Operations Management: Lecture Notes

Learning Objectives

• Understand the role and importance of operations management in achieving organizational efficiency and customer satisfaction.

• Describe the input-process-output (IPO) model and its relevance to operations.

• Classify the types of transformation processes (material, information, and customer) in various industries.

• Explain different types of transformational change (physical, informational, possession, location, storage, physiological/psychological).

• Examine the operations management practices of industries like manufacturing (e.g., bakeries) and services (e.g., libraries).

• Assess how operations managers balance efficiency and customer-centricity in varying organizational settings.

What is Operations Management?

• The operations management function is responsible for the efficient delivery of goods and services to customers through effective management of the organization’s resources to meet their customers’ needs.

• Efficiency is achieved through good process design, effective planning and control systems, and a workforce involved in continuously improving processes and systems.

• Efficiency and effectiveness can increase productivity.

Efficiency vs. Effectiveness

• Efficiency: Doing things right; optimizing processes to reduce waste and costs.

• Effectiveness: Doing the right things; ensuring actions lead to achieving desired goals.

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Examples of Efficiency and Effectiveness in Business Decisions:

• Best route for dropping off products: Efficiency.

• Changing suppliers: Effectiveness.

• Reducing costs by buying lower-quality materials: Both Efficiency and Effectiveness (impacts both).

• Selling products to a younger market: Effectiveness.

• Meeting sales targets: Effectiveness.

  : Efficiency (indicates operational stability).

• Average customer spending: Effectiveness.

• New customers purchased products: Effectiveness.

• Increase in daily transactions: Efficiency.

• Restructuring a store to increase sales: Both Efficiency and Effectiveness.

Importance of Operations Management

• Reducing costs through efficient operations.

• Enhancing revenues by providing more marketable goods and services through quality, service, and innovation.

• Minimizing capital needed to establish a viable operation.

• Developing capabilities and competences to serve markets more effectively or enter new markets.

Input-Process-Output (IPO) Model

• Operations managers collect and use resources efficiently and effectively.

  • Fixed assets (facilities and equipment).

  • Materials.

  • Information.

• The operations function is responsible for the output of goods and services that the customer pays for.

• Producing the right goods and services at the right time in the right location.

• This directly impacts customer satisfaction or dissatisfaction.

Transformation Processes

• Operations managers focus on managing transformation processes.

• Activities are viewed as a set of linked processes.

• The nature of the process depends on the type of resource being transformed.

Three Main Types of Transformation Processes:

1. Material Processing

   • Manufacturing, mining, and logistics operations (shipping, trucking, warehousing, postal services) transform materials.

2. Information Processing

   • Banking, accounting, news services, telecommunications, and research organizations process information.

3. Customer Processing

   • Hotels, hairdressers, hospitals, and theme parks process customers.

Types of Transformational Change

• Within a process, different types of transformational changes can occur:

1. Physical Transformation

   • Preparation of food in a restaurant kitchen.

   • Machining of metal in an engineering workshop.

   • Mixing of chemicals in a laboratory.

2. Informational Transformation

   • Transforming data in company reports or research projects.

   • Recording booking information for a customer’s stay in a hotel.

3. Possession Transformation

   • Change in possession of goods in retail operations (buying property).

   • Data sharing is considered a change in possession.

4. Location Transformation

   • Logistics processes of getting material to suppliers.

   • Customer transport services.

5. Storage Transformation

   • Storing inventory in warehouses.

   • Storing people in waiting rooms.

   • Storing data on servers.

6. Physiological or Psychological Transformation

   • Medical treatments such as surgery.

   • Counseling for mental health issues.

   • Services at a hairdresser, spa hotel, or a scary ride at a theme park.

Worked Example 1: Transformation Processes at a Bakery

• The dominant transformation is material processing because the core activity is manufacturing.

• Information processing ensures the factory operates to schedule, and customers are informed of delivery times.

Transformation Processes at a Bakery:

• Physical: Converting flour, yeast, and water into bread.

• Informational: Customer orders converted into schedules; informing customers of the delivery schedule.

• Possession: Selling bread to customers or wholesalers; sharing schedules or quality reports with suppliers.

• Location: Moving bread from the factory to the customer via a logistics warehouse; sending information during planning and delivery.

• Storage: Storing raw materials and finished goods; storing information about orders and schedules.

• Physiological/Psychological: Reassuring customers of on-time delivery.

Worked Example 2: Transformation Processes at a Library

• All types of resources are being processed, with information being the dominant resource.

• Customer engagement activities and material processing must not be overlooked.

Transformation Processes at a Library:

• Physical: Minor material processing of books (barcodes or RFID tags); facility maintenance.

• Informational: Processing data about book availability, return dates, fines, and research databases.

• Possession: Books and articles change possession temporarily (borrowed or returned); information is shared.

• Location: Moving physical books; sending information during logistical processes; customers moving around the library.

• Storage: Storing books; storing information in databases.

• Physiological/Psychological: Customer interactions and services provided by library staff.

Similarities and Differences Between Bakery and Library Operations

• Bakery operations are managed to a tight schedule to ensure smooth material arrivals and product deliveries.

• Library operations allow customers to arrive and depart flexibly, with staff managing variations in demand.

• Libraries require more customer-focused activities, with operations managers developing skills for high customer contact.

Case Study: Starbucks and Amazon – Transformation in Different Industries

Starbucks:

• Focuses on material (coffee beans to beverages), customer (enhancing customer experience), and informational processing (tracking preferences and inventory).

• Transformation includes physical (preparing drinks), informational (mobile app orders), and psychological (creating a comfortable environment).

Amazon:

• Primarily operates in material (storing and shipping products), informational (managing large databases and tracking shipments), and location transformation (moving goods across warehouses).

• Transformational changes include possession (order fulfillment), location (logistics and delivery), and informational (customer data analysis).

Transformation Processes in Starbucks and Amazon

Starbucks:

• Material Processing: Grinding coffee beans and brewing beverages.

• Information Processing: Managing orders through mobile apps.

• Customer Processing: Personalized service and ambience in stores.

Amazon:

• Material Processing: Warehousing and shipping products.

• Information Processing: Managing inventory and customer orders.

• Location Processing: Distributing products across different regions.

Differences in Transformational Changes: Starbucks vs. Amazon

• Starbucks: Focuses on physical transformation (preparing drinks) and psychological transformation (comforting ambiance).

• Amazon: Emphasizes possession (order fulfillment), location (moving goods), and information (real-time order tracking).

Role of Operations Managers: Starbucks vs. Amazon

• Starbucks: Managers focus on customer service, staff management, and quality control. Customer contact is direct and influences service quality.

• Amazon: Managers prioritize logistics, inventory, and supply chain efficiency with minimal direct customer interaction.

Amazon Go Bookstores: New Transformation Processes

• New processes include customer processing (browsing and selecting books physically).

• Amazon can apply personalized service strategies (similar to Starbucks) by enhancing customer experience through store design and automation.