Chapter 1: Operations management

Study guide
This is the first chapter of the book, and its intention is fairly obvious. Namely to introduce some of the
basic ideas in operations management and provide some examples to illustrate them. It introduces the
general model of operations management which is used to link together the different topics in operations
management and the different parts of the book. There is nothing sacrosanct about this model, other
books will use slightly different models. What is important is that you realise that it combines two distinct
ideas. The first idea is that all types of business, organisation or enterprise, large or small, profit making
or not-for-profit, .... are processes. This is illustrated by the ‘input resources’ and ‘output products and
services’ arrows. The second idea is that, to make these process work, operations managers do things
such as devising strategy, designing processes, planning and controlling processes, and improving them.
So, operations managers in all types of operation .... have a common set of activities. This idea is
illustrated in the model by the activities in the ovals.

Your learning objectives

This is what you should be able to do after reading Chapter 1, and working through this study guide.

 Identify the operations function in any kind of organisation.

 Describe any operation in terms of its transforming resources, transformed resources, operations
processes and products and services.
 Describe the micro-operations within in an operation as input transformation - output processes.
 Define different operations in terms of their position on the ‘four Vs’ of operations management,
volume, variety, variation, visibility.
 Understand the responsibilities of operations managers.

What is operations management?

Operations management is the term used for the activities which produce and deliver products and
services.

The important things to remember about operations management are,

 All types of organisation must ‘do’ operations management because all organisations produce
some mixture of products and services. Remember though that in many organisations the term
‘operations management’ will not be used. In many smaller organisations operations
 management may be done by people who perform many other types of task such as marketing
and accounting.
 Operations management is important. The decisions it makes have a major impact on both the
cost of producing products or services and how well the products and services are produced and
delivered which has a major impact on the revenue coming into the organisation. So, operations
management has an important impact on both revenue and cost and therefore profits. This also
applies to not-for-profit organisations. In a local government service, for example, good
operations management can produce services which satisfy the community and are produced
efficiently. So the community are getting value for money from their local services.
 Operations management has strategic importance. The box on IKEA in the text illustrates a
company which has been strategically successful because of the way it manages its operations.

Click here for further details on the IKEA example.

What are the similarities between all operations?

This part of Chapter 1 is mainly devoted to categorising the types of resources and processes which are
found in operations. The intention is to demonstrate these standard categorisations of resources and
processes are to be found in any sort of organisation. So for example, the table below shows what would
constitute the two types of transforming resources (facilities and staff) in three very different types of
operation.

The facilities and staff transforming resources of three operations

  Ferry company Paper manufacturer Radio station

Types of facilities Ships on-board Pulp-making vats Broadcasting

navigation equipment
Paper-making
Reeling equipment machines Studios and studio
equipment
Dry docks Slitting equipment
Transmitters
Materials-handling Packing machinery
equipment Outside broadcast
Warehouses vehicles
Steam-generating
boilers

On-shore buildings

Computerized
reservation systems
Warehouses

Types of staff Sailors Operators Disc jockeys

Engineers Chemists and chemical Announcers

engineers
Catering staff Technicians
Process plant engineers
 On-board shop
assistants

Cleaners

Maintenance staff

Ticketing staff

Transformed resources in operations are some mixture of materials, information and customers. The
important issue here is that, although most types of operation process all three types of transformed
resource, one is usually the most important. So, for example, a hospital will process information in the
form of patients’ medical records. It will also devote some of its resources to processing materials, for
example in the way it produces meals for patients. The main operations task of a hospital, however, is to
process customers in a way which satisfies its patients, maximises their health care and minimises its
costs. It is predominantly a customer processing operation.

Similarly, most operations produce some mixture of products and services. This emphasises one of the
core philosophies of this text book…..

The distinction between manufacturing and service is becoming increasingly irrelevant.

Even government statistics cannot cope with the distinction any longer. For example, if you buy software
on a disc it is classed as a product, but if you download it over the internet (legally of course) it is classed
as a service.

Micro-operations and the internal customer concept

The idea of a hierarchy of operations processes within an organisation is introduced in the text and has
had a significant effect on management thinking over the last few years. It has highlighted the issue of
how different processes or micro-operations relate to each other within an organisation. This is
sometimes called the internal customer concept. It has also helped to underpin the idea of ‘business
process reengineering’ which became fashionable in many businesses during the 1990s. One can
consider the internal customer concept and business process reengineering as being alternative
approaches to solving the same problem. This problem is that within any organisation different sections or
departments find it difficult to interface with each other. This may be because they are too busy with their
own tasks to worry about other parts of the organisation, or it may be that they have (or regard
themselves as having) different interests and objectives.

