Operation Management (2) PDF

Mr. VE Ntimane Operation Management COLLEGE OF BUSINESS & ECONOMICS Operation Management T TM11B2/ MGSO1B1  Introduction - A business transforms inputs from the environment in...

Mr. VE Ntimane Operation Management COLLEGE OF BUSINESS & ECONOMICS Operation Management T TM11B2/ MGSO1B1  Introduction - A business transforms inputs from the environment into outputs to the environment. - The operations function is that function of the business aimed at executing the transformation process - The operations function and the management thereof (operations management) are therefore directly concerned with creating products and providing services in order to realise the objectives of the business 3  The importance of operations management An effective and efficient operation can give a business four types of advantages: 1. It can reduce the costs of making the products or offering the services 2. It can increase the revenue the business receives for offering its products and services to its customers/clients 3. It can reduce the amount of investment (capital) needed to manufacture the type and quantity of products or to offer the service required 4. It can provide the impetus for new innovation by using its solid base of operational skills and knowledge to develop new products and services 4  The importance of operations management Other reasons that operations management is considered important to a business include the following: - Operations management can improve productivity Productivity, measured as the ratio of output to input, is a yardstick for the efficacy with which operations management transforms (or converts) the resources of a business into products or services. If a business produces more error-free outputs with less wastage of material inputs, or puts its manufacturing staff to better use, its overall productivity will improve Higher productivity, in turn, is directly related to increased profitability for businesses, which benefits the country in which the business operates 5  The importance of operations management - Operations management can help a business to satisfy the needs of its customers/clients more effectively The customer/client is an important focal point in operations management, and the operations manager should see to it that quality products or services are provided for the consumer at a reasonable price Satisfied customers/clients are of crucial importance to any business since its long-term survival or existence is dependent on them Businesses will endeavour, by means of their particular operations skills, to satisfy the needs of their customers/clients more effectively than their competitors do 6  The importance of operations management - Operations management can be decisive for the general reputation of the business Some businesses have, through their particular operations skills, built up outstanding reputations as far as high-quality products or services, low costs, or simply ‘good value for money’ are concerned The operations skills of a business make (and also break) such reputations Businesses such as Woolworths and Panasonic have built up exceptionally good reputations for high quality, and for such businesses quality is a competitive advantage that can be used to protect and further expand their market position 7  Group discussion question Why is operations management deemed important? 8  Defining terms used in operations management - There are many definitions of ‘operations management’ - A common characteristic of all these definitions is that operations management is concerned with the management of the transformation process (the operations process) whereby products are manufactured or services rendered Concepts: - The operations function is that function in the business primarily aimed at the utilisation of resources to manufacture products or render services - Operations managers are the personnel in the business who are directly responsible for managing the operations function - Operations management (the operations-management function) involves operations managers’ activities, decisions and responsibilities that tie in with the execution of the operations function - The operations-management process includes operations planning, operations organising, operations scheduling and operations control 9  Class discussion 1. Differentiate between the operations management concepts 2. Read and discuss the case study in the textbooks. 10  An operations-management model - An operations-management model that can be used to illustrate the management of the operations function - The most notable elements of this operations-management model are: the operations-management strategies and objectives the management activities that influence the transformation process that produces outputs 11 Operations management model 12  Operations-management strategies and performance objectives - All businesses formulate business objectives - If a business intends surviving in the long term, consumers who are satisfied with the business’s products or services should be a top-priority objective - The operations-management function should take cognisance of customers’/clients’ needs and continually formulate its management strategies and objectives - Strategies and objectives should be formulated in such a way that the competitive position and customer/client base not only remain intact, but, where necessary, are also strengthened and expanded 13  Operations-management strategies and performance objectives Although customer/client needs are numerous, they can be reduced to six main elements: 1. Higher quality 2. Lower costs 3. Shorter lead time (quicker manufacturing or provision of services) 4. Greater adaptability (flexibility) 5. Lower variability with regard to specifications (reliability) 6. High level of service (better overall service). 14  Operations-management strategies and performance objectives - With these six customer/client requirements as a basis, operations-management performance objectives can be formulated to give the business an ‘operations-based advantage’ over other businesses - Managing operations for competitive advantage or as a ‘competitive weapon’ is an imperative for modern businesses in the face of increased global competition, rapid technological change, and the higher visibility and importance of ethical business practices, workforce-diversity issues and environmental- protection concerns - examples? -Operations-management performance objectives must therefore indicate the specific areas within the domain of the operations function that will be emphasised when products and/or services are produced or provided 15  Operations-management strategies and performance objectives - The operations-management performance objectives are formulated in such a way that they are applicable to both manufacturers and service providers - To acquire operations-based advantages, the following six general operations-management performance objectives (which incorporate the above-mentioned customer/client needs) can be followed: 16  Operations-management strategies and performance objectives 1. Do things right the first time This means that the operations function should not make mistakes By providing error-free products and services that are ready and suitable for consumption by customers/clients, the business will gain a quality advantage Higher quality not only means increased error-free outputs resulting in lower costs, but also an improved competitive position, which could lead to higher prices and a greater market share Think again of Woolworths’ food products in this regard. This business is certainly one of the best known for providing top-quality food products, for which some consumers are prepared to pay higher prices. 