Do not assume that the operations and process perspec- tive applies only to for-profit enterprises. Terms such as competitive advantage, markets and business that are used in this text are usually associated with companies in the for-profit sector. Yet operations management is also rel- evant to organisations whose purpose is not primarily to earn profits. For example, Médecins Sans Frontières, MSF (Doctors Without Borders), the independent humanitar- ian organisation, uses its operations processes to provide medical aid where it is most needed in countries around the world, usually in crisis situations such as armed con- flicts, epidemics, famines and natural disasters. Its teams deliver both medical aid and material aid quickly and efficiently. It is one of the most admired and effective relief organisations in the world. But no amount of fine intentions can translate into effective action without superior operations management. As MSF says, it must be able to react to any crisis with ‘fast response, efficient logistics systems, and efficient project management’. Its response process has five phases: proposal, assessment, initiation, running the project and closing. The informa- tion that prompts a possible mission can come from gov- ernments, the international community, humanitarian organisations or MSF teams already present in the region.
Once the information has been checked and validated,
MSF sends a team of medical and logistics experts to the crisis area to carry out a quick evaluation. The team assesses the situation, the number of people affected, and the current and future needs, and sends a proposal back to the MSF office. When the proposal is approved, MSF staff starts the process of selecting personnel, organ- ising materials and resources and securing project funds.
Initiating a project involves sending technical equipment and resources to the area. In large crises, planes fly-in all the necessary materials so that the work can begin immediately. Thanks to their pre-planned processes, spe- cialised kits and the emergency stores, MSF can distribute materials and equipment within 48 hours, ready for the response team to start work as soon as they arrive. Most MSF projects generally run for somewhere between 18 months and three and a half years. Whether an emer- gency response or a long-term healthcare project, the closing process is roughly similar. Once the critical med- ical needs have been met (which could be after weeks, months or years, depending on the situation), MSF begins to close the project with a gradual withdrawal of staff and equipment. At this stage, the project closes or is passed on to an appropriate organisation. MSF will also close a project if risks in the area become too great to ensure staff safety.
1.4 Diagnostic question: Are processes managed to reflect their operating circumstances?
All processes differ in some way, so, to some extent, all processes will need to be managed differently. Some of the differences between processes are ‘tech- nical’ in the sense that different products and services require different skills and technologies to produce them. However, processes also differ in terms of the nature of demand for their products or services. Four characteristics in particular have a significant effect on how processes need to be managed:
• The volume of the products and services produced.
• The variety of the different products and services produced.
• The variation in demand for products and services.
• The degree of visibility that customers have of the production of products and services.
Volume
– Processes with a high volume of output will have a high degree of repeatability, and because tasks are repeated frequently it often makes sense for staff to specialise in the OPERATIONS PRINCIPLEThe way in which processes need to be managed is influenced by volume, variety, variation in demand and visibility.
1.4 Diagnostic question: Are processes managed to re ect their operating circumstances
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27 tasks they perform. This allows the systemisation of activities, where standard procedures may be codified and set down in a manual with instructions on how each part of the job should be performed. Also, because tasks are systemised and repeated, it is often worthwhile developing specialised technology that gives higher processing efficiencies. By contrast, low-volume processes with less repetition cannot specialise to the same degree. Staff is likely to perform a wide range of tasks, and while this may be more rewarding, it is less open to systemisation. Nor is it likely that efficient, high-throughput technology could be used. The implications of this are that high-volume processes have more opportunities to produce products or services at low unit cost. So, for example, the volume and standardisation of large fast-food restaurant chains, such as McDonald’s or KFC, enables them to produce with greater efficiency than a small, local cafeteria or diner.
Variety
– Processes that produce a high variety of products and services must engage in a wide range of different activities, changing relatively frequently between each activity. They must also contain a wide range of skills and technology sufficiently ‘general purpose’ to cope with the range of activities and sufficiently flexible to change between them. A high level of variety may also imply a relatively wide range of inputs to the process and the additional complexity of matching customer requirements to appropriate products or services. High- variety processes are invariably more complex and costly than low-variety ones. For example, a taxi company is usually prepared to pick up and drive customers almost anywhere (at a price);they may even take you by the route of your choice. There are an infinite number of potential routes (products) that it offers. But, its cost per kilometre travelled will be higher than a less- customised form of transport such as a bus service.
