Introduction to Operations Management

Dr. Kostas Chaldoupis

The University of Salford

Salford Business School
[email protected]
Dr. Kostas Chaldoupis
Lecturer in Procurement and Logistics
Management Consultancy experience
PhD, MSc, BA (Hons), CIM Professional PgDip, MCIM
Room : Maxwell Building 611
Tel: 0161 295 2188
Email: [email protected]
 Learning Objectives

• What is operations management?

• Why is operations management important in all types of
organization?
• What is the input-transformation-output process?
• What is the process hierarchy?
• How do operations and processes differ?
• What do operations managers do?
 What is Operations Management?

• Operations management is the activity of managing the

resources which produce and deliver products and services.
• Every organization has an operations function because every
organization produces some type of products and/or
services.
• Operations managers are the people who have particular
responsibility for managing some, or all, of the resources
which compose the operations function.
• Goods: Physical items produced by business organizations.
• Services: Activities that provide some combination of time,
location, form, and psychological value.

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 What is Operations Management?

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Operations Management at IKEA
Strategic - Tactical

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 Operations Management at IKEA

This would happen if IKEA’s operations managers failed to be

effective in carrying out any of its activities.
• Badly designed processes.
• Inappropriate products.
• Poor locations.
• Disaffected staff.
• Empty shelves, or forgetting the importance of continually
improving quality.

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 Example – Pret A Manger
‘High-end’ sandwich and snack retailer
Source: Getty Images: Bloomberg / Chris Ratcliffe

Use only ‘wholesome’ ingredients

All shops have own kitchens which makes fresh
sandwiches every day
Fresh ingredients delivered early every morning

Same staff who serve you at lunch made the sandwiches that
morning
‘We don’t work nights, we wear jeans, we party… ’
 Example – Pret A Manger

• What are the advantages and disadvantages of Pret A Manger organizing

itself so that the individual shops make the sandwiches that they sell?

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 Example – Pret A Manger

Advantages
• The load on the staff in the shop is equalized throughout the day.
• It is a more interesting job that has a number of different activities (making,
selling, cleaning, etc.) than one where an individual will specialize in just one of
these tasks.
• It is easier to engender a sense of pride in the high quality and wholesome
nature of the products when they are made on the premises.
• There is clear and direct responsibility for quality, customer service. If there
are any problems with quality and availability of sandwiches, it is the same
staff that caused the problems who receive customer complaints.
Disadvantages
• The main one is that the cost of making sandwiches in a sandwich factory (the
way the vast majority of sandwiches are made) is very significantly cheaper
because of the higher volume.

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 Operations management uses…
machines to efficiently assemble products

diagnose to treat real and

knowledge to effectively perceived patient
conditions
concerns

people to effectively create services that will

address current and
potential client needs

ours and our to speedily provide supplies and services

partners’ that relieve
resources community suffering

our staff’s to creatively present ideas that delight

knowledge and clients and address
experience their real needs
 Operations in the organization

Three core functions:

• 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.
• The product/service development function – which is
responsible for creating new and modified products and
services in order to generate future customer requests for
service.
• 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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 Operations in the organization

• The sphere of operations management include: much of the

product/service development, technical and information
systems activities and some of the human resource,
marketing, and accounting and finance activities.

The operations function comprises all the activities necessary

for the day-to-day fulfilment of customer requests.

Working effectively with the other parts of the organization is one

of the most important responsibilities of operations management.

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Marketing, Product/Service
Development and Operations

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 Core functions in Pret A Manger

Exercise: Describe the core functions in Pret A Manger.

• The marketing (including sales) function.

• The product/service development function.

• The operations function.

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 Pret A Manger
The three basic functions at Prêt a Manger

Nutritional “mechanical”
and aesthetic design of the
sandwiches and snacks
Product/
Service
Development

Design, location and

management of
Marketing Operations stores and in-store
processes and the
Promotional network that
activities, market supplies them
research, etc.
 All operations are input-transformation-output processes

• 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.

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Operations input resources and outputs
 Operations input resources and outputs

Provide examples of the following resources:

Transformed resources: These are the resources that are treated, transformed
or converted in the process.
• Materials.
• Information.
• Customers.

Transforming resources. These are the resources which act upon the
transformed resources.
• Facilities.
• Staff.

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 Inputs to the process
Transformed resources: These are the resources that are treated, transformed or
converted in the process.
Materials
• Operations which process materials could do so to transform their physical
properties e.g. shape or composition. Most manufacturing operations are like this.
• Operations process materials to change their location, e.g. parcel delivery
companies.
• Some operations store materials, such as in warehouses.
Information
• Operations which process information could do so to transform their informational
properties (that is the purpose or form of the information); accountants do this.
• Change the possession of the information, e.g. market research companies sell
information.
• Store the information, e.g. archives and libraries.
Customers
• Operations which process customers might accommodate customers: e.g. hotels.
• Airlines, mass rapid transport systems and bus companies transform the location of
their customers.
• Hospitals transform their physiological state.
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 Inputs to the process
Transforming resources. These are the resources which act upon
the transformed resources.
• Facilities – the buildings, equipment, plant and process
technology of the operation.
• Staff – the people who operate, maintain, plan and manage the
operation.

