BUSI 2513

Operations Management
Introduction to
Operations Management &
Organizational Competitiveness
Key topics within Chapters 1 & 2
I. Importance of Operations Management
II. What is Operations Management ? Defined and
scope of decision areas.

III. Process view of Organizations’ Activities

IV. Goods versus Services; key differentiating

features
V. Operations Competitive Priorities, Strategies &
Tactics
VI. Summary of key principles, tactics and broader
initiatives shaping Operations Management
(both historic & current)
VII. Productivity
The Importance of Operations
Management

 Along with finance and marketing, operations

is one of the primary, interdependent
functions of business.

 In virtually all businesses, the vast majority

of capital investments and costs are directly
linked to operations.

 Capital investments in innovative operational

capabilities are often the primary basis for
establishing sustainable competitive
advantages.
Operations is one of the three
primary functions of Business

Operations
People

Finance Marketing
All focused on understanding and meeting
CUSTOMERS expectations of the business.
What is Operations Management?
• OM is responsible for the creation of the goods and
services an organization brings to the market for its
customers.
• Operational activities are typically conceived as the
transformational processes directly involved in the
conversion of various inputs into the goods and
services sold to customers.
• These processes span the full value chain from
procuring the various inputs required, converting
inputs to saleable goods and services, distribution
channels and after sales service & support.
• OM is the management of all such operational
processes. It involves designing, planning, scheduling,
executing, and controlling the activities/resources
that make up these processes.
• The outputs of operational processes may be for
internal customers or the ultimate end/external
customers of an organization.
The Scope of Operations Management
As per various the Decision Areas of OM

 Product & Service Design Which can be categorized

 Production Capacity as;
 Process Design, Work/Job Design
Design or “Structural”
& Facility Layout Decisions: long term, fixed
 Facility Location investments to establish
operational capabilities
 Quality
 Inventory Management VS.
 Maintenance Planning & Control : systems
 Production Planning & and procedures associated with
Scheduling – incl. APP, JIT, MRP the ongoing planning and control
 Supply Chain Management of operational resources.
 Project Management
 Understanding OPERATIONS =
understanding the importance of VALUE
ADDED
 The primary objective of operations management is to add
value within the processes that transform inputs into
saleable products & services.
 Value Added describes the difference between the cost of
all the inputs required, and the value customers’ place on
an organization’s products and services.
 Value is measured by more than the price customers are
willing to spend for products & services.
Which triggers the related questions of:
 What do customers value? i.e. what criteria do customers
consider in deciding who they purchase goods & services
from, and the price they are willing to pay for these goods
and services?
 What is a company’s value proposition? How will this be
differentiated from competitors?
 What opportunities does a company have to improve
processes and eliminate non-value added activities?
Operations as Value Added Processes

VALUE ADDED

INPUTS; Transformation / OUTPUTS;

Sourcing Conversion Distribution
processes
Processes processes
• People / labour • Building

Feedback
• • • Goods & Services
Information Capital
• Raw materials • Land
• Components • Energy
• Finished Products
• Technology /
Equipment Feedback Feedback
CONTROL
Characterizing Operational
Processes
 Core, Support and Managerial
 Conversion vs. fabrication vs. assembly processes
 Goods producing versus service processes
 Types of goods producing (e.g. manufacturing,
agricultural, construction)
 Job shops >> Batch >> Repetitive / assembly
lines >> Continuous

… and many more ways to differentiate;

 Logistics, Transportation & Storage (e.g. airlines,
shipping, couriers, postal)
 Exchange (e.g. financial services, retailing, wholesaling, real estate)
 Physiological/Human (e.g. entertainment, health services,
personnel care)
 Informational (e.g. media, financial services, education,
communications)
Differentiating Products Services
Feature (Goods)
Customer Contact Generally low levels of customer
contact are required with goods
Varies, but in some cases high levels of
contact are required given customers are
producing processes. the direct object/recipient of the service
act and/or customers expectations must
be determined.

Uniformity of The design of products dictate

explicit, uniform inputs for its
Many services require an initial
assessment / diagnosis to understand
Inputs constituent components and customers needs and therefore variability
materials in the inputs required to provide services.

Uniformity of Products have explicit designs and

production processes to achieve
Customers expectations & perceptions of
what they receive from service businesses
Outputs uniform, consistent output. vary.

Quality Assurance Readily managed in advance of

products being distributed for sale.
More challenging to manage given most
services are simultaneously produced
(performed) and consumed.

Tangible vs. Tangible items which can be

produced in advance of
Many services are intangible outputs that
can’t be produced in advance of
Intangible Outputs consumption. consumption, therefore cannot be held in
inventory.

Labour content vs. Historically, the production of goods offered greater opportunity for automation
(lower dependence on labour) than services. Yet, in today’s digital economy,
level of automation many services are highly automated. So, while labour content is a key
consideration in process design, there is wide variability in withing both goods
and service operations.

Measurement of Generally can be readily measured

given the uniformity of the inputs
More challenging to measure given the
relatively high degrees of variability that
productivity and output of manufactured can exist in the inputs and outputs for
(outputs/inputs) products. services.
Consider some of the key implications of
these distinctions ….
• The simultaneous production and consumption of services,
coupled with the inability to inventory services, makes it vital for
service businesses to match capacity with demand as best they
can.

• In other words, managing services operations is much more time

dependent and “perishable” than manufacturing businesses.

