1.3 Understanding Operations
Operations = All the steps of the transformation of raw materials to the product the client buys.
Operations Management = design, manage and improve the operations system.
The historic development
Craft Manufacturing: skilled craftspeople product goods in low volume; meet customers needs; works well for small-scale production with low levels of competition
Mass Production: producing goods in high volume with low variety; customers expected to buy what is supplied; keeping costs/prices down; minimize variety; aggressive advertising and sales force; The ‘American system of manufacture’ introduced standard parts to the assembly lines; ‘scientific management’ by Frederick Taylor introduced the one best way of doing a job, a frequency of tasks; moving assembly line was introduced by Henry Ford
The modern period: Japanese emerged with TQM, JIT, and employee involvement; there is still yet no one single approach for managing operations that replaced mass production:
\- Flexible specialization: focus on separate parts; collaborate in network to build product
\- Lean production: from Toyota Production System; elimination of all forms of waste; remove inefficiencies
\- Mass customization: adapting products to meet individual customer’s requirements
\- Agile manufacturing: always stay with the market
The role of the operations manager
Responsibilities:
\- Human resource management
\- Asset management
\- Cost management
Tasks/Decisions:
\- design, manage, and improve the operations system
This involves the processes, quality, quantity/capacity, inventory and HR.
A way to look at all of this is the transformation model.
Inputs -> Transformation Process -> Outputs -> Feedback to Inputs
Inputs include transformed (e.g. materials, information, customers) and transforming (staff/labour, facilities/capital) resources.
Outputs can vary widely and be both desired and undesirable (waste). They should also include ethical, environmental and social thinking in your operations management.
The transformation process often transforms materials, information and customers at the same time. You can categorize the different types into:
\- manufacture (cars)
\- transport (taxi service)
\- supply (retailing)
\- service (hospital wards, warehouses)
The macro transformation process is often made up of many micro transformation processes.
Feedback is essential for the operations manager, both from internal and external resources.
The boundary of operations systems is often used to show that there is a place where you loose control but you are influenced by your environment. It is becoming increasingly difficult to draw neat boundaries around the operations.
The process perspective to operations will give managers new insights about how performance can be improved with the help of operations. Operational processes are those that bring outputs to customers and administrative processes are those necessary for running the business but no direct outputs to customers. These two processes need to be linked because they rely on each other.
The work processes approach draws on the principles of quality improvement (incremental, existing processes are improved because they have desirable properties, everything must be documented with control points) and re-engineering (radical change, old processes regarded as hopelessly outdated, emphasis on redesign rather than control) to reduce cycle times, cut costs, improve quality and generally enhance operating performance. In general they suggest the work processes to be redesigned.
Case management (small teams see order from beginning to end) is only possible with new technologies.
For managers the work processes approach is good because simple acknowledgment already helps and managers do not focus on structures on roles but on the process itself. Many problems come from only redesigning the process but not putting a good operations and management on top of it for the future. Sometimes the supporting administrative processes are neglected.
A very good theory on work process redesign came from Benson P. Shapiro, V. Kasturi Rangan and John J. Sviokla in form of the order management cycle (OMC). The moment of truth occurs at every step of the OMC and every employee is affected.
1. Order planning: sales forecasting; capacity planning
2. Order generation
3. Cost estimation and pricing: order based pricing is good
4. Order receipt and entry
5. Order selection and prioritization: You should prioritizing based on what is good for business
6. Scheduling
7. Fulfilment: procurement; manufacturing; assembling; testing; shipping; installation
8. Billing
9. Returns and claims
10. Post-sales service
Horizontal moves are from department to department and are dangerous as things can fall through the cracks. The management often does not see the entire chains clearly and people only see their parts. These parts always overlap though. Everybody needs to be aware on where they fit and what their role is.
Remember that customers want their orders handled quickly, accurately, and cost-effectively, not more people to talk to. You need to look at the OMC from the customer’s point of view. Being aware of every step and all the problems means that means managers must walk up and down and from side to side, every step of the way.
To succeed:
1\. Analysis: Draw your OMC — and chart the gaps — from start to finish, detailed
Successful companies have explicitly stated that their goals are satisfied customers, higher profits, and sustainable competitive advantage without compromising any of them.
2\. System Focus: put the pieces together and move across boundaries
Fit together the horizontal pieces into a unified, harmonious whole. The most powerful tool managers can use is inter-functional or interdepartmental investments in projects. You need to be clear that the basic work of the company takes place across boundaries. All pieces of the system must fit together to meet customer needs in a seamless fashion.
3\. Political Strategy: Staple yourself to an order, follow it though
In general a good OMC will improve customer satisfaction and help the company keep their promises to customers and eventually improve your financial performance.