MNO2601
Production and Operations Management
, CHAPTER 1
OPERATIONS MANAGEMENT
1. Introduction
Operations management is about how organisations create and deliver service and products
2. What is operations management?
Operations management is the activity of managing the resources that create and deliver services and
products
The operations function is part of the organisation that is responsible for this activity
2.1 Operations in the organisation
The operations function is central to the organisation because it creates and delivers services and products
The operations function is one of the three core functions of any organisation:
Marketing (which include sales) keeps the market informed of the services and products
Service or product development generates new and/or adapted services and products
Operations produces and delivers services and products
In addition, there are the support functions which enable the core functions to operate effectively, which
include e.g. the accounting and finance function, the technical function, the human resource function, and
the information systems function
3. Operations management is important in all types of organisation
What is their operations function? The clue lies in the word ‘create’
Any business that creates something must use resources to do so, and so must have an operations activity
Operations management in five very different organisations:
Automotive assembly factory operations management uses machines to assemble products
Physician (general practitioner) uses knowledge to diagnose conditions in order to treat patients
Management consultant uses people to create the services that will address client needs
Disaster relief charity uses organisation’s resources to provide the supplies and services
Advertising agency uses staff’s knowledge and experience to create ideas
3.1 Operations management in the smaller organisation
All companies need to create and deliver their services and products efficiently and effectively
Large companies may have the resources to dedicate individuals to specialised tasks but smaller
companies often cannot, so people may have to do different jobs as the need arises
Decision making can also become confused as individuals’ roles overlap
3.2 Operations management in not-for-profit organisations
Operations have to take the same decisions – how to create and deliver services and products, invest in
technology, contract out some of their activities, devise performance measures, improve their operations
performance, and so on
However, the strategic objectives of not-for-profit organisations may be more complex and involve a
mixture of political, economic, social or environmental objectives
Because of this there may be a greater chance of operations decisions being made under conditions of
conflicting objectives
,4. The input-transformation-output process
All operations create and deliver services and products by changing inputs into outputs using an ‘input-
transformation-output’ process
4.1 Inputs to the process
4.1.1 Transformed resources
These are the resources that are treated, transformed or converted in the process, and are usually a mixture
of the following:
Materials transform their physical properties (shape) – manufacturing operations
Or change their location – parcel delivery companies
Or change their possession – retail operations
Some operations store materials – warehouses
Information transform their informational properties - accountants
Change the possession – market research
Some store the information – archives or libraries
Change the location of the information – telecommunication companies
Customers change their physical properties – hairdressers or cosmetic surgeons
Some store customers – hotels
Transform the location of customers – airlines
Transform their physiological state – hospitals
Transforming their psychological state – entertainment services (radio, tv)
4.1.2 Transforming resources
These are the resources which act upon the transformed resources, which form the ‘building blocks’ of all
operations:
Facilities the buildings, equipment, plant and process technology of the operation
Staff the people who operate, maintain, plan and manage the operation
4.2 Outputs from the process
Products and services are different, products are usually tangible objects, whereas services are activities
or processes
4.2.1 Most operations produce both products and services
Some operations create and deliver just services and others just products, but most operations combine
both elements – called facilitating services
E.g. crude oil or aluminium smelters are concerned with their products delivered, but they might also
deliver some services such as technical advice
The services delivered by a restaurant is also both in the manufacturing operation which creates and
delivers meals and a provider of service in the advice and service of the food
4.3 Customers
Customers may be an input to many operations but they are also the reason for their existence
So it is critical that operations managers are ware of customer needs, both current and potential
5. The process hierarchy
All operations consist of a collection of processes; the mechanisms that actually transform inputs into
outputs, an arrangement of resources that create some mixture of service and products
Transformed resources flow between each unit of transforming resources
So any business, or operation, is made up of a network of processes, and any process is made up of a
network of resources
A process perspective can be used at three levels: (i) the level of the operation itself, (ii) the level of the
supply network, and (iii) the level of individual processes
, 5.1 Operations management is relevant to all parts of the business
Because all managers have some responsibility for managing processes, they are, to some extent,
operations managers
Operations management is relevant for all functions, and all managers should have something to learn
from the principles, concepts, approaches and techniques of operations management
Two meanings of ‘operations’:
‘operations’ as a function the part of the organisation which creates and delivers
services and products
‘operations’ as an activity the management of the processes within any of the
organisation’s functions
Business processes
Whenever a business attempts to satisfy its customers’ needs it will use many processes, both in its
operations and its other functions
6 Operations processes have different characteristics
Although all operations processes are similar in that they all transform inputs, they do differ in number of
ways, four of which, known as the four V’s, 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 creation of their output
The implications of the four V’s of operations processes:
Low repetition High repeatedly
Each staff member performs more of Volume Specialisation
job Systemisation
Less systemisation Low High Capital intensive
High unit cost Low unit costs
Flexible Well defined
Complex Variety Routine
Match customer needs Standardised
High unit cost High Low Regular
Low unit costs
Changing capacity Stable
Anticipation Variation in demand Routine
Flexibility Predictable
In touch with demand High Low High utilisation
High unit cost Low unit costs
Short waiting tolerance Time lag between production and
Satisfaction governed by customer Visibility consumption
perception Standardised
Customer contact skills needed High Low Low contact skills
Received variety is high High staff utilisation
High unit cost Centralisation
Low unit costs
Production and Operations Management
, CHAPTER 1
OPERATIONS MANAGEMENT
1. Introduction
Operations management is about how organisations create and deliver service and products
