Pret a manger food on the move pdf

Chapter 1 Operations management ➤ What is operations management?

➤ Why is operations management important in all types of organization?

➤ What is the input–transformation–output process?

➤ What is the process hierarchy?

➤ How do operations processes have different characteristics?

➤ What are the activities of operations management?

Chapter 2 Operations performance ➤ Why is operations performance important in any organization?

➤ How does the operations function incorporate all stakeholders’ objectives?

➤ What does top management expect from the operations function?

➤ What are the performance objectives of operations and what are the internal and external benefits which derive from excelling in each of them?

➤ How do operations performance objectives trade off against each other?

Chapter 3 Operations strategy ➤ What is strategy and what is operations strategy?

➤ What is the difference between a ‘top-down’ and a ‘bottom-up’ view of operations strategy?

➤ What is the difference between a ‘market requirements’ and an ‘operations resources’ view of operations strategy?

➤ How can an operations strategy be put together?

Key operations questions

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Part One INTRODUCTION

This part of the book introduces the idea of the operations function in different

types of organization. It identifies the common set of objectives to which

operations managers aspire in order to serve their customers, and it explains

how operations can have an important strategic role.

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Introduction Operations management is about how organizations produce goods and services. Everything you wear, eat, sit on, use, read or knock about on the sports field comes to you courtesy of the operations managers who organized its production. Every book you borrow from the library, every treatment you receive at the hospital, every service you expect in the shops and every lecture you attend at university – all have been produced. While the people who supervised their ‘production’ may not always be called operations managers that is what they really are. And that is what this book is concerned with – the tasks, issues and decisions of those operations managers who have made the services and products on which we all depend. This is an introductory chapter, so we will examine what we mean by ‘operations management’, how operations processes can be found everywhere, how they are all similar yet different, and what it is that operations managers do.

Chapter 1 Operations management

Key questions ➤ What is operations management?

➤ Why is operations management important in all types of organization?

➤ What is the input–transformation– output process?

➤ What is the process hierarchy?

➤ How do operations processes have different characteristics?

➤ What are the activities of operations management?

Check and improve your understanding of this chapter using self assessment questions and a personalised study plan, audio and video downloads, and an eBook – all at www.myomlab.com.

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Love it or hate it, IKEA is the most successful furniture retailer ever. With 276 stores in 36 countries, it has managed to develop its own special way of selling furniture. The stores’ layout means customers often spend two hours in the store – far longer than in rival furniture retailers. IKEA’s philosophy goes back to the original business, started in the 1950s in Sweden by Ingvar Kamprad. He built a showroom on the outskirts of Stockholm where land was cheap and simply displayed suppliers’ furniture as it would be in a domestic setting. Increasing sales soon allowed IKEA to start ordering its own self-designed products from local manufacturers. But it was innovation in its operations that dramatically reduced its selling costs. These included the idea of selling furniture as self-assembly flat packs (which reduced production and transport costs) and its ‘showroom–warehouse’ concept which required customers to pick the furniture up themselves from the warehouse (which reduced retailing costs). Both of these operating principles are still the basis of IKEA’s retail operations process today.

Stores are designed to facilitate the smooth flow of customers, from parking, moving through the store itself, to ordering and picking up goods. At the entrance to each store large notice-boards provide advice to shoppers. For young children, there is a supervised children’s play area, a small cinema, and a parent and baby room so parents can leave their children in the supervised play area for a time. Parents are recalled via the loudspeaker system if the child has any problems. IKEA ‘allow customers to make up their minds in their own time’ but ‘information points’ have staff who can help. All furniture carries a ticket with a code number which indicates its location in the warehouse. (For larger items customers go to the information desks for assistance.) There is also an area where smaller items are displayed, and can be picked directly. Customers then pass through the warehouse where they pick up the items viewed in the showroom. Finally, customers pay at the checkouts, where a ramped conveyor belt moves purchases up to the checkout staff. The exit area has service points and a loading area that allows customers to bring their cars from the car park and load their purchases.

Behind the public face of IKEA’s huge stores is a complex worldwide network of suppliers, 1,300 direct suppliers, about 10,000 sub-suppliers, wholesale and transport operations include 26 Distribution Centres. This supply network is vitally important to IKEA. From

(All chapters start with an ‘Operations in practice’ example that illustrates some of the issues that will be covered in the chapter.)

purchasing raw materials, right through to finished products arriving in its customers’ homes, IKEA relies on close partnerships with its suppliers to achieve both ongoing supply efficiency and new product development. However, IKEA closely controls all supply and development activities from IKEA’s home town of Älmhult in Sweden.

But success brings its own problems and some customers became increasingly frustrated with overcrowding and long waiting times. In response IKEA in the UK launched a £150 m programme to ‘design out’ the bottlenecks. The changes included:

● Clearly marked in-store short cuts allowing customers who just want to visit one area, to avoid having to go through all the preceding areas.

