Any one or combination of these 3 strategic concepts can generate a system that has a unique advantage over competitors.

STRATEGIC OM DECISIONS Differentiation, low cost, and response can be achieved when managers make effective decision in ten areas of OM. These are collectively known as operations decisions. The 10 decisions of OM that support missions and implement strategies follow: Operations decisions Services Design Services Is not tangible. A new range of product attributes- a smile. Many subjective quality standards. Customer may be directly involved in the process. May need to be near customer. Can enhance product as well as production. Direct workforce usually needs to be able to interact well with customer. Labour standards vary depending on customer requirements. Inventory Most services cannot be stored, so other ways must be found to accommodate changes in demand. Often concerned with meeting the customers immediate schedule with human resources. Maintenance is often repair and takes place at the customers site.

Quality Process and Quality Design Location Selection Layout Design Human Resources and Job Design

Scheduling

Maintenance

ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS Competitive advantage implies the creation of a system that has unique advantage over competitors. This idea is to create customer value in an efficient and sustainable way.

Competing on differentiation Differentiation is concerned with providing uniqueness. A firms opportunities for creating uniqueness are not located within a particular function or activity but can arise in virtually everything that the firm does. Moreover, because most products include some service, and most service include some products,

the opportunities for creating this uniqueness are limited only by imagination. Indeed, differentiation should be thought of as going beyond both physical characteristics and service attributes to encompass everything about service that influences the value that the customers derive from it. Therefore, effective operation managers assist in defining everything about a service that will influence the potential value to the customer. Such services can manifest themselves through convenience (location of distribution centres or stores), training, product delivery and installation, or repair and maintenance services. In the service sector, one option for extending products differentiation is through an experience. Differentiation by experience in services is a manifestation of the growing experience economy (James H.Gilmore: 1999).

Competing on cost Identifying the optimum size (and investment) allows firms to spread overhead costs, providing a cost advantage. It includes transportation of goods, reduced warehousing costs and direct shipment from manufacturers resulting in high inventory turnover rand made it a low-cost leader. Low-cost leadership entails achieving maximum value as defined by your customer. It requires examining each of the 10 operations management decisions in a relentless effort to drive down costs while meeting customer expectations of value. A low-cost strategy does not imply low value or low quality. (Franz Colruyt: 2003)

Competing on response Response refers to set of values related to rapid, flexible and reliable performance. Response is often thought of as: (1) Flexible response, but it also refers to reliable and quick response. Indeed, we define response as including the entire range of values related to timely product development and delivery, as well as reliable scheduling and flexible performance. Flexible response may be thought of as the ability to match changes in a marketplace where design, innovations and volumes fluctuate substantially. (2) Reliability of scheduling (3) Quickness According to Professor Richard DAveni, author of hyper competition, In the future, there will be just 2 kinds of firms: those who disrupt their markets and those who do not survive the assaults

PERFORMANCE OBJECTIVES Strategy in a business organization is essentially about how the organization seeks to survive and prosper within its environment over the long-term. The decisions and actions taken within its operations have a direct impact on the basis on which an organization is able to do this. The way in which an organization secures, deploys and utilizes its resources will determine the extent to which it can successfully pursue specific performance objectives. Performance objectives are cascaded through the organization and are translated into the measurable terms that become part of the operating goals for production related as well as service related department and their managers. There are five basic performance objectives which apply to all types of operation. Slack et al. (2004) argue that there are five operations performance objectives.

(1) Quality According to Schroeder, quality is an objective means the quality of the product or service as perceived by the customer. Quality is the value of the product, its prestige, and its perceived usefulness. This definition includes not only conformance to specifications, but the design of the product as well. Typical quality measures include customer satisfaction as measured by surveys or consumer tests, the amount of rework or scrap created as part of the production process, and measures of warranty or return of the product. Quality, of course, should be measured relative to the competition and can be an important point of differentiation. There are two dimensions of quality: External Internal

External quality External quality is an important aspect of customer satisfaction or dissatisfaction (Slack: 1993). It involves making sure that product or services meet the requirements of the customers. Internal quality According to Chambers, good quality does not only mean achieving customer satisfaction but also to achieve high performance design. High performance design means that the operation function will be designed to focus on aspects of quality such as superior features, high durability

and excellent customer service. The organization should also engage in process quality. It deals with designing a process to produce error-free products or delivering the service this includes focusing on equipment, workers, materials and every other aspect of the operation to make sure it works the way it is supposed to. Furthermore, process quality also includes some features that are desirable in delivering efficient and effective services. These features are: Skilled workers Motivation of pride of workmanship Effective communication of standards or jobs requirements

Quality inside the operation will also help to reduce cost (Harland: 1993). The fewer the mistakes each micro operation or unit makes in the operation, the less time it will need to spend correcting these mistakes and the less confusion and irritation will be spread. Also quality helps too increase dependability (Harrison: 1993).