• While the principles of “just in time “ (JIT) has significant benefits

for manufacturing businesses, inventory provides a buffer
between the production of physical goods and their
sale/consumption.

• Variability of customers demands/expectations of services

requires higher levels of interaction with customers, and in turn,
demands greater ability to customize services.

• The factors that impact locating production facilities are very

different for physical goods than services. The digital economy
collapses distance, but physical goods must be transported to
customers and many services require the customer to be
The Goods-Service
Continuum
 Distinction between products &
services

Affiliated “service
bundle” includes ….

Operational tactics of
product
manufacturing
transferred to
“service factories” …

… consider the distinction between “core” products &

services and “facilitating” goods or services.
Fundamentally - Operations
Strategy is;
A deliberate plan as to how a business intends
to create the core operational capabilities
that will allow it to meet its customers
expectations of value.

“Operations strategy comprises a set of well-

coordinated policies, objectives, and action
plans, directly affecting the operations
function, which is aimed at securing a long-
term sustainable advantage over the
competition.”

Fine & Hax (Pg. 39, Operations Management, 8th Cdn. Edition, Stevenson,
Mottaghi & Bakhtiari)
The methods companies employ to formulate operations strategies
vary widely … so we will not consider these in detail, but;
A Process Model of Operations
Strategy
Business Strategy

Competitive Priorities
Relative importance of competitive
capabilities

Operational Goals /
Objectives
Performance Targets

Policies & Action Plans

Choice among improvement programs

Competitiveness
Enhanced > Business
Operational Performance
Capabilities
 Operational Competitive
Priorities
 Price (external) / Cost (internal)
 Quality; conformance to design, “fitness for use”
 Flexibility; variety / range of products and services (incl. customization),
demand responsiveness (increase or decrease output)
 On-time & Reliable Delivery (Responsiveness); consistency
and promptness in meeting dues dates, delivery options.
 Innovation; speed and cycle of introducing new products, changes and
improvements to operational processes
 Sustainability / Corporate Social Responsibility

To gauge operational performance, each of these priorities

has to be translated into specific, measurable operational
goals / objectives
Also, competitive priorities have to be considered in light of;
 The interdependencies & potential trade-offs that exist among
these priorities. So, yes, some take priority, yet “all of the above”
matter.

 Order Qualifiers (must have) vs. Order Winners

(differentiators).

 Priorities among this listing vary based on industry dynamics; e.g.

the product life cycle, technological change, new entrants,
Competitive Priorities viewed in light of broader
objectives of Efficiency vs. Effectiveness
Efficiency Effectiveness
Doing things right Doing the right thing
Primarily an internal view of Adopts an external view of
operations; are the organization’s operations; are customers needs &
operational processes converting expectations within the competitive
inputs (resources) into outputs environment the business operates
(products & services) in a cost- being met.
effective manner.
What the manager sees; What the customer sees; are
deploying operational resources your products and services offering
and capabilities to meet demand. competitive.
•Cost per unit, yield, re-work, •Price & Quality >> VALUE
warranty claims, •Availability & speed of delivery
•Cycle and throughput time •Dependability & responsiveness
•Capacity utilization & inventory (flexibility)
management
Focus on eliminating waste in Customer focused operations;
organizations’ operational understanding & delivering on
processes; i.e. anything that does customer’s expectation of value.
not provide value to the customer.
 Fundamental principles, tactics and enterprise
initiatives shaping Operations Management (both
historic & current)

• Economies of Scale, Division of Labour / Specialization, Scientific

Management
• Moving assembly line, Mass Production, Interchangeable Parts
(Standards)
• Quantitative analytic techniques/models: optimization, queueing,
inventory, project scheduling (PERT), forecasting, statistical
process control
• Vertical Integration, Outsourcing
• Material Requirements Planning (MRP)
• Total Quality Management (TQM),
• Business Process Reengineering (BPR)
• Just-in-Time (JIT) & Lean Production,
• Supply Chain Management (SCM)
• Enterprise Resource Planning (ERP)
• World Class Manufacturing (WCM)
• Sustainability, Circular Supply Chains
• Business Analytics
Productivity = Output (Goods & Services
Produced)
Inputs Used
Key Considerations in Measuring Productivity
 Productivity measures assess how efficiently inputs (resources) are being
transformed to outputs.
 Factors contributing to productivity gains; (i) labour, (ii) capital (equipment
& technology), (iii) methods used including management knowledge /
expertise
 It is a comparative (relative) measure; generally, one measure of
productivity is not insightful, you need to compare productivity measures for
them to be meaningful.
 Typically, productivity is used to track performance over time, or to compare
different operational units performing similar work.
 Various units can be used to measure productivity; depending on the
purpose of monitoring the operations being evaluated. So, there is flexibility
in how productivity is measured, but you need to be consistent for measures
to be comparable.
 Labour productivity is inversely related to average operation (processing)
time to produce outputs, so is a commonly used measure of productivity.
 For multi-factor measures of productivity, inputs must be measured in a
common unit (usually as $ cost)
 Measurement challenges; (i) variability in the quality of outputs, (ii) impact
of external factors that affect the cost of outputs or inputs, (iii) ability to
Discussion: reactions/ comments or
questions re: examples in the text
Consider the insights re: operations from these
pairings;
Discussion– what are the core operational processes and competitive
priorities for operations in the following industry sectors?
Retail Trade - Grocery Consumer Electronics; e.g. Computers,
Smartphones

Textiles / Clothing Banking