17  Operations-management strategies and performance objectives 2. Do things cost effectively It is imperative that products and services be produced or provided at a cost that will enable the business to place them on the market at a price that will ensure an acceptable profit for the business This also applies to non-profit organisations because taxpayers and funders insist on good value, which they will receive only if institutions function cost effectively Hence, when the operations-management function operates cost effectively, it can provide the business with a cost advantage However, when this does not happen, for example, in the case of a gold mine where the cost per metric tonne of mined gold-bearing ore is too high to run the mine profitably, drastic cost-saving measures, such as the large-scale retrenchment of miners, are necessary In the case of PetroSA, for example, where the high procurement cost of the gas and oil made the project uneconomical, the state had to subsidise the project continuously at the expense of the taxpayer. 18  Operations-management strategies and performance objectives 3. Do things fast This means that the period of time that elapses between the demand for a product or service and the delivery thereof should be as short as possible Put differently, the lead time should be shortened This will increase the availability of the products and services and will give the business a speed advantage Businesses that do not place their products and services on the market quickly enough will not only have to accept lost sales initially, but will later on also have to overcome strong competition from established brands Think, for example, of a paving construction business that promises to have a new driveway paved in three weeks, but then takes seven weeks to complete the job. Would you recommend this business to your friends? Businesses such as Boss Paving, which is reputed to complete paving faster than its competitors, acquire a speed advantage from which they will later build up a sound reputation in the market. 19  Operations-management strategies and performance objectives 4. Make changes quickly The operations-management function should be able to adapt or change activities if unforeseen circumstances make it necessary to do so This applies, for example, when more customers/clients demand a product or service, or if a customer/client requires the delivery of a wider variety of products or services within the agreed time If the operations-management function can change activities in this way to satisfy customer/client demands both quickly and adequately, the business will have an adaptability advantage. 20  Operations-management strategies and performance objectives 5. Do things right every time Error-free products and services that should be regularly and continuously provided to customers/clients because this will give the business a high-reliability or low-variability advantage This is of particular importance to businesses that produce or provide products or services on a continuous basis Take the example of McDonald’s Big Mac hamburgers. McDonald’s is an international business that claims that a Big Mac will taste the same in any place in the world where business is conducted. Thus, when people buy their second Big Mac, they will know exactly what they are getting South African Airways (SAA) also strives for low variability in respect of times of scheduled departures to various destinations. If SAA’s flights over a period of a year, for example, depart on schedule and reach their destinations 90% of the time, one could say that the airline renders a reliable service. 21  Operations-management strategies and performance objectives 6. Do things better Businesses should ensure that they exceed the previous experiences of customers and that they surpass their satisfaction levels A business should also endeavour to provide a better total product or service package compared to that of its competitors as this gives the business a service advantage Think of businesses such as M-Net and BMW, which have gained reputations because they stand out above their rivals as far as service is concerned This guideline is closely intertwined with the concept of total quality management (TQM), which is today the focal point of many top businesses internationally. TQM’s point of departure is that quality products or services cannot be produced or provided unless the whole business (all the different functional-management areas) work together to achieve this goal. 22  Inputs - Inputs used in the transformation process comprise both: the resources that are to be transformed (processed, changed or converted) and the resources required to make the transformation possible 23  Inputs The resources to be transformed include the following: - Material: A wide variety of material, both processed and unprocessed, can be used as inputs in the transformation process. - Customers/clients:’ Clients can serve as the inputs in the transformation process when the client is the subject being transformed or ‘processed - Information: Information can either be the primary input that is transformed or it can be used as the secondary input in a transformation process 24  Inputs The resources required to make transformation possible include the following: Aids: Human resources: In most transformation processes, some or other form of human involvement is necessary. This includes both workers who are physically involved in the transformation process and the people involved in a supervisory capacity Equipment and facilities: Equipment and facilities can assume many different forms Technology: The role of technology as an input in the transformation process is becoming increasingly important. Technology is generally used to enable the transformation process to function more efficiently 25  The transformation process The transformation process converts inputs into outputs (products or services) - The nature of the process determined by what type of input is predominantly being processed - When materials are transformed: the transformation process is primarily geared towards changing their physical characteristics (shape or composition) - When information is transformed: the primary input is being processed This occurs when information changes in composition or shape, changes ownership, is disseminated and changes location - When customers/clients are transformed: this may also occur in a variety of ways. Some processes change the physical characteristics of clients (for example, hairdressing), while others change their physiological condition (for example, medical treatments at hospitals) or emotional condition (for example, entertainment at cinemas). The location of clients can also be changed (for example, by airlines) or they can merely be ‘stored’ or accommodated (for example, in hotels). 