● Express checkout tills for customers with a bag only rather than a trolley.

● Extra ‘help staff’ at key points to help customers. ● Redesign of the car parks, making them easier to

navigate. ● Dropping the ban on taking trolleys out to the car

parks for loading (originally implemented to stop vehicles being damaged).

● A new warehouse system to stop popular product lines running out during the day.

● More children’s play areas.

IKEA spokeswoman Nicki Craddock said: ‘We know people love our products but hate our shopping experience. We are being told that by customers every day, so we can’t afford not to make changes. We realized a lot of people took offence at being herded like sheep on the long route around stores. Now if you know what you are looking for and just want to get in, grab it and get out, you can.’

Chapter 1 Operations management 3

Operations in practice IKEA1

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Operations management is a vital part of IKEA’s success IKEA shows how important operations management is for its own success and the success of any type of organization. Of course, IKEA understands its market and its customers. But, just as important, it knows that the way it manages the network of operations that design, produce and deliver its products and services must be right for its market. No organization can survive in the long term if it cannot supply its customers effectively. And this is essentially what operations management is about – designing, producing and delivering products and services that satisfy market requirements. For any business, it is a vitally important activity. Consider just some of the activities that IKEA’s operations managers are involved in.

● Arranging the store’s layout to gives smooth and effective flow of customers (called process design)

● Designing stylish products that can be flat-packed efficiently (called product design)

● Making sure that all staff can contribute to the company’s success (called job design)

● Locating stores of an appropriate size in the most effective place (called supply network design)

● Arranging for the delivery of products to stores (called supply chain management)

● Coping with fluctuations in demand (called capacity management)

● Maintaining cleanliness and safety of storage area (called failure prevention)

● Avoiding running out of products for sale (called inventory management)

● Monitoring and enhancing quality of service to customers (called quality management)

● Continually examining and improving operations practice (called operations improvement).

And these activities are only a small part of IKEA’s total operations management effort. But they do give an indication, first of how operations management should contribute to the businesses success, and second, what would happen if IKEA’s operations managers failed to be effective in carrying out any of its activities. Badly designed processes, inappropriate products, poor locations, disaffected staff, empty shelves, or forgetting the importance of continually improving quality, could all turn a previously successful organization into a failing one. Yet, although the relative importance of these activities will vary between different organizations, operations managers in all organizations will be making the same type of decision (even if what they actually decide is different).

Part One Introduction4

What is operations management?

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’). Operations managers are the people who have particular responsibility for managing some, or all, of the resources which compose the operations function. Again, in some organizations the operations manager could be called by some other name. For example, he or she might be called the ‘fleet manager’ in a distribution company, the ‘administrative manager’ in a hospital, or the ‘store manager’ in a supermarket.

Operations in the organization

The operations function is central to the organization because it produces the goods and services which are its reason for existing, but it is not the only function. It is, however, one of the three core functions of any organization. These are:

● the marketing (including sales) function – which is responsible for communicating the organization’s products and services to its markets in order to generate customer requests for service;

Operations management

Operations function

Operations managers

Three core functions

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● the product/service development function – which is responsible for creating new and modified products and services in order to generate future customer requests for service;

● the operations function – which is responsible for fulfilling customer requests for service through the production and delivery of products and services.

In addition, there are the support functions which enable the core functions to operate effectively. These include, for example:

● the accounting and finance function – which provides the information to help economic decision-making and manages the financial resources of the organization;

● the human resources function – which recruits and develops the organization’s staff as well as looking after their welfare.

Remember that different organizations will call their various functions by different names and will have a different set of support functions. Almost all organizations, however, will have the three core functions, because all organizations have a fundamental need to sell their services, satisfy their customers and create the means to satisfy customers in the future. Table 1.1 shows the activities of the three core functions for a sample of organizations.

In practice, there is not always a clear division between the three core functions or between core and support functions. This leads to some confusion over where the boundaries of the operations function should be drawn. In this book we use a relatively broad definition of operations. We treat much of the product/service development, technical and information systems activities and some of the human resource, marketing, and accounting and finance activities as coming within the sphere of operations management. We view the operations func- tion as comprising all the activities necessary for the day-to-day fulfilment of customer requests. This includes sourcing products and services from suppliers and transporting products and services to customers.

Working effectively with the other parts of the organization is one of the most important responsibilities of operations management. It is a fundamental of modern management that functional boundaries should not hinder efficient internal processes. Figure 1.1 illustrates some of the relationships between operations and some other functions in terms of the flow of information between them. Although it is not comprehensive, it gives an idea of the nature of each relationship. However, note that the support functions have a different relationship with operations than operations has with the other core functions. Operations management’s responsibility to support functions is primarily to make sure that they understand operations’ needs and help them to satisfy these needs. The relationship with the other two core functions is more equal – less of ‘this is what we want’ and more ‘this is what we can do currently – how do we reconcile this with broader business needs?’