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 Operations input resources and outputs
Value - added

• Value-added: The difference between the cost of inputs and the

value or price of outputs.
• For-profit organizations: The value of outputs is measured by
the prices that customers are willing to pay for those goods or
services.
• Non-profit organizations: The value of outputs (e.g., highway
construction, police and fire protection) is their value to
society; the greater the value-added, the greater the
effectiveness of these operations.
• Value can also be psychological, as in branding.

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 Examples of dominant transformed
resource inputs
Predominantly Predominantly Predominantly
processing inputs of processing inputs of processing inputs of
materials information customers

All manufacturing Accountants Hairdressers

operations Bank headquarters Hotels
Mining companies Market research Hospitals
Retail operations company Mass rapid transports
Warehouses Financial analysts Theatres
Postal services News service Theme parks
Container shipping line University research unit Dentists
Trucking companies Telecoms company
 Some operations described in terms of
their processes
Operation Some of the operation’s Some of the operation’s Some of the
inputs processes operation’s outputs
Airline Aircraft Check passengers in Transported
Pilots and air crew Board passengers passengers and freight
Ground crew Fly passengers and freight
Passengers and freight around the world
Care for passengers
Department Products for sale Source and store products Customers and
store Sales staff Display products products ‘assembled’
together
Information systems Give sales advice
Customers Sell products
Police Police officers Crime prevention Lawful society, public
Computer systems Crime detection with a feeling of
Information systems security
Public (law-abiding and Information gathering
criminals) Detaining suspects
Frozen food Fresh food Source raw materials Frozen food
manufacturer Operators Prepare food
Processing technology Freeze food
Cold storage facilities Pack and freeze food
 Exercise: Write down inputs,
Processing, Outputs for Hospitals

• What are the transformed and transforming resources?

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 Example: Hospitals

Inputs Processing Outputs

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Most operations produce products and
services
 Operations can be analysed at three levels
Analysis at the level of the supply
Flow between operations
network: A supply network is a
network of operations with flow
between them, e.g. suppliers,
customers
Flow between processes Analysis at the level of the
operation: An operation is a
network of processes with flow
between them, e.g. departments,
units.
Analysis at the level of the
process: A process is a
network of resources with
Flow between resources flow between them, e.g.
resources within the units.
 Example of analysis at three levels (1 of 3)
A business that makes television
programmes and videos

The supply network-flow between operations

Studios Promotion The programme

agency
and video supply
Casting Broadcasting network
agency company
Programme /
video maker
Creative
agency

At a more macro level, the business itself is part of a whole supply

network, acquiring services from creative agencies, casting agencies
and studios, liaising with promotion agencies, and serving its
broadcasting company customers.
 Example of analysis at three levels (2 of 3)

The operation-flow between processes

Engineer-
ing

Marketing Finance and Production Post

and sales accounting unit production

Set and props The programme and

manufacture video operation

At a more micro level within this overall operation there are many
individual processes: workshops manufacturing the sets; marketing
processes that liaise with potential customers; maintenance and repair
processes that care for, modify and design technical equipment;
production units that shoot the programmes and videos; and so on.
 Example of analysis at three levels (3 of 3)

Each of these individual processes can be represented as a network of

yet smaller processes, or even individual units of resource. So, for
example, the set manufacturing process could consist of four smaller
processes: one that designs the sets, one that constructs them, one
that acquires the props, and one that finishes (paints) the set.
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 Example of analysis at three levels (3 of 3)
The supply network-
flow between
Programme and
video maker operations

The operation-
flow between
processes

Set and props

manufacture

The ‘Set and props Set

construction
manufacturing’ Set Set
process design finishing
Props
acquisition
 Exercise: Analysis at three levels for an
organisation of your choice

• Analysis at the level of the supply network: A supply network is a network

of operations with flow between them, e.g. suppliers, customers.
• Analysis at the level of the operation: An operation is a network of
processes with flow between them, e.g. departments, units.
• Analysis at the level of the process: A process is a network of resources with
flow between them, e.g. resources within the units.

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 Operations processes have different
characteristics

Although all operations processes are similar in that they all

transform inputs, they do differ in a number of ways, four of
which, known as the four Vs, are particularly important:
● The volume of their output.
● The variety of their output.
● The variation in the demand for their output.
● The degree of visibility which customers have of the production
of their output.

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 A typology of operations and processes
The 4 vs............

