B207A Shaping Business Opportunities I - Introduction to Operations Management

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 an entire workforce that is involved in continuously improving processes and systems.
• Focusing on efficiency and effectiveness can increase productivity.

Efficiency vs. Effectiveness

• Efficiency: Doing things right, using resources wisely.

• Effectiveness: Doing the right things, achieving desired outcomes.

• Business Decisions Examples:

  • Best route for dropping off products: Efficiency.
  • Changing suppliers: Effectiveness.
  • Reducing costs with lower-quality materials: Both (impacts efficiency and potentially effectiveness).
  • Selling to a younger market: Effectiveness.
  • Meeting sales targets: Effectiveness.
  • Employee turnover rate: Both (impacts efficiency and effectiveness).
  • Average customer spending: Effectiveness.
  • New customers purchased products: Effectiveness.
  • Increase in daily transactions: Efficiency.
  • Restructuring store to increase sales: Both.

The Importance of Operations Management

• Operations managers can positively impact an organization by:
  • Reducing costs through efficient operations.
  • Enhancing revenues by providing more marketable goods and services through quality, service, and innovation.
  • Minimizing the capital needed to establish a viable operation.
  • Developing capabilities and competences that allow markets to be served more effectively or new markets entered.

Input-Process-Output Model

• The input–process–transformation model summarizes the roles within operations management.
• Operations managers collect and use resources efficiently and effectively, including:
  • Fixed assets of facilities and equipment.
  • Materials.
  • Information used during the process.
• The operations function is responsible for the output of goods and services that the customer pays for.
• Operations need to produce the right goods and services that customers want at the right time and in the right location.
• This performance directly affects customer satisfaction or dissatisfaction.

Transformation Processes

• Operations managers focus on managing transformation processes.
• Operations view activities as a set of linked processes.
• The process nature depends on the type of resource being transformed and the transformation taking place.
• Three main types of transformation processes:
  • Material Processing
  • Information Processing
  • Customer Processing

Three Types of Transformation Processes

• Material processing: Transforming materials. Examples include:
  • Manufacturing operations.
  • Mining operations.
  • Logistics operations like shipping, trucking, warehousing, and postal services.
• Information processing: Processing information.
  • Banking, accounting, news services, telecommunications, and research organizations.
• Customer processing: Processing involves service to customers.
  • Hotels, hairdressers, hospitals, and theme parks.

Types of Transformational Change

• Within a process, the following types of transformational change can occur:
  1. Physical transformation: Activities that physically alter resources.
     • 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.
     • Transforming data in company reports or research projects.
     • Recording booking information for a customer’s stay in a hotel.
  3. Possession transformation: Change in ownership or access.
     • Retail operations involving the change in possession of goods (e.g., buying property).
     • Data sharing.
  4. Location transformation: Moving resources from one place to another.
     • Logistics processes of getting material to suppliers.
     • Customer transport services.
  5. Storage transformation: Storing resources.
     • Inventory stored in warehouses.
     • People stored in waiting rooms.
     • Data stored on servers.
  6. Physiological or psychological transformation: Affecting a customer's physical or mental state.
     • 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 in a bakery is material processing because the core activity is manufacturing.

• There is also a lot of information processing to ensure the factory operates on schedule, and the customer is informed of delivery times.

• Bakery transformation processes by transformation type:

  • Physical: Converting flour, yeast, and water into bread.
  • Informational: Converting customer orders into schedules; informing customers of delivery schedules.
  • Possession: Selling bread to customers or wholesalers; sharing production information with suppliers or other departments.
  • Location: Moving bread from the factory to the customer, possibly via a logistics warehouse; sending information from one location to another during planning and delivery.
  • Storage: Storing raw materials and finished goods before use or transportation; storing information about orders and schedules.
  • Physiological/Psychological: Reassuring the customer of supplying the product on time.

Worked Example 2: Transformation Processes at a Library

• The library is an example of an operation where all types of resources are being processed.

• The dominant resource being utilized is information, but customer engagement activities or material processing must not be overlooked.

• Library transformation processes by transformation type:

  • Physical: Minor material processing of books (e.g., inserting barcodes or RFID tags); facilities 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 or provided to others.
  • Location: Moving physical books from return areas to shelves; sending information during logistical processes; customers moving around the library.
  • Storage: Book storage; information stored in databases.
  • Physiological/Psychological: Customers may experience psychological transformation through interactions or services provided by library staff.

Similarities and Differences Between Bakery and Library Operations

• The bakery will manage operations to a very tight schedule to ensure activities like material arrivals and product deliveries run smoothly without causing delays or resulting in out-of-date products.
• The library will not necessarily have that kind of scheduled activity, allowing customers to arrive and depart fairly flexibly.
• Library operations, such as the helpdesk or book check-out desks, will have to absorb some variation.
• The library will be much more concerned with customer-focused activities, and its entire design has to be designed with the customer in mind.
• High customer contact requires operations managers to develop a new range of skills.

Case Study: Starbucks and Amazon – Transformation in Different Industries

• Starbucks: Focuses on material processing (coffee beans to beverages), customer processing (enhancing customer experience in stores), and informational processing (tracking customer preferences and inventory).
  • Transformational change includes physical transformation (preparing drinks), informational (mobile app orders), and psychological (creating a comfortable environment for customers).
• Amazon: Primarily operates in material processing (storing and shipping products), informational processing (managing large databases and tracking shipments), and location transformation (moving goods across warehouses to customers).
  • Transformational changes include possession (order fulfillment), location (logistics and delivery), and informational (customer data analysis).

Questions & Answers: Starbucks and Amazon

• Types of Transformation Processes:
  • Starbucks:
    • Material Processing: Grinding coffee beans and brewing beverages.
    • Information Processing: Managing orders through mobile apps.
    • Customer Processing: Personalized service and ambiance 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: Focuses heavily 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: 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 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.