Understanding Operations Management

Read this chapter for a brief introduction to operations management and how to think about
it. Be sure to answer the discussion questions in Activities 1 through 3.

1 Understanding operations management

Consider the ingredients of your breakfast this morning. Unless you live on a farm and
produced them yourself, they passed through a number of different processing steps
between the farmer and your table and were handled by several different organizations.
Similarly, your morning newspaper was created and delivered to you through the
interactions of a number of different organizations.

Every day, you use a multitude of physical objects and a variety of services. Most of the
physical objects have been manufactured and most of the services have been provided by
people in organizations. Just as fish are said to be unaware of the water that surrounds
them, most of us give little thought to the organizational processes that produce these
goods and services for our use. The study of operations deals with how the goods and
services that you buy and consume every day are produced.

2 Operations, operations management and operations managers

2.1 Operations, operations management and operations managers
Every organization has an operations function, whether or not it is called ‘operations’. The
goal or purpose of most organizations involves the production of goods and/or services. To
do this, they have to procure resources, convert them into outputs and distribute them to
their intended users. The term operations embraces all the activities required to create and
deliver an organization’s goods or services to its customers or clients.

Within large and complex organizations operations is usually a major functional area, with
people specifically designated to take responsibility for managing all or part of the
organization’s operations processes. It is an important functional area because it plays a
crucial role in determining how well an organization satisfies its customers. In the case of
private-sector

companies, the mission of the operations function is usually expressed in terms of profits,
growth and competitiveness; in public and voluntary organizations, it is often expressed in
terms of providing value for money.

Operations management is concerned with the design, management, and improvement of

the systems that create the organization’s goods or services. The majority of most
organizations’ financial and human resources are invested in the activities involved in
making products or delivering services. Operations management is therefore critical to
organizational success.

Activity 1
For each of the following businesses, identify the main output of the operation:

● Brewery
● Publisher
● Hotel
● Insurance company
● Your organization

Discussion
You probably found it quite easy to identify the main output of a brewery as beer, and
of a publisher as books or newspapers. However, the others are a bit trickier: a
satisfied customer (hotel) and a customer bearing less financial risk (insurance
company). Operations management deals with producing not only physical goods, but
also satisfied customers. An understanding of the principles of operations
management is important for all managers, because they provide a systematic way of
looking at an organization’s processes. The need to manage manufacturing and
service operations efficiently and effectively has led to a considerable increase in
interest in operations management in recent years. However, the concept of operations
is not new.

2.2 The historical development of operations management

Operations in some form have been around as long as human endeavor itself but, in
manufacturing at least, it has changed dramatically over time, and there are three major
phases - craft manufacturing, mass production and the modern period. Let's look at each of
these briefly in turn.

2.2.1 Craft manufacturing

Craft manufacturing describes the process by which skilled craftspeople produce goods in
low volume, with a high degree of variety, to meet the requirements of their individual
customers. Over the centuries, skills have been transmitted from masters to apprentices
and journeymen, and controlled by guilds. Craftspeople usually worked at home or in small
workshops. Such a system worked well for small-scale local production, with low levels of
competition. Some industries, such as furniture manufacture and clockmaking, still include
a significant proportion of craft working.
2.2.2 Mass production
In many industries, craft manufacturing began to be replaced by mass production in the
19th century. Mass production involves producing goods in high volume with low variety –
the opposite of craft manufacturing. Customers are expected to buy what is supplied, rather
than goods made to their own specifications. Producers concentrated on keeping costs,
and hence prices, down by minimizing the variety of both components and products and
setting up large production runs. They developed aggressive advertising and employed
sales forces to market their products.

An important innovation in operations that made mass production possible was the system
of standardized and interchangeable parts known as the ‘American system of manufacture’
(Hounshell, 1984), which developed in the United States and spread to the United Kingdom
and other countries. Instead of being produced for a specific machine or piece of
equipment, parts were made to a standard design that could be used in different models.
This greatly reduced the amount of work required in cutting, filing and fitting individual
parts, and meant that people or companies could specialize in particular parts of the
production process.

A second innovation was the development by Frederick Taylor (1911) of the system of
'scientific management’, which sought to redesign jobs using similar principles to those
used in designing machines. Taylor argued that the role of management was to analyze
jobs in order to find the ‘one best way’ of performing any task or sequence of tasks, rather
than allowing workers to determine how to perform their jobs. By breaking down activities
into tasks that were sequential, logical and easy to understand, each worker would have
narrowly defined and repetitious tasks to perform, at high speed and therefore with low
costs (Kanigel, 1999).

A third innovation was the development of the moving assembly line by Henry Ford. Instead
of workers bringing all the parts and tools to a fixed location where one car was put
together at a time, the assembly line brought the cars to the workers. Ford thus extended
the ideas of scientific management, with the assembly line controlling the pace of
production. This completed the development of a system through which large volumes of
standardized products could be assembled by unskilled workers at constantly decreasing
costs – the apogee of mass production.

