OPERATIONS MANAGEMENT
BUSINESS ORGS:
MANAGEMENT
- is the administration of an organization,
whether it is a business, a not-for-profit
organization, or government body.
- is a set of principles relating to the functions of
planning, organizing, directing and controlling,
and the application of these principles in
harnessing physical, financial, human, and
informational resources efficiently and
effectively to achieve organizational goals.
- is the act of getting things done through others
and having them do it willingly.”
In the management of any organization, whether for
profit or non-profit, there is always either or both
production&/or operations processes depending on the
organizations purpose.
OPERATIONS - The processes that either provide
services or create goods
The CORE of what a business does, depending on
what “products” it is creating.
GOODS (Tangible) –are physical items that include
raw materials, parts, sub-assemblies, or final products.
SERVICES (Intangible) –are activities that provide
some combination of time, location, form or
psychological value.
Whatever the product may be, it will contain a certain
percentage of tangibility and intangibility.
QUALITY
- refers to a parameter which decides the
superiority or inferiority of a product or service.
- can be defined as an attribute which
differentiates a product or service from its
competitors.
Business marketers need to emphasize on quality of
their brands over quantity to survive the cut throat
competition.
TQM is defined as a continuous effort by the
management as well as employees of a particular
organization to ensure long term customer loyalty and
customer satisfaction.
KEY CONCEPT: EFFICIENCY IN OPERATIONS
The ideal situation for a business organization is to
achieve an economic match of supply and demand.
- Excess supply/capacity = wasteful or costly
- Too little supply = lost opportunity & possible
customer dissatisfaction
KEY FUNCTIONS ON:
- SUPPLY - operations and supply chains
Needs support and input from other areas of
the organization
- DEMAND –marketing has to work
THREE BASIC FUNCTIONAL AREAS OF
FINANCE
- Responsible for securing financial resources at
favourable prices and allocating those
resources throughout the organization.
- budgeting, analysing investment proposals
and providing funds for operations.
MARKETING
- Responsible for assessing customer wants
and needs.
- Promoting the organization’s goods and
services.
OPERATIONS
- Responsible for producing the goods or
providing the services offered by the
organization.
OPERATIONS MANAGEMENT - is the management
of systemsor processesthat create goods
and/provide services.
CHAPTER 1
Process Design - is the act of transforming an
organization’s vision, goals, and available
resources into a discernible, measurable means of
achieving the organization’s vision.
Layout design - concerns the physical placement of
resources such as equipment and storage facilities.
Production planning -The creation of a planning
timeline.
Inventory control
- to prevent losses and theft.
- to know how much product to order from
various vendors.
Quality management & control - The consistent
delivery of service that meets the high standards set
by the corporation or owners of a hotel.
Capacity planning or capacity management - is the
process of determining the production needed by an
organization to meet changing demands for its
products and services.
Workforce management - The process of
strategically optimizing the productivity of
employees to ensure that all resources are in the
right place at the right time.
OPERATION MANAGEMENT is the study of how
GOODS get manufactured and SERVICE gets
delivered.
Highly applied academic discipline:
- “Atheoretical” – not based on theories
- HI managers’ job titles do not usually reflect
the term “operations”
OPERATION MANAGEMENT THEORY – was an
applied subject based on 90s with very little theory.
However, based on contributions by:
- Hayes & Wheelwright (1979) – 4 stage model
of operations strategy
- Schmenner (1986) – service process matrix
- Schmenner & Swink (1988) – cost and quality
- Johnston & Jones (2005)
5 Theories Identified
1. Theory of Process Choice
2. Theory of Swift & Even Flow
3. Theory of Lean Manufacturing
4. Theory of Performance Frontiers
5. Theory of Service Experience
Theory of Process Choice
- In manufacturing Hayes & Wheelwright
- Job shop, batch production, mass production
Job production - is the production of one item
at a time. It is associated with high quality
goods, customized orders and unique items.
Batch production - is a method of production
that creates several items at the same time in
a series of production steps. The items that
are created together are known as a batch.
Mass production - is the production of goods
at scale typically using a production line. It
differs from other forms of production in that all
steps in the production process are run
concurrently and continuously.
1. Instead, process types were simplified in terms
of 2 main criteria:
Volume – how many were produced
Variety – the number of different products
made
2 key propositions
1. Firms have a choice over the type of
processes they adopt for manufacturing &
delivery of service.
2. There is a trade-off between producing volume
versus variety.
Process Choice in the HI
2. Jone (1988) identifies 2 trends relating to
process choice
Production lining – breaking down
production activities into simple tasks.
Decoupling – separating, both in place and
time , back-of-the-house and front-of-the-
house activities.
Theory of Swift & Even Flow
3. “The more swift and even the flow of material
through the process, the more productive the
process is.” (Schmenner & Swift, 1998)
3 Laws
1. Variability 1 – greater randomness, lower
productivity.
2. Variability 2 – greater variability, lower
productivity.
3. Bottlenecks – greater difference in the rate of
flow through stages, less productivity.
4. Prioritization – greater instability, greater the
prioritization of orders.
Theory of Lean Manufacturing
4. “Productivity is enhanced by applying
principles designed to eliminate waste of all
kinds”
7 types of waste
1. Doing too much
2. Waiting
3. Transporting
4. Too much inflexible capacity or lack of process
flexibility
5. Unnecessary stocks
6. Unnecessary motions
7. Defects
4 Laws associated with the Theory of LM
1. Law of Scientific Methods – labor
productivity is improved by applying scientific
management principles.
2. Law of Quality – Productivity improves as
quality improves, since waste is eliminated.
3. Law of Limited Tasks – Factories that
performed a limited number of tasks will be
more productive than similar factories with a
broad range of tasks.
4. Law of Value Added - A process will be more
effective if non-value added steps are reduced
or eliminated.
Theory of Performance Frontiers
5. “Maximum output can be produced from any
given set of input, given technical
considerations.
OPERATING FRONTIER – models the most effective
and efficient use of inputs.
ASSET FRONTIER – models the best design and
configuration of transformation inputs.
3 Laws associated with the Theory of PF
1. Law of Cumulative Capabilities – an
improvement in one manufacturing capability
leads to improvement in others.
2. Law of Diminishing Returns – as
improvement moves a manufacturing plant
