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Week 5 operations management fassam l


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Operations management in the Value/Supply chain context

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Week 5 operations management fassam l

  1. 1. Operations ManagementInternational BusinessLiam Fassam
  2. 2. Operations Management• Within an organisation operations management is thefunction which interacts with and delivers products andservices to customers.• Operations management is not limited to themanufacture of products. Everyone, no matter what theirrole, is an operations manager.‘Efficient operations management is crucial to the success ofany organisation. The role of an operations manager is toprovide customer service within the framework of theorganisations policy and to use the resources as efficientlyas possible. Simply put: the operations manager makesthings happen’ (Wright and Race, 2004, p. 4).International Business - Operationsmanagement - Liam Fassam2
  3. 3. Operations ManagementOperations management in the SCM context is where,factories and facilities, plans are converted into realityto produce goods and services.Input resources basically consist of information,materials and utilities.They are transformed into desired outputs by thethree converting components of people, process andtechnology.IPO modelInputs > Processes = OutputsInternational Business - Operationsmanagement - Liam Fassam3
  4. 4. Operations ManagementIn addition to the conversion of inputs intooutputs operations management is responsible forthe physical flow of the supply chain. This includesthe upstream flow of input resources and thedownstream flow (distribution) of outputs.IPO modelInputs > Processes = OutputsUpstream - DownstreamInternational Business - Operationsmanagement - Liam Fassam4
  5. 5. Operations Management - Service‘A service organization exists to interact withcustomers and to satisfy customers’ servicerequirements. For any service to be provided, therehas to be a customer. Without a customer, andinteraction between customer and the serviceorganization, the objective of providing servicecannot exist.’Wright and Race (2004, p. 4)International Business - Operationsmanagement - Liam Fassam5
  6. 6. Operations Management - ManufacturingIn manufacturing operations customer interactionis not essential (Basu & Wright, 2008). E.g., carscan be manufactured, food can be harvested andprocessed, hamburgers can be made, and housescan be built, all without customer input.Although it might be desirable that the customerhas input into the design and the specifications ofthe product (be it a car, a hamburger or a house),customer input is not essential.International Business - Operationsmanagement - Liam Fassam6
  7. 7. Operations Management - ManufacturingThis does not mean that the customer is not “crucial”in the process and should be completely discounted inthe “Value chain”.For example, a ‘bespoke’ operation has a build toorder (BTO) process dictates that manufacturing willnot begin until an order has been received. However,in preparedness for peaks in demand such as seasonaldemand fluctuations, decisions can be made to beginmanufacturing ahead of order receipt – therefore thecustomer is not crucialInternational Business - Operationsmanagement - Liam Fassam7
  8. 8. Operations Management - Resources• Materials:Materials include the goods that are consumed by the system, goods that aretransformed by the system, and finished goods held for sale.(This is all raw material used to build the product and fuel utilised inoperating equipment)• Machines/equipment:These include plant, fittings, tools, vehicles and storage facilities.• Information systems:This covers the flow of information within the organization, and externallyfrom and to suppliers, customers and other stakeholders.(An information system includes all means of communication, for examplespeech, newsletters, manuals, brochures, radio, television, etc.)International Business - Operationsmanagement - Liam Fassam8
  9. 9. Operations Management - Resources• People:People not only means the number of people employed in the operatingsystem, but includes knowledge and skill levels of the people. People alsoincludes the pervading culture of an organization including intangibles ofdependability, attitude and shared values.• Property:This includes owned, leased or rented; offices, warehouses, factories,display areas, yards, parking space and hard standing, etc.These elements represent either a capital investment or an ongoing expense tothe organisation. Tangible inputs are physical and can be seen and touched, andthe amount or rate of use can be measured in quantifiable terms. Intangibleinputs are difficult to quantify. They cannot be seen or touched and includeknowledge (intellectual capital) culture and values.International Business - Operationsmanagement - Liam Fassam9
  10. 10. Operations Management – System structuresIn considering system structures, Wild uses the following symbols:O the transformation process of combining resourcesincluding utilities to add valueV ‘stock’ of input resources and output stocks, or ‘queue’of customers waiting to enter the system➜ the flow of resources through the systemC the customer. Note, the customer does not have to beexternal to the organization, but may be an internalcustomer. The ‘internal customer’ is the next person, ordepartment, in the process.International Business - Operationsmanagement - Liam Fassam10
  11. 11. Operations ManagementExamples of customer not waiting• Call centre waiting for customers.• Ambulance or fire service.Examples of a customer queue• Customers waiting in line (queue) forservice (e.g. supermarket check out).• Customers make an appointment to see aspecialist for advice (e.g lawyer, doctor, hairstylist).International Business - Operationsmanagement - Liam Fassam11
