Operations Management - II

What is operations management?

(Slack, Operations management)
 DEFINITION:
Operations management is the activity of
managing the resources which produce and deliver
products and services.

The operations function is the part of the organization that is

responsible for this activity. Every organization has an operations
function because every organization
produces some type of products and/or services.

However, not all types of organization will necessarily call the

operations function by this name. (Note that we also use the shorter
terms the operation and operations interchangeably with 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. (Slack)

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
Stage 1. The operations are considered as a
"necessary evil" as other functions regard it as
holding them back from competing effectively.

The operations function becomes reactive and

inward looking and contributes minimally
towards competitive success. The rest of the
organization would inevitably not look to operations
as the source of any originality, flair or competitive
drive. The operation becomes "internally neutral", a
position it attempts to achieve not by any positive
aspirations but by avoiding the bigger mistakes.
Breaking out of stage 1 begins by comparing itself
with similar companies or organizations.

During this stage of progression, the

organization may not yet be particularly
creative in the way it manages its operations
but is attempting to be appropriate, by
adopting best practice from its competitors.

Using the best ideas and norms of performance

from the rest of its industry is trying to be
externally neutral.
In the next stage, organizations aspire to be clearly the very
best in the market.

Organizations try to achieve this by understanding the

company's competitive or strategic goals and then organize
and develop the operation's resources to excel in the sector
that the company needs to compete effectively. Operation
managers will now develop appropriate resources and
assuming the role of implementers of strategy.

The operation will soon become internally supportive

by providing a credible operations strategy.
An excellent company views the operations
function as providing the foundation for its
competitive success by focusing on all long
term goals.

Likely changes in markets and supply will be

forecast and operations-based strategies will be
developed to provide the company with the
performance required to compete in future market
conditions. It becomes central to strategy making.
In this stage, the operations are creative and
proactive and are likely to organize their resources
in ways which are innovative and capable of
adaptation as markets change.

After all, market leaders tend to be one step

The activities of operations management

Understanding the operations strategic

performance objectives. The first responsibility of any
operations management team is to understand what it is
trying to achieve. This means understanding how to judge
the performance of the operation at different levels, from
broad and strategic to more operational performance
objectives.

Developing an operations strategy for the

organization. Operations management involves
hundreds of minute-by-minute decisions, so it is vital that
there is a set of general principles which can guide
decision-making towards the organizations longer-term
goals.
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. The 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.
OPERATIONS OBJECTIVES (GOALS)

Quality
Quality is placed first in our list of performance objectives
because many authorities believe it to be the most important.
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.

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.
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?
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. We can 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.
Cost
First, the cost structure of different organisations
can vary greatly.

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."
Questions

a) Explain how an operations function within the following

organizations could contribute to their long-term competitive
success:
- a salted snack manufacturer
- an airline
- a parcel delivery service
- an hotel.

b) For the following organizations, explain how their

operations functions can support business strategy,
implement business strategy and drive business strategy:
- a fast-food restaurant
- a bank
- an oil refinery.
Taxi Stockholm, a 101-year-old Swedish cabdriver
cooperative

Taxi Stockholm 150000 is a fast-moving leader in

an industry famous for its old-fashioned ways. A
CEO who knows how to drive change put 3,822
cabbies on the road to the future.

"People often choose us even when we're not first in the

queue," says Stensioe, a 57-year-old owner-operator
who has driven Taxi Stockholm cars for 21 years. "We
have a special relationship with our customers.

http
://www.fastcompany.com/42943/all-hail-taxi-stockholm
Operations strategy

In some ways the very term operation strategy sounds

like a contradiction in terms. Operations is, after all,
about the day-to-day creation and delivery of products
and services. So how can it be strategic?
In fact, the issue is one of distinguishing between two
words which are similar but have different meanings.
These areoperations andoperational.Operationsrefers
to those parts of the business which are concerned with
producing products and services.
Operationalis the opposite of strategic in the sense that
it means short-term and limited in its influence. Other
functions of the business such as marketing or finance
have both strategic and operational activities. (ex
following)
For example,
marketing strategy covers the overall long-term approach
to how the organisation wants to position itself in its
markets.
The operational side of marketing refers to the day by day
tactics of how to manage things like advertising, pricing,
and so on.

Operations strategy looks at the long-term issues

of how to manage the resources which produce
products and services.

The more operational subject of operations management

looks at the more detailed and shop floor issues of
designing, planning and controlling, and improving the
resources which produce products and services.
The content of operations strategy is
concerned with the specific decisions which
shape and develop the long-term direction
of the operation.

The process of operations strategy refers to

the procedures which are used to formulate
operations strategies. It is the way we go
about the activity of devising strategy.

