B203 – PART A

CAHPTER 1

Prepared by Tutor: Suha K. Sabbah - B203 Part A 1

What is Operations Management?
 OM: is the activity of managing the resources which
produce and deliver products and services.
 Operation functions: is the part of the organization
that is responsible for this activity.
 Operation Managers: are the people who have
particular responsibility for managing some, or all, of
the resources which compose the operations function.

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Operations in the Organization

The operations function is central to the organization

because it produces the goods and services which are
its reason for existing but it is not the only function.

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Three Core Functions
Operation is one of the three core functions of any
organization, they are (Table 1.1):

 The marketing (including sales) function – which is

responsible for communicating the organization's
products and services to its markets in order to
generate customer requests for service;

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Three Core Functions
 The product/service development function – which is
responsible for creating new and modified products
and services in order to generate future customer
requests for services;

 The operations function – which is responsible for

fulfilling customer requests for service through the
production and delivery of products and services.

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Support Functions
In addition, there are the support functions which enable the
core functions to operate effectively. These include:

 The accounting and finance function – which provides the

information to help economic decision-making and
manages the financial resources of the organization;

 The human resources function – which recruits and

develops the organization’s staff as well as looking after
their welfare.

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 Activities of Core Functions – (Table 1.1)
Core Internet Service Fast Food Chain International Furniture
Functional Provider (ISP) Aid Charity Manufacturer
Activities
Marketing and Promote services Advertise on TV. Develop funding Advertise in
Sales to users and get Device contracts. magazines.
registrations . promotional Mail out appeals Determine
Sell advertising materials. for donations. pricing policy.
space. Sell to stores.
Product/Service Devise new Design Develop new Design new
Development service and hamburgers, appeals furniture.
commission new pizzas, etc. campaigns. Coordinate with
information Design décor for Design new fashionable
content. restaurants. assistance colours.
programs.
Operations Maintain Make burgers, Give service to Make
hardware, pizzas, etc. the beneficiaries components.
software and Serve customers. of the charity. Assemble
content. Clear away. furniture.
Implement new Maintain
links and equipment.
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services. 7
Broad Definition of Operation
 We treat much of the product/service development,
technical and information systems activities and some
of the human resource, marketing, and accounting
and finance activities as coming within the sphere of
operations management.
 We view operations function as comprising all
activities necessary for the day-to-day fulfillment of
customer requests.
 This includes sourcing products and services from
suppliers and transporting products and services to
customers.

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Broad Definition of Operation
 Working effectively with the other parts of the
organization is one of the most important
responsibilities of operations management.

 It is a fundamental of modern management that

functional boundaries should not hinder efficient
internal processes.

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See Figure 1.1 (p. 6): The relationship between the
operations function and other core and support
functions of the organization

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The Input-Transformation-Output
Process
 All operations produce products and services by
changing inputs into outputs using an ‘input-
transformation-output’ process.
 Operations are processes that take in a set of input
resources which are used to transform something, or
are transformed themselves, into outputs of
products and services.
 All operations conform to this general input-
transformation-output model, they differ in the nature
of their specific inputs and outputs.

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Figure 1.3: All operations are input-transformation-
output processes
Transformed
resources
*Material
*Information
*Customers

THE Output
TRANSFORMATIO products Customers
Input Resources
N PROCESS & Services

Transforming
resources
*Facilities
*Staff
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Inputs to the Process
Transformed Resources

Are the resources that are treated, transformed or

converted in the process.

They are usually a mixture of the following:

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Inputs to the Process –
Transformed Resources
 Materials – operations which process materials could
do so to transform their physical properties (i.e. shape
or composition). Other operation process materials to
change their location (i.e. parcel delivery companies).
Some, like retail operations, do so to change the
possession of the materials. Finally, some operations
store materials, such as in warehouses.

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Inputs to the Process –
Transformed Resources
 Information – operations which process information
could do so to transform their informational properties
(that is the purpose of form of the information );
accountants do this. Some change the possession of
the information, (i.e. market research companies sell
information). Some store the information, (i.e.
archives and libraries). Some operation change the
location of the information (i.e. telecommunication
companies).

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Inputs to the Process –
Transformed Resources
 Customers – operations which process customers
might change their physical properties in a similar way
to materials processors (i.e. hairdressers or cosmetic
surgeons). Some store (or more politely accommodate)
customers (i.e. hotels). Others transform the location
of their customers (i.e. bus companies, airlines, mass
rapid transport).

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Materials Input, Customer Input,
Information Input
 Often one of these is dominant in an operation.
 Example: a bank devotes part of its energies to
producing printed statements of accounts for its
customers. In doing so, it is processing inputs of
material but no one would claim that a bank is a
printer. It gives them advice regarding their financial
affairs, cashes their cheques, deposits their cash, and
has direct contact with the. However, most of the
bank’s activities are concerned with processing inputs
of information about its customers’ financial affairs.

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Inputs to the Process
Transforming Resources

Are the resources which act upon the transformed

resources.