Support functions

Broad definition of operations

Chapter 1 Operations management 5

Table 1.1 The activities of core functions in some organizations

Core functional activities

Marketing and sales

Product/service development

Operations

Internet service provider (ISP)

Promote services to users and get registrations Sell advertising space

Devise new services and commission new information content

Maintain hardware, software and content Implement new links and services

Fast food chain

Advertise on TV Devise promotional materials

Design hamburgers, pizzas, etc. Design décor for restaurants

Make burgers, pizzas etc. Serve customers Clear away Maintain equipment

International aid charity

Develop funding contracts Mail out appeals for donations

Develop new appeals campaigns Design new assistance programmes

Give service to the beneficiaries of the charity

Furniture manufacturer

Advertise in magazines Determine pricing policy Sell to stores

Design new furniture Coordinate with fashionable colours

Make components Assemble furniture

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Figure 1.1 The relationship between the operations function and other core and support functions of the organization

Part One Introduction6

Operations management is important in all types of organization

In some types of organization it is relatively easy to visualize the operations function and what it does, even if we have never seen it. For example, most people have seen images of automobile assembly. But what about an advertising agency? We know vaguely what they do – they produce the advertisements that we see in magazines and on television – but what is their operations function? The clue lies in the word ‘produce’. Any business that pro- duces something, whether tangible or not, must use resources to do so, and so must have an operations activity. Also the automobile plant and the advertising agency do have one important element in common: both have a higher objective – to make a profit from pro- ducing their products or services. Yet not-for-profit organizations also use their resources to produce services, not to make a profit, but to serve society in some way. Look at the follow- ing examples of what operations management does in five very different organizations and some common themes emerge.

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Start with the statement from the ‘easy to visualize’ automobile plant. Its summary of what operations management did was that . . . ‘Operations management uses machines to efficiently assemble products that satisfy current customer demands.’ The statements from the other organizations were similar, but used slightly different language. Operations management used, not just machines but also . . . ‘knowledge, people, “our and our partners’ resources” ’ and ‘our staff ’s experience and knowledge’, to efficiently (or effectively, or creatively) assemble (or produce, change, sell, move, cure, shape, etc.) products (or services or ideas) that satisfy (or match or exceed or delight) customers’ (or clients’ or citizens’ or society’s) demands (or needs or concerns or even dreams). So whatever terminology is used there is a common theme and a common purpose to how we can visualize the operations activity in any type of organization: small or large, manufacturing or service, public or private, profit or not-for-profit. Operations management uses resources to appropriately create outputs that fulfil defined market require- ments. See Figure 1.2. However, although the essential nature and purpose of operations management is the same in every type of organization, there are some special issues to consider, particularly in smaller organizations and those whose purpose is to maximize something other than profit.

Chapter 1 Operations management 7

Automobile assembly factory – Operations management uses machines to efficiently assemble products that satisfy current customer demands

Physician (general practitioner) – Operations management uses knowledge to effectively diagnose conditions in order to treat real and perceived patient concerns

Management consultant – Operations management uses people to effectively create the services that will address current and potential client needs

Disaster relief charity – Operations management uses our and our partners’ resources to speedily provide the supplies and services that relieve community suffering

Advertising agency – Operations management uses our staff ’s knowledge and experience to creatively present ideas that delight clients and address their real needs

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Operations management in the smaller organization

Operations management is just as important in small organizations as it is in large ones. Irrespective of their size, all companies need to produce and deliver their products and services efficiently and effectively. However, in practice, managing operations in a small or medium-size organization has its own set of problems. Large companies may have the resources to dedicate individuals to specialized tasks but smaller companies often cannot, so people may have to do different jobs as the need arises. Such an informal structure can allow the company to respond quickly as opportunities or problems present themselves. But decision making can also become confused as individuals’ roles overlap. Small companies may have exactly the same operations management issues as large ones but they can be more difficult to separate from the mass of other issues in the organization. However, small operations can also have significant advantages; the short case on Acme Whistles illustrates this.

Part One Introduction8

Figure 1.2 Operations management uses resources to appropriately create outputs that fulfil defined market requirements

Acme Whistles can trace its history back to 1870 when Joseph Hudson decided he had the answer to the London Metropolitan Police’s request for something to replace the wooden rattles that were used to sound the alarm. So the world’s first police whistle was born. Soon Acme grew to be the premier supplier of whistles for police forces around the world. ‘In many ways’, says Simon Topman, owner and Managing Director of the company, ‘the company is very much the same as it was in Joseph’s day. The machinery is more modern, of course, and we have a wider variety of products, but many of our products are similar to their predecessors. For example, football referees seem to prefer the traditional snail-shaped whistle. So, although we have dramatically improved the performance of the product, our customers want it to look the same. We have also

Short case Acme Whistles2

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The role of operations management in smaller organizations often overlaps significantly with other functions

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Operations management in not-for-profit organizations