The internal customer concept advocates that each micro-operation should identify its internal customers
and internal suppliers and formally talk to them about what they need and what they can offer. In other
words, to treat internal suppliers and customers as if they were independent external organisations.

Business process reengineering is more radical and advocates that all the resources and activities
necessary to do everything required for an ‘end-to-end business process’ should be put within the same
unit or department. In other words, the organisation should be reconfigured around these key processes.

Buffering the operation

The turbulent environment in which most organizations do business means that the operations function is
having to adjust continually to changing circumstances. For example, a food-processing operation might
not be able to predict exactly when some foods will be harvested (bad weather might totally disrupt the
supply to a factory for weeks). Demand could also be prone to disruption. Unpredictable changes in the
weather, a ‘health scare’ story in the press, and so on, can all introduce turbulence. One way in which
operations managers try to minimize ‘environmental’ disruption is by buffering or insulating the operations
function from the external environment. It can be done in two ways:

 physical buffering – designing an inventory or stock of resources either at the input side of the
transformation process or at the output side;
 organizational buffering – allocating the responsibilities of the various functions in the
organization so that the operations function is protected from the external environment by other
functions.

Physical buffering

Physical buffering involves building up a store of the resources so that any supply disruptions will (initially
at least) be absorbed by the store. The operation is storing its input transformed resources before it
‘transforms’ them. The store of input resources are being used as ‘buffer stocks’ to protect the operation.
Similarly, buffering can be applied at the output end of the transformation process. A manufacturer could
make its products and put them into a finished goods inventory (output stocks are not usually relevant to
people-processing operations). Often operations do not need to have output stocks; they could react to
each customer’s request as it was made. Yet by stocking their output, the operation is given much more
stability when demand is uncertain.

Organizational buffering

In many organizations the responsibility for acquiring the inputs to the operation and distributing its
outputs to customers is not given to the operations function. For example, the people who staff the
operation are recruited and trained by the personnel function; the process technology for the operation is
probably selected and commissioned by a technical function; the materials, parts, services and other
bought-in resources are acquired through a purchasing function; and the orders from customers which
trigger the operation into activity will come through the marketing function. The other functions of the
organization are, in effect, forming a barrier or buffer between the uncertainties of the environment and
the operations function. These relationships have developed partly for stability which allows the operation
to organize itself for maximum efficiency.
CRITICAL COMMENTARY

The whole concept of buffering the operations function is not without its critics. Buffering may promote stability
but, partly due to the influence of Japanese operations practice, we can now see several problems with over-
protecting operations from their environment:

 The time lag of communicating between the insulating function and the operations function slows down
decision-making. By the time the insulating function has responded, operations has ‘moved on to the
next problem’.
 Operations which never interact with the environment never develop an understanding of the
environment (e.g. labour or technological markets) which would help them exploit new developments.
 Operations managers are not required to take responsibility for their actions. There is always another
function to blame.
 Physical buffering often involves tolerating large stocks of input or output resources. These are both
expensive (see Chapter 12, Inventory planning and control) and prevent the operation improving (see
Chapter 15, Just-in-time planning and control).
 Physical buffering in customer-processing operations means making the customer wait for service,
 which in turn could lead to customer dissatisfaction.

For all of these reasons, it is better gradually to expose the operations function to its environment. Only then will
it learn to develop the necessary flexibility to respond to and understand what is really happening with its
customers and suppliers.

The approach which many companies have taken to the idea of ‘buffering’ their operations says a lot
about how the role of operations management has changed over the last few years. Traditionally,
operations managers were seen as being unable to cope with disruption from outside the organisation.
Wildly fluctuating demand levels required physical buffering in the form of finished product inventories so
that demand could be satisfied, even if the operation could not flex its output levels to cope with changing
demand. Nor were operations regarded as being capable of expertise outside their core area of producing
goods and services. So, for example, a personnel department would deal with the labour market, recruit
staff and look after much of their welfare while they worked in the operation. While operations are still
buffered in most organisations, it happens far less. As the text discusses, this is because over protecting
an operation can deprive it of an opportunity to learn how to cope with changes in the business
environment, or learn the skills necessary to manage its own resources (people are an important part of
any operation, why should not operations managers take an active part in their welfare rather than
personnel managers?). The two figures below illustrate the idea of physical buffering and organisational
buffering.
How are operations different from each other?
The text differentiates between different types of operation by using four dimensions – it calls these the
four Vs of operations. They are,

 Volume – how many products or services are made by the operation?

 Variety – how many different types of products or services are made by the operation?
 Variation – how much does the level of demand change over time?
 Visibility – how much of the operation’s internal working are ‘exposed’ to its customers?