Think of operations strategy content

aswhatthe organisation is deciding to
do and process ashowthe organisation
has made that decision.
Top-down versus bottom-up perspectives of operations
strategy

One view of operations strategy (the more traditional one) is

operations strategy is one of severalfunctional strategieswhich
are governed by decisions taken at the top of the organisational
tree. According to this top-down approach, overall business
strategy sets the general direction of the organisation, this is then
interpreted by the different functional areas of the company
(marketing, finance, operations, etc.) in their functional strategies.

By contrast, the bottom-up view of operations strategy is to see

strategic decision making as an accumulation of practical
experiences. After all, organisations would find it difficult to
invent strategies in a total vacuum. Their ideas are formed from
their previous experience of dealing with customers, suppliers and
their own processes. This is the idea behindemergent strategies.
These are strategic ideas which emerge over time as an
organisation begins to understand the realities of their situation.
The market requirements perspective
starts from the commonsense notion that any
operations strategy should reflect what the
organisation is trying to do in its markets.

Companies compete in different ways,

some may compete primarily on cost,
others on the excellence of their products
or services, others on high levels of
customer service, others on customising
their products and services to individual
customer needs, and so on.
The operations function therefore must
respond to this by providing the capabilities
which allow it perform in an appropriate
manner to satisfy the requirements of its
market.

In some ways this is a translation task

because the techniques and language used by
marketing managers to understand the
requirements of markets are different to the
language and techniques used by operations
managers to manage their productive
resources.
Case 1: Southwest airlines undercuts its rivals

While most of the western worlds airlines are trying to outdo

their competitors by providing ever more sophisticated
services, including excellent catering and the latest
entertainment technology, one company has chosen to
return to its core product (transportation), and cut out almost
all the extras.
Southwest Airlines, based in Dallas, is one of the few airlines
in the US which can boast of having been consistently
profitable throughout the last two turbulent decades.
Its strategy has been to compete on price, with cut-price
advance booked fares as much as 50 per cent below those of
larger competitors.
Indeed some of its larger competitors have been forced to
defend their markets by attempting to copy Southwests
formula and price.
For Southwest, the consistency and coherence of the
operations strategy have played a big part in its
survival and growth to a business that now has a five
per cent share of the enormous US market.
To compete on price over the long term, operations
costs must be the lowest in the market, and that is
precisely what the airlines founder and owner, Herbie
Kelleher, has achieved, often in quite unique ways.
Passengers notice the difference even before they enter the
plane, as Southwests numbered boarding passes are plastic
and reusable. Passengers are called forwards in groups, but
once they are in the plane they are free to sit where they
wish. There is no attempt to provide the normal meals
service, so passengers are just offered a bag of peanuts, a
glass of orange juice, with a narrow choice of drinks available
to those that wish to purchase them. Passengers, and even
crew, often bring their own food and drinks with them.
 Despite the very obvious lack of conventional offerings such
as in-flight films and the personal attention of the cabin crew,
passengers seem impressed with the whole package, scoring
the airline highly in most research surveys. The staff are
renowned for their informal yet personable approach, and
this is reinforced by their simple uniform of brightly
coloured shorts and T-shirts. The companys style and culture
are reinforced by the owner, who has been seen on board
some flights, for example, wearing an Easter rabbit suit and
entertaining the passengers in his own particular way.
The simplicity of the entire service gives Southwest a
particularly strong cost advantage on short routes,
where the turnaround time at airports becomes
critical. Because there are no meals, there is less
mess to clear up, and so the cabin is routinely cleaned
by the crew. There is also less time needed to prepare
the galley, as no meals are carried, and the overhead
costs of organizing meals and entertainment is
eliminated.
 Southwest has shown that it is possible to challenge
conventional ways of operating an airline and has provided
value to its customers at minimum cost. Its service doesnt suit
everyone, but those who do buy a ticket at least get what they
want and expect.

The operations resource perspective works the other way round

from the market requirements perspective. It starts from the
view that the success of any competitive strategy is not just a
matter of selecting the current market position and then
adjusting the operations various resources and processes to fall
into line with it. Operations resources are often complex to
manage and have an inertia which cannot be overcome instantly
in order to correspond to changes in the market. But also, more
positively, the resources and processes within an operation can
have a set of capabilities which can be harnessed and exploited
in the market place. The problem with just following the market
in a slavish manner is that other competitor organisations will be
doing the same thing.
 Maybe it would be better to identify the things
which the company is particularly good at (its
core capabilities, or core competences) and select
the parts of the market in which those particular
skills will be valued by customers.

So, instead of saying, There is an attractive part

of the market, lets go and compete in it. Oh, and
tell the operations function it had better try and
be good in the things that those particular
customers want,the company is saying,We
really are particularly good at doing certain
things, lets try and find a part of the market that
needs us to be good at those particular things,
because then it will be very difficult for our
competitors to copy us.
 According to this view, the decisions
taken within an operations strategy
should primarily have the objective
of enhancing those core capabilities
of the operation which competitors
will find difficult to imitate.