Operations Management

Dr. Salma Chad

After finish this chapter…

Explain what is “process”

Describe OM as function

Differentiations

Describe trends and challenges in managing operation

Identify some decisions make by operation manager

Contents

Operation Management as Process

Value Chain Management

What is operation management?

Scope of responsibility of operation manager

Trends and challenges in OM

Operation Management as Process

• Operation Management deal with PROCESS that produce “Goods” & “Service”

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ADD VALUE ?

OUT PUT

IN P

UT

Operation Management as Process

• PROCESS should be design with accordance to customer “Needs” and “Wants”

• Customer

Internal

External

Operation Management as Process

• Manufacturing vs. Service Process

• Process

• The main differences between the two:

– Nature of their output

– Degree of customer contact

Manufacturing: without it there will be no “products”

Services: 80% of job in business

Operation Management as Process

• Manufacturing and Service is difficult to distinguish

Total Customer Offering– Automobile is not just manufacture a car but also provide after sale

service like arrange finance, offering warranties and guarantees.– Computer industry, customer is paying both hardware and software

but after sale service is very important like help-line for troubleshooting.

• Therefore, operation management should not see as manufacturing vs. service BUT as joint effort in the whole supply chain to provide total customer satisfaction.

Operation Management as Process• Manufacturing and Service some other example:

1. The product is intangible for service operation– Is this still true?– Service companies speak a lot about their “products” “intangible”

become “tangible”

2. Service can not be kept in the stock? Let’s examine the cases– In “tangible” services business such as the Pizza Company, KFC, Lucky

Burger, the supporting elements of the service (supplies) is clear and will be kept in stock.

– Some products can not be stock that long i.e. perishable foods BUT even CD music can last for years, it is not advised to keep it that long.

Operation Management as Process

• Manufacturing and Service some other example:

3. Service vary and can not be mass-produce– Depend on where and how we view the service. KFC is consider

service but still can produce large volume and diverse types

4. There is high customer contact – It is estimated that there is less than 5 min contact between

passengers and flight attendances from Phnom Penh to Singapore– Crown (Cambodia) spend a lot of time visiting their customers– The introduction of ATM machines by ANZ and other banks has

reduce tremendous amount of contact between customer and bankers.

Operation Management as Process

• Manufacturing and Service some other example:

5. Customers participate in the service– Not really necessary and always the case! With IT system customer

could check in without having to see the counter staffs, therefore reduce check in time process for air transport companies.

6. Facilities are located near to customers– That was really in the past! Still true for some cases…– With modernization of IT, Angkor Home Hotel in Siem Reap can be

book from Tokyo, Operation Management books can be bought from Amazon.com and have it ship straight to office door in Phnom Penh.

Operation Management as Process

• Manufacturing and Service some other example:

7. Quality is difficult to measure and depends on the server– In services industry, time is an important dimension in measure

quality – speed and reliability of response are measurable and quantifiable…

– Gone in 60 seconds! By McDonald fast food chain… vs. long line up of Lucky Burger, KFC, Pizza Company… during peak time!

Operation Management as Process

• The service management system

1. Culture &

Philosophy

5. Service Delivery System

4. Service Concept

2. Market Segment

3. Service Image

Service Management System (Norman, 2000)

Who we target for?Where we choose to be and not to be?

External environmentInternal environment

Specification that describe the benefit offered by service.

The way service concept is delivered.

Operation Management as Process

• Manufacturing and Service – the key points

Ü It is not always helpful when trying to manage operation by making a total distinction between service and manufacturing

Ü Manufacturing and service is about the collaboration activities in providing customers the goods or services

Ü The effort should use to distinction between input that manufacturing & service process (materials & customers)

Ü Remember: materials do not think or act for themselves while customers can and do. Service companies that forget this would die soon…

Contents Map

Operation Management as Process

Value Chain Management

What is operation management?

Scope of responsibility of operation manager

Trends and challenges in OM

Value Chain Management

• What is value chain?

• Process must add value to their customers – Activities that are necessary for adding values– Therefore, It is about value chain management!!! See: Value Innovation

Value Chain Management

• It is about management of “value added activities” in the whole supply chain (supply chain management)

• Processes are resource consumer , therefore its activities of converting input to output must be examine carefully. They should have an added value!