Variation in demand
– Processes are generally easier to manage when they only have to cope with predictably constant demand: resources can be geared to a level that is just capable of meeting demand, and all activities can be planned in advance. By contrast, when demand is variable and/or unpredictable, resources will have to be adjusted over time. Worse still, when demand is unpredictable, extra resources will have to be designed into the process to provide a ‘capacity cushion’ that can absorb unexpected demand. So, for example, processes that manufacture high-fashion garments will have to cope with the general seasonality of the garment market, together with the uncertainty of whether particular styles may or may not prove popular. Operations that make conventional business suits are likely to have less fluctuation in demand over time, and be less prone to unexpected fluctuations. Because processes with lower variation do not need any extra safety capacity and can be planned in advance, they will generally have lower costs than those with higher variation.Visibility
– Process visibility is a slightly more difficult concept to envisage. It indicates how much of the process is ‘experienced’ directly by customers, or how much the process is‘exposed’ to its customers. Generally, processes that act directly on customers (such as retail processes or healthcare processes) will have more of their activities visible to their customers than those that act on materials and information. However, even material- and information- transforming processes may provide a degree of visibility to the customers. For example, parcel distribution operations provide internet-based ‘track and trace’ facilities to enable their customers to have visibility of where their packages are at any time. Low-visibility processes, if they communicate with their customers at all, do so using less immediate channels such as the telephone or the internet. Much of the process can be more ‘factory-like’. The time lag between customer request and response could be measured in days rather than the near- immediate response expected from high-visibility processes. This lag allows the activities in a low-visibility process to be performed when it is convenient to the operation, so achieving
high utilisation. Also, because the customer interface needs managing, staff in high-visibility processes need customer contact skills that shape the customer’s perception of process performance. For all these reasons, high-visibility processes tend to have higher costs than low-visibility processes.
Many operations have both high- and low-visibility processes. This serves to emphasise the difference that the degree of visibility makes. For example, in an airport, some of its pro- cesses are relatively visible to its customers (check-in desks, the information desks, restaurants, passport control and security staff, etc.). These staff operate in a high-visibility ’front-office’
environment. Other processes in the airport have relatively little, if any, customer visibility (baggage-handling processes, overnight freight operations, loading meals on to the aircraft, cleaning, etc.). We rarely see these processes; they perform the vital but low-visibility tasks, in the ‘back-office’ part of the operation.
The implications of the four Vs of processes
All four dimensions have implications for processing costs. Put simply, high volume, low variety, low variation and low visibility all help to keep processing costs down. Conversely, low volume, high variety, high variation and high customer contact generally carry some kind of cost pen- alty for the process. This is why the volume dimension is drawn with its ‘low’ end at the left, unlike the other dimensions, to keep all the ‘low cost’ implications on the right. Figure 1.11 summarises the implications of such positioning. The four dimensions also have implications
Figure 1.11 The implications of the four Vs of processes
Implications Implications
Visibility Low
High Short waiting tolerance
Satisfaction governed by customer perception Customer contact skills needed
Received variety is high High unit cost
Time lag between production and consumption
Standardised Low contact skills High staff utilisation Centralisation Low unit costs Variation in demand Low
High Changing capacity
Anticipation Flexibility
In touch with demand High unit cost
Stable Routine Predictable High utilisation Low unit costs
Variety Low
High Flexible
Complex
Match customer needs High unit cost
Well defined Routine Standardised Regular Low unit costs
Volume High
Low Low repetition
Each staff member performs more of job Less systemisation High unit costs
High repeatability Specialisation Systemisation Capital intensive Low unit costs
1.4 Diagnostic question: Are processes managed to re ect their operating circumstances
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29 for the types of activities that operations managers will have to focus on. As we will see in later chapters, volume and variety are particularly important in how processes are resourced and designed (Chapters 4 and 5), variation in demand calls for careful consideration of how capacity is to be managed (Chapter 8), while visibility has a significant influence over how the quality of products and services is judged (Chapter 13).
Charting processes using the four Vs
In almost any operation, processes can be identified that have different positions on the four dimensions, and which therefore have different objectives and will need managing in different ways. To a large extent the position of a process on the four dimensions is determined by the demand of the market it is serving. However, most processes have some discretion in moving themselves on the dimensions. Look at the different positions on the visibility dimension that retail banks have adopted.
At one time, using branch tellers was the only way customers could contact a bank. Now access to the bank’s services could be through (in decreasing order of visibility) a personal banker, who visits your home or office, a conversation with a branch manager, the teller at the window, telephone contact through a call centre, internet banking services or an ATM cash machine. These other processes offer services that have been developed by banks to serve different market needs.