Cost Speed Dependability

Flexibility

Quality
Error-free products and services

Each operation has different meaning of quality. Inside a supermarket, quality may means: Goods are in good condition

The store is clean and tidy Dcor is attractive and appropriate Staff are courteous, friendly and helpful

(2) Speed Speed refers to the elapsed time between customers requesting for products and services and receiving them. Speedy delivery of goods or services is essential in an organisation as the faster customers can have the product or the service, the more likely they are to buy it, or the more they will pay for it, or the more benefit they will receive. (Nigel Slack, 1995; Stuart Chambers:1998) Speed is one of the most important competitive priorities today. Organizations are competing to deliver high-quality products or services in as short time as possible. Customers do not want to wait and organisations that can meet their need for fast service are becoming leaders in the industries. Making time a competitive priority means to focus on time-related issues such as rapid delivery and on-time delivery. On-time delivery refers to how quickly and order is received and on-time delivery refers to how often deliveries are made on time.

Speed for supermarkets means:

The time taken for the total transaction of going to the supermarket, making the purchases and returning, kept to a minimum

The immediate availability of goods

(3) Dependability According to Nigel Slack (1995), dependability means doing things in time for customers to receive their goods and services exactly when they are needed or at least when they were promised. A dependable supermarket chain has predictable opening hours. It will never run out of stock of any of the items which it has led its customers to expect to be in stock (by advertising or past practice). Customers might judge the dependability of an operation after the product or service has been delivered. Over time, however, dependability can override all criteria. In practice, although this definition sounds simple, it can be difficult to measure. What exactly is on time? Is it when the customer needed delivery of the product or service? Is it when they expected delivery? Is it when they were promised delivery? Is it when they were promised delivery the second time after it failed to be delivered the first time? Again it has external and internal factors. Externally, dependability is generally regarded by customers as a good thing. Certainly being late with delivery of goods and services can be a considerable irritation to customers. Especially with business customers, dependability is a particularly important criterion used to determine whether suppliers have their contract renewed. So again, the external effects of this performance objective are to increase the chances of customers returning with more business (Stuart Chambers: 1995). Internally, customers will judge each others performance partly by how reliable the other processes are in delivering material or information on time (Christine Harland: 1995). Operations where internal dependability is high are more effective than those which are not for a number of reasons:

Dependability saves time Dependability saves money: ineffective use of time will consulate extra cost Dependability gives stability: the disruption caused to operations by a lack of dependability goes beyond time and cost. It affects the quality of the operations time. If
On-time

everything in an operation is always perfectly dependable, a level of trust will have built deliveries up between the different parts of operation. There will be no surprises and everything will be predictable. Under such circumstances, each part of the operation can concentrate on improving its own area of responsibility without having its attention continually diverted by a lack of dependable service from other parts.

Faster customer response Speed

Cost Dependability

Quality

Flexibility

Error-free products and services

The features that manufacturing operations might provide and its applicability to service operations is shown below: Applicability to service operations Effective scheduling system Low equipment failure Low absenteeism, turnover, no strikes High inventory investment yes yes yes may be

Commitment of personnel to perform as required

yes

For a supermarket, dependability could mean: Predictability of opening hours Proportion of goods out of stock kept to a minimum Keeping to reasonable queuing time Constant availability of parking

(4) Flexibility A companys environment changes rapidly, including customer needs and expectations, the ability to readily accommodate these changes can be a winning strategy. Flexibility means to be able to change the operation in some way. This may refer to changing what the operation does, how it is doing it, or when it is doing it. (Nigel Slack, Stuart Chambers: 1995) According to Richard Schoenberger (1998), there are 4 types of flexibility: 1) Product/service flexibility: The operations ability to introduce new or modified products and services 2) Mix flexibility: The operations ability to produce a wide range or mix of products and services 3) Volume flexibility: The operations ability to change its level of output or activity to produce different quantities of volumes of products and services over time 4) Delivery flexibility

The operations ability to change the timing of the delivery of its services or products

Externally, the different flexibility allows an operation to fit its products and services to its customers in some way. Mix flexibility allows an operation to produce a wide variety of products and services for its customers to choose from. Product/service flexibility allows it to develop new products and services incorporating new ideas which customers may find attractive.

