Operations Management and Operations Performance

OPERATIONS
MANAGEMENT
 Operations Management
 Importance of Operations Management in All Types of Organization
 Input-Transformation-Output Process
 Process Hierarchy
 Difference of Operations and Process
 Responsibilities of an Operations Manager

Operations Management
- The managing of resources to create and deliver products and
services
- One of the core functions of any business
- Concerned with managing processes

Operations Management
• All processes have internal customers and suppliers.
• All management functions have processes.
• Operations management has relevance for all managers.

 Operations Management
 Importance of Operations Management in All Types of Organization

Importance of Operations Management in
All Types of Organization
- Operations management uses the organization’s resources to create
outputs that fulfil defined market requirements.
- Operations management is important because organizations require
new thinking from operations managers.

 Importance of Operations Management in All Types of Organization

Input-Transformation-Output Process
- The process of transforming resources to create and deliver products
and/or services.
• Most operations create and deliver both products and services.

 Input-Transformation-Output Process

Process Hierarchy
- All operations are part of a larger supply network wherein the individual
contributions of all operations are needed to satisfy the customers’
requirements.
- All operations are made up of processes that form a network of internal
customer–supplier relationships within the operation.

Process Hierarchy
• End-to-end business processes that satisfy customer needs often cut
across functionally based processes.

Process Hierarchy
 Process Hierarchy

Difference of Operations and Process
- Operations and processes differ in terms of the 4 Vs.
4 Vs Operation Process
Volume Low High
Variety High Low
Variation High Low
Visibility by the High Low

Customer
• High volume, low variety, low variation and low customer visibility are
usually associated with low cost.

 Difference of Operations and Process

Responsibilities of an Operations Manager
• Direct
• Design
• Deliver
• Develop
• Direct
- Includes understanding relevant performance objectives, setting an
operations strategy, managing innovation and the scope of the
operation.
• Design
- Includes the design of the operation and its processes and its
resources.
• Deliver
- Includes the planning and controlling of the activities of the operation.

• Develop
- Includes the improvement of the operation over time.

• Increasingly operations managers have a responsibility for an
operations’ environmental performance.

 Difference of Operations and Process
 Responsibilities of an Operations Manager

OPERATIONS
PERFORMANCE
 Vitality of Operations Performance in Any Organization
 Judgment of Operations Performance at a Societal Level
 Judgment of Operations Performance at a Strategic Level
 Judgment of Operations Performance at an Operational Level
 Measurement of Operations Performance
 Trade-off of Operations Performance Against Each Other

Vitality of Operations Performance in Any
Organization
• Operations management can either ‘make or break’ any business.
• It represents the bulk of assets of most businesses.

Vitality of Operations Performance in Any Organization
• The positive effects of a well-run operation:
 Focus on improvement
 Building of ‘difficult to imitate’ capabilities
 Understanding of the processes (building blocks of all operations)

Vitality of Operations Performance in Any Organization
• The negative effects of a poorly run operation:
 Failures that are obvious to customers (and expensive for the organization)
 Complacency that leads to the failure to exploit opportunities for
improvement
 Vitality of Operations Performance in Any Organization
 Judgment of Operations Performance at a Societal Level

Judgment of Operations Performance at a Societal
Level
• Operations decisions affect a variety of stakeholders.

Judgment of Operations Performance at a Societal
Level
Judgment of Operations Performance at a Societal Level
• This idea that operations should consider the impact on different
stakeholders is called Corporate Social Responsibility (CSR).

• Performance at the societal level often uses the idea of the triple
bottom line (TBL or 3BL).
 People (Social Bottom Line)
 Planet (Environmental Bottom Line)
 Profits (Economic Bottom Line)

• The social bottom line incorporates the idea that businesses should
accept that they have some responsibility for the impact they have on
society (people).
• The environmental bottom line incorporates the idea that operations
should accept that they have some responsibility for the impact they
have on the natural environment (planet).

• The economic bottom line incorporates the financial measures of
performance derived from using the operation’s resources effectively
(profit).
 Judgment of Operations Performance at a Societal Level

Judgment of Operations Performance at a Strategic Level
• The type of decisions and activities that operations managers carry
out can have a strategic impact.

• Operations can affect economic performance in five ways:
 It can reduce the costs.
 It can achieve customer satisfaction through service.
 It can reduce the risk of operational failure.
 It can reduce the amount of investment that is necessary.
 It can provide the basis for future innovation.

 Judgment of Operations Performance at a Strategic Level

Judgment of Operations Performance at an Operational
Level
• The 5 Performance Objectives used to assess the performance of operations at an operational
level:
 Quality
 Speed
 Dependability
 Flexibility
 Cost
Judgment of Operations Performance at an Operational Level
• Quality is important because:
 By ‘doing things right’, operations seek to influence the quality of the company’s
goods and services.
 Externally, quality is an important aspect of customer satisfaction or dissatisfaction.
 Internally, quality operations both reduce costs and increase dependability.