They are two types which form the ‘building blocks’ of

all operations:

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Inputs to the Process –
Transforming Resources
 Facilities – the buildings, equipments, plant and
process technology of the operation;

 Staff – the people who operate, maintain, plan and

manage the operation. (

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Output from the Process
Tangibility

 Most obvious difference between products and

services is tangibility.
 Products are usually tangible, and can be stored
 Services are usually intangible, and have a shorter
stored life.

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Most Operations Produce Both
Products and Services
 Some operations produce just products (Pure
Products) and others just services (Pure Services),
but most operations produce a mixture of the two. (see
figure 1.4 – p. 14).
 Crude oil producers are concerned almost exclusively
with product which comes from their oil wells.
 Same as aluminum smelters, but they might also
produce some services such as technical advice.
 Services produced in these circumstances are called
facilitating services.
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Most Operations Produce Both
Products and Services
 The services produced by a restaurant are an essential
part of what the customer is paying for. It is both
manufacturing operation which produces meals and a
provider of service in the advice and service of the
food.
 An information systems provider may produce
software ‘products’, but primarily it is providing a
service to its customers, with facilitating products.
 Management consultancy and Psychotherapy clinic are
pure services producers where no products.

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Services and Products are Merging

 All Operations are service providers which may

produce products as a part of serving their customers.
 In this book we treat operations management as being
important for all organizations. Whether they see
themselves as manufactures or service providers is very
much a secondary issue.

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Operations Processes Have
Different Characteristics
 All operations processes are similar in that they all
transform inputs, they do differ in a number of ways,
known as the four Vs:
1. The volume of their output;
2. The variety of their output;
3. The variation in the demand for their output;
4. The degree of visibility which customers have of the
production of their output.

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The Volume Dimension
 Example: McDonalds is the epitome of high-volume
hamburger production, which serves millions of burgers
around the world everyday.
 Volume has important implications for the way
McDonald’s operations are organized.
 First thing you notice is the repeatability of the tasks
people are doing.
 Second thing is the systematization of the work where
standard procedures are set down specifying how each part
of the job should be carried out.
 Also, because tasks are systematized and repeated, it is
worthwhile developing specialized dryers and ovens. All
this gives low unit costs.

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The Variety Dimension
 Example: a Taxi company offers a high-variety service. It is
prepared to pick you up from anywhere and drop you off
anywhere. To offer this variety it must be relatively flexible.
 Drivers must have a good knowledge of the area, and
communication between the base and the taxis must be
effective.
 However, the cost per km travelled will be higher for a taxi than
for bus.
 Although both provide the same basic service, the taxi service
has a high variety of routes and time to offer for customers, while
bus service has a few well-defined routes, with a set schedule.
 If all goes to schedule, little, if any, flexibility is required from
the operation.
 All is standardized and regular, which results in relatively low
costs comparedPrepared
with byusing a taxi
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K. Sabbah thePartsame
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The Variation Dimension
 Example: Resort Hotel. More customers want to stay in summer
vacation times than in the middle of winter. Such a marked
variation in demand means that the operation must change its
capacity in some way, for example, by hiring extra staff for the
summer.
 Hotel must try to predict the likely level of demand. If it get this
wrong it could result in too much or too little capacity. Also
recruitment costs, overtime costs will increase the hotel’s costs
operation compared with other hotels with level demand.
 A hotel which has relatively level demand can plan its activities
well in advance, staff can be scheduled, food can be bought and
rooms can be cleaned in a routine and predictable manner.
 This result in a high utilization of resources and unit costs which
are likely to be lower than those in hotels with a highly variable
demand pattern.
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The Visibility Dimension
 Visibility means process exposure. It refers to how
much of the operation’s activities its customers experience,
or how much the operation is exposed to its customers.
 Example: a retailer could operate as a high-visibility ‘bricks
and mortar’, customers will directly experience most of its
‘value adding activities’ and have a relatively short waiting
tolerance. this kind required staff with good customer
contact skills. Customers could also request goods which
clearly would not be sold in such a shop. This is called high
received variety.
 This makes it difficult for high-visibility operations to
achieve high productivity of resources, so they tend to be
relatively high-cost operations.

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The Visibility Dimension
 Example: conversely, a lower-visibility web-based
operations retailer, while not a pure low-contact operation,
has far lower visibility.
 Behind its web site it can be more ‘factory-like’. The time
lag between the order being placed and the items ordered
by the customer being retrieved and dispatched does not
have to be minutes, but can be hours or even days.
 This allows the tasks of finding the items, packing and
dispatching them to be standardized by staff who need few
customer contact skills. Also, there can be relatively high
staff utilization.
 It can also centralize its operation on one (physical) site, so
it will have lower costs than shops (bricks and mortar).

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Activity 7.2: The Transformation
Model
 Work in group and apply the transformation model to
each of the following examples, describing the
transformation being undertaken and identifying the
inputs and outputs:
 A passenger ferry company.
 A paper manufacturer.
 A radio station.

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