1 Operations management

Key questions INTRODUCTION

Operations management is about how organizations create
❯ What is operations management?
and deliver services and products. Everything you wear, eat,
❯ Why is operations management sit on, use, read or knock about on the sports field comes to
important in all types of you courtesy of the operations managers who organized its
organization? creation and delivery. Every book you borrow from the library,
every treatment you receive at the hospital, every service you
❯ What is the input–
transformation–output process? expect in the shops and every lecture you attend at university
– all have been created by operations. While the people who
❯ What is the process hierarchy? supervised their creation and delivery may not always be
called operations managers, that is what they really are. And
❯ How do operations and
processes differ? that is what this book is concerned with – the tasks, issues
and decisions of those operations managers who have made
❯ What do operations managers do? the services and products on which we all depend. This is an
introductory chapter, so we will examine what we mean by
‘operations management’, how operations processes can be
found everywhere, how they are all similar yet different, and
what it is that operations managers do (see Fig. 1.1).

Topic covered in
Direct this chapter

Operations
management

Operations Operations
performance strategy

Direct
The
Product
structure
and service
and scope of
innovation
operations
Operations Develop
Design
management

Deliver

Figure 1.1 This chapter examines operations management

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 ● Capable of analysis – Operations management is about making decisions. Each decision needs to be evaluated
(sometimes with very little time). This involves looking at both the quantitative and the qualitative aspects of the
decision. Operations managers do not necessarily have to be mathematical geniuses, but they should not be afraid
of numbers!
● Keeps cool under pressure – Operations managers often work in pressured situations. They need to be able to remain
calm no matter what problems occur.

Critical commentary

The central idea in this introductory chapter is that all organizations have operations
processes which create and deliver services and products and all these processes
are essentially similar. However, some believe that by even trying to characterize
processes in this way (perhaps even by calling them ‘processes’) one loses or distorts
their nature, depersonalizes or takes the ‘humanity’ out of the way in which we think
of the organization. This point is often raised in not-for-profit organizations, especially
by ‘professional’ staff. For example, the head of one European ‘Medical Association’
(a doctors’ trade union) criticized hospital authorities for expecting a ‘sausage factory
service based on productivity targets’. No matter how similar they appear on paper, it is
argued, a hospital can never be viewed in the same way as a factory. Even in commercial
businesses, professionals, such as creative staff, often express discomfort at their expertise
being described as a ‘process’.

SUMMARY ANSWERS TO KEY QUESTIONS

❯ What is operations management?

● Operations management is the activity of managing the resources which are devoted to the
creation and delivery of service and products. It is one of the core functions of any business,
although it may not be called operations management in some industries.
● Operations management is concerned with managing processes. And all processes have
internal customers and suppliers. But all management functions also have processes.
Therefore, operations management has relevance for all managers.

❯ Why is operations management important in all types of organization?

● Operations management uses the organization’s resources to create outputs that fulfil
defined market requirements. This is the fundamental activity of any type of enterprise.
● Operations management is increasingly important because today’s business environment
requires new thinking from operations managers.

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 ❯ What is the input–transformation–output process?

● All operations can be modelled as input–transformation–output processes. They all have

inputs of transforming resources, which are usually divided into ‘facilities’ and ‘staff ’, and
transformed resources, which are some mixture of materials, information and customers.
● Most operations create and deliver a combination of services and products, rather than
being a ‘pure’ service or ‘product’ product operation.

❯ What is the process hierarchy?

● All operations are part of a larger supply network which, through the individual contribu-
tions of each operation, satisfies end customer requirements.
● All operations are made up of processes that form a network of internal customer–supplier
relationships within the operation.
● End-to-end business processes that satisfy customer needs often cut across functionally
based processes.

❯ How do operations and processes differ?

● Operations and processes differ in terms of the volume of their outputs, the variety of out-
puts, the variation in demand for their outputs, and the degree of ‘visibility’ they have.
● High volume, low variety, low variation and low customer ‘visibility’ are usually associated
with low cost.

❯ What do operations managers do?