Terms such as competitive advantage, markets and business, which are used in this book, are usually associated with companies in the for-profit sector. Yet operations management is also relevant to organizations whose purpose is not primarily to earn profits. Managing the operations in an animal welfare charity, hospital, research organization or government department is essentially the same as in commercial organizations. Operations have to take the same decisions – how to produce products and services, invest in technology, contract out some of their activities, devise performance measures, and improve their operations performance and so on. However, the strategic objectives of not-for-profit organizations may be more complex and involve a mixture of political, economic, social and environ- mental objectives. Because of this there may be a greater chance of operations decisions being made under conditions of conflicting objectives. So, for example, it is the operations staff in a children’s welfare department who have to face the conflict between the cost of providing extra social workers and the risk of a child not receiving adequate protection. Nevertheless the vast majority of the topics covered in this book have relevance to all types of organization, including non-profit, even if the context is different and some terms may have to be adapted.

Chapter 1 Operations management 9

Oxfam International is a confederation of 13 like-minded organizations based around the world that, together with partners and allies, work directly with communities seeking to ensure that poor people can improve their lives and livelihoods and have a say in decisions that affect them. With an annual expenditure that exceeds US$700 million, Oxfam International focuses its efforts in several areas, including development work, long-term programmes to eradicate poverty and

Short case Oxfam International3

maintained the same manufacturing tradition from those early days. The original owner insisted on personally blowing every single whistle before it left the factory. We still do the same, not by personally blowing them, but by using an air line, so the same tradition of quality has endured.’

The company’s range of whistles has expanded to include sports whistles (they provide the whistles for the soccer World Cup), distress whistles, (silent) dog whistles, novelty whistles, instrumental whistles (used by all of the world’s top orchestras), and many more types. ‘We are always trying to improve our products’, says Simon, ‘it’s a business of constant innovation. Sometimes I think that after 130 years surely there is nothing more to do, but we always find some new feature to incorporate. Of course, managing the operations in a small company is very different to working in a large one. Everyone has much broader jobs; we cannot afford the overheads of having

specialist people in specialized roles. But this relative informality has a lot of advantages. It means that we can maintain our philosophy of quality amongst everybody in the company, and it means that we can react very quickly when the market demands it.’ Nor is the company’s small size any barrier to its ability to innovate. ‘On the contrary’, says Simon, ‘there is something about the culture of the company that is extremely important in fostering innovation. Because we are small we all know each other and we all want to contribute something to the company. It is not uncommon for employees to figure out new ideas for different types of whistle. If an idea looks promising, we will put a small and informal team together to look at it further. It is not unusual for people who have been with us only a few months to start wanting to make innovations. It’s as though something happens to them when they walk through the door of the factory that encourages their natural inventiveness.’

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Operations decisions are the same in commercial and not-for-profit organizations

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The new operations agenda

The business environment has a significant impact on what is expected from operations management. In recent years there have been new pressures for which the operations func- tion has needed to develop responses. Table 1.2 lists some of these business pressures and the operations responses to them. These operations responses form a major part of a new agenda for operations. Parts of this agenda are trends which have always existed but have accelerated, such as globalization and increased cost pressures. Part of the agenda involves seeking ways to exploit new technologies, most notably the Internet. Of course, the list in Table 1.2 is not comprehensive, nor is it universal. But very few businesses will be unaffected by at least some of these concerns. When businesses have to cope with a more challenging environment, they look to their operations function to help them respond.

Part One Introduction10

combat injustice, emergency relief delivering immediate life-saving assistance to people affected by natural disasters or conflict, helping to build their resilience to future disasters, campaigning and raising public awareness of the causes of poverty, encouraging ordinary people to take action for a fairer world, and advocacy and research that pressures decision-makers to change policies and practices that reinforce poverty and injustice.

All of Oxfam International’s activities depend on effective and professional operations management. For example, Oxfam’s network of charity shops, run by volunteers, is a key source of income. The shops sell donated items and handcrafts from around the world giving small-scale producers fair prices, training, advice and funding. Supply chain management and development is just as central to the running of these shops as it is to the biggest commercial chain of stores. The operations challenges involved in Oxfam’s ongoing ‘Clean Water’ exercise are different but certainly no less important. Around 80 per cent of diseases and over one-third of deaths in the developing world are caused by contaminated water and Oxfam has a particular expertise in providing clean water and sanitation facilities. The better their coordinated efforts of identifying potential projects, working with local communities, providing help and education, and helping to providing civil engineering expertise, the more effective Oxfam is at fulfilling its objectives.

