Chapter 28
Operation management is concerned with the use of resources called inputs to provide outputs
in the form of goods and services.
- Efficiency of production: keeping costs as low as possible → competitive
advantage
- Quality: the good or service must be suitable for the purpose intended
- Flexibility and innovation: need to develop and adapt to new processes and new
products is increasingly important in today’s dynamic business environment
Production or transformation process (inputs are converted into outputs)
Degree of value added to inputs depends on these factors:
- Design of the product or the nature of the service: Some customers are prone to pay
for better quality than cheaper products.
- Efficiency with which the input resources are combined and managed: Increasing
productivity will reduce cost per unit and this will increase added value.
- Being able to convince consumers to pay more for the good or service than the
cost of the inputs: Whether marketing will be effective in convincing customers to buy
the product.
Stages of the production process:
- Converting a consumer need into a product that can be produced efficiently
- Organizing operations so that production is carried out efficiently
- Deciding on suitable production methods
- Setting quality standards and checking they are maintained
Resources used in operation
- Land: Somewhere the business operates from
- Labor: Either physical or mental
- Capital: Tools, machinery, computers, and equipment the business uses to produce
what they sell
Role of business management in linking with other business functions
- Operation management needs to ensure that the appropriate quantity of the good is
made so that the marketing department may successfully sell it profitably.
- Operation managers need to work closely with the human resources department so that
appropriate numbers of suitably qualified workers are employed
- Operations decisions often require funding so the relationship with the finance
department is essential
Operation department and sustainability
Ecological sustainability (capacity of ecosystems to maintain their essential functions):
- Reducing waste at all levels of the organization
- Using less energy and sourcing it from renewable sources when possible
- Reducing water use and recycling water
- Reducing the use of non-renewable resources in production
- Designing products that use recycled materials
- Designing products that use less harmful energy sources
, Social sustainability (the ability of a community to develop processes to develop a healthy
community) :
- Designing production systems that are safe and healthy for employees
- Designing work and workplaces to allow for social interaction
- Creating jobs in low-income or deprived areas (relocation)
- Reducing the negative impact of production on communities
Economic sustainability (using assets of the company to allow it to continue functioning):
- Managing and maintaining operational assets tso that they have extended lifespans
- Increasing the efficiency of the production process to improve business competitiveness
- Researching and developing products and processes that create customer interest
Circular business models: a business approach that creates product value while improving
resource efficiency by extending the useful life of products and processes.
Circular economy: a model of production and consumption that involves many processes
aiming to recycle existing materials and products for as long as possible.
Resource recovery models: based on the idea of converting waste into secondary raw
materials→ to obtain additional use from resources and extract more value from
them by delaying final disposal for as long as possible.
Can result in additional revenue:
- Extracting more added value from existing resources
- Creating less dependence on high-cost new raw materials
- Selling the resources retrieved from waste to other businesses for use in their operations
Benefits Limitations
They provide a source of lower-cost materials There may be high initial capital costs in resource
recovery locations and equipment
If processed waste materials can be sold The extraction process may require energy and other
resources
Improve the public relations image of the business by They may not be economically viable unless government
developing a socially responsible operations process support is provided
Environmentally conscious consumers may be attracted Recycling sites may need to be carefully located
to the business and its products
, Product life extension models: increasing the period that a product can be used before it
needs to be disposed of. The objective is to maximize the lifespan of the product, reduce waste
levels, and exploitation of new sources of raw materials.
Benefits Limitations
May reduce the costs of production as new resources become In some markets, this approach will not succeed
scarcer and more expensive unless enough consumers prefer a “longevity”
cover image of the “latest model”
Brand image of quality (environmentally friendly) Initial manufacturing cost is likely to increase as
higher-quality and more durable materials
Improve the corporate social responsibility image of the Consumer expectations of the life span of a
business product will increase
Reduce the risk of not meeting increasingly restrictive consumer
protection laws in many countries
May sell more spare parts and maintenance materials to allow
older products to be serviceable for longer
Sharing models: aim to connect the things people own that are underutilized with other people
who are willing to pay to use them.
Business initiatives that use the sharing models are:
- Ridesharing or car-sharing
- Coworking
- Couchsurfing
- Peer-to-peer lending
Benefits Limitations
Owners of goods will receive payments The sharing platform can make substantial fees
Sharers can make use of resources without buying Some consumers see a potential safety risk with car-
them sharing
Sharing platform companies receive a fee for There tends to be less government control and
connecting owners and sharers regulation of the “sharing economy”
Operation management is concerned with the use of resources called inputs to provide outputs
in the form of goods and services.