26  Outputs - The ultimate goal of any transformation process is to transform inputs into outputs. - Outputs assume the form of products or services. Manufacturers normally produce certain products (for example, motor vehicles or furniture), while service providers render certain services (for example, haircuts or transport). - The characteristics of products and services differ in ways that have specific implications for the management of the various operations processes. 27  Outputs Products produced by manufacturer Services produced by service provider  Physically tangible and durable  Intangible and perishable  Output kept in stock  Output not kept in stock  Little customer contact  Plenty of client contact  Manufactured before use  Provision and consumption  Long response time simultaneous  Local and international markets  Short response time  Large production facilities  Mainly local markets  Capital-intensive production  Small service-provision facility  Quality easily measurable  Labour intensive  Quality difficult to measure Characteristics of products and services 28 Type of business Inputs Transformation process Outputs Rail transport Locomotives Change location of passengers  Passengers and rail freight at Passenger coaches and trucks and freight new destinations Locomotive drivers and personnel Railway tracks and sleepers Passengers and freight Banks  Bank tellers and financial Receipt and payment of money  Clients with financial peace advisers (cash) of mind  Safes and computers Record-keeping of accounts  Accurate bank statements  Bank notes and coins Safekeeping of valuable articles  Financial earnings (interest)  Clients Hairdressing salon  Hairdresser and assistants  Shampooing, tinting, treating, Clients with neat appearances  Combs, brushes and drying and cutting of hair scissors  Treatment agents  Clients Gold mine Gold-bearing ore Mine gold-bearing ore and  Gold bars Pneumatic drills and explosives transport to processing plant Lifts and conveyor belts Process ore and melt gold Miners and engineers concentrates Furniture manufacturer  Wood, steel and other Design furniture Completed furniture such as materials Make furniture lounge and dining-room suites  Saw and planning equipment Sell furniture to wholesalers  Factory workers Printing works  Printing and binding  Design, print and bind books,  Designed and printed machines periodicals and reports material  Paper, cardboard and ink  Design and printing personnel Construction firm Sand, cement and other building Plan and construct buildings Residential and commercial material according to plans buildings Construction equipment Construction workers Building plans Missile manufacturer Electronic component Design, assemble and test missiles Air-to-air or ground-to ground Rocket launchers 29 missiles Engineers and technicians Computers  Different operations have different characteristics While the basic purpose of all operations is similar in that they transform inputs into outputs, the processes may differ fundamentally in four ways (the four Vs) The volume of output may differ. The number of items produced by the operation over a given period of time. The more of one type of product that is made, the greater the benefit that may be obtained through standardisation and repeatability of the tasks and procedures. The most important implication of this characteristic with regard to the operational process is its influence over the cost of making a product or delivering a service: a lower production cost per unit is possible as fixed costs are spread over a larger number of units. The volume of output may range from high (for example, 220 motor vehicles per day) to low (for example, 20 aeroplanes per year). 30  Different operations have different characteristics The implications of these four Vs: Significant in terms of the cost of creating the products and services While high-volume, low-variety, low-variation and low-visibility operational processes keep processing costs down, low- volume, high-variety, high-variation and high-visibility operational processes generally have a ‘cost penalty’ 31  Different operations have different characteristics The variety of output may differ. The range of different items produced by the operation over a given period of time. The more types of products made by the same operation, the greater will be its flexibility and ability to provide non- standardised products or services – though these will inevitably come at the price of a higher cost per unit of manufacture or delivery. The most important implication of this characteristic with regard to the operational process is its capability of matching its products and services to the exact needs of customers/clients. Variety of output may range from high (for example, a taxi service to and from any location in and around Johannesburg) to low (for example, a fixed route and time schedule for a metropolitan bus service). 32  Different operations have different characteristics The variation of output may differ. The particular demand pattern for the output of the operation, which may be constant or may be highly irregular, non-routine and unpredictable. The most important implication of this characteristic with regard to the operational process is the possibility of a sudden and dramatic change in the operations capacity required to supply products and services in order to meet the needs of customers/clients. Operations likely to experience seasonal variations (for example, hotel resorts in coastal locations) must be able to deal with marked variation in demand levels, from full occupancy during peak season to underutilisation for the remainder of the year. The visibility of output may differ. How much of the operation’s activities the customers/clients experience themselves or are exposed to. In high-visibility operations, the customers/clients experience most of the value-adding activities first-hand or directly, for example, in a designer’s wedding-dress shop. This type of operation must be able to deal with a short waiting tolerance compared to low- or zero-visibility operations, with which the customer/client does not have much contact, as in the case of a larger departmental clothes store, or no contact at all, as in the case of a catalogue clothing retailer. 33