operation management BBA2:2
OPERATIONS MANAGEMENT
Introduction
Organizations must deliver goods and services consistently at the right time and place.
Operations management is a functional area within organizations, akin to marketing, finance, and human resources.
Directly involves the transformation process—producing or providing products and services.
The operations function is executed by individuals responsible for creating goods or services offered to the public.
Not all organizations have a designated 'operations' department, but all engage in operational activities as they all produce goods or services.
The operations function typically employs the largest number of personnel and manages the majority of a firm's controllable assets.
Effective operations management aligns with customer satisfaction, emphasizing that employees should consider the next process as their customer.
Reference: Schonberger (1997) states that "Customers (all of us) energize the operations function like electricity does a bulb."
DEFINITIONS OF OPERATIONS MANAGEMENT
Russell and Taylor III (2010): Operations Management involves staff managing resources that comprise the operation function, alongside the design and operation of productive activities.
Defines an operation as a system that transforms inputs into outputs of greater value.
Greasley (1999): Describes the operations function as the segment of the organization dedicated to the production of goods and services.
Naylor (1996): Defines operations management as the management of a transformation system that converts various inputs into outputs needed by customers.
Key characteristics of Operations Management include:
A management activity
Producing outputs in the form of goods and services for customers
Utilizing resources in production
Creating, operating, and controlling systems
Operations Management encompasses directing and controlling processes that transform inputs into valuable finished goods and services.
Examples of operations management in action:
Food production, movie screenings, supermarket operations, handout preparation.
Operations managers are present in diverse sectors such as banks, hospitals, factories, and government, engaged in:
System design
Quality assurance
Product production and service delivery
Working with customers, suppliers, technology, and global partners.
Emphasizes operations as a proactive practice, not simply an area of planning and control; central to achieving excellence in quality, speed, customization, and cost.
A BRIEF HISTORY OF OPERATIONS MANAGEMENT
Historical Progression:
Began with the Industrial Revolution in the 1700s, transitioning from craft production to factory settings with mechanized production.
Adam Smith's "Wealth of Nations" (1776): Advocated for labor division, breaking down production into smaller tasks performed by individual workers.
Eli Whitney (1790s) introduced interchangeable parts, allowing for efficient mass production of standardized items like firearms.
Early 1900s: Fredrick W. Taylor pioneered Scientific Management, focusing on the scientific study of work processes to determine the best methods of job performance.
Henry Ford applied scientific management principles in mass production, drastically reducing car assembly time from 728 hours to 1.5 hours for the Model T.
The Human Relations Movement of the 1930s highlighted the importance of employee motivation in productivity, with key theorists including Herzberg, Maslow, and McGregor.
Technological advancements spurred developments such as Just-In-Time (JIT) production, as Japanese innovators leveraged operational efficiency to surpass U.S. manufacturing as the leading power in operations.
ROLE OF PRODUCTION AND OPERATIONS MANAGEMENT (POM)
Functions of POM:
Management of the conversion process, which consumes over 70% of organizational resources.
Strive for the synchronization of input, conversion, and output processes, enhancing a firm's distinctive competencies for competitive advantage.
Distinctive competency defined as a firm's unique strength distinguishing it from competitors;
Central elements are quality, cost, service, flexibility, speed, and predictability.
Key Activities in Operations Management:
Organizing work
Process selection
Facility layout arrangement
Facility location strategy
Job design and performance measurement
Quality control
Work scheduling
Inventory management
Production planning
Operations activities constitute the heart of business organizations, with 50% or more occupations in operations-related areas, such as:
Customer service
Quality assurance
Production planning & control
Scheduling and job design.
Operations are interlinked with all business areas, emphasizing their centrality to organizational functions.
OPERATIONS AS A TRANSFORMATION/CONVERSION PROCESS
Inputs to the Transformation Process
Classification of Inputs:
External Factors: Legal, Economic, Social, Technological developments.
Market Influences: Competition, Customer desires, Product information.
Primary Resources: Includes materials, personnel, capital, and utilities.
Types of Transformation Processes
Physical Transformation (Manufacturing): Changing materials into finished products.
Location Services: Involves transportation activities that move products.
Exchange Services: Includes retailing and banking activities.
Storage Services: Activities related to warehousing and inventory management.
Other Private Services: Encompasses insurance and various consumer services.
Government Services: Operations engaged in federal or regional service delivery.
Role of Transformation
Adding Value: Each transformation stage intends to increase the value of the output products.
Value added calculated as the difference between the product's output value and input material value.
Providing Efficient Transformation: Efficiency emphasizes conducting activities in optimal ways to minimize costs.
Outputs from Transformation: Represent resources that have been transformed, including a mix of materials, information, and customers.
Variances exist as firms may predominantly process different types of resources, such as:
Hospitals predominantly process customers (human resources).
Manufacturing companies primarily process materials.
Banks focus on processing information related to customer transactions.
Example Questions and Applications
Text Question 1: Identify key transformed inputs for:
Warehouse
University
Steel Making
Taxi Firm
Text Question 2: Identify main facilities for:
Law Firm
Coffee Farmer
Fishing Company
Types of Operations
Goods-Producing Operations:
Agriculture, mining, construction, manufacturing, power generation.
Storage/Transportation Operations:
Warehousing, trucking, mail services, moving, taxis, airlines.
Exchange Operations:
Retailing, wholesaling, banking, rental services, library loans.
Entertainment Operations:
Movies, radio, television plays, concerts, recordings.
Communication Operations:
Newspapers, radio, television broadcasting, telephone, satellites.
Other Operations: Include areas like industrial engineering, distribution, purchasing, accounting, maintenance, public relations, and human resources.
CHARACTERISTICS OF AN ORGANIZATION WITH A POOR POM
Failure to predict customer needs and plan accordingly.
Inconsistencies in product quality.
Poor scheduling of staff leading to inefficiency.
Lack of employee training.
Ignorance of best practices compared to local or global competitors.
Inefficient functioning of facilities.
Absence of effective controls.
Managerial Responsibilities in POM
Operations managers are tasked with responsibilities involving:
Product Design
Capacity Planning
Process Design
Facility Location and Layout
Material Management
Scheduling and Maintenance Planning.
Challenges Facing Operations Managers
Increased competition in marketplace dynamics.
Significance of strategic operations management.
Global market complexities including sourcing and financing.
Rising demand for product variety and mass customization.
Total Quality Management principles.
Growth of service-oriented operations.
Need for flexibility and responsiveness to customer needs.
Technological advancements impacting operations.
Environmental sustainability and ethical concerns in business practices.
Corporate downsizing necessitating leaner operations with fewer employees.
Time reduction strategies to gain competitive advantage.
Supply-chain management complexities.
Engagement of worker involvement in decision-making processes.
Lean production methodologies emphasizing efficient resource use.
Operational Activities Examples
Typical Operational Activities by Organization Types:
Furniture Manufacturer: Manufacturing and component assembly.
University: Knowledge dissemination and course administration.
Fast Food Chain: Food preparation and customer service delivery.
Church: Conducting services and community support.
Farm: Crop production and agricultural management.