Volume and delivery flexibility allow the operation to adjust its output levels and its delivery procedures in order to cope with unexpected changes in how many products and services customer want, or when they want them, or where they want them.

Internally, flexibility helps to speed up response (being able to give a fast service often depends on the operation being flexible), and also saves time (adapt quickly) and maintains dependability (helps to keep the operation on schedule when unexpected events disrupt the operations plans).

Companies that compete, based on flexibility often cannot compete based on speed because it generally requires more time to produce as a customized product. Also flexible companies typically do not compete, based on cost because it may take more resources to customize the product. However, flexible companies can offer greater customer service and can meet unique customer requirements. To carry out this strategy, flexible organizations tend to have more general-purpose equipment that can be used to produce different kinds of products. Also, workers inflexible organizations tend to have higher skill levels and can perform many different tasks in order to meet customer needs. (Robert Johnson, Christine Harland: 1995) The following conditions need to be present in an organization for it to be flexible (Dale McConkey: 1988): Dependable, rapid supplies Reserve capacity Multi-skilled workers who can be shifted Effective control of work flow Versatile processing equipment

Low set-up time and cost Integration of design and production

For supermarkets: Product/service productivity means introduction of new goods or promotion Mix flexibility means a wide range of goods stored Volume flexibility refer to the ability to adjust the number of customers served Delivery flexibility is the ability to obtain out-of-stock items (very occasionally)

(5) COST According to Alan Harrison (1998), cost is the last objective to be covered, although not because it is the least important. To companies which compete directly on price, cost will clearly be their major operations objective. The lower the cost of producing their goods and services, the lower can be the price to their customers. Even those companies which do not compete on price will be interested in keeping costs low. Every euro or dollar removed from an operations cost base is a further euro or dollar added to its profits. Not surprisingly, low cost is a universally attractive objective. Note that a low cost strategy can result in a higher profit margin, even at a competitive price. Also, low cost does not imply low quality. To develop this competitive priority, the operations function must focus primarily on cutting costs in the system, such as cost of labour, materials and facilities. Companies that compete based on cost study their operations system carefully to eliminate all waste. They might offer extra training to employees to maximize their productivity and minimize scrap. Also, they might invest in automation in order to increase productivity. Generally, companies that compete based on cost offer a narrow range of products and products features, allow for little customization, and have an operations process that is designed to be efficient as possible (Robert Johnson: 1995)

The ways in which operations management can influence cost will depend largely on where the operation costs are incurred. Put simply, the operation will spend its money on: staff costs (the money spent on employing people)

facilities, technology and equipment costs ( the money spent on buying, caring for, operating and replacing the operations hardware) material costs ( the money spent on the materials consumed or transformed in the operation)

Although comparing the cost structure of different operations is not always straightforward and depends on how costs are categorized, a general point can be made, that is, supermarkets costs are dominated by the cost of buying its supplies. In spite of its high material costs, however, an individual supermarket can do little if anything to affect the cost of goods it sells. All purchasing decisions will probably be made at company headquarters. The individual supermarkets will be more concerned with the utilization of its main asset, the building itself and its staff (Nigel Slack: 1998)

The features that manufacturing operations might provide and its applicability to service operations is shown below: Applicability to service operations Low overhead Special-purpose equipment and facilities High utilization of capacity Close control of materials High productivity Low wage rates yes yes yes may be yes yes

However, cost is affected by the other performance objectives. So far we have described the meaning and effects of quality, speed, dependability and flexibility for the operations function. In doing so, we have distinguished between the value of each performance objective to external customers and inside the operation, to internal customers (Stuart Chambers: 1995). Each of the various performance objectives has several internal effects but all of them affect cost. High quality operations do not waste time or effort having to re- do things, nor are their internal customers inconvenienced by flawed service.

Fast operations reduce the level of in-process inventory between micro operations as well as reducing administrative overheads. Dependable operations do not spring any unwelcome surprises on their internal customers. They can be relied on to delivery exactly as planned. This eliminates wasteful disruption and allow to other micro operations to operate efficiently. Flexible operations adapt to changing circumstances quickly and without disrupting the rest of the operation. Flexible micro operations can also change over between tasks quickly and without wasting time and capacity.

Inside the organization, therefore, one important way to improve cost performance is to improve the performance of the other operations objectives.

For a supermarket, cost could mean: Bought-in materials and services Staff costs Technology and facilities cost

 Excelling at one or more of these operations performance objectives can enable an organization to pursue a business strategy based on a corresponding competitive factor. These relationships are outlined in the table below:
N...