• Speed is important because:
 By ‘doing things fast’, operations seek to influence the speed with which goods and
services are delivered.
 Externally, speed is an important aspect of customer service.
 Internally, speed both reduces inventories by decreasing internal throughput time and
reduces risks by delaying the commitment of resources.

• Dependability is important because:
 By ‘doing things on time’, operations seek to influence the dependability of the delivery of goods and
services.
 Externally, dependability is an important aspect of customer service.
 Internally, dependability within operations increases operational reliability, thus saving the time and
money that would otherwise be taken up in solving reliability problems and giving stability to the
operation.
• Flexibility is important because:
 By ‘changing what they do’, operations seek to influence the flexibility with which the company produces goods and
services.
 Externally, flexibility can produce new products and services (product/service flexibility).
 Externally, flexibility can produce a wide range or mix of products and services (mix flexibility).
 Externally, flexibility can produce different quantities or volumes of products and services (volume flexibility).
 Externally, flexibility can produce products and services at different times (delivery flexibility).
 Internally, flexibility can help speed up response times, save time wasted in changeovers, and maintain dependability.
• Cost is important because:
 By ‘doing things cheaply’, operations seek to influence the cost of the company’s goods and
services.
 Externally, low costs allow organizations to reduce their price in order to gain higher volumes or,
alternatively, increase their profitability on existing volume levels.
 Internally, cost performance is helped by good performance in the other performance objectives.
 Judgment of Operations Performance at an Operational Level

Measurement of Operations Performance
• It is unlikely that for any operation, a single measure of performance
will adequately reflect the whole of a performance objective.
• Usually, operations must collect a whole bundle of partial measures of
performance.
Measurement of Operations Performance
• The balanced scorecard (BSC) is a commonly used approach to performance
measurement and incorporates measures related to:
 How do we look to our shareholders? (Financial Perspective)
 What must we excel at? (Internal Process Perspective)
 How do our customers see us? (Customer Perspective)
 How can we continue to improve and build capabilities? (Learning and Growth Perspective)
 Measurement of Operations Performance

Trade-off of Operations Performance Against Each
Other
• Trade-offs are the extent to which improvements in one performance objective
can be achieved by sacrificing performance in others.
• The ‘efficient frontier’ concept is a useful approach to:
 Articulating trade-offs and distinguishes between repositioning performance on the efficient
frontier
 Improving performance by overcoming trade-offs

 Measurement of Operations Performance
 Trade-off of Operations Performance Against Each Other

Operations Management and Operations Performance

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OPERATIONS

 Importance of Operations Management in All Types of Organization

 Difference of Operations and Process

 Responsibilities of an Operations Manager

- The managing of resources to create and deliver products and

- One of the core functions of any business

- Concerned with managing processes

• All processes have internal customers and suppliers.

• All management functions have processes.

• Operations management has relevance for all managers.

 Importance of Operations Management in All Types of Organization

 Difference of Operations and Process

 Responsibilities of an Operations Manager

- Operations management uses the organization’s resources to create

outputs that fulfil defined market requirements.

- Operations management is important because organizations require

new thinking from operations managers.

 Importance of Operations Management in All Types of Organization

 Difference of Operations and Process

 Responsibilities of an Operations Manager

• Most operations create and deliver both products and services.

 Importance of Operations Management in All Types of Organization

 Difference of Operations and Process

 Responsibilities of an Operations Manager

contributions of all operations are needed to satisfy the customers’

- All operations are made up of processes that form a network of internal

customer–supplier relationships within the operation.

• End-to-end business processes that satisfy customer needs often cut

across functionally based processes.

 Importance of Operations Management in All Types of Organization

 Difference of Operations and Process

 Responsibilities of an Operations Manager

Volume Low High

Variety High Low

Variation High Low

Visibility by the High Low

usually associated with low cost.

 Importance of Operations Management in All Types of Organization

 Difference of Operations and Process

 Responsibilities of an Operations Manager

- Includes understanding relevant performance objectives, setting an

operations strategy, managing innovation and the scope of the

- Includes the planning and controlling of the activities of the operation.

- Includes the improvement of the operation over time.

• Increasingly operations managers have a responsibility for an

operations’ environmental performance.

 Importance of Operations Management in All Types of Organization

 Difference of Operations and Process

 Responsibilities of an Operations Manager

 Judgment of Operations Performance at a Societal Level

 Judgment of Operations Performance at a Strategic Level

 Judgment of Operations Performance at an Operational Level

 Measurement of Operations Performance

 Trade-off of Operations Performance Against Each Other

• Operations management can either ‘make or break’ any business.

• It represents the bulk of assets of most businesses.

• The positive effects of a well-run operation:

 Building of ‘difficult to imitate’ capabilities

 Understanding of the processes (building blocks of all operations)

• The negative effects of a poorly run operation:

 Complacency that leads to the failure to exploit opportunities for

 Judgment of Operations Performance at a Societal Level