Introduction to Operation Management

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

2. After finish this chapter… Explain what is “process” Describe OM as function Differentiate of VA, SVA, NVA Describe trends and challenges in managing operation Identify some decisions make by operation manager

3. Contents Operation Management as Process Value Chain Management What is operation management? Scope of responsibility of operation manager Trends and challenges in OM

4. Operation Management as Process Operation Management deal with PROCESS that produce “Goods” & “Service” ? in put Out put ? Add value

5. Operation Management as Process PROCESS should be design with according to customer “Needs” and “Wants” Customer Internal External

6. Operation Management as Process Manufacturing vs. Service Process Process The main differences between the two: Nature of their output Degree of customer contact Services: 80% of job in business Manufacturing: without it there will be “products”

7. Operation Management as Process Manufacturing and Service is difficult to distinguish Total Customer Offering Automobile 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.

8. Operation Management as Process Manufacturing and Service some other example: The product is intangible for service operation Is 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 cases In “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.

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

10. Operation Management as Process Manufacturing and Service some other example: Customers participate in the service Not 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 customers That 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.

11. Operation Management as Process Manufacturing and Service some other example: Quality is difficult to measure and depends on the server In 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!

12. Operation Management as Process The service management system External environment Internal environment The way service concept is delivered. 5. Service Delivery System 3. Service Image 1. Culture & Philosophy Who we target for? Where we choose to be and not to be? Specification that describe the benefit offered by service. 4. Service Concept 2. Market Segment Service Management System (Norman, 2000)

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

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

17. Value Chain Management What is value chain? Process must add value to their customers Activities that are necessary for adding values Therefore, It is about value chain management!!! See: Value Innovation

18. Value Chain Management It 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

19. 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!

20. Contents Map Operation Management as Process Value Chain Management What is operation management? Scope of responsibility of operation manager Trends and challenges in OM

21. Definition of Operation Management Systematic design, direction, and control of process that transforming input into product/service for external & internal customers In 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.

22. Contents Map Operation Management as Process Value Chain Management What is operation management? Scope of responsibility of operation manager Trends and challenges in OM

23. Scope of responsibility of OM Decision COO makes both Strategic and Tactics Decision making process:

24. Scope of responsibility of OM Strategic vs. Tactics decision Strategic decision include: Development of new capabilities Maintaining of existing ones Process design Value chain linkage development KPIs development (finance and non finance matrices) Tactics decision include: Process improvement Performance measurement & management (see: Kaplan & Norton, Davenport-analytical performance management) Managing projects Planning Inventory Supplement docs: The three level of decision making

25. Scope of responsibility of OM 2 Principles must be kept in mind as COO: Must design and operate processes deal with Quality, Technologies, and staffing issues Each part of organization has its own identity

26. Contents Map Operation Management as Process Value Chain Management What is operation management? Scope of responsibility of operation manager Trends and challenges in OM

27. Trends & Challenges in managing operation Productivity Global competition Technologies changes Environmental issues Ethical Diversity

28. Trends & Challenges in managing operation Productivity Four strategies to consider:

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

30. Trends & Challenges in managing operation Technological 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

31. Trends & Challenges in managing operation Environmental 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”

32. Trends & Challenges in managing operation Business ethic: Raising the bar of rules or standards governing the conduct of doing business Feature articles: http://en.wikipedia.org/wiki/Business_ethics http://www.scu.edu/ethics/

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

34. Trends & Challenges in managing operation Feature articles: “5 Competitive Forces that Shape Strategy”

35. Question… ?

36. Class activities Objectives: To get deeper understand of business present & future trends & challenges Increase level of competences in business research Team work in practices Business presentation skill Topics: Productivity improvement challenges Globalization – The competition for resources. Try to answer “why companies are competing with everyone from everywhere for everything? Climate changes – threats and opportunities for business in the future (to include case studies) Management of workplace diversity Using Service Management Model developed by Norman, compare service offer by The Pizza Company, Lucky Burger, KFC, Pizza World, and Soksabby.

37. Class activities Team A – Lead by: Member: B – Lead by: Member: C – Lead by: Member: D – Lead by: Member: E – Lead by: Member: Requirements: Paper works > 14 pages Presentation 20 – 30 min Q&A < 15 min Each team member must present To be effective Deadline must Be set