- Efficiency of production: keeping costs as low as possible → competitive
advantage
- Quality: the good or service must be suitable for the purpose intended
- Flexibility and innovation: need to develop and adapt to new processes and new
products is increasingly important in today’s dynamic business environment
Production or transformation process (inputs are converted into outputs)
Degree of value added to inputs depends on these factors:
- Design of the product or the nature of the service: Some customers are prone to pay
for better quality than cheaper products.
- Efficiency with which the input resources are combined and managed: Increasing
productivity will reduce cost per unit and this will increase added value.
- Being able to convince consumers to pay more for the good or service than the
cost of the inputs: Whether marketing will be effective in convincing customers to buy
the product.
Stages of the production process:
- Converting a consumer need into a product that can be produced efficiently
- Organizing operations so that production is carried out efficiently
- Deciding on suitable production methods
- Setting quality standards and checking they are maintained
Resources used in operation
- Land: Somewhere the business operates from
- Labor: Either physical or mental
- Capital: Tools, machinery, computers, and equipment the business uses to produce
what they sell
Role of business management in linking with other business functions
- Operation management needs to ensure that the appropriate quantity of the good is
made so that the marketing department may successfully sell it profitably.
- Operation managers need to work closely with the human resources department so that
appropriate numbers of suitably qualified workers are employed
- Operations decisions often require funding so the relationship with the finance
department is essential
Operation department and sustainability
Ecological sustainability (capacity of ecosystems to maintain their essential functions):
- Reducing waste at all levels of the organization
- Using less energy and sourcing it from renewable sources when possible
- Reducing water use and recycling water
- Reducing the use of non-renewable resources in production
- Designing products that use recycled materials
- Designing products that use less harmful energy sources
, Social sustainability (the ability of a community to develop processes to develop a healthy
community) :
- Designing production systems that are safe and healthy for employees
- Designing work and workplaces to allow for social interaction
- Creating jobs in low-income or deprived areas (relocation)
- Reducing the negative impact of production on communities
Economic sustainability (using assets of the company to allow it to continue functioning):
- Managing and maintaining operational assets tso that they have extended lifespans
- Increasing the efficiency of the production process to improve business competitiveness
- Researching and developing products and processes that create customer interest
Circular business models: a business approach that creates product value while improving
resource efficiency by extending the useful life of products and processes.
Circular economy: a model of production and consumption that involves many processes
aiming to recycle existing materials and products for as long as possible.
Resource recovery models: based on the idea of converting waste into secondary raw
materials→ to obtain additional use from resources and extract more value from
them by delaying final disposal for as long as possible.
Can result in additional revenue:
- Extracting more added value from existing resources
- Creating less dependence on high-cost new raw materials
- Selling the resources retrieved from waste to other businesses for use in their operations
Benefits Limitations
They provide a source of lower-cost materials There may be high initial capital costs in resource
recovery locations and equipment
If processed waste materials can be sold The extraction process may require energy and other
resources
Improve the public relations image of the business by They may not be economically viable unless government
developing a socially responsible operations process support is provided
Environmentally conscious consumers may be attracted Recycling sites may need to be carefully located
to the business and its products
, Product life extension models: increasing the period that a product can be used before it
needs to be disposed of. The objective is to maximize the lifespan of the product, reduce waste
levels, and exploitation of new sources of raw materials.
Benefits Limitations
May reduce the costs of production as new resources become In some markets, this approach will not succeed
scarcer and more expensive unless enough consumers prefer a “longevity”
cover image of the “latest model”
Brand image of quality (environmentally friendly) Initial manufacturing cost is likely to increase as
higher-quality and more durable materials
Improve the corporate social responsibility image of the Consumer expectations of the life span of a
business product will increase
Reduce the risk of not meeting increasingly restrictive consumer
protection laws in many countries
May sell more spare parts and maintenance materials to allow
older products to be serviceable for longer
Sharing models: aim to connect the things people own that are underutilized with other people
who are willing to pay to use them.
Business initiatives that use the sharing models are:
- Ridesharing or car-sharing
- Coworking
- Couchsurfing
- Peer-to-peer lending
Benefits Limitations
Owners of goods will receive payments The sharing platform can make substantial fees
Sharers can make use of resources without buying Some consumers see a potential safety risk with car-
them sharing
Sharing platform companies receive a fee for There tends to be less government control and
connecting owners and sharers regulation of the “sharing economy”