More dramatically, Oxfam International’s response to emergency situations, providing humanitarian aid where it is needed, must be fast, appropriate and efficient. Whether the disasters are natural or political, they become emergencies when the people involved can no longer cope. In such situations, Oxfam, through its network of staff in local offices, is able to advise on what and where help is needed. Indeed, local teams are often able to provide warnings of impending

disasters, giving more time to assess needs and coordinate a multi-agency response. The organization’s headquarters in Oxford in the UK provides advice, materials and staff, often deploying emergency support staff on short-term assignments. Shelters, blankets and clothing can be flown out at short notice from the Emergencies Warehouse. Engineers and sanitation equipment can also be provided, including water tanks, latrines, hygiene kits and containers. When an emergency is over, Oxfam continues to work with the affected communities through their local offices to help people rebuild their lives and livelihoods. In an effort to improve the timeliness, effectiveness and appropriateness of its response to emergencies, Oxfam recently adopted a more systematic approach to evaluating the successes and failures of its humanitarian work. Real-time evaluations, which seek to assess and influence emergency response programmes in their early stages, were implemented during the response to floods in Mozambique and South Asia, the earthquake in Peru, Hurricane Felix in Nicaragua and the conflicts in Uganda. These exercises provided Oxfam’s humanitarian teams with the opportunity to gauge the effectiveness of their response, and make crucial adjustments at an early stage if necessary. The evaluations highlighted several potential improvements. For example, it became evident that there was a need to improve preparation ahead of emergencies, as well as the need to develop more effective coordination planning tools. It was also decided that adopting a common working approach with shared standards would improve the effectiveness of their response to emergencies. Oxfam also emphasizes the importance of the role played by local partners in emergencies. They are often closer to, and more in tune with, affected communities, but may require additional support and empowerment to scale up their response and comply with the international humanitarian standards.

Modern business pressures have changed the operations agenda

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Chapter 1 Operations management 11

Table 1.2 Changes in the business environment are shaping a new operations agenda

Prompting operations responses . . .

For example,

• Globalization of operations networking

• Information-based technologies

• Internet-based integration of operations activities

• Supply chain management

• Customer relationship management

• Flexible working patterns

• Mass customization

• Fast time-to-market methods

• Lean process design

• Environmentally sensitive design

• Supplier ‘partnership’ and development

• Failure analysis

• Business recovery planning

The business environment is changing . . .

For example,

• Increased cost-based competition

• Higher quality expectations

• Demands for better service

• More choice and variety

• Rapidly developing technologies

• Frequent new product/service introduction

• Increased ethical sensitivity

• Environmental impacts are more transparent

• More legal regulation

• Greater security awareness

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Figure 1.3 All operations are input–transformation–output processes

The input–transformation–output process

All operations produce products and services by changing inputs into outputs using an ‘input-transformation-output’ process. Figure 1.3 shows this general transformation process model. Put simply, operations are processes that take in a set of input resources which are used to transform something, or are transformed themselves, into outputs of products and services. And although all operations conform to this general input–transformation–output model, they differ in the nature of their specific inputs and outputs. For example, if you stand far enough away from a hospital or a car plant, they might look very similar, but move closer and clear differences do start to emerge. One is a manufacturing operation producing ‘products’, and the other is a service operation producing ‘services’ that change the physio- logical or psychological condition of patients. What is inside each operation will also be

Transformation process model

Input resources

Outputs of goods and services

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different. The motor vehicle plant contains metal-forming machinery and assembly processes, whereas the hospital contains diagnostic, care and therapeutic processes. Perhaps the most important difference between the two operations, however, is the nature of their inputs. The vehicle plant transforms steel, plastic, cloth, tyres and other materials into vehicles. The hospital transforms the customers themselves. The patients form part of the input to, and the output from, the operation. This has important implications for how the operation needs to be managed.

Inputs to the process

One set of inputs to any operation’s processes are transformed resources. These are the resources that are treated, transformed or converted in the process. They are usually a mixture of the following:

● Materials – operations which process materials could do so to transform their physical properties (shape or composition, for example). Most manufacturing operations are like this. Other operations process materials to change their location (parcel delivery companies, for example). Some, like retail operations, do so to change the possession of the materials. Finally, some operations store materials, such as in warehouses.

● Information – operations which process information could do so to transform their informational properties (that is the purpose or form of the information); accountants do this. Some change the possession of the information, for example market research com- panies sell information. Some store the information, for example archives and libraries. Finally, some operations, such as telecommunication companies, change the location of the information.

● Customers – operations which process customers might change their physical properties in a similar way to materials processors: for example, hairdressers or cosmetic surgeons. Some store (or more politely accommodate) customers: hotels, for example. Airlines, mass rapid transport systems and bus companies transform the location of their customers, while hospitals transform their physiological state. Some are concerned with transforming their psychological state, for example most entertainment services such as music, theatre, television, radio and theme parks.

Often one of these is dominant in an operation. For example, a bank devotes part of its energies to producing printed statements of accounts for its customers. In doing so, it is processing inputs of material but no one would claim that a bank is a printer. The bank is also concerned with processing inputs of customers. It gives them advice regarding their financial affairs, cashes their cheques, deposits their cash, and has direct contact with them. However, most of the bank’s activities are concerned with processing inputs of information about its customers’ financial affairs. As customers, we may be unhappy with badly printed statements and we may be unhappy if we are not treated appropriately in the bank. But if the bank makes errors in our financial transactions, we suffer in a far more fundamental way. Table 1.3 gives examples of operations with their dominant transformed resources.