2. What is operations management?
Operations management is the activity of managing the resources that create and deliver services and
products
The operations function is part of the organisation that is responsible for this activity
2.1 Operations in the organisation
The operations function is central to the organisation because it creates and delivers services and products
The operations function is one of the three core functions of any organisation:
Marketing (which include sales) keeps the market informed of the services and products
Service or product development generates new and/or adapted services and products
Operations produces and delivers services and products
In addition, there are the support functions which enable the core functions to operate effectively, which
include e.g. the accounting and finance function, the technical function, the human resource function, and
the information systems function
3. Operations management is important in all types of organisation
What is their operations function? The clue lies in the word ‘create’
Any business that creates something must use resources to do so, and so must have an operations activity
Operations management in five very different organisations:
Automotive assembly factory operations management uses machines to assemble products
Physician (general practitioner) uses knowledge to diagnose conditions in order to treat patients
Management consultant uses people to create the services that will address client needs
Disaster relief charity uses organisation’s resources to provide the supplies and services
Advertising agency uses staff’s knowledge and experience to create ideas
3.1 Operations management in the smaller organisation
All companies need to create and deliver their services and products efficiently and effectively
Large companies may have the resources to dedicate individuals to specialised tasks but smaller
companies often cannot, so people may have to do different jobs as the need arises
Decision making can also become confused as individuals’ roles overlap
3.2 Operations management in not-for-profit organisations
Operations have to take the same decisions – how to create and deliver services and products, invest in
technology, contract out some of their activities, devise performance measures, improve their operations
performance, and so on
However, the strategic objectives of not-for-profit organisations may be more complex and involve a
mixture of political, economic, social or environmental objectives
Because of this there may be a greater chance of operations decisions being made under conditions of
conflicting objectives
,4. The input-transformation-output process
All operations create and deliver services and products by changing inputs into outputs using an ‘input-
transformation-output’ process
4.1 Inputs to the process
4.1.1 Transformed resources
These are the resources that are treated, transformed or converted in the process, and are usually a mixture
of the following:
Materials transform their physical properties (shape) – manufacturing operations
Or change their location – parcel delivery companies
Or change their possession – retail operations
Some operations store materials – warehouses
Information transform their informational properties - accountants
Change the possession – market research
Some store the information – archives or libraries
Change the location of the information – telecommunication companies
Customers change their physical properties – hairdressers or cosmetic surgeons
Some store customers – hotels
Transform the location of customers – airlines
Transform their physiological state – hospitals
Transforming their psychological state – entertainment services (radio, tv)
4.1.2 Transforming resources
These are the resources which act upon the transformed resources, which form the ‘building blocks’ of all
operations:
Facilities the buildings, equipment, plant and process technology of the operation
Staff the people who operate, maintain, plan and manage the operation
4.2 Outputs from the process
Products and services are different, products are usually tangible objects, whereas services are activities
or processes
4.2.1 Most operations produce both products and services
Some operations create and deliver just services and others just products, but most operations combine
both elements – called facilitating services
E.g. crude oil or aluminium smelters are concerned with their products delivered, but they might also
deliver some services such as technical advice
The services delivered by a restaurant is also both in the manufacturing operation which creates and
delivers meals and a provider of service in the advice and service of the food
4.3 Customers
Customers may be an input to many operations but they are also the reason for their existence
So it is critical that operations managers are ware of customer needs, both current and potential
5. The process hierarchy
All operations consist of a collection of processes; the mechanisms that actually transform inputs into
outputs, an arrangement of resources that create some mixture of service and products
Transformed resources flow between each unit of transforming resources
So any business, or operation, is made up of a network of processes, and any process is made up of a
network of resources
A process perspective can be used at three levels: (i) the level of the operation itself, (ii) the level of the
supply network, and (iii) the level of individual processes
, 5.1 Operations management is relevant to all parts of the business
Because all managers have some responsibility for managing processes, they are, to some extent,
operations managers
Operations management is relevant for all functions, and all managers should have something to learn
from the principles, concepts, approaches and techniques of operations management
Two meanings of ‘operations’:
‘operations’ as a function the part of the organisation which creates and delivers
services and products
‘operations’ as an activity the management of the processes within any of the
organisation’s functions
Business processes
Whenever a business attempts to satisfy its customers’ needs it will use many processes, both in its
operations and its other functions
6 Operations processes have different characteristics
Although all operations processes are similar in that they all transform inputs, they do differ in number of
ways, four of which, known as the four V’s, 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 creation of their output
The implications of the four V’s of operations processes:
Low repetition High repeatedly
Each staff member performs more of Volume Specialisation
job Systemisation
Less systemisation Low High Capital intensive
High unit cost Low unit costs
Flexible Well defined
Complex Variety Routine
Match customer needs Standardised
High unit cost High Low Regular
Low unit costs
Changing capacity Stable
Anticipation Variation in demand Routine
Flexibility Predictable
In touch with demand High Low High utilisation
High unit cost Low unit costs
Short waiting tolerance Time lag between production and
Satisfaction governed by customer Visibility consumption
perception Standardised
Customer contact skills needed High Low Low contact skills
Received variety is high High staff utilisation
High unit cost Centralisation
Low unit costs
