Operations Management is the term we use for the management of the resources necessary to produce and deliver the products and services required by customers. These resources include labour, materials and capital equipment.
The following definition reflects the nature of Operations management:
'Operations management is about the way organizations produce goods and services. Everything you wear, eat, sit on, use, read or knock about on the sports field comes to you courtesy of the operations managers who organized its production. Every book you borrow from the library, every treatment you receive at the hospital, every service you expect in the shops and every lecture you attend at university - all have been produced.'
-Slack et al (1995) Operations Management, Pitman Publishing: London.
An operation can also be considered as a transformation process: operations are a transformation process as they convert a set of resources (INPUTS) into services and goods (OUTPUTS). These resources may be raw materials, information, or the client itself (p.e. people travelling with an airline).
Operations function is important to the organisation because it directly affects how well the organisation satisfies its customers.
If we consider the three stages in operations, Input, Transformation and Output, we can classify Input resources in two types: as transforming resources (the staff and facilities) which act upon the transformed resources (materials, information and customers) which are in some way transformed by the operation.
Operations interfaces with many different disciplines and many themes are developing which require the support of Operations Management.
It also mediates between production system demands and other systems - marketing, purchasing, warehousing/distribution, staff, finance.
The management challenge is to ensure that customers' requirements are met while at the same time ensuring that the operating system is run efficiently
The role of the operations manager is invaluable to achieve an efficient resource utilisation and provide hight-quality service response level.
The objectives of operations managers include: producing required quantities of items to quality and on time, at acceptable financial and social costs, with good sales price, and an acceptable ROI with flexibility to adjust to demands.
The operations manager has a key role in developing the processes for making and supporting a product. He can re-design processes. Restructuring programmes can be introduced as some production plants are closed and others upgraded. New technologies and working practices are introduced.
Organizations can produce goods and services.
When we speak about Barclays Bank or a Restaurant, both are services. When personal service is offered the customer reaction is more immediate and less predictable, so such systems demand more control. The degree of customer contact and reaction affects system efficiency. In services productivity is more difficult to measure and quality involves more subjective assessment.
In all stages of product planning Operations Management is a central activity in organizing things: design of a new product, forecasting outputs, design of processes and administrative systems, laying out new work areas, and re-designing existing ones, advicing on quality issues, etc.
There are differnet types of production system such as p.e. builders, gardeners and manufacturers that transform raw materials & components. Suppliers, wholesales, retailers that change the nature of "ownership". Insurance provides people with security, building societies lend for housing, physios improve physical well-being, etc.
Conflicts in Operations Management
Managers must balance potentially conflicting objectives such as customer satisfaction versus efficient resource utilisation in decisions about product design, job and work design, location, process planning/control, scheduling and inventory.
An Operations Manager can make failures in a project such as ignore its environment; push a new technology to market too quickly; let new ideas starve to death from inertia; don't bother conducting feasibility studies; etc.
Management options such as cost cutting on materials may give lower quality and more complaints.
Staff productivity without extra pay may be sought but workers may resist increased work tempo.
Management wants long production runs to use materials, machines and staff efficiently but this can delay a quick response to an order.
A doctor that limits consulting time due to long queue may overlook a serious illness.
The operation manager can fail in evaluating the suitability of existing production plants in order to make a new product or service at a profit.
Decisions have to be made on holding stocks, wich means capital tied up, making it complicate to change the product, having the possiblitity to pass the sell-by date, etc.
A range of techniques may be used to examine how conflicts may be avoided. Techniques include value analysis, linear programming, network analysis, statistical quality control and efficiency measures.
Quantitative techniques offer only limited help, the whole system and boundary relationships with other systems must be managed.
The boundary concerns of operations management include :
In today’s increasingly competitive international business, manufacturing and service companies need to become more innovative and more successful at developing new products, processes and services on a fast and regular basis.
The growth of services encourages rethinking the production concept and the need for international competitive advantage and technological innovation is raising the status of manufacturing.
For some companies to remain viable changes must be implemented so that new product can be produced, or the cost of an existing product can be reduced and quality improved through R&D programmes.
New products have to be developed. What the design is and how it can be produced are important development decisions. Innovative designs have to be made within cost and skill parameters, and staff trained to handle the new products.
Procuring and storing raw materials, components & equipment is a key role. Operations Managers have to work with the purchase specialist in order to source the raw materials and components in the right quantity, price and quality, choice the suppliers and discuss contarctual issues.