Part One Introduction12

Table 1.3 Dominant transformed resource inputs of various operations

Predominantly processing inputs of materials

All manufacturing operations Mining companies Retail operations Warehouses Postal services Container shipping line Trucking companies

Predominantly processing inputs of information

Accountants Bank headquarters Market research company Financial analysts News service University research unit Telecoms company

Predominantly processing inputs of customers

Hairdressers Hotels Hospitals Mass rapid transport Theatres Theme parks Dentists

Transformed resources

Material inputs

Customer inputs

Information inputs

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The other set of inputs to any operations process are transforming resources. These are the resources which act upon the transformed resources. There are two types which form the ‘building blocks’ of all operations:

● facilities – the buildings, equipment, plant and process technology of the operation; ● staff – the people who operate, maintain, plan and manage the operation. (Note that we

use the term ‘staff ’ to describe all the people in the operation, at any level.)

The exact nature of both facilities and staff will differ between operations. To a five-star hotel, its facilities consist mainly of ‘low-tech’ buildings, furniture and fittings. To a nuclear- powered aircraft carrier, its facilities are ‘high-tech’ nuclear generators and sophisticated electronic equipment. Staff will also differ between operations. Most staff employed in a factory assembling domestic refrigerators may not need a very high level of technical skill. In contrast, most staff employed by an accounting company are, hopefully, highly skilled in their own particular ‘technical’ skill (accounting). Yet although skills vary, all staff can make a contribution. An assembly worker who consistently misassembles refrigerators will dis- satisfy customers and increase costs just as surely as an accountant who cannot add up. The balance between facilities and staff also varies. A computer chip manufacturing company, such as Intel, will have significant investment in physical facilities. A single chip fabrication plant can cost in excess of $4 billion, so operations managers will spend a lot of their time managing their facilities. Conversely, a management consultancy firm depends largely on the quality of its staff. Here operations management is largely concerned with the development and deployment of consultant skills and knowledge.

Outputs from the process

Although products and services are different, the distinction can be subtle. Perhaps the most obvious difference is in their respective tangibility. Products are usually tangible. You can physically touch a television set or a newspaper. Services are usually intangible. You can- not touch consultancy advice or a haircut (although you can often see or feel the results of these services). Also, services may have a shorter stored life. Products can usually be stored, at least for a time. The life of a service is often much shorter. For example, the service of ‘accommodation in a hotel room for tonight’ will perish if it is not sold before tonight – accommodation in the same room tomorrow is a different service.

Most operations produce both products and services

Some operations produce just products and others just services, but most operations produce a mixture of the two. Figure 1.4 shows a number of operations (including some described as examples in this chapter) positioned in a spectrum from ‘pure’ product producers to ‘pure’ service producers. Crude oil producers are concerned almost exclusively with the product which comes from their oil wells. So are aluminium smelters, but they might also produce some services such as technical advice. Services produced in these circumstances are called facilitating services. To an even greater extent, machine tool manufacturers pro- duce facilitating services such as technical advice and applications engineering. The services produced by a restaurant are an essential part of what the customer is paying for. It is both a manufacturing operation which produces meals and a provider of service in the advice, ambience and service of the food. An information systems provider may produce software ‘products’, but primarily it is providing a service to its customers, with facilitating products. Certainly, a management consultancy, although it produces reports and documents, would see itself primarily as a service provider. Finally, pure services produce no products, a psychotherapy clinic, for example. Of the short cases and examples in this chapter, Acme Whistles is primarily a product producer, although it can give advice or it can even design products for individual customers. Pret A Manger both manufactures and serves its sand- wiches to customers. IKEA subcontracts the manufacturing of its products before selling them, and also offers some design services. It therefore has an even higher service content.

Transforming resources

Facilities

Staff

Tangibility

‘Pure’ products

‘Pure’ service

Facilitating services

Facilitating products

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Formule 1 and the safari park (see later) are close to being pure services, although they both have some tangible elements such as food.

Services and products are merging

Increasingly the distinction between services and products is both difficult to define and not particularly useful. Information and communications technologies are even overcom- ing some of the consequences of the intangibility of services. Internet-based retailers, for example, are increasingly ‘transporting’ a larger proportion of their services into customers’ homes. Even the official statistics compiled by governments have difficulty in separating products and services. Software sold on a disc is classified as a product. The same software sold over the Internet is a service. Some authorities see the essential purpose of all businesses, and therefore operations processes, as being to ‘service customers’. Therefore, they argue, all operations are service providers which may produce products as a part of serving their customers. Our approach in this book is close to this. We treat operations management as being important for all organizations. Whether they see themselves as manufacturers or service providers is very much a secondary issue.