The figure below gives some examples of operations at each end of these four dimensions. In most
industries one can find examples at either end of each dimension. So, for example, in transport, a taxi
service is low volume while a bus service or mass rapid transport is high volume. In accounting firms,
corporate tax advice is high variety because all large corporations have different needs, while financial
audits, which have to be carried out to comply with financial reporting legislation, are relatively
standardised. In food manufacture, the demand for ice-cream varies considerably depending on the
weather, while the demand for bread is far steadier and more predictable. In the dental care industry,
dentists operate high visibility operations (it’s difficult to work on your teeth if you are not there) but rely on
dental technicians in factory-type laboratories to make false teeth etc.
These dimensions are most useful in predicting how easy it is for an operation to operate at low cost.
Figure 1.10 in the text indicates that operations whose profiles occupy the right-hand extreme of the
dimensions (high volume, low variety, low variation and low visibility) tend to operate at lower cost than
those at the other end of the dimensions.

When operations processes do differ they do so mainly in terms of their volume, variety, variation and
visibility. But not everyone agrees that these dimensions are sufficient. Operations processes, they say,
differ in far more ways that the four V’s suggest. At the very least more dimensions are needed, for
example the relative complexity which processes have to cope with, or the degree of discretion or
decision making required by the staff with the process, or the risk of things going wrong in the process, or
the value of each product or service produced, and so on.

What responsibilities do operations managers have?

The text divides the responsibilities of operations managers into,

 Direct responsibilities – the activities which are directly related to producing and delivering
products and services.
 Indirect responsibilities – the activities involved in interfacing with other parts of the organisation.
 Broad responsibilities – a wider set of tasks that involve scanning the business, social and
political environment in which the organisation exists in order to understand its context.

Naturally the vast majority of Slack et al is concerned with the direct responsibilities of operations
managers. All other text books in this area take the same approach. However, both the indirect
responsibilities of communicating with other functions and (especially) the broad responsibilities are
becoming increasingly important to operations managers. This relates back to the idea of buffering. As
the traditional barriers between the operations function and the other functions of the business and the
business environment in general are being lowered, so operations manager must make decisions in the
light of the their internal and external environments.

What operations managers actually do

In all of operations management’s direct and indirect activities there is a need to communicate both with
internal staff and with external customers, suppliers and the broader community. One survey carried out
by Professor Arnoud De Meyer shows how much of a factory manager’s time is spent on different
activities, and how the importance of each is changing (see the Table).

Consulting and communicating with operations staff clearly takes up a large amount of these operations
managers’ time. But the proportion of their time spent communicating with people outside the operations
function and even outside the organization appears to be gaining in importance. This means, says
Professor De Meyer, that operations managers are evolving to be more ‘... managers of interfaces, as
opposed to a caretaker of an isolated manufacturing function’.

Chapter 2: The strategic role and...

Study guide

This chapter covers two areas, which although they seem separate at first, are in fact related. The first
area is the strategic role of operations. This looks at how the operations function (or whatever else it may
be called) in the business sees itself and its purpose. The second area looks at what we call performance
objectives of operations. These are the specific aspects of performance on which the operations function
is judged. In terms of our overall model of operations management (the one shown in Figure 2.1) the role
of the operations function is important because it influences how operations managers understand their
customers and translate their customers’ needs into performance objectives. In turn, the performance
objectives (and especially the relative importance of each one) influence the overall operations strategy of
the business.

Your learning objectives

This is what you should be able to do after reading Chapter 2, and working through this study guide.

 Identify the three roles of the operations function.

 Relate the role of the operations function to the contribution which operations makes to the
competitiveness of the business.
 Identify the five sets of ‘stakeholders’ which any operation has to consider.
 Understand the external and internal affects of the five operations performance objectives –
quality, speed, dependability, flexibility and cost.
The role of the operations function
"The role of the operations function means something beyond its obvious responsibilities
and tasks – it means the underlying rationale of the function, the very reason that the
function exists."

The idea of role is important. As individuals we all play roles in our everyday life. Sometimes we are
colleagues of other people on our course. At other times we are friends of the people we grew up with. At
other times the children of our parents. Each is a different role. The important point is that we behave
differently depending on which role we are in at any time. It is the same for the operations function.
Depending on its role, it will behave differently. The chapter identifies three roles for operations
management. They are not exclusive in the sense that an operation has to be one of them, but they all
contribute to making up the way an operation behaves. The three roles are:

 The implementer of business strategy.

 The supporter of business strategy.
 The driver of business strategy.

