The Operations Function

Prepared by
Boman Moradian

Reference
Operations Management by Roger G. Schroeder
Operations Management by N Slack, S Chambers, C Harland, A Harrison, R
Johnston

Operations as a System

Operations can be defined as a transformation

system that converts inputs into outputs
Inputs

Outputs

Energy
Materials
Labour
Capital
Information

Goods or
Services

Conversion
process

Conversion Process = Methods and Procedures

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Operations as a System
Operation

Inputs

Outputs

Bank

Tellers, Staff, Equipment,

Facilities

Loans, Deposits,
Safekeeping

Restaurant

Cooks, Waiters, Equipment,

Food, Facilities

Meals, Entertainment,
Satisfied Customers

Hospital

Doctors, Nurses, Staff,

Equipment, Facilities

Health Services,
Healthy Patients

Airline

Planes, Facilities, Pilots,

Attendants, Maint Staff,
Energy

Transportation of People
and Goods

University

Faculty, Staff, Library,

Equipment

Educated Students,
Research

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Operations as a System

Departmental Stores?
Transporter?
Telephone Service Provider?

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Mr
MrBoman
BomanKK
Moradian:
Moradian:

Operations as a System
Society

HR
Supplier
s

Mktg

Engg

Transformation
System

Customer
s

FinanceAccounts

MIS

Government
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Competitor
s

Outputs
Pure Goods

Pure Services

Tangible
Intangible
Output can be stored
Output cannot be stored
Output can be resoldNo resale possible
Output can be transported Cannot be transported
Production precedes usage Simultaneous usage
Low customer contact
High customer contact
Output can be demonstrated
Output does not exist
Quality is evident
Quality is judged
Capital intensive
Labour intensive

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Outputs
Pure Goods

Pure Services

Crude oil production

Specialist machines manufacturer
Fast food restaurant
Computer systems
Auto maintenance
Haircut
Management consultancy
Psychotherapy
clinic

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Characteristics of Outputs

Volume
Variety
Variation in demand
Degree of customer contact

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Characteristics of Outputs
Volume
Low High
Low
Repetition High
Multiskill
Skills
Specialisation
Low
Systemisation High
Labour
Intensiveness Capital
High
Unit Cost
Low
Gourmet restaurant
Fast food
Taxi service Mass transport
Generator factory TV factory

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Characteristics of Outputs
Variety
Low High
Standardised
Systemisation Flexible
Low
Unit Cost
High
Standardised
Customer needs
Vary
Readymade garment
Tailor
Jeans shop Department
stores
Financial audit
Tax advice

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Characteristics of Outputs
Variations in Demand
Low
High
Low

High
Utilisation of resources
Unit Cost

Consulting

Low
High
Audits

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Characteristics of Outputs
Customer Contact
Low High
High
Low
High
Low

Cycle time to manufacture Low

Skills
High
Systemisation Low
Unit Cost
High

Most manufacturing
Most services
Fast food
Gourmet
restaurant
Distance learning Music teacher

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Cross-Functional Decision
Making

Marketing

Who is the customer? What does the customer

need?
Quality management
Market size?
Capacity, Type of processes
Distribution channel?
Inventory, Where to stock
New product development?
Cross-functional teams

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Cross-Functional Decision
Making

Finance and Accounting

Capital
Capacity, Automation, Process selection,
Inventory
Efficiency
Process selection, Value-added
Cash Flow
Inventory
Performance Measurement
Costing system

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Cross-Functional Decision
Making

Human Resources

Skill level of employees

Process type selection, Automation
Number of employees
Capacity, Scheduling decisions
Job design
Process, Technology choice

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Cross-Functional Decision
Making

Information Systems

Software Development
Forecasting, Capacity, Quality, Inventory
control, Scheduling, Material Accounting
Hardware Acquisition
Automation support, Software operation

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Historical Summary of OM

1900s : Craftsmen
1910s : Principles of Scientific Management
Taylor,
Gilbreth, Ford
1930s : Quality Control Shewart
Hawthorne Studies Mayo
1950s : Operations Research Many
researchers
1970s : Use of Computers in business IBM
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Historical Summary of OM

1980s : JIT Ohno

Quality Circles JUSE
TQM Deming, Juran, Crosby
FMS, CAD/CAM/Automation US, European
enginners
OPT Goldratt
1990s : TQM, ISO, Kaizen, QFD Many
practitioners
BPR Hammel
Electronic Enterprise Microsoft, Netscape
SCM SAP, Oracle

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The Role of Operations Function

As the implementer of business strategy

As a support to business strategy
As the driver of business strategy

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Judging Operations Contribution

Redefine
industrys
expectations

Operations
Advantage
Link
Strategy

Correct worst
problems

Internally
supportive

Be the Best in
the industry

Externally
neutral

Be as good as
competitors

Adopt Best
practices

Externally
supportive

Stop holding
the
organisation
back

Internally
neutral

Stage 1
Stage 2
Stage 3
Implementer
Supporter

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Stage 4
Driver

Hayes-Wheelwright 4-Stage
Model

Stage 1 : Internal neutrality

Inward looking, reactive

No originality, flair, competitive drive
Avoiding bigger mistakes
Necessary evil

Stage 2 : External neutrality

Begin comparing itself

Not yet creative
Not holding the company back

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Hayes-Wheelwright 4-Stage
Model

Stage 3 : Internally supportive

Broadly up with the Best

Aspire to be the Best
Organise and develop resources to excel and
compete

Stage 4 : Externally supportive

One step ahead of competitors

Creative and proactive
Capable of adaptation as markets change

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Operations Strategy &

Competitiveness

Operations Strategy &

Competitiveness

Operations Priorities
-

Cost
Product quality
Reliability
Delivery speed
Delivery reliability
Coping with changes in demand
Range of products
New product introduction speed

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Operations Strategy &

Competitiveness

Cost
Market very large
Product commodity-like; customers cannot
distinguish products of one firm from those
of another
Competition is fierce
Failure rate high
After all, there can only be one low-cost
producer, which usually establishes the
selling price

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Operations Strategy &

Competitiveness

Product quality
Goal in establishing the proper level of
product quality is to focus on the
requirement of customers
(e.g. childs first two wheeled bicycle v/s
bicycle of a world-class cyclist)
After sales support

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Operations Strategy &

Competitiveness

Reliability
Error-free products
Product specifications must match the
intended use
Adherence to tolerances essential; process
quality is critical

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Operations Strategy &

Competitiveness

Delivery speed
Ability to deliver more quickly than
competitors
Better prices possible
More orders possible
Function of inventory, rework, distance
traveled, multi-skilled operators, set-up
times, downtimes, etc.

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Operations Strategy &

Competitiveness

Delivery reliability
Ability of the firm to supply on or before a
promised delivery due date; credibility issue
Penalties avoided
Cancellations avoided

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Operations Strategy &

Competitiveness

Coping with changes in demand

Ability to effectively deal with dynamic
market demand over the long term
Investment in new technology
Investment in capacity
Buffer capacity

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Operations Strategy &

Competitiveness

Range of products
Customisation
Different market segments addressed
Cope with changes in demand

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Operations Strategy &

Competitiveness

New product introduction speed

First entrant advantage
Organisation Structures (more than one
superior)

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Order winners / Order qualifiers

Core competencies ?

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Order Qualifiers
Companies need to be as good as competitors

Order Winners
Companies need to be better than competitors
Both are essential.

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Criteria

Small

Large

Product Quality

35

60

Price

55

30

After-Sales-Service

10

10

Delivery Reliability

QQ

QQ

Range of Products

Customer Relations

QQ

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