Part One Introduction14

Figure 1.4 The output from most types of operation is a mixture of goods and services

Described by the press as having ‘revolutionized the concept of sandwich making and eating’, Pret A Manger opened their first shop in the mid-1980s, in London. Now they have over 130 shops in UK, New York, Hong Kong and Tokyo. They say that their secret is to focus continually on quality – not just of their food, but in every aspect of their operations practice. They go to extraordinary lengths to avoid the chemicals and preservatives common in most ‘fast’ food, say the

Short case Pret A Manger 4

All operations are service providers

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Chapter 1 Operations management 15

company. ‘Many food retailers focus on extending the shelf life of their food, but that’s of no interest to us. We maintain our edge by selling food that simply can’t be beaten for freshness. At the end of the day, we give whatever we haven’t sold to charity to help feed those who would otherwise go hungry. When we were just starting out, a big supplier tried to sell us coleslaw that lasted sixteen days. Can you imagine! Salad that lasts sixteen days? There and then we decided Pret would stick to wholesome fresh food – natural stuff. We have not changed that policy.’

The first Pret A Manger shop had its own kitchen where fresh ingredients were delivered first thing every morning, and food was prepared throughout the day. Every Pret shop since has followed this model. The team members serving on the tills at lunchtime will have been making sandwiches in the kitchen that morning. The company rejected the idea of a huge centralized

sandwich factory even though it could significantly reduce costs. Pret also own and manage all their shops directly so that they can ensure consistently high standards in all their shops. ‘We are determined never to forget that our hard-working people make all the difference. They are our heart and soul. When they care, our business is sound. If they cease to care, our business goes down the drain. In a retail sector where high staff turnover is normal, we’re pleased to say our people are much more likely to stay around! We work hard at building great teams. We take our reward schemes and career opportunities very seriously. We don’t work nights (generally), we wear jeans, we party!’ Customer feedback is regarded as being particularly important at Pret. Examining customers’ comments for improvement ideas is a key part of weekly management meetings, and of the daily team briefs in each shop.

The processes hierarchy

So far we have discussed operations management, and the input–transformation–output model, at the level of ‘the operation’. For example, we have described ‘the whistle factory’, ‘the sandwich shop’, ‘the disaster relief operation’, and so on. But look inside any of these operations. One will see that all operations consist of a collection of processes (though these processes may be called ‘units’ or ‘departments’) interconnecting with each other to form a network. Each process acts as a smaller version of the whole operation of which it forms a part, and transformed resources flow between them. In fact within any operation, the mechanisms that actually transform inputs into outputs are these processes. A process is ‘an arrangement of resources that produce some mixture of products and services’. They are the ‘building blocks’ of all operations, and they form an ‘internal network’ within an operation. Each process is, at the same time, an internal supplier and an internal customer for other processes. This ‘internal customer’ concept provides a model to analyse the internal activities of an operation. It is also a useful reminder that, by treating internal customers with the same degree of care as external customers, the effectiveness of the whole operation can be improved. Table 1.4 illustrates how a wide range of operations can be described in this way.

Within each of these processes is another network of individual units of resource such as individual people and individual items of process technology (machines, computers, storage facilities, etc.). Again, transformed resources flow between each unit of transforming resource. So any business, or operation, is made up of a network of processes and any process is made up of a network of resources. But also any business or operation can itself be viewed as part of a greater network of businesses or operations. It will have operations that supply it with the products and services it needs and unless it deals directly with the end-consumer, it will supply customers who themselves may go on to supply their own customers. Moreover, any operation could have several suppliers and several customers and may be in competition with other operations producing similar services to those it produces itself. This network of operations is called the supply network. In this way the input–transformation–output model can be used at a number of different ‘levels of analysis’. Here we have used the idea to analyse businesses at three levels, the process, the operation and the supply network. But one could define many different ‘levels of analysis’, moving upwards from small to larger processes, right up to the huge supply network that describes a whole industry.

Processes

Internal supplier

Internal customer

Supply network

Operations can be analysed at three levels

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This idea is called the hierarchy of operations and is illustrated for a business that makes television programmes and videos in Figure 1.5. It will have inputs of production, technical and administrative staff, cameras, lighting, sound and recording equipment, and so on. It transforms these into finished programmes, music, videos, etc. At a more macro level, the business itself is part of a whole supply network, acquiring services from creative agencies, casting agencies and studios, liaising with promotion agencies, and serving its broadcast- ing company customers. At a more micro level within this overall operation there are many individual processes: workshops manufacturing the sets; marketing processes that liaise with potential customers; maintenance and repair processes that care for, modify and design technical equipment; production units that shoot the programmes and videos; and so on. Each of these individual processes can be represented as a network of yet smaller processes, or even individual units of resource. So, for example, the set manufacturing process could consist of four smaller processes: one that designs the sets, one that constructs them, one that acquires the props, and one that finishes (paints) the set.