Two things are important in understanding these roles. First, they are stated in order of difficulty and in
order of importance. Implementing business strategy is a very basic responsibility for operations,
supporting business strategy is what most operations should aspire to, but driving business strategy is
only possible if the operation really does have unique capabilities. Second, they are cumulative in the
sense that an operation cannot be a supporter of business strategy unless it has skills as an implementer,
and cannot drive business strategy unless it has the skills to support the business strategy.

Judging the operations contribution

The model used in the book to describe the contribution of operations to competitiveness is one which
has been well known for many years and was originally devised by Professor Hayes and Wheelwright at
Harvard University. It is useful here because it can be adapted to incorporate the three roles of the
operations function. Moving from Stage 1 to Stage 2 requires the ability to implement strategy. Moving
from Stage 2 to Stage 3 requires the ability to support strategy. Moving from Stage 3 to Stage 4 requires
the operation to drive strategy through its unique capabilities. Remember a number of points though when
using this model.

 It is a conceptual model which allows organisations to think about how good their operations are.
It is not a precise instrument for measuring operations excellence.
 Some parts of the business could be at different stages to other parts. So for example, an airport
could have Stage 4 check-in facilities which use the most advanced information systems and
have the most dedicated staff, while its baggage handling system is at Stage 2. The overall
customer experience therefore might be very mixed (depending on whether their bags were lost
or not).
 The real objective of this model is to show operations managers that they can be better (very few
operations are at Stage 4) and to go some way in defining what really excellence in operations is
(Stage 4).

Operations performance objectives

This first point made in this section of the chapter is that operations objectives are very broad. Operations
management has an impact on the five broad categories of stakeholders in any organisation.
Stakeholders is a broad term but is generally used to mean anybody who could have an interest in, or is
affected by, the operation. The five groups are:
  Customers – These are the most obvious people who will be affected by any business. What the
chapter goes on to call the five operations performance objectives apply primarily to this group of
people.
 Suppliers – Operations can have a major impact on suppliers, both on how they prosper
themselves, and on how effective they are at supplying the operation.
 Shareholders – Clearly, the better an operation is at producing goods and services, the more
likely the whole business is to prosper and shareholders will be one of the major beneficiaries of
this.
 Employees – Similarly, employees will be generally better off if the company is prosperous; if only
because they are more likely to be employed in the future. However operations responsibilities to
employees go far beyond this. It includes the general working conditions which are determined by
the way the operation has been designed.
 Society – Although often having no direct economic connection with the company, individuals and
groups in society at large can be impacted by the way its operations managers behave. The most
obvious example is in the environmental responsibility exhibited by operations managers.

After making this general point about operations objectives, the rest of the chapter goes on to look at the
five performance objectives of quality, speed, dependability, flexibility, and cost.

Quality
Quality is placed first in our list of performance objectives because many authorities believe it to be the
most important. Certainly more has been written about it than almost any other operations performance
objective over the last twenty years. Later in the book we devote two whole chapters (Chapter 17 and
Chapter 20) which look at different aspects of quality. As far as this introduction to the topic is concerned,
quality is discussed largely in terms of it meaning ‘conformance’. That is, the most basic definition of
quality is that a product or service is as it is supposed to be. In other words, it conforms to its
specifications.

There are two important points to remember when reading the section on quality as a performance
objective.

 The external affect of good quality within in operations is that the customers who ‘consume’ the
operations products and services will have less (or nothing) to complain about. And if they have
nothing to complain about they will (presumably) be happy with their products and services and
are more likely to consume them again. This brings in more revenue for the company (or clients
satisfaction in a not-for-profit organisation).
 Inside the operation quality has a different affect. If conformance quality is high in all the
operations processes and activities very few mistakes will be being made. This generally means
that cost is saved, dependability increases and (although it is not mentioned explicitly in the
chapter) speed of response increases. This is because, if an operation is continually correcting
mistakes, it finds it difficult to respond quickly to customers requests. See the figure below.
Speed
Speed is a shorthand way of saying ‘Speed of response’. It means the time between an external or
internal customer requesting a product or service, and them getting it. Again, there are internal and
external affects.

 Externally speed is important because it helps to respond quickly to customers. Again, this is
usually viewed positively by customers who will be more likely to return with more business.
Sometimes also it is possible to charge higher prices when service is fast. The postal service in
most countries and most transportation and delivery services charge more for faster delivery, for
example.
 The internal affects of speed have much to do with cost reduction. The chapter identifies two
areas where speed reduces cost (reducing inventories and reducing risks). The examples used
are from manufacturing but the same thing applies to service operations. Usually, faster
throughput of information (or customers) will mean reduced costs. So, for example, processing
passengers quickly through the terminal gate at an airport can reduce the turn round time of the
aircraft, thereby increasing its utilisation. What is not stressed in the chapter is the affect the fast
throughput can have on dependability. This is best thought of the other way round, ‘how is it
possible to be on time when the speed of internal throughput within an operation is slow?’ When
materials, or information, or customers ‘hangs around’ in a system for long periods (slow
throughput speed) there is more chance of them getting lost or damaged with a knock-on effect
on dependability. See the figure below.