● Responsibilities can be classed in four categories – direct, design, deliver and develop:
● Direct includes understanding relevant performance objectives, setting an operations
strategy, managing innovation and the scope of the operation.
● Design includes the design of the operation and its processes and its resources.
● Delivery includes the planning and controlling of the activities of the operation.
● Develop includes the improvement of the operation over time.
● Increasingly operations managers have a responsibility for an operations environmental
performance.

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 CASE STUDY
Design house partnerships at Concept
Design Services

‘I can't believe how much we have changed in a relatively

short time. From being an inward looking manufacturer,
we became a customer focused “design and make” opera-
tion. Now we are an integrated service provider. Most of our
new business comes from the partnerships we have formed
with design houses. In effect, we design products jointly with

Source: Alamy Images: Mikhail Tolstoy

specialist design houses that have a well-known brand, and
offer them a complete service of manufacturing and distri-
bution. In many ways we are now a “business-to-business”
company rather than a “business-to-consumer” company.’
( Jim Thompson, CEO, Concept Design Services (CDS))
CDS had become one of Europe’s most profitable home-
ware businesses. Originally founded in the 1960s, the com-
pany had moved from making industrial mouldings, mainly
in the aerospace sector, and some cheap ‘homeware’ items
such as buckets and dustpans, sold under the ‘Focus’ brand
name, to making very high-quality (expensive) stylish prestigious design houses. This sort of business is likely to
homewares with a high ‘design value’. grow, especially in Europe where the design houses appre-
ciate our ability to offer a full service. We can design prod-
The move into ‘Concept’ products ucts in conjunction with their own design staff and offer
The move into higher margin homeware had been mas- them a level of manufacturing expertise they can’t get
terminded by Linda Fleet, CDS’s Marketing Director, who elsewhere. More significantly, we can offer a distribution
had previously worked for a large retail chain of paint and service which is tailored to their needs. From the custom-
wallpaper retailers. er’s point of view the distribution arrangements appear to
‘Experience in the decorative products industry had taught belong to the design house itself. In fact they are based
me the importance of fashion and product development, even exclusively on our own call centre, warehouse and distri-
in mundane products such as paint. Premium-priced colours bution resources.’
and new textures would become popular for one or two years, The most successful collaboration was with Villessi, the
supported by appropriate promotion and features in lifestyle Italian designers. Generally it was CDS’s design expertise
magazines. The manufacturers and retailers who created and which was attractive to ‘design house’ partners. Not only
supported these products were dramatically more profitable than did CDS employ professionally respected designers, but
those who simply provided standard ranges. Instinctively, I felt also it had acquired a reputation for being able to translate
that this must also apply to homeware. We decided to develop a difficult technical designs into manufacturable and salea-
whole co-ordinated range of such items, and to open up a new ble products. Design house partnerships usually involved
distribution network for them to serve up-market stores, kitchen relatively long lead times but produced unique products
equipment and specialty retailers. Within a year of launching with very high margins, nearly always carrying the design
our first new range of kitchen homeware under the “Concept” house’s brand.
brand name, we had over 3000 retail outlets signed up, provided ‘This type of relationship plays to our strengths. Our
with point-of-sale display facilities. Press coverage generated an design expertise gains us entry to the partnership but we
enormous interest which was reinforced by the product place- are soon valued equally for our marketing, distribution
ment on several TV cookery and “lifestyle” programmes. We soon and manufacturing competence.’ (Linda Fleet, Marketing
developed an entirely new market and within two years Concept Director)
products were providing over 75 per cent of our revenue and 90
per cent of our profits. The price realization of Concept products Manufacturing operations
is many times higher than for the “Focus” range. To keep ahead All manufacturing was carried out in a facility located
we launched new ranges at regular intervals.’ 20 km from Head Office. Its moulding area housed large
injection-moulding machines, most with robotic mate-
The move to the design house partnerships rials handling capabilities. Products and components
‘Over the last four years, we have been designing, manu- passed to the packing hall, where they were assembled
facturing and distributing products for some of the more and inspected. The newer, more complex products often