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Table 1.4 Some operations described in terms of their processes

Operation

Airline

Department store

Police

Frozen food manufacturer

Some of the operation’s inputs

Aircraft Pilots and air crew Ground crew Passengers and freight

Goods for sale Sales staff Information systems Customers

Police officers Computer systems Information systems Public (law-abiding and criminals)

Fresh food Operators Processing technology Cold storage facilities

Some of the operation’s processes

Check passengers in Board passengers Fly passengers and freight around the world Care for passengers

Source and store goods Display goods Give sales advice Sell goods

Crime prevention Crime detection Information gathering Detaining suspects

Source raw materials Prepare food Freeze food Pack and freeze food

Some of the operation’s outputs

Transported passengers and freight

Customers and goods ‘assembled’ together

Lawful society, public with a feeling of security

Frozen food

The idea of the internal network of processes is seen by some as being over-simplistic. In reality the relationship between groups and individuals is significantly more complex than that between commercial entities. One cannot treat internal customers and suppliers exactly as we do external customers and suppliers. External customers and suppliers usually operate in a free market. If an organization believes that in the long run it can get a better deal by purchasing goods and services from another supplier, it will do so. But internal customers and suppliers are not in a ‘free market’. They cannot usually look out- side either to purchase input resources or to sell their output goods and services (although some organizations are moving this way). Rather than take the ‘economic’ perspective of external commercial relationships, models from organizational behaviour, it is argued, are more appropriate.

Critical commentary

Hierarchy of operations

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Operations management is relevant to all parts of the business

The example in Figure 1.5 demonstrates that it is not just the operations function that manages processes; all functions manage processes. For example, the marketing function will have processes that produce demand forecasts, processes that produce advertising cam- paigns and processes that produce marketing plans. These processes in the other functions also need managing using similar principles to those within the operations function. Each function will have its ‘technical’ knowledge. In marketing, this is the expertise in designing and shaping marketing plans; in finance, it is the technical knowledge of financial reporting. Yet each will also have a ‘process management’ role of producing plans, policies, reports and services. The implications of this are very important. Because all managers have some responsibility for managing processes, they are, to some extent, operations managers. They all should want to give good service to their (often internal) customers, and they all will

Chapter 1 Operations management 17

Figure 1.5 Operations and process management requires analysis at three levels: the supply network, the operation, and the process

All functions manage processes

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want to do this efficiently. So, operations management is relevant for all functions, and all managers should have something to learn from the principles, concepts, approaches and techniques of operations management. It also means that we must distinguish between two meanings of ‘operations’:

● ‘Operations’ as a function, meaning the part of the organization which produces the products and services for the organization’s external customers;

● ‘Operations’ as an activity, meaning the management of the processes within any of the organization’s functions.

Table 1.5 illustrates just some of the processes that are contained within some of the more common non-operations functions, the outputs from these processes and their ‘customers’.

Business processes

Whenever a business attempts to satisfy its customers’ needs it will use many processes, in both its operations and its other functions. Each of these processes will contribute some part to fulfilling customer needs. For example, the television programme and video production company, described previously, produces two types of ‘product’. Both of these products involve a slightly different mix of processes within the company. The company decides to re-organize its operations so that each product is produced from start to finish by a dedicated process that contains all the elements necessary for its production, as in Figure 1.6. So customer needs for each product are entirely fulfilled from within what is called an ‘end-to-end’ business process. These often cut across conventional organizational boundaries. Reorganizing (or ‘re-engineering’) process boundaries and organizational responsibilities around these business processes is the philosophy behind business process re-engineering (BPR) which is discussed further in Chapter 18.

Part One Introduction18

Table 1.5 Some examples of processes in non-operations functions

Organizational function

Marketing and sales

Finance and accounting

Human resources management

Information technology

Some of its processes

Planning process Forecasting process

Order taking process

Budgeting process Capital approval processes Invoicing processes

Payroll processes Recruitment processes Training processes

Systems review process Help desk process System implementation project processes

Outputs from its process

Marketing plans Sales forecasts

Confirmed orders

Budgets Capital request evaluations Invoices

Salary statements New hires Trained employees

System evaluation Advice Implemented working systems and aftercare

Customer(s) for its outputs

Senior management Sales staff, planners, operations Operations, finance

Everyone Senior management, requesters External customers

Employees All other processes All other processes

All other processes All other processes All other processes

All managers, not just operations managers, manage processes

Operations as a function

Operations as an activity

‘End-to-end’ business processes

Business process re-engineering

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Figure 1.6 The television and video company divided into two ‘end-to-end’ business processes, one dedicated to producing programmes and the other dedicated to producing music videos

Operations processes have different characteristics

Although all operations processes are similar in that they all transform inputs, they do differ in a number of ways, four of which, known as the four Vs, are particularly important:

● The volume of their output; ● The variety of their output; ● The variation in the demand for their output; ● The degree of visibility which customers have of the production of their output.