However, it is important to note that the success of any particular business strategy depends not only on the ability of operations to achieve excellence in the appropriate performance objectives, but crucially on customers valuing the chosen competitive factors on which the business strategy is based. Matching operations excellence to customer requirements lies at the heart of any operations based strategy.

Basic customer wants Customers have 6 general requirements: (1) High levels of quality From the customers standpoint, quality has multiple dimensions. (2) A high degree of flexibility Customers admire a providers ability to react easily to shifting requirements and irregular arrival patterns. (3) High level of service Subjective measures of customer service include humanity in service delivery; objective measures can include having a required item in stock. (4) Low costs

External customers are price conscious; internal customers are concerned when they see costly wastes. (5) Quick response Customers want delay-free service and quick response to changing requirements. The provider aims to satisfy by shortening cycle times and introducing attractive new goods. (6) Little or no variability Customers expect consistency; the ideal is zero deviation from targeted to expected results.

Quality Flexibility Service Costs Response times Variability

It is unlikely that any single organization can excel simultaneously at all of the five operations performance objectives. Trying to do so is likely to lead to confusion if operations managers pursue different objectives at different times. This lack of clarity is likely to lead to suboptimal performance and result in a failure to excel in any of the operations performance objectives. Consequently, organizations need to choose which performance objectives they will give priority to. This may result in having to trade-off less than excellent performance in one aspect of operations in order to achieve excellence in another. The concept of trade-off in operations objectives was first proposed many years ago by Skinner (1969). He argued that operations could not be all things to all people. What was needed was to identify a single goal or task for operations; a clear set of competitive priorities to act as the objective. The task would then act as the criterion against which all decisions and actions in operations could be judged.

The sandcone model of operations excellence

The sandcone model of operations excellence

Ferdows and de Meyer (1990) argue that certain operational capabilities enhance one another, enabling operations excellence to be built in a cumulative fashion. In their sandcone model of operations excellence (see Figure 2.1), they maintain that there is an ideal sequence in which operational capabilities should be developed. The starting point, the base of the sandcone is excellence in quality. On this should be built excellence in dependability, then flexibility (which they take to include speed), then cost. They emphasize that efforts to further enhance quality should continue whilst commencing efforts to build dependability. Similarly, actions on quality and dependability need to continue whilst building flexibility. Finally efforts to reduce costs take place alongside continuing efforts to improve quality, dependability and flexibility. They claim that operational capabilities developed in this way are more likely to endure than individual capabilities developed at the expense of others.

STRATEGIC IMPORTANCE OF LAYOUT Layout is one of the key decisions that determine the long run efficiency of operations. Layout has numerous strategic implications because it establishes an organizations competitive priorities in regard to capacity, processes, flexibility, and cost, as well as quality of work life, customer contact and image. An effective layout can help an organization achieve a strategy that supports differentiation, low cost or response. The objective of layouts strategy is to develop an economic layout that will meet the firms competitive requirements. In all cases, layout design must consider how to achieve: (1) Higher utilization of space, equipment and people (2) Improve flow of information, materials or people

(3) Improved employee morale and safer working condition (4) Improved customer/client interaction (5) Flexibility (whatever the layout is now, it will need to change)

Retail layout Retail layout refers to an approach that addresses flow, allocates space, and response to customer behavior. Retail layouts are based on the idea that sales and profitability vary directly with customer exposure to products. Thus, most retail operations managers try to expose customers to as many products as possible. Studies do show that the greater the rate of exposure, the greater the sales and the higher the return on investment. The operations manager can alter both with the overall arrangement of the store and the allocation of space to various products within that arrangement. Five ideas are helpful for determining the overall arrangement of many stores: 1. Locate the high-draw items around the periphery of the store. Thus, we tend to find dairy products on one side of a supermarket and bread and bakery products on another. 2. Use prominent locations for high-impulse and high-margin items such as house wares, beauty aids and shampoos. 3. Distribute what are known in the trade as power items items that may dominate a purchasing trip to both side of an aisle, and disperse them to increase the viewing of other items. 4. Use end-aisle locations because they have a very high exposure rate. 5. Convey the mission of the store by carefully selecting the position of the lead-off department. For instance, if prepared foods are part of the mission, position the bakery and deli up front to appeal to convenience-oriented customers.