• A business is profitable if the value it creates exceeds the cost of performing the value activities (Porter, 2001)

Process 1 Process 2 Process 3 Process 4 Process 5 Process 6

Core processes

The Value Chain (Porter, M. 2001)

• A company’s value chain is a system of interdependent activities which are connected by linkages.

• Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Therefore need to be trade-off & coordination!

Contents Map

Operation Management as Process

Value Chain Management

What is operation management?

Scope of responsibility of operation manager

Trends and challenges in OM

Definition of Operation Management

• Systematic design, direction, and control of process that is transforming input into product/service for external & internal customers

– In large organization, operation is usually responsible for the actual transformation of input into services & products.

– Therefore, it is consisted of series of small operation which work as function.

– Some firms do not own the function but “contracting”– Most of senior level executive have their work experience in operation

i.e. VP Operation or Production, Chief Operation Officer (COO)– Typical report function to COO include Customer Service, Production,

Logistic, QA, Inventory, Maintenance & Reliability etc.

Contents Map

Operation Management as Process

Value Chain Management

What is operation management?

Scope of responsibility of operation manager

Trends and challenges in OM

Scope of responsibility of OM

• Decision COO makes both Strategic and Tactics

• Decision making process:1 •Recognize & Clearly define the problems

2 •Collect information to be analyzed

3 •Choose the most attractive solutions

4 •Implement chosen alternatives

Scope of responsibility of OM

• Strategic vs. Tactics decision– Strategic decision include:

• Development of new capabilities• Maintaining of existing ones• Process design• Value chain linkage development• KPIs development (finance and non finance matrices)

– Tactics decision include:• Process improvement• Performance measurement & management (see: Kaplan & Norton, Davenport-

analytical performance management)• Managing projects• Planning• Inventory

– Supplement docs: The three level of decision making

Scope of responsibility of OM

• 2 Principles must be kept in mind as COO:

1. Must design and operate processes deal with Quality, Technologies, and staffing issues

2. Each part of organization has its own identity

Contents Map

Operation Management as Process

Value Chain Management

What is operation management?

Scope of responsibility of operation manager

Trends and challenges in OM

Trends & Challenges in managing operation

ProductivityGlobal competitionTechnologies changesEnvironmental issuesEthicalDiversity

Trends & Challenges in managing operation

Productivity

Four strategies to consider:

Value of output (services or products)

Value of input (wage, cost of equipment,

materials etc.)

Trends & Challenges in managing operation

Global competitionIt is agreed that to “prosper & survive” business have to view customers, suppliers, facilities location, and competitor in global terms

Feature articles: “What it take to compete in flat world” “Global competition for resources”

Trends & Challenges in managing operation

Technological changes:Thus, the first and critical point about why we fail to see the need for change stems from the fact that we stand blinded by the light of successful past mental maps (Black & Gregerson,2008).

Feature articles: “strategy & the internet” “It is all start with ones” “How information gives you competitive advantages”LFC vs KFC

Trends & Challenges in managing operation

Environmental issues:Companies that persist in treating climate change solely as a corporate social responsibility issue, rather than a business problem, will risk the greatest consequences (Porter & Reinhardt, 2007).

Feature articles: “business climate and climate business” “Impact of Climate Changes on future business strategy adoption” “Virtual Matrix of Corporate Social Responsibility”

Trends & Challenges in managing operation

Business ethic:Raising the bar of rules or standards governing the conduct of doing business

Trends & Challenges in managing operation

Workplace diversity:Managing diversity is comprehensive process for creating work environment that includes everyoneThere is single recipe for success!

Feature articles: Harvard Business Review on “Managing Diversity”Harvard Business Review on “Culture Changes” Diversity as strategy – Harvard Business ReviewDiversity at workplace: benefits , challenges, and required material tools

Trends & Challenges in managing operation

Feature articles: “5 Competitive Forces that Shape Strategy”

Question…

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Class activities

Objectives: answer eachTo get deeper understand of business present & future trends & challengesIncrease level of competences in business researchTeam work in practicesBusiness presentation skill

Topics: choose 11. Productivity improvement challenges2. Globalization – The competition for resources. Try to answer “why companies

are competing with everyone from everywhere for everything?3. Climate changes – threats and opportunities for business in the future (to

include case studies)4. Management of workplace diversity5. Using Service Management Model developed by Norman, compare service

offer by The Pizza Company, Lucky Burger, KFC, Pizza World, and Soksabby.