Figure 1.12 illustrates the different positions on the four Vs for some retail banking pro- cesses. Note that the personal banking/advice service is positioned at the high-cost end of the four Vs. For this reason, such services are often offered only to relatively wealthy customers that represent high profit opportunities for the bank. Note also that the more recent develop- ments in retail banking, such as call centres, internet banking and ATMs, all represent a shift towards the low-cost end of the four Vs. New processes that exploit new technologies can often have a profound impact on the implications of each dimension. For example, internet banking, when compared with an ATM cash machine, offers a far higher variety of options for customers, but because the process is automated through its information technology, the cost of offering this variety is less than at a conventional branch or even a call centre.
OPERATIONS PRINCIPLE Operations and processes can (other things being equal) reduce their costs by increasing volume, reducing variety, reducing variation and reducing visibility.
Figure 1.12 Four Vs analysis for some retail banking processes
Visibility Low
High
Low High
Variety Low
High
High Low
Personal
banker/advisor Bank
branch Bank call
centre App-based
transactions
Volume
Variation in demand
1.5 Diagnostic question: Is operations and process decision- making appropriate?
Managing operations and processes involves a whole range of separate deci- sions that will determine how well they achieve their overall purpose and con- tribute to the organisation as a whole. The way operations managers approach decision-making is therefore of considerable importance in determining their effectiveness. But different operations decisions serve different purposes. They can be grouped together in various ways. Look at other texts on operations man- agement and you will find many different ways of structuring operations decisions and therefore the subject as a whole. Here we have chosen to classify activities into four broad groups, relating to four broad activities that, more or less, follow a sequence that corresponds to the life cycle of operations and processes:
• Directing the overall strategy of the operation. A general understanding of operations and processes and their strategic purpose, together with an appreciation of how strategic pur- pose is translated into reality through how innovation is incorporated into products and services, and how much of the total value-adding process should be kept in-house and how much outsourced.
• Designing the operation’s processes. Design is the activity of determining the physical form, shape and composition of operations and processes, together with the types of resources they contain.
• Planning and controlling process delivery. After being designed, the delivery of products and services from suppliers and through the total operation to customers must be planned and controlled.
• Developing process performance. Increasingly it is recognised that operations managers, or any process managers, cannot simply deliver products and services routinely in the same way that they always have done. They have a responsibility to develop the capabilities of their processes to improve process performance.
A model of operations and process management
We can now combine two ideas to develop the model of operations and process management that will be used throughout this text. The first is the idea that operations and the processes that make up both the operations and other business functions are transformation systems that take in inputs and use process resources to transform them into outputs. The second idea is that the resources both in an organisation’s operations as a whole and in its individual processes need to be managed in terms of how they are directed, how they are designed, how delivery is planned and controlled and how they are developed and improved. Figure 1.13 shows how these two ideas go together. This text will use this classification to examine the more important decisions that should be of interest to all managers of operations and processes.
However, although it is useful to categorise operations decisions in this way, the boundaries between these four categories are not ‘clean’. There are always overlaps and interrelationships between the categories. The decisions that we classify as ‘directing’ will, of course, impact on all other operations decisions – that is the definition of ‘directing’. And how processes are designed will limit how delivery can be organised and how easy it is to develop their capabil- ities. ‘Delivery’ decisions, such as whether to adopt lean practices, very much impact on how improvement (development) happens, and so on. All operations decisions are interrelated. Our OPERATIONS PRINCIPLE
Operations management activities can be grouped into four broad categories: directing the overall strategy of the operation;
designing the operation’s products, services and processes;
planning and controlling delivery; and developing process performance.
categorisation of decisions simply indicates their main purpose. Moreover, such decisions are not always obvious and depend on ‘technical’ assumptions. Note how the case example ‘Adi- das shuts its robotic factories’ demonstrates how one company, although being innovative in tackling changes in market requirements, still had to modify its operations decisions.
Figure 1.13 A classification model of operations and processes management decisions Inputs of
resources
Outputs of products
and services
Processes Chapter 7 Supply chain management
Chapter 8 Capacity management Chapter 9 Inventory management Chapter 10 Resource planning and control Chapter 11 Lean synchronisation
Direct Steering operations
processes
Develop Improving the operation’s
capabilities Design
Shaping operations and processes
Chapter 12 Improvement Chapter 13 Quality management Chapter 14 Risk and resilience Chapter 15 Project management
Deliver Planning and controlling
ongoing operations Chapter 5 Process design 1 – Positioning
Chapter 6 Process design 2 – Analysis
Chapter 1 Operations and processes Chapter 2 Operations and strategic impact Chapter 3 Product and service innovation Chapter 4 Operations structure and scope