Introduction to Operation Management

Introduction to Operation ManagementBy: Ot Chan Dy, BE & Msc.Instructor, Management Institute of Cambodia

After finish this chapter…Explain what is “process”Describe OM as functionDifferentiate of VA, SVA, NVADescribe trends and challenges in managing operationIdentify some decisions make by operation manager

ContentsOperation Management as ProcessValue Chain ManagementWhat is operation management?Scope of responsibility of operation managerTrends and challenges in OM

Operation Management as ProcessOperation Management deal with PROCESS that produce “Goods” & “Service”?in putOut put?Add value

Operation Management as ProcessPROCESS should be design with according to customer “Needs” and “Wants”CustomerInternalExternal

Operation Management as ProcessManufacturing vs. Service ProcessProcessThe main differences between the two:Nature of their outputDegree of customer contactServices: 80% of job in businessManufacturing: without it there will be “products”

Operation Management as ProcessManufacturing and Service is difficult to distinguishTotal Customer OfferingAutomobile is not just manufacture a car but also provide after sale service like arrange finance, offering warranties and guarantees.Computer industry, customer is paying both hardware and software but after sale service is very important like help-line for troubleshooting.Therefore, operation management should not see as manufacturing vs. service BUT as joint effort in the whole supply chain to provide total customer satisfaction.

Operation Management as ProcessManufacturing and Service some other example:The product is intangible for service operationIs this still true?Service companies speak a lot about their “products” “intangible” become “tangible”Service can not be kept in the stock? Let’s examine the casesIn “tangible” services business such as the Pizza Company, KFC, Lucky Burger, the supporting elements of the service (supplies) is clear and will be kept in stock.Pachem dental clinic must have their doctors ready to provide service to customers, therefore “kept stock”Some products can not be stock that long i.e. perishable foods BUT even CD music can last for years, it is not advised to keep it that long.

Operation Management as ProcessManufacturing and Service some other example:Service vary and can not be mass-produceDepend on where and how we view the service. KFC is consider service but still can produce large volume and diverse typesThere is high customer contact It is estimated that there is less than 5 min contact between passengers and flight attendances from Phnom Penh to SingaporeCrown (Cambodia) spend a lot of time visiting their customersThe introduction of ATM machines by ANZ and other banks has reduce tremendous amount of contact between customer and bankers.

Operation Management as ProcessManufacturing and Service some other example:Customers participate in the serviceNot really necessary and always the case! With IT system customer could check in without having to see the counter staffs, therefore reduce check in time process for air transport companies.Facilities are located near to customersThat was really in the past! Still true for some cases…With modernization of IT, Angkor Home Hotel in Siem Reap can be book from Tokyo, Operation Management books can be bought from Amazon.com and have it ship straight to office door in Phnom Penh.

Operation Management as ProcessManufacturing and Service some other example:Quality is difficult to measure and depends on the serverIn services industry, time is an important dimension in measure quality – speed and reliability of response are measurable and quantifiable…Gone in 60 seconds! By McDonald fast food chain… vs. long line up of Lucky Burger, KFC, Pizza Company… during peak time!

Operation Management as ProcessThe service management systemExternal environmentInternal environmentThe way service concept is delivered.5. Service Delivery System3. Service Image1. Culture & PhilosophyWho we target for?Where we choose to be and not to be?Specification that describe the benefit offered by service.4. Service Concept2. Market SegmentService Management System (Norman, 2000)

Operation Management as ProcessManufacturing and Service – the key pointsIt is not always helpful when trying to manage operation by making a total distinction between service and manufacturing

Manufacturing and service is about the collaboration activities in providing customers the goods or services

The effort should use to distinction between input that manufacturing & service process (materials & customers)

Remember: materials do notthink or act for themselves while customers can and do. Service companies that forget this would die soon…Contents MapOperation Management as ProcessValue Chain ManagementWhat is operation management?Scope of responsibility of operation managerTrends and challenges in OM

Value Chain ManagementWhat is value chain?Process must add value to their customers Activities that are necessary for adding valuesTherefore, It is about value chain management!!! See: Value Innovation

Value Chain ManagementIt is about management of “value added activities” in the whole supply chain (supply chain management)Processes are resource consumer , therefore its activities of converting input to output must be examine carefully. They should value added!A business is profitable if the value it creates exceeds the cost of performing the value activities (Porter, 2001)Core processes

The Value Chain (Porter, M. 2001)A company’s value chain is a system of interdependent activities which are connected by linkages.Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Therefore need to be trade-off & coordination!

Contents MapOperation Management as ProcessValue Chain ManagementWhat is operation management?Scope of responsibility of operation managerTrends and challenges in OM

Definition of Operation ManagementSystematic design, direction, and control of process that transforming input into product/service for external & internal customersIn large organization, operation is usually responsible for the actual transformation of input into services & products.Therefore, it is consisted of series of small operation which work as function.Some firms do not own the function but “contracting”Most of senior level executive have their work experience in operation i.e. VP Operation or Production, Chief Operation Officer (COO)Typical report function to COO include Customer Service, Production, Logistic, QA, Inventory, Maintenance & Reliability etc.

Scope of responsibility of OMDecision COO makes both Strategic and TacticsDecision making process:

Scope of responsibility of OMStrategic vs. Tactics decisionStrategic decision include:Development of new capabilitiesMaintaining of existing onesProcess designValue chain linkage developmentKPIs development (finance and non finance matrices)Tactics decision include:Process improvementPerformance measurement & management (see: Kaplan & Norton, Davenport-analytical performance management)Managing projectsPlanningInventorySupplement docs: The three level of decision making

Scope of responsibility of OM2 Principles must be kept in mind as COO:Must design and operate processes deal with Quality, Technologies, and staffing issuesEach part of organization has its own identity

Trends & Challenges in managing operationProductivityGlobal competitionTechnologies changesEnvironmental issuesEthicalDiversity

Trends & Challenges in managing operationProductivityFour strategies to consider:

Trends & Challenges in managing operationGlobal competitionIt is agreed that to “prosper & survive” business have to view customers, suppliers, facilities location, and competitor in global termsFeature articles: “What it take to compete in flat world” “Global competition for resources”

Trends & Challenges in managing operationTechnological changes:Thus, the first and critical point about why we fail to see the need for change stems from the fact that we stand blinded by the light of successful past mental maps (Black & Gregerson,2008).Feature articles: “strategy & the internet” “It is all start with ones” “How information gives you competitive advantages”LFC vs KFC

Trends & Challenges in managing operationEnvironmental issues:Companies that persist in treating climate change solely as a corporate social responsibility issue, rather than a business problem, will risk the greatest consequences (Porter & Reinhardt, 2007).Feature articles: “business climate and climate business” “Impact of Climate Changes on future business strategy adoption” “Virtual Matrix of Corporate Social Responsibility”

Trends & Challenges in managing operationBusiness ethic:Raising the bar of rules or standards governing the conduct of doing businessFeature articles: http://en.wikipedia.org/wiki/Business_ethicshttp://www.scu.edu/ethics/

Trends & Challenges in managing operationWorkplace diversity:Managing diversity is comprehensive process for creating work environment that includes everyoneThere is single recipe for success!Feature articles: Harvard Business Review on “Managing Diversity”Harvard Business Review on “Culture Changes” Diversity as strategy – Harvard Business ReviewDiversity at workplace: benefits , challenges, and required material tools

Trends & Challenges in managing operationFeature articles: “5 Competitive Forces that Shape Strategy”

Introduction to Operation Management

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