Dependability
Dependability means ‘being on time’. In other words, customers receive their products or services on
time. In practice, although this definition sounds simple, it can be difficult to measure. What exactly is on
time? Is it when the customer needed delivery of the product or service? Is it when they expected
delivery? Is it when they were promised delivery? Is it when they were promised delivery the second time
after it failed to be delivered the first time? Again, it has external and internal affects.

 Externally (no matter how it is defined) dependability is generally regarded by customers as a

good thing. Certainly being late with delivery of goods and services can be a considerable
irritation to customers. Especially with business customers, dependability is a particularly
important criterion used to determine whether suppliers have their contracts renewed. So, again,
the external affects of this performance objective are to increase the chances of customers
returning with more business.
 Internally dependability has an affect on cost. The chapter identifies three ways in which costs are
affected – by saving time (and therefore money), by saving money directly, and by giving an
organisation the stability which allows it to improve its efficiencies. What the chapter does not
stress is that highly dependable systems can help increase speed performance. Once more, think
about it the other way round – ‘how can an operation which is not dependable ever promise its
customers fast response?’ See the figure below.

Flexibility
This is a more complex objective because we use the word ‘flexibility’ to mean so many different things.
The important point to remember is that flexibility always means ‘being able to change the operation in
some way’. The chapter identifies some of the different types of flexibility (product/service flexibility, mix
flexibility, volume flexibility, and delivery flexibility). It is important to understand the difference between
these different types of flexibility, but it is more important to understand the affect flexibility can have on
the operation. Guess what! There are external and internal affects.

 Externally the different types of flexibility allow an operation to fit its products and services to its
customers in some way. Mix flexibility allows an operation to produce a wide variety of products
and services for its customers to choose from. Product/service flexibility allows it develop new
products and services incorporating new ideas which customers may find attractive. Volume and
delivery flexibility allow the operation to adjust its output levels and its delivery procedures in
order to cope with unexpected changes in how many products and services customers want, or
when they want them, or where they want them.
 Once again, there are several internal affects associated with this performance objective. The
chapter deals with the three most important, namely flexibility speeds up response, flexibility
saves time (and therefore money), and flexibility helps maintain dependability. See the figure
below.
Cost
The chapter makes two important points here. The first is that the cost structure of different organisations
can vary greatly. Note how the different categories of cost vary in the four examples given in the chapter.
Second, and most importantly, the other four performance objectives all contribute, internally, to reducing
cost. This has been one of the major revelations within operations management over the last twenty
years.

"If managed properly, high quality, high speed, high dependability and high flexibility can not only bring
their own external rewards, they can also save the operation cost."

The polar representation of performance objectives

The chapter finishes with a useful way of illustrating the relative importance of the five performance
objectives – the polar diagram. It is particularly useful for illustrating the difference between different
products or services. The chapter illustrates a taxi service and a bus service to show the differences
between them. Of course, this is an extreme example, but within a single business different products and
services can have very different profiles. In the study guide for the previous chapter we fully described the
company Stagepoint. One of its founders, Richard Carleton, described how the company had two types of
service,

 Hiring services - managed by the ‘Technical Services operation’.

 Producing production sets – produced by ‘Production Services’.

The polar diagram below illustrates the relative importance of each of the performance objectives for
these two services. Technical Services which hires out equipment is, for some of its equipment, in a
relatively competitive market and must keep its prices competitive, therefore cost is relatively important to
it. So is dependability, failure to deliver a piece of equipment would have serious consequences for the
customer. Occasionally also speed can be important. Quality means making sure that the equipment is in
good working order every time it is sent out. Flexibility is relatively unimportant because customers know
exactly what it required and if the equipment is not available there is nothing much that Stagepoint can do
about it. Production Services, on the other hand, is in a less price sensitive market. Customers give
Stagepoint the business primarily because of the high quality and flexibility they show in devising
imaginative high quality sets. Speed is not always a major issue unless the clients are themselves late in
their planning. Dependability, of course, has to be high because if the set was not finished on time the
stage production or exhibition could not go ahead as planned.

The main point here is that the two types of service offered by the company have very different
characteristics in terms of which performance objectives are important. Any company must understand
how its different products and services require different objectives.