Choosing the appropriate relationship for each supplier is important. Whether the supplier relationship aims at cost reduction or value-added benefits for the customer, or both. The appropriate relationship could be one of competitive tension, cooperative partnership, or strategic alliance.
Product strategies must be implemented identifiying market segments, deciding wich products are offered, and deciding on logistical problems.
All organisations have to balance their production capacity with the market. Demand and supply must be sincronised. The demand can raise or fall due to seasonal changes, taxes, etc.
The operations manager can use strategies to vary demand, delay orders, balance seasonal products, maintain excess capacity, adjust capacity, administer costs.
Some firms operations can serve as the foundation for successful strategic attacks and defenses.
Innovation- production staff needs marketing and sales information. Finally, customer feedback helps R&D design and create future products.
Finance and accounting
The Operations function, whether it be in a manufacturing or service business, employs most of the people, spends most of the money and utilises most of the fixed and working capital assets of that business.
A major part of total revenue and capital investment expenditure is spent on production operations.
Production department must budget. The cost of each element of expenditure/activity must be known for price and wage determination and profit/loss identification. Capital equipment has to be replaced, maintained and disposed of to the best tax advantage.
This involves recruitment, training, the design of reward systems, health and safety and industrial relations.
Work will be done by specialists brought together in task forces that cut across traditional departments. Coordination and control will depend largely on employees.
Organizations pose their own management challenges: motivating and rewarding specialists; creating a vision to unify an organization of specialists; devising a management structure that works with task forces; and ensuring the supply, preparation, and testing of top management people.
Products must be designed to function well with style. The range of products or degree of standardisation must be decided. Materials must be chosen. Such matters link innovation and marketing to production.
The CAD (computer aided design) designer evaluates designs with fast computer graphics offering 3-D perspectives, with machine generated colour. Specifications are more accurate. CAD can store standard designs, names and dimensions of components (information needed for purchasing specifications, machine and tools set-up).
Modular production is supported with products built up from families of stock items. Modular systems are a form of standardisation - a means of cost reduction.
Operations management have met with widespread acceptance as a means of expediting product development, making efficient use of resources, and stimulating cross-functional communication. Not only manufacturing firms, but also legal offices, hospitals, and local governments have accepted operations management as an indispensable part of their organizations.
Design and Control of Service Part Distribution Systems. 1997. Eindhoven University of Technology. Jos HCM Verrijdt.
Organizing for Worldwide Effectiveness: The Transnational Solution. Christopher A. Barlett and Sumatra Ghosal. Harvard Business.
The Coming of New Organization. Peter F. Drucker. Harvard Business.
How to fail in Project Managemen (Without Really Trying). Jffrey K. Pinto; Om P. Kharbanda. Harvard Business.
The ManagerÂ´s Guide to Supply Chain Management. F. Ian Stuart; David M. McCutcheon. Harvard Business.
Operations Management. An Active Learning Approach. John Bicheno and Brian B.R. Elliott. Blackwell Publishers 1997.
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An increasing number of businesses are offering services rather than tangible goods. Although customers' opinions of service quality are directly related to a company's profitability, many organizations fail to control and improve their customer service processes. These processes tend to be difficult and costly to control because of their intangibility, heterogeneity, and inseparability. However, operations management principles can be applied to service industries in an effort to improve quality. One must first understand what the customer wants from the customer service process and then identify fail points in the process where it is likely to go wrong. No matter how well the customer service process is designed and implemented, problems are unavoidable. Customer dissatisfaction as a result of errors, however, is not. There are a number of ways to recover from customer service problems and maintain customer loyalty.
Keywords Fail Point; Flow Chart; Operations Management; Service Sector; Strategic Planning
As the state-of-the-art 21st century technology continues to expand and high tech solutions proliferate, more and more businesses offer services instead of, or in addition to, tangible products. In fact, the service industry is the largest and fastest growing business sector in the United States. Despite the opportunities offered by this growing sector, however, businesses are faced with the problem of determining how to manage operations where the products are intangible. As a result, research has found that most consumers are dissatisfied with the customer service they receive from these businesses. This fact, combined with the increasing service competition that arises out of the growing trend toward globalization, means that increased emphasis needs to be placed on operations management in service organizations just as it is in manufacturing organizations.