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 had to move from moulding to assembly and then back responsible for the scheduling of all manufacturing and
again for further moulding. All products followed the distribution, and for maintaining inventory levels for all
same broad process route but with more products need- the warehoused items
ing several progressive moulding and assembly stages, ‘We try to stick to a preferred production sequence for
there was an increase in ‘process flow recycling ’ which each machine and mould so as to minimise set-up times
was adding complexity. One idea was to devote a sepa- by starting on a light colour, and progressing through a
rate cell to the newer and more complex products until sequence to the darkest. We can change colours in 15
they had ‘bedded in’. This cell could also be used for minutes, but because our moulds are large and technically
testing new moulds. However, it would need investment complex, mould changes can take up to three hours. Good
in extra capacity that would not always be fully utilized. scheduling is important to maintain high plant utilisation.
After manufacture, products were packed and stored in With a higher variety of complex products, batch sizes
the adjacent distribution centre. have reduced and it has brought down average utilisation.
‘When we moved into making the higher margin Often we can’t stick to schedules. Short-term changes are
Concept products, we disposed of most of our older, small inevitable in a fashion market. Certainly better forecasts
injection-moulding machines. Having all larger machines would help…but even our own promotions are sometimes
allowed us to use large multi-cavity moulds. This increased organised at such short notice that we often get caught
productivity by allowing us to produce several products, or with stockouts. New products in particular are difficult to
components, each machine cycle. It also allowed us to use forecast, especially when they are “fashion” items and/
high quality and complex moulds which, although cumber- or seasonal. Also, I have to schedule production time for
some and more difficult to change over, gave a very high new product mould trials; we normally allow 24 hours for
quality product. For example, with the same labour we the testing of each new mould received, and this has to
could make three items per minute on the old machines, be done on production machines. Even if we have urgent
and 18 items per minute on the modern ones using multi orders, the needs of the designers always have priority.’
moulds. That’s a 600 per cent increase in productivity. We (Sandra White)
also achieved high dimensional accuracy, excellent sur- Customer orders for Concept and design house part-
face finish, and extreme consistency of colour. We could nership products were taken by the company ’s sales call
do this because of our expertise derived from years making centre located next to the warehouse. The individual
aerospace products. Also, by standardising on single large orders would then be dispatched using the company ’s
machines, any mould could fit any machine. This was an own fleet of medium and small distribution vehicles
ideal situation from a planning perspective, as we were for UK orders, but using carriers for the Continental
often asked to make small runs of Concept products at European market. A standard delivery timetable was
short notice.’ (Grant Williams, CDS Operations Manager) used and an ‘express delivery ’ service was offered for
Increasing volume and a desire to reduce cost had those customers prepared to pay a small delivery pre-
resulted in CDS subcontracting much of its Focus products mium. However, a recent study had shown that almost
to other (usually smaller) moulding companies. 40 per cent of express deliveries were initiated by the
‘We would never do it with any complex or Design House company rather than customers. Typically this would be
partner products, but it should allow us to reduce the cost of to fulfil deliveries of orders containing products out of
making basic products while releasing capacity for higher stock at the time of ordering. The express delivery ser-
margin ones. However there have been quite a few “teething vice was not required for Focus products because almost
problems”. Coordinating the production schedules is currently all deliveries were to five large customers. The size of
a problem, as is agreeing quality standards. To some extent each order was usually very large, with deliveries to cus-
it’s our own fault. We didn’t realise that subcontracting was tomers’ own distribution depots. However, although the
a skill in its own right. And although we have got over some organization of Focus delivery was relatively straightfor-
of the problems, we still do not have a satisfactory relation- ward, the consequences of failure were large. Missing a
ship with all of our subcontractors.’ (Grant Williams, CDS delivery meant upsetting a large customer.
Operations Manager)
Challenges for CDS
Planning and distribution services Although the company was financially successful and very
The distribution services department of the company well regarded in the homeware industry, there were a
was regarded as being at the heart of the company ’s number of issues and challenges that it knew it would have
customer service drive. Its purpose was to integrate to address. The first was the role of the design department
the efforts of design, manufacturing and sales by plan- and its influence over new product development.
ning the flow of products from production, through New product development had become particularly
the distribution centre, to the customer. Sandra White, important to CDS, especially since it had formed alliances
the Planning Manager, reported to Linda Fleet and was with design houses. This had led to substantial growth in