  12. 12. Operations Management – System structureInternational Business - Operationsmanagement - Liam Fassam12Example of idleresource andqueueEmpty containersin western seaports in the USAwaiting for freight,and at the sametime containershortages ineastern sea portsin Asia.OProcess transformationFreight USA loaded to containerand shipped to AsiaVOutput stocksEmpty containerUSAVInput stockEmptycontainersOProcess transformationFreight Asia loaded tocontainer and shipped toUSACFreight in Asiaawaiting emptycontainers
  13. 13. Operations Management – System structuresInternational Business - Operationsmanagement - Liam Fassam13This is the system structure of a manufacture process of from stock to stock. For thefactory manager this structure is easy to manage. It enables batch and/or levelproduction, and the manufacturing line can be balanced by building to output stock.The downside is that it is expensive in stock holding costs. In the fashion industry andother areas where technology changes, or is likely to change (e.g. electronic goodssuch as cell phones) there is a danger of the manufacturing organization beingleft with goods no longer in fashion or which are obsolete.Just in time or lean production; this is best explained bythe ‘Toyota 72 Hour Car’ concept. With this model Toyota holds no stocks ofinput materials and has no stock of finished cars.
  14. 14. Operations Management – System structuresInternational Business - Operationsmanagement - Liam Fassam14VInput resourcesProductdispatchedVOutput resourcesFreight forwarderconsolidates freightCCustomer in AsiaOProcess transformationSingle shipmentOProcess transformationFreight forwarderconsolidates freightResource queue due to consolidationto reach full load and awaiting vesselto return from Asia
  15. 15. Operations Management – Five V’sSlack et al. (2006) also support the input–process–output model, but add four V’s of processes toanalyse processes:• Volume• Variety• Variation• Visibility• Velocity (Fifth V added bu Basu & Wright, 2008)International Business - Operationsmanagement - Liam Fassam15
  16. 16. Operations Management - VolumeProcesses with a high regular demand will have ahigh degree of repetition. In operationsmanagement this means that tasks are repeatedoften and it makes sense to train staff to specializein a limited number of tasks.Therefore economies of scale; low throughputmanufacturing will not benefit from this. Neitherwill using containerised freight when consideringsmall shipping quantities.International Business - Operationsmanagement - Liam Fassam16
  17. 17. Operations Management - VarietyThe greater the variety the more stock has to beheld and the amount held will multiply with thenumber of stocking points within the supply chain.As Slack et al. say ‘A high level of variety may alsoimply a relatively wide range of inputs to theprocess and the additional complexity of matchingcustomer requirements to appropriate products orservices’.International Business - Operationsmanagement - Liam Fassam17
  18. 18. Operations Management - VariationProcesses are easier to manage when they arealigned to predictable and constant demand whichallow resource alignments to meet a level that isjust capable of sufficing demand.i.e. If you know one staff member can manage alinear daily demand of 20 customer enquires, it iseasy to match resource with demand. However, ifthis demand spikes to 40 in one day, your resourceversus demand is not sufficient.International Business - Operationsmanagement - Liam Fassam18
  19. 19. Operations Management - VisibilityVisibility in the supply chain relates to the exposure of theprocess.International Business - Operationsmanagement - Liam Fassam19If information is shared both upstreamand downstream in the supply chain theeffects of issues such as bullwhip effectare minimised and the overall supplychain operation becomes more efficientand delivers great supply chain surplus
  20. 20. Operations Management - VelocityVelocity, or time, is an important aspect of supplychain management. Measurement of timeperformance are:• Time taken to fulfill orders (lead time)• Time taken at each stage of the supply chain• Delivery on time• Age of stock (used by dates)• Numbers of days of stock on hand• Stock turnInternational Business - Operationsmanagement - Liam Fassam20
  21. 21. Operations Management - InfrastructureWhat are infrastructure facilities?• Factories• Offices• Equipment• Hardware,• Conversion technology• Third party suppliers/service resources (Outsource)Infrastructure facilities do not include people,procedures and systems.International Business - Operationsmanagement - Liam Fassam21
  22. 22. Operations Management – Manufacturing sectorAccording to Hayes and Wheelwright the four stages in thestrategic role of manufacturing are as follows:• Stage 1: Minimize manufacturing’s negative potential:‘internally neutral’ manufacturing is kept flexible and reactive.• Stage 2: Achieve parity with competitors: ‘externally neutral’capital investment is the primary means for catching up withcompetition.• Stage 3: Provide credible support to the business strategy:‘internally supportive’ longer-term manufacturingdevelopments and trends addressed systematically.• Stage 4: Pursue a manufacturing-based competitiveadvantage: ‘externally supportive’ long-range programmerspursued in order to acquire capabilitiesin advance of needs.International Business - Operationsmanagement - Liam Fassam22
  23. 23. Operations Management – Manufacturing sectorIn a typical fast-moving consumer goods (FMCG)manufacturing business:• 98 per cent of the products sold are either ownmanufactured or co-produced.• 90 per cent of the assets of the company are formanufacturing.• 75 per cent of the people work inmanufacturing.International Business - Operationsmanagement - Liam Fassam23
  24. 24. Operations Management – Service sectorInternational Business - Operationsmanagement - Liam Fassam24This intimacy of a customer in a service function has led to the perceptionthat service cannot be stored and has to be produced and consumed simultaneously,especially so in the “Direct service” markets.The isolated operations however can be managed using the similar methods as used inmanufacturing operations.