SUMMARY OPERATIONS MANAGEMENT
CHAPTER 1 – CHAPTER 10, YEAR 3
CHAPTER 1
INTRODUCTION TO OPERATIONS MANAGEMENT
Operations management = the planning and organizing of the production of manufactured goods and delivery
of services.
• One of the core functions within an organization -> the others are marketing, human resources, and
finance and accounting.
• It actually underpins most of human activity and shapes the society in which we live.
• Originally it was referred to as production management.
o Convert inputs (such as materials) into outputs (in the form of goods and services).
The success, or failure, of most organizations depends upon the management of their operations.
WHAT IS THE NATURE OF OPERATIONS IN AN ORGANIZATION?
There are four basic issues that need to be addressed in relation to organizational design:
1. The nature of the hierarchy.
Determines the basic shape of an organization -> how many layers there are between the chief executive
officer (CEO) that leads the organization, and those working on ‘the shop floor’.
o Tall: many layers -> narrow span of control (small number of employees reporting to the manager
above them).
o Flat: few layers between the CEO and the workforce.
2. The degree of centralization.
All about how power is distributed within an organization.
o Highly centralized: power is held at the center and all decisions about policy and procedures are made
by the CEO or senior managers at ‘head office’.
o Decentralized: relatively low-level managers have delegated authority to make decisions and take
action.
3. The extent of formalization.
Refers to how work is organized and how explicit and rigid this is.
4. The level of complexity.
Refers to the number of subunits within the organization and the degree of difference between them.
As a result of these four issues, organizations can take a number of different forms.
ORGANIZATIONAL FORMS
There are six forms:
• Simple = how most small- and medium-sized enterprises (SMEs) are organized.
, o The original founder or entrepreneur is typically in chare of all aspects of the business.
• Functional = are divided into different areas of management activity, typically Operations, Sales and
Marketing, Human Resources, and Accounting and Finance.
o When the organization is too big, they hire specialists to complete the tasks.
• Divisional (or product) = either organized around product categories, customer markets, or regions of the
world.
o Each region will have its own resources and functional organization.
• Conglomerate = made up of a variety of different businesses, which may or may not have similarities
between them.
o Are often large and multinational.
• Hybrid (or matrix) = organizations that deliberately mix the four organizational forms above.
o Example: some of the major petrol companies like BP adopted this form.
o May be both regional divisions and functional departments.
• Virtual = exists largely online and their customers are also a significant proportion of their ‘workers’.
o Like AirBnB.
As an organization it becomes more complex the degree of centralization decreases.
Organizational form and structure are not fixed -> they change over time.
HOW IS THE OPERATIONS FUNCTION ORGANIZED?
The hierarchy, centralization, formalization and complexity affect as well as the operation as well as the whole
organization. We can see the influence when we take a look at one industry.
• Differences between how the operations management function is organized are even more marked when
we compare organizations in different sectors -> see the image below.
Here you see that the distinction between what is operations and what is some other function is very clear -> in
real life this is not always clear, and you can understand it by understanding systems behavior.
• System = a clearly identifiable, regularly interacting, or interrelating groups of activities.
• Feature of systems theory is the concept of a ‘boundry’ around system (what is in the system and what
not) this leads to another system -> simultaneous multiple containment (SMC).
The relationship of OM with Other Management Functions
The line between operations and marketing is particularly blurred. One specific issue is that as well serving the
customer as direct marketing is going on.
• The operations function has a key role with respect to the product, price and place.
• A key aspect of any organization is its ability to ensure collaboration across the different functional areas.
WHAT DOES AN OPERATIONS MANAGER DO?
1. Managing the short term and long term.
, A key aspect is time -> responsible for the operational activity within the factory, shop, or whatever on a
minute-by-minute basis (short-term) and the development and investment in processes that will lead to
the organization’s future success (long-term).
2. Ordered or ‘messy management.
Seeking to create order out of chaos, to reduce variation and ensure standardization, to turn the art of the
craftsperson into the science of mass production.
o Extent to which operations management is ordered us highly dependent on the operational context,
think of Zara (mass producing) vs Gucci (single items).
PROCESSES – THE HEART OF OPERATIONS MANAGEMENT
All the activities are about processes -> need to be able to look at any process and identify if it is running well
or not -> one way to undertake such a diagnosis, it is important to understand the 4 V’s:
• Volume = relates to size or scale of the output, for instance, how many items are manufactured, or
customers served in a specified time period.
• Variety = relates to size of product range or number of services offered.
o For instance, Virgin Atlantic’s only flies long haul to selected destinations and British Airways flies
both short and long hauls to over 100 destinations.
• Variation = describes how the level of demand changes over time and thereby affects the volume of
outputs.
o This van be short-term (like lunch in the restaurant) or seasonal.
• Variability = refers to the extend to which each product or service may be customized or not.
o Like French fries will be standardized, but the steak might be grilled; rare – medium – well done.
, SERVICES VERSUS MANUFACTURING
If they are different, then operations managers have to manage service operations differently from the way in
which manufacturing operations are managed.
THE DISTINGUISHING FEATURES OF SERVICES
There are 4 features of services that made a fundamentally different from manufacturing goods:
1. Intangibility = refers to the concept that services do not physically exist but are directly experienced by
consumers.
o Good example = an overnight stay in a hotel.
o Services can have tangible aspects, such as the environment in which the service is delivered and how
functional it is.
2. Heterogeneity = refers to the idea that consumers have unique experiences of services that are not shared
with, or are the same as, other customers.
o Follows on from intangibility -> not tangible product? Easy to interpret their experiences in different
ways.
o For an operations manager it is very challenging to manage the experiences.
o Consumers’ opinions about products are just as heterogenous as they are for services.
3. Perishability = services cannot be inventoried or put into stock -> essential to ensure services are used to
their maximum.
o Products are non-perishable -> but some do not have a very long shelf life.
4. Simultaneity (sometimes inseparability) = refers to the idea that a service is provided at the same time as
it requested.
Inseparability = refers to providing service in the same place as the consumer.
Services are produced at the same time (or place) as they are consumed, unlike a product which can be
purchased and used whenever (and often wherever) it is needed.
o The single key difference between these two main types of operation is simultaneity / inseparability.
o In services, having the customer ‘in the factory’ means that the service employees cannot make
mistakes and have to respond in quite sophisticated ways to emotions, feelings, and behaviors of the
customers.
PROCESSING MATERIALS, CUSTOMERS, AND INFORMATIO N
A process = that of a flow through a system, but what flows through? Can be three things (or a combination):
1. Materials processing operation (MPO) -> more commonly referred to as manufacturing.
2. Customer processing operation (CPO) -> typically described as service.
o Customers can physically transport (unlike passive materials) themselves from one place to another.
Advantage: if choose the way the operation expects them to (like, joining a que).
Disadvantage: some customers do decide not to choose to cooperate.
3. Information processing operation (IPO) -> mostly considered as services.
o Information is neither material nor human.
o Is a collection of facts or data -> in OM talk about the movement or communication of information
from one place to another.
