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Chapter 1 Operations management (no paraphrase)
What is operation management
1 Operations management is the activity of managing the
resources that create and deliver services and products
...

Operations in the organisation
1 The operations function is central to the organisation because it
creates and delivers services and products, which is its reason
for existing
...
1 The marketing (including sales) function - which is
responsible for communicating the organisation’s services
and products to its markets in order to generate customer
requests
...
2 The product/service development function – which is
responsible for coming up with new and modified services
and products in order to generate future customer requests
...
3 The operations function – which is responsible for the
creation and delivery of services and products based on
customer requests
...
These, include, for example, the
accounting and financial function, the technical function, the
human resources function, and the information systems function
...

5 Operations management’s responsibility to support functions is
primarily to make sure that they understand operations’ needs
and help them to satisfy these needs
...
1 Marketing to operation: communicate market requires
6
...
3 Human resources to operation: recruitment, development
and training
...
4 Operation to HR: communicating human resources needs
...

Inputs to the process

1 Transformed resources are the resources that are treated,
transformed or converted in the process
...

2 The other set of inputs to any operations process are
transforming resources
...
There are two types which form the
‘building blocks’ of all operations: facilities and staff
...
Products are usually tangible
things, whereas services are activities or processes
...

3 Whether an operation produces tangible products or intangible
services is becoming increasingly irrelevant
...

Customers
1 Customers may be input to many operations but they are also
the reason for their existence
...


2 These processes in the other functions also need managing
using similar principles to those within the operations function
...

They all should want to find good service to their customers, and
they all will what to do this efficiently
...

4 Two meanings of ‘operations’:
4
...

4
...


Operations processes have different characteristic
1 The volume dimension
1
...

1
...
All this hives
low unit costs
...
1 It should be flexible to deal with possibly various situation,
which

need

excellent

information,

knowledge

and

communication on that
...
1 Operations have to select suitable capacities to deal with
any variations in demand
...
2 In a quite low demand variation organisation, operations
can be routine and predictable
...
1 It means how much of the operation’s activities its
customers experience, or how much the operation is
exposed to its customers
...
2 Generally, customer-processing operations are more
exposed to their customers than material- or informationprocessing operations
...
1 All four dimensions have implications for the cost of creating
and delivering services and products
...
2 High volume, lowvariety, lowvariation and low customer

contact all help to keep processing costs down
...

2 Designing the operation’s services, products and processes
...

4 Developing process performance
...

2 On its supply side, an operation has its suppliers of parts, or
information, or service
...

3 On the demand side, the operation has customers
...

4 On the supply side, is a group of operations that directly supply
the operation; these are often called first-tier suppliers
...

5 Similarly, on the demand side of the network, ‘first-tier’
customers are the main customer group for the operation
...

6 The suppliers and customers who have direct contact with an
operation are called its immediate supply network, whereas all
the operations which from the network of suppliers’ suppliers and
customers’ customers etc
...

Why consider the whole supply network?
1 It helps an understanding of competitiveness—sometimes they
need to look beyond these immediate contacts to understand

why customers and suppliers act as they do
...
Some operations
contribute more to the performance objectives that are valued by
end customers
...


Configuring the supply chain
1 ‘configuring’ a supply network means determining its overall
pattern
...
1 First, what should be the pattern, shape or arrangement of
the various operations that make up the supply network?
1
...

2 Disintermediation—companies within a network bypassing
customers or suppliers to make contact directly with customers’
customers or suppliers’ supplier
...

3 Co-opetition
3
...

3
...

4 Outsourcing
4
...
Also, many indirect processes
are now being outsourced
...

4
...

Namely, what should the scope of the business be? In other
words, what should it do itself and what should it buy in?
This is often referred to as the ‘do-or-buy decision’ when
individual components or activities are being considered, or

‘vertical integration’ when it is the ownership of whole
operations that are being decided
...
3 Vertical integration is the extent to which an organisation
owns the network of which it is a part
...

2 If an activity has long-term strategic importance to a company, it
is unlikely to outsource it
...

4 If its operation’s performance is already superior to any potential
supplier, it would unlikely to outsource the activity
...

Outsourcing and offshoring
1 Outsourcing means deciding to buy in products or services
rather than perform the activities in-house
...