Operations management comprises those areas of management that are concerned with productivity, quality, and cost in the operations function (i.e., those activities necessary to transform inputs such as business transactions and information into outputs such as completed transactions) as well as strategic planning for the organization. The service sector has been described in many ways. In its essence, the service sector includes those industries and businesses that provide services rather than tangible products for individual consumers, businesses, or a combination of the two. These can include physical, mental, or aesthetic activities (e.g., legal services, entertainment, auto repair) or the transformation of something through such an activity (e.g., hair cutting, education, management consulting).
Like defining the service sector itself, defining operations management for the service sector is more problematic than defining operations management for other sectors (i.e., transportation, communications, and utilities; wholesale or retail trade; finance, insurance, and real estate; public administration). It is relatively easy to determine when a widget is not of acceptable quality. The manufacturer will have a manufacturing specification that describes what the tolerances are for the product and quality control will accept or reject the product based on whether or not it is within the specifications. Similarly, a manufacturing process can be evaluated to see where there is waste in the process or where efficiencies can be introduced. However, it is not so obvious where to improve quality or cost-effectiveness for service industries. For example, how does one specify the quality of a new hairstyle? Although in some cases a bad haircut can be obvious to all, a new hairstyle may be a matter of aesthetics: What looked good in the magazine on the 20 year-old model may not look so good on the middle-aged customer with a different bone structure. Similarly, how does one evaluate the cost of creating a new work of art or the training of a hotel employee? Yet, the quality of customer service must be operationally defined in order for the organization to be consistently effective.
Despite the fact that research has shown that customers' opinions of service quality are directly related to company profitability, many service organizations do not try to control and improve quality. This is due in part to the fact that service quality is often difficult and costly to control and improve. It is also due to the differences between the activities and products of the service industry and those of the manufacturing industry. In manufacturing, results are tangible and can be quantified. This fact makes it easier to control quality than in the service industry where the "product" is intangible. Further, in manufacturing, statistical quality control methods can be built into the process so that quality is monitored and corrected at several key points in the process. In most manufacturing processes, there are typically several points at which the product can be quality tested so that substandard parts or products can be rejected or the process can be rectified as necessary before the products reach the consumer. This approach, however, is not possible in the service industry: One cannot do a quality control check on services before they reach the customer.
Three Reasons for Control Difficulties
There are three reasons that services are difficult to control: intangibility, heterogeneity, and inseparability. The quality of customer service is not based on a product that one can touch. Characteristics of good customer service more often have to do with speed of delivery of the service, the competence with which the service is delivered, and the courtesy with which it is offered. Such factors are difficult to quantify for a number of reasons, not the least of which is the perceptions and expectations of the customer. It can be difficult to operationally define good customer service. For example, does walking the customer through a troubleshooting procedure step-by-step in an attempt to be thorough constitute good customer service, or does listening to the customer in an attempt to find out what s/he has already tried constitute good customer service? The former situation is apt to antagonize someone who is knowledgeable about the process while the latter approach is likely to miss important steps with a customer who only thinks s/he is knowledgeable. In some situations, there are, of course, some aspects of customer service that are tangible (e.g., receiving starter checks when opening a new bank account). However, these tend to be much poorer predictors of customer satisfaction than are the intangible factors.
Factors that Affect Quality of Service
In addition to being intangible, services tend to be heterogeneous in nature, and not consistently performed. Quality of service depends on a number of factors, including the personalities and expectations of each of the parties involved. For example, when a technophobe calls a technical support help line to troubleshoot what is wrong with his computer, he expects and needs to be treated with a step-by-step, hand-holding approach that will allow him to trust the person on the other end to walk him through the steps. If an experienced computer programmer calls the technical help line, however, the same step-by-step approach based on the assumption that the customer is clueless is more apt to be irritating than helpful. Similarly, the retail assistant who greets the customer at the door and follows her throughout the shopping experience may be perceived as helpful to some customers and intrusive by other customers. Human nature makes customer service a complicated process. What works with a given customer today (e.g., when the customer wants help) may not work with the same customer tomorrow (e.g., when the customer is in a hurry and does not want to linger over the process).
A third characteristic of customer service is inseparability. Customer service is performed in the presence of the customer and becomes inseparable in the customer's mind from the organization as a whole. So, for example, if a software manufacturing company provides poor customer service to someone logging on to the support database or calling the technical help line, in the customer's mind, the service will be inseparable from the product. Most customers do not differentiate between the quality of the product and the quality of the service. An overview of the dimensions of customer service is given in Table 1.
Table 1: Dimensions of Customer Service (Adapted from Armistead, 1989, p. 249)