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 both the size and the influence of the design department, Jim Thompson, the Managing Director, summed up his
which reported to Linda Fleet. view of the current situation.
‘Building up and retaining design expertise will be the key ‘Particularly significant has been our alliances with the
to our future. Most of our growth is going to come from the Italian and German design houses. In effect we are position-
business which will be bought in through the creativity and ing ourselves as a complete service partner to the designers.
flair of our designers. Those who can combine creativity with We have a world-class design capability together with man-
an understanding of our partners’ business and design needs ufacturing, order processing, order-taking and distribution
can now bring in substantial contracts. The existing business is services. These abilities allow us to develop genuinely equal
important of course, but growth will come directly from these partnerships which integrate us into the whole industry’s
people’s capabilities.’ (Linda Fleet) activities.’
But not everyone was so sanguine about the rise of the Linda Fleet also saw an increasing role for collaborative
design department. arrangements.
‘It is undeniable that relationships between the design- ‘It may be that we are seeing a fundamental change in
ers and other parts of the company have been under strain how we do business within our industry. We have always
recently. I suppose it is, to some extent, inevitable. After seen ourselves as primarily a company that satisfies con-
all, they really do need the freedom to design as they wish. sumer desires through the medium of providing good ser-
I can understand it when they get frustrated at some of vice to retailers. The new partnership arrangements put us
the constraints which we have to work under in the man- more into the “business to business” sector. I don't have any
ufacturing or distribution parts of the business. They also problem with this in principle, but I'm a little anxious as to
should be able to expect a professional level of service from how much it gets us into areas of business beyond our core
us. Yet the truth is that they make most of the problems expertise.’
themselves. They sometimes don’t seem to understand the The final issue which was being debated within the com-
consequences or implications of their design decisions or pany was longer term, and particularly important.
the promises they make to the design houses. More seri- ‘The two big changes we have made in this company
ously they don’t really understand that we could actu- have both happened because we exploited a strength we
ally help them do their job better if the cooperated a bit already had within the company. Moving into Concept
more. In fact, I now see some of our design house partners’ products was only possible because we brought our high-
designers more than I do our own designers. The Villessi tech precision expertise that we had developed in the
designers are always in my factory and we have developed aerospace sector into the homeware sector where none
some really good relationships.’ (Grant Williams) of our new competitors could match our manufacturing
The second major issue concerned sales forecasting, and excellence. Then, when we moved into design house part-
again there were two different views. Grant Williams was nerships we did so because we had a set of designers who
convinced that forecasts should be improved. could command respect from the world class design houses
‘Every Friday morning we devise a schedule of production with whom we formed partnerships. So what is the next
and distribution for the following week. Yet, usually before move for us? Do we expand globally? We are strong in
Tuesday morning, it has had to be significantly changed Europe but nowhere else in the world. Do we extend our
because of unexpected orders coming in from our customers’ design scope into other markets, such as furniture? If so,
weekend sales. This causes tremendous disruption to both that would take us into areas where we have no manufac-
manufacturing and distribution operations. If sales could be turing expertise. We are great at plastic injection mould-
forecast more accurately we would achieve far high utiliza- ing, but if we tried any other manufacturing processes, we
tion, better customer service, and, I believe, significant cost would be no better than, and probably worse than, other
savings.' firms with more experience. So what’s the future for us?'
However, Linda Fleet saw things differently. ( Jim Thompson, CEO CDS)
‘Look, I do understand Grant’s frustration, but after all, this
is a fashion business. By definition it is impossible to forecast QUESTIONS
accurately. In terms of month-by-month sales volumes we are
1 Why is operations management important in CDS?
in fact pretty accurate, but trying to make a forecast for every
week end every product is almost impossible to do accurately. 2 Draw a four Vs profile for the company’s products/
Sorry, that’s just the nature of the business we're in. In fact, services.
although Grant complains about our lack of forecast accu- 3 What would you recommend to the company if it
racy, he always does a great job in responding to unexpected asked you to advise it in improving its operations?
customer demand.’

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