Where should an operation be located?
1 Location decisions will usually have an effect on an operation’s
costs as well as its ability to serve its customers (and therefore
revenue)
...
1 Changes in demand
2
...
1 The aim of the location decision is to achieve an appropriate
balance between three related objectives:
3
...
1 The spatially variable costs of the operation (spatially
carriable

means

that

something

changes

with

geographical location)
...
1
...

3
...
3 The revenue potential of the operation
...
2 In for-profit organisations the last two objectives are related
...
3 In making decisions about where to locate an operation,
operations managers are concerned with minimise spatially
variable costs and maximising revenue/customer service
...
4 The location decision for any operation is determined by the

relative strength of supply-side and demand-side factors
...
1 Hourly cost is what firms have to pay workers on average
per hour
...
2 The unit cost is an indication of the labour cost per unit of
production
...

3 Energy cost
4 Transportation costs
4
...

4
...

4
...

5 Community factors: are those influences on an operation’s costs
which derive from the social, political and economic environment

of its site
...

Location techniques
1 Weight-score method
1
...

1
...

1
...

2 The centre-of-gravity method
2
...

2
...


Long-term capacity management
The optimum capacity level:
1 All types of operation exhibit economy of scale effects where
operating costs reduce as the scale of capacity increase
...

3 Changing capacity using large units of capacity reduces the
chance of achieving demand-capacity balance
...

The timing of capacity change
1 Changing the capacity of an operation is not just a matter of
deciding on the best size of a capacity increment
...

2 In deciding when the new plants are to be introduced, the
company must choose a position somewhere between two
extreme strategies:
2
...


2
...

3 ‘smoothing’ with inventory
3
...

3
...
Indeed, for customerprocessing operations there is no alternative to this
...

Internal and external supply chain

1 The supply chain concept applies to the internal relationships
between processes as well as the external relationships
between operations
...

Supply chain management objectives
1 All supply chain management shares one common, and central,
objective – to satisfy the end customer
...

3 The business’s product design department is responsible for
designing products that appeal to potential customers;
4 The production planning department is responsible for ensuring
that sufficient products are scheduled to meet demand
...
1 Quality—errors in each stage of the chain can multiply in

their effect on end-customer service
...
2 Speed—this has two meanings in a supply chain context
...
An alternative
perspective on speed is the time taken for goods and
services to move through the chain
...
3 Dependability—dependability of throughput time is a much
more desirable aim because it reduces uncertainty with the
chain
...

8
...

8
...


The activities of supply chain management
...

2 Purchasing managers provide a vital link between the operation

itself and its suppliers
...

3 Purchasing can have a very significant impact on any operation’s
costs, and therefore profits—the cost of purchasing services and
materials are such a large proportion of total costs
...

2 Most businesses find it best to adopt some kind of supplier
‘scoring’ or assessment procedure
...
1 Short-term ability to supply
3
...
1 Range of products or services provided
3
...
2 Quality of products or services
3
...
3 Responsiveness
3
...
4 Dependability of supply
3
...
5 Delivery and volume flexibility
3
...
6 Total cost of being supplied
3
...
7 Ability to supply in a required quantity
3
...
2
...
2
...
2
...
2
...
2
...

3
...
6 Technical capability
3
...
7 Operations capability
3
...
8 Financial capability
3
...
9 Managerial capability

Single- and multi-sourcing
Purchasing, the internet and e-procurement
1 E-procurement is the generic term used to describe the use of
electronic methods in every stage of the purchasing process
from identification of requirement through to payment, and
potentially to contract management
...

1
...
2 Shorter requisition and fulfillment cycles-in other words, it’s
faster to buy from them
...
3 Centralized spending controls-in other words, it’s easier to
keep track of what you are buying from them
...
4 Standardized global IT catalogue-in other words, it’s less
confusing to buy from them, because you can cut out things
that you are not interested in buying
...
1 They have been defined as ‘an information system that
allows buyers and sellers to exchange information about
prices and product (and service) offering, and the firm
operating the electronic market place acts as in intermediary
...
2 They can be categorized as consortium, private, or third
party:
2
...
1 A private e-marketplace is where buyers or sellers
conduct business in the marker only with its partners and
suppliers by previous arrangement
...
2
...
2
...

3 The scope of e-procurement

3
...

3
...