Low Volume High

High

High Variety Low

High Variation in demand Low

High Visibility Low

 A typology of operations and processes
The implications of high and low Volume in operations and
processes.......

Implications Implications

•Low repetition
•Each staff member Low Volume High •High repeatability
performs more of
each task •Specialization
•Less systemization •Capital intensive
•High unit costs •Low unit costs
 High and low Volume in operations and
processes.
McDonald’s – High Volume
• High volume burger production.
• Repeatability of the tasks people are doing.
• Standard procedures are set specifying how each part of the job should be
carried out (systematization).
• Specialized fryers and ovens.
• Low unit costs.

A small local cafeteria – Low Volume

• The volume will be far lower.
• The repetition will also be far lower.
• The number of staff will be lower.
• Individual staff are likely to perform a wider range of tasks.
• More rewarding for the staff.
• Less feasible to invest in specialized equipment.
• The cost per unit served is likely to be higher (even if the price is comparable).
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 A typology of operations and processes
The implications of high and low Variety in operations and
processes.......

Implications Implications

•Flexible •Well defined

•Complex High Variety High
Low •Routine
•Match customer •Standardized
needs •Regular
•High unit costs •Low unit costs
 High and low Variety in operations and
processes

A taxi company – High Variety

• High-variety service.
• Relatively flexible.
• The cost per kilometre travelled will be higher for a taxi than
for a less customized form of transport such as a bus service.

Bus Service – Low Variety

• A few well-defined routes, with a set schedule.
• Little, if any, flexibility is required from the operation.
• All is standardized and regular.
• Relatively low costs compared with using a taxi for the same
journey.

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 A typology of operations and processes
The implications of high and low Variation in demand in
operations and processes.......

Implications Implications

•Changing capacity •Stable

•Anticipation Variation in
High High
Low •Routine
•Flexibility demand
•Predictable
•In touch with •High utilization
demand •Low unit costs
•High unit costs
 High and low Variety in Demand
High Variation in Demand (e.g. a successful summer holiday
resort hotel)
• The hotel must try to predict the likely level of demand.
• Recruitment costs.
• Overtime costs.
• Under-utilization of its rooms.
• All have the effect of increasing the hotel’s costs operation
compared with a hotel of a similar standard with level demand.

Low Variation in Demand (e.g. relatively level demand)

• Staff can be scheduled.
• Food can be bought and rooms can be cleaned in a routine and
predictable manner.
• This results 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. 41
 A typology of operations and processes

• Visibility: It refers to how much of the operation’s activities its customers

experience, or how much the operation is exposed to its customers.
Retailer Web-based
retailer
Implications Implications

•Short waiting •Time lag between

tolerance High Visibility High
Low production and
•Satisfaction consumption
governed by •Standardization
customer perception •Low contact skills
•Customer contact •High staff
skills needed utilization
•Received variety is •Centralization
high •Low unit costs
•High unit costs

• Generally, customer-processing operations are more exposed to their

customers than material- or information-processing operations.
 Examine the 4vs at IKEA

• The volume of their output.

• The variety of their output.
• The variation in the demand for their output.
• The degree of visibility which customers have of the
production of their output.

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 Operations Management at IKEA

High volume
• IKEA’s operations are very large and purpose built. They feature very large
car parks and are located close to major motorway intersections.
 This high volume means that many of the fixed costs of running the IKEA
operation such as local taxes, administrative costs and some energy costs are
spread over a high volume of individual sales transactions.
High Variety of products but low variety of service.
• The variety of products sold in IKEA store is relatively large compared with
many furniture retail operations. This includes small items such as glassware
and kitchenware as well as very large items such as sofas, tables and shelving
systems.
• The variety of service is concerned, it is relatively narrow. The check out
operation, where customers pay for the goods is also highly standardized with
everyone going through exactly the same sequence of activities.

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 Operations Management at IKEA

High variation of demand but predictable

• Weekends and public holidays are much busier than working week days,
therefore variation is relatively high.
• Customers are encouraged to perform much of the service themselves, so the
need to fluctuate staff is less than it would be in a conventional store.
• The relatively standardized and simplified service given by IKEA makes it
easier to schedule part – time staff in busy periods.
Low Visibility
• In many instances the only point at which interaction takes place between
customer and service staff is at the point of payment. In effect, the customer
is ‘trained’ to perform much of the value adding part of the service
themselves. Clearly, this cuts down the costs of the transaction as far as IKEA
is concerned.

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The 4vs for IKEA

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 Examine the 4vs for the following sectors: Retail,
Healthcare, Automotive, Banks etc.
The 4 vs............

Low Volume High

High

High Variety Low

High Variation in demand Low

High Visibility Low

 Revision questions

• What is operations management?

• Why is operations management important in all types of
organization?
• What is the input-transformation-output process?
• What is the process hierarchy?
• How do operations and processes differ?
• What do operations managers do?

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