nearer and nearer to its opening or asset
frontier, more and more resources must be
expended in order to achieve each additional
incremental benefit.
3. Law of Diminishing Synergy – there is a
synergy between policies and procedure which
diminishes as a plant approaches its asset
frontier.
Theory of Service Experience
 Customers are different to materials. They
sense & respond to the environment.
 They interact with the operation and form
opinions about their experience.
3 Laws associated with the Theory of SE
1. Law of Adaptive Experience – a customer
process is more productive when customer
feedback adapts the process, both
immediately & over the long term.
2. Law of Matching Expectations – a customer
will be more productive if customer
expectations are matched with their
perceptions.
3. Law of Cumulative Effect – productive
customer processes have a cumulative effect
on customer expectations.
DISTINCTIVE FEATURES OF THE HI
SERVICE PRODUCT CHARACTERISTICS
These distinguishing factors are:
 Intangibility
 Inseparability
 perishability
 heterogeneity
 ownership
- Applies to all service products to some degree
includes banking, insurance & professional
services (legal accounting, etc.).
- Applicable across all service sectors
Intangibility
- Service products cannot normally be seen,
touched, smelt, tasted, tried on for size, or
stored on a shelf prior to purchase.
- create a tangible offering that customers can
relate to (tickets to a show, free gift, brochure)
- ensure that marketing efforts reach potential
customers
- check if product can be tried or sampled
before purchase
- stream features of products via multi-media
Inseparability
- The production and consumption of services,
including those in THE sectors, are
inseparable.
- Both production & consumption are
experienced at the same time. E.g. Bus trip,
concert
- Customers are likely to be very concerned
about how the product is delivered
- Right first time, all the time’
- it places a great emphasis on the importance
of carefully selecting front-line staff
Perishability
- If the services are not sold at the time they are
offered, then they perish and no income is
received
- SI products cannot be stored for future sales.
- Demand can fluctuate for all sorts of reasons.
- Striking the correct balance of capacityand
sales(supply and demand) is extremely
difficult
- to ensure that the organization is operating at
full capacity
- carefully design plans to stimulate demand,
lengthen seasons or offer appropriate pricing
levels to manage and ‘smooth out’ occupancy
levels, load factors and attendance figures.
Heterogeneity
- Services, unlike mass-produced manufactured
goods, are never identical
- THE products are human resource intensive.
- To many customers, the contact person is the
organization in their eyes.
- There is an uncontrollable element inherent in
the operation of a THE product
- accurate and timely information is provided in
advance to the potential customer in order to
manage their expectations.
- make certain that FLs have suitable
personalities and attributes for dealing with
customers.
- emphasis on training
- consistency of practice for its vision and
values
- standardization of procedures
- As much as it is a challenge, customer is
actually attracted by heterogeneity.
- maintain a consistent brand image, whilst at
the same time trying to differentiate each
hotel location, amenities, & services through
varying design features and offerings.
Ownership
- A customer does not usually receive
ownership of anything tangible.
- The task of building a relationship with
customers, of retaining their custom, and
building brand loyalty becomes more difficult.
- Loyalty schemes – frequent flyers, frequent
guest programs, etc.
SIX TOURISM, HOSPITALITY AND EVENTS
CHARACTERISTICS
These have a particular influence on decision making
for THE managers
 High cost
 Seasonality
 Ease of entry/exit
 Interdependence
 Impact on society
 The effect of external shocks
High cost
- Reassurance about the reliability of the
product, the value for money the purchase
represents, and the quality and value
provided.
- Consistent product quality and build brand
values that consumers trust.
- Build relationship with customers over even
before the purchase decision is made.
Seasonality - The focus of attention is usually upon the
- Less variation than other products, but consist impact tourism has upon host destinations.
of nearly all high-value individual purchases. Can be classified as:
- Largely related to climate, but also to other o economic, social and environmental;
factors: o positive and negative impacts.
o school holidays, - Many destination areas have been profoundly
o religious festivals, and, changed by the influx of tourists.
o historic travel patterns. - smaller-scale alternatives such as ecotourism
- Implications in managing: and other forms of low-impact and responsible
o cash flow; travel)
o product pricing; - Independent, non-packaged holidays.
o quantity of products supplied; & - Growing demand for choice and flexibility.
o dealing with labour (& wider societal) - Build relationship with customers over even
issues relating to the need to employ, before the purchase decision is made.
motivate & retain seasonal
employees. The Effect of External Shocks
- Develop or acquire counter-seasonal
businesses. - THE is highly prone to external shocks beyond
the control of its managers.
Ease of entry/exit o Corporate: Financial irregularity,
- Relative ease to set up in business or to exit management that is too ambitious,
from the industry. fraudulent & incompetent
- Dominated by small-to-medium-sized o Perishability of goods
enterprises (SMEs), generally highly - External Shocks: Typhoons, terrorism,
fragmented, high level of competition pollution, adverse publicity, accidents.
- Some exceptions (e.g. airlines capital outlay &
policies) Managers, whilst not able to plan directly for such
- Differentiation. events, need to be able to:
- Establish and build a brand that is recognized - identify the risks to which the organization
and reassures customers. (destination or event) may be susceptible;
- Consider working cooperatively with other - assess the possible impact of those risks;
organizations through alliances and other - have contingency plans in place so that the
arrangements. organization is able to react quickly and
effectively.
Interdependence
CHAPTER 2
6 Component sectors;
A system - is a set of things, principles or procedures
- hospitality
working together as parts of a mechanism or an
- events management
interconnecting network.
- attractions
- transport
When applied to hospitality, ‘systems’ can have
- travel organizers
two meanings.
- destination organizations
The success of a product often depends on a
supply chain in which there are many interdependent 1. Systems can be explained in terms of how
links. one thinks about & conducts research in
Gain greater control of the supply chain by: buying hospitality (i.e. systems theory & analysis)
suppliers, distributors or competitors; encouraging 2. Can be considered as the actual
greater co-operation and establishing rigorous quality operationsthemselves –their infrastructure,
standards for suppliers and distributors. their layout & organization & their different
Vertical &/or Horizontal Integration. types

