Chapter 23 - The Nature of Operations
Learning Objective: To understand the basic concepts related to operations management
What is Operations Management?
Simply put, Operations Management is the process concerned with the use of resources (inputs) to create outputs:
The process of Operations Management considers the following factors to be successful by adding value to products/services:
Production efficiency: keeping costs low for competitive reasons (value);
Quality: a good enough output given the purposes intended to meet customers' expectations (value);
Flexibility and innovation: adaption to new products and processes to satisfy ever-changing customers' tastes (value);
The Operations Management process consists of:
It is on stage 2, transformation process, in which value is added or created. But how much value is added during this process?
It depends on a number of factors:
Design;
Efficiency;
Ability to convince customers.
1. Design is important for two reasons on the value creation process:
Whether the product has been well designed for efficient manufacturing;
Whether the product design allows for good sales and even high prices.
2. Efficiency on the combination of resources during the value creation process:
The efficient management of resources reduces waste which consequentially reduces costs - that increases the difference between cost and price (value).
3. The ability to convince customers to pay more than the costs of inputs (e.g. branding) greatly influence on the value creation process:
The more customers are willing to pay for a product/service, the more value that good will have;
Example: Godiva ice cream, Apple phone.
Discussion (3m): Explain how value added depends on both marketing and the operations process.
There are four stages in the operations process - all of which can only be achieved in the presence of factors of production:
Land: physical space or raw materials that can be extracted from natures - more important for some businesses than others (e.g. mining vs. online retailer);
Labor: manual or intellectual labor heavily impacts on the efficiency and success of operations;
Capital: productivity of machines and equipment heavily influences operations.
What is the difference between production and productivity?
Production is an absolute measure of the quantity of output in a given time;
Productivity is a relative measure of how efficiently inputs are converted into outputs - it can be measured in two different ways:
Labor Productivity
Capital Productivity
Labor Productivity:
The number of output produced by worker;
Found by:
Capital Productivity:
Measures the efficiency of the capital invested in to the business;
Found by:
It is interesting for companies to have high productivity, right? That's why businesses are always looking for different ways to improve this measure:
Training:
Increasing staff skillset;
Increase workers flexibility;
Motivation is a consequence of training which also leads to increase in productivity.
Improve Workers' Motivation:
Non-financial motivators add less costs to businesses;
Delegation;
Decision-making power;
Kaizen groups.
Investment on Advanced Equipment:
Usually advanced machinery leads to increased output;
Technology can also decrease labor costs;
It can create job insecurity;
Workers may need to be trained to deal with the new technology.
More Efficient Management:
Poor management heavily decreases productivity for different reasons:
Ordering of materials need to be precise and timely;
Poor maintenance schedule;
Poor people management (motivation).
Not only of productivity lives business operations nowadays. Operations sustainability has become increasingly important and can be achieved by:
Reducing energy used and consequentially carbon emissions;
Reducing the use of plastic and other non-biodegradable materials;
Using recycled materials;
Manufacturing recyclable materials.
To-Do-List:
Activity 23.1
Chapter 23 - The Nature of Operations
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