3
...
1 Is the value of the spend high or low?
3
...
2 Is the product or commodity highly substitutable or not?
3
...
3 Is there a lot of competition or a little?
3
...
4 How efficient are your internal processes?
Global sourcing
1 It is the process of identifying, evaluating, negotiating and
configuring supply across multiple geographies
...

3 There are a number of other factors promoting global sourcing:
3
...

3
...

3
...

4 There are of course problems with global sourcing:

4
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4
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4
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3
...
3
...
3
...
3
...
3
...
3
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1 Social, cultural and religious differences can easily make for
mutual incomprehension regarding each other’s ethical
perspective
...
1 The potential offered by internet communications in physical
distribution management gas had two major effects
...
1
...
(back-loading)
1
...
2 The second impact of the internet has been in the
‘business-to-customers’ part of supply chain
...

2 Two dimensions are particularly important—what the company
chooses to outsource, and who it chooses to supply it
...

2 The more a supply agreement is based on long-term, usually
exclusive, agreements, the broader, trust-based partnership
agreements are appropriate
...

2 Each transaction effectively becomes a separate decision, and
the agreement between buyer and seller can be very short term
...

3 The advantages of traditional market supplier relationship are
usually seen as:
3
...
2 A supplier specializing in a small number of products or
services (or perhaps just one), but supplying them to many
customers, can gain natural economies of scale
...
3 This enables the supplier to offer the products and services
at a lower price than would be obtained if customers
performed the activities themselves on a small scale
...
4 There is inherent flexibility in outsourced supplies
...

3
...

3
...

4 There are, however, disadvantages in buying in a totally ‘free
market’ manner:

4
...
Once an order has been
placed, it is difficult to maintain control over how that order
is fulfilled
...
2 Choosing who to buy from takes time and effort
...
3 There are strategic risks in subcontracting activities to other
business
...
4 Short-term relationships may be used on a trial basis when
new companies are being considered as more regular
suppliers
...

2 At the heart of the concept of partnership lies the issue of the
closeness

of

the

relationship
...
1 Sharing success—both partners work together in order to
increase the total amount of joint benefit they receive, rather
than manoeuvring to maximize their own individual

contribution
...
2 Long-term expectations
2
...
4 Joint learning
2
...
6 Joint co-ordination of activities
2
...
8 Joint problem-solving
2
...

Customer relationship management (CRM)
1 It is a method of learning more about customers’ needs and
behaviours in order to develop stronger relationships with them
...
1 Providing services and products that are exactly what your
customers want
...
2 Retaining existing customers and discovering new ones
2
...
4 Cross-selling products more effectively
...

2 Information must flow quickly up and down the chain from retail
outlet back up to the manufacturer so that schedules can be
given the maximum amount of time to adjust efficiently
...

4 By contrast, responsive supply chain policy stresses high service
levels and responsive supply to the end customer
...

6 Fast throughput from the upstream parts of the chain will still be
needed to replenish downstream stocks
...

The bullwhip effect-supply chain dynamics
1 The bullwhip effect is used to describe how a small disturbance
at the downstream end of a supply chain causes increasingly

large disturbances, errors, inaccuracies and volatility as it works
its way upstream
...

3 Miscommunication in the supply chain—with relatively small
fluctuations in the causing increasing volatility further back in the
chain
...

2 The SCOR model allows its users to improve, and communicate
supply chain management practices within and between all
operations by using standard terminology and definitions
...
These are:
3
...
2 Benchmarking performance

3
...

2 The collection, analysis, and distribution of information using ebusiness technologies is far less expensive to arrange than
previous
...

Information-sharing
1 It is sensible to try to transmit information throughout the chain
so that all the operations can monitor true demand, free of these
distortions
...

3 The bullwhip effect can be reduced by information-sharing,
aligning planning and control decisions, improving flow efficiency
and allowing better forecasting
...


2 It means that the systems and methods of planning and control
decision making are harmonized through the chain
...

2 The cumulative effect of these individual activities is to simplify
throughput in the whole chain
...

2 The concept of agility includes consideration of how supply
chains have to cope with common disruptions such as late
deliveries, quality problems, incorrect information, and so on
...
A project is a set of activities with a defined start point and a
defined end state, which pursues a defined goal and uses a
defined resources
...
They all have an objective
...
They are all unique
...
They are all temporary nature
...
They all have some degree of complexity
...
They have uncertainty
...




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