2.2.3 The modern period

Mass production worked well as long as high volumes of mass-produced goods could be
produced and sold in predictable and slowly changing markets. However, during the 1970s,
markets became highly fragmented, product life cycles reduced dramatically, and
consumers had far greater choice than ever before.
An unforeseen challenge to Western manufacturers emerged from Japan. New Japanese
production techniques, such as total quality management (TQM), just-in-time (JIT) and
employee involvement were emulated elsewhere in the developed world, with mixed results.
More recently, the mass production paradigm has been replaced, but there is as yet no
single approach to managing operations that has become similarly dominant. The different
approaches for managing operations that are currently popular include:

● Flexible specialisation (Piore and Sabel, 1984) in which firms (especially small firms)
focus on separate parts of the value-adding process and collaborate within networks
to produce whole products. Such an approach requires highly developed networks,
effective processes for collaboration and the development of long-term relationships
between firms.
● Lean production (Womack et al., 1990) which developed from the highly successful
Toyota Production System. It focuses on the elimination of all forms of waste from a
production system. A focus on driving inventory levels down also exposes
inefficiencies, reduces costs, and cuts lead times.
● Mass customisation (Pine et al., 1993) which seeks to combine high volume, as in
mass production, with adapting products to meet the requirements of individual
customers. Mass customisation is becoming increasingly feasible with the advent of
new technology and automated processes.
● Agile manufacturing (Kidd, 1994) which emphasizes the need for an organization to
be able to switch frequently from one market-driven objective to another. Again, agile
manufacturing has only become feasible on a large scale with the advent of enabling
technology.

In various ways, these approaches all seek to combine the high volume and low cost
associated with mass production with the product customisation, high levels of innovation
and high levels of quality associated with craft production.

2.3 The role of the operations manager

Some people (especially those professionally involved in operations management!) argue
that operations management involves everything an organization does. In this sense, every
manager is an operations manager, since all managers are responsible for contributing to
the activities required to create and deliver an organization’s goods or services. However,
others argue that this definition is too wide, and that the operations function is about
producing the right amount of a good or service, at the right time, of the right quality and at
the right cost to meet customer requirements.
Activity 2
What do you think a typical operations manager does? Take a minute or so to consider.

Discussion
A stereotypical example of an operations manager would be a plant manager in charge
of a factory, such as an automobile assembly plant. But other managers who work in
the factory – quality managers, production and inventory control managers, and line
supervisors – can also be considered to be working in operations management. In
service industries, managers in hotels, restaurants, banks and stores are operations
managers. In the not-for-profit sector, the manager of a nursing home or day centre for
older people is an operations manager, as is the manager of a local government
tax-collection office and the manager of a charity shop staffed entirely by volunteers.

So, operations managers are responsible for managing activities that are part of the
production of goods and services. Their direct responsibilities include managing both
the operations process, embracing design, planning, control, performance
improvement, and operations strategy. Their indirect responsibilities include interacting
with those managers in other functional areas within the organization whose roles
have an impact on operations. Such areas include marketing, finance, accounting,
personnel and engineering.

Operations managers' responsibilities include:

● Human resource management – the people employed by an organization either

work directly to create a good or service or provide support to those who do.
People and the way they are managed are a key resource of all organizations.
● Asset management – an organization’s buildings, facilities, equipment and
stock are directly involved in or support the operations function.
● Cost management – most of the costs of producing goods or services are
directly related to the costs of acquiring resources, transforming them or
delivering them to customers. For many organizations in the private sector,
driving down costs through efficient operations management gives them a
critical competitive edge. For organizations in the not-for-profit sector, the
ability to manage costs is no less important.

Decision making is a central role of all operations managers. Decisions need to be

made in:

● designing the operations system

● managing the operations system
 ● improving the operations system.

The five main kinds of decision in each of these relate to:

1. the processes by which goods and services are produced

2. the quality of goods or services
3. the quantity of goods or services (the capacity of operations)
4. the stock of materials (inventory) needed to produce goods or services
5. the management of human resources.
Activity 3
Use the matrix below to analyze your role as an operations manager. In as many of the
cells in the matrix as you can, jot down an example of a decision you have made in the
last month.

Designing the Managing the Improving the

Operations System Operations System Operations System

1. Process

2. Quality

3. Capacity

4. Inventory

5. Human
Resources

Discussion
You will almost certainly have left some of the cells in the matrix blank. For example,
you may not have been involved (at least in the last month) in designing the operations
system, so you may not have made any decisions that belong to the cells in Column A,
though you will almost certainly have found some examples to put in Column B and
perhaps in Column C also. Similarly, if your area of work does not involve any stocks of
materials, you will not have found any for cells in Row 4 (Inventory). However, it is likely
that you will have been able to identify decisions you have made that fall in at least a
third of the cells of this matrix. If so, you are fulfilling many of the roles of an
operations manager.