An additional, and somewhat controversial, issue in retail layout is called slotting. Slotting fees are fees that manufacturers pay to get their goods on the shelf in a retail store or supermarket chain. Example

SERVICESCAPES Servicescape refers to the physical surroundings in which a service takes place, and how they affect customers and employees. Although the main objective of retail layout is to maximize profit though product exposure, there are other aspects of the service the managers consider. The term servicescape describes the physical surrounding in which the service is delivered and how the surroundings have a humanistic on customers and employees (A. Toms and J.R. McColl-Kennedy: 2003). To provide a good service layout, a firm must consider these 3 elements: 1. Ambient conditions, which are background characteristics such as lighting, sound, smell and temperature. All these affect workers and customers and can affect how much is spent and how long a person stays in the building. 2. Spatial layout and functionality, which involve customer circulation path planning, aisle characteristics (such as width, direction, angle, shelf spacing), and product grouping. 3. Signs, symbols and artifacts, which are characteristics of building design that carry social significance (such as carpeted areas of a department store that encourage shoppers to slow down and browse).

HUMAN RESOURCES STRATEGY The objective of human resource strategy is to manage labour and design jobs so people are effectively and efficiently utilize. As we focus on human resource strategy, we want to ensure that people: 1. Are efficiently utilizing with the constraints of other operations management decisions. 2. Have a reasonable quality of work life in an atmosphere of mutual commitment and trust. Because so many services involve direct interaction with the customer, the human resource issues of recruiting and training can be particularly important ingredients in service processes. Additionally, a committed workforce that exhibits flexibility when schedules are made and is crossed-trained to fill in when the process requires less than a full-time person, can have a tremendous impact on overall process performance.

JOB DESIGN Job design specifies the task that constitutes a job for an individual or a group.

Job expansion

In recent years, there has been an effort to improve the quality of work life by moving from labour specialization towards more varied job design. Driving this effort is the theory that variety make the job better and that the employee therefore enjoys a higher quality of life. This flexibility thus benefits the employee and the organization. We modified jobs in a variety of ways. In the first approach is job enlargement, which occurs when we add task requiring similar skill to an existing job. Example Job rotation is a version of job enlargement that occurs when the employee is allowed to move from one specialized job to another. Variety has been added to the employees perspective of job. Another approach is job enrichment, which adds planning and control to the job.

SERVICE PROCESS DESIGN Interaction with the customer often affects process performance adversely. But a service, by its very nature, implies some interaction and customization is needed. Recognizing customers unique desires tend to play havoc with a process, the more the manager designs the process to accommodate the special requirements, the more effective and efficient the process will be.

Mass Service
Commercial banking Full-service stockbroker Boutique Retailing

Professional Service
Private banking

General-purpose law firms

Service Factory
Limited-service stockbroker Fast food restaurants Law Clinics

Service Shop
Specialized hospitals Hospitals

Warehouse and catalog stores

Fine-dining restaurants Airlines

No-frills airlines

MANAGING DEMAND Even with good forecasting and facilities built to that forecast, there may be a poor match between the actual demand that occurs and available capacity. A poor match may mean demand exceed capacity, or capacity exceeds demand. Tactics for managing capacity to demand Various tactics for matching capacity to demand exists. Internal changes include adjusting the process to a given volume through: 1) Making staffing changes (increasing or decreasing the number of employees) 2) Adjusting equipment and processes, which might include purchasing additional machinery or selling out or leasing existing equipment 3) Improving methods to increase throughput

Queuing Costs Operations managers must recognize the trade-offs that take place between two costs: the cost of providing good service and the cost of customer or machine waiting time. Managers want queues that are short enough so that customers do not become unhappy and either leave without buying or buy and never return. However, managers may be willing to allow some waiting if it is balanced by a significant savings in service cost. One means of evaluating a service facility is to look at total expected cost. Total cost is the sum of expected service costs plus expected waiting costs. Service costs increase as a firm attempts to raise its level of service. Managers in some service centres can vary capacity by having standby personnel and machines that they can assign to specific service stations to prevent or shorten excessively long lines. As the level of service improve, however, the cost of time spent waiting in lines decreases. Waiting costs may reflect lost productivity of workers while tools or machines await repairs or may simply be an estimate of the cost of customers lost because of poor service and long queues. Fig D.5-pg 749

CONTROL OF SERVICE INVENTORIES Management of service inventories deserves special consideration. For instance, extensive inventory is held in retail businesses, making inventory management crucial and often a factor in a managers advancement. Moreover, inventory that is in transit, or idles in the warehouse, is lost value. Similarly, inventory damaged or stolen prior to sale is a lost. Successful retail operations require very good store-level control with accurate inventory in its proper location. one recent study found that consumers and clerks could not find 16% of the items at one of the U.Ss largest retailers- not because the items were out of stock but because they were displaced (in a backroom, a storage area, or on the wrong aisle). By the researchers estimates, major retailers, lose 10% to 25% of overall profits due to poor or inaccurate inventory records (A.Raman:2001).