Horizontal integration - is the acquisition of a related “Systems” theory & analysis

business.
Horizontal integration – refers to the process of
increasing market shares or expanding by integrating
at the same level of the supply chain, and within the
same industry.
Vertical integration - refers to the process of
acquiring business operations within the same
production vertically.
Impact of Society
- Applied to any industry (not just hospitality)
- Hospitality operations can be classified and
analyzed without any reference to systems
thinking
SYSTEMS THEORY
The language of systems in the hospitality industry is
ubiquitous (universal/everywhere)
- Management information systems
- Property management systems
- Service delivery systems
 - Central reservations systems
- Food production systems
“Hard” - systems based on technology
- Physical Infrastructure
- Technological
“Soft” - based on non-technological systems
- Human activities
- Social
They behave in predictable ways according to
scientific laws
- Precise outcomes
- Quantified precisely
- Analyzed mathematically
- “deterministic”
Do not conform to scientific laws in terms of behavior
- Not easy to calculate precisely how long it will
take different workers to do a certain job
- This depends on their skills, abilities,
motivation & context as to why they are doing
it.
KEY ASPECTS OF SYSTEMS
1. The General Systems View
2. Systems Hierarchy
3. Systems Interactions
4. Simultaneous Multiple Containment (SMC)
5. Cohesion and Dispersion
The General Systems View (Model) - The standard
systems model shows the relationship between inputs,
transformational inputs, processes, outputs and
feedback
Systems Hierarchy
- Very few systems operate in isolation
- Usually made up of sub-systems& are
themselves sub-systems of a larger system
- How are these sub-systems organized in the
HI?
o based on how operations are
organized.
Systems Interaction
These systems must interact with each other.
- The outputs of one system may form all, or
part, of the inputs of another system
- Some processes/systems combine to deliver
an experience to a customer. (i.e.
Accommodations for a hotel guest,
foodservice experience)
- The existence of boundaries, hierarchy &
interaction creates a challenge for the
operations manager.
o Needs communication & coordination
between systems but may be hindered
by boundaries
o i.e. Boundary conflict among waiters &
chefs,
o McDonalds’ solution
Simultaneous Multiple Containment
- The idea that systems may exist as sub-
systems of more than just one system
- Contributes to employment, and other civic
programs
2 Implications
1. Complexity of the system is increased. More
difficult to:
 Understand system behavior.
 Manage performance.
2. There can be tension between the outputs
desired by the different systems.
Cohesion & Dispersion
There must be forces that bind sub-systems together,
balanced by forces that prevent them from merging
into one (Ball et al. 2004).
- i.e.Franchising bound by Franchising
agreements –to create chains of
independently-owned but mutually operated
businesses.
7 Principles which govern the behavior of systems
1. The Principle of Reactions
2. The Principle of Systems Cohesion
3. The Principle of Connected Variety
4. The Principle of Adaptation
5. The Principle of Limited Variety
6. The Principle of Preferred Patterns
7. The Principle of Cyclic Progression
The Principle of Reactions
1. Applies to all systems-commercial, economic,
technological or social, as well as the natural
world.
2. Reaction is typically seen in employees’
response to the introduction of new technology
or processes.
3. Reactions may be slow or fast, chaotic or
catastrophic.
The Principle of Systems Cohesion
COHESION – is defined as the degree to which all
elements of a module, class, or components work
together as a functional unit. High cohesion is good,
low cohesion is bad.
COUPLING – is defined as the degree of
interdependence between two of more classes,
modules or components. Tight coupling is bad, loose
coupling is good.
1. Due to multiple systems containment, every
system has dispersive forces that seek to
break it up, in order to redefine the system
boundaries. At the same time, there will be
cohesive forces that keep the system
together.
2. Must be balanced in order to continue in its
current form.

The Principle of Connected Variety
1. The more stable the interaction between
systems, the greater the variety and amount of
interaction between them.
2. TQM recognizes and values variety, and sets
out to deliberately create connections to
ensure stability and assure the delivery of
established standards.
The Principle of Adaptation
1. Since a system exists within an environment,
cohesion can only be achieved if the rate of
change in both the system and the
environment is matched.
2. The HI has over the years adapted to meet
changing demographics and changing
lifestyles of people.
The Principle of Limited Variety
1. The variety of systems is limited by the
available space and level of differentiation
possible.
2. There is a limit to how many new systems can
fill gaps and niches in the systems
environment.
The Principle of Preferred Patterns
1. Interacting systems will adopt configurations
that are locally stable, especially if there is
systems variety and a high level of
connectivity.
2. Each hospitality organization manages
processes slightly different from others as
influenced by employees’ previous experience,
working relationships, levels of skill and
training, etc.
3. Each establishment has its own preferred
pattern based on “local stability”
The Principle of Cyclic Progression
All interconnected systems go through a cyclic
progression of 5 stages.
1. System variety is generated.
2. Dominance emerges.
3. Variety is suppressed.
4. The dominant mode decays or collapses.
5. Survivors emerge to regenerate variety.
Integration of Principles
1. The variety of principles demonstrates that the
world is both extremely complex and dynamic,
and appears to be chaotic.
2. Specific relationships may be identified that
place structure on the apparent chaos.
 Identifies the extent to which the system is
stable or unstable,
Helps to forecast likely events in the
system environment,
 Suggests appropriate plans of action that
will counteract negative influences and
sustain the system,
 Emphasizes that change is inevitable.
3. To apply the model, the notion of hierarchy
must be considered –not applied to more than
one level of the hierarchy. (One-level view)
 Changes in foodservice / hotel
management contracts
 Implementation of cook-chill technology &
inflight foodservice.

Types of Hospitality Operations and their
Processes
3 Basic Types
- MPO –Materials processing operations
- CPO –Customer processing operations
- IPO -Information processing operations
Key Aspects of the Hospitality Industry
1. Hotels are more complex than foodservice
operations
o Hotels provide both lodging & foodservice
2. Hybrid (mixed/combination) operations are
more complex to manage than non-hybrid
operations
3. Hospitality MPOs are
o job shop (e.g. ala carte restaurant like
Starbucks),
o batch production (e.g. cook-chill)or
o mass production (e.g. fastfood)
4. Most hospitality CPOs are:
o service shops (e.g. table service
restaurants) or
o Mass services (e.g. fastfood)
5. There is generally a relationship between
volume and variety
o The greater the variety, the lesser volume
produced
6. Therefore, hybrid operations that are batch
production MPOs are typically associated with
service shop CPOs, while mass production
matches mass service.
4 Basic layout types found in both manufacturing
& service settings
1. Fixed Position
2. Process Layout
3. Product Layout
4. Combination of Product & Process Layout
Fixed Position –refers to a single, fixed position at
which the product is assembled, or service is
processed by workers who move to that position to
carry out their work. Usually applied to heavy, bulky of
fragile such a ship-building, dentistry,
accommodations.
Process Layout –has machines or activities grouped
together non-sequentially to allow a range of different
products to be made. (people can move anywhere to
do a job ready to be done.)
Product Layout -has machinery dedicated to a
particular product, usually laid out in sequence, with
distinct stages in manufacture, with workers
performing relatively simple tasks.
Product & Process Layout –combines elements of
process layout with product layout. Each cluster of
machine produce for a specific process, ergo,
production can be at high volume.
Systems Analysis in the HI: Foodservice
Based on economies of scale.
By “decoupling” the kitchen from the point of service,
production facilities can be
- centralized,
- increased in size, and
- operate in isolation from peaks and troughs in
short-term demand.
Economies of scale refer the ability of a business to
reduce costs, typically as a result of business size,
production size and standardization. It occurs when a
business benefits from the size of its operation. As a
company gets bigger, it benefits from a number of
efficiencies.
Facilities Management - The management of
buildings and their engineering systems.
Facilities typically have systems designed to:
1. Deliver power & water
2. Maintain a comfortable temperature
3. Provide adequate lighting
4. Remove waste
5. Ensure personal safety
6. Assist movement within the property
7. Ensure the correct functioning of equipment
4 Main Purposes of the engineering function:
1. Ensure that these systems operate when they
are required.
2. Ensure that these systems work properly.
3. Ensure that these systems work efficiently.
4. Systems need to be designed and managed in
such a way that their impact is minimized.
SERVICESCAPES – how physical surrounding can
influence the behaviors of both customers and
employees.
The effects of servicescapes on customers and
employees are widely underappreciated and
underutilized. Managers frequently change physical
surrounding without taking into account the impact the
design changes will or could have on customers and/or
employees,
Service Environments - The physical environment in
service businesses such as hotels, restaurants,
professional offices, banks, retail stores, and hospitals
are more likely to influence behaviors and create an
image than are less service oriented businesses (i.e.,
ATM, dry cleaner, etc.).
Customers & Employees - The physical environment
doesn’t just influence customers, it influences
employees. Ideally, the businesses environment
should cater simultaneously to the needs of the
employees as well as the customers.
Why Should I Care About Servicescapes?
“The physical setting can aid or hinder the
accomplishment of both internal organizational goals
and external marketing goals.”
- Employee Motivation
- Attracting and Maintaining Customers
Social Interactions – Servicescapes influence the
nature and quality of customer and employee
interactions
- Enhance or detract from customer experience
- Employee and customer needs are often at
odds with each other
Designing the Servicescape
- What behaviors and strategic goals does the
organization hope to advance through its
physical facility?
- What internal responses will lead to the
desired behaviors?
- How should the environment be configured to
bring about such responses?
Individual Behaviors
Approach Behavior
- Desire to stay
- Desire to explore
- Desire to work
- Desire to affiliate
Avoidance behavior
- Desire not to stay
- Desire not to explore
- Desire not to work
- Desire not to affiliate
Environment and Cognition
- Perceptions lead to attributions
- Perceptions lead people to categorize
- Servicescape’s influence is stronger for
inexperienced customers/employees
- Servicescape’s influence is stronger when
information is scarce
Environment & Emotion
Emotional Responses
- Pleasure - increases approach behaviors
- Arousal - usually increases approach
behaviors
- Greater personal control increases pleasure
- Complexity increases emotional arousal
- Compatibility increases pleasure
- Feelings about the servicescape transfer over
to the organization
- Situations when tasks are complex
- Situations when time is short
Signs, Symbols, and Artifacts
Are particularly important in:
- Forming first impressions
- Communicating new service concepts
- Repositioning a service
- Highly competitive industries (to differentiate
from competitors)

Environment & Physiology Managerial Implications

- Environmental design and physiological - Servicescapes help achieve external

responses affect whether a person can
perform his or her job function.
- Physiological responses may influence
seemingly unrelated beliefs and feelings about
places and people
Response Moderators
- Personality traits affect the relationship
between the perceived servicescape and
internal responses
- Situational factors moderate the relationship
between the perceived servicescape and
internal responses
Dimensions of the Servicescape
Customers and employees perceive the environment
holistically, as a composite of three dimensions:
1. Ambient Conditions
2. Spatial layout and functionality
3. Signs, symbols, and artifacts
marketing goals and internal organizational
goals
- Servicescapes provide a visual metaphor for
an organizations total offering
- Servicescapes can aid or hinder customers or
employees from fulfilling their responsibilities
- Servicescapes can help segment, position,
and differentiate a company from it’s
competitors
Real World Example
Washington Mutual Bank
- Designed branches to be more like a retail
environment to make customers more
comfortable
- Focused on Teller needs to make them more
comfortable, productive, and pleasant to
customers

Each dimension may affect the overall perception

independently and/or through its interactions with the
other dimensions.

Ambient Conditions

Ambient conditions are notable when:

- They are extreme (hot, cold, etc.)

- When the customer spends large amounts of
time in them (i.e. at the office)
- When they don’t match one’s expectations

Spatial Layout and Functionality